Economic Research
Our team of economists can keep you updated on the trends, financial news and projections that affect you most.
Full Reports list
Daily Alert: Bearish OECD, China outperforms and the Maleficent 7
18 Mar 2025
- The OECD have revised down global growth projections in 2025 and 2026, citing President Donald Trump’s ‘aggressive trade policies’ as the main catalyst for slower growth and higher inflation
- China’s latest data dump outperformed expectations, but ongoing housing market weakness and increasing unemployment could be exacerbated if US tariffs continue to weigh on China’s manufacturing sector
- The BNZ - BusinessNZ Performance of Services Index (PSI) contracted to 49.1 yesterday
Daily Alert: Let’s have some RTDs*
17 Mar 2025
- *Recent Trump Developments: US consumer sentiment fell, and long-term inflation expectations jumped in the latest University of Michigan data
- NZD/USD starts the week trading around 0.5750, towards the top of its Friday night range
- NZ Selected Price Indexes for February are moving in the right direction
REINZ Housing data February 2025: Early sign of market movements
17 Mar 2025
- House prices increased in February, marking the highest monthly gain in the last 12 months (seasonally adjusted).
- House sales edged up for the first time in three months, while new listings and inventory continued to surge
- The February data present an overall more positive picture as we progress further into 2025. Given the mixture of persistent headwinds and emerging signs of improvement, we anticipate increased market activity in the coming months. However, we maintain our view that the market recovery will be gradual rather than a swift turnaround
Economic Weekly: Going back to growth?
17 Mar 2025
- In Thursday’s Q4 GDP release we expect the figures to show a return to GDP growth
- Admittedly, at 0.3% it’s not a fast pace, and forecast margins of error mean a negative figure is still conceivable
- But we’ll take a small bit of growth to bookend the post-COVID challenges and signal the start of recovery. It is, however, not looking like there will be a quick rebound from the mid-2024 slump
Daily Alert: Otago the top region; tariff threat du jour
14 Mar 2025
- Net migration inflows continue to soften as departures lift
- The South Island dominated our Regional Scoreboard
- Trump threatens to impose large EU alcohol tariffs, giving markets a further hangover
ASB Regional Scoreboard: Back-to-back by Otago
14 Mar 2025
- The South Island continues to excel, securing the Top 4. Otago has impressively achieved another back-to-back victory, reminiscent of its performance in 2017-18
- With a positive outlook for Otago, we anticipate the Central Lakes region to secure a three-peat, as it did in 2023, for the second time in the history of our Regional Scoreboard rankings
- Otago boasts the country’s fourth-largest population, which should provide economic momentum, particularly in retail sales and employment
Selected Price Indexes February: Moving in the right direction
14 Mar 2025
- Overall monthly prices fell 0.5% in February, partly reversing the 1.1% jump in January, with annual inflation easing to 1.4%
- We expect a lower mid-2025 peak in annual CPI inflation than the RBNZ, although more twists and turns are to be expected given the volatile and uncertain global outlook
- The balance of risks is tilted towards the RBNZ delivering more OCR cuts than the 50bps that we currently expect
Term Deposit Report: A few more trims to TD rates are expected
13 Mar 2025
- Only the short-term deposit interest rates out to nine months remain above 20-year averages
- However, the outlook for more Reserve Bank (RBNZ) Official Cash Rate (OCR) cuts means we expect these popular rates will dip lower over 2025
- Longer-term deposit (TD) interest rates have been easing since late 2023 as financial markets initially anticipated, then responded to OCR cuts by the RBNZ
Daily Alert: US trade policy uncertainty casts a shadow
13 Mar 2025
- US CPI inflation surprises to the downside, but global yields push higher, with the USD volatile. US stocks post modest gains after two sessions of heavy losses
- Despite President Trump downplaying the growth risks to the US, uncertainty around US trade policy and the economic consequences continues to permeate through markets
- Canadian yields and the CAD rise after the Bank of Canada cuts by 25bps but shies away from adopting an easing bias
NZ Migration and Tourism January 2025: Slowing, but from a higher base with rising tourist inflows
13 Mar 2025
- Annual net permanent and long-term migration inflows fell to 32,500 persons in the January 2025 year, continuing the declining annual trajectory, albeit from a higher base
- Inbound tourism numbers have continued to climb, hitting 5-year highs to be just 14% below pre-COVID peaks on an annual basis
- Lower annual net migration and low (but improving) tourism arrivals weaken key legs of economic support and underline the need for further OCR cuts
Q4 2024 GDP Preview: Limping into recovery
13 Mar 2025
- We expect the economy grew 0.3% q/q in the December 2024 quarter, in line with RBNZ expectations
- The economy is expected to remain on the expansion path, but we view the pace of underlying economic momentum as being modest in the first half of 2025
- We still expect 25bp OCR cuts in April and May by the RBNZ but acknowledge the risk of the OCR ending the year below 3.25% as the RBNZ switches from the policy brake to the accelerator to support the New Zealand economy
Daily Alert: Trump amps up the tariff war, US recession talks, global market volatility spikes
12 Mar 2025
- Concerns over the impact of a trade war and slowing global economy continue to weigh on sentiment, although news of a potential 30-day ceasefire in the Ukraine has supported risk appetite over the last few hours
- The USD index hits fresh 2025 lows. US stock indices suffer initial further falls, but with a late session recovery. Treasury yields have edged higher
- Data suggests that the NZ economy lifted out of recession in late 2024, but questions remain over prospects for 2025
Commodities Weekly: NZD seesaw
12 Mar 2025
- ASB’s commodities price index was down in NZD terms but up in SDR and USD denominations last week while the NZD lifted over a cent to trade near 0.5720 by the end of last week
- This is a reversal of the previous week’s moves for both the indices and the NZD
- The NZD remains trading near 0.5720 at the time of writing
Electronic Card Transactions February 2025: Card spending remains flat
12 Mar 2025
- Overall card spending remained flat in February for the second consecutive month
- Retail and core spending recovered slightly after a sizeable decline in January
- We believe that a recovery in consumer spending is on the horizon, although this is likely to be more gradual than rapid. Further OCR cuts look to be needed to bolster consumer demand
Daily Alert: Mark Carney to lead Canada’s Liberal party
11 Mar 2025
- Mark Carney will take over from Justin Trudeau to represent the Liberal Party of Canada in the upcoming national elections
- Separately, over the weekend China said it will impose retaliatory tariffs on imports of rapeseed oil, pork and seafood from Canada
- President Trump signed an executive order granting a one-month delay from 25% tariffs for goods shipped under the US Mexico Canada agreement
Home Loan Rate Report: How low can you go?
11 Mar 2025
- The RBNZ’s Official Cash Rate (OCR) was held at 5.5% between May 2023 and August 2024, the highest level since 2008
- But with the economy slowing, and inflation cooling, the RBNZ lowered the OCR in August 2024 (-0.25%), and again over subsequent meetings to 3.75% at the time of writing
- Our view is the RBNZ will continue to reduce the OCR over 2025 but are near the end of its easing cycle
Daily Alert: North American labour markets weaken
10 Mar 2025
- In the US, February non-farm payrolls added a seasonally adjusted 151k net jobs (vs. a downwardly revised 125k prior), a touch below the Bloomberg consensus of 160k
- Canada’s labour market data for February was weak, adding to the case for a Bank of Canada rate cut this week
- China’s core CPI decreased for the first time since 2021, and only the second time in over 15 years, with a drop of 0.1% — only the second time the gauge has contracted over more than 15 years
Economic Weekly: RBNZ Orrless but not rudderless
10 Mar 2025
- The talk of the last week has been RBNZ Governor Adrian Orr’s abrupt resignation last Wednesday, the day before the RBNZ starting holding a conference on 35 years of flexible inflation targeting
- He essentially walked out the door to go on leave until the end of March
- Until the end of March, Deputy Governor Christian Hawkesby is Acting Governor. From April 1st the RBNZ Board will appoint a temporary Governor for up to six months while seeking a permanent replacement
Daily Alert: ECB cuts, another potential tariff deferment
07 Mar 2025
- Trump potentially defers tariffs for a month…again
- The ECB cut rates as expected though sounded more cautious about the pace of future cuts
- NZ building activity over Q4 was a drag on growth, but we still expect an overall lift in GDP for the quarter
Commodities Weekly: Ongoing tariff uncertainty
07 Mar 2025
- ASB’s commodities price index was up in NZD terms but down in SDR and USD denominations last week while the NZD eased over a cent to trade near 0.5600 by the end of last week
- The NZD has subsequently appreciated to trade back above 0.5730 at the time of writing
- Much of the NZD/USD volatility is a function of the USD side of the equation, as market participants digest the latest tariff developments
Daily Alert: German yields surge
06 Mar 2025
- German (and wider European bond) yields surge as the as plans for a massive increase in German defense spending (and larger fiscal deficits) unnerved investors. Treasury yields were little changed, with a modest rebound in US stocks and with the USD index hitting 2025 lows
- Chinese authorities stick with a 5% annual GDP growth target, albeit being more dependent on policy stimulus
- Adrian Orr has resigned as RBNZ Governor. Deputy Governor Christian Hawkesby will be acting Governor till the end of March, with a temporary Governor appointed up to the next 6-months from April
Building Work Put in Place – 2024 Q4: Stuck in a rut
06 Mar 2025
- Building Work Put in Place (WPIP) declined 4.4% in Q4, with falls in both residential (-4.9%) and non-residential volumes (-3.1%). The result was weaker than our expectation of a 2% contraction and points to yet another contraction for construction GDP in the December 2024 quarter
- Our view remains that the overall economy expanded in Q4, but some sectors will still be doing it tough, including construction
- We do expect lower interest rates and support an eventual turnaround stabilisation in the construction sector in the second half of 2025
Daily Alert: Fight’s on
05 Mar 2025
- President Trump imposed 25% tariffs on Mexican imports and most Canadian imports (except energy which is 10%) as scheduled
- The Canadian government announced counter-tariffs immediately
- China imposed retaliatory tariffs on US agricultural imports as high as 15%
Daily Alert: Tariff Tuesday
04 Mar 2025
- The global trade war is intensifying with the US set to impose higher tariffs on imports from China, Canada and Mexico
- In Eurozone CPI, consumer prices rose 2.4% from a year earlier in February, down from 2.5% in January, Eurostat said overnight
- In the US, the Institute for Supply Management’s manufacturing index slipped by 0.6 points in February to 50.3, according to data released overnight
Daily Alert: Sad scene at the White House
03 Mar 2025
- President Trump continues to plan tariffs for Mexico and Canada starting this week
- ANZ’s NZ consumer confidence survey saw a modest uplift in February, following a softer January, but remains pessimistic and matches the sentiment seen in November 2021
- NZ filled job in January showed a strong start to hiring in 2025, with a seasonally adjusted 0.3% increase—the strongest monthly gain since April 2023
Economic Weekly: Trump talks tough - again
03 Mar 2025
- Donald Trump has continued to send ripples around the world
- Last week he announced (via social media) that the deferred tariffs for Canada and Mexico will go ahead from March 4, and that China would face an additional 10% tariff (on top of the 10% tariff already imposed)
- According to the US Commerce Secretary, he expects tariffs on Canada and Mexico will go ahead but that the situation is “fluid” and depending on negotiations
Daily Alert: Tariffs are back again it seems
28 Feb 2025
- Donald Trump said the deferred tariffs on Canada and Mexico will go ahead in March – with China to get slapped by additional tariffs
- NZ business confidence in general ticked up, and so far, there are no signs that past Trump tariff uncertainties are affecting NZ business decision-making
- Australian capital expenditure looks like it will be a drag on Q4 GDP growth (which is published next week)
Monthly Filled jobs – January: Good start to hiring in 2025 but not for everyone
28 Feb 2025
- Strong start to the year for hiring for 2025, albeit from a low base
- The services sector leads jog gains, likely bolstered by the prospect of continued interest rate relief. Employment conditions in the goods sector remain dire
- We expect hiring to remain patchy over the first half of 2025 before concertedly strengthening thereafter. Further OCR cuts are still needed to avoid labour market scarring
Commodities Weekly: Commodities price index lifts in all denominations
28 Feb 2025
- ASB’s commodities price index was up in all denominations last week while the NZD lifted 0.3%, trading around 0.5750 vis-à-vis the USD by the end of the week
- The NZD has subsequently eased below 0.5700 at the time of writing
- Within the index, lamb prices were up 0.9% while beef prices lifted 0.3% (both measured in NZD terms). The combined price index up 0.9% in USD terms last week
Daily Alert: Fresh 2025 lows for US yields as growth concerns mount
27 Feb 2025
- Concerns over the slowing US economy weighed on US yields, with 10-year Treasury yields hitting fresh 2025 lows. The shift lower in US yields has occurred despite the US House of Representatives passing a budget blueprint that included further tax cuts that could increase the US fiscal deficits by US$3 trillion over the next decade
- US and global stocks lifted on hopes of a turnaround in AI, but this has faded and has left the Nasdaq about 5% down on a week ago. President Trump reaffirmed 25% tariffs on Mexico and Canada exports to the US and has signalled 25% tariffs for a selection of EU exports to the US
- BOE policymaker Dhingra noted that higher US tariffs could be disinflationary for the UK given the diversion of trade away from the US. We believe a similar dynamic could occur here in NZ
Daily Alert: Feeling fatigued
26 Feb 2025
- Global sharemarkets were weak on Tuesday
- US home prices rose 4.7% over 2024 according to Federal Housing Finance Agency data
- US consumer confidence data overnight was weak
Daily Alert: Welcome rebound for retail
25 Feb 2025
- NZ retail trade for Q4 2024 showed a welcome rebound with a 0.9% increase in sales volumes over the quarter
- In an interview with the Wall Street Journal, Bank of Canada Governor Macklem said a potential US Canada trade war would have 'severe' consequences and require further rate cuts
- Germany’s conservative leader Friedrich Merz has emerged as the winner in Sunday’s election
Housing Confidence: Optimism persists, but momentum slows
24 Feb 2025
- There was a slight drop in the proportion of respondents expecting interest rates to fall rather than rise, reflecting rising concerns about the upside risk to inflation due to external influences
- For the sixth consecutive quarter, Kiwis' expectations for house prices remain positive
- However, recent optimism on house prices softened nationwide over the three months to January, with a noticeable drop between December and January
Daily Alert: US inflation expectations on the rise
24 Feb 2025
- In the US, Consumers expect prices will climb at an annual rate of 3.5% over the next five to 10 years, according to the final February reading from the University of Michigan
- Germany’s conservative opposition leader Friedrich Merz is projected to win Sunday’s federal election, comfortably finishing ahead of the far-right AfD party and Chancellor Olaf Scholz’s Social Democrats (Bloomberg)
- US and European sharemarkets were mixed on Friday
Q4 2024 Retail Trade Review: A welcome end for 2024
24 Feb 2025
- Retail volumes showed a welcome rebound in Q4, but annual growth was modest at 0.3%, indicating that consumers remain cautious about spending. The recovery was widespread across all regions and several sectors
- Retail activity is expected to continue its gradual recovery in Q1 2025, given some persistent headwinds facing the sector
- Looking ahead to 2025, the retail sector's recovery is expected to continue gradually, with a more pronounced improvement in the second half of the year, driven by the impact of falling interest rates
Economic Weekly: When doves decide
24 Feb 2025
- The RBNZ duly delivered the 50bp OCR cut that had been widely anticipated for so long
- The Statement also signalled that further cuts – at least two more – are likely to step back to a 25bp pace, which again was widely expected
- The RBNZ still came off a little more dovish than most were expecting, which came through in the RBNZ’s position on some of the key risks ahead and also in the RBNZ’s OCR outlook
Daily Alert: Markets consolidate
21 Feb 2025
- There were no fresh Trump tariff headlines last night following his earlier salvo. Geopolitical tensions and US tariff anxiety remains but the USD fell yesterday after President Trump said a trade deal with China was possible, with the USD index currently trading at 2025 lows
- The unsettled environment looks to be hitting the US corporate sector with a weaker retail outlook by retail behemoth Walmart triggering a slide in US stocks. There was a modest retracement in US Treasury yields
- The Australian labour market has remained resilient, with employment posting another strong increase (in contrast to NZ) with the unemployment rate a full percentage point lower than in NZ
Daily Alert: More RBNZ easing, more Trump tariffs
20 Feb 2025
- The RBNZ cut the OCR by 50bp as expected and gave a pretty clear signal it will cut the OCR by 25bp at each of the next two meetings and potentially cut even further
- The housing market recovery is still slow in coming
- Australian wage inflation was on the mild side of expectations
Daily Alert: RBNZ to Trump RBA with a 50bp cut today
19 Feb 2025
- Yesterday saw a hawkish cut by the RBA, who start their cutting cycle with a 25bp cut to the cash rate (to 4.10%), but with the RBA Board “cautious on prospects for further easing”.
- UK yields and sterling jumps on strong UK labour market figures, with firmer than expected Canadian inflation supporting yields and triggering a paring back on central bank rate cut pricing. Fed officials continue to show little urgency to lower the fed funds rate. US markets returned from their long weekend with modest moves in US equity indices and with higher US Treasury yields
- NZ looks to remain out on a limb, with a 50bp OCR widely expected today from the RBNZ. The focus of today’s RBNZ OCR decision will be on the forward guidance and published rate track. We expect a total of 100bps of OCR cuts over 2025 but note that the economic and policy outlook is fluid with both upside and downside risks
Commodities Weekly: NZD lifts off recent lows
19 Feb 2025
- NZD/USD dropped towards USD 0.5520 earlier in the month in reaction to Trump’s announcement of widespread tariffs on Canada, Mexico and China
- Since then, Trump has announced tariffs on steel and aluminium, as well as retaliatory tariffs for other countries, and tariffs on automobiles
- However, the NZD/USD has been quite steady as the USD itself has eased
Review of RBNZ February Monetary Policy Statement: RBNZ confident to keep cutting – at a slower pace
19 Feb 2025
- The RBNZ cut the OCR the expected 50bp and flagged it had “scope” for further cuts
- The RBNZ’s confidence in keeping inflation contained over the medium term was evident in the Statement
- Two 25bp OCR cuts (in April and May) remain highly likely, with risks tilted to a further cut
REINZ Housing data January 2025: No movement just yet
19 Feb 2025
- House prices increased marginally in January, up for the third consecutive month (seasonally adjusted)
- House sales continued to decline, while new listings and inventory levels resurged in January
- As we progress into 2025, the housing market remains relatively stagnant despite significant reductions in mortgage interest rates. Our view remains a gradual recovery in house prices over 2025, with more noticeable improvements expected in the second half of 2025
Daily Alert: Down under focus for the next two days
18 Feb 2025
- The RBA decision today (Tuesday) and the RBNZ on Wednesday will be keenly watched, with rate cuts expected on both sides of the Tasman
- It was a holiday in the US overnight (Presidents’ Day), and sharemarkets were closed
- European sharemarkets were positive overnight, with the Euro Stoxx 50 up 0.5%
Daily Alert: Big week for the RBA and RBNZ
17 Feb 2025
- Trump’s tariff news continues to be the main show
- However, the RBA decision on Tuesday and the RBNZ on Wednesday will be keenly watched, with rate cuts expected on both sides of the Tasman
- NZ consumer prices jumped 1.1% in January (ASB estimates)
Economic Weekly: 50bp from the RBNZ – then what?
17 Feb 2025
- We’ll be falling off our office chairs this Wednesday if the RBNZ does anything other than cut the OCR by 50bp
- Although it has been an eventful time since the November Monetary Policy Statement, we expect the RBNZ’s assessment of medium-term inflation pressures won’t have changed significantly
- Inflation in the early parts of 2025 is likely to be higher though, reflecting a bit more pressure from the slightly weaker NZD
NZ Migration and Tourism December 2024: Net annual migration inflows hit 2-year low
17 Feb 2025
- Despite the stronger December month, annual net PLT immigration inflows fall to 27k, a two-year low. Slowing PLT arrivals and climbing PLT departures remained evident
- The rise in the visitor levy does not look to have adversely impacted inbound tourism numbers, which are recovering but are still 15% below pre-COVID peaks on an annual basis
- Lower annual net migration and low (but improving) tourism arrivals are consistent with the further paring back of monetary policy restraint. We expect 100bps of OCR cuts over 2025, but the economic outlook and balance of risks is highly fluid
Term Deposit Report: More downward pressure on TD rates to come
17 Feb 2025
- Only the short-term deposit interest rates out to nine months remain above 20-year averages
- However, the outlook for more Reserve Bank (RBNZ) Official Cash Rate (OCR) cuts means we expect these popular rates will dip lower over 2025
- Longer-term deposit (TD) interest rates have been easing since late 2023 as financial markets initially anticipated, then responded to OCR cuts by the RBNZ
Economic Weekly: 50bp from the RBNZ – then what?
17 Feb 2025
- We’ll be falling off our office chairs this Wednesday if the RBNZ does anything other than cut the OCR by 50bp
- Although it has been an eventful time since the November Monetary Policy Statement, we expect the RBNZ’s assessment of medium-term inflation pressures won’t have changed significantly
- Inflation in the early parts of 2025 is likely to be higher though, reflecting a bit more pressure from the slightly weaker NZD
Daily Alert: No Valentine’s Day massacre in equities
14 Feb 2025
- Key US producer prices were softer than expected, which markets took as a signal not to be so worried about the previous night’s inflation outcome
- Donald Trump’s move to start negotiating an end to the war in Ukraine further spurred risk-on trading
- US bond yields reversed course and equity markets lifted
Selected Price Indexes January 2025: Awkward timing
14 Feb 2025
- Overall monthly prices rose 1.1% in January, with annual inflation hitting 2.5%, its highest since mid-2024. It is still early days, but the figures suggest that the lower NZD is reigniting pricing pressures from a number of pockets
- Annual inflation on the monthly measures has pushed above 2%, pointing to clear upside risk to headline inflation outturns in early 2025. This is likely to significantly complicate the communication challenges facing the RBNZ
- The inflation outlook for 2025 remains incredibility uncertain. The timing and magnitude of OCR moves hinges on the outlook and developments over 2025
Daily Alert: Higher US inflation dashes Fed rate cut hopes
13 Feb 2025
- US Treasury yields and the USD jump and US stocks ease as US inflation data comes in hotter than expected, dashing hopes of Fed rate cuts in 2025 and raising the prospect that the next move may be a hike
- Rate cuts are still being pondered elsewhere, however
- Q1 RBNZ inflation expectations data for NZ is the last major datapoint ahead of next Wednesday’s MPS, in which a 50bp cut looks highly likely
Preview of RBNZ February Monetary Policy Review: One last 50 – this time?
13 Feb 2025
- We expect the RBNZ will deliver its fourth 50bp cut in a row on February 19, probably the last big cut
- The RBNZ’s view on medium-term inflation pressures may not have changed that much, despite an eventful few months and a slightly firmer short-term inflation outlook
- Our base case remains two further 25bp cuts in April and May and a 3.25% OCR endpoint, but events will more heavily determine the pace and level of the terminal OCR
Commodities Weekly: Tariff threats get real
13 Feb 2025
- US President Trump’s tariff announcements have been a key focus over the past two weeks
- Financial markets were grappling early last week with the implications of the weekend tariff announcement and how to respond, with many global equity markets – including in the US – falling around 1-3% in immediate reaction
- The announced tariffs on both Mexico and Canada have been delayed after conversations with those countries’ respective leaders and their commitments to enhance border security
RBNZ Survey of Expectations 2025 Q1: Anchored inflation expectations should lock in a 50bp OCR cut next week
13 Feb 2025
- Inflation expectations are effectively at 2%, with welcome falls beyond the 1-year ahead horizon and a modest tick-up in short-term inflation expectations
- We still expect a 50bp OCR cut next week and a 3.25% OCR by mid-2025. Respondents seem to be increasingly gravitating towards a 3.25% OCR endpoint, in line with our core view
- Trends in inflation expectations will be crucial for assessing future monetary policy decisions, with RBNZ moves to bolster their inflation expectations arsenal both timely and welcome
Electronic Card Transactions January 2025: Back to the ground
13 Feb 2025
- Overall card spending remained flat in January, following sizeable increases in December
- Retail spending declined after solid growth during the festive month
- After a cautious start, we expect retail spending momentum to pick up from the second half of this year. This should not prevent further OCR cuts in the first half of 2025
Daily Alert: Fed in no hurry to lower rates
12 Feb 2025
- US yields rise and the USD and US equities dampened as FOMC Chair Powell did not give much away and reiterated that the Fed are in no hurry to adjust interest rates given the strong position of the US economy and the murky economic and policy outlook
- Recall, that President Trump had earlier ordered a 25% tariff on steel and aluminium imports (effective March 12) and warned the tariffs could go higher
- Markets await US CPI inflation data overnight
Home Loan Rate Report: Lots of action between RBNZ meetings
12 Feb 2025
- The RBNZ’s Official Cash Rate (OCR) was held at 5.5% between May 2023 and August 2024, the highest level since 2008
- But with the economy slowing, and inflation cooling, the RBNZ lowered the OCR in August 2024 (-0.25%), and again in October and November (-0.5%)
- Our view is the RBNZ will continue to reduce the OCR over 2025 but is over half way through its easing cycle
Daily Alert: What next?
11 Feb 2025
- Trump’s tariff talks remain the key focus
- But in addition, the take on Friday night’s US employment data is upward in terms of pressure on longer term US interest rates
- There was something for everyone in the data, with some positive and negative headlines
Commodities Weekly: Another strong auction supports a good milk price
11 Feb 2025
- Another strong GDT auction took place on February 5th, with overall prices lifting 3.8%, and key products performing well
- Powder prices lifted, with an impressive 4.1% gain for whole milk building on the previous event’s 5.0% price lift for the key product
- Skim milk powder prices lifted 4.7% at this event, but the annual gain in prices (+3.2%) is modest when compared with the 21.5% lift in WMP prices
Daily Alert: Sharemarkets soften into weekend
10 Feb 2025
- Tariff talks continued last Friday. President Trump said he plans to unveil more tariffs this week
- In the US, Employment growth cooled in January
- US and European sharemarkets were in the red on Friday, with the three main benchmarks down 1-1.4% while in Europe the Euro Stoxx 50 was down 0.6%
Economic Weekly: Tariff brinkmanship or doing deals?
10 Feb 2025
- It was a mildly turbulent time last week on the Trump front
- Financial market and politicians alike were grappling early in the week with the implications of the weekend tariff announcement and how to respond, with many global equity markets – including in the US – falling around 1-3% in immediate reaction
- The announced tariffs on both Mexico and Canada have been delayed after conversations with those countries’ respective leaders and their commitments to enhance border security
Daily Alert: BOE cuts but quiet session overnight… now for payrolls
07 Feb 2025
- Bank of England cut by 25bps, but sterling and UK yields drop as two MPC members opt for a 50bp cut
- There were modest moves in US equities, yields and in the USD overnight following frenetic action earlier in the week
- Focus will be on non-farm payrolls data this weekend (annual revisions are likely to be downward) and Trump headlines
Daily Alert: Mexico and Canada tariffs paused for now
05 Feb 2025
- Tariffs remain the focus for markets. Trump has agreed to push back the start of 25% tariffs against Mexico and Canada for now, following conversations with each country’s leader
- Mexico will deploy 10,000 National Guard members to the border to stop the flow of undocumented migrants and fentanyl
- Canada will appoint a “fentanyl czar” and start a joint task force with the US to address drug-trafficking and money laundering, plus increased border security (Source Bloomberg)
Q4 2024 Labour Market Data Review: Softening, as expected
05 Feb 2025
- Q4 labour market figures weaken in line with market expectations, with employment falling and the unemployment rate hitting 4-year highs
- Labour cost growth cools to 3-year lows and looks to be moving in a direction consistent with inflation settling in the 1-3% RBNZ target range
- The Q4 labour market figures and the softening labour market prognosis should prompt the continued frontloading of monetary policy easing and we expect a 50bp OCR cut in February and a 3.25% OCR by mid-2025. The OCR outlook for 2025 is fluid with both upside and downside risks
Daily Alert: That went well….
04 Feb 2025
- Markets took a universally dim view over the past day of the economic impacts of Trump’s announced tariffs on the US’ top three trading partners
- Equities have weakened, bond yields have risen, and the USD has generally strengthened
- FX rates moved generally in the same direction they have since Trump was elected, to strengthen the USD against many currencies
Daily Alert: Trump announces tariffs will go ahead
03 Feb 2025
- US President Trump confirmed tariffs on Canada, Mexico and China late last week
- The Federal Reserve’s preferred measure of underlying inflation remained muted in December
- US sharemarkets were in the red on Friday, with the three main benchmarks down 0.3% to 0.8%, while in Europe the Euro Stoxx 50 was up 0.1%
Economic Weekly: Make America Expensive Again
03 Feb 2025
- The labour market data for Q4 are out this Wednesday and are the last important bit of news before the RBNZ makes its OCR decision on February 19th
- We expect the level of employment to fall slightly, unemployment to edge up and for wage growth to continue to moderate – all reinforcing the story of easing domestic inflation pressures
- It was a Tale of Two Central Banks last Thursday morning, with a slight Dickensian bit of darkness
Daily Alert: Out on a limb
31 Jan 2025
- Solid US data and FOMC caution on “somewhat elevated inflation” and the intent to maintain restrictive monetary settings leaves the US at odds with other economies facing weaker data and contemplating or enacting central bank rate cuts
- Overnight, the ECB joined the Bank of Canada the day before and cut by 25bps, but the ECB have maintained their easing bias with more rate cuts expected this year
- NZ Consumer sentiment is comparatively weaker than for the business sector and we will need to see improvement if the household sector is to lift from its 2024 malaise in 2025
Daily Alert: Fed pauses, inflation green lights RBA cuts
30 Jan 2025
- The US Fed stayed on hold as expected but sounded relatively cautious on inflation
- The Bank of Canada cut rates but also paused asset sales and highlighted future uncertainties from whatever tariffs the Trump administration puts in place
- Meanwhile, Australian inflation was low enough in our view to prod the RBA into cutting interest rates next month
Q4 2024 Labour Market Data Preview: Following the economy down
30 Jan 2025
- December 2024 quarter labour market figures should show the effects of a protracted activity slowdown, with falling hiring and an unemployment rate pushing above 5%
- Labour cost growth is expected to continue to recede given increased competition for jobs and less compensation for inflation. We see further falls in wage pressures ahead
- Soft labour market data figures should continue to encourage further swift monetary policy easing. We expect a 50bp cut in February and 3.25% OCR by mid-2025, with 2025 OCR moves beyond then conditional on the uncertain economic outlook
Daily Alert: Modest rebound in US tech stocks with Trump tariff USD boost
29 Jan 2025
- Modest rebound in US tech stocks after Chinese competition induced sell-off. Concern over lofty AI equity valuations have the market on edge with company earnings and tomorrow’s FOMC rates decision looming
- The USD pushed higher after President Trump sounded support for universal and “much bigger” universal tariffs
- Australian Q4 2024 CPI is released at 1.30pm today, which will be pivotal on whether the RBA Board begin lowering interest rates at their February meeting
Daily Alert: Magnificent Seven sink deep on Deepseek
28 Jan 2025
- US tech stocks went into a tailspin overnight after a Chinese company revealed a leap forward in AI capability, triggering some flight to other US asset classes
- The Bank of Japan hiked rates and is likely to hike more, undeterred by the change of US presidency
- The NZD is largely unchanged but softer against the yen
Economic Weekly: Trump Show Season 2 Week 2 and 2.2% inflation
28 Jan 2025
- Tracking Donald Trump’s initial days as President feels a bit like keeping a very active diary of a hyperexcited high-schooler
- There was lots of breathless drama, a bit of bulling dare we say it, and the occasional inconsistency and mistruth (but let’s not split atoms)
- It has also caused some bouts of volatility in market. Unhelpful though that is, it is also entirely expected. It is definitely not the Truman Show, it is very much Trump and it is his show
Daily Alert: Migration fades, Trump beams into WEF
24 Jan 2025
- NZ net migration inflows continue to slow sharply on an annual basis, though appear to be stabilising month-to-month around a 20,000 annualised rate
- Donald Trump spoke at the Davos World Economic Forum, reiterating his “make it in America or else face tariffs” view, calling for lower oil prices and interest rates, and had a crack at the EU over its treatment of large US tech firms
- The USD eased very marginally over the past day, putting the NZD/USD up very slightly to around USD0.568
Daily Alert: NZ CPI inflation expected to nudge higher
23 Jan 2025
- NZ Consumer prices rose 0.5% in Q4, with annual CPI inflation steady at 2.2%
- REINZ housing data for December shows a soft end for 2024, with house prices dropping by 1.1% yoy, while house sales increased slightly by 1.8% yoy
- A strong GDT auction on Wednesday morning, where whole milk prices rose significantly across all the key contracts, has been a catalyst for us to nudge our 2024/25 milk price forecast from slightly below the mid-point of Fonterra’s $9.50-$10.50 forecast range, to above that $10 mid-point
NZ Migration and Tourism November 2024: Deflating
23 Jan 2025
- The air continues to slowly deflate from the net migration balloon, with net PLT immigration inflows down to 30k annually, their lowest level since late 2022. Slowing PLT arrivals and climbing PLT departures remained evident
- The rise in the visitor levy does not look to have adversely impacted inbound tourism numbers, which look to have plateaued about 16% annually below pre-COVID peaks
- Lower net migration and a plateauing in tourism arrivals is consistent with the further paring back of monetary policy restraint. Our view is that the RBNZ will deliver another 50bp cut in February 2025
Daily Alert: Brought to you by the letter T
22 Jan 2025
- The focus offshore has been Donald Trump’s inauguration and the initial policies he’s pushing through or commenting on. Tariffs, Tiktok, and more, and it’s only day one
- On the data/economic event front it’s a relatively quiet week offshore, with the Bank of Japan meeting on Friday a highlight
- In NZ, the Q4 2024 CPI data today is the week’s highlight and a potential market mover
REINZ Housing data December 2024: A soft close for 2024
22 Jan 2025
- House prices lifted modestly in December, for the second consecutive month
- House sales declined substantially in December, while new listings and inventory remained lower
- Overall, house prices were down over 2024 due to restrictive monetary policy settings and numerous headwinds facing the market. However, with mortgage interest rates moving lower, the gradual recovery of house prices is expected to be more pronounced in 2025
Commodities Weekly: ASB lifts milk price forecast to $10.25/kgMS
22 Jan 2025
- A strong GDT auction overnight, where whole milk prices rose significantly across all the key contracts, has been a catalyst for us to nudge our 2024/25 milk price forecast from slightly below the mid-point of Fonterra’s $9.50-$10.50 forecast range, to above that $10 mid-point
- We have been cautious about the price outlook over December and early January, but recent developments have made us more confident
- Accordingly, we’ve lifted our forecast for the current season to $10.25/kgMS
2024 Q4 CPI Review: Close to 2%, but set to edge higher from here
22 Jan 2025
- Consumer prices rose 0.5% in Q4, with annual inflation steady at 2.2%
- The welcome moderation in non-tradable inflation was evident but we are past peak deflation for tradable goods and services, and this should see annual CPI inflation nudge higher over 2025
- A 50bp cut in February and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR moves hinges on how events pan out
Core Consumer Prices 2024 Q4: Core inflation cools
22 Jan 2025
- Q4 core inflation cools for the RBNZ aggregate, tradable and non-tradable inflation measures, with modest downward historical revisions
- The cooling trajectory of core inflation increases our confidence CPI inflation will remain well below 3% over 2025, enabling further OCR cuts
- A 50bp OCR cut in February looks highly likely (3.75% OCR), and we expect a further 50bps of cuts in Q2 (3.25% OCR). However, there is a lot that could happen this year, with the impact of external influences on NZ inflation particularly uncertain
Daily Alert: Hail to the Chief
21 Jan 2025
- Earlier this morning President Trump was formally inaugurated as the 47th President of the United States. Its going to be an eventful next 4 years
- Outside of the inauguration there was little for markets to digest. US bond and equity markets were shut on Monday for the Martin Luther King national holiday, with no major offshore data released
- Hopes of a more constructive US-China relationship after the Trump-Xi pre-inauguration talks look to have provided a bit more positivity for wary markets, with the possibility of a less punitive US tariff regime pushing the USD lower
Electronic Card Transactions December 2024: A welcome rebound
21 Jan 2025
- Overall card spending stages a welcome lift in December, after being muted in November
- The climb is from weak levels, with spending little changed on a year ago
- We believe conditions are in place that should see retail recover over 2025, although it will not be a swift turnaround
Daily Alert: Four more years
20 Jan 2025
- The focus early in the week will be Donald Trump’s inauguration tonight/tomorrow
- It’s a relatively quiet week offshore, with the Bank of Japan meeting on Friday a highlight
- It’s a busier week on the local data front, with CPI data on Wednesday the highlight and a potential market mover
Economic Weekly: Inauguration
20 Jan 2025
- Welcome back to the economy in 2025. This is our first Weekly for the year, and this week holds the first major domestic data release with the Q4 CPI out on Wednesday
- And, in a seismic political sea change, Donald Trump gets inaugurated as the 47th US President today
- The CPI release will reconfirm that NZ inflation is comfortably contained
Daily Alert: Throwing down the gauntlet
17 Jan 2025
- The gauntlet is thrown down by incoming US Treasury Secretary Bessent, who told the US Senate that the US faces economic crisis if the 2017 Republican tax cuts (that expire at the end of 2025) are not extended. Bessent also downplayed the risks to the US from raising tariffs.
- Falls in US yields were extended overnight after influential Fed policymaker Waller signalled after Fed hikes were still possible in the first half of the year.
- USD supportive remarks by Bessent support the greenback, but the yen has strengthened on expectations of a BOJ hike, with commodity currencies (including the NZD) generally weaker.
Q4 CPI Preview: At around 2%
17 Jan 2025
- We expect a 0.4% quarterly increase in Q4 headline CPI, with annual CPI inflation falling to 2.1%, broadly in line with the RBNZ’s November MPS pick.
- The moderation in non-tradable inflation rates is expected to continue, but higher tradable prices over 2025 will likely push aggregate CPI inflation higher at the margin by year end.
- A 50bp cut in February and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR moves hinges on how events pan out.
We expect the general cooling in inflationary pressures to continue when Stats NZ releases Q4 data on 22 January. Our Q4 CPI pick is for a 0.4% quarterly increase in headline CPI, with annual CPI inflation falling to 2.1%, its lowest since early 2021. Our pick is broadly in line with the November MPS expectations. Risks are broadly balanced. The moderation in CPI inflation is driven by cooling non-tradable inflation. This predominantly reflects slowing increases in housing and services inflation that is the consequence of a pronounced period of softening economic conditions and growing spare capacity. Core inflation measures are expected to ease towards the upperpart of the 1-3% inflation target band. The deflationary impulse provided by lower tradable prices looks to have ceased, with Q4 prices are expected to remain flat, following four successive quarters of decline. Reflecting a combination of influences, modest increases are expected for tradable prices over 2025. This should push overall inflation slightly higher by the end of 2025. With inflation effectively parked within the inflation target zone, the RBNZ is well positioned to continue to promptly normalise OCR settings. We expect a 50bp February cut and a 3.25% OCR by mid-2025. Our base case is that the OCR will not need to move below circa 3.25% neutral levels in 2025, but the inflation outlook remains highly uncertain and is conditional on several factors.
Daily Alert: Trump tariff lifeline supports NZD
15 Jan 2025
- Market rumours that incoming US President Trump will gradually deploy tariffs weighed on the USD and provided a lifeline to the embattled NZD.
- US producer prices surprise to the downside with the focus now on the US CPI report tonight.
- US stocks recover their earlier session dip while longer-term yields have been pressured higher by inflation and bond supply concerns.
Commodities Weekly: NZD continues to ease against a strong USD.
14 Jan 2025
- ASB’s commodity price index was up in NZD terms last week, but flat in SDR and down USD terms as the NZD eased against a strong USD.
- The NZD was trading around 0.5900 against the USD in early December but has fallen by more than US 3c over the past month to trade around 0.5560 at the time of writing.
- Whole milk powder prices have been declining from the recent peak, but remain significantly higher than a year ago, and above long run averages.
Daily Alert: Sharemarket weakness continues
14 Jan 2025
- US and European sharemarkets were weak again overnight.
- Investors continue to fret about the US interest rate outlook, and the recent downturn in US shares has eliminated the post-election lift AKA the Trump Bump.
- US and UK inflation data tomorrow night will be keenly watched.
QSBO - 2024 Q4: Modest improvements from dire levels
14 Jan 2025
- Q4 QSBO results showed improvement from dire earlier 2024 readings, but still suggest that the economy continues to struggle despite the prospect of interest rate relief.
- Pricing indicators tick and the margin of spare capacity in the labour market points to further drops in headline and core inflation below the inflation target midpoint.
- A swift pace of OCR cuts looks necessary, but the question is that how low the OCR will need to go over 2025.
Daily Alert: Happy New Year
13 Jan 2025
- The data flow has already started in the US, with non-farm payrolls out last Friday.
- Things pick up in NZ this week after the Christmas and New Year holidays, with tomorrow’s quarterly survey of business opinion the likely data highlight.
- The first major 2025 release in NZ is Q4 CPI on 22 January.
Markets Monthly: Strong 2024 for sharemarket returns
06 Jan 2025
- Sharemarkets here and abroad were mixed over the fourth quarter, but positive over the year
- The US S&P 500 was up 23.3% over 2024 and the MSCI index of world shares was up 17% in USD terms
- The local market recorded positive, but more modest returns over 2024
Daily Alert: GDP revisions giveth – and taketh
20 Dec 2024
- NZ Q3 GDP was substantially weaker than expected over both Q3 and Q2 (which was revised down sharply), almost offsetting the upward revisions to earlier years that had been previously publicised
- The BoJ sounded a lot more cautious over when it will next lift interest rates
- The yen has weakened substantially, the Pound is softer, and the NZD has held up surprisingly well given the GDP figures
Daily Alert: Fed cuts by 25bp but flags fewer 2025 cuts
19 Dec 2024
- The US Federal Reserve cut the Federal Funds rate by 25bp but has dialled back its anticipated rate cuts for next year
- The NZD was under a bit of pressure over the past day and softened further after the Fed’s ‘hawkish’ cut
- NZ’s Q3 GDP out this morning is likely to show another contraction (hopefully the last of this cycle) but also some substantial upward revisions that will make the downturn look less severe
Q3 2024 GDP Review: A troubled time
19 Dec 2024
- NZ economic activity fell a large 1.0% qoq in Q3 2024, more than we had anticipated. Q2 growth was revised lower to a 1.1% qoq fall (from -0.2%)
- The key driver of this quarter’s outturn was weakness in the goods-producing sector, but services activity also declined
- The extent of the contraction in GDP in Q2 and Q3 points to more excess capacity in the economy and is consistent with further OCR cuts from the RBNZ
Daily Alert: Awaiting the Fed
18 Dec 2024
- NZ fiscal outlook is weaker than expected, with higher fiscal deficits and debt, higher bond issuance and with spreads to NZ swaps at multi-year highs. II looks to be an opportune time for the RBNZ to pare back quantitative tightening
- Last night, markets generally looked to be in a holding pattern ahead of tomorrow’s Fed decision, with modest falls for US yields and US equities, and with the USD index trading in tight ranges. The NZD hit fresh 2-year lows against the USD overnight, and further NZD downside is to be expected
- The focal point is tomorrow morning’s 8am FOMC decision, with the expectation that the Fed will cut the fed funds rate by 25bps (to 4.25%-4.50%) but shade up the interest rate dot plots and prepare the market for a much slower pace of rate cuts over 2025 (including pauses) given the resilient US outlook
Daily Alert: Eyes on the final central bank meetings of 2024
17 Dec 2024
- Markets remain focussed on the FOMC, BoE and BoJ policy meetings later in the week
- However, economic data released overnight did give markets something to consider in the meantime
- PMIs highlighted the muted growth outlook in the UK, whereas the US services sector expanded at the fastest pace since 2021 according to the data
Quarterly Economic Forecasts: A new leaf in 2025
17 Dec 2024
- 2024 has been a long year, filled with twists and turns over the interest rate outlook, the US election, and finally closing with some early signs that things are on the mend
- Wholesale interest rates started off the year on the way up, on speculation that the RBNZ would lift the OCR
- The RBNZ then reinforced in May that interest rates were unlikely to come down until well into 2025. Inflation pressures suddenly crumbled, and the RBNZ ended up cutting the OCR by 125bp before the end of 2024
REINZ Housing data November 2024: Still flat
17 Dec 2024
- House prices lifted modestly over the month, after declining last month
- House sales declined slightly in November, with an increase in the number of houses for sale despite lower new listings and fewer properties on the market
- We expect house prices to flatline over 2024 given numerous headwinds, but with mortgage interest rates moving lower, the recovery will be more evident in 2025
2024 NZ Half Year Economic and Fiscal Update Review: Higher deficits and higher debt
17 Dec 2024
- The Treasury Half Year update presented a bleaker economic and fiscal picture relative to the Budget 2024 forecasts, with no OBEGAL surpluses over the forecast horizon
- The profile for Crown debt was revised up, as was the NZ Government bond programme, with an additional $20bn of gross issuance over the 2025/28 period, more than we had expected
- We don’t think that the HYEFU will deter the RBNZ from continuing to pare back monetary easing, including delivering a 50bp OCR cut in February 2025. However, fiscal consolidation is imperative to rebuilding fiscal buffers and to provide the RBNZ with more leeway to further lower the OCR
Daily Alert: Markets appear exhausted after an eventful 2024
16 Dec 2024
- The close of last week proved to be light on major data or events, with markets having more of an exhausted feel to them after an extremely eventful 2024
- US and global yields have pushed higher overnight on the likelihood of gradual Fed easing (around 95% odds of a 25bp Fed cut on Thursday and about 50bps of further Fed cuts over 2025). The strong Friday AI driven open for the Nasdaq faded, with generally modest moves for global equity indices
- Hopes that Chinese authorities will save the day with a raft of new stimulus measures look to have fallen on deaf ears for now, pushing Chinese equities sharply lower
Economic Weekly: The Final Countdown
16 Dec 2024
- We are limping into the home straight ahead of the rush into Christmas
- The final countdown into the end of year is an action-packed one domestically, as well as bringing a Christmas present from the most influential central bank of them all, the US Federal Reserve
- It’s a big day on Tuesday afternoon for Nicola Willis, when she releases the Half Year Economic and Fiscal Update
Home Loan Rate Report: Mixed impact of another 0.5% RBNZ OCR cut
16 Dec 2024
- Central banks around the world including NZ held monetary policy at restrictive levels until recently to lower inflation
- NZ’s Official Cash Rate (OCR) was held at 5.5% between May 2023 and August 2024, the highest level since 2008
- But with the economy slowing, and inflation cooling, the RBNZ lowered the OCR in August 2024 (-0.25%), and again in October and November (-0.5%)
Term Deposit Report: Shortest term deposit rates under the most pressure
16 Dec 2024
- Short-term deposit interest rates out to 1 year remain above 20-year averages
- However, the recent Reserve Bank (RBNZ) Official Cash Rate (OCR) cuts, and the expectation of more are weighing on the outlook
- These popular terms could fall the most over 2025
Sustainable Economics: The changing nature of finance
16 Dec 2024
- Global growth in sustainable finance products peaked in 2021
- Nevertheless, data suggest that annual growth in 2024 is on track to lift for the first time since it peaked
- Regulation, taxonomies, ongoing investor demand and greater transparency are helping to increase debt issuance in particular, but there is still some way to go
Daily Alert: 5 Key Things to Watch in 2025
13 Dec 2024
- US economic data overnight was mixed, but conviction of a 25bp rate cut by the FOMC next week remains very high
- The ECB cut rates by 25bp as widely expected amid multiple downside risks facing the economic bloc
- This morning Mark Smith released a note setting out 5 key things to watch over in 2025
2025 Watchlist: What to look out for in 2025
13 Dec 2024
- 2024 has proved to be a hard slog for many
- Signs for 2025 are looking brighter and we are cautiously optimistic
- Here we set out 5 key things to watch over 2025
Q3 2024 GDP Preview: The final fall
13 Dec 2024
- We anticipate a 0.4% qoq contraction in Q3 GDP, but the annual benchmarking means uncertainty is high
- The per-capita numbers will be weaker still, reinforcing that the last two years has been tough for kiwis
- There is some good news however, in that we expect economic fortunes to begin to turn around from Q4 2024
NZ Migration and Tourism October 2024: Slowing but tentative signs of stabilisation
13 Dec 2024
- Annual net immigration inflows fell below 40k, to their lowest level since late 2022. However, there are tentative signs that net inflows are stabilising
- The rise in the visitor levy does not look to have adversely impacted inbound tourism numbers that actually climbed in October but remain well below pre-COVID peaks
- Lower net migration and a plateauing in tourism arrivals is consistent with the further paring back of monetary policy restraint. Our view is that the RBNZ will deliver another 50bp cut in February 2025
Daily Alert: Bank of Canada cuts by 50bps, Fed cut widely expected next week
12 Dec 2024
- Bank of Canada cut by 50bps to 3.25% but toned down their easing bias, pushing Canadian yields and the CAD higher. A lot can happen in the next few months, but such an approach may be in the RBNZ’s playbook for early 2025
- An in line with expectations US CPI print firms up expectations of a 25bp Fed cut next week. US stocks hit record fresh highs, with US yields slightly higher
- The dovish tilt by the RBA and reports that China will allow a weaker yuan has weighed on Australasian currencies, with the NZD hitting 2-year lows against the USD overnight
Electronic Card Transactions November 2024: Still hunkering down
12 Dec 2024
- Overall card spending declined slightly in November, after two consecutive months of gains
- Retail spending volumes look to be muted after a modest lift in October
- The card spending data this month turned out to be disappointing, regardless of several supporting factors emerging. It reflects the weak demand, and we continue to expect further monetary policy easing in 2025
Commodities Weekly: NZD and dairy prices continue to drive index, while local sheep and beef prices hold steady
11 Dec 2024
- ASB’s commodity price index was up in NZD terms last week, but down in SDR and USD terms as the NZD eased and USD dairy prices lifted
- The NZD eased back below 0.5900 against the USD, back towards 0.5800 last week. The “kiwi” is still trading near 0.5800 at the time of writing
- Within the index, lamb prices eased 0.4%, while beef prices lifted 0.5% in NZD terms
Daily Alert: RBA leans to a ‘dovish tilt’
11 Dec 2024
- Yesterday, the RBA decided to leave the cash rate target unchanged at 4.35% as widely expected, amid underlying inflation remaining high
- Our CBA colleagues continue to expect that the RBA will cut the cash rate by 25bp in February
- The NAB business confidence survey for Australia softened over November
2024 NZ Half Year Economic and Fiscal Update Preview: Delay in return to surplus and higher debt
11 Dec 2024
- We expect the Treasury Half Year update to unveil a softer economic and fiscal outlook relative to the Budget 2024 forecasts, with a later return to OBEGAL surpluses and a higher profile for Crown debt
- The NZ Government bond programme will likely get revised higher. The large funding task facing the NZDM suggests it may be worthwhile for the RBNZ to consider scaling back quantitative tightening
- Fiscal consolidation is imperative to rebuilding fiscal buffers and to provide the RBNZ with the necessary leeway to continue to normalise OCR settings
Regional Economic Scoreboard: It's Otago, no more waiting!
10 Dec 2024
- Finally, Otago has climbed to the top of ASB’s Regional Scoreboard Q3 2024, after three quarters as the second runner-up.
- Otago has consistently been in the top two for two consecutive years
- The momentum of having a larger population (fourth highest in the country) has contributed to Otago topping the country in retail sales and employment growth
Daily Alert: China to ease monetary policy
10 Dec 2024
- Yesterday the Chinese Politburo announced it will adopt a “moderately loose” monetary policy next year, shifting from a “prudent” stance of recent years
- Chinese consumer inflation for November was only 0.2% yoy, against 0.4% expected
- We have released the ASB Q3 2024 Regional Economic Scoreboard this morning. Otago, Canterbury, and Southland took the top three spots
Daily Alert: Syrian government falls
09 Dec 2024
- Syrian President Bashar al-Assad’s government has fallen
- President-elect Donald Trump said he has no plans to replace Federal Reserve Chair Jerome Powell once he returns to the White House, saying “I don’t see it” on NBC’s Meet the Press, his first network television interview since winning the US election in November.
- US Non-farm payrolls increased 227,000 last month, following an upwardly revised 36,000 gain in October, data showed on Friday night
Economic Weekly: Gearing up for year-end
09 Dec 2024
- For economists, it is usually a busy run up to the end of the year
- Next week the Half Year Economic and Fiscal Update from the Government is out on the 17th and Q3 GDP – along with upward revisions – is out on the 19th
- In between, we are finalising our forecasts for those, and other data are still trickling out
Daily Alert: Looking ahead to payrolls
06 Dec 2024
- Markets are waiting for tonight’s non-farm payrolls release, with US stocks hovering just off record highs
- Political turmoil continues in France with the Prime Minister resigning yesterday after the no-confidence vote in parliament
- NZ economic data yesterday highlighted that the economic backdrop remains soft
Daily Alert: Per-capita recession continues in Australia
05 Dec 2024
- Soft Australian Q3 GDP data weighs on Australasian yields, the AUD and NZD
- Powell sticks to the script and signals the Fed will be cautious given the resilient US economic backdrop, generating little immediate market reaction
- Global stocks maintain gains after the Powell speech, with US yields easing and US stocks at around record highs
Commodities Weekly: Tweaks to our RBNZ OCR call and updated NZD forecasts
04 Dec 2024
- ASB’s commodity price index was down in local and foreign currency terms last week, but up in SDR and USD terms as the NZD lifted 1.6% against the USD
- Within the index, lamb prices were steady, and beef prices lifted 0.3% in NZD terms
- The overall dairy index was down 0.1% in USD terms last week, ahead of this week’s Global Dairy Trade event
Daily Alert: White gold glitters
04 Dec 2024
- Last night’s Global Dairy Trade ended with the overall price index gaining 1.2%
- NZ’s merchandise Terms of Trade lifted 2.4% over Q3 for a third consecutive lift, while the services Terms of Trade softened 0.9%
- Australian trade and current account figures out yesterday showed the current account narrowing over Q3 and the Terms of Trade falling 2.5% over the quarter
Daily Alert: ASB tweaks RBNZ OCR outlook
03 Dec 2024
- After last week’s RBNZ 50bp rate cut excitement, this week is a quieter one, with a few data pieces of the GDP puzzles of Australia and NZ released, before Aussie GDP on Wednesday, and NZ GDP later in December
- ASB Economists tweaked the RBNZ outlook yesterday. We now forecast that the RBNZ will indeed cut the OCR by 50bp in February
- Yesterday ASB announced reductions to some fixed mortgage rates, following the bank’s reductions across floating mortgage rates last week
Daily Alert: December already
02 Dec 2024
- US and European sharemarkets were positive on Friday.
- The NZD traded between US$0.5905-0.5928 on Friday night and starts the week near the middle of that range
- Euro-area consumer prices rose 2.3% from a year ago in November, up from 2% in October and matching the median estimate in a Bloomberg survey of analysts
Economic Weekly: Three 50?
02 Dec 2024
- The RBNZ delivered the generally expected 50bp OCR cut to 4.25%
- Interest rates and the NZD initially lifted slightly, in part because markets had been factoring in a small chance of an even bigger cut
- Yet the RBNZ’s stance was a little more open than we had expected
Daily Alert: A pause for thanks
29 Nov 2024
- It was a quiet night, with US markets closed for the Thanksgiving holiday
- European equities were higher and yields lower
- French yields led falls but uncertainty around the 2025 Budget remains high
Daily Alert: RBNZ delivers another 50bp cut, as expected
28 Nov 2024
- The RBNZ cut the OCR by 50bps to 4.25%, in line with our expectations
- NZD/USD jumped by almost 1% after the RBNZ cut the OCR, suggesting market participants thought the RBNZ’s post meeting statement was hawkish
- The S&P/NZX 50 Index gained 0.8% on turnover of $169 million
Commodities Weekly: Go Kiwifruit!
28 Nov 2024
- ASB’s commodity price index was up in local and foreign currency terms last week, once again boosted by higher dairy prices and a lower NZD
- The NZD eased 0.7% over the week but has lifted above 0.5900 this week in the wake of the RBNZ’s rate cut on the 27th of November
- Within the index, lamb and beef prices lifted modestly in NZD terms, with lamb prices up 0.6% and beef prices up 0.2%
Daily Alert: RBNZ expected to cut 50bp
27 Nov 2024
- Market participants continued to digest President elect Trump’s tariff threats
- Federal Reserve officials indicated broad support for a careful approach to future interest-rate cuts, according to minutes from their latest policy meeting
- European sharemarkets were down overnight, with all the main benchmarks in the red, and the Euro Stoxx 50 down 0.8%
Review of RBNZ November Monetary Policy Review: Doors wide open
27 Nov 2024
- The RBNZ cut the OCR by 50bp to 4.25% as widely anticipated – and left its options fully open for February
- The OCR track suggests a high chance of a 50bp move, which will have dampened market reaction today
- From here we expect the RBNZ will slow the pace of easing to 25bp moves in 2025 – dependent on events
Housing Confidence: Confidence is on the rise
26 Nov 2024
- There was a significant increase in the proportion of respondents expecting interest rates to fall rather than rise
- This is the highest rate of respondents anticipating lower interest rates since the ASB’s Housing Confidence Survey began in 1996
- Kiwis' expectations for house prices remain positive for the fifth consecutive quarter
Daily Alert: Waiting, waiting, waiting
26 Nov 2024
- The announcement that incoming President Trump has opted for Wall Street fund manager Scott Bessent as his pick for Treasury Secretary has raised hopes of more policy stability that will help the US economy and financial markets
- US Treasury yields and oil prices were down overnight, with US stock indices making modest gains. Commodity currencies (including the NZD) were generally lower
- European central bankers struck a cautions tone in comments overnight. The PBOC held policy settings but investors were disappointed that more forceful stimulus measures were not unveiled
IoD Director Sentiment Survey 2024: Insights from the New Zealand Director Community
26 Nov 2024
- Directors have swung to be optimistic about the economic environment, and are even more upbeat about their organisations’ expected operating performance
- Cost of living is still seen as the number one impediment to national performance though it is receding, while global uncertainties edged into second spot
- Customer demand became the single-biggest impediment for organisations, with policy/political uncertainty also up and just behind demand
Daily Alert: RBNZ the focus of a busy week
25 Nov 2024
- US and European sharemarkets were positive on Friday
- The NZD traded between US$0.5817-0.5852 on Friday and starts the week near 0.5830
- Oil prices rose on Friday, with West Texas Intermediate up over 1% to trade above US$71 a barrel
Economic Weekly: 25, 50, Orr 75bp for Christmas?
25 Nov 2024
- It’s time for Santa ClOrrs to shimmy down the chimney and deliver borrowers an early Christmas present
- This week many NZ borrowers will be like a kid in the lead-up to Christmas, squeezing and shaking what’s wrapped up, trying to guess what will come
- As we discussed in last week's preview, we expect a 50bp cut
Q3 2024 Retail Trade Review: Retail spending remains subdued
25 Nov 2024
- Retail volumes remained flat in Q3 but saw an annual decline of 2.5%, indicating that consumers are still cautious about spending. The decrease was widespread across sectors and regions, with only a few areas showing growth
- Retail activity is expected to remain soft in Q4, given numerous headwinds facing consumer spending, especially the rising unemployment rate, easing wage growth, and slowing population growth
- Looking ahead to 2025, the retail sector's recovery is expected to become more evident, driven by the impact of falling interest rates
Daily Alert: Quiet end to a quiet week
22 Nov 2024
- It was a reasonably quiet end to the week. There was no top tier data released overnight, with US initial and continuing jobless claims taking the spotlight and presenting a mixed picture
- Geopolitical risks continue to swirl in the background and uncertainty over Trump’s presidency is also making itself felt in financial markets
- There is the potential for some interest to come from a handful of central bank policy makers who are scheduled to speak, but other than that we expect another quiet day
Daily Alert: BoE caution, dairy cream
21 Nov 2024
- We have nudged our Fonterra milk price forecast up to $9.75/kg, and with strong production there is likely to be a strong lift in on-farm incomes
- Policymakers overnight from the BoE and the Fed sounded notes of caution over the future pace of rate cuts
- Attention tonight will be on any economic comments the RBA Governor makes in her speech
Preview of RBNZ November Monetary Policy Review: One last 50?
21 Nov 2024
- We expect the RBNZ will deliver another 50bp cut on November 27 as the path of ‘least regret’
- That gets the OCR down to 4.25%, much closer to neutral levels, ahead of the RBNZ’s long summer policy holiday
- The RBNZ is also likely to drop hints that the pace of adjustment will slow in 2025 and be much more event-dependent
Daily Alert: Solid dairy auction highlights a good news story for NZ.Inc
20 Nov 2024
- Rising tensions in the Ukraine-Russia war (Ukraine missile strikes on a Russian military facility, Putin approving the use of nuclear weapons in response to attacks on Russia) dented earlier market optimism. Market moves in global stocks, yields, commodity prices and currencies was generally modest
- Language from central bankers was cautious downplaying the likelihood for further large falls in policy interest rates. Stronger than expected Canadian inflation data pushes Canadian yields and CAD higher
- A solid GDT auction vindicates recent upward revisions to the NZ dairy price outlook and we will be updating our milk price forecasts later today
Commodities Weekly: ASB lifts forecast Farmgate Milk Price forecast to $9.75
20 Nov 2024
- The stars have been aligning over recent months for dairy farmers and the current season’s milk price
- Last week Fonterra raised the midpoint of the 2024/25 season milk price forecast from $9.00 to $9.50 per kg of milk solids (kgMS)
- Fonterra also lifted and narrowed the forecast range from $8.25 - $9.75 per kgMS to $9.00 - $10.00
Daily Alert: Markets mixed overnight
19 Nov 2024
- US and European sharemarkets were mixed overnight
- The NZD traded between US$0.5837-0.5899 overnight and starts the day near the top of that range
- Oil prices lifted overnight, with West Texas Intermediate up over 2% to trade over US$69 per barrel
Daily Alert: Quieter week ahead
18 Nov 2024
- “China is ready to work with the new US administration to maintain communication, expand cooperation and manage differences, so as to strive for a steady transition of the China-US relationship for the benefit of the two peoples,” Xi said at the APEC meeting in Lima, Peru
- New Zealand’s manufacturing sector showed contraction at a faster rate during October, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index
- The value of US retail purchases, unadjusted for inflation, increased 0.4% in October after an upwardly revised 0.8% gain in September, Commerce Department data showed Friday
Economic Weekly: Good performance – on the dairy field
18 Nov 2024
- The smattering of NZ data out over the past week helped fill out the picture that inflation will remain contained, though the watering effect of lower interest rates on the green shoots of economic recovery has yet to produce much yield
- First off, some really good news. Fonterra has increased its forecast milk price to a $9-10/kg range, a mid-point of $9.50
- This is a touch above our forecast, which we will revisit this week
Daily Alert: Clean sweep confirmed
15 Nov 2024
- The Republicans have secured the 218 seats required to have a majority in the House of Representatives
- US equities took a bit of a breather overnight and Treasury yields eased
- Eyes are on a speech this morning by FOMC Chair Jerome Powell, while there is no local data released today
Commodities Weekly: Fonterra lifts FY25 forecast Farmgate Milk Price
15 Nov 2024
- ASB’s commodity price index was up in local and foreign currency terms last week, boosted by higher dairy prices
- The NZD index was also supported by a lower NZD
- The NZD eased 0.1% over the week and has traded below 0.6000 against the USD this week
Daily Alert: Few surprises with US inflation
14 Nov 2024
- Yesterday’s rout in global bond markets fades after US headline and core inflation came out in line with market expectations, sparking a relief rally in US short-term yields and an increase in Fed rate cut expectations
- US equity indices have modestly rebounded, and the USD and Bitcoin prices have strengthened
- NZ migration inflows cool and tourism arrivals plateau, reducing key legs of economic support. The NZD pushes below 59 US cents
REINZ Housing data October 2024: Still subdued but signs of optimism emerging
14 Nov 2024
- House sales lifted modestly in October at 1% mom, on a seasonally adjusted basis
- House prices dropped slightly, after the gain last month
- New listings and total inventory levels continue to rise, while houses are selling faster
Daily Alert: Caution over the outlook dampens US stock euphoria
13 Nov 2024
- Concerns over a harder US line on China has seen a modest retreat in US and global stocks, with global yields and the USD pushing higher. Prices for cryptocurrencies have been volatile
- The Republicans are still short of an outright House majority and while the 2nd Trump Presidency does not start until January 20, 2025, markets have been unnerved that the incoming US President may be taking a harder line on China
- Global data was generally positive overnight, and the language of central bankers cautious as they await further information
NZ Migration and Tourism September 2024: Sub 50k annual net migration into NZ and falling
13 Nov 2024
- Annual net immigration inflows fell to the lowest level since January 2023. We continue to see the risk of net PLT outflows in 2025
- Annual tourism arrivals remain well below pre-COVID peaks and show few signs of pushing higher
- Falling net migration and a plateauing in tourism arrivals is consistent with our view that the RBNZ will deliver another 50bp cut in November
Daily Alert: Inflation expectations mixed but anchored
12 Nov 2024
- Inflation expectations move in mixed directions with the short-term horizon firmly down and longer-term horizons slightly up but well anchored – more consistent with a 50bp OCR cut this month rather than anything larger
- Global equities strengthened and the USD was marginally up
- Economic events for the next day are second tier, including NZ card spending. Markets will likely remain focused on the implications of the looming change in US presidency as pronouncements get made
Electronic Cards Transactions October 2024: Weak demand remains
12 Nov 2024
- Overall card spending lifted slightly in October, with support from lower interest rates and tax cuts
- Retail spending volumes increased after being muted in September
- The marginal gain in card spending in October still suggests weak demand and we continue to expect a 50bp OCR cut in November and a 3.25% OCR endpoint
Daily Alert: Calm after the storm
11 Nov 2024
- Financial markets continue to adjust to news that Donald Trump will be the 47th President of the United States. But the fast election result has reduced the degree of financial market volatility
- Markets have unwound expectations for Fed rate cuts
- China announced more policy support late Friday, but markets were disappointed in the magnitude of the support
Daily Alert: Another series of “You’re Fired”
11 Nov 2024
- Donald Trump romped home in the US Presidential Election, picking up all the key swing states, winning the popular vote, flipping the Senate to a Republican majority, and might even get a majority in the House of Representatives
- The phrase “you’re fired” looks like it will get a lot of use. Change is coming
- Economically, the key influences for NZ are the impacts any tariffs the Trump administration imposes and the likelihood of a more inflationary fiscal stance
Daily Alert: Fed and BOE cut by 25bps
08 Nov 2024
- Markets look to settle in the aftermath of the Republican victory. There were modest lifts in global equities and a retracement in US yields, flatter curves and a lower USD
- The Fed cut by 25bps and steer clear of mentioning the US election. The BOE cut by 25bps and also downplay inflation risks from the UK Budget
- More political drama could be on its way with the collapse of the 3-way coalition government in Germany and elections flagged for Germany
Daily Alert: The Red Wave
07 Nov 2024
- The last 24 hours have all been about the US elections, with little immediate reaction to NZ labour market data that confirmed further cooling
- The stronger than expected initial showing by the Republican Party has continued overnight, raising the real prospect of a Republican sweep of the Presidency and both houses in the US congress. This has seen initial market moves sustained with higher US yields and steeper global yield curves, strengthening US equities and the USD
- This will have far-reaching repercussions for the global economy and financial markets, with NZ potentially heavily impacted. Nonetheless, the FOMC is still widely expected to cut the Fed fuds rate by 25bps tomorrow
Commodities Weekly: Lower NZD continues to be helpful
06 Nov 2024
- ASB’s commodity price index was up in NZD terms last week, but down in SDR and USD terms
- The NZD eased another 0.4% over the week and has traded largely below 0.6000 against the USD over recent days
- Within the index, the overall dairy index was up 0.1% in USD terms last week (prices captured before this week’s Global Dairy Trade event)
Daily Alert: Whopper Wednesday
06 Nov 2024
- Market moves were generally modest overnight as voting for the next US President began
- There is a risk that it’s some time before we get a conclusive result, and financial market volatility can lift during any ongoing uncertainty
- The Q3 NZ labour market data is the most influential domestic data release ahead of the November 27 Monetary Policy Statement decision
Q3 2024 Labour Market Data Review: Softening despite more modest unemployment rate lift
06 Nov 2024
- Q3 labour market figures weaken with employment falling and sharply falling labour force participation preventing a larger rise in the unemployment rate
- Labour cost growth cools by more than expected, increasing the likelihood of inflation settling in the 1-3% RBNZ target range
- The Q3 labour market figures and the softening labour market prognosis should prompt the continued frontloading of monetary policy easing and we expect a 50bp OCR cut in November. OCR moves next year remain highly conditional on the economic outlook
Daily Alert: Melbourne Cup Day…oh, and the RBA has a meeting, then the US has an election
05 Nov 2024
- Offshore, the focus for markets is the US election Tuesday in the US (tomorrow our time) and the FOMC meeting announcement two days later (Friday 8am NZT)
- The Bank of England also meet this Thursday night (1am Friday NZT announcement)
- Offshore data flow was light overnight, and Japan was observing a public holiday yesterday
Daily Alert: Wild week ahead
04 Nov 2024
- Offshore, the focus for markets is the US election on Tuesday and the FOMC meeting two days later
- The Bank of England also meet this Thursday
- Tuesday is a big day in Australia, with the Melbourne Cup taking place, as well as the RBA’s November meeting
Economic Weekly: Who will come up Trumps in a week of action?
04 Nov 2024
- It’s a week that will bring about some clarity over domestic interest rate movements and the leadership of the ‘free world’ (putting aside the potential for lawsuits contesting the result…), with Wednesday NZT the focus of the action
- And, of course, Australia will stop on Tuesday afternoon for the 164th running of the Melbourne Cup (oh, and an RBA meeting)
- The Q3 NZ labour market this week is the most influential domestic data release ahead of the November 27 Monetary Policy Statement decision
Daily Alert: Flurry of data to round out the week
01 Nov 2024
- Robust economic data prints continue in the US, but disappointing corporate guidance weighs on US equities
- Markets continue to react to the UK government budget announcement (more borrowing), with UK bonds and the GBP lower
- Attention will now turn to US non-farm payrolls tonight, before everything is drowned out by the US election next week
Daily Alert: It’s all about the data
31 Oct 2024
- Stubbornly high Australian core inflation lifts the hurdle to RBA cuts in 2024, with our CBA colleagues now expecting a February 2025 start to 100bps of RBA easing over 2025
- Resilient US data has supported US short-term yields and seen a modest paring back in FOMC rate cut expectations, with little movement in US stock indices and a lower USD
- Much stronger than expected October private sector employment from the US ADP survey contrasts with soft expectations for October payrolls data at the end of this week
Commodities Weekly: ASB Commodities Index helped by a lower NZD
31 Oct 2024
- ASB’s commodity price index was up in NZD and SDR terms last week, but down in USD terms
- The NZD eased 1% over the week, which offset the decline in USD dairy prices
- This week the NZD has dipped below 0.6000 against the USD, trading in a 0.5950-0.6000 range over recent days
Q3 2024 Labour Market Data Preview: Protracted activity slowdown hits the labour market
31 Oct 2024
- September 2024 quarter labour market figures are expected to show the impacts of a protracted activity slowdown, with falling hiring, an unemployment rate touching 4-year highs, and with cooling labour cost growth
- Few signs of imminent economic recovery are evident, with the demand for workers expected to remain weak heading into 2025. The unemployment rate is set to approach 6% by mid-2025, until a modest labour market recovery unfolds. Labour cost growth should continue to ease
- Weaker Q3 labour market data figures should encourage the continued frontloading of monetary policy easing. We expect a 50bp cut in November, with 2025 OCR moves highly conditional on the economic outlook
Daily Alert: The waiting game
30 Oct 2024
- A quiet night in terms of data and events. Next week’s US elections remain too close to call, with markets speculating on what a Trump win would do, supporting the USD, US equities, and Bitcoin with gold prices hitting fresh record highs
- US labour market data showed signs of cooling, dampening Treasury yields, but storm disruptions and strikes will make it difficult to interpret upcoming figures
- The first UK budget of the new Labour Government is unveiled tonight, with markets wary of increases in crown borrowing
Daily Alert: Busy week ahead offshore
29 Oct 2024
- The combination of the Trump Trade and a soft US economic landing continue to be the dominant drivers of markets
- There is just over one week until the US Presidential election and we expect financial market volatility can lift as the election nears
- While the week ahead is quiet in NZ, the global release calendar is pretty packed
Economic Weekly: No Mutiny on the Te Putea Matua
29 Oct 2024
- RBNZ Governor Adrian Orr spoke in Washington last week on the subject “Navigating Monetary Policy Through the Unknown”
- In it he drew analogies from the great voyages of New Zealand’s Polynesian ancestors to the policy journey of central bankers as they navigate the uncertain times of the present
- Challenges for central bankers range from the recent heightened volatility, data timeliness and accuracy, and uncertainty over how the economy works
Commodities Weekly: ASB Commodities Index up in all denominations last week
25 Oct 2024
- ASB’s commodity price index was up in all denominations last week, helped by the latest lift in the forestry index, and a 0.5% reduction in the NZD (we will cover the forestry price change in next week’s report)
- The ASB index was up 1.2% in NZD terms last week, 1.1% in SDR terms, and 0.7% in USD terms
- Within the index, the overall dairy index was up 0.5% in USD terms last week
Daily Alert: Trend reversal
25 Oct 2024
- Global PMI data point to US economic outperformance, as expected
- Elsewhere, US stocks were largely higher and yields lower for the first time this week
- Expectations for more BoJ cuts this week eased following comments from BoJ Governor
Daily Alert: Bank of Canada cuts by 50bps, Orr signals measured cuts
24 Oct 2024
- Bank of Canada cuts by 50bps taking the policy interest rate to 3.75% (125bps of cuts this cycle) and keeps an easing bias
- This morning’s speech by RBNZ Governor Orr was of the big picture variety but suggested that the RBNZ will keep settings restrictive for the next few quarters given elevated domestic inflation, with future moves likely to be incremental
- Global stocks have fallen overnight despite generally positive corporate earnings. US yields have pushed higher, and the USD has strengthened. It could be US election jitters or the likelihood of pared back cuts by the Fed
Daily Alert: IMF trims 2025 global growth forecast
23 Oct 2024
- The International Monetary Fund lowered its global growth forecast for next year and warned of accelerating risks from wars to trade protectionism
- Sharemarkets were mixed overnight, with the three main US benchmarks in positive territory at the time of writing, while European markets were flat/down
- In NZ trade data in September, compared with September 2023, goods exports rose by $246 million (5.2%), to $5.0 billion, while goods imports fell by $67 million (0.9%), to $7.1 billion
Daily Alert: Quiet start to a quiet week
22 Oct 2024
- Sharemarkets were down in the US and Europe overnight, with the three main US benchmark indices ranging between -0.8% for the Dow, to flat for the Nasdaq at the time of writing
- The NZD traded in a relatively wide range vs. the USD overnight, ranging between 0.6027-0.6074, and starts the day near the bottom of that range
- Yesterday Treasury announced the launch of the syndicated tap of the 4.50% coupon 15 May 2030 nominal bond
Daily Alert: China’s growth challenges continue
21 Oct 2024
- In China GDP expanded by only 0.9%/qtr in Q3 2024 compared to the consensus expectation of 1.1%/qtr (CBA: 1.0%/qtr)
- The People’s Bank of China disclosed more details of its measures to boost capital markets minutes after authorities released the abovementioned data
- Sharemarkets were positive in the US and Europe on Friday night, with the three main US benchmark indices up 0.1-0.6% and the Euro Stox 50 index up 0.8%
Economic Weekly: Keep Calm and Carry on Cutting
21 Oct 2024
- Every piece of NZ data gets viewed for what it means for the size of the RBNZ’s next OCR cut: does it add weight to the case of a 25, 50 or even a 75bp cut?
- The most pivotal releases heading up to the next OCR decision are last week’s Q3 CPI release and the 6th November release of the Q3 labour data
- The CPI release was, overall, very close to general expectations, at 0.6% qoq and 2.2% yoy
Daily Alert: Pattern of resilient US data continues
18 Oct 2024
- Data remained resilient in both the United States and Australia, raising doubts on the pace and timing of cuts from the respective central banks
- Strong US data boosted treasury yields while equities faltered
- Meanwhile, the ECB cut interest rates as expected, with a dovish tilt to communications fuelling expectations for more easing
Term Deposit Report: Term deposit rates under pressure
17 Oct 2024
- Short-term deposit interest rates out to 1 year remain above 20-year averages
- However, the recent Reserve Bank (RBNZ) Official Cash Rate (OCR) cuts, and the expectation of more are weighing on the outlook
- Longer-term deposit interest rates have been easing since late 2023 as financial markets anticipated interest rate cuts by the RBNZ
Daily Alert: NZ inflation back to around 2%, with more OCR cuts to follow
17 Oct 2024
- NZ CPI inflation slightly undershoots market and RBNZ expectations, dampening the NZD and NZ yields. Sterling and UK yields did likewise after sharper than expected falls in inflation
- Global yields were generally lower overnight, with US and UK stock indices higher
- The ECB decision is tonight with markets and analysts aligned on expecting a 25bp cut. Cutting in 25bp increments seems to be the norm offshore, with NZ out on a limb (markets are toying with the possibility of 50bp OCR cuts in November and February). This could push the NZD lower heading into 2025
Home Loan Rate Report: RBNZ delivers a 0.5% cut, mortgages keep easing (Oct 17 update)
17 Oct 2024
- Central banks around the world including NZ held monetary policy at restrictive levels until recently to lower inflation
- NZ’s Official Cash Rate (OCR) was held at 5.5% since May 2023, the highest level since 2008
- But with inflation now cooling, the RBNZ has lowered the OCR in August 2024 (-0.25%), and again in October (-0.5%). Our view is the RBNZ will continue to reduce the OCR in November and over 2025
Commodities Weekly: Dairy price movements mixed at the latest GDT event
16 Oct 2024
- ASB’s commodity price index was up 0.8% in NZD terms last week, as the NZD eased 1% over the week
- The ASB index was down in USD and SDR terms last week
- Within the index, the overall dairy index was up 0.8% in USD terms last week and remains nearly 23% higher than a year ago
Daily Alert: Consumer price inflation in the spotlight
16 Oct 2024
- This week’s focus in New Zealand is on Q3 inflation data due at 10.45am this morning
- Offshore the data flow is picking up, with UK employment data released overnight, and UK CPI out tonight, and the ECB meeting on Thursday night
- Dairy prices eased at last night’s Global Dairy Trade event, with the GDT price index down 0.3%
2024 Q3 CPI Review: Inflation back near 2% already
16 Oct 2024
- Consumer prices rise 0.6% in Q3, with annual inflation down to 2.2%, its lowest since early 2021
- There were a multitude of policy and cost-induced changes that muddied the figures, although underlying inflation pressures look to be cooling and effectively at around 2%
- We expect a 50bp cut in November (4.25%), and a 3.25% OCR endpoint, but risks are tilted to more front-loaded policy easing
Home Loan Rate Report: RBNZ delivers a 0.5% cut, mortgages keep easing
16 Oct 2024
- Central banks around the world including NZ held monetary policy at restrictive levels until recently to lower inflation
- NZ’s Official Cash Rate (OCR) was held at 5.5% since May 2023, the highest level since 2008
- But with inflation now cooling, the RBNZ has lowered the OCR in August 2024 (-0.25%), and again in October (-0.5%)
Daily Alert: Soft landing hopes boost stocks
15 Oct 2024
- The US bond market was closed for the Columbus Day holiday, with no corporate earnings reports or economic data to impact sentiment. However, US stocks have hit record highs on soft landing bets, with the USD making gains
- Rhetoric from Fed policymakers has remained upbeat, talking up the prospect of a soft landing and downplaying the need for front-loaded monetary easing. Weak Chinese trade data likely underscores the need for more Chinese policy stimulus, with rumours Chinese authorities will launch a large bond issue to fund policy support measures
- Softish NZ services sector and card spending data suggests that the NZ economy is struggling, likely requiring more concerted monetary policy easing
REINZ Housing data September 2024: No significant momentum shift
15 Oct 2024
- House sales fell for a second consecutive month in September
- Meanwhile, house prices lifted slightly, the first time in four months
- New listings and total inventory levels continue to creep up and houses are taking longer to sell
Daily Alert: Eyes turn to Kiwi CPI
14 Oct 2024
- Sharemarkets were positive in the US and Europe on Friday night, with the three main US benchmark indices up 0.3-1.0% and the Euro Stox 50 index up 0.7%
- In the US, the preliminary October sentiment index declined to 68.9 from 70.1 in September, according to the University of Michigan
- Fitch Ratings put France on negative outlook a day after the government presented its 2025 budget
Electronic Cards Transactions September 2024: Subdued retail spending keeps door open to large OCR cuts
14 Oct 2024
- Card spending remained subdued in September despite income tax cuts and the prospect of lower interest rates
- Retail spending volumes are likely to have contracted further in Q3, as the consumer-led downturn continues
- We expect a 50bp OCR cut in November and a 3.25% OCR endpoint, but the trajectory of the OCR is heavily dependent on how household spending fares
Economic Weekly: Monetary Poker
14 Oct 2024
- The RBNZ played a bit of “I’ll see your 50”, with its second cut of the easing cycle matching the US Fed’s recent move for size
- The RBNZ debated the merits of cutting by 25bp or 50bp and concluded that a 50bp cut was “at this time” both consistent with its inflation objective and avoiding unnecessary instability in the economy and interest rates
- The RBNZ had its poker face on when it came to signals over the future pace of OCR cuts
Daily Alert: Fed balancing act highlighted
11 Oct 2024
- Stronger inflation data and weaker labour market data in the US spark questions around the ease of navigating a soft landing, and the likely pace of Fed rate cuts
- Equities took a breather while shorter-term US treasury yields eased following the CPI data
- ECB Minutes highlighted a growing disquiet at the state of the Eurozone economy, consistent with more easing by the ECB this year
Commodities Weekly: Lower interest rates and a lower NZD welcome news
11 Oct 2024
- ASB’s commodity price index was up 1.6% in NZD terms last week, as the NZD eased 3% off its recent peak near 0.6380
- The NZD has eased below 0.6100 this week, helped by the RBNZ’s decision to cut the Official Cash Rate by 0.5% at its October review
- The ASB index was down in USD and SDR terms last week, reflecting the NZD movement rather than changes in commodity prices
NZ Migration and Tourism - August 2024: Net migration rapidly slowing
11 Oct 2024
- Annual net immigration inflows fell to the lowest level since January 2023. There is a real risk inflows fall faster than earlier envisaged and that we see net PLT outflows in 2025
- Annual tourism arrivals remain well below pre-COVID peaks and shows few signs of pushing higher
- Falling net migration and a plateauing in tourism arrivals is consistent with our view that the OCR needs to return towards neutral relatively quickly. Another 50bp cut in November remains our base case
2024 Q3 CPI Preview: Approaching 2%
11 Oct 2024
- We expect a 0.7% quarterly increase in Q3 headline CPI, with annual CPI inflation falling to 2.2%, slightly below the August MPS pick
- Underlying inflation rates are likely to be lower than this and there is the risk of inflation settling well below 2% in the absence of further cuts to the OCR
- A 50bp cut in November and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR cuts hinges on how quickly the RBNZ would like to normalise settings
Daily Alert: 50bps cut delivered by RBNZ, with more to come
10 Oct 2024
- The RBNZ will be quietly chuffed in that it delivered a 50bp cut (to 4.75% OCR) as part of its policy normalisation journey and yet elicited modest market reaction. We currently expect a 50bp OCR cut in November and a 3.25% OCR endpoint
- Fed speakers have signalled as more gradual pace of policy easing given the stronger US outlook, with the FOMC Minutes showing considerable debate between a 25bp and 50bp cut
- Global yields, equities and the USD have pushed higher overnight ahead of tonight’s US CPI data
Daily Alert: Will they Orr won’t they
09 Oct 2024
- It’s all about the RBNZ today, with markets and analysts alike mostly picking a 50bp cut
- A lack of further policy stimulus out of China disappointed markets yesterday
- Little data overnight helped US markets settle somewhat from the Friday night NFP surprise
Markets Monthly: Central banks keep the downward pressure on rates
09 Oct 2024
- The RBNZ cut the OCR 0.25% at its August meeting and stepped up to a 0.5% cut in October
- RBNZ deliberations in October were between a 25bp and 50bp move
- ASB continue to expect another 50bp cut in November, then moves over 2025 will be even more conditional on the state of the economy
Review of RBNZ October Monetary Policy Review: I feel a need, a need for (a little bit of) speed
09 Oct 2024
- The RBNZ cut the OCR by 50bp, as had come to be largely anticipated by most forecasters
- An easing bias was maintained, but forward hints were non-committal, and the tone of data will heavily influence the November decision
- We continue to expect another 50bp cut in November, with smaller individual moves in 2025
Daily Alert: US bond yields lift further overnight, while shares retreat
08 Oct 2024
- This week’s highlight will be the RBNZ meeting on Wednesday
- Today’s focus is on Aussie, where the RBA Board meeting minutes are due, the Deputy Governor delivers a speech, and monthly reports on consumer and business sentiment are also released
- Meanwhile, US markets continue to react to Friday night’s US labour market data
Daily Alert: Non-farm payrolls surprise
07 Oct 2024
- This week’s highlight will be the RBNZ meeting on Wednesday
- A cut is expected – the question is how large?
- Last week’s data highlight was the US labour market data on Saturday morning
Economic Weekly: Hitting for six
07 Oct 2024
- The details in last week’s Quarterly Survey of Business Opinion (QSBO) were weak enough to start a veritable stampede of economists calling for the RBNZ to cut the OCR by 50bp this week – ourselves included
- The concerns for us have been that the OCR is a long way from where we judge the ‘goldilocks’ neutral level is, and that data releases like the QSBO show growing risk that the labour market is cracking, and that inflation is likely to fall more swiftly than the RBNZ has anticipated
- Our view is that the RBNZ will cut the OCR by 50bp at both the October and November announcements
Daily Alert: A second 50bp FOMC cut in question
04 Oct 2024
- Robust US data dampens expectations for more rapid FOMC rate cuts, while concerns over a further escalation in tensions in the Middle East reignites a risk-off mood
- Oil prices extended gains, with equities lower and yields and the USD higher
- Tonight’s US Non-Farm Payrolls report could inject some more volatility into markets. Traders will also be watching Middle East developments closely
Commodities Weekly: North of $9 – ASB lifts milk price forecast to $9.20
04 Oct 2024
- The big dairy news last week was Fonterra’s 2024 financial year results, and revised milk price and dividend outlook
- Fonterra’s Farmgate Milk Price for the 2023/24 season finished at $7.83 per kgMS, not far off the $7.80 midpoint from the late-season guidance range
- The total dividend of 55 cents per share for the past year was the second largest since Fonterra was formed
Daily Alert: 50-50 for the RBNZ
03 Oct 2024
- Yesterday we released our updated OCR forecast view, calling for 50bp OCR cuts in both October and November and a 3.25% terminal OCR
- The faster pace of OCR cuts expected for the RBNZ looks to be in contrast to the more measured pace of cuts being signalled by central bank voters offshore. Stronger than expected ADP payrolls data and caution against aggressive rate cuts offshore provided a boost to global yields
- Moves in global equity markets were modest, with the Yen lower overnight. Middle East tensions continue to boil away with Israel vowing to retaliate after the earlier Iranian missile attack
Daily Alert: Tensions rise
02 Oct 2024
- Israel has begun “targeted ground raids” in southern Lebanon
- Dairy prices lifted at the latest Global Dairy Trade event overnight
- The Q3 NZIER Quarterly Survey of Business Opinion showed modest signs of improvement from the dire Q2 readings, but still suggest that the economy is struggling
Preview of RBNZ October Monetary Policy Review: Mind the gap – and go 50
02 Oct 2024
- We expect the RBNZ to cut the OCR by 50bp at both the October and November meetings
- The OCR is too far above a neutral level, with the QSBO survey flagging the risk of weak inflation
- Timings of 50bp moves are not a done deal, but we expect 125bp of cuts by February 2025 and a 4% OCR
Daily Alert: It’s business time
01 Oct 2024
- NZ Business sentiment jumped further in the September ANZ Business Outlook survey
- US and European sharemarkets weakened overnight
- China PMIs indicate factory activity continued to contract while the services sector slowed in September
Quarterly Survey of Business Opinion 2024 Q3: Struggling and in need of interest rate relief
01 Oct 2024
- Q3 QSBO results showed modest signs of improvement from the dire Q2 readings, but still suggest that the economy is struggling
- Pricing indicators have dropped sharply with growing spare capacity in the labour market pointing to further drops in headline and core inflation below the inflation target midpoint
- Further OCR cuts are desperately needed, but the question is how quickly the RBNZ needs to reduce monetary policy restraint
Daily Alert: It’s not whether to cut, it’s by how much
30 Sep 2024
- Global yields have eased after cooling US and European inflation data, with the USD hitting fresh 2024 lows
- The Friday cut to the Reserve Ratio Requirement and further pledges of policy support by Chinese officials had earlier bolstered market sentiment and supported equities, although there was no equity market bounce in the US
- With an easing cycle underway, both here and abroad, the debate is shifting to the likely speed, duration and depth of the rate cut cycle. Markets await tomorrow’s NZ QSBO and US payrolls data at the end of this week
Economic Weekly: All about confidence – and jobs
30 Sep 2024
- The last bits of data ahead of next week’s OCR decision are business confidence surveys and an update on monthly jobs
- All three have some importance, the Quarterly Survey of Business Opinion (QSBO) the most
- The monthly jobs data are more in focus given job cuts seem to be stepping up of late in the current economic downturn
Daily Alert: US economic data resilient
27 Sep 2024
- Better than expected US economic data drove market moves overnight
- Whereas China continues to unveil more stimulus which has driven gains in China’s stock market this week – we still think more is likely to be announced
- Focus will now move to tonight’s US PCE inflation
Daily Alert: Central bank cuts continue
26 Sep 2024
- The Chinese PBOC and Swedish Riksbank have delivered rate cuts over the past 24 hours, with the Swiss National Bank widely expected to cut tonight
- Global yields have pushed higher overnight, with modest moves in equity indices. However, the path of least resistance for yields still looks to be lower as inflation drops and economies normalise post-COVID
- The issue for monetary policymakers is how quickly policy settings are normalised and whether monetary policy support (rather than restriction) will soon be needed
Daily Alert: The PBoC makes a splash
25 Sep 2024
- Global sentiment gets a boost from China’s monetary policy stimulus announcement yesterday, while an unexpected weakening in US consumer confidence weighed on US yields and the USD
- The Kiwi lifted to a 9-month high and led G-10 currencies
- Meanwhile, the RBA left rates on hold as expected, but Governor Bullock’s comment that a hike wasn’t explicitly considered was interpreted as slightly dovish (less hawkish) by markets
Daily Alert: RBA day – another hold expected
24 Sep 2024
- Last week’s focus was on the US Federal Open Market Committee meeting, as well as the Bank of England and Bank of Japan
- Today the Reserve Bank of Australia meet and are expected to hold rates steady
- It’s a quiet week on the local data front with no major releases
Regional Economic Scoreboard: Gisborne gets back to the top
24 Sep 2024
- Gisborne has moved up two spots to take the top spot in ASB’s growth-based rankings this quarter
- Gisborne’s last moment on the top of the podium within the Regional Scoreboard was before COVID
- Gisborne's construction pipeline and housing market were key factors behind the region’s top ranking
Commodities Weekly: More of the same
24 Sep 2024
- ASB’s commodity price indices were up in all denominations again last week
- The NZD pressed back above 0.6200 vis-à-vis the USD, muting the lift in NZD terms to 0.2% vs. the 1% gain in USD and SDR terms
- The Kiwi was up 0.9% within the index last week and is trading near 0.6270 at the time of writing
Daily Alert: RBA’s up next
23 Sep 2024
- Last week’s focus was on the US Federal Open Market Committee meeting, as well as the Bank of England and Bank of Japan
- In New Zealand, GDP fell 0.2% qoq in the June quarter (-0.5% yoy)
- Tomorrow the Reserve Bank of Australia meet and are expected to hold rates steady
Economic Weekly: The Fed swings the bat hard
23 Sep 2024
- So much for central bank gradualism – the US Fed kickstarted its easing cycle with a 50bp cut, which markets were far more certain than economists would happen
- The Federal Open Market Committee “judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
- The Fed, with its inflation and employment mandate, is keeping an eye on both holding up employment while ensuring inflation falls towards 2%
Commodities Weekly: Dairy and meat prices keep pressing higher
20 Sep 2024
- ASB’s commodity price indices were up in all denominations last week
- The NZD remained off its peaks against the USD over the week ending 13th September but has pressed back above 0.6200 this week
- The Kiwi was down 0.6% within the index last week and is trading near 0.6240 at the time of writing
Daily Alert: BoE opts for a different route to FOMC
20 Sep 2024
- The BoE opts to keep rates steady following the FOMC’s 50bp cut, with officials showing some lingering concerns about the inflation outlook
- Q2 NZ GDP went backwards as expected
- CBA push back RBA rate cut expectations amid ongoing strength in the labour market
Daily Alert: Fed cuts by 50bps as the journey of normalising settings begins
19 Sep 2024
- The Fed started their easing cycle with a larger than expected 50bp cut and signalled it will be dialling back restrictive monetary policy settings towards more neutral levels given greater confidence on the inflation outlook and concerns over the labour market
- NZ yields are likely to open lower this morning, with market expectations for OCR cuts to be bought forward. We think the RBNZ will have similar concerns to the Fed, with larger than 25bp cuts likely be on the table over the next few meetings
- Later today sees the release of Q2 NZ GDP and Australian August labour market data that could trigger additional volatility
Q2 2024 GDP Review: Economy stumbles in Q2
19 Sep 2024
- NZ economic activity fell 0.2% qoq in Q2 2024, roughly in line with our expectations
- The key driver of this quarter’s outturn was a fall in the primary sector, but there were signs of weakness throughout the data
- We don’t expect the data to change the outlook for the RBNZ, and we expect another 50bp of OCR cuts before the year is out
Daily Alert: Brace for volatility
18 Sep 2024
- Markets are in anticipation mode ahead of tomorrow’s Fed decision, Q2 NZ GDP, and Australian August labour market data
- Stronger US data and pre-Fed positioning have likely contributed to higher global yields, a higher USD, and rising commodity prices, while initial gains in US equities faded. Bank of Canada cut odds increased after inflation dropped to 2.0%
- Dairy prices rise overnight and we remain confident on our Fonterra $8.60 milk price forecast view
Daily Alert: The outlook for Thursday, your guess is good as mine
17 Sep 2024
- There was no major data released yesterday, and a public holiday in Japan
- The main news for the local market was Auckland International Airport’s capital raising
- Thursday’s FOMC decision is the focus of the week (6am NZT)
Daily Alert: Eyes on the Fed…then the Bank of England and the Bank of Japan
16 Sep 2024
- This week’s focus is on the US Federal Open Market Committee, AKA the FOMC, the Fed
- If that’s not enough central bank excitement, the central banks of England and Japan meet after the Fed, on Thursday night and Friday respectively
- In New Zealand, the data highlight will be Q2 GDP
Economic Weekly: Thursday Thrills
16 Sep 2024
- Thursday morning is the time to get up early, make a coffee, and see if the US Fed cuts rates by 25bp at 6:00am
- Markets have 35bp priced in out of the view there is a good chance the Fed does what no other major central bank has done and start easing with a big bang instead of central banker measuredness
- Attention will – probably – then turn to Thursday’s NZ Q2 GDP figure. We are picking -0.3% qoq, which is not a great figure to be forecasting
Daily Alert: ECB stays mum on next move
13 Sep 2024
- ECB cuts interest rates as expected but reiterates that there is no pre-determined path
- Market moves suggest that market participants were expecting a slightly more dovish tone
- In NZ, data yesterday was relatively subdued, with the picture still firmly one of weak demand and cooling inflation pressures
REINZ Housing data – August 2024: Remaining subdued regardless of the OCR cut
13 Sep 2024
- House sales in August declined, after a rebound in July
- House prices continued to fall, for the fourth consecutive month
- New listings and total inventory levels continue to creep up
Sustainable Economics: The energy challenge facing NZ
13 Sep 2024
- Soaring wholesale electricity prices captured the attention of all and sundry and for good reason
- The surge in prices disrupted the NZ economy. Q3 GDP will be weaker than would otherwise be the case. Export receipts will be impacted, and there is a risk of a rise in unemployment if more businesses close
- But it’s also put the spotlight back on the immense challenge involved in transitioning to a highly-renewable electricity system, where demand is also expected to grow at an unprecedented pace
Daily Alert: Firm core US CPI data reduces odds of 50bp Fed cut next week
12 Sep 2024
- US core CPI data was a tad firmer than expected, temporarily dampening equities, pushing US Treasury yields and the USD higher. Markets have also scaled back the odds of a 50bp Fed cut next week in favour of a 25bp move (27bps of cuts priced in)
- European yields were lower heading to the ECB decision overnight, with the market consensus aligned on a 25bp cut
- NZ August card spending data will be looked for signs of an income-tax cut boost (we expect a 1% increase), but we remain guarded on the household spending outlook. A small monthly fall is expected for August consumer prices
Commodities Weekly: NZD eases off peak while meat prices press higher
12 Sep 2024
- ASB’s commodity price indices were up in NZD terms last week, but down in USD and SDR terms
- The NZD has eased off its recent peak near 0.6300 against the USD
- The Kiwi was down 0.8% within the index last week and is trading near 0.6130 at the time of writing
NZ Monthly Prices - August: Cooling inflation trajectory continues
12 Sep 2024
- Overall monthly prices rose slightly in August, with annual inflation falling to 1.1%, its lowest since 2016
- This affirms our confidence that annual CPI inflation will fall below 2.5% in Q3 2024
- We are also confident that conditions are in place that will deliver sub 3% CPI inflation on a sustained basis even with OCR cuts
Q2 2024 GDP Preview: Soggy at best
12 Sep 2024
- We anticipate a 0.3% qoq contraction in Q2 GDP, marking the lowest level of GDP in two years
- The per-capita story is set to be even weaker, and already exceeds the GFC decline
- However, we expect we are near a turning point. Less restrictive monetary policy will increasingly support economic growth as we head into 2025
Electronic Cards Transactions August 2024: No signs of a spending spree here
12 Sep 2024
- Overall electronic card spending remained subdued in August
- Retail spending increased for the first time in the last seven months, albeit at a modest rate
- The tax cuts in July and the first OCR cut in August appear to have had minimal impact on household spending. This should give the RBNZ more confidence to further ease monetary policy
Daily Alert: US debate looms
11 Sep 2024
- The Trump-Harris presidential debate takes place this afternoon 1pm NZT and will be a major focus for the day ahead
- NZ Business Financial data yesterday provided some of the final pieces of information about the performance of various sectors over the 2nd quarter, ahead of next week’s Q2 GDP print
- UK’s ILO unemployment rate printed at 4.1% of the three months to July, down from 4.2% the month prior
NZ Migration and Tourism July 2024: Key supports eroding
11 Sep 2024
- Annual net immigration inflows fall to an early 2023 low, with the risk that net inflows fall faster than earlier envisaged and that net PLT outflows become more of the norm for 2025
- Annual tourism arrivals look to have plateaued well below pre-COVID peaks and shows few signs of pushing higher
- Less economic support from net migration and tourism point to further OCR cuts being needed
Daily Alert: The waiting game
10 Sep 2024
- With no top tier data out nor central bank speeches/comments delivered, not much happened in financial markets last night
- Global stocks staged a partial recovery following last week’s falls, with dip buyers returning. Moves were mixed in global bond markets as odds of a 50bp Fed cut next week were pared back. Commodity prices and the USD were generally firmer, with energy commodity prices unwinding earlier falls
- For markets, it is very much a waiting game ahead of July US CPI data on Thursday and next Thursday’s Fed decision. There is also the US Presidential debate tomorrow, which could be pivotal
Daily Alert: US labour market data weighs on the mood
09 Sep 2024
- In the US Non-farm payrolls rose by 142K last month, the Bureau of Labor Statistics data showed Friday
- US and European sharemarkets were down on Friday, following a mixed Asian session
- The seasonally adjusted volume of building work in New Zealand was $8.2 billion in the June 2024 quarter, down 0.2% compared with the March 2024 quarter, according to figures released by Stats NZ on Friday
Economic Weekly: The final building blocks for GDP
09 Sep 2024
- Our domestic focus will be the last data release that help tie down our Q2 GDP forecast, for which we will release a preview later this week
- At this point it still looks like the outcome will be a contraction of around 0.3% - 0.5%, with a 0.5% dip in line with the RBNZ’s forecast
- Even though interest rates are on the way down, there will still be some ‘bad’ news headlines to come through
Daily Alert: Waiting for payrolls
06 Sep 2024
- Mixed US data made for mixed markets, but overall, the emphasis remains on how strong or otherwise US non-farm payrolls prints tonight
- Markets are still pricing aver 100bp of FOMC cuts by the end of 2024
- In Australia, RBA Bullock didn’t budge from her recently hawkish stance, continuing to stress more might need to be done
Daily Alert: Cooling US labour market pushes global yields and the USD lower
05 Sep 2024
- Risk sentiment remains under the cosh, with the slowing US labour market triggering falls in global yields and the USD. Equities were lower again last night, but the pace of decline was slowing
- Bank of Canada cut by 25bps and flag more cuts ahead if inflation cools
- The focus for markets will remain on the US labour market data leading up to non-farm payrolls data this weekend and whether the Fed could start the rate cutting cycle with a 50bp move this month
Commodities Weekly: WMP prices ease
05 Sep 2024
- Average winning whole milk powder (WMP) prices eased 2.5% in the Global Dairy Trade event this week, following some impressive gains over August
- The WMP contract curve shown to the right captures the downward slope from very high prices for the contracts for near term delivery vs. the longer-term contracts
- This indicates some urgency to secure near-term supply, but also a reluctance to commit to paying up to secure WMP over the upcoming peak period of NZ production above US$3,300-$3,400 prices
Daily Alert: Shares slump ahead of key US employment data
04 Sep 2024
- US and European sharemarkets were weak overnight, following a mixed Asian session
- This morning the NZD is trading below 0.6190 against the USD and 0.9220 against the AUD
- ASB’s latest housing confidence report has been released this morning
Housing Confidence: Conflicted
04 Sep 2024
- There was a big jump in the proportion of respondents picking interest rates will fall rather than rise
- The last time this many respondents were picking interest rate falls was in Q3 2020 (when the RBNZ was contemplating negative interest rates)
- However, house price expectations dropped sharply in the three months to July
Daily Alert: Quiet start
03 Sep 2024
- It’s been a quiet start to the week, exacerbated by US markets being closed overnight to observe Labor Day
- Concerns about China’s growth outlook weighed on Chinese equities and some commodities
- Today, attention will be on the final puzzle pieces ahead of Australian Q2 GDP tomorrow
Daily Alert: US shares end the month on a positive note
02 Sep 2024
- US and European sharemarkets were spit on Friday, following a positive Asian session
- This morning the NZD is trading near 0.6250 against the USD and 0.9230 against the AUD, up on a week ago vs. both cross rates
- Aussie retail spending was flat in July after a couple of months of upbeat results, boosted by End of Financial Year (EOFY) promotional activity and discounting events
Economic Weekly: Candyfloss confidence
02 Sep 2024
- Yes, the economic mood is more upbeat with the prospect of lower interest rates feeding into improved expectations of the economy, business trading conditions, and consumer confidence
- It wasn’t too surprising to see this in the two ANZ surveys out last week, though in the case of business sentiment the jump has been particularly strong
- The surveying period straddled the OCR cut, though the results that came in after the news of the OCR cut weren’t appreciably different to the pre-cut responses
Commodities Weekly: NZD back on the rise
30 Aug 2024
- ASB’s commodity price indices were up in all denominations last week, but a 3% lift in the NZD muted the return when measured in NZD terms
- The NZD has been on the rise, and at the time of writing has just stopped short of breaking through 0.6300 against the USD
- Our CBA colleagues have recently adjusted their FX forecasts
Daily Alert: It’s hard being a unicorn
30 Aug 2024
- Nvidia’s consensus-beating earnings report wasn’t enough to stop a sell-off
- Markets will look to tonight’s PCE deflator to confirm that there’s nothing to suggest the Fed won’t cut rates next month
- NZ business confidence surges, but it remains to be seen whether this translates into business activity
Daily Alert: Still waiting
29 Aug 2024
- It was all about Nvidia, with market jitters triggering a modest US equity market selloff before its reported earnings results were released (due after the US equity market close)
- There was little major data released overnight and not a lot of central bank chatter. Moves in yields were modest with the USD gaining and oil prices down
- NZ data of late has been on a weakening trajectory with the focus on whether today’s ANZ Business Outlook signals that the worst is behind us
Daily Alert: The waiting game
28 Aug 2024
- Another quiet session overnight with modest market movements
- Equity markets are keenly awaiting corporate results from AI darling Nvidia (results are out tomorrow NZ time). A lot has already been priced in
- The tone from central bankers is that interest rate relief is on its way, but you’ll have to wait a bit longer
Daily Alert: Quiet start to the week, despite Middle East tensions
27 Aug 2024
- It has been a quiet start to the week on the economic data front, with no major releases here or abroad
- Meanwhile, geopolitical concerns continue in the Middle East following the weekend’s aggression in Israel and Lebanon, and we wait for the data flow to pick up from Wednesday onwards
- Oil prices have pressed higher overnight, with Middle East concerns a key factor
Daily Alert: The time has come
26 Aug 2024
- Last week was quiet on the data front, and the main focus was on FOMC Chair Powell’s speech at Jackson Hole
- Bank of England Governor Andrew Bailey said it is “too early to declare victory” over inflation but the risks of persistent inflation appear to be receding, a sign he’s growing more confident about further interest rate cuts
- NZ retail spending volumes fell 1.2% in Q2, slightly weaker than the 0.9% Q2 decline expected from the market consensus
Economic Weekly: Survey sighs of relief?
26 Aug 2024
- This week’s business and consumer sentiment surveys from the ANZ could show some signs that people were increasingly anticipating falling interest rates
- Although the RBNZ didn’t actually cut the OCR until some way into survey sampling, wholesale and retail rates were already heading lower and speculation of OCR cuts was rife
- Informal sentiment surveying (i.e. having conversations with people) suggests there is a mood of relief for the main, though understandably less joy amongst depositors
Daily Alert: Eyes on Jackson Hole to round out the week
23 Aug 2024
- Markets were busy mulling over the risk that FOMC Chair, Jermone Powell, may not endorse the significant rate cut cycle currently priced by interest rate markets tonight
- Yields rose, US equities were down and pricing for a September cut eased slightly to a 16% chance of a 50bp
- But there is still over 90bp of cuts priced for the remainder of 2024
Q2 2024 Retail Trade Review: Retail retrenchment resumes
23 Aug 2024
- Retail volumes fall 1.2% in Q2, as consumers hunker down. There were generalised falls by sector and region, with only a few bright spots
- Retail activity is expected to remain soft heading into 2025, as NZ population growth cools, inbound tourist numbers plateau, with households expected to save a decent chunk of their income tax cuts
- The OCR looks set to continue to move lower, with the pace of rate cuts partly conditional on how household spending fares
Daily Alert: Downward revisions to US payrolls boost Fed rate cut odds
22 Aug 2024
- Sizeable downward revisions to US non-farm payrolls from the annual benchmarking (the largest since the GFC) and the dovish July Fed Minutes set the market tone
- This looks to have locked in a September rate cut by the Fed and has pushed global yields and the USD lower, whilst providing a lift to global stocks
- The focus returns to comments by Fed Chair from Jackson Hole tomorrow
Commodities Weekly: Prices surge at the latest Global Dairy Trade event
22 Aug 2024
- ASB’s commodity price indices were up in all denominations last week
- The NZD was little changed over the week, while most of the underlying prices within the indices rose
- Dairy prices were up a modest 0.4% in USD terms within the index, but those prices were cut before the price surge in this week’s Global Dairy Trade event
Daily Alert: High hurdle for RBA rate cuts
21 Aug 2024
- Market participants await FOMC Chair Powell’s comments at Jackson Hole on Friday night for guidance on prospects for next month’s FOMC meeting
- We didn’t see any fresh information from the RBA meeting minutes yesterday
- A pleasing development has been a strong lift in dairy prices, which is welcome news for farmers
Term Deposit Report: Term deposit rates expected to keep declining
21 Aug 2024
- Most term deposit interest rates remain above 20-year averages, despite recent reductions
- However, longer-term deposit interest rates have been easing since late 2023 as financial markets started to anticipate eventual interest rate cuts by the RBNZ
- The RBNZ is now cutting the OCR and the 4- and 5-year TD rates are below their 20-year averages
Daily Alert: Waiting for Chair Powell
20 Aug 2024
- Last week’s focus was on the Reserve Bank of New Zealand as it began its easing cycle
- Market participants await FOMC Chair Powell’s comments to the Kansas City Federal Reserve’s annual Economic Policy Symposium at Jackson Hole on Friday night for guidance on prospects for next month’s FOMC meeting
- We aren’t expecting any fresh information from the RBA meeting minutes today
Home Loan Rate Report: Mortgage rates move lower, RBNZ starts cutting OCR
20 Aug 2024
- Central banks around the world including NZ have held monetary policy at restrictive levels until recently to lower inflation
- NZ’s Official Cash Rate (OCR) was held at 5.5% since May 2023, the highest level since 2008
- But with inflation now cooling, the RBNZ has lowered the OCR in August 2024, and in our view will continue to reduce the OCR at upcoming meetings later this year and over 2025
REINZ Housing data – July 2024: Higher activity not translating into higher prices
20 Aug 2024
- House sales in July increased sharply, after a deep fall in June
- House prices decreased slightly, and houses are taking longer to sell
- New listings and total inventory levels continue to creep up
Quarterly Economic Forecasts: The light at the end of the tunnel is starting to shine
19 Aug 2024
- The economy has been showing increasing signs of brittleness under the continued pressure from high interest rates
- Painful as it is though, inflation is getting under control
- Recent signs suggest the RBNZ can be confident inflation will fall below 3% over the second half of this year and remain well contained beyond 2024
Daily Alert: A quieter week ahead after last week’s rate cut
19 Aug 2024
- Last week’s big focus was on the Reserve Bank of New Zealand as it began its easing cycle
- Offshore market participants will now look ahead to FOMC Chair Powell’s comments to the Kansas City Federal Reserve’s annual Economic Policy Symposium at Jackson Hole this week for guidance on prospects for next month’s meeting
- ASB’s latest quarterly economic forecasts have just been released
Economic Weekly: When Doves Fly
19 Aug 2024
- After a relatively nail-biting time, the RBNZ did cut the OCR by 25bp last week
- It’s the doves rather than the hawks who are flying higher now that the RBNZ has embarked on what is set to be a sustained easing cycle
- As we foreshadowed in our preceding Weekly and our preview, it was material shifts in the RBNZ’s economic forecasts that primarily triggered the cuts
Daily Alert: It’s all about the data
16 Aug 2024
- There were further falls to NZ yields yesterday following weaker than expected NZ consumer price and retail figures
- We have nudged our H2 2024 CPI forecasts lower and now expect annual readings of around 2.3% for the second half of 2024, in line with the RBNZ view
- Offshore data was mixed, but stronger than expected US labour market and retail data have underscored the resilience of the US economy, pushing global stocks, commodities, global yields and the USD higher
Daily Alert: RBNZ cuts by 25bps, signals more cuts to come
15 Aug 2024
- RBNZ cuts the OCR by 25bps (to 5.25%) and signals an OCR of around 3.75% by the end of next year. NZ yields and the NZD fall after the decision, taking Australian yields down with them
- We expect a further 50bps of OCR cuts by year end with the OCR down to 3.25% by late 2025. OCR moves will be conditional on the inflation outlook
- In line with consensus US inflation data looks to have sealed the deal on a September Fed rate cut., with markets increasingly gravitating towards a 25bp move. Market action was modest
Daily Alert: Big day for RBNZ
14 Aug 2024
- The local focus is fair and square on the RBNZ at 2pm today. We expect a 0.25% OCR cut today
- Offshore the UK and US CPI are the focus for tonight
- The US producer price index rose less than forecast overnight
Review of RBNZ August Monetary Policy Statement: Starting gun fired
14 Aug 2024
- The RBNZ cut the OCR by 25bps. Market expectations were roughly divided about the outcome
- As flagged, the RBNZ slashed its growth forecasts, leading to a quicker decline of forecast inflation pressures
- The RBNZ has foreshadowed a substantial easing cycle: we expect steady 25bp cuts to around 3.25%
Daily Alert: Gurus and buffoons
13 Aug 2024
- RBA Deputy Governor Andrew Hauser’s comments had no discernible impact on the Aussie financial market, which would have been desired
- US and European sharemarkets were mixed overnight, following a similarly mixed session in Asia where Japan’s markets were closed for a public holiday, while Chinese benchmarks were lower
- This morning the NZD is trading near 0.6020 against the USD and 0.9140 against the AUD, slightly firmer than yesterday morning
NZ Migration and Tourism June 2024: Easing economic support suggests the OCR needs to be cut
13 Aug 2024
- Net immigration inflows remain on a cooling trajectory, driven by cooling arrivals and rising departures
- We expect the pace of net inflows to continue to cool, with the support from past migration strength fading. Annual tourism arrivals look to have plateaued well below pre-COVID peaks
- The erosion of key legs of economic support suggests that the OCR needs to be cut
Commodities Weekly: At sixes and sevens
13 Aug 2024
- ASB’s commodity price indices were up in all denominations last week
- The NZD eased over the week, and dairy, sheep, and beef prices lifted
- Being at sixes and sevens normally means confusion or disarray, but when it comes to sheep and beef prices, the high $6s and early $7s per kg prices continue the recent pattern of tight markets and strong prices
Daily Alert: Will they or won’t they?
12 Aug 2024
- Will or won’t the RBNZ pull the rate cut trigger on Wednesday?? That’s the question market participants will be mulling until 2pm on Wednesday
- Markets finished the week with a sense of calm, the complete opposite to how last week started
- But more volatility is likely as investors continue to assess the health of the US economy and timing and scope of US Fed rate cuts
Economic Weekly: Give it a nudge, Guv
12 Aug 2024
- We have tipped over to forecasting that the RBNZ will indeed start cutting the OCR this week, by 25bp, and continue to cut consecutively by 25bp at subsequent meetings
- We said a few weeks ago that if we were the Monetary Policy Committee we would be leaning to towards a cut, but that the RBNZ tends to be more deliberate
- We judge, though, that the RBNZ will have now also reached the point where it too assesses it needs to cut the OCR sooner than later
Sustainable Economics: Counting down to 2030
12 Aug 2024
- As it stands, there will be a sizeable gap between domestic emissions and NZ’s NDC1 budget
- New Zealand is three and a half years into its first Nationally Determined Contribution (NDC1)
- NDC1 is the first emissions reduction ‘goal’ NZ is seeking to achieve as a signatory of the 2015 Paris Agreement
Daily Alert: RBNZ cuts to start next week
09 Aug 2024
- Yesterday we changed our official view, we now expect the RBNZ will deliver a 25bp rate cut at its 14 August Monetary Policy Statement – i.e. next Wednesday
- Offshore, focus remains firmly on the health of the US economy and potential timing of Fed rate cuts
- A drop in jobless claims helped to spread a sense of calm through markets overnight
Markets Monthly: Central banks get moving, markets get rattled
09 Aug 2024
- Recent New Zealand data tilts the risks towards earlier and larger OCR cuts than market participants and analysts (including ASB economists) were thinking earlier this year
- ASB’s view is that the three remaining OCR decisions over 2024 are effectively ‘live’
- Other countries are grappling with the outlook for interest rates
Commodities Weekly: NZD lifts off recent lows. GDT encouraging
09 Aug 2024
- ASB’s commodity price indices were up in SDR and USD denominated terms last week, but down in NZD terms
- That reflects a firmer NZD, which lifted off recent lows and was up 1.3% last week, after falling over the preceding weeks
- Nonetheless, the NZD is down on year-ago levels, and trading around current levels at or below 0.60 vis-à-vis the USD continues to be a positive theme for exporters now
Daily Alert: August OCR cut still possible as NZ labour market cools
08 Aug 2024
- NZ yields and the NZD rise after Q2 labour market figures were in line with RBNZ expectations but stronger than the market consensus. %. In our view, there are still plenty of reasons for why an OCR cut next week is on the cards
- Markets overnight were initially buoyed by increased risk appetite after BOJ Deputy Governor Uchida delivered a ‘put’ option to markets, by suggesting that the BOJ will not hike rates if markets remained unstable
- However, initial moves were reversed after a weak 10-year US Treasury auction, with US equities mildly in the red
RBNZ Survey of Expectations – 2024 Q3
08 Aug 2024
- Inflation expectations fall for all measures, with inflation expectations from the closely watched 2-year ahead measure down to 2.03%, its lowest since 2021 Q1
- Longer-term inflation expectations look to be anchored around 2%, suggesting a high degree of confidence that sub 3% inflation outcomes will be achieved and maintained
- Low inflation expectations reinforce the likelihood of an August MPS cut. We now expect a 25bp OCR cut next week
Preview of RBNZ August Monetary Policy Statement: Carpe diem
08 Aug 2024
- We think the RBNZ will cut the OCR by 25bps on August 14 – much earlier than the RBNZ would previously have contemplated
- It’s a close call: it depends heavily on the extent to which the RBNZ’s outlook has softened
- The messaging will be important: we expect the RBNZ to signal measured cuts and a data dependent approach to temper market exuberance
Daily Alert: RBA holds, sharemarket rout takes a breather
07 Aug 2024
- With no significant upside surprise on inflation nor downside surprise to labour market data, the RBA was widely expected to leave policy on hold, which it did yesterday
- Now the focus shifts to the NZ labour market data today
- Meanwhile the sharemarket rout took a breather yesterday, with Japan’s Nikkei benchmark recovering 10% over the Asian session, and US and European benchmarks largely positive
Q2 2024 Labour Market Data Review: Unemployment rate climbs and wage growth cools
07 Aug 2024
- Q2 labour market data printed on the stronger side of market expectations, but was in line with the RBNZ view, with the unemployment rate rising to a 3-year high
- Labour cost growth in the private sector proves to be higher than market expectations, but still falls to its lowest annual rate in 2 years, with the wage and distributional figures showing signs of cooling
- Despite the resilient result an August OCR cut is very much live. We expect a cut in October if not before
Daily Alert: RBA expected to hold the cash rate today
06 Aug 2024
- Last week investors digested three major interest-rate decisions
- This week the central bank focus shifts to Australia
- With no significant upside surprise on inflation nor downside surprise to labour market data, the RBA should be content to leave policy on hold
Daily Alert: RBA is the next central bank to take the stage
05 Aug 2024
- The Bank of Japan met and raised its policy rate by 15bp to 0.25%, the second rate hike in some 17 years
- The US FOMC also met and as widely expected kept rates steady
- The Bank of England, the last advanced central bank to meet last week, cut interest rates by 25bp to 5.0%
Economic Weekly: Labour data hold the rate key
05 Aug 2024
- Wednesday’s Q2 labour market release is pivotal for its implications
- Given the importance of this release, Mark has put together a very detailed preview on what we expect and where the risks lie
- The key points are that the labour market is likely to show a greater pace of softening than was occurring through to late 2023
Daily Alert: BoE joins the cutting camp
02 Aug 2024
- The Bank of England joins the ECB and BoC by cutting interest rates overnight
- But in a common theme in cuts to-date, the Bank appears to be starting on what will be a cautious cutting cycle
- Weak US economic data also garnered much attention overnight, with a risk off trade emanating through equities and bonds
Daily Alert: Australian hawks fly the coop
01 Aug 2024
- The Bank of Japan lifted interest rates but didn’t slow bond purchases as much as expected
- The US Federal Reserve kept rates on hold and flagged that it is closer to meeting its inflation target
- Australian CPI data suggested the RBA is likely to keep the cash rate on hold rather than lifting it at the upcoming meeting
Daily Alert: Bank of Japan kicks things off today
31 Jul 2024
- This week investors will digest Federal Reserve, Bank of Japan, and Bank of England interest-rate decisions and results from the big tech heavyweights, including Meta Platforms, Apple, and Amazon
- Eurozone gross domestic product rose 0.3% over Q2, sustaining the same pace as it did during Q1 2024
- German consumer prices rose 2.6% from a year earlier in July, up from 2.5% the previous month
Commodities Weekly: NZD/USD slips further and trades under 0.5900
31 Jul 2024
- ASB’s commodity price indices were down in SDR and USD denominated terms last week, but up in NZD terms
- That reflects the lower NZD, which sank 2.1% last week, after falling 1.7% over the preceding week
- A lower NZD is a positive development for exporters now
Q2 2024 Labour Market Data Preview: Following the economy down
31 Jul 2024
- June 2024 quarter labour market figures are expected to show further easing in labour market conditions, with the unemployment rate climbing to its highest level in more than 3 years and with cooling annual labour cost growth
- The demand for workers is expected to remain weak, with little if any growth in overall employment expected over the next 12 months and with the unemployment rate set to move above 5.5% by mid-2025. Labour cost growth should sharply cool
- The weaker labour market outlook should prompt OCR cuts before year end. We expect 25bp cuts in both October and November, but the tone of incoming data and other factors will impact what the RBNZ actually do
Daily Alert: The week starts tomorrow
30 Jul 2024
- Quiet start to the week, with market participants firmly looking ahead to the numerous key events and data which are scheduled to start from tomorrow
- US yields continue to edge lower while equities were flat to higher, with expectations that the FOMC will soon start easing the Fed Funds rate driving both
- The BoJ is up first though (tomorrow), with a rate hike and reduction in bond purchases on the cards
Daily Alert: Central banks and big tech earnings in focus
29 Jul 2024
- This week investors will digest Federal Reserve, Bank of Japan, and Bank of England interest-rate decisions and results from Microsoft (Tuesday), followed by Meta Platforms, Apple, and Amazon over the subsequent days (Bloomberg)
- ANZ’s monthly NZ consumer confidence lifted in July but is by no means sitting at lofty levels
- The US Personal Consumption Expenditures index was 2.5% higher in June than a year earlier, slower than May’s 2.6% annual lift, and in line with economist expectations, data released on Friday showed
Economic Weekly: When bad news is good news?
29 Jul 2024
- Finally, it has felt a bit calmer on the news front. Computers have got back to work without further strikes
- There have been no further political dramas, with Kamala Harris appearing to get increasing support amongst US Democrats as their party’s nomination for President
- Solidifying support around her, if it results in an uncontested presidential candidacy, would reduce some of the short-term volatility associated with the election outcome and markets’ real-time pricing of the anticipated economic outcomes
Daily Alert: Soft landing ahead (not NZ)
26 Jul 2024
- US economic data generally prints on the high side of expectations, boosting the soft-landing narrative
- Equities bounced off the back of that narrative, with the stock rotation visible again in the US
- In New Zealand, swaps continue to fall as markets price in a greater chance of an August RBNZ rate cut
Markets Monthly: The tide turns
25 Jul 2024
- Recent New Zealand data tilts the risks towards earlier and larger OCR cuts than market participants and analysts (including ASB economists) were thinking earlier this year
- ASB’s view is that the three remaining OCR decisions over 2024 are effectively ‘live’. We have changed our OCR call and now expect 25bp cuts in both October and November 2024 (50bps in total)
- The timing and magnitude of OCR cuts remains heavily data dependent and will also hinge on whether the RBNZ feels confident that inflation will settle in the 1-3% inflation target range
Daily Alert: No news is good news
25 Jul 2024
- The Bank of Canada cut its overnight lending rate by 25bps to 4.5%, its 2nd consecutive 25bp cut, and signals more cuts are to come. Canadian short-term yields and the CAD drop after the decision
- Global yield curves have steepened, with lower short-term yields but higher long-term rates. Global equities have faced a reality check, with the S&P 500 and Nasdaq down on disappointing earnings reports
- NZ yields continue to grind lower as markets anticipate RBNZ cuts. NZ yields have moved a long way. We still view the August OCR decision as being ‘live’
Daily Alert: Corporate earnings in the spotlight
24 Jul 2024
- US politics dominates the headlines, with support building behind Vice President Kamala Harris to be the Democrat Party presidential nominee
- The immediate focus for equity markets has shifted from US politics and the Fed to corporate earnings, but to date US Treasury yields and the USD have barely budged since President Biden’s exit from the 2024 Presidential race
- Lower NZ yields and the expectation of pending RBNZ OCR cuts have continued to weigh on the NZD
Daily Alert: Support for Vice President Harris grows
23 Jul 2024
- After President Biden’s exit from the race yesterday, Vice President Harris appeared to have a clear path to the Democratic nomination
- The People’s Bank of China on Monday surprised markets and cut the seven-day reverse repo rate, a key short-term policy rate, in the first reduction in almost a year
- US and European sharemarkets were positive overnight, while markets were largely lower earlier on in Asia
Daily Alert: President Biden steps out of the race
22 Jul 2024
- Financial markets open this morning to read the news that US President Biden is exiting the 2024 election race
- In Asia, the focus was on China’s twice per decade economic policy planning meeting, the Third Plenum
- The NZ focus last week was on the NZ Q2 24 CPI
Economic Weekly: Seeing Blue….and just do it (soonish)
22 Jul 2024
- The last few days has all been about the colour blue
- Friday’s CrowdStrike issue brought the end to the workday for many Windows users as the Blue Screen of Death flashed up
- Disruption to payments systems and many other critical functions hit for a period in NZ and elsewhere
Commodities Weekly: NZD eases on lower NZ interest rate expectations
22 Jul 2024
- ASB’s commodity price indices were down in SDR and USD denominated terms last week, but up in NZD terms
- That reflects the lower NZD, which sank 1.7% last week. A lower NZD is a positive development for exporters now
- The NZD decline buffered softer USD dairy prices within the index. Higher meat prices continued to support the ASB commodity indices
Daily Alert: ECB hold, future depends on the data
19 Jul 2024
- The slow easing in Aussie economic data continued yesterday, with the unemployment rate creeping higher in June, and enough to keep the RBA on the sidelines for now
- The ECB left rates on hold but have opened the door to a data-dependent cut in September
- The US labour market is also on a cooling trajectory, but it’s been modest so far, much like in Australia
Commodities Weekly: Dairy weakness weighs on ASB Commodities Indices
19 Jul 2024
- ASB’s commodity price indices were down in all denominations last week, with lower dairy prices more than offsetting higher meat prices for another week
- Dairy prices within the index were down 1.1% in USD terms last week (prices preceding this week’s Global Dairy Trade event)
- Meat prices were up in NZD and USD terms last week with tight supply supporting sheep and beef prices
Daily Alert: Softer NZ CPI data sees ASB change its OCR call
18 Jul 2024
- NZ Q2 CPI surprises to the downside, but NZ yields and the NZD rise, likely reflecting some profit taking trades. ASB changed its OCR call: we now expect 50bps of OCR cuts over 2024 (25bps in both October and November)
- Concerns over a looming trade war with China has triggered falls to US stocks overnight, with little impact on US yields or the USD
- Yesterday the Japanese yen extended gains against the USD (it has held around 156 USD overnight) and other major currencies, reflecting potential currency intervention by the BOJ
Daily Alert: CPI day
17 Jul 2024
- The Trump-trade is likely to remain a key theme in global financial markets in the near term, and underpinned the USD, US equities and US bond yields earlier in the week
- New Zealand markets today will be very preoccupied with the Q2 CPI print and what that means for rate cut timings here
- US June retail sales printed on the higher side of expectations, with sales excluding cars and petrol rising 0.8% mom (0.2% expected) and May sales were also revised higher
Consumers Price Index – 2024 Q2: Underlying price pressures rapidly cool
17 Jul 2024
- Q2 inflation surprises the RBNZ to the downside again, with annual CPI inflation down to 3.3%, its lowest since mid-2021. Highly restrictive OCR settings are generating significant traction
- Non-tradable inflation has been slower to cool but this is partly reflective of cost driven influences that monetary policy should seek to look through. Stripping out some of these cost increases suggests that annual CPI inflation is already well below 3% and is rapidly cooling
- Today’s data tilts the risks towards earlier and larger OCR cuts. All remaining OCR decisions over 2024 are effectively ‘live’. In our view a 25bp OCR cut in November looks to be the bare minimum of what the RBNZ will need to deliver over 2024
Core Consumer Prices – 2024 Q2: Core inflation cools and ASB changes its OCR view
17 Jul 2024
- Q2 core inflation cools for both overall and non-tradable inflation measures. Importantly, the sequence of data revisions is now downwards
- We have changed our OCR call and now expect 25bp cuts in both October and November 2024 (50bps in total)
- The timing and magnitude of OCR cuts remains heavily data dependent and will also hinge on whether the RBNZ feels confident that inflation will settle in the 1-3% inflation target range
Daily Alert: Trump names Ohio Senator JD Vance as his running mate
16 Jul 2024
- Financial markets have remained calm following the unsuccessful assassination attempt on former US President Donald Trump during the weekend
- US Federal Reserve Chair Powell said second-quarter economic data has provided policymakers greater confidence that inflation is heading down to the central bank’s 2% goal
- In NZ, REINZ data for June showed the housing market continues to weaken
Daily Alert: It shouldn’t come to this, but it has
15 Jul 2024
- Financial markets open this morning with concern about the violence of an unsuccessful assassination attempt on former US President Donald Trump during the weekend
- US and European sharemarkets were all in the green on Friday night, with shares up in the US and Europe, while markets were mixed earlier on in Asia
- The NZD starts the week trading near 0.6110 against the USD and 0.9020 against the AUD
Economic Weekly: US politics take a dark turn
15 Jul 2024
- Financial markets open this morning with concern about the violence of an unsuccessful assassination attempt on former US President Donald Trump during the weekend
- It was a sad day for America, with Trump injured, and two people dying
- Respectfully, people will be wondering about how financial markets will react
REINZ Housing data – June 2024: It’s more than a winter chill
15 Jul 2024
- House sales in June fell sharply, 13% down compared to May, the weakest since April 2023 (seasonally adjusted)
- House prices decreased slightly, and houses are taking longer to sell
- New listings and total inventory levels continue to creep up
Commodities Weekly: Dairy drop sends ASB Commodities Indices lower
12 Jul 2024
- ASB’s commodity price indices were down in all denominations last week, with lower dairy prices the main driver
- Dairy prices within the index were down 3.0% in USD terms last week, catching the same downdraft we observed in last week’s Global Dairy Trade event
- In contrast, meat prices were up in NZD and USD terms last week with tight supply sending lamb prices higher
Daily Alert: Softer prices here, there, and everywhere (kind of)
12 Jul 2024
- Softening price pressures remain evident in New Zealand data, which continues to leave the door open to at least 25bp of cuts in 2024
- US annual core inflation eased to the lowest level in over three years
- Markets take the June CPI print as a signal that Fed rate cuts could start as soon as September and the market reaction was swift
Term Deposit Report: Rates continue to drift lower
12 Jul 2024
- Most term deposit interest rates remain above 20-year averages
- However, longer-term deposit interest rates have been easing since late 2023 as financial markets started to anticipate eventual interest rate cuts by the RBNZ
- The ASB economics team think that most term deposit rates will ease further over the year ahead. At the same time, with inflation rates also declining, real investment returns can remain positive
Electronic Cards Transactions June 2024: Bleak
12 Jul 2024
- Pronounced weakness in private demand remains very evident in June electronic card spending
- Retail spending is almost 5% below the nominal peak in April 2023 and is back to levels last seen in mid-2022
- In the absence of a post-tax change spending spree, we are confident that restrictive monetary policy has done its job and that the RBNZ will loosen policy from later in 2024
Daily Alert: Dovish RBNZ hold heightens risk of 2024 OCR cuts
11 Jul 2024
- NZ yields and the NZD down after the dovish RBNZ hold. The tone of forthcoming data will be key, but we see the heightened risk of 50bps of OCR cuts by year end by the RBNZ
- There was little market reaction to the Powell testimony, with the Fed trying to manage market expectations of when rate cuts are coming. The equity market has not gotten the memo with expectations of lower yields boosting stocks and pushing the S&P500 and Nasdaq to fresh record highs
- Tonight’s US CPI data will be pivotal, with monthly pricing data for NZ likely to be on the radar screen for local markets ahead of next week’s NZ Q2 CPI data release
Home Loan Rate Report: The tide’s turning
11 Jul 2024
- Central banks around the world have held monetary policy at restrictive levels for a protracted time to lower inflation. New Zealand is no exception
- The Official Cash Rate (OCR) has been at 5.5% since May 2023, the highest level since 2008
- But with inflation now cooling, many central banks have either started, or are getting ready, to ease
Monthly CPI data – June 2024: Inflation on cooling trajectory despite June lift
11 Jul 2024
- Our monthly add-up shows that consumer prices rose just 0.1% in June. This was slightly weaker than we had expected
- Underlying pricing pressures look extremely soft, with prices essentially flat in Q2
- Annual CPI inflation remains well on track to fall below 3% in the second half of 2024, and we are increasingly confident it will settle in the 1-3% inflation target range. We expect a 25bp OCR cut in November, but the softness of the pricing side data heightens the risk of RBNZ cuts coming sooner and being larger over 2024 than previously thought
2024 Q2 CPI Preview: Cooling as the economy weakens
11 Jul 2024
- We expect a 0.4% quarterly increase in headline CPI over Q2, with headline inflation falling to 3.3%, its lowest since early 2021. Risks are tilted to the upside. Data due on 17 July
- We are increasingly comfortable that sub 3% inflation will be achieved in the second half of 2024 and that conditions are in place that will sustain 1-3% inflation
- A 25bp OCR cut in November is our base case scenario, but the softness of the pricing side data heightens the risk of RBNZ cuts coming sooner and larger over 2024 than previously thought
Daily Alert: Powell gives markets little to go on
10 Jul 2024
- Powell appears to have largely stuck to the script overnight, with only modest market moves off the back of his testimony to Congress
- In Australia, business conditions continued to ease in June, with confidence now below long-term averages
- US Treasury yields were modestly higher across the curve after Powell’s comments, but the shorter-term yields have since pared gains
NZ Migration and Tourism May 2024: Migration continues to weaken
10 Jul 2024
- May’s monthly net migration inflow for the month hit the lowest since the border was reopening
- We expect the net inflow to remain modest, driving down the annual net inflow rapidly
- Tourism arrivals continue to lift, albeit more gradually. The Chinese market is recovering more rapidly
Review of RBNZ July Monetary Policy Review: RBNZ well on track for pre-Christmas cut
10 Jul 2024
- The RBNZ kept the OCR unchanged at 5.5%, as was universally expected
- There were plenty of early signs that the RBNZ is starting to eye up data for when it should cut the OCR
- We are confident the RBNZ will cut in 2024, in November by 25bp at the least if not earlier or bigger
Daily Alert: Nous attendons… we wait
09 Jul 2024
- In France, the election result has surprised, with the left wing ‘New National Front’ coalition securing the largest share of seats, President Macron’s party second, and Le Pen’s ‘National Rally’ falling to third spot
- In Japan, sample adjusted full time pay rose by 2.7%/yr in May, from 2.1%/yr previously, a strong rate of growth by Japanese standards
- New housing lending in Australia unexpectedly fell in May against expectations of an increase (consensus: +1.8%, CBA: +3.5%)
Daily Alert: France turns left
08 Jul 2024
- Polling in France suggests that French voters have turned left in Sunday’s vote
- In US employment data, the headline Non-farm Payroll print showed 206k jobs were added in June
- Global sharemarkets were mixed on Friday night, with shares up in the US, down in Europe, and mixed in Asia
Economic Weekly: The scales are tipping for the RBNZ
08 Jul 2024
- Last week we changed our OCR forecast and now expect the RBNZ will start cutting the OCR from November this year, by 25bp
- In recent weeks our commentary had started to flag that the risks were tilting to an earlier cut than our February 2025 forecast
- And last week the weights tipped more heavily to the earlier start
Daily Alert: Watching the polls
05 Jul 2024
- US markets were closed overnight for the Independence Day Holiday in the US
- Equities were broadly higher in the markets that were open overnight, still being helped somewhat by the weaker US data
- Government yields in Europe also lifted, with polls suggesting a far-right majority in France won’t materialise
Daily Alert: USD and US yields drop on weaker US data
04 Jul 2024
- With markets on data watch mode, softer than expected US labour market data drove the USD and global yields lower, with the S&P500 hitting record highs
- The Fed Minutes suggests that Fed rate cuts will be a matter of when and not if
- The US holiday season looming, with political developments (UK and French Elections) likely to be centre stage
Household Sector Outlook: Household reset underway and the role of the 3 drivers
04 Jul 2024
- The current difficulties being experienced by NZ households are largely a hangover from factors that inflated spending and the housing market during the COVID-era boom
- The remainder of 2024 looks to be challenging as employment prospects weaken
- There will be a silver lining to households as weaker inflation should result in interest rate relief to household borrowers. OCR cuts could come as soon as 2024
Preview of RBNZ July Monetary Policy Review: Let’s get it started
04 Jul 2024
- We have changed our OCR outlook – we expect the RBNZ to cut the OCR from November this year
- From 2021 through 2023 inflation pressures proved sticky, aided by a still-resilient labour market
- However, the cracks in households are starting to spread – inflation will be next
Commodities Weekly: ASB commodity prices up in all denominations
04 Jul 2024
- ASB’s commodity price indices were up in all denominations last week, with firmer meat prices and a lower NZD behind the moves
- Dairy prices within the index were down 0.1% in USD terms last week
- Meat prices were up in NZD and USD terms last week with both sheep and beef prices lifting higher
Daily Alert: OCR cuts may come sooner as pricing pressures fade
03 Jul 2024
- Our OCR call is under review following weak business sentiment data, with the risk that the RBNZ starts cutting later in 2024 as opposed to early 2025
- The RBA Minutes emphasised that the tone of data will have a key bearing on the Australian cash rate direction
- Political events continue to hog market headlines and dictate market direction
Regional Economic Scoreboard: It’s seriously Southland!
03 Jul 2024
- Southland has rocketed up ASB’s latest Regional Scoreboard to dethrone Auckland from the number one spot this quarter
- After an 11th place finish last quarter, Southland has proven it is a force to be reckoned with
- Southland’s construction and housing sectors have boomed. They recorded the fastest building consent growth throughout the country, and well above average house price growth
Daily Alert: Horse Trading
02 Jul 2024
- French President Macron’s centrist alliance and the left-wing New Popular Front are deciding whether to pull candidates from the second round of the legislative election on Sunday to keep the far right out of power
- Before then, the UK election takes place on 4 July
- In the US, the Institute for Supply Management’s manufacturing gauge was little changed at 48.5 in June compared with 48.7 a month earlier, data overnight showed
Quarterly Survey of Business Opinion Q2 2024: Moving in the right direction – OCR cuts by year end a distinct possibility
02 Jul 2024
- Q2 QSBO results suggest that the protracted downturn in NZ will continue for a while yet
- Pricing and cost pressures are easing, with increasing spare capacity particularly evident in the labour market
- Today’s results are hugely encouraging for the RBNZ. OCR cuts before year end remain a distinct possibility. Our OCR call is under review
Daily Alert: France votes for change
01 Jul 2024
- In France, Marine Le Pen’s National Rally appears on track to lead the first round of France’s legislative election taking place in France on Sunday
- In US data, the US core personal consumption expenditures price index for May (excludes food and energy items) increased 0.1% from the prior month - the smallest advance in six months
- China’s factory activity contracted for a second month in June according to the official manufacturing purchasing manager index that printed at 49.5
Economic Weekly: Cooling the inflation jets?
01 Jul 2024
- In last week’s ANZ Business Outlook survey, we saw expected cost pressures and pricing intentions ease further
- Both survey responses are back in line with 10-year average levels, a signal that inflation pressures are starting to normalise
- However, inflation expectations within the survey are still elevated
Daily Alert: Strong Australian CPI data heightens RBA hike speculation
27 Jun 2024
- Australian yields and the AUD jump after headline and core CPI inflation surprised to the upside, taking NZ yields along with them
- Global yields pushed higher last night, and the strong USD returned, pushing the greenback above 160 yen and triggering speculation that the Japanese authorities will soon step in to support the yen
- The speech tonight by RBA Deputy Governor Hauser (we are looking for a potential tonal shift after the CPI data) and the US PCE deflator (mkt: 2.6% yoy for both headline and core inflation) at the end of the week are the key focal points for markets in NZ over the next few days
Daily Alert: Question mark on a July BoC rate cut
26 Jun 2024
- Canadian inflation surprises to the upside, impacting yields, the CAD and market pricing for Bank of Canada rate cuts
- The first of three US Treasury auctions this week was well received
- Australian consumer confidence rose slightly on a seasonally-adjusted basis in May, but remains weak in an outright sense
What to make of higher shipping costs: High shipping costs unlikely to have as big an inflation impact
26 Jun 2024
- The run up in shipping costs have been swift – with a trebling in some rates over the last 12 months
- There are good reasons to expect a considerably more modest inflation impact in NZ in 2024 than during the COVID-19 shipping cost spike
- We still expect annual NZ CPI inflation to fall below 3% by year end. However, persistently high shipping costs provides some upside risk
Daily Alert: Just waiting for inflation data
25 Jun 2024
- Quiet night overnight, with little for markets to really sink their teeth into
- Nvidia continues to slide, with the three-day decline surpassing 10%
- Meanwhile, USD was broadly weaker overnight while US yields were little changed
Daily Alert: US activity may be accelerating but weaker signs elsewhere
24 Jun 2024
- Perceived outperformance by the US economy dictated market direction. June US services PMI rose to 55.1, its highest in more than 2 years, indicating that the US economy is accelerating. This contrasted with generally weaker than expected data elsewhere
- The strong US data has supported the USD, with yields little moved and gold prices down. Yen weakness has continued
- Markets await data from the US PCE deflator (mkt: 2.6% yoy for headline and core) at the end of this week to assess the case for FOMC rate cuts
Economic Weekly: One up
24 Jun 2024
- Q1 GDP eked out a 0.2% quarterly gain, close to our expectation for a 0.1% increase
- That technically brings NZ out of recession, both the ‘technical’ two quarters of contraction and also putting annual growth back in the black
- However, we caution about getting too excited. There is a chance of a slight dip in Q2, given some of the more recent data that have come out
Daily Alert: NZ exits recession, for now
21 Jun 2024
- Central banks either cut or got closer to cutting overnight, with the SNB and BoE meeting overnight
- The Bank of England (BoE) opted to keep rates on hold at 5.25%, but signs are pointing to a central bank that is getting ready to ease
- NZ Q1 GDP rose by 0.2% qoq, ending the technical recession of H2 2023
Daily Alert: GDP in focus today, Bank of England tonight
20 Jun 2024
- The highlight of this week’s local data is Gross Domestic Product at 10:45 this morning
- New Zealand’s seasonally adjusted current account deficit widened by $0.3 billion to $7.3 billion in the March 2024 quarter, according to figures released by Stats NZ yesterday
- The NZD has eased slightly lower and is trading around 0.6130 against the USD and 0.9190 against the AUD this morning
Commodities Weekly: Dairy prices ease off recent peak
20 Jun 2024
- Dairy prices eased at this week’s Global Dairy Trade event, reversing some but not all of the gains made at the previous event earlier in June
- This week’s auction (event 358) concluded with the GDT price index down 0.5%, while the price index rose 1.7% at event 357
- This week the whole milk powder index declined 2.5% with an average price of US$3,394/MT
Q1 2024 GDP Review: Still flat
20 Jun 2024
- NZ economic activity rose slightly in the March 2024 quarter, roughly in line with our expectations
- The key drivers of this quarter’s small rise were a lift in primary production, increases in some services components and the ‘unallocated’ component
- Strong population growth continues to mask just how weak the NZ economy has been over the last 18 or so months
Daily Alert: Global yields down overnight on weaker US retail data
19 Jun 2024
- RBA hold rates but Australian yields and the AUD rose after RBA Governor Bullock said a rate hike was considered by the RBA board
- US yields and the USD ease on weaker than expected US retail data, with the S&P500 touching record highs
- We expect some volatility in NZ yields and the NZD after the speech by the RBNZ’s Conway this morning on NZ inflation
Daily Alert: Going nowhere soon
18 Jun 2024
- REINZ house prices remain roughly rangebound at present
- Activity in New Zealand’s services sector dropped to its lowest level of activity for a non-COVID lockdown month since the survey began, according to the BNZ – BusinessNZ Performance of Services Index (PSI)
- The PBoC left the medium-term lending facility rate unchanged at 2.50%
Daily Alert: Another week, another bunch of central bank meetings
17 Jun 2024
- For the past two weeks we’ve been focussed on central bank meetings, with the ECB and BoC cutting, and the US FOMC and BoJ holding
- US consumer sentiment unexpectedly fell to a seven-month low in early June, dropping to 65.6 from 69.1 in May, according to the preliminary reading from the University of Michigan
- NZ consumer prices fell 0.7% in May
REINZ Housing data – May 2024: Reversal of fortune
17 Jun 2024
- NZ house prices fell slightly in May, and house sales reversed the gains of recent months
- Stock for sale continues to edge up, with sales not keeping up with new market listings
- We expect prices to lift only marginally over 2024, and to gain traction once interest rates fall in 2025
Economic Weekly: Some slivers of hope?
17 Jun 2024
- Thursday brings us Q1 GDP. As alluded to last week, we are forecasting a positive outcome: +0.1% quarterly growth
- Such an outcome would be a margin-of-error lift, mirroring 2023 Q4’s marginal -0.1% contraction
- Anything that isn’t negative would put an end to the ‘technical recession’ that got a lot of airplay back in March
Daily Alert: French political uncertainty impacting markets
14 Jun 2024
- US data supports expectations that the FOMC will ultimately cut the Fed Funds rate in 2024
- US initial jobless claims lifted to a 9-month high overnight
- Australian labour market data was firm, with almost 40,000 jobs added in May, and a slight fall in the unemployment rate to 4.0% (from 4.1%)
Monthly CPI data – May 2024: Pricing pressures cooling
14 Jun 2024
- Our monthly add up shows that consumer prices fell 0.7% in May, with annual inflation trending lower
- Pricing pressures are cooling. Monetary policy is working
- Annual CPI inflation remains on track to fall below 3% before year end. This could provide scope for the RBNZ to deliver OCR cuts in 2024 providing that the circumstances warrant it
Daily Alert: Lower US inflation trumps upward tweaks to Fed dot plots
13 Jun 2024
- Fed holds and shades down rate cuts in dot plots with only 25bps of cuts over 2024
- With the Fed in data dependent mode, weaker CPI data pushes global yields and the USD lower, with equities gaining
- NZ yields are expected to open lower today
Electronic Cards Transactions May 2024: Weakness abounds
13 Jun 2024
- Card spending once again highlights that NZ consumers’ wallets are well and truly on the ice amid widespread headwinds
- We expect challenging conditions for the retail sector to prevail over much of 2024
- High interest rates are clearly weighing on consumer spending, but the RBNZ needs to see more evidence that this is flowing through into lower inflation before it considers cutting the OCR
Daily Alert: Inflation focus ahead of the FOMC
12 Jun 2024
- Today’s Chinese producer and consumer price inflation data and US consumer price inflation data (out tonight) provide a warmup for the two important central bank meetings that follow on Thursday and Friday for the US FOMC and Bank of Japan
- The NAB Business Survey for May was released in Australia yesterday
- UK labour market data showed the jobless rate climbed to 4.4% in the three months through April
NZ Migration and Tourism April 2024: Trending lower as kiwis leave the nest
12 Jun 2024
- Continued volatility in the monthly figures remain, but the pace of net migration inflows remains on a cooling trajectory
- Record numbers of kiwis depart as NZ loses its lustre. This, combined with moderating arrivals of non-NZ citizens is expected to drive net migration inflows lower over time
- Annual tourism inflows into NZ modestly tick up, with the risk that the recovery may be running out of puff and reducing a key leg of support. Nonetheless, the firmly on hold stance from the RBNZ remains prudent for now
Daily Alert: French twist
11 Jun 2024
- It was a quiet start to the week in our time zone, with no local data, and a public holiday in Australia
- This week the focus will be on two more central bank meetings - the US FOMC and Bank of Japan
- A Bloomberg article overnight comments that French President Emmanuel Macron’s snap election decision has rattled investors, raising further questions about already stretched public finances and the future of his pro-business agenda
Q1 2024 GDP Preview: Up but definitely not away
11 Jun 2024
- We expect the NZ economy rose 0.1% qoq in Q1, bringing an end to H2 2023’s ‘technical’ recession
- However, we don’t expect this to mark a change of fortunes for NZ, with more weakness likely while monetary policy settings are restrictive
- The per capita story will remain particularly weak, with Kiwis being left with an even smaller share of the economic pie
Daily Alert: Underway
10 Jun 2024
- Last week both the Bank of Canada (BoC) and European Central Bank (ECB) cut interest rates by 25bp as expected
- This week the focus will be on two more central banks - the US FOMC and Bank of Japan
- In the US, non-farm payrolls (employment) advanced 272,000 in May, the Bureau of Labor Statistics report showed Friday night, beating all projections in a Bloomberg survey of economists
Economic Weekly: Two down
10 Jun 2024
- And off we go. Two central banks cut interest rates last week, by 25bp: the Bank of Canada (a dead cert) and the European Central Bank (likely but not as assured)
- That obviously adds to the global vibe of impatience, given the line-up of countries that – like NZ – are waiting for that moment when their own central bank also reaches that point when inflation is sufficiently tamed
- We continue to forecast that the RBNZ won’t cut the OCR until next February, a view that other forecasters have gravitated to
Daily Alert: ECB follows through with rate cut
07 Jun 2024
- The ECB met expectations by cutting interest rates by 25bps at their policy meeting overnight, the first rate cut since 2019
- The US yield curve steepened, but moves were very modest ahead of tonight’s Non-Farm Payrolls report
- US equities paused their recent rally, with investors looking ahead to tonight’s payrolls data for direction
Daily Alert: Bank of Canada cuts by 25bps, ECB likely to follow
06 Jun 2024
- The Bank of Canada cuts its policy interest rate by 25bps overnight and signals more are to come if progress in lowering inflation continues. The ECB is almost certainly expected to join the rate cut club with a full 25bps cut almost priced in for tonight’s decision
- Cooling data help push US yields lower overnight, with US stock indices hitting record highs
- The issue for markets will be how quickly the Fed follows through with rate cuts. We suspect it could be a while yet, which could hold up NZ yields for now
Daily Alert: Eyes on Aussie GDP and then Bank of Canada tonight
05 Jun 2024
- The big focus for the week is on the Bank of Canada (BoC) and the European Central Bank (ECB)
- Australia's current account unexpectedly swung into deficit in the first quarter as imports jumped and prices for commodity exports fell
- Dairy prices were robust at the Global Dairy Trade Event overnight, with the GDT Price Index up 1.7%
Daily Alert: Are we there yet?
04 Jun 2024
- Offshore, the big question this week will two of the major advanced central banks begin to cut interest rates? Both the Bank of Canada (BoC) and the European Central Bank (ECB) meet this week
- In US economic data, personal income lifted 0.3% in April (survey: +0.3%)
- In Australia the Fair Work Commission (FWC) delivered a 3.75% increase in award and minimum wages, broadly in-line with consumer prices, as Aussie households continue to tackle higher borrowing and soaring living costs
Economic Weekly: What’s my number?
04 Jun 2024
- The public focus of the Budget was around what tax cuts would be given, and how they would be paid for
- In the end, the tax cuts were slightly more generous than we thought given the underlying economic circumstances
- And, although the tax cuts are matched over time by identified savings, it’s still the case that the underlying economic picture means taking on even more debt that will take longer to pay down
Commodities Weekly: Fonterra takes a cautious approach to next season
31 May 2024
- Fonterra updated its farmgate milk price forecast guidance this week
- Fonterra’s current season milk price midpoint was maintained at $7.80 per kgMS, with the forecast range narrowed to $7.70-$7.90 (from $7.50-$8.10)
- In terms of ASB’s forecast milk price for 2023/2024, we now adopt Fonterra’s midpoint of $7.80
Daily Alert: Budget 2024 should keep the RBNZ hawkish
31 May 2024
- A weaker economic backdrop has translated into a softer fiscal outlook, with a delay in the return to OBEGAL surpluses until 2027/28 and a higher profile for Crown debt features of the 2024 Budget
- In the NZ building consents data, the seasonally adjusted number of new dwellings consented fell 1.9% compared with March
- In Australia, yesterday’s capex report was positive
NZ Budget 2024 Review: More work to do
31 May 2024
- A weaker economic backdrop has translated into a softer fiscal outlook, with a delay in the return to OBEGAL surpluses until 2027/28 and a higher profile for Crown debt
- Budget 2024 contained a fiscal policy pivot towards tax relief that was balanced by cutbacks in operational spending. The tax cut package was only modestly scaled back from earlier proposals
- Fiscal policy settings do not appear to be as contractionary and front loaded as in the December 2023 update. This will not be greeted fondly by the RBNZ, which is still battling to restrain domestically-generated inflation pressure
Daily Alert: Budget time
30 May 2024
- Budget 2024 is handed down at 2pm today
- The US economy expanded at a “slight or modest” pace across most regions since early April and consumers pushed back against higher prices, the Federal Reserve said in its Beige Book survey of regional business contacts
- Consumer prices in Germany climbed 2.8% year-on-year, more than the 2.7% median estimate in a Bloomberg survey
Housing Confidence: Nearing a tipping point?
29 May 2024
- Interest rate expectations have shifted with more people now expecting rates to fall
- Net 44 per cent of respondents think house prices will increase, however this fell slightly from net 51 per cent in the previous three months
- The country remains divided on whether it is a good time to buy or not with just net 2 per cent saying it is a good time – unchanged from the last quarter
Daily Alert: Debt-to-Income restrictions incoming
29 May 2024
- Yesterday the RBNZ announced it would both ease Loan-to-Value Ratio (LVR) restrictions and activate Debt-to-Income (DTI) restrictions from 1 July 2024
- More recently, it’s been debt servicing, rather than debt to income that has been the bigger constraint on household borrowing
- This morning ASB released its latest Housing Confidence Survey for the three months to April 2024
Daily Alert: Press snooze after long weekend in the UK and US
28 May 2024
- The session was extremely quiet overnight given the Bank holiday in the UK and Memorial Day holiday in the US on Monday
- Eurozone yields ease and Eurozone stocks gain after ECB member de Galhau did not rule out consecutive ECB cuts in June and July
- NZ filled jobs data to date has been strong, but we believe that the April figures at 10:45am today could start to reveal the hiring slowdown
Daily Alert: Budget 2024 highlights the week
27 May 2024
- Budget 2024 on May 30 will be the first of the new coalition government and is the highlight of the local data calendar
- Budgets typically aren’t a big financial market mover, but interest will be higher this week given the expected increase in debt issuance and potential to impact the RBNZ outlook
- With a UK election on 4 July, the Bank of England have cancelled all speeches by individual policy makers during the election campaign
Economic Weekly: Uptight – but not tightening
27 May 2024
- The RBNZ’s Monetary Policy Statement last week did not reveal the anticipated serenity of a duck gliding over an admittedly slightly choppy pond, or the composure of the band on the deck of the Titanic
- The added anxiety over the persistence of domestically-generated inflation pressures was greater than we had anticipated: the RBNZ made it clear that the moment for cutting interest rates is more distant than it previously judged
- The RBNZ is also worried that inflation expectations could get boosted by some of the high-profile price increases that are occurring, such as council rates going up at an unheard-of pace and the sharp lifts in insurance premiums
Daily Alert: US economic resilience pushes yields higher
24 May 2024
- Proof of continued US economic resilience and the high for longer interest rate message FOMC members look to be the key market drivers overnight
- US Treasury yields have pushed higher, US stocks have weakened and the USD has lifted from earlier lows
- It is proving trickier than expected to push inflation down and this dynamic is dominating market action. Inflation concerns look that they could resurface in the Eurozone after negotiated pay increased by 4.7% in the March 2024 year, up from 4.5% over 2023
NZ Budget 2024 Preview: The timing matters
24 May 2024
- A weaker economic outlook will mean that the first Budget of the new coalition government is expected to show a softer fiscal outlook, with a delay in the return to OBEGAL surpluses and a higher profile for Crown debt
- The tax cut package will be sold as being fiscally and economically neutral, with spending cutbacks broadly matching the tax cut package. This may not be the case
- The RBNZ has shown little tolerance for fiscal largesse and will be hoping that the Budget delivers a more front-loaded and larger contractionary impact. If not, OCR cuts could be pushed further back
Daily Alert: Was that hawkish Orr what?
23 May 2024
- Yesterday the RBNZ kept the OCR on hold at 5.5%, as widely expected
- The RBNZ’s forecasts have inflation holding up higher for longer, with inflation not back to 2% until 2026 (though it is a rounding error from that mark over the second half of 2025)
- UK CPI inflation dropped to 2.3% from 3.2% in March
Q1 2024 Retail Trade Review: Dead cat bounce?
23 May 2024
- Retail volumes rose in Q1, the first quarterly increase in sales volumes since Q4 2021. Nevertheless, weak demand was still very evident when digging a little deeper
- The durables recession is ongoing, with spending across areas like furniture and hardware continuing to fall sharply. Per capita retail activity is also continuing to decline as households limit spending
- Despite the headline lift, retail activity remains weak, and should help to bring inflation back to target in time. However, the RBNZ proved yesterday that it requires much more concrete evidence that domestic inflation will fall sustainably before it entertains the idea of easing monetary policy. It’s a 2025 story at this stage.
Daily Alert: Much ado about nothing
22 May 2024
- Yesterday in Australia the RBA minutes detailed why the board did nothing with the Aussie cash rate
- Aussie bonds tracked sideways despite moderately hawkish May RBA Minutes that suggested tightening was a closer call than RBA staff forecasted
- Canada’s annual rate of core inflation eased for a fourth straight month
Commodities Weekly: Eyes on the RBNZ
22 May 2024
- ASB’s commodity price indices were mixed last week, with a 2% lift in the NZD a key factor behind the moves
- Dairy prices within the index were down 1.3% in USD terms last week, with the prices capturing the market prior to last night’s Global Dairy Trade event
- Meat prices were up in NZD and USD terms last week with both sheep and beef prices lifting slightly higher
Review of RBNZ May Monetary Policy Statement: Keep calmish and carry on holding
22 May 2024
- The RBNZ kept the OCR at 5.5%, as widely expected, but was more wary about inflation risks
- The persistence of service-sector inflation has the RBNZ expecting inflation and the OCR will hold up for longer
- We continue to expect the RBNZ will remain on hold until early 2025, but the risks are tilted to a later start
Daily Alert: Central bank speak
21 May 2024
- Cleveland Fed President Loretta Mester said policymakers need to wait for more evidence about the path of inflation before adjusting interest rates
- Meanwhile, the Bank of England will be able to cut interest rates “some time over the summer” if second round inflation pressures drop away as expected, according to Deputy Governor Ben Broadbent
- Global sharemarkets were largely positive yesterday
Daily Alert: Eyes turn to the RBNZ
20 May 2024
- The Chinese economic data on Friday was mostly weaker than expected, except a 1.0%/mth lift in industrial production
- The final eurozone CPI data printed as expected on Friday night, with April’s final CPI +2.4% y/y and Eurozone April core CPI ex energy, food, alcohol and tobacco +2.7% y/y, in line with the flash estimate
- Global sharemarkets were mixed on Friday
Economic Weekly: Monetary and fiscal policy to dominate the rest of the month
20 May 2024
- The RBNZ releases its Monetary Policy Statement on Wednesday at 2pm
- After the RBNZ calmed the waters in February over the (low) likelihood of further OCR increases, the significance of each policy decision by the RBNZ has moved back to the signals it gives about how long it will wait until cutting the OCR
- Over the February and April decisions the RBNZ proved tolerant of surprises on either direction
Daily Alert: Dow cracks 40,000 but productivity matters for NZ
17 May 2024
- Dow (briefly) tops 40,000 be supported by the ‘Goldilocks’ US economy, the prospect of eventual FOMC rate cuts and solid corporate earnings
- However, there are fears that global equities might be overstretched, with markets wary of overexuberance
- Yields and the USD higher after Fed members reiterate the high for longer message
NZ Productivity Update: Time for a Productivity Reset
16 May 2024
- NZ’s productivity growth has been on a declining trajectory since the late 1980’s/early 1990’s and this productivity performance has weakened since the COVID-19 outbreak
- Our research suggests that weak productivity performance is likely to be a factor behind NZ’s sustained high inflation
- We are hopeful that productivity will rebound, making the RBNZ’s job of delivering low inflation that much easier
Daily Alert: US shares rally to record
16 May 2024
- Global sharemarkets were positive overnight
- In NZ the S&P/NZX 50 Index was down 0.8% yesterday
- The NZD is top of the G10 pile over the past 48 hours and for the second day running posted gains on all the cross rates
Commodities Weekly: Where next for the NZD?
16 May 2024
- ASB’s commodity price indices rose in all denominations last week, with a lift in dairy prices a key driver as the NZD held steady around $0.6000 vis-à-vis the USD
- Dairy prices within the index were up 2.9% in USD terms last week, with the sub index picking up some of the gains in the last week’s Global Dairy Trade event (covered in last week’s ASB Commodities report)
- Meat prices were up in NZD and USD terms last week with both sheep and beef prices lifting
Preview of RBNZ May Monetary Policy Statement: A year of holding steady
16 May 2024
- We expect the RBNZ to keep the OCR at 5.5% and continue signalling OCR cuts are some time off
- News since the April decision suggest some stickiness in inflation pressures, yet more subdued growth
- We continue to expect the RBNZ will cut the OCR in February 2025, later than market pricing implies
Daily Alert: Australian Budget in surplus for now
15 May 2024
- In the Australian Budget, stronger revenue has indeed delivered a second successive underlying cash surplus in 2023-24, albeit the $9.3bn result was slightly weaker than the $15bn our CBA colleagues expected
- It was a heavy day for kiwi data yesterday, with REINZ housing data released, as well as tourism, migration, and card spending data from Stats NZ
- In the UK labour market unemployment rose, and private-sector wage growth eased in the latest data overnight
Daily Alert: Sticky inflation
14 May 2024
- NZ food prices rose in April, however annual food price inflation remains at close to 3-year lows
- In the RBNZ Survey of Expectations, one-year-ahead mean inflation expectations eased to 2.73% (from 3.22% in Q1), the lowest in three years
- Meanwhile US consumers expect prices will climb at an annual rate of 3.3% over the next year after hovering around 3% for the past four months, a Federal Reserve Bank of New York survey showed
REINZ Housing data – April 2024: Sluggish
14 May 2024
- NZ house prices were flat in April, as the patchy performance since late 2023 continues
- Houses are taking longer to sell, with the median time taken extending to 43.7 days (seasonally adjusted)
- New listings and total inventory levels are creeping up. We expect prices can eventually lift from current levels, albeit at a modest rate until interest rates fall
Markets Monthly: Too early to declare victory
14 May 2024
- The RBNZ remains confident it is on track to meet its inflation goals
- But sticky domestic inflation data released in April led ASB economists to push out the forecast for the first RBNZ Official Cash Rate (OCR) cut
- Data in May has added to the view the RBNZ will be wary of the risk of declaring victory too soon, with the OCR unlikely to be moved lower until 2025
Electronic Cards Transactions April 2024 and Travel and Migration March 2024: Consumers hibernate as net immigration inflows cool
14 May 2024
- March migration figures continue to slow, with negative historical revisions confirming we are past the turning point, with further softening likely
- April card spending has remained subdued as consumers keep their wallets shut given mounting headwinds
- High interest rate settings are clearly working to crimp consumer spending, but the RBNZ will want to see more progress on reducing inflation before cutting the OCR
Daily Alert: Consumer sentiment falls in the US
13 May 2024
- The University of Michigan survey’s headline consumer sentiment index deteriorated to 67.4 in May’s preliminary print, from 77.2 in the final reading for April — below the consensus expectation of 76.2, and the weakest reading for about six months
- China’s consumer price index rose 0.3% from a year earlier, the National Bureau of Statistics said Saturday
- UK gross domestic product jumped 0.6% in the first quarter compared to the previous three months the Office for National Statistics said on Friday
Monthly CPI data – April 2024: Sticky
13 May 2024
- Food prices rose in April, however annual food price inflation remains at close to 3-year lows. Many other prices also lifted over the month
- Our add-up of the monthly CPI series suggests price gains are too robust on a quarterly basis. The RBNZ will remain acutely aware of the risk that sticky prices halt the recent declining trend
- Inflation is much more contained than it was 12 months ago. However, continued evidence of stickiness in some areas means it’s much too soon to declare mission accomplished. OCR cuts are unlikely to be delivered until early 2025
RBNZ Survey of Expectations – Q2 2024
13 May 2024
- Shorter-term inflation expectations continued to trend lower in Q2. Meanwhile, longer terms were largely unchanged
- The RBNZ will be pleased to see inflation expectations broadly drifting lower to levels that are more consistent with the RBNZ’s 1-3% inflation target
- Nevertheless, today’s Selected Price Indices reinforced that there are still pockets of inflation pressures evident and the RBNZ will be wary to move too soon. We don’t expect OCR cuts will be delivered until early 2025
Economic Weekly: Household fare
13 May 2024
- It’s that time of the monthly data release calendar when we get some further insights into how households are faring in this environment of high interest rates and high (but falling) inflation
- Things started out with the April Selected Price Indices this morning that account for 45% of the CPI basket
- They confirmed that some of the price pressure on households is easing
Daily Alert: BoE holds, Gilt yields down, Treasury yields mixed, NZD up, Nat out
10 May 2024
- The Bank of England has left rates on hold overnight, as had been expected by forecasters and financial markets
- A lift in US jobless claims has helped push Treasury yields lower a smidgen lower overnight
- Yields elsewhere have been mixed as markets continue feverishly speculating on when the global easing cycle can commence
Daily Alert: Press snooze
09 May 2024
- A period of consolidation for markets as they await forthcoming corporate earnings results and US inflation data. There was no major data released overnight
- US Treasury yields have modestly pushed higher, halting falls in recent days. The early May rally in US equity markets looks to be fizzing out, as markets await guidance from upcoming corporate earnings results. Moves in the major currencies were modest
- The focus this morning will be on the BOJ Minutes with the BOE decision tonight (no change expected)
Daily Alert: RBA keeps things chill
08 May 2024
- The RBA opted to hold the cash rate yesterday, in line with the expectations of both the market and our CBA peers
- In other Aussie data yesterday, retail sales fell 0.4% qoq over the first quarter, broadly in line with expectations
- Overnight, data flow has been pretty modest, leaving markets to continue drifting on Fed-related angst and speculation over whether the recent tech-fuelled rally can sustain itself
Commodities Weekly: Dairy prices looking good
08 May 2024
- Commodity prices within ASB’s index were mixed last week, with currency movement and a drop in the forestry sub index key factors within the changes tabled
- Dairy prices within the index were up 0.4% in USD terms last week (ahead of last night’s solid GDT event)
- Meat prices were up 0.5% in NZD terms last week (up for lamb, flat for beef)
Daily Alert: OECD says RBNZ has limited scope to cut the OCR this year
07 May 2024
- Consistent with ASB’s view, the Organisation for Economic Cooperation and Development believe the RBNZ has limited scope to cut interest rates this year and shouldn’t ease policy until it’s sure inflation will return to target, according to its New Zealand 2024 report published yesterday (Source Bloomberg)
- European Central Bank Chief Economist Philip Lane said overnight that recent euro-area data have made him more certain that inflation is returning to the 2% goal, raising the likelihood of a first interest-rate cut for the ECB in June
- Global sharemarkets were positive yesterday and overnight
Daily Alert: Quiet local week ahead, more central bank meetings offshore
06 May 2024
- In the US, Non-farm payrolls (employment) advanced 175,000 last month, the smallest gain in six months, a Bureau of Labor Statistics report showed
- The Institute for Supply Management’s composite gauge of services fell 2 points to 49.4, the lowest level since December 2022
- The data likely don’t amount to “an unexpected weakening” that Federal Reserve Chair Jerome Powell said would warrant a policy response
Economic Weekly: The gradual slowing of the labour market
06 May 2024
- The Q1 labour market outcome was pretty much in line with expectations
- It is getting looser in the sense that jobs growth has ground to a halt while strong population growth is still boosting the number of people out there seeking work
- Increasingly, people are missing out on what opportunities that are there
Commodities Weekly: Softer JPY weighs on NZ-Japan exports
01 May 2024
- Key global agri commodity prices were mixed last week, with currency movements the largest driver of changes within the ASB indices. NZD hit fresh 2024 lows in April and remains circa 4c below the level where it was at the start of the year.
- Meanwhile in the FX space, the big mover of late has been the weakening Japanese Yen (JPY). NZD/JPY has reached highs only seen a couple of times in the last 30 years.
- Japan is New Zealand’s fourth biggest export destination, behind China, Australia, and the US. Over the year to 31 March NZ exports to Japan have declined 14.7%, a greater decline than the 4.4% drop in overall NZ export values.
Q1 2024 Labour Market Data Review: Easing labour market utilisation but labour cost growth sticky
01 May 2024
- Q1 labour market data was mixed with weakening signs from the Household Labour Force Survey in contrast to more resilient signs on hiring elsewhere.
- Labour cost growth was only slowly receding within the data and is stronger than would be consistent with sub 3% inflation being delivered. The distributional figures provided little evidence of a generalised cooling.
- We still expect that the unemployment rate will move higher over 2024 and for labour cost growth to moderate. Nonetheless, the RBNZ will be wary of the risk that inflation does not settle below 3%, with the OCR unlikely to be moved lower until 2025.
Daily Alert: Eyes on the Fed
29 Apr 2024
- The week’s highlight is expected to be the FOMC interest rate decision in the US
- In the US, The core Personal Consumption Expenditure price index, which strips out the volatile food and energy components, increased 0.3% from the prior month
- On Friday the Bank of Japan (BoJ) announced its on-hold policy decision in an unusually short statement
Economic Weekly: Reading over the labour market
29 Apr 2024
- The NZ focus for this week is the Q1 labour market data and comes after the RBNZ stuck to its view that rate cuts are some time off and after the sticky Q1 inflation read. Ahead of next month’s Monetary Policy Statement, it is one of the more pivotal releases.
- There were events of note overseas last week, and more in store for the weeks ahead. US inflation gauges are proving sticky, even as last week’s Q1 GDP result of 1.6% annualised growth slightly underwhelmed expectations.
- The Federal Reserve’s Open Market Committee meets this week and is the key event offshore.
Daily Alert: Awkward US data questions soft landing narrative
26 Apr 2024
- Weaker than expected Q1 US GDP activity data and signs of persistent pricing pressures see markets question the ‘soft landing’ narrative. Global yields rise
- USD dips but the Yen was the weakest currency performer, likely adding to intervention risks
- Expect some market volatility heading into the weekend with the BOJ decision and US inflation data tonight
Daily Alert: Sharemarkets strong despite soggy PMI data
24 Apr 2024
- The S&P Global flash April composite index of output of manufacturers and service providers slipped 1.2 points to 50.9 (readings above 50 indicate expansion
- Global sharemarkets have been positive overnight, with European and US benchmarks pressing higher
- Asian shares were mixed yesterday, with Japan’s Nikkei 225 up 0.3%, while the Chinese benchmarks were down 0.2% to 0.7%
Term Deposit Report: Term deposit rates lower for the longer terms
24 Apr 2024
- Term deposit interest rates remain above historical averages for the past 20 years
- However, deposit interest rates on offer for longer terms started to come down in late 2023, and that pattern has continued in 2024, with rates for the 1-year term and longer terms now off last year’s highs
- The ASB economic team think that most term deposit rates will ease over the year ahead
Home Loan Rate Report: Sticky inflation to delay rate cuts
24 Apr 2024
- Central banks around the world have monetary policy settings restrictive to reduce inflation. New Zealand is no exception
- The Official Cash Rate (OCR) is 5.5% (and has been at this level since May 2023), the highest level since 2008. The OCR is a key determinant of mortgage interest rates and so it’s no surprise that mortgage rates are also sitting around recent highs
- But with it becoming clearer that the next move in the OCR will be lower, the question on everyone’s mind is when will that be reflected in home loan rates?
Markets Monthly: Market mood swings continue
24 Apr 2024
- The RBNZ remains confident it is on track to meet its inflation goals
- But sticky domestic inflation led ASB economists to push out the forecast the first RBNZ OCR cut into 2025
- Similarly, market participants have pushed out the timings for rate cuts for other central banks
Commodities Weekly: Soaring Eagles, grounded Kiwis
24 Apr 2024
- Key global Agri commodity prices were lower in USD terms last week
- Dairy prices weakened 0.5% after a relatively undramatic auction
- With the risk of sounding like a broken record, meat prices remain the real laggard in our index, down another 1.1% in USD terms last week
Q1 2024 Labour Market Data Preview: Easing
24 Apr 2024
- March 2024 quarter labour market figures are expected to show further easing in labour market conditions, with the unemployment rate climbing to its highest level in 3 years
- Growth in the labour supply looks set to continue to outstrip the slowing demand for workers, with the unemployment rate set to push above 5% by year end. Labour cost growth should continue to ease
- Despite the cooling labour market backdrop, the threshold to OCR cuts being delivered over 2024 is high. We don’t expect OCR cuts until early 2025
Daily Alert: Eyes to the future
23 Apr 2024
- It was a quiet start to the week, with no local or major offshore data released yesterday or overnight
- US equities started the week on the front foot, with the three major indices notching up gains of around 1%-1.4% at the time of writing
- US Treasury yields were mixed
Daily Alert: Sharemarkets struggle
22 Apr 2024
- The week ended on a quiet note data wise, with Japan’s CPI the main release
- Japan’s national CPI inflation ticked down to 2.7%/yr in March (2.8%/yr expected)
- Global sharemarkets ended on a weak note, with most of the world’s benchmarks lower on Friday
Economic Weekly: Inflation’s sting in the tail
22 Apr 2024
- The good news is NZ inflation is falling
- The bad news is the sticky parts of inflation are proving to be a superglue-like honeytrap for those who think OCR cuts are tantalisingly close
- Financial markets have been getting stung both here and elsewhere by the stubborn tail-end of NZ and global inflation pressures
Daily Alert: Higher yields support USD despite intervention possibility
19 Apr 2024
- Concerns over USD strength have seen policymakers warn that intervention to weaken the greenback may be on its way
- However, the challenge facing authorities is that Fed speakers are increasingly watering down the prospect for Fed cuts as the solid run of US data continues
- The threat of concerted policy action does not look to have put much of a dent in the greenback with rising US Treasury yields pushing the USD up against most of its G10 peers. This will have implications for NZ
Commodities Weekly: Nothing to see here
18 Apr 2024
- Key NZ agri commodity prices continued to diverge last week
- Sheep & beef prices are still stuck in a rut, with our livestock index easing another 1.2% in USD terms to reach its lowest level in nearly four years
- USD forestry prices have also shed some of their gains during April
Daily Alert: It’s the non-tradables stupid!
18 Apr 2024
- NZ inflation data released yesterday will have been concerning for the RBNZ
- It’s the non-tradable side of things that will be of most concern to the RBNZ
- The RBNZ’s sectoral core inflation model, released yesterday afternoon, affirmed that underlying strength in core domestically generated inflation seen in the CPI
Daily Alert: How much?
17 Apr 2024
- The local data highlight this week is today’s CPI data
- Canadian consumer prices reaccelerated slightly in March as expected due to higher gasoline prices
- The latest Global Dairy Trade Event concluded with the GDT Price Index up 0.1%
2024 Q1 CPI Review: Strong domestic inflation to delay RBNZ cuts
17 Apr 2024
- Q1 24 inflation printed lower than we expected, but higher than RBNZ forecasts. However, the details highlighted that domestic inflation pressures are proving stubborn to stamp out
- Annual non-tradable inflation remains stubbornly high and the RBNZ will have wanted to see more movement on this front. Core measures were unchanged to slightly lower, highlighting that returning inflation to target continues to be a slow grind
- The RBNZ will be very wary of the risk of inflation being stuck above 3%: we now expect the RBNZ to wait until February 2025 to cut the OCR
Daily Alert: Another string in the slower to lower bow
16 Apr 2024
- US March retail sales printed on the high side of expectations, further fuelling the notion that it’s going to be a while before the FOMC is realistically in a position to ease monetary policy
- Financial markets have been particularly sensitive to the outlook for the FOMC and growing risks that it will take longer before the Fed Funds rate starts to fall
- Unsurprisingly, pricing for cuts to the Fed Funds rate also moved in line with the slower to lower narrative
REINZ Housing data – March 2024: House prices see-saw as inventory creeps up
16 Apr 2024
- NZ house prices edged down slightly in March, as the patchy performance of the past six months continues
- New listings have risen, and sales turnover is still modest, meaning the number of houses on the market has nudged up
- We expect prices will lift over 2024, albeit the pace looks set to be modest until interest rates fall
Daily Alert: Inflation and geopolitical concerns hang over the week
15 Apr 2024
- The local data highlight this week is Wednesday’s CPI data
- In the US, at least four separate Federal Reserve officials emphasised on Friday that there is no urgency to lower interest rates, pointing to still-elevated inflation and a robust labour market
- In NZ, consumer prices were flat in March, which was slightly weaker than expected
2024 Q1 CPI Preview: Down but not out
15 Apr 2024
- We expect a 0.7% quarterly increase in the headline CPI over Q1, however annual inflation is likely to fall to 4.1% - the lowest since June 2021
- Higher tradable forecasts account for most of the divergence between our forecast and the RBNZ’s in Q1. However, our non-tradable pick is also higher than RBNZ forecasts
- Importantly, the recent trend of lower core inflation should remain evident in the data
NZ Migration and Tourism - February 2024: Reality check
15 Apr 2024
- Strong February migration figures reveal a reality check to those thinking that net immigration flows will rapidly cool
- Courtesy of a Chinese New Year inflow, tourism inflows into NZ picked up, but remain below pre-COVID peaks. High resident short-term departures will likely reduce the economic boost to the NZ economy
- Moderating inflows of non-NZ citizens are expected to drive net migration inflows lower over time, but the firmly on hold stance from the RBNZ remains prudent
Economic Weekly: As you were, in 140 words
15 Apr 2024
- Economists do have a tendency to use more words than they need to – apparently. That was the case, and also not the case, with last week’s Monetary Policy Review
- The policy assessment statement was the shortest it has probably ever been, at 140 words. That is brevity for summing up and outlining a policy decision
- On the other hand, the RBNZ could have taken the ultimate productivity step be simply using four words: “please see February’s statement”
Daily Alert: ECB signals rate cuts in June, other central banks not so keen
12 Apr 2024
- As was widely expected the ECB held its key policy interest rates (deposit rate 4.0%), but they also provided a clear signal that it will cut rates in its next policy announcement in early Jume. The euro fell after the decision
- Global yields were up with yield curves steepening, but expectations of solid corporate earnings have supported US stocks
- Today’s NZ price data for March is the last input befo9re we finalise our Q1 CPI pick (currently 0.7% qoq). The RBNZ expect 0.4% qoq
Electronic Cards Transactions – March 2024: Card spending continues March-ing backwards
12 Apr 2024
- Card spending continues to soften as consumers slam their wallets shut in the face of mounting headwinds
- There’s little good news in the breakdowns by category, with the decline in spending pretty broad based at this point
- High interest rate settings are clearly working to crimp consumer spending, but the RBNZ wants to see a bit more progress on reducing inflation before cutting the OCR
Monthly CPI data – March 2024: Inflation remains on a cooling trajectory
12 Apr 2024
- Food prices fell in March, with annual food price inflation at close to 3-year lows. Other prices ticked marginally higher
- Our add-up of the monthly CPI series shows points to a modest tick-up in Q1, but with the cooling trajectory for annual rates generally intact. Our preliminary Q1 CPI pick is for a 0.7 qoq, 4.1% yoy outturn for Q1 CPI, with upside risk
- This data highlights that while inflationary pressures are generally receding, it remains much too soon to declare mission accomplished. OCR cuts are unlikely to be delivered until at least November
Commodities Weekly: On the up
12 Apr 2024
- Commodity prices resumed their climb higher last week, with both our NZD and USD indices lifting
- Dairy prices ceased their deceleration per the AgriHQ data our index utilises, with USD prices as much as 3% higher
- USD meat prices managed a 0.5% lift, driven by a small bounce in lamb prices, though the index remains down 11% in annual terms
Daily Alert: Ctrl + C, Ctrl + V
11 Apr 2024
- There was little news in yesterday’s OCR decision by the RBNZ
- With little grist from the RBNZ to prompt a vast shift in pricing in either direction, financial markets mostly took yesterday’s decision in their stride
- NZD found some support in the aftermath, with NZD/USD slightly stronger and the ever-rates sensitive NZD/AUD gaining a third of a cent
Daily Alert: Post-election sentiment bounce fades
10 Apr 2024
- NZIER’s Q1 Quarterly Survey of Business Opinion results show a sharp deterioration in business sentiment, with the post-election bounce in headline sentiment, key activity, investment and hiring metrics all reversing from Q4 2023 levels
- In Australia the Westpac/MI consumer sentiment fell by 2.4% in April and is running at low levels
- Global sharemarkets have been soft overnight
Infrastructure - it's not just a pipe dream
10 Apr 2024
- There are a number of challenges posed by installing fit for purpose infrastructure that will make our lives easier
- However, ignoring the challenges we face today, will only make tomorrow’s infrastructure headaches worse
- There is the need for greater alignment on our infrastructure needs, with a multi-decade focus needed. infrastructure needs to be fit for purpose and cognisant of future challenges posed by climate change and population growth
Review of RBNZ April Monetary Policy Review: Firmly on hold
10 Apr 2024
- The RBNZ held the OCR at 5.5% and maintained a neutral policy bias
- Key messages were little changed since the February MPS, showing little hurry to change current restrictive settings
- We continue to expect the RBNZ will cut the OCR in November this year, but that that monetary settings will remain on the restrictive side of neutral for a year or so beyond that
Infrastructure - it's not just a pipe dream
10 Apr 2024
- There are a number of challenges posed by installing fit for purpose infrastructure that will make our lives easier
- However, ignoring the challenges we face today, will only make tomorrow’s infrastructure headaches worse
- There is the need for greater alignment on our infrastructure needs, with a multi-decade focus needed. infrastructure needs to be fit for purpose and cognisant of future challenges posed by climate change and population growth
Daily Alert: NZ sharemarket’s soft run continues
09 Apr 2024
- Global sharemarkets have been positive overnight
- The NZ sharemarket’s soft run continues, with the S&P/NZX 50 Index down 0.8%, on turnover of $98 million
- In the US, median year-ahead inflation expectations held at 3% in March, a Federal Reserve Bank of New York survey showed overnight
Quarterly Survey of Business Opinion 2024 Q1: Post election sentiment bounce proves to be fleeting
09 Apr 2024
- Q1 QSBO results show a sharp deterioration in business sentiment, with the post-election bounce in headline sentiment, key activity, investment and hiring metrics all reversing
- Pricing and cost pressures eased fractionally despite the deterioration in activity and labour market metrics. It still raises questions of whether inflation is on track to settle below 3% on a sustained basis
- A lengthy period of restrictive OCR settings still looks to be needed despite the weak activity and labour market backdrop. We do not expect OCR cuts to begin until later in 2024
Daily Alert: US labour market strength continues
08 Apr 2024
- US Non-Farm payrolls (employment) increased by 303,000 jobs in March following a combined 22,000 upward revision to job gains in the prior two months, a Bureau of Labor Statistics report showed on Friday
- Federal Reserve Bank of Dallas President Lorie Logan said it’s too soon to consider cutting interest rates, citing recent high inflation readings and signs that borrowing costs may not be holding back the economy as much as previously thought (Source Bloomberg)
- Global sharemarkets ended mixed on Friday
Economic Weekly: Back to Watch, Worry (not too much) and Wait
08 Apr 2024
- And in the blink of an eye, it is time for the RBNZ to decide this week what to do with the OCR
- It is a decision for which both the Monetary Policy Committee and – particularly the markets – will be a lot more relaxed about
- Events have been largely drama-free with no speculation about OCR increases (though just for some variety as we head into winter hibernation there has been some talk that the RBNZ should – not so much will – cut the OCR this week)
Daily Alert: Kashkari floats no 2024 Fed cuts as markets await jobs data
05 Apr 2024
- Market sentiment has generally tilted into negative territory overnight as markets prepare for the release of key US jobs data over the weekend – and digest the latest smattering of comments from Central Bank officials
- There have been a number of Fed speakers on the wires, with Chicago’s Austan Goulsbee dismissing the pickup in some inflation measures over the early part of the year, Cleveland’s Loretta Mester continuing to estimate three Fed cuts this year, Philadelphia’s Patrick Harker emphasising the continued strength in inflation and Richmond’s Thomas Barkin taking a cautious line.
- But markets have largely focused on comments from the Minneapolis Fed’s Neel Kashkari, who has acknowledged the risk that the Fed might not cut rates at all this year if inflation remains strong
Daily Alert: Powell reiterates Fed independence and flags cuts for 2024
04 Apr 2024
- FOMC Chair Jerome Powell emphasised that the Fed’s decisions were independent of politics, providing pushback to the view that the Fed will not be able to start rate cuts before the run in to the November US elections
- Weaker than expected services ISM data dampened yields and supported equities despite a stronger than expected ADP employment print. The USD and Yen were generally lower
- Markets await this weekend’s payrolls data for direction
Preview of RBNZ April Monetary Policy Review: Rinse and repeat
04 Apr 2024
- We expect the RBNZ to keep the OCR at 5.5%, with few signs it is shifting its views on when OCR cuts will start
- News since the February MPS has been mixed, minor in its implications and roughly as the RBNZ anticipated
- We continue to expect the RBNZ will cut the OCR in November this year, earlier than its recent forecasts implied
Daily Alert: Hold your horses
03 Apr 2024
- Still-robust economic data, particularly in the US, continues to make its presence felt in financial markets
- Fed Funds rate expectations remain watered down relative to the start of last week, with just over a 50% chance of a cut to the Fed Funds rate priced in June
- In New Zealand, the NZX50 closed only slightly lower (-0.1%) after recovering some losses from earlier in the session
Commodities Weekly: Wringing out some late-season dairy price gains
03 Apr 2024
- Dairy ingredient prices have advanced at the latest auction, partially reversing recent downward moves
- All major products gained ground, with the exception of butter milk powder (which trades only fortnightly)
- WMP prices lifted 3.4% and the overall GDT index is up 2.7%, taking both back to roughly where they were at the beginning of March, but still below their 2024 peaks earlier in the year
Daily Alert: US Yields up, equities down on stronger manufacturing figures
02 Apr 2024
- Some markets have resumed trading as the world emerges from the Easter holiday season
- The most notable piece of data out has been the ISM’s US manufacturing indices for the month of March, providing one of the few catalysts to set direction
- Markets are wary of the prospect the US economy could continue accelerating and inflation could cease cooling, prompting the Fed to delay rate cuts
Economic Weekly: Not much fare when the cupboard is bare
02 Apr 2024
- The Budget Policy Statement from the new Government was short on policy specifics, but painted a more challenging outlook for the fiscal position
- In this year’s Budget those objectives will be enacted through tax cuts, trimming back government spending growth and seeking better value for money out of spending, and still aiming to get back into an operating surplus in a reasonable timeframe (though in that case, slightly later than what the book opening last December suggested)
- The size of the tax cuts and what form they will take are up in the air, but fiscal headwinds have reduced the leeway for the Government even as it works on reducing government spending as a share of the economy
Daily Alert: Taxing times for fiscal policy
28 Mar 2024
- Domestic headlines yesterday focused on the Budget Policy Statement (BPS) – a high level taster ahead of the real event at the end of May
- Overnight, markets have been hit by a patch of quarter-end volatility after a strong start to 2024 for sharemarkets
- In the FX market, the big theme is the tumble in the Yen – it was trading yesterday at 34-year lows against the USD and 15-year lows against NZD
Commodities Weekly: Under arrest
28 Mar 2024
- The gradual grind higher in commodity prices was arrested last week, with a chunky fall evident in our USD index
- USD commodity prices fell a little over 3% during the week
- The primary driver was a chunky fall in dairy prices – down around 5.1% – presaged by the recent easing in prices over the last few Global Dairy Trade auctions
Quarterly Economic Forecasts: Treading Water
27 Mar 2024
- The economy went backwards lightly last year, and 2024 is likely to be pretty flat
- It has taken a lot of restraint, but inflation is on track to fall below 3% over the second half of this year
- That will pave the way for interest rate cuts late in the year, putting the economy on the path for recovery
Daily Alert: Treading water
27 Mar 2024
- This morning we released our latest Quarterly Forecasts
- US sharemarkets rebounded overnight, after Monday’s soggy start to the week
- US durable sales lifted by 1.4% mom in February, higher than the 1% expected, but not enough to offset January’s 6.9% mom fall
Review of the Government Budget Policy Statement: An Old Mother Hubbard Budget?
27 Mar 2024
- Delivering tax cuts and trying to get better value out of Crown spending remain key priorities for the Government
- The economic challenges to the fiscal position are well understood, with the risks to the downside
- The Government has acknowledged that an operating surplus isn’t likely until 2028
Daily Alert: Waiting for Good Friday
26 Mar 2024
- It was a reasonably quiet start to the week offshore, with markets largely focussed on US PCE data and a speech by FOMC Chair, Jerome Powell, both of which are scheduled for the end of the week
- Yesterday, we published our first Sustainable Economics note of 2024 looking at the importance of electrification for NZ’s 2050 net zero target
- ECB’s Chief Economist, Philip Lane, said overnight that wage growth is showing signs of normalising and that the ECB is making “good progress” on cooling inflation
Daily Alert: Short week ahead looks quieter than last
25 Mar 2024
- Central banks dominated the news flow last week, with the Reserve Bank of Australia (RBA), Bank of Japan, US Federal Reserve, Bank of England and the Swiss National Bank all meeting
- Global sharemarkets ended mixed on Friday
- ECB Governing Council member Joachim Nagel spoke last week
Sustainable Economics: Towards Net Zero
25 Mar 2024
- NZ’s energy usage will need to become heavily electrified if NZ is to meet its net zero by 2050 emissions target. 70% of emissions in the net zero target are related to fossil fuel energy use
- Transport and industrial processes, the largest users of fossil fuel energy, will likely lead the transition towards a more electrified future
- Renewable electricity generation and transmission capability will need to increase massively if large-scale electrification is adopted
Economic Weekly: In recess
25 Mar 2024
- As we forecast, GDP in 2023 Q4 went backwards very slightly
- Technically, the economy was in recession late last year, having contracted for two quarters in a row – even if one quarter is down just 0.1%
- To date GDP is down 0.8% in total from its 2022 peak, with contractions in four of the past five quarters
ASB Sustainable Economics Report - Towards Net Zero
25 Mar 2024
The role of electrification in New Zealand's path to Net Zero
Daily Alert: A turn in Bern sees a little churn
22 Mar 2024
- GDP data from Stats NZ yesterday confirmed our expectation that the economy ended 2023 on an underwhelming note and in recessionary territory
- The local rates market took yesterday’s print in its stride
- In a significant moment, the Swiss National Bank actually cut its policy rate from 1.75% to 1.50% overnight, wrongfooting market expectations of a hold
Commodities Weekly: A March tweak from Fonterra
22 Mar 2024
- Fonterra tweaked its milk price guidance for the season yesterday, narrowing the forecast band from $7.30-8.30 per kgMS to $7.50-8.10
- The midpoint of that range is unchanged at $7.80 per kgMS, so the tweak reflects that we are increasingly close to the end of the season, and both upside and downside risks have dissipated
- Mechanically, the bulk of the season’s product has been priced and the co-op has little further hedging to do
Daily Alert: Fed holds and continues to flag 75bps of cuts for 2024
21 Mar 2024
- As was widely expected the FOMC held the fed funds rate at 5.25%-5.5% and kept the 75bps of cuts in the 2024 dot plots despite revising up its forecasts for growth and inflation
- With the market flagging the risk of fewer cuts over 2024 and with the Fed seemingly comfortable with accepting slightly higher inflation, US equities rose. US yields and the USD index dipped after the FOMC statement was released
- Q4 NZ GDP today at 10:45am. We expect a small contraction, confirming technical recession in the 2nd half of 2023
Q4 2023 GDP Review: Not pretty
21 Mar 2024
- NZ economic activity fell -0.1% in the December quarter, meaning NZ ended 2023 in recession.
- Strong population growth means a smaller pie being divided up increasingly thinly.
- The RBNZ is succeeding in cooling economic activity, but the key thing is how quickly lower demand dampens inflation. On balance, today’s data raises the odds of OCR cuts before year-end.
Regional Economic Scoreboard: Just Another First For Auckland! (JAFFA)
20 Mar 2024
- Auckland has taken out the top spot on the Scoreboard for the second consecutive quarter
- This quarter’s Scoreboard ‘winners’ are those coping better than others rather than “shooting the lights out”
- Falling retail trade volumes and construction challenges continue across the country
Daily Alert: End of an era
20 Mar 2024
- Bank of Japan (BoJ) raised interest rates yesterday for the first time in 17 years
- The Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.35% as expected yesterday
- Global sharemarkets were broadly in the green overnight, with market participants now looking to tomorrow morning’s FOMC policy announcement
Daily Alert: Will they-wont they: Bank of Japan in the spotlight
19 Mar 2024
- As we mentioned yesterday, over the week ahead central banks meet in Australia, Japan, the US, and UK and there is a plethora of international economic data due
- Japan’s largest union group announced stronger-than-expected annual wage deals last Friday
- Stats NZ announced an experimental release (starts next month) using inspections and code compliance certificate data to estimate construction timelines and completion rate
Daily Alert: Busy week for central bank watchers
18 Mar 2024
- Over the week ahead central banks meet in Australia, Japan, the US, and UK and there is a plethora of international economic data due, including NZ Gross domestic Product for Q4
- Japan’s largest union group announced stronger-than-expected annual wage deals on Friday
- Global sharemarkets weakened on Friday, with the US benchmarks down between 0.5% and 1.0%, and the main European benchmarks flat or slightly lower
Economic Weekly: GDP in the spotlight
18 Mar 2024
- Gross Domestic Product (GDP) data for the final quarter of 2023is out this Thursday
- Although it always feels a bit historical in the sense the quarter ended nearly three months ago, it nevertheless gives us a reference point for how the economy at large has been tracking
- We expect a slight fall of 0.2% over the quarter
Daily Alert: Stubborn US inflation concerns set market tone
15 Mar 2024
- Stronger than expected US producer price data US data suggested that calls for imminent US rate cuts may be a tad premature
- Global yields were higher, with the curve (bear) steepening, with equities generally lower
- Markets await next week’s central bank decisions - including a possible rate hike by the BOJ – for guidance
Commodities Weekly: A rising tide doesn’t lift all boats
15 Mar 2024
- We’ve published the latest edition of the ASB Rural Quarterly
- Our latest report calls out a decent rebound for dairy and forestry prices, and an overall more positive outlook for the sector compared with previous quarters
- The outlook for global growth is looking a lot more constructive than it was, with markets increasingly hopeful that central banks won’t have to hammer the global economy too hard for too long to get inflation back under control
Q4 2023 GDP Preview: Few bright spots as the NZ economy stays soggy
15 Mar 2024
- We expect the NZ economy contracted another -0.2% qoq in Q4, or around -1.1% in per-capita terms
- Activity looks weak across the board, with services activity – a bright spot until now – showing signs of slowing
- NZ’s post-pandemic recovery in output per capita has largely eroded and the slice of the pie each Kiwi is receiving is barely any bigger than it was back in late 2019
ASB Rural Quarterly Report - March 2024
15 Mar 2024
In this report, we discuss some of the trends and dynamics in agricultural commoditity markets over the last twelve months, before a rundown on our market expectations for the year end
Daily Alert: Cheaper fruit and veg, but the RBNZ will stay wary
14 Mar 2024
- Monthly price data from Stats NZ yesterday pointed to pockets of resilience in inflation, even as food prices trended lower
- Adjusting for seasonal variability, annual inflation appears to be cooling still, but the pace of easing has slowed
- NZ yields largely took the print in their stride
REINZ Housing data – February 2024: Prices grind higher
14 Mar 2024
- NZ house prices built on January’s strong lift, but the pace of growth slowed in February
- Sales activity rebounded sharply from January’s slump, driven by a burst of activity in Auckland. However, last year’s cyclone and the leap year are muddying the waters
- Sales activity will need to remain robust to keep a lid on anecdotes of rising inventory. Nevertheless, strong population growth is likely to continue to underpin demand for housing over 2024
NZ Migration and Tourism - January 2024: Coming in
14 Mar 2024
- January figures reveal a softer month but continue to show chunky upward revisions, with annual inflows revised up
- Tourism inflow numbers crack the 3 million annual mark, but strengthening resident short-term departures will likely reduce the economic boost
- We expect that moderating inflows of non-NZ citizens will drive net migration inflows, but the uncertainties involved suggest that the firmly on hold stance from the RBNZ is prudent
Daily Alert: Mixed reaction in markets to US CPI
13 Mar 2024
- February US CPI printed on the firmer side of expectations overnight
- Yesterday’s NZ card spending data reinforced that the underlying retail position is extremely weak
- In Australia, the NAB business survey showed conditions rose in February, to be back above historical averages
Monthly CPI data – February 2024: Monthly price pressures tick up
13 Mar 2024
- Overall prices rose in February, with a fall in food prices more than offset by rises across the other components
- Our add-up of the monthly CPI series shows a tick up in inflationary pressure over the month, but the general cooling trajectory remains intact. Cooling inflation pressures are consistent with a RBNZ in watch and wait mode
- The data highlight that while inflation continues to broadly cool, it remains far too soon to declare mission accomplished. OCR cuts are unlikely to be delivered until later in 2024
Daily Alert: Investors cautious ahead of US CPI data
12 Mar 2024
- Global sharemarkets have been mixed overnight, with the US benchmarks hovering between -0.2% and +0.1% at the time of writing, and the main European benchmarks largely in the red
- US consumer expectations for inflation over the next three years climbed in February — and increased even more sharply for the five-year horizon — a Federal Reserve Bank of New York survey showed
- Job vacancies in England have fallen to their lowest in more than three years, reducing the hope that the UK economy will bounce back strongly from last year’s recession (Bloomberg)
Electronic Cards Transactions – February 2024: Consumer-led slowdown continues
12 Mar 2024
- Total February card spending tanks despite climbing prices and strongly growing population
- The figures reveal that the underlying retail position is extremely weak, with per household retail volumes contracting as living cost headwinds and the cooling labour market backdrop dampen household spending patterns and appetites
- Weak retail figures prove that monetary policy is working to slow inflation. Still, the RBNZ will be wary of cutting the OCR too soon
Daily Alert: US labour market remains resilient
11 Mar 2024
- The US unemployment rate climbed to a two-year high of 3.9% in February, despite a Non-farm payrolls (employment) gain of 275,000
- China’s consumer prices rose for the first time since August
- The European Central Bank is very likely to cut interest rates at its April or June meetings as there is now broad consensus on making a move soon, Bank of France Governor Francois Villeroy de Galhau said
Economic Weekly: Flat finish
11 Mar 2024
- The mix of data out last week unsurprisingly pointed to weak domestic spending, though there were some hints that exporting activity was in reasonable shape
- With high inflation and both fiscal and current deficits, rebalancing from domestic demand to stronger exports would put NZ on a more sustainable footing
- It is a challenging global environment in which to do this rebalancing, which is still affecting export prices
Daily Alert: Rate cut hopes and solid China data lift sentiment
08 Mar 2024
- Hints that rate cuts from the Fed and ECB may be on their way and stronger than expected Chinese trade data bolstered market sentiment
- S&P500 hits fresh record high, the USD and short-term US and Eurozone yields fall, with the yen and Japanese yields supported by stronger Japanese wage data
- Payrolls data headline this weekend’s events. A 200k print is expected, with focus on the labour earnings data
Markets Monthly: Holding the horses
08 Mar 2024
- We remain confident that central banks have done enough tightening of policy settings to curb inflation
- However, the timing of easing cycles remains an unknown factor for financial market participants, and the collective mood swings of investors have caused volatility in fixed interest markets here and abroad
- During February speculation of another RBNZ rate hike picked up
Commodities Weekly: Pausing for breath
08 Mar 2024
- Commodity prices hit a fresh cyclical NZD high last week, per our ASB Commodities Index
- The NZD index lifted 0.8% to reach its highest threshold since November 2022
- This time it was currency movement that acted as the primary driver, with the Kiwi shedding 1% after the RBNZ opted not to hike the OCR at last week’s meeting or come out all guns blazing with a hawkish statement
ASB Housing Confidence: Price expectations diverging as market turns
07 Mar 2024
- House price expectations build on last quarter’s survey, with net price expectations now sitting at the highest level in almost two and a half years. That’s just before the housing market downturn began
- Fewer respondents are expecting interest rate increases, an ongoing trend. However, more respondents still expect higher rather than lower interest rates on balance. This suggests New Zealanders are braced for the high interest rate environment to continue
- Meanwhile, respondents are firmly on the fence as to whether now’s a good time to be buying a house. We acknowledge that there are quite a few conflicting signals for prospective buyers: a turning market, policy changes, high debt servicing costs, possible debt-to-income restrictions and upfront affordability constraints
Daily Alert: Markets see no nasty surprises in Powell powwow
07 Mar 2024
- The most closely-watched event among markets overnight has been congressional testimony from the FOMC Chair Jerome Powell
- There’s an element of ‘no news is good news’ in Powell’s remarks from the market’s perspective, with the Chairman avoiding taking the opportunity to push back on the recent pare back in yields
- The vibe in the global equity market has generally been positive too
Daily Alert: Global shares ease ahead of busy few days
06 Mar 2024
- Offshore there are two central bank meetings to watch this week with the Bank of Canada meeting 3.45am NZT tomorrow morning, then the European Central Bank on Thursday night (2.15 on 8/3 NZT)
- Global sharemarkets softened again overnight, with the US sharemarket easing off the record highs set in earlier sessions
- NZ shares lifted yesterday, with the S&P/NZX 50 Index lifting 0.3% on turnover of $114 million
Daily Alert: Waiting on the sidelines
05 Mar 2024
- It’s been a quiet start to the week, with market participants waiting for the information flow to pick up later in the week with the ECB meeting, Fed Chair Powell’s testimony, and US Non-Farm Payrolls
- NZ terms of trade fell more than economists expected in Q4 according to the Bloomberg survey
- Partial data reinforces another soft GDP print is likely on Wednesday in Australia
Daily Alert: Global sharemarkets remain buoyant
04 Mar 2024
- The latest reporting season is drawing to a to close, and the dust is settling after last week’s RBNZ meeting
- NZ shares were up 0.2% last week, with $116 million of turnover on Friday
- Volatility in FX markets remains low, and the NZD starts the week trading near 0.6110 against the USD and 0.9350 against the AUD
Economic Weekly: Waiting (a while) for the cutting vibe
04 Mar 2024
- Quite a lot of people heaved a sigh of relief last Wednesday when the RBNZ kept the OCR on hold, although bank depositors would have been happy to see Adrian & Co. nudge the OCR up
- But at least we aren’t having to change our forecasts yet again, as there have been more than enough surprises in recent years!
- The RBNZ had a lot to digest in the three months that preceded this Monetary Policy Statement
Daily Alert: No bad news is good news
01 Mar 2024
- NZ yields and the NZD look to be settling into lower ranges post the RBNZ
- Data overnight did not throw up many surprises
- Little action offshore. Central bankers offshore push back against imminent rate cuts
Commodities Weekly: Supply-side solace
29 Feb 2024
- Underlying USD-denominated commodity prices continue to tick higher last week
- Leading farm expense indicators are generally also continuing to improve
- Yesterday’s dovish statement from the RBNZ has also reduced the risk that wholesale rates spike further and push their retail and business counterparts north
Daily Alert: When doves cry
29 Feb 2024
- The RBNZ kept the OCR on hold at the 5.5% mark at yesterday’s highly anticipated Monetary Policy Statement, the first of the year
- In the end, the bank sounded quite a bit more dovish relative to expectations, and the tone it took back in November
- Markets got the message
Daily Alert: Over to you, Adrian
28 Feb 2024
- It was a reasonably quiet night, with a US$42bn auction of 7-year US government bonds the highlight
- US sharemarkets were mixed
- US data was mixed
Review of RBNZ February Monetary Policy Statement: Declawing the Hawks
28 Feb 2024
- The RBNZ kept the OCR on hold at 5.5% as most expected, with a dovish tilt
- The threshold for a move in either direction remains high for the time being
- We continue to expect the RBNZ to cut the OCR in November, though the risks are more balanced now that the RBNZ has signalled some comfort with its stance after a run of conflicting signals in economic data
Daily Alert: Sharemarkets ease from all-time highs
27 Feb 2024
- Global sharemarkets have softened overnight, but remain near all-time highs
- The NZ sharemarket was down 0.1% yesterday on turnover of $106 million
- European Central Bank President Christine Lagarde spoke to European Union lawmakers in Strasbourg overnight
Daily Alert: Retail Thud
26 Feb 2024
- NZ retail volumes slumped in Q4, marking the 8th consecutive quarter of retrenchment with volumes down 4.1% over 2023 as the household-led economic slowdown continues
- Global sharemarkets were largely positive on Friday
- The GBP, AUD, and NZD were the top three G10 currencies on Friday
Economic Weekly: Is it over now?
26 Feb 2024
- Wednesday’s RBNZ Monetary Policy Statement is the event in New Zealand this week. Although it might have been superseded by a T Swift concert, had she decided to stop by
- This is the first RBNZ policy meeting for 2024 and follows a period of 8 months where the Official Cash Rate (OCR) has been left on hold at 5.5%
- However, the RBNZ has warned at each meeting that rates could still go higher if things (inflation) weren’t progressing as desired
Daily Alert: All that and a bag of chips
23 Feb 2024
- There has been a substantial rally in global sharemarkets overnight
- Short-term yields are a smidgen higher in the front-end overnight, but not enough to gore the bull
- Central bank speakers have generally emphasised their reluctance to cut rates too quickly in comments overnight
Q4 2023 Retail Trade Review: Thud
23 Feb 2024
- Retail volumes slumped in Q4, marking the 8th consecutive quarter of retrenchment with volumes down 4.1% over 2023 as the household-led economic slowdown continues
- Falls in retail were widespread, with the 2023 contraction in retail activity particularly severe given extremely strong net immigration
- Weak household spending activity is a pre-requisite to getting inflation down on a sustained basis. Retail activity is extremely weak, but the RBNZ will remain watchful and will not cut the OCR until much later this year
Daily Alert: Fed Minutes fail to signal dovish pivot is imminent
22 Feb 2024
- The tone of the Fed Minutes was steadfast and suggested that those hoping for an imminent dovish pivot were in for disappointment, with a balanced risk assessment for the outlook, concerns over the risks of cutting too quickly and the risks that the progress in lowering inflation could stall
- US interest rates have sustained earlier gains leading up to the FOMC minutes. European yields had closed higher
- Equities were generally mixed overnight
Commodities Weekly: Not such a Cruel Summer
22 Feb 2024
- Dairy prices are finishing off the NZ summer holding onto the bulk of the season’s gains over recent weeks
- An $8 farmgate price is in reach for this season and prices will have momentum heading into the next one
- Broader commodity prices are also enjoying a boost over the sunny season, with signs of life increasingly evident in protein prices
Daily Alert: Unforgiven
21 Feb 2024
- The NZ sharemarket was down 0.7% yesterday on turnover of $110 million
- Global sharemarkets were weak overnight, with European share benchmarks mixed, and the three main US benchmarks down
- Dairy prices were mixed in the latest global dairy trade event overnight
Daily Alert: Markets quiet as US observes President’s Day
20 Feb 2024
- It’s been a quiet start to the week, with little in the way of dataflow, and US markets closed to observe President’s Day
- The BNZ – BusinessNZ Performance of Services Index (PSI) for January was 52.1 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining)
- Global sharemarkets were mixed overnight, with European share benchmarks largely positive, and US markets closed
Preview of RBNZ February Monetary Policy Statement: November Rain?
20 Feb 2024
- Headline inflation is cooling but some elements are proving to be sticky – which will concern the RBNZ
- We don’t think OCR increases are necessary because inflation should moderate within an acceptable timeframe
- However, we now think the RBNZ will wait slightly longer, until at least November, before cutting the OCR
Daily Alert: A double punch of US price indices prop up yields
19 Feb 2024
- US Treasury yields rose sharply on Tuesday last week amid another strong inflation print and held onto most of those gains throughout the week
- The US 2-year spiked as much as 12bps on the release of PPI data, though it ultimately wound up with a gain of 7bps over the session, settling at 4.64%
- When Uncle Sam sneezes the rest of the world catches a cold. Sure enough, short-term yields were higher in most of the rest of the world last week too
Economic Weekly: Some RBNZ concerns allayed, but others still alive
19 Feb 2024
- The RBNZ’s decision next week – coming after 3 months of whipsawing data releases – will have everyone on tenterhooks
- It is the first RBNZ decision since May last year for which an OCR increase is a realistic possibility
- We continue to expect the RBNZ to remain on hold, but the main risk is still that OCR cuts get delayed sightly
Daily Alert: A stronger patch of local data, a weaker bunch offshore
16 Feb 2024
- Migration figures released by Stats NZ yesterday, which were on the strong side, added to the chorus of recent numbers pointing to later OCR cuts by the RBNZ
- Overnight, yields have been mixed as markets digested a softer patch of US data
- Closer to home, yesterday saw a $500m tender of the 2027, 2033 and 2051 nominal NZ Government bonds, as well as a $25m linker auction of the 2040 line
Markets Monthly: Where, when, and how?
16 Feb 2024
- Market participants remain generally confident that central banks have done enough tightening of policy settings to curb inflation
- However, the timing of easing cycles remains an unknown factor, and decent economic data here and abroad has seen rate cut expectations pared back in many jurisdictions over early 2024
- Longer term bond yields and swap rates have lifted here and abroad over the past month as market participants have recalibrated expectations
Commodities Weekly: Thanks, Yanks
16 Feb 2024
- Last week saw the ASB Commodities Index hit fresh circa one-year highs in both NZD and USD terms
- Some strengthening in global demand looks to be the chief driver behind higher prices
- In particular, stronger US growth estimates have pushed up our forecast for NZ trading partner growth
RBNZ Governor Orr Speech: Something for everyone
16 Feb 2024
- RBNZ Governor Orr largely launched a strong defence of the current monetary policy framework
- However, the strong emphasis of the speech on addressing persistent underlying inflation (which remains high) suggests that OCR cuts are not on the immediate horizon
- The observation that there is no optimal time horizon for which to return to a 2% inflation target, providing potentially more wiggle room
Daily Alert: Yields fall as inflation cools
15 Feb 2024
- Yesterday’s NZ data confirmed that a high hurdle remained for OCR hikes. ASB estimates suggest that monthly NZ prices eased by 0.3% in January (+2.6% yoy). Price rises are on a slowing trajectory, consistent with annual CPI inflation falling below 3% by the second half of this year
- Global yields fall after UK inflation data surprises to the downside and Chiago Fed President Goolsbee plays down the significance of the stronger than expected US CPI print
- The USD retraced earlier strength, with small gains in global stocks
NZ Migration and Tourism December 2023: Resilient migration likely to support the case for later OCR cuts
15 Feb 2024
- Another month, another set of strong migration figures earmarked by chunky upward revisions
- Tourism arrivals underwent a strong uptick in line with usual seasonal trends, though there’s still a way to go before we’re close to pre-pandemic peaks
- Today’s travel data continue the recent clip of reasonably resilient economic data, and will bolster the RBNZ’s case for keeping the OCR on hold for longer
Daily Alert: Cold water
14 Feb 2024
- RBNZ inflation expectations poured some more cold water on market pricing for additional RBNZ rate hikes yesterday
- Meanwhile, economic data elsewhere poured cold water on the notion of imminent rate cuts by other central banks
- UK labour market data also printed on the more resilient side of the ledger
REINZ Housing data and Electronic Cards Transactions – January 2024: January house prices and card spending make solid gains
14 Feb 2024
- NZ house prices rose a solid 1% in January, with strong population growth and less new construction set to continue tightening housing market conditions from here
- A housing market print like this doesn’t mean the RBNZ will need to chuck another couple of hikes on the barbie or anything – particularly given the lighter volume of sales over January – but further heating in the market will support the case for keeping monetary policy tighter for longer and, in turn, keep a lid on the market
- Electronic Card Transactions rebounded from a weak December, but the trend remains pretty flat
Daily Alert: Picking the turning point
13 Feb 2024
- NZ yields continued to inch higher yesterday, despite markets slightly reducing expectations for near-term RBNZ rate hikes
- RBNZ Adrian Orr gave little away in his testimony to Parliament yesterday
- Given the recent volatility it feels important to restate our view on the OCR outlook. Ultimately, we don’t think there has been a sufficient data surprise to push the RBNZ back into hiking
Daily Alert: Markets take a hawkish swerve
12 Feb 2024
- NZ yields ended last week under upward pressure, reflecting both offshore moves and local developments
- The turnabout in market pricing has been similarly stark
- For our part, we don’t think there has been a sufficient catalyst to prod the RBNZ back into rate-hike mode, but the risk is that OCR cuts could arrive a fair bit later than August as the RBNZ seeks to ensure inflation is truly back in the target range
Economic Weekly: Putting the cat amongst the pigeons
12 Feb 2024
- The labour market figures released last week really put the cat amongst the pigeons
- At the start of last week financial markets were pricing in OCR cuts as early as this July
- Now they are fully pricing a hike by May – with cuts starting soon after
Daily Alert: Even bulls need to pause for breath
09 Feb 2024
- After hitting fresh record highs, Wall Street sharemarkets have paused for breath overnight
- Yields are higher overnight
- Upward pressure has been evident in European GB yields too, particularly in the UK, where Gilt yields are 7-8bps higher in the front end
Daily Alert: Global stocks hit record high
08 Feb 2024
- The NZD and NZ yields jumped after Q4 NZ labour market data came in stronger than RBNZ and market expectations. The risk is that OCR cuts could be delayed beyond our August 2024 start date
- Climbing US equities saw the MSCI global index touch a record high overnight. Optimism of a soft economic landing in the US, enthusiasm over artificial intelligence and hopes of eventual fed cuts fuelled the climb in US equities
- This was despite word of caution from global central bankers. Global yields were little changed overnight, but US Treasury yields continue to hold onto their post-payroll gains
Commodities Weekly: ASB nudges 2023/24 milk price forecast to $8.00 per kgMS
08 Feb 2024
- Despite the season being nearly over and Chinese processors still AWOL, strong auction results continue to push our farmgate milk price forecast higher
- Consequently, we now think farmers can expect a price around the $8 mark
- The ASB Commodities Index nudged lower from recent highs last week, although it remains not too far off cyclical highs and the data precedes this week’s dairy auction
Home Loan Rate Report: Counting chickens with caution
08 Feb 2024
- The Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) to 5.5% in May 2023 and subsequently signalled it had most likely done enough to contain inflation
- Over the past year the question has changed from “will rates go higher”, to “when will the OCR and mortgage rates start to come down”
- ASB economists think the OCR will get cut in the second half of 2024
Term Deposit Report: Term deposit rates are declining
08 Feb 2024
- Term deposit interest rates remain above historical averages for the past 20 years
- However, deposit interest rates on offer for longer terms started to come down in late 2023, as inflation concerns reduced, and long-term wholesale interest rates declined
- That pattern has continued in early 2024, with all rates beyond the 1-year term now off last year’s highs
Daily Alert: Labour day
07 Feb 2024
- Yesterday’s economic highlight was the RBA meeting in Australia
- Today the focus shifts to the NZ labour market, with Stats NZ releasing Q4 data at 10.45am
- The RBA Board left the cash rate unchanged yesterday, as anticipated by financial markets and the entire forecasting community
Q4 2023 Labour Market Data Review: Labour market only slowly cools
07 Feb 2024
- Q4 labour market data shows only modest cooling, with the pace of hiring rebounding from its Q3 fall and only a marginal lift in the unemployment rate
- Labour cost growth looks to be plateauing at levels considerably above the top of the 1-3% inflation target range, with distributional figures providing little evidence that wage pressures are cooling
- We expect that the unemployment rate will move higher over 2024 and labour cost growth will slow. Nonetheless, the RBNZ will be wary of the risk that inflation does not settle below 3%. The risk is that OCR cuts begin later in 2024 than our August forecast
Daily Alert: Rate cut reality check in the USA
05 Feb 2024
- Last week’s US labour market data provided a reality check for markets as Bloomberg described it, and your writer concurs
- On Friday, US air strikes targeted Iranian forces and militias in Iraq and Syria in retaliation for the earlier drone strike in northeast Jordan which killed three US service members
- NZ Consumer confidence posted a modest increase in the latest ANZ survey but is still languishing
Economic Weekly: Labour cooling will still leave RBNZ cautious for now
05 Feb 2024
- Inflation is on the way down
- However, the recent Q4 CPI print showed the non-tradable component of NZ inflation was stronger than widely anticipated
- That is one key reason why this Wednesday’s labour market figures are important
Daily Alert: BoE policymakers serve up a full English
02 Feb 2024
- Markets have continued to adjust in the aftermath of yesterday’s FOMC meeting
- Yesterday’s Fed statement has been followed up by a meeting of the Bank of England’s monetary policy committee overnight
- The rates market has generally taken those decisions in its stride
Q4 2023 Labour Market Data Preview: Cooling
02 Feb 2024
- The 2023 Q4 labour market figures are expected to show further easing in labour market conditions, with the unemployment rate climbing to its highest level in nearly 3 years
- Growth in the labour supply looks set to continue to outstrip the demand for workers, with the unemployment rate set to move concertedly higher over 2024. Labour cost growth should continue to ease
- Despite the cooling labour market backdrop, the hurdle to OCR cuts over the next few months is high. Persistently-elevated labour cost growth could delay the timing of OCR cuts
Commodities Weekly: A one-year milestone and a friendly Kiwi
02 Feb 2024
- Continuing their crawl, our commodity price indices have reached a circa 12 month high
- Dairy and horticulture remain the standouts of our index
- The Kiwi is lower than we’d expect historically given where commodity prices are sitting, providing a boost to our NZD index
Brexit Costs and Implications: Brexit border checks may cut UK goods exports by 22-27%
01 Feb 2024
- Three years since Britain’s departure from the EU, we quantify Brexit’s impact on UK goods exports
- We find that UK goods exports look to be 22-27% lower than they would otherwise be as a result of Brexit
- Brexit and its associated reduction in trade is a reminder of the fragility of globalisation
Daily Alert: Fed holds the line for now
01 Feb 2024
- As was widely expected the FOMC held the fed funds rate at 5.25%-5.5%. The policy assessment had an easing bias but pushed back against the possibility of imminent rate cuts. There was modest immediate market reaction
- Global yields and equities were lower given weaker data, mildly increased risk aversion
- The run of weaker than expected inflation prints continued, with Australian CPI data surprising to the downside. Our CBA colleagues expected RBA rate cuts from Q3 this year
Daily Alert: Cutting confidence waivers in the US
31 Jan 2024
- US data was stronger than expected overnight, with the JOLTS job openings rising to a three-month high
- US Conference Board consumer confidence also improved in January, driven by a lift in the present situation index from 148.5pts in December to 161.3pts, its highest level since the Covid pandemic
- Global yields were generally higher overnight
Daily Alert: More central bank meetings over the week ahead
30 Jan 2024
- The US FOMC meeting is the highlight of the week ahead
- West Texas Intermediate (WTI) prices have pressed higher over the past week but have pulled back overnight with WTI trading near US $77 per barrel
- Global sharemarkets were mixed yesterday and overnight
Economic Weekly: The good, the bad and the ugly of inflation
30 Jan 2024
- Last week’s inflation figures for the close of 2023 brought enough to keep Sergio Leone busy working through plot twists
- Inflation is falling at a quicker pace than the RBNZ had forecast (the Good); non-tradable inflation was higher than anyone had expected (the Bad), and in particular the ex-housing non-tradable inflation was very high (the Ugly)
- In the movie, the Good outguns the Bad and the Ugly. The RBNZ will certainly hope so too
Daily Alert: Yields pare back despite Lagarde’s caution
26 Jan 2024
- Sentiment has generally been on the front foot in financial markets overnight
- In the US, Treasury yields are about 2-6bps lower over the curve, with the larger moves in the front-end
- In the local rates market, the NZDMO tendered $500m worth of GBs yesterday covering the 2027, 2034 and 2037 bonds (as well as a $25m auction of a 2040 inflation-indexed bond)
Commodities Weekly: Ovine decline
26 Jan 2024
- NZD commodity prices touched a fresh nine-month high last week
- Dairy prices are the big driver behind underlying commodity prices, with a slightly lower NZD providing an additional bonus
- Lamb prices remain by far the laggard in our index, still trundling along at seven year lows
Daily Alert: Something for everyone
25 Jan 2024
- Yesterday’s Q4 NZ CPI release provided something for everyone, with headline inflation cooling in line with market expectations (0.5% qoq, 4.7% yoy). However, core and domestically generated inflation measures did not fall by as much as expected
- The market mood was generally positive overnight, helped by the improving run of data, solid US corporate earnings, signals of a dovish central bank pivot and pledges of more policy support
- The ECB decision (no change expected) and Q4 US GDP are the major events tonight
Daily Alert: CPI-day
24 Jan 2024
- Locally, all eyes will be on where NZ Q4 CPI prints today and what that might mean for the RBNZ’s monetary policy outlook
- As was widely expected, the Bank of Japan (BoJ) made no changes to monetary policy yesterday
- Australian business confidence improved in December (to -1pts from -9pts) while conditions eased further (down to 7)
2023 Q4 CPI Review: Soft headline but lopsided pricing pressures remain
24 Jan 2024
- Q4 inflation surprises the RBNZ to the downside again, with annual CPI inflation at its lowest in 2½ years
- The details showed a lopsided inflation print and were not as benign as the RBNZ would have been hoping for. It did not provide the RBNZ with complete reassurance that its extensive monetary tightening to date is gaining traction
- The RBNZ will be wary of the risk of inflation being stuck above 3% and will maintain restrictive OCR settings for as long as it takes to push inflation below 3% on a sustained basis
Daily Alert: Trump in the box seat
23 Jan 2024
- Ron DeSantis said yesterday he would be ending his campaign for the Republican nomination, leaving Donald Trump and Nikki Haley as the likely contenders in the race to face US President Biden in the November election
- Global sharemarkets were largely positive overnight
- The three main US sharemarket benchmarks were all positive, with the Dow and the S&P 500 up 0.2% and NASDAQ up 0.3%
Daily Alert: US sharemarkets back at all-time highs
22 Jan 2024
- The highlight of the NZ data so far this year is this week’s CPI data
- Japan’s latest CPI data highlights why the Bank of Japan can wait before lifting rates
- Global sharemarkets were mixed on Friday
Economic Weekly: On the way down
22 Jan 2024
- Inflation has probably surpassed house prices as the most talked about economic phenomenon in New Zealand recently
- This week we expect to see more evidence that inflation pressures in New Zealand are indeed cooling
- We expect both tradable and non-tradable inflation components decelerated in Q4, albeit by differing degrees
Daily Alert: Markets search for signs on what 2024 could hold
19 Jan 2024
- Longer-term yields have continued to rebound a little higher overnight as markets digest the latest economic data and central bank chit-chat
- Shorter-term yields have been a bit more mixed, with the US 2-year down 3bps overnight to find itself about 8bps lower over the year thus far (4.33%)
- It’s a reminder that while yields may be past their peak, markets may have been a little overeager in anticipating rate cuts
2023 Q4 CPI Preview: Trending lower as the COVID-19 price premium unwinds
19 Jan 2024
- We expect a 0.5% quarterly increase in the headline CPI over Q4, with annual inflation falling to 4.7%
- Much of the difference with the higher RBNZ pick is for tradable prices. We expect the unwinding of the COVID-19 premium to be the key factor pushing overall inflation below 3% by the second half of 2024
- Domestic inflation readings should start to cool, but if progress on lowering inflation stalls OCR cuts could potentially be delayed till 2025
Daily Alert: Too hasty
18 Jan 2024
- Solid data and central bank messages that rate cuts were not imminent triggered an increase in global yields overnight
- NZD and AUD weighed by weak Chinese data
- Today’s local data will be looked for signs of a local housing market pick-up amid a cooling inflationary backdrop
REINZ Housing data – December 2023: A surprise December house price fall
18 Jan 2024
- NZ house prices fell 0.3% in December, wrongfooting our expectations for some continued post-election recovery
- Broader market indicators are looking mixed, with sales activity only advancing slightly and days-to-sell data proving sticky
- Nonetheless, we expect house price inflation to gain ground from here, albeit with restrictive interest rates keeping a lid on how spicy the market gets
Commodities Weekly: ASB revises up its 2023/24 milk price forecast to $7.85kgMS
17 Jan 2024
- Dairy commodity prices have continued to grind higher over recent auctions, despite China's conspicuous absence from global dairy markets.
- Mechanically, this has pushed our Fonterra milk price forecast higher, and we now anticipate a price around the $7.85 per kgMS mark for the season.
- Dairy prices are helping push our Commodities Index higher, despite continued weakness in meat prices.
Card Spending December 2023: Christmas fizzle
17 Jan 2024
- Card spending fell in December, with falls recorded across most categories.
- The fall follows a robust November print and suggests some consumers may have done their Xmas shopping early last year.
- However, it's very clear that the consumer demand backdrop remains weak and that the RBNZ's monetary policy tightening is having the desired impact.
Daily Alert: Reality check
17 Jan 2024
- Sharemarkets were weak and bond yields rose overnight as investors pared back their rate cut expectations from lofty levels
- As was widely expected, NZIER’s latest quarterly survey of business opinion showed a post-election bounce in business sentiment, domestic trading activity, investment and hiring intentions, with a sharp turnaround in perceived fortunes in the beleaguered retail sector
- Aussie Consumer Confidence was weak in January with sentiment declining 1.3% to 81 points (pessimists heavily outweighing optimists given a reading of 100 is the dividing line), the latest Westpac survey showed
Daily Alert: Week starts on a quiet note for markets
16 Jan 2024
- In the US the sharemarket was closed for the federal holiday to observe Martin Luther King’s birthday
- European sharemarkets were down overnight, with the Euro Stoxx 50 down 0.6%
- Asian sharemarkets were mixed yesterday
Quarterly Survey of Business Opinion 2023 Q4: Post-election bounce
16 Jan 2024
- Q4 QSBO shows a post-election bounce in business sentiment, and key activity, investment and hiring metrics, that point to a strong cyclical rebound over 2024. We remain sceptical on whether this will transpire given headwinds facing the NZ economy
- Pricing and cost pressures are easing, but further cooling is needed to be consistent with sub 3% headline inflation on a sustained basis. This could be undone if the foreshadowed recovery in demand impacts pricing decisions
- A lengthy period of restrictive OCR settings still looks to be needed to ensure sub 3% inflation is delivered. We do not expect OCR cuts to begin until the second half of 2024, with the risk of a later start
Daily Alert: What’s in store for 2024?
15 Jan 2024
- Last week in the US, a focus was on US CPI inflation
- In contrast to the upside surprise in the US, last week China’s consumer prices for December fell for a third consecutive month
- Taiwan elected Lai Ching-te its President over the weekend
Economic Weekly: What to watch out for in 2024
15 Jan 2024
- Welcome to the first ASB Economics Weekly of 2024. 2023 was a rollercoaster year, with a large number of geopolitical, economic and climate-related events and heaps of financial market volatility
- Last week, we published our 2024 watchlist of five key risks
- The key risk pertains to whether NZ and global inflation will continue to subside and settle at historically low levels
ASB Economic Note: What to look out for in 2024
11 Jan 2024
Global and NZ interest rates, currencies, and equity markets were volatile over 2023, with a number of geopolitical, economic and climate-related events to contend with.
Here, we highlight 5 key risks for 2024.
Markets Monthly: NZD, shares, and bonds finish 2023 on a strong note
11 Jan 2024
- Strong end of 2023 performance for equities, bonds and the NZD
- Central bank policy interest rate expectations remain the key driver
- 2024 is shaping up to be another volatile year for financial markets
Term Deposit Report: Term deposit interest rates are starting to ease
10 Jan 2024
- Term deposit interest rates remain above historical averages for the past 20 years.
- However, deposit interest rates on offer for some longer terms started to come down in late 2023, as inflation concerns reduced, and long-term wholesale interest rates declined.
- What’s more, the view of ASB economists is that most term deposit interest rates are expected to ease over the year ahead.
Daily Alert: Brace for more volatility in 2024
22 Dec 2023
- 2023 has been a rollercoaster year for markets. More of the same looks to be in store for 2024
- There was limited market action overnight
- Have a safe and enjoyable festive break. This is our last daily alert for 2023. The first daily alert for 2024 will be on Monday January 15th.
Daily Alert: Lower yields say Merry Kirihimete to markets
21 Dec 2023
- The upbeat mood in financial markets has mostly continued overnight, with equities still gaining, yields generally edging lower and the VIX (or ‘fear gauge’) set to end the year at its lowest level since the pandemic
- Yields are lower right across North America and Europe
- Further falls in yields have helped support equities
Household Debt Servicing Outlook: 90% delivered, another 10% to go
21 Dec 2023
- Higher debt servicing costs are expected to continue to pressure household budgets heading into 2024. The average increase in debt servicing costs from 2021-2024 is expected to be just over $100 per week for each household, although the cashflow impacts will be uneven
- We anticipate that overall mortgage interest rates will remain at restrictive levels for a while yet. New mortgage interest rates will likely fall in 2024, but it will take time to impact overall borrowing costs
- The impending readiness of DTI restrictions will be a valuable addition to the RBNZ’s policy toolkit and should enable OCR cuts to be brought forward earlier. We expect OCR cuts from August 2024
Daily Alert: Some ASB Economics forecast tweaks for your Crimbo stocking
20 Dec 2023
- We’ve revised our economic forecasts for the next twelve months, and now anticipate the RBNZ can begin to cut the OCR from the latter part of next year
- Last week’s GDP and price data showed a weaker near-term inflation outlook, less growth momentum than we had thought and a lower level of economic activity taking place (which probably means less demand pressure)
- The highlight on the events calendar yesterday was the BoJ meeting, which was interpreted by markets in dovish fashion
OCR Forecast View Change: OCR cuts coming sooner as economy softens
20 Dec 2023
- Q3 GDP and revisions show the economy has been losing momentum to a greater extent than envisaged
- Inflation pressures will follow suit
- Accordingly, we now expect the RBNZ will first cut the OCR in August 2024
Commodities Weekly: Father Christmas delivers some year-end GDT gains
20 Dec 2023
- Dairy prices have gained further ground as the year draws to a close, with WMP up close to 3% at the last GDT of the year
- While China is still missing in action, stronger demand from other regions means that a milk price at or above the midpoint of Fonterra’s guidance range is looking pretty achievable
- We’ll review our $7.35 per kgMS forecast for the season in the new year
Home Loan Rate Report: Mortgage rate pressures are coming down
20 Dec 2023
- The Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) to 5.5% in May and signalled it had most likely done enough to contain inflation
- The questions since then have changed from “will rates go higher”, through to when will rates (both the OCR and mortgages) start to come down
- To cut to the chase, we now think the OCR will get cut in the second half of next year, rather than early 2025, as we had been forecasting, and the RBNZ had been indicating
Regional Economic Scoreboard: Otag-land
20 Dec 2023
- There was an almighty fight for top spot this quarter, but ultimately we had to split the crown right down the middle
- Stellar performances from both Otago (taking out the number one spot for the second quarter in a row) and Auckland (who stormed up the Scoreboard from 10th place last quarter) were both deserving of gold medals
- People were the common factor between the two winning regions this quarter
NZ Half Year Economic and Fiscal Update 2023: Light on details, come back in May 2024
20 Dec 2023
- The Half Year update provided was light on specifics. Its market and policy relevance was low
- The mini-Budget (which was not incorporated in the HYEFU projections) did identify $7.5bn in overall fiscal saving, mainly achieved via expenditure restraint. This is a signal of intent
- A strong signal of fiscal restraint will be needed in the May 2024 Budget if the OCR is to be cut in 2024
Housing Confidence: Stand by for lift-off – but how high?
19 Dec 2023
- For the first time in eighteen months, more New Zealanders expect house prices to increase than decrease
- Recent data show the market warming up, but interest rates are almost certainly acting as a weight on activity
- New Zealanders aren’t anticipating much of a shift on that front just yet, with just 15% expecting rates to fall
Daily Alert: Slow start
19 Dec 2023
- It was a quiet start to the final week before Christmas, with very little in the way of economic data or events to drive direction
- Chicago Fed President Austan Goolsbee (2023 voter) and Cleveland Fed President Loretta Mester (2024 voter) appeared to be trying to temper market optimism overnight by saying that the extent of rate cuts priced in 2024 was outsized
- US bonds were little impacted by the Fed speak
Daily Alert: Bank of Japan headlines the week ahead
18 Dec 2023
- Last week’s focus was on central banks with the US FOMC, European Central Bank and the Bank of England all meeting
- This week the Bank of Japan policy meeting headlines the calendar for the week
- The UK flash composite PMI rose to 51.7 in December from 50.7 previously — above consensus expectations for analysts surveyed by Bloomberg 51
Economic Weekly: Weak GDP opens door to early OCR cuts
18 Dec 2023
- Last week’s GDP figures weren’t the Christmas present we were expecting
- Q3 GDP contracted by -0.3% instead of the 0.2% expansion expected
- Q2 GDP got revised down from 0.9% to 0.5%
Daily Alert: Softer Kiwi economy contributes to dovish market mood
15 Dec 2023
- The key local economic event yesterday was the release of NZ GDP data for Q3, which was much weaker than expected
- What’s more, Stats NZ made substantial downward revisions to the past couple of quarters of data, such that the economy is about 1.6% smaller than we’d thought
- Unsurprisingly, market reaction to the print was dovish, with folks now judging that OCR cuts could come more imminently
Commodities Weekly: Commodity prices end the year in mixed fashion
15 Dec 2023
- Commodity prices are set to close out the year close to 9½% below where they started it in USD terms, though the weaker Kiwi has remained an enduring theme over most of the year
- Gains and losses haven’t been spread evenly, with meat prices a clear disappointment
- We’re hopeful that strengthening global growth can help bolster commodity prices over 2024
Daily Alert: US yields and USD falls as Fed holds and lowers dot plots
14 Dec 2023
- As was widely expected the FOMC held the fed funds rate at 5.25%-5.5%, having remained on hold since July after 525bps of rate cuts since the start of 2022
- The published forecasts had near-term growth revised up (2.6% for 2023), with growth still forecast to slow (1.4% in 2024, 1.8% in 2025 and 1.9% in 2026)
- Markets had largely baked in a dovish Fed assessment prior to the decision but have also moved significantly post-FOMC
Q3 2023 GDP Review: GDP Shrinks, NZ economy 1.6% smaller than we thought
14 Dec 2023
- The NZ economy shrunk by 0.3% in the September quarter, substantially softer than all and sundry were anticipating. On a per capita basis, that’s a shrinkage of 0.9%
- There have been sizable downward revisions to previous quarterly growth estimates – with June’s outturn being halved – meaning there has been considerably less activity taking place than we previously thought
- Taken in conjunction with a weaker CPI result, the risk is that the RBNZ can cut the OCR earlier than we’d previously expected. But we are sticking with our early 2025 view for now
Daily Alert: US CPI no catalyst for dramatic change
13 Dec 2023
- US CPI was the main event in markets overnight, given its proximity and relevance to tomorrow’s FOMC policy meeting
- The November CPI printed largely as expected but in doing so, has slightly challenged the narrative that the FOMC could soon turn dovish
- US Treasury yields initially pared earlier losses after the CPI print but have since eased off post CPI highs
REINZ Housing data – November 2023: House prices keep powder dry in post-election immediacy
13 Dec 2023
- NZ house prices eked out a 0.4% gain in November, reversing the pause we saw as the country went to the polls
- There isn’t much sign of a housing market acceleration post-election, but it’s far too early to be extrapolating on that given the coalition was only formed at the end of the month and no policy change was in place
- We still expect house price inflation to gain ground from here, though restrictive interest rate settings are likely to keep a lid on how spicy the market gets for the time being
Daily Alert: Waiting
12 Dec 2023
- The week has started on a quiet note, as market participants await the Federal Reserve, European Central Bank and Bank of England policy meetings later in the week
- Inflation expectations eased in the US according to the latest New York Federal Reserve survey
- JPY and the Bank of Japan meeting next week remains a focus in FX markets
Card Spending November 2023: Bouncing into the end of 2023
12 Dec 2023
- Card spending jumped in November, with widespread gains across most categories
- The degree to which Black Friday sales contributed to the gains will only become evident down the line
- Outside of enticing sales and population growth, the demand environment remains subdued and card spending is still falling on a per capita basis. We don’t expect a turn around in fortunes any time soon
NZ Migration and Tourism October 2023: Higher starting point, but scale of upward revisions easing
12 Dec 2023
- Annual net PLT immigration hit a record high in October, with the risk of a higher for longer net immigration boost that will have implications for the economic and interest rate outlook
- Exceptionally strong net immigration has kept the NZ economy out of recession and has bolstered labour market capacity. However, the RBNZ remains wary of the support provided to domestic spending, the housing market and to inflationary pressures
- Tourist arrivals slowed and strong pent-up demand for overseas travel by resident kiwis point to a lower net boost to the NZ economy
Daily Alert: Central banks in the spotlight
11 Dec 2023
- The focus this week is on central banks with the Federal Reserve, European Central Bank and the Bank of England all meeting
- US labour market data was stronger than expected on Friday with pickups in employment and wage growth during November
- China’s consumer prices fell 0.5% over the 12 months to 30 November (Source Bloomberg)
Economic Weekly: Growth’s glacial gains
11 Dec 2023
- This week it is time for Q3 GDP data (Gross Domestic Product) on Thursday
- It is shaping up as a pretty flat quarter: we expect 0.2% qoq growth, which would imply that per-capita GDP actually shrunk
- As has been the case since COVID created disruption and measurement challenges, there is the usual caveat of taking the forecast – and even the outcome – with a grain of salt
Daily Alert: Fonterra lifts milk price forecast
08 Dec 2023
- Fonterra increased its forecast Farmgate Milk Price and earnings guidance for FY24 yesterday
- ASB’s Mark Smith released a cost of living report yesterday. We expect the average household having to stump up an extra $70 per week in 2024 just to cover costs following a $115 weekly increase in 2023
- China’s trade surplus expanded in November, but the details were poor
Q3 2023 GDP Preview: More turkey, less to go round
08 Dec 2023
- We expect GDP growth lifted +0.2% in Q3, roughly in line with RBNZ expectations
- Some growth headwinds have materially eased, but a portion of monetary tightening already implemented by the RBNZ has yet to be fully felt
- NZ looks likely to have dodged a 2023 recession, but strong population growth conceals flagging per-capita activity. Like roast turkey on Christmas Day with all the cousins, we’ve got a bigger chook but there is less to go around
Daily Alert: Oil prices slump, yield curves flatten, US labour market cools
07 Dec 2023
- Oil prices slumped to their lowest levels since July, with near-ten contract prices for WTI (USD69.60 per barrel) and Brent (USD74.50) were down 3-4% overnight
- US labour market data softens with the 103k ADP employment report flagging some downside risk for the forthcoming payrolls report
- The Bank of Canada held its policy interest rate at 5%, its 3rd consecutive on hold decision, following 475bps of hikes since February 2022. There was little immediate market reaction
2024 Household Living Cost Outlook: Still struggling, but light at the end of the tunnel
07 Dec 2023
- The outlook is uncertain, but we expect the average household having to stump up an extra $70 per week in 2024 just to cover costs following a $115 weekly increase in 2023
- Overall increases in living costs are slowing, but the impacts are uneven. We expect slowing increases for consumer goods but for still chunky rises in debt servicing and for other consumer services
- Many households will continue to struggle, and while household spending is under pressure, the solid household income backbone and pent up post-COVID saving has kept the household sector afloat. To get inflation down on a sustained basis will require restraint on the part of households. If not, higher OCR settings may result.
Quarterly Economic Forecasts: Spring shoots will take time to flourish
06 Dec 2023
- There are some early positive signs for the economy, which looks like it is past the worst
- However, growth is being propped up by migration, and lagged impacts of higher interest rates are still flowing through
- Inflation is gradually falling, but interest rates are likely to remain high throughout 2024
Commodities Weekly: Dairy prices cruise into December with modest gains
06 Dec 2023
- Dairy prices have recovered a bit more ground at last night’s auction, in line with futures market expectations
- Recent gains in prices can support the farmgate milk price, though Chinese demand remains comparatively muted and lower volumes are also partly behind recent gains
- Fonterra will be close to fully hedged at this stage in the season, but further lifts in NZD can still eat into the milk price. We retain our $7.35 per kgMS forecast
Daily Alert: RBA rejoins the “on hold” club…
06 Dec 2023
- The Reserve Bank of Australia Board left the cash rate unchanged yesterday, after hiking in November
- Australia’s current account tipped into deficit in the third quarter, printing at $A158mn, the first deficit in a year
- The seasonally adjusted volume of building activity in New Zealand was $8.6 billion in the September 2023 quarter, down 2.4% compared with the June 2023 quarter, Stats NZ reported yesterday
Markets Monthly: Shares and bonds move in the right direction
06 Dec 2023
- Shares and bonds rallied both here and abroad over November, recovering some of their declines in the preceding months
- The local sharemarket lifted 5%, while global shares were up over 9% in USD terms
- Over the month, market participants around the world became increasingly confident that central banks have done enough tightening of policy settings to curb inflation
Daily Alert: Imports and exports down in the latest NZ data
05 Dec 2023
- NZ’s terms of trade index fell by 0.6% in the September quarter, less than the 1.6% we expected, and the 2.2% median market expectation on Bloomberg
- The quarterly ABS Business Indicators released in Australia yesterday covered company income and profits, wages and salaries, and inventories
- US and European shares started the week on the back foot, with the major benchmark indices flat or down in the northern hemisphere, after mixed trading in Asia
Daily Alert: US manufacturing outlook remains weak
04 Dec 2023
- In the US, The Institute for Supply Management’s ISM manufacturing gauge held at 46.7, according to data released Friday
- Federal Reserve Chair Jerome Powell attempted to push back against investors’ growing expectations of interest-rate cuts in the first half of 2024, warning that “it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.”
- S&P Global Ratings maintained its rating on French sovereign debt at AA
Economic Weekly: Cool Your Jets
04 Dec 2023
- Last Wednesday the RBNZ dropped an Ice Bucket Challenge worth of cold water on people anticipating a quick start to OCR cuts
- The RBNZ signalled a stronger bias towards lifting the OCR if inflation pressures turn out to be stronger than expected
- We ourselves had, in contrast, been comforted by signs that recent inflation data showed a slightly faster decline in reported inflation
Commodities Weekly: Slightly higher Kiwi, slightly stronger growth outlook
01 Dec 2023
- Currency movement continues to be the dominant driver behind swings in our NZD index, with the Kiwi making solid gains last week
- Better risk sentiment is the key driver behind NZD’s step up
- Global growth forecasts are also being revised higher, providing some support on the demand side for commodities
Daily Alert: Too much, too soon
01 Dec 2023
- Of late, pressure to lower global yields has been intense, with markets viewing that if central banks are no longer hiking, they are due to start cutting soon
- Data provided encouragement that restrictive US monetary settings are doing the job and are likely to encourage an on-hold stance by the Fed later this month
- Language from central bankers remained resolute, warning it is too soon to consider rate cuts. Global yields have pushed higher, with curves steepening
Daily Alert: NZ yields jump as RBNZ shows talons
30 Nov 2023
- NZ short-term yields and the NZD jumped after the RBNZ held the OCR at 5.50% but fired a shot across the bow to markets that has been too hasty in bringing forward the next easing cycle
- The hawkish RBNZ message was at odds with recent global inflation data and the tone of global central bank comments that suggest policy interest rates have peaked
- While central bankers in general have been circumspect, bets for Fed cuts have gained ground with roughly 100bps of Fed cuts priced in for next year
Daily Alert: How now?
29 Nov 2023
- What is reasonable to expect on how far, and how fast can a government move? One conversation we have been having in the economic team is what to expect from the new government in between now and the holiday season
- In Australia, Seasonally adjusted retail sales declined 0.2% over October, posting the biggest fall since June
- The 2023/24 Australian Federal Budget data to October 2023 shows an underlying cash deficit for the month of $A5.2bn, with the year-to-date deficit running at $A17bn
Review of RBNZ November Monetary Policy Statement: No Governor Grinch, though only by a pinch
29 Nov 2023
- As Christmas draws closer the RBNZ just refrained from taking presents away from borrowers: OCR stays at 5.5%
- The RBNZ was more wary of upside inflation risks than we had expected
- Nevertheless, we continue to expect the RBNZ to remain on hold until February 2025
Daily Alert: Is bad news good news?
28 Nov 2023
- China industrial profit data, US new home sales and the Dallas Fed Manufacturing Index printed on the weak side of expectations, but rather than trouble markets, these days softer data seem to be interpreted as supporting the theme that the Fed and others are done on hiking, and the next move will be down for rates
- The Dallas survey showed a manufacturing activity diffusion index at -19.9 vs -19.2 in the prior month, and a six -month outlook at -13.4 vs -6.8 prior month
- The NZ Government will have its first Cabinet meeting today after Prime Minister Christopher Luxon and ministers from National, Act and NZ First were sworn in on Monday
Daily Alert: MMP comes of age as NZ gets first three-way coalition
27 Nov 2023
- Global yields were modestly higher last week, reversing a small portion of their recent falls
- It was generally a quiet week in terms of both data and central bank comments
- Sharemarkets were mostly higher last week, despite the rebound in yields
Economic Weekly: The show begins
27 Nov 2023
- Government coalition negotiations wrapped up on Friday, and the new ministers were sworn in today
- The coalition agreements were made public on Friday, detailing the agreed departures from National's policy programme
- All up, the collective policy agreements do indeed show a marked change in direction from the outgoing government
IoD Director Sentiment Survey 2023: Insights from the New Zealand Director Community
27 Nov 2023
- Economic pessimism amongst directors remains high despite modest improvement since 2022 and relatively higher levels of organisational optimism, which has been a consistent contrast since surveying began
- Inflation and cost of living was the main economic headwind this year, closely followed by labour capacity and capability, which continues to be the dominant organisational risk despite changes in immigration settings and loosening of the labour market
- Labour capacity and capability continued to be the dominant organisational risk despite changes in immigration settings and loosening of the labour market
Daily Alert: New NZ Government to be unveiled today
24 Nov 2023
- A new NZ National/ACT/NZ First coalition government looks set to be unveiled today with a signing ceremony due to take place this morning in parliament, with the cabinet to be announced this afternoon
- With US markets largely shut for the Thanksgiving holidays, action was quiet and markets less liquid, with trading volumes low
- European and Canadian yields pushed higher overnight, with a modest curve steepening for the Eurozone
Preview of RBNZ November Monetary Policy Statement: Damp squib
24 Nov 2023
- We don’t expect any fireworks from the November MPS, with the OCR on hold and little change in tone
- If anything, recent events will make the RBNZ more comfortable with its on-hold stance
- We still expect the RBNZ to wait until February 2025 to cut the OCR, though the risks are skewed to earlier
Commodities Weekly: That was the week that was
24 Nov 2023
- Agri commodity prices continue to track sideways, with a higher Kiwi offsetting slim gains in USD prices last week
- We’ve retained our $7.35 per kgMS milk price forecast in the aftermath of this week’s GDT
- The NZ-EU FTA is a step closer to coming into force, and the new NZ government has been announced
Q3 2023 Retail Trade Review: Some resilience, but nothing to write home about
24 Nov 2023
- Retail volumes were flat over Q3, generally proving a bit more resilient than anticipated
- Core volumes rose 1%, likely boosted by stronger net migration and a Women’s Football World Cup boost
- The resilience in retail activity will have helped prop up growth in Q3, but we continue to expect the myriad of headwinds facing the retail sector to weigh on consumption over the near-to-medium future
Daily Alert: Sticky inflation expectations give Treasuries pause for thought
23 Nov 2023
- Yields have edged modestly higher overnight, albeit only reversing a fraction of their falls over recent days
- Sticky inflation expectations and gains in yields have come even as other US data has shown the economy decelerating
- All-up, Treasury yields are 0-6bps higher over the curve, with the larger lifts in the front end
Daily Alert: FOMC Minutes don’t change the narrative
22 Nov 2023
- Market moves were reasonably modest overnight, with little in the way of data or events to drive direction ahead of this morning’s FOMC Minutes
- Bond yields were generally lower overnight
- The first read of the FOMC meeting minutes released this morning have done little to change the market direction
Daily Alert: Quiet start to the week
21 Nov 2023
- It was a quiet start to the week, with little in the way of data to guide markets, and nothing surprising in the central bank comments that have hit the wires
- Bank of England Governor Andrew Bailey spoke overnight and noted UK interest rates may have to rise again if inflation persists and that food and energy costs represent a major upside risk
- Richmond Fed President Thomas Barkin spoke with Fox business overnight
Daily Alert: Howzat?
20 Nov 2023
- US and European shares were positive on Friday, with the major benchmark indices in the green on both sides of the Atlantic.
- The NZD is trading near 0.5990 against the USD this morning, towards the top of Friday night’s range of around 0.5940-0.6000.
- No NZ data is due, and the data calendar is very light offshore until tomorrow.
Economic Weekly: Holding On
20 Nov 2023
- Over the past week CPI data in the US and UK was the key focus given both central banks appear on an extended hold. Local data showed migration remains strong within the September figures, while card spending softened across the board in October.
- Statistics NZ has expanded the range of monthly price data it now publishes. Generally, annual inflation eased in most things.
- The news of the past week was sufficiently moderate inflation-wise to reinforce that the RBNZ is on hold for the foreseeable future. The main news out this week - retail sales - won't change that.
Daily Alert: Yields pare back again, as Xi & Biden powwow
17 Nov 2023
- Yield volatility remains the central order of the day in financial markets
- US Treasury yields are down a reasonable 7-9bps over the curve
- Fed speakers are being typically cautious in their comments on recent data
Commodities Weekly: Resilience through diversity
17 Nov 2023
- Currency movement continues to help offset soft agri prices, with our index up 0.7% in NZD terms last week
- Prices for major agri commodities exports are diverging, with dairy and horticulture prices proving more resilient
- It’s a salient reminder that diversification is usually a prudent strategy for exporters
Daily Alert: Volatility in yields ain’t over yet
16 Nov 2023
- After sharp falls driven by cooler US inflation data earlier in the week, global yields have seen some fairly chunky lifts overnight
- European yields are higher too – including 3-8bps of gains in UK Gilts despite a softer CPI print in Blighty
- Despite the reversal of fortune in the bond market, equities are still largely in the green
REINZ Housing data – October 2023: Housing market takes a mid-election pause for thought
16 Nov 2023
- The NZ housing market cooled in October, notching up its first monthly price decline in six months off the back of reduced housing market activity
- With some deceleration also taking place in September, there may well be a bit of ‘wait and see’ going on as prospective buyers and sellers awaited the election outcome
- We still view broader housing market drivers as supportive for prices, though restrictive interest rate settings are likely to keep a lid on how spicy the market gets
Daily Alert: US CPI wipes out Fed tightening expectations
15 Nov 2023
- Softer than expected US CPI inflation was the cornerstone of market moves overnight
- Global equity markets reacted as you would expect to the possibility that we might have seen the end of FOMC tightening
- Interest rate markets had an even stronger reaction to the US inflation data, with volatility reignited in bond markets
NZ Migration & Tourism (Sep) and Card Spending (Oct) 2023: Migration strong, card spending soft
15 Nov 2023
- Net migration hits a fresh record high in September as upward historical revisions continue
- Electronic card spending falls across the board in October, highlighting the challenges facing the household and retails sectors
- Record strong population growth is not yet propelling the economy forward, or at least not the retail sector
Daily Alert: All quiet on the financial market front
14 Nov 2023
- US and European shares were mixed overnight, with European shares up, and US shares flat
- The latest BNZ BusinessNZ Performance of Service Index (PMI) for October suggests New Zealand’s services sector went back into contraction last month
- Yields were fractionally lower in the US overnight, but a bit more mixed over in Europe
Term Deposit Report: Term deposits remain high as inflation starts to ease
13 Nov 2023
- Term deposit rates are above the levels averaged over the past 20 years, and some terms have been tweaked slightly higher over the past month
- Rates are expected to settle around current levels this year, before eventually easing
- Despite the “above-average” returns on term deposits, inflation remains a challenge for savers
Daily Alert: Moody’s cut the US credit outlook to negative
13 Nov 2023
- Moody’s cut the US credit outlook to negative, citing increased downside risks to its fiscal strength
- Over the week ahead CPI data in the US and UK will be the key focus given both central banks appear on an extended hold
- US and European shares were mixed on Friday, with European shares down, and US shares up
Economic Weekly: Painting the interest rate picture
13 Nov 2023
- We are pretty comfortable with our view that the RBNZ has lifted the OCR high enough to get inflation under control in a comfortable enough timeframe
- Even so, the overall picture can be subtly altered by the small brushstrokes of minor data out this week, even as the bold outlines from the major data give a reasonably clear idea of the outlook
- The most tangible sign to date that the economy is past its worst point is the gradual pick-up in the housing market we've seen over the past five months
Daily Alert: Yield volatility looks set to continue
10 Nov 2023
- US Yields shoot higher following soft US debt auction and as FOMC Chair Powell reiterates that the Fed would not hesitate to tighten policy further if appropriate, and they are not fully confident they had tightened enough to return inflation to 2%
- US equities down, with the USD up
- NZ yields are expected to open firmer this morning
Daily Alert: Markets await yarns with central bank heavy hitters
09 Nov 2023
- Market moves have been comparatively modest over the last day, with not too much data out
- Markets reckon that central banks are largely done with hiking, with not much risk of additional tightening being priced anywhere except for Aussie (where a 40% chance of another hike is priced)
- To that end, the RBNZ’s Q4 inflation expectations survey was released yesterday, one of the last key data points ahead of the Bank’s last meeting of the year
Daily Alert: Dovish RBA 25bp hike sees yields lower
08 Nov 2023
- Australian yields ease on dovish 25bp RBA hike
- Global yields down overnight
- RBNZ survey is expected to show fall in inflation expectations today at 3pm
Commodities Weekly: Islands in the product stream
08 Nov 2023
- Diverging trends have been evident in global dairy prices overnight, with WMP snapping a four-auction winning streak, but other product streams are continuing to climb
- Tighter supply has helped dairy prices regain some ground recently, but soft demand remains a key constraint on prices
- We retain our $7.35 per kgMS milk price forecast for the 2023/24 season, with current futures market pricing potentially representing an attractive hedging opportunity
Daily Alert: RBA hike trailed with subtlety of a Bullock in a China shop
07 Nov 2023
- Markets have opened the week by ever so slightly moderating some of the moves we saw last week
- Global yields are higher
- Sharemarkets have dipped
Daily Alert: Back to waiting
06 Nov 2023
- Last Friday the final election results were in. The National Party shed two seats, giving National and ACT a combined 59 seats
- Offshore economic news last week was dominated by central banks, primarily the BoJ and the FOMC
- Non-farm payrolls increased 150,000 in October following downward revisions to the prior two months, a US Bureau of Labor Statistics report showed Friday
Economic Weekly: Lower National, flat Labour, higher unemployment
06 Nov 2023
- As the month rolled into November, the attention moved quickly from some sporting event in Europe to the last major data out in NZ ahead of the RBNZ's interest rate decision at the end of this month: the labour data
- And the results joined a run of data suggesting there is no need for the RBNZ to lift the OCR any further in this tightening cycle, though that is where the skew of risks will remain for the time being
- The pressures in the tight labour market are easing
Daily Alert: Pare-back in longer term yields remains the major theme
03 Nov 2023
- A pullback in yields, particularly in the back of the curve, has been the dominant theme in financial markets over the last 24 hours.
- The BoE has left its policy rate unchanged at 5.25%.
- More bullish risk sentiment has seen the USD on the backfoot overnight.
Commodities Weekly: Commodity prices giveth, and interest rates taketh
03 Nov 2023
- Our Commodities Index rises for a fourth consecutive week in NZD terms, albeit driven by the lower NZD.
- Agri commodity prices hit a near-term low in July & August and have regained a bit of ground on tighter supply.
- Unfortunately, many costs are lifting more sharply than prices for our exports, putting margins under pressure.
Daily Alert: NZ labour market tightness eases, while Fed holds
02 Nov 2023
- NZ yields and the NZD dropped late yesterday morning following weaker than expected Q3 NZ labour market figures.
- Global yields are lower given soft data and a lower than expected pace of increases for debt issuance announced by the US Treasury.
- As was widely expected, the US FOMC held the Fed Funds rate at 5.25% to 5.5%. Immediate market reaction was modest.
Rural Note: Agri Sector Resilience a key focus for RBNZ
02 Nov 2023
- The RBNZ reports that dairy sector debt servicing costs reached a fourteen year high of $1.43 per kgMS in August, in line with our forecast from earlier in the year.
- With farmers taking on additional debt to support working capital and lending rates still under upward pressure, we now think debt servicing costs could reach $1.50-1.55 per kgMS towards mid-2024.
- The RBNZ doesn’t think a single season of high debt servicing costs and a low milk price will trigger widespread distress, but the challenge will come if dairy prices remain soft for a prolonged period. In this note, we reiterate our thoughts on how farmers can build resilience into their businesses.
Daily Alert: Labour market in the spotlight today
01 Nov 2023
- NZ business confidence surged to a six year high in October.
- The Bank of Japan kept their policy interest rate unchanged at -0.1% yesterday and the 10-year JGB target at 0%.
- The theme of more resilient US economic data continued overnight.
ASB Economic Note: Q3 2023 Labour Market Data Review - Cooling
01 Nov 2023
- Q3 labour market figures confirm an easing in tight labour market conditions, with hiring falling and the unemployment rate at its highest in 2 years.
- Labour cost growth looks to have peaked in the private sector, with increasing spare labour market capacity set to push wage and core inflation lower over time.
- Hurdles to OCR moves over the next few months remain high. The RBNZ will want to see inflationary pressures continue to cool and will retain restrictive monetary settings for long as necessary to hit its 1-3% inflation target. OCR cuts still look a long way off.
Daily Alert: Sharemarkets strengthen overnight
31 Oct 2023
- Sharemarkets were positive overnight, while oil prices have eased nearly 4% and the Japanese Yen has rallied.
- The NZ sharemarket slipped 0.2% on Monday, on turnover of $62 million. The index is now down over 6% for the year.
- The main FX interest so far this week has been the Japanese Yen ahead of today’s Bank of Japan policy meeting.
Economic Weekly: Lifting the lid on the labour market
30 Oct 2023
- This week’s local data highlight will be on Wednesday, with the release of NZ labour market data for the third quarter of the year.
- We expect to see further evidence in the Q3 data of easing labour market pressures.
- The pace of hiring over the quarter is expected to slow given the catch-up from post-COVID worker shortages appears to have largely run its course.
Commodities Weekly: A smidgen of supply side support – for some
27 Oct 2023
- Agri commodity prices continue to press higher from their August lows but remain soft in an outright sense.
- While we remain conservative on the near-to-medium term outlook for commodity demand, some re-tightening on the supply side looks to be helping support prices.
- Those relative supply shifts may help explain the divergence in price moves among our key agri exports.
Daily Alert: Strong US growth and stable inflation fail to boost tech shares
27 Oct 2023
- Data released overnight has shown the US economy grew at a much stronger than expected clip in Q3, while a key inflation measure came in below expectations.
- US yields have experienced sizable falls amid those results.
- Despite lower yieldsand hopes of a soft landing, global stocks have eased on weaker earnings for tech firms.
Daily Alert: Australian inflation surprises, RBA likely to hike in November
26 Oct 2023
- Australian yields and the AUD jumped after Q3 Australian core and headline CPI data came in stronger than market and RBA expectations. Our CBA colleagues now expect that the RBA will act on their hiking bias and will raise the cash rate by 25bps next month to 4.35%.
- The pervading market dynamic of higher yields and steeper curves returned overnight, with volatility in equities, yields and oil prices given heightened global risks.
- The focus ahead will be the Middle East and central banks, with the ECB widely expected to hold rates.
Q3 2023 Labour Market Data Preview: Coming Off
26 Oct 2023
- The 2023 Q3 labour market figures are expected to show further easing in tight labour market conditions, with the unemployment rate expected to climb to its highest level in more than 2 years.
- The subpar demand for labour and rapidly increasing labour supply are expected to further ease labour market pressures, which in time should help to dampen wage and core inflation.
- Our view is the hurdle to OCR moves over the next few months remains high. The RBNZ will want to see inflationary pressures continue to cool and will retain restrictive monetary settings for long as necessary to hit its 1-3% inflation target.
Daily Alert: Sharemarkets buoyed by latest earnings
25 Oct 2023
- US and European shares have been positive overnight.
- In contrast, the NZ sharemarket slid another 0.3% on Tuesday, setting a fresh 2023 low.
- Today’s focus is on the Australian Consumer Price Index, where an annual inflation rate of 5.1% is expected.
Daily Alert: Share and bond markets remain volatile
24 Oct 2023
- US and European shares have been largely positive overnight. Asian sharemarkets were weak yesterday.
- Global bond markets have been volatile, with US yields setting fresh highs late last week, then decline overnight.
- This week is light on the local economic front, but offshore there are two central bank meetings over the coming days.
Economic Weekly: Moving in the right direction, but hurdles remain
24 Oct 2023
- Like the All Blacks at the RWC, In Aotearoa NZ last week, Q3 inflation showed it was moving in the right direction
- Annual Consumer Price Index (CPI) inflation eased to 5.6% in Q3, from 6.0% in Q2 - its lowest since September 2021
- Much like with the All Blacks, there are still some big hurdles on the inflation front to pass before we start opening the champagne.
Daily Alert: Mixed messages from Fed, NZD flirts with 2023 lows
20 Oct 2023
- Comments by Jerome Powell have been the marquee event overnight
- Messages have been mixed from other Fed speakers over recent days, with Philadelphia’s Harker suggesting the FOMC shouldn’t consider any further increases and fellow 2023 voter Goulsbee throwing cold water on the suggestion recent easing in inflation could be a ‘blip.’
- All-up, Treasury yields are lower in the front-end and higher in the back-end off the back of all the chit-chat
Daily Alert: Yields up despite rising Middle East tensions
19 Oct 2023
- Tensions have escalated in the Middle East after an explosion at a Gaza hospital killed hundreds of people and threatened to engulf the entire region in conflict
- Despite this, the path of least resistance has been for yields to push higher. Comments by central bankers were generally strident, oil prices have pushed about 1-2% higher, and UK inflation has surprised on the upside
- Heightened risk aversion has supported currency safe havens, and despite an improved dairy price outlook, geopolitical tensions and the narrowing yield advantage in favour of NZ could further weigh on the NZD
Daily Alert: NZ’s underlying inflation pressures ease
18 Oct 2023
- NZ Q3 CPI inflation came in a tad lower than market expectations and undershot the ASB/RBNZ pick, with much of the undershoot due to lower-than-expected lifts in tradable goods and services
- The Reserve Bank of Australia’s October Board Minutes confirm that the November Board meeting is ‘live’
- US retail sales exceeded all forecasts in a Bloomberg survey, increasing 0.7% after upwardly revised advances in the prior two months, according to the Commerce Department
Commodities Weekly: ASB lifts farmgate milk price forecast to $7.35 per kgMS
18 Oct 2023
- Prices have continued to strengthen at the latest GlobalDairyTrade auction overnight
- Recent auction gains have mechanically added more strength to our milk price estimate, while the near-term risks to the outlook are also looking more balanced
- Accordingly, we have added another 75c onto our milk price forecast to $7.35 per kgMS
Markets Monthly: Upward pressure on interest rates weighs on shares
18 Oct 2023
- Events since the May Monetary Policy Statement (where the OCR was lifted to 5.5%) have supported the RBNZ keeping the OCR on hold, which we continue to think is the peak for this cycle
- Lower than expected inflation over the third quarter supports the view
- Nonetheless, there is still plenty of upward pressure on bond yields
Daily Alert: Sentiment improves overnight
17 Oct 2023
- US and European shares lifted overnight, with the three main US benchmarks up 1.0%-1.3% at the time of writing, and the Euro Stoxx 50 index up 0.3% overnight
- Bloomberg reports that Iran said on Monday that an expansion of the war between Israel and Hamas was increasingly becoming unavoidable, a signal the main backer of the Palestinian militant group was preparing for a wider conflict
- Oil prices have eased slightly overnight as diplomacy in the Middle East has calmed markets for now
2023 Q3 CPI Review: Underlying inflation pressures ease
17 Oct 2023
- Q3 inflation surprises to the downside, with annual CPI inflation falling to its lowest in two years
- Some of the near-term risks identified by the RBNZ were evident, but disinflationary forces are growing, with easing core inflation rates highlighting a cooling underlying inflationary impulse
- Despite 5%+ annual inflation, a confluence of factors should push inflation lower over the medium term. The hurdle to an OCR hike is high and we don’t see the OCR moving above 5.5%. The RBNZ will remain wary and will likely maintain restrictive OCR settings for as long as is necessary to deliver sub-3% inflation
Daily Alert: Election result in line with expectations
16 Oct 2023
- Saturday’s General Election delivered a result that was broadly in line with the polls, and one that is set to bring a change in government from a Labour government to a National-led coalition
- In US data, the median expected year-ahead inflation rate went up to 3.8% (vs. 3.2% prior) in the preliminary University of Michigan October reading, as gasoline prices rose 2.1% month on month in September after August’s 10.6% increase
- In China the headline CPI was weaker than expected at 0.0%/yr
Housing Confidence: More Kiwis spy a housing market turnaround
16 Oct 2023
- More and more Kiwis think house prices are past their lows and are set to increase
- The proportion of respondents expecting further mortgage lifts is trending down, but few Kiwis expect much of a reduction any time soon – that’s the right call in our view
- Kiwis are still relatively evenly split on whether or not it is a good time to buy: the risk of tipping into negative equity is lower than it was, but high interest rates make things a tricky business for many
2023 NZ General Election: National in driver’s seat, but how many partners?
16 Oct 2023
- The National Party is set to form a government, with support from ACT and (potentially) NZ First
- The election night vote count, and a likely win in a forthcoming by-election, would give National and ACT the 62 seats they need for a majority, but they may lose a seat or two in the final vote count
- It will be unclear until at least November 3rd if not longer whether National and ACT alone are likely to be able to form a government. NZ First has indicated, though, that it would provide support if needed
Economic Weekly: A weekend of tight finishes
16 Oct 2023
- In the two major events of the weekend – the Rugby World Cup and General Election – everything went down to the wire, with only one event providing a decisive outcome
- Saturday’s General Election delivered a tight result on the night, though one that is set to bring a change in government from a Labour government to a National-led coalition
- The Labour Party’s vote share nearly halved from the absolute majority it enjoyed in 2020, and it also lost many electorate seats. There is a clear mood for change, and Prime Minister Hipkins (Labour) conceded defeat on Election night
Daily Alert: NZ Election Day is tomorrow, so please go out and vote
13 Oct 2023
- Global yields jump after US inflation marginally surprises to the upside, despite signals that the ECB may be done with hikes
- Equities have eased with commodity markets nervously watching the Middle East
- Tomorrow is the NZ General Election. If you have not done so already, please go out and vote
Commodities Weekly: Unrest adds extra uncertainty to commodity markets
13 Oct 2023
- Conflict in the Middle East over the last week has added to the uncertainty hanging over global commodity markets, but the impact has been modest thus far
- There is scope for volatility to spike and energy prices to spike in the event of additional escalation
- Last week’s strong dairy auction has helped our commodities index recover to levels not seen since July
2023 Q3 CPI Preview: Holding up
13 Oct 2023
- We expect a 2.2% quarterly increase in the headline CPI over Q3, with annual inflation ticking up to 6.1%
- Many of the near-term risks identified by the RBNZ look to be crystallising, extending the period of high inflation
- Despite the strong inflation starting point, a confluence of factors should push inflation lower over the medium-term. The RBNZ will be wary and will likely maintain restrictive OCR settings for as long as necessary to deliver sub-3% inflation
Daily Alert: Fed policymakers wary and divided. So is the NZ electorate
12 Oct 2023
- September Fed minutes out this morning have shown policymakers were split on whether additional hikes are likely to be necessary, but with a majority expecting one more increase
- Short term Treasury yields lifted modestly ahead of the minutes off the back of some stronger producer price data and the lack of any particularly dovish commentary means they’ve held their ground
- Sharemarkets have largely been in ‘wait and see’ mode overnight
REINZ Housing data September 2023: Housing market takes a September breathe
12 Oct 2023
- In a reversal of its recent acceleration, the NZ housing market was flat in September, with prices unchanged over the month
- The recent improvement in activity metrics also paused, but it is too early to say whether that’s a blip or a sign of things to come
- We still think that strong recent population growth and tighter housing supply will continue placing upward pressure on prices, but expect restrictive interest rate settings to moderate the pace of gains – particularly if the OCR remains on hold for longer
Daily Alert: Fed outlook fuels market moves
11 Oct 2023
- Atlanta Fed President Raphael Bostic added to other dovish FOMC commentators earlier in the week
- US and European shares were firmly higher overnight
- US Treasury yields opened sharply lower overnight, after the Bond market was closed on Tuesday to observe Columbus Day
Term Deposit Report October 2023: RBNZ on hold. Term deposit rates remain high
11 Oct 2023
- Term deposit rates have remained above the levels averaged over the past 20 years, with some terms tweaked slightly higher in early October
- Rates are expected to settle around current levels this year
- Despite the “above-average” returns on term deposits, inflation remains stubbornly high, and a challenge for savers
NZ Migration and Tourism August 2023: Risks of higher for longer net immigration build
11 Oct 2023
- Annual net PLT immigration hit a record high, with the risk of a higher for longer net immigration boost that will have implications for the economic and interest rate outlook
- To date the impacts of extremely strong net immigration on domestic spending, the housing market and inflation are weaker than implied by historical relationships
- Tourist arrivals eased after earlier Women’s World Cup boost but have also been revised higher, but strong pent-up demand for overseas travel by resident kiwis it points to a lower net boost to the NZ economy
2023 NZ General Election: Incremental rather than transformational change
11 Oct 2023
- The 2023 General Election could be close and consistent with traditional MMP norms
- According to the polls, neither of the left or right leaning blocs may be able to form an outright majority
- Nonetheless, the mood for change appears to be strong and polls have not always been reliable in the past
Daily Alert: Oil surges overnight, USD weakens
10 Oct 2023
- Saturday’s strike and Israel’s subsequent declaration of war was the main theme in markets yesterday
- Overnight the most obvious impact was on oil prices
- Fed Vice Chair Philip Jefferson said officials can “proceed carefully” after the recent rise in Treasury yield
Daily Alert: Hamas attack & Israel’s war declaration hangs over markets
09 Oct 2023
- Saturday’s strike and Israel’s subsequent declaration of war will hang over markets when they reopen today
- In US data, Non-farm payrolls (employment) increased 336,000 in September
- US and European shares were positive on Friday
Home Loan Rate Report: Mortgage rates high for longer
09 Oct 2023
- The Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) to 5.5% in May and signalled it had most likely done enough to contain inflation
- The RBNZ has held the OCR at its subsequent meetings including the October review
- But it is also signalling that keeping rates high for a significant period is required to win the war with inflation
Economic Weekly: Holding high
09 Oct 2023
- It might have been blustery around the country again last week, but there was no sign that the RBNZ was about to be blown off its course
- The Bank was unwavering at its Monetary Policy Review last Wednesday, not that this came as a surprise to either markets or economists
- The RBNZ left the Official Cash Rate (OCR) on hold at 5.50% and signalled that we should get used to seeing the OCR at these levels
Daily Alert: Are we at an inflexion point for global yields?
06 Oct 2023
- US Treasury yields ease on tentative signs the US labour market is cooling
- Concerns over weaker demand weigh on oil prices
- US payolls data is the key event this weekend
Daily Alert: You’d rather be Adrian Orr than Kevin McCarthy
05 Oct 2023
- The RBNZ released its Monetary Policy Review yesterday, surprising no one by leaving the Official Cash Rate unchanged at 5.50%
- In general, domestic market reaction was modest
- Offshore yields are mostly lower, with a softer batch of US data being one of the catalysts
Daily Alert: Jolted
04 Oct 2023
- Overnight the US Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, or JOLTS seems to have reinforced investor fears of further Fed rate hikes
- US stocks have slumped, with the three main indices down 1.6%-2% at the time of writing, and the press higher in yields got “fresh legs” after jobs data supported the case for the FOMC to keep interest rates elevated (Bloomberg)
- The actual JOLT data showed the number of available positions increased to 9.61 million in August from a revised 8.92 million in July
Commodities Weekly: Dairy prices claw back further ground
04 Oct 2023
- Prices have risen in line with expectations at the latest dairy auction overnight
- We’re still cautious on the outlook and retain our $6.60 per kgMS milk price forecast for the season, but flag some upside risk
- The ASB Commodities Index was largely flat last week
RBNZ October Monetary Policy Review: Firmly on hold and high for longer
04 Oct 2023
- As was widely expected the Official Cash Rate (OCR) was held at 5.50%, with the RBNZ sticking to its firmly on hold stance and choosing not to convey an explicit bias. However, it did highlight that policy settings may need to remain restrictive for a longer period of time
- The RBNZ acknowledged recent improvement but qualified this by noting financial conditions had tightened, with capacity pressures easing. Risks to the inflation outlook remained balanced
- The high for longer message by the RBNZ is consistent with our core view. There is a high hurdle to OCR increases, and OCR cuts are not expected until 2025
Daily Alert: Eyes turn to the RBA as global rates march higher
03 Oct 2023
- Today’s focus will be on the Reserve Bank of Australia. It’s Michele Bullock’s first meeting as RBA Governor, and we expect no change of policy direction, with the Aussie cash rate on hold for the 4th consecutive month
- Global shares were mixed overnight, with higher yields dampening the mood
- NZ swap rates lifted across the curve on Friday, with longer term rates lifting the most
Quarterly Survey of Business Opinion 2023 Q3: Easing labour market capacity may reduce need for further OCR hikes
03 Oct 2023
- The Q3 QSBO depicted an improvement in business sentiment, but actual and expected domestic activity were weak, with firms still gun shy on investment
- Capacity pressures continue to significantly ease in the labour market and hold out the prospect of inflation moving lower on a sustained basis
- Nonetheless, pricing and cost metrics remain too high, with a lengthy period of restrictive OCR settings needed to ensure inflation settle
Daily Alert: US shutdown avoided at 11th hour. Antipodean holds ahead
02 Oct 2023
- US shutdown avoided for now… to an outsider it might feel like watching a somewhat predictable version of Wile E. Coyote chasing the Road Runner, as US lawmakers avoid defeat at the last possible moment
- This week’s focus will be on the Australian and New Zealand central bank meetings
- China’s Purchasing Manager Indices (PMI) data were released on Sunday
Economic Weekly: The road is long and uncertain
02 Oct 2023
- Focus has swiftly turned to the RBNZ’s Monetary Policy Review (MPR) on Wednesday in the wake of the stronger than expected Q2 GDP release
- Despite the stronger GDP print, we don’t anticipate many changes from the August Monetary Policy Statement
- That is, the RBNZ are likely to leave the Official Cash Rate (OCR) on hold at 5.50% and reaffirm that there is a high hurdle to moving the OCR in either direction at this stage
Regional Economic Scoreboard: Otago exemplifies the power of tourism
02 Oct 2023
- Otago has shot back up to the top spot in ASB’s latest Regional Scoreboard
- Meanwhile, Canterbury is proving its resilience by holding on to the second spot – marking its 9th consecutive quarter with a top three podium finish
- Gisborne shot up a massive 13 places from last place to 3rd position this quarter
Daily Alert: The Italian Job
29 Sep 2023
- The most dramatic market moves overnight have been in the European government bond market, where yields are up by double digits in some countries, particularly in the long end
- The Italian 10-year GB yield rose 17bps and got close to the 5% mark on the news, its highest level in a decade
- US Treasury yields have made more modest moves overnight, a little lower in the front end and broadly flat over the back end
NZ Migration Economic Impacts: The composition matters
29 Sep 2023
- Our work suggests that the composition of immigration generates different impacts on economic activity, inflation, and labour and housing markets
- Evidence suggests that strong net immigration may actually be exerting more of a disinflationary impact via alleviating capacity pressures in the labour market
- The upshot is that strong net immigration should temper the degree of upside risk to OCR settings. Nonetheless, the RBNZ will need to remain watchful and will keep conditions tight to insure against a potential housing market resurgence and further economic overheating
Preview of the RBNZ October Monetary Policy Review: RBNZ to kick for touch
29 Sep 2023
- We expect RBNZ will hold the OCR at 5.50% and signal that restrictive settings will be needed for some time to deliver on target inflation
- While some short-term upside risks to the inflation outlook have crystalised, the continued tightening in financial conditions and downward skew to medium term risks favour an on hold stance
- Pronounced uncertainty and other risks suggest that a ‘wait and see’ approach is the prudent course of action for now
Commodities Weekly: An assortment of updates
29 Sep 2023
- We’ve released our latest Rural Quarterly report – you can read it here
- We’ve also tweaked some of our forecasts, and now anticipate OCR cuts won’t kick in until 2025
- Commodity prices continue to grind a little higher but remain soft in outright terms
Daily Alert: High for longer yield thematic returns
28 Sep 2023
- Early signs of retracement have given way to the pain trade of higher interest rates returning, with US Treasury yields around 2007 highs
- Higher oil prices, hawkish Fed rhetoric and resilient US data have been catalysts, with the USD making gains and global stocks lower
- NZ yields are expected to move up this morning, with NZ business sentiment data looked for improving signs
Daily Alert: Slowing activity + stubbornly high rates = market angst
27 Sep 2023
- Global risk sentiment has taken a substantial beating overnight
- The combination of hawkish central bank messaging and some comparatively soggy US data look like the catalysts for those moves, with slowing activity + stubbornly high rates = a bad combo for markets
- On the data front, US consumer confidence undershot expectations with a fall in the Conference Board’s index from 108.7 to 103 (consensus: 105.5), and the expectations index down from 80.2 to 73.7 (at recessionary levels)
ASB Rural Quarterly Report - September 2023
27 Sep 2023
The big theme this issue is the slowdown in the Chinese economy and what it means for Kiwi farmers and exporters.
Daily Alert: Waiting for the data flow to pick up
26 Sep 2023
- It’s been a quiet start to the week from a data perspective
- Global shares were mixed on Monday, with benchmark indices in Europe down 0.8%-1%, and the US indices split between modest gains and declines at the time of writing
- Bloomberg reports that the crisis at China’s Evergrande Group deepened yesterday after the company’s mainland unit said it failed to repay an onshore bond
Daily Alert: Bank of Japan maintains easy policy settings
25 Sep 2023
- The Bank of Japan on Friday maintained policy settings
- European and US shares were weak on Friday, with benchmark indices in Europe and the US down 0.1%-0.4%
- The NZ sharemarket rose 0.5% on Friday on $93m turnover
Economic Weekly: It was, until it wasn’t
25 Sep 2023
- Q2 2023 GDP was the economic highlight of the week last week, and there were a few surprises dished up by Stats NZ
- First, the data showed that the economy was more resilient in the second quarter than anticipated. GDP jumped 0.9% qoq, to be 1.8% higher than in Q2 2022
- The stronger than expected activity over the quarter was largely driven by the services sector
Daily Alert: NZ, US resilience highlights the risk of higher-for-longer rates
22 Sep 2023
- Local GDP data out yesterday showed the NZ economy grew stronger than expected in the June quarter, up 0.9% qoq
- In the aftermath of yesterday morning’s hawkish tone from the Fed, the local market was primed to react to strong data
- Higher-for-longer has also been the message markets have been digesting overnight, with longer-term yields spiking on another patch of strong US labour market data
Daily Alert: Markets react to high for longer FOMC message
21 Sep 2023
- Fed holds policy interest rates but maintain tightening bias with a 25bp hike still flagged by the end of the year, and with rate cuts for 2004 and 2025 pared back
- US short term yields and the USD gain, whereas a downward UK inflation surprise had earlier dampened global yields and boosted equities
- Q2 NZ GDP is out today cand we see clear upside risk to the 0.4% qoq market consensus
2023 Q2 NZ GDP Review: NZ resilience on show in Q2 growth figures
21 Sep 2023
- The NZ economy grew by a substantially-stronger-than-expected 0.9% in the June quarter, while small backward revisions mean NZ no longer experienced a technical recession
- As expected, strong services activity powered growth over the quarter, though the goods sector lifted too
- Still-present headwinds mean we still expect the pace of activity to slow over the course of the next year, but the continued resilience of the NZ economy highlights the risk that OCR settings will need to remain tight for a prolonged period to get inflation back into target
Daily Alert: Dairy prices up, but still down
20 Sep 2023
- Prices lifted at last night’s Global Dairy Trade event, with the overall GDT Price Index up 4.6%
- The RBA Board Minutes released yesterday were largely as expected and consistent with our CBA colleagues’ view that the current cash rate of 4.1% is the peak in this cycle
- Canada CPI lifted by more than expected in August (to 4% yoy, vs. 3.8% expected)
Commodities Weekly: Dairy prices claw back more ground
20 Sep 2023
- Whole milk prices (WMP) have recovered some more ground at the latest Global Dairy Trade event overnight, lifting another 4.6% away from three-and-a-half year lows
- It’s encouraging to see another sign that dairy prices might be finding a floor, but we remain cautious on the outlook. It was pleasing to see a return of Chinese demand at this event, and we will be watching this development at upcoming auctions
- The ASB Commodities Index declined again in NZD terms last week, with a bounce back in NZD the main culprit
Daily Alert: Pain at the pump
19 Sep 2023
- Fuel prices look like they won’t be coming down soon, given the heights that oil has got to
- New Zealand’s services sector experienced its third consecutive drop in activity levels, according to the BNZ – Business NZ Performance of Services Index (PSI)
- The NZ sharemarket rose 0.4% on Monday on light turnover of $71 million
Daily Alert: Central bank trifecta
18 Sep 2023
- Three major central banks meet this week; the Bank of England, the US FOMC and the Bank of Japan
- An important focus last week was the Pre-election Economic and Fiscal Update (PREFU), where The Treasury showed the state of the Crown accounts on the lead into the election, and the outlook based on the latest range of fiscal policies
- The NZ sharemarket rose 0.3% on Friday on $365m turnover
Economic Weekly: State of the Nation
18 Sep 2023
- Beyond a couple of sporting events last week, a focus was the Pre-election Economic and Fiscal Update (PREFU)
- The Treasury report shows the state of the Crown accounts on the lead into the 2023 General Election, and the outlook based on the latest fiscal policy settings
- With the election now less than a month away, interest was high
Daily Alert: Equities higher, Yields lift on US data
15 Sep 2023
- Data overnight has shown American economic activity continuing to prove strong, but producer price inflation has mirrored yesterday’s CPI data in throwing up a few nasty surprises
- US market sentiment has generally been in a good mood off the back of that data
- Market pricing for next week’s Fed meeting now sits at close to nil, with the lack of a ‘smoking gun’ in any recent data taking the pressure off the FOMC for now
Commodities Weekly: A better week, but clouds are still mounting
15 Sep 2023
- Last week’s better dairy auction has helped our Commodities Index claw back a bit of ground
- NZD’s softness remains another key support for exporters
- Nonetheless, we expect the outlook for commodity prices to remain anaemic given prevailing global headwinds, particularly in China
Q2 2023 GDP Preview: Resilience on show in Q2 – but it will be tough to sustain
15 Sep 2023
- We expect GDP growth lifted a fairly decent +0.6% in Q2 – a shade stronger than we’d previously anticipated
- Strong activity across much of the service sector has been on show, but both agriculture and manufacturing are looking less flash
- Broader growth headwinds remain clear and present – particularly from offshore – and we still anticipate output will be pretty anaemic over the second half of 2023
Daily Alert: US inflation not the smoking gun to stir the Fed
14 Sep 2023
- US CPI inflation broadly in line with expectations, with annual core inflation to close to 2-year lows
- US yields ease following the report, with stocks erasing earlier losses, with fleeting USD volatility
- Market odds are skewed in favour of a 25bp ECB rate hike tonight, marking 450bp of hikes in little over a year
Daily Alert: Opening the books
13 Sep 2023
- Yesterday The Treasury opened the books with the pre-election economic and fiscal update (PREFU)
- Annual net permanent/long-term NZ immigration hit a record high over the year to July, with further upward historical revisions likely to boost the starting point estimates
- Total NZ electronic card spending rose in August, with the FIFA Women’s World Cup clearly boosting retail spending
REINZ Housing data – August 2023: Groundhog data
13 Sep 2023
- The NZ housing market continues to warm up in an orderly fashion
- It’s a decent month for the capital, though prices in Auckland have still made the most post-trough gains
- Strong recent population growth and tighter housing supply are a recipe for continued upward pressure on prices, but we still expect restrictive interest rate settings to moderate the pace of gains
Daily Alert: Mixed Monday for shares
12 Sep 2023
- The NZ sharemarket slipped another 0.4% on Monday on light turnover of $78m
- Asian sharemarkets were mixed, with the Australian market up 0.4%, and the Shanghai Composite up 0.8%, while Japan’s Nikkei was down another 0.4%
- European and US shares were positive overnight, with benchmark indices on both sides of the Atlantic up between 0.3% and 1.3%
Home Loan Rate Report: Upward pressure on fixed term rates returns
12 Sep 2023
- The Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) to 5.5% in May and signalled it has most likely done enough to contain inflation
- The RBNZ has held the OCR at its subsequent meetings
- ASB economists now see the current 5.5% OCR level as the peak for this cycle, but upward pressure on fixed-term mortgage rates has returned, as longer-term interest rates (including government bonds and bank term deposits) lift
NZ Migration and Tourism July 2023: Migration boost difficult to detect
12 Sep 2023
- Annual net PLT immigration hits a record high, with further upward historical revisions likely to boost the starting point estimates
- Despite extremely strong net immigration, the impact on domestic spending and the housing market are considerably weaker than implied by historical relationships
- Tourist arrivals benefit from a Women’s World Cup boost, but remain well below early 2023 peaks, with more recent data points to a tailing off in arrivals
August 2023 NZ Electronic Card Transactions: A boost from the boot
12 Sep 2023
- Total card spending rose in August, with the FIFA Women’s World Cup clearly boosting retail spending
- The August lift will have been a welcome change of pace for retailers in what’s been a slow first half to 2023
- Nevertheless, we expect recent trends will resume from September as the FIFA boost unwinds
NZ Pre-Election Economic and Fiscal Update 2023: Fiscal slippage constrains future choices
12 Sep 2023
- The weaker short-term economic outlook has contributed to softer profiles for budget balances, higher Crown debt and an increased bond tender programme relative to Budget 2023
- Despite the rhetoric of $4bn in fiscal savings, operational government spending is now forecast to be higher than in Budget 2023, with 2023/24 a whopping $52bn above pre-COVID-19 levels
- NZ’s fiscal metrics remain world class, but the less healthy fiscal backdrop likely constrains fiscal policy options available for the next Government
Daily Alert: NZ sharemarket weakness continues
11 Sep 2023
- The NZ sharemarket slipped 0.7% on Friday on $103m turnover, to trade at fresh 9-month lows
- China’s consumer price index was up 0.1% from a year ago in August after dropping 0.3% in July
- Japan’s labour cash earnings disappointed, rising by just 1.3%/yr down from 2.3%/yr last month (2.4%/yr expected)
Economic Weekly: Not back in black yet
11 Sep 2023
- This week we get a good look at the Government’s books
- The Pre-Election Economic and Fiscal Update (or PREFU) provides a snapshot of how the economy has evolved since the 2023 Budget
- Released tomorrow at 1pm, we expect the PREFU will show a weaker fiscal position relative to the 2023 Budget forecasts as the economic outlook has softened
Daily Alert: Apple shares lower, US economy continues its outperformance
08 Sep 2023
- It’s been a mixed bag for financial markets overnight, with tech shares looking downbeat
- Treasury yields have fallen overnight, despite another strong US economic data point
- NZD remains south of the 0.5900 mark it fell below earlier in the week, grinding only modestly higher
Markets Monthly: Never ending story of central bank watching
07 Sep 2023
- Events since the May Monetary Policy Statement (where the OCR was lifted to 5.5%) have supported the RBNZ keeping the OCR on hold, which we continue to think is the peak for this cycle
- Offshore, the question also remains “is this it?” The US FOMC is on pause, but the risk is further hikes are needed
- The RBA and Bank of Canada are also in pause mode
Daily Alert: High for longer central bank messaging lifts yields
07 Sep 2023
- The Bank of Canada held the policy rate at 5% (at 22-year highs) and maintained its tightening bias given concerns over the stubborn persistence of underlying inflation and high wage growth despite the slowing economy
- FOMC member Collins (2025 voter), noted that while US rates are near to (or at) their peak, it was too early to say whether inflation was on a sustained path to 2%
- The higher for longer message on rates from central bankers, climbing oil prices and resilient US data acted to push global yields higher (lower UK short-term yields were the sole exception)
Daily Alert: Chinese data underwhelms
06 Sep 2023
- The Reserve Bank of Australia left the cash rate on hold at 4.1% yesterday, for the third consecutive time
- Sharemarkets were mostly lower in the US and Europe overnight
- China economic data continued its recent trend by underwhelming market expectations
Term Deposit Report September 2023: Term deposit rates nudge slightly higher
06 Sep 2023
- Term deposit rates have lifted again over the past month and remain above where they have averaged over the past 20 years
- Rates are expected to settle around current levels this year. Despite the “above-average” returns on term deposits, inflation remains stubbornly high, and a challenge for savers
- Inflation lifted by more than term deposit rates in the wake of the pandemic, and in doing so adds to the challenge for savers trying to generate a return
Commodities Weekly: WMP prices post gains from lower baseline
06 Sep 2023
- Whole milk prices (WMP) have recovered a bit of ground at the latest Global Dairy Trade event overnight but remain close to three-and-a-half year lows
- It’s an open question on whether prices might be finding a floor, but we still don’t anticipate a broader recovery for quite some time
- The ASB Commodities Index declined again in NZD terms last week, with a bounce back in NZD the main culprit
Daily Alert: NZ’s terms of trade unexpectedly lifts
05 Sep 2023
- NZ’s terms of trade rose 0.4% in the June 2023 quarter, substantially outperforming ASB’s estimate of a 3% fall
- As our CBA colleagues note, yesterday’s quarterly ABS Business Indicators release is in many ways one for the economists and statisticians
- The NZ sharemarket dipped 0.1% on Monday on turnover of $93 million
Daily Alert: US unemployment rate lifts to 3.8%
04 Sep 2023
- In the US, the Labor Department's report showed the August unemployment rate rose to 3.8% from 3.5% while US wage growth slowed
- The NZ sharemarket dipped 0.2% on Friday on a whopping turnover of $995 million but ended the week up 0.5%
- European and US shares were mixed on Friday, with US shares flat/up slightly, and the French and German markets down
Economic Weekly: No blindsides expected this week
04 Sep 2023
- GDP partials are the economic highlight this week, ahead of Q2 GDP print which will be released on the 21st of September
- The partial GDP data released this week includes the volume of work put in place – otherwise known as construction activity
- We expect a 0.5% lift over the quarter, with high net migration boosting demand
Q2 2023 Trade Data Review: A surprise bounce – but not expected to be sustained
04 Sep 2023
- NZ terms of trade held up better than anticipated in Q2, underpinned by much-more-resilient-than-anticipated export prices
- Given more recent falls in commodity prices, we’re still expecting NZ’s terms of trade to ease further in the coming months
- Service exports continue to post whopper annual gains, though more timely arrival data continues to suggest tourism arrivals are plateauing
Commodities Weekly: A modest offset
01 Sep 2023
- NZ continues to trade in a lower range, partially offsetting lower underlying commodity prices
- NZD can fall further from here, though experience shows it seldom falls as much as underlying commodity prices during commodity price easing cycles
- The ASB Commodities Index lifted slightly last week
Daily Alert: In a holding pattern
01 Sep 2023
- Overnight, markets have been in ‘wait and see mode,’ posting only modest moves in advance of key US employment data over the weekend
- Overnight the PCE deflator, a key US inflation gauge, has been broadly in line with expectations
- Anyone hoping for clues on the Fed’s next steps overnight will have been disappointed, with the Boston Fed’s Susan Collins not touching on monetary policy in a speech on wealth gaps
Daily Alert: Disparate drivers evident in listless session
31 Aug 2023
- The old ‘bad news is good news’ dynamic was in place overnight in US markets
- The catalyst was the weaker run of US data that suggests the Fed can hit the pause button over the next few months
- The same could not be said on the other side of the Atlantic
Daily Alert: Shares rally for a third consecutive day
30 Aug 2023
- US job openings fell in July
- Global shares have been positive overnight
- Risk sentiment was improved in the earlier Asian session with Asian equity markets posting solid gain
Daily Alert: US shares rally towards back-to-back gains
29 Aug 2023
- US Wrap: Stocks have lifted and bond yields fell overnight as a busy week of economic data gets underway
- The NZD has lifted modestly against the USD so far this week, trading in a 0.5897-0.5923 range
- Local interest rates were quiet yesterday, with yields flat to up 1-2 basis points
NZ Pre-Election Economic and Fiscal Update 2023: Less fiscal leeway will constrain future choices
29 Aug 2023
- A weaker short-term economic outlook will contribute to softer profiles for budget balances, higher Crown debt and an increased bond tender programme
- NZ’s fiscal metrics remain world class, but the less healthy fiscal backdrop likely constrains fiscal policy options available for the next Government
- Ongoing deterioration of our fiscal metrics could trigger potential credit downgrades, raising the cost of funds and further weakening the NZD
Daily Alert: Hawkish higher for longer rates messages from Wyoming
28 Aug 2023
- US and European policymakers signalled interest rates will likely stay higher for longer at the weekend’s central bank symposium at Jackson Hole Wyoming
- The NZ sharemarket dipped 0.3% on Friday on $88M turnover, ending the week down 1.2%. August has been a tough month for shares both here and abroad
- China announced measures to support the equities market yesterday, lowering the stamp duty on stock trades for the first time since 2008 and pledging to slow the pace of initial public offerings
Economic Weekly: There’s a chill in the air
28 Aug 2023
- Spring might be just around the corner, but there’s still a discernible chill in the air if last week’s economic data is anything to go by
- The Q2 NZ Retail Trade Survey left little doubt that Kiwi households are rapidly clamping their wallets shut
- Total retail volumes fell for the third consecutive quarter and are down 3.5% on year-ago levels. Core volumes (which exclude vehicles and fuel sales) contracted 5.1% on year-ago levels
Daily Alert: Yields higher in advance of Powell powwow
25 Aug 2023
- Political developments, rather than economic news, have been the main source of headlines over the last 24 hours
- Expect monetary policy to earn a few more headlines over the weekend, with Fed Chair Jerome Powell due to speak at Jackson Hole
- Overnight, markets have been digesting comments from a number of Fed speakers ahead of the weekend’s main event
Commodities Weekly: Softer China outlook continues to constrain commodities
25 Aug 2023
- Last week’s chunky falls in dairy prices have helped sink the ASB Commodities Index to three-and-a-half year lows in USD terms
- The lower Kiwi has only very partially offset the underlying softness, with our NZD Index at a two-and-a-half year lows
- The underperformance of the Chinese economy remains the big macro theme underpinning weaker NZ agri commodity prices across the board
Daily Alert: Weakening data points to an extended central bank pause
24 Aug 2023
- Overnight data was weak, suggesting an extended central bank pause could be on the cards
- Global yields were down, which provided a small boost to equities
- Pronounced USD weakness lifted the NZD towards 60 US cents
Daily Alert: US 10-year remain near fifteen year highs
23 Aug 2023
- Market sentiment has been a mixed affair overnight, in what has generally been a fairly quiet session
- After a sizable sell off earlier in the week, action in the US rates market has been less pronounced, but Treasury yields have generally held onto those earlier gains
- Sharemarkets have been mixed, and a bit listless
Q2 2023 Retail Trade Review: The consumption recession
23 Aug 2023
- Retail volumes continue to contract, with 2023 shaping up to be a very challenging year for the sector
- Weak consumer demand is consistent with our view that the RBNZ has done enough to bring inflation back to target, in time
- But the RBNZ wants to be sure inflation will return to target. And with domestic inflation cooling at a very slow pace, and some upside risks lurking, rate cuts remain a distant prospect
Quarterly Economic Forecasts: Skipping Stone
22 Aug 2023
- We expect the economy to be roughly flat over the next year, after officially dipping into recession in late 2022
- Inflation is coming down, though is proving to be relatively sticky
- Official Cash Rate increases appear done now, but lower rates are some time off
Daily Alert: NZ sharemarket slumps 1.3%
22 Aug 2023
- The NZ sharemarket slid 1.3% yesterday on turnover of $117M turnover, wiping out the remaining returns for the year to date
- Stats NZ trade data yesterday showed that in July 2023, compared with July 2022 goods exports fell $890 million (14%), to $5.5 billion
- Global shares were mixed on Monday
Daily Alert: Shares slide over August, with a challenging week ahead
21 Aug 2023
- The NZ sharemarket dipped 0.4% on Friday on light turnover of $86M turnover, ending the week nearly 2% lower
- The NZD continues to trade lower, below 0.6000 against the USD
- Oil prices were up around 1% on Friday, with West Texas Intermediate trading around $81 US/bbl
Economic Weekly: We’re not there yet
21 Aug 2023
- The RBNZ left the Official Cash Rate (OCR) on hold at 5.50%, a decision that was expected by all
- This was the second consecutive time the RBNZ has opted to leave the OCR unchanged
- Nevertheless, the RBNZ made sure that ‘on-hold’ wouldn’t be misinterpreted as ‘soon-to-be-cutting’
Daily Alert: Higher yields sink sentiment
18 Aug 2023
- Concerns that the fed is not done with hikes and worries over the Chines economy sour sentiment
- US 10-year Treasury yields hit 15 year highs with US equity indices at 6 week lows
- The NZD has struggled and could push below 59 USD cents in the coming days
Commodities Weekly: Dairy prices lower for longer, OCR higher for longer
18 Aug 2023
- We’ve made a couple of forecast tweaks: we now expect a Farmgate milk price forecast of $6.60 per kgMS and for the OCR to remain at its current 5.5% level until circa August 2024
- Fonterra has also shaved the midpoint of its guidance range again
- Ahead of this week’s dairy auction, the ASB Commodities Index has fallen another 1% in USD terms
ASB Trade Disruptions Report: August 2023
18 Aug 2023
- Since our last long-form trade disruptions report, things have got easier for exporters and importers in some ways - and trickier in others
- When we first launched this publication, the primary challenges for businesses were on the supply side of the ledger: length shipping delays, eye-watering freight costs, broader logistics disruption and constrained output at the front-end of the production process
- Most of those issues have eased - albeit unevenly - but new challenges have popped up on the demand side
Daily Alert: High hurdle for further OCR moves
17 Aug 2023
- Yesterday’s RBNZ meeting has been the key economic event of the last 24 hours, with the Bank leaving the OCR unchanged at 5.5% as was near-universally expected
- The hurdle to future OCR moves – whether up or down – looks to be pretty high
- With few big surprises in the statement, local market reaction was fairly muted
Sustainable Economics: New Zealand’s GHG Emissions Profile
17 Aug 2023
- New Zealand’s gross emissions have been reasonably steady over the past 15 years
- New Zealand emits roughly 80,000 kilotonnes of CO2-e from the production of goods and services per year
- In 2020, 52% of those emissions were generated by the agricultural sector, followed by 13% from the manufacturing sector
Daily Alert: Over to Orr
16 Aug 2023
- In New Zealand, short-term household inflation expectations moved sharply lower in Q3 which will be encouraging for the RBNZ
- Meanwhile, NZ house prices notched up a third consecutive monthly lift in July according to the latest REINZ House Price Index
- In Australia, the RBA Meeting Minutes highlighted that the RBA seems comfortable that inflation is heading in the right direction
RBNZ August 2023 Monetary Policy Statement Review: The Hawkish hold
16 Aug 2023
- The RBNZ held the OCR at 5.50%, reiterating that the OCR would need to remain at a “restrictive level” for some time to come
- The RBNZ is wary about declaring victory too soon, and flagged the risk of the OCR moving higher-still, with the published rate outlook tweaked up, implying cuts aren’t on the horizon this year or next. There is also some risk of more monetary restraint being necessary if domestic inflation readings fail to quickly subside
- Our core view is the current 5.50% will be the OCR peak in this cycle, but have delayed our forecast cuts until August 2024 (previously May)
Dairy Update: ASB lowers 2023/4 milk price forecast to $6.60 per kgMS
16 Aug 2023
- A terrible GDT overnight has seen WMP prices fall 11%, dragging the overall index to five-year lows
- The market is well supplied in the near-term, and it is difficult to see a catalyst for much strengthening in demand
- To that end, we’ve revised down our farmgate milk price forecast for the season to $6.60 per kgMS
Daily Alert: Chaos in Argentinean markets
15 Aug 2023
- It’s been a fairly a quiet start to the week on the economic data front, but things will pick up from today with releases here and abroad. It’s not so quiet in South America, where Argentina is hiking interest rates and devaluing its currency
- NZ migration figures are notoriously volatile and prone to sizeable revisions, but have remained robust nonetheless, with annual net permanent and long-term (PLT) inflows at 3-year highs within yesterday’s June data release
- The NZ sharemarket dipped 0.1% yesterday on $99M turnover
REINZ Housing data July 2023: Nothing to see here
15 Aug 2023
- House prices notch up another lift in the latest timely data, further supporting the view the market reached a trough earlier in the year and is now moving past its lows
- But the market looks to be hotting up slowly rather than galloping away
- With high levels of net migration cooling and interest rate settings still extremely restrictive, we expect house prices to continue on this trajectory for some time
Daily Alert: Four of the best
14 Aug 2023
- It’s a quiet start to the week for economics, but things will pick up with Wednesday’s RBNZ meeting
- The NZ sharemarket gained 0.2% on Friday on $103M turnover but was down 0.9% over the week
- Global shares were weak on Friday
Economic Weekly: 5.5% looking like the peak, but no declaration of victory just yet
14 Aug 2023
- Wednesday’s RBNZ Monetary Policy Statement is the big event this week, following on from the July announcement, where the Bank opted to leave the OCR on-hold for the first time since mid-2021
- The headline OCR announcement is widely seen as a bit of a snoozer, with all economists surveyed by Bloomberg last week expecting the cash rate to remain at 5.5% and the market placing the odds of a hike at only around 1%
- It’s hard to disagree with that analysis: there’s been no ‘smoking gun’ over the last six weeks that would prompt the RBNZ to reverse the on-hold stance it began in July
NZ Migration and Tourism June 2023: Evidence of a NZ migration boom hard to find
14 Aug 2023
- Net immigration inflows remain robust, with further upward historical revisions likely to boost the starting point estimates
- To date there are few signs of a net immigration boost to domestic demand, whereas stronger net immigration looks to have supported labour market capacity in NZ
- Tourist arrivals look set to remain well below pre-COVID-19 peaks and with plenty of pent-up demand for overseas holidays, we suspect there to be less support for domestic spending
Daily Alert: No Fed pivot in sight despite contained US inflation
11 Aug 2023
- China announce the relaxation of its travel ban for group travel to 70 countries (including the US, UK, Japan and Australia). NZ was not on the list (but the Cook Islands were) and it is hoped this omission will be rectified soon
- The July US CPI print - headline and core prices both up 0.2% for the month (3.2% yoy and 4.7% yoy respectively) – were in line with market expectations, continuing the softer recent run in the monthly data
- However, Treasury yields gain after Fed officials warn the mission to lower inflation was far from over
Daily Alert: Energy prices soar ahead of US inflation data
10 Aug 2023
- Trading action was subdued overnight with large positions being avoided ahead of tonight’s US inflation data
- Chinese deflation continues
- Energy prices were the big mover overnight driven by supply concerns, with oil prices hitting 2023 highs
Preview of RBNZ August Monetary Policy Statement: Holding the line in testing times
10 Aug 2023
- We expect the RBNZ will keep the OCR on hold in August and beyond, though the risk of a further hike remains
- Recent news has generally reinforced the view that inflation should keep falling sufficiently quickly
- But interest rates need to remain high for a while: we don’t see a lower OCR until mid-2024
Commodities Weekly: An unpleasant milestone
10 Aug 2023
- In the aftermath of last week’s dairy auction and continued weakening in meat prices, the ASB Commodities Index has hit a fresh three-year low in underlying USD terms
- NZD Commodity prices are faring a little bit better, but not by much
- With a range of input costs set to remain high, margins for many are set to come under serious pressure
Daily Alert: Risk-off sweeps through
09 Aug 2023
- Market sentiment soured overnight
- Sharemarkets largely declined overnight
- Meanwhile, bond yields fell overnight, with falls concentrated in longer-term yields
July 2023 NZ Electronic Card Transactions: Winter chill
09 Aug 2023
- Total card spending fell in July amid a very challenging economic backdrop for consumers
- There were falls across most sectors in July 2023, with consumables a notable exception
- Falling consumer demand is consistent with our view that the current 5.5% OCR will be the peak. But it’s premature to discuss rate cuts
Daily Alert: New World Champion
08 Aug 2023
- The NZ sharemarket was flat with low turnover of $69.8 million
- Global shares have been mixed
- Oil prices have pulled back around 1% overnight, having risen more than 4% late last week
Daily Alert: The long and the short of it
07 Aug 2023
- US non-farm payroll data – a closely watched labour market statistic – came in a shade below expectations over the weekend
- Accordingly, US Treasury yields were lower right across the curve over the weekend, down around 10-15bps
- Gains in longer-term US yields reverberated last week, with the BOJ’s shift to a more flexible yield curve control framework also adding to the upward pressure on longer-term global yields
Economic Weekly: Labour solid, milk not so much
07 Aug 2023
- Last week’s labour market data collectively showed just enough signs of moderation to keep the RBNZ on hold when it meets next week
- The tightness of the labour market eased a bit, highlighted by the unemployment rate nudging up to 3.6% from 3.4%
- And annual wage growth slowed a fraction more than expected. Those signs, at least, point to the start of an easing in labour cost pressures
Daily Alert: Longer-term yields jump
04 Aug 2023
- Consistent with analyst expectations and market pricing the Bank of England delivered a 25bp hike, taking the bank rate to 5.25%. A conditional tightening bias was tightening bias was kept. There was modest market reaction
- The major story overnight has been the shift higher in longer-term global yields that has weakened sentiment. A higher US risk free rate could significantly impact global interest rates, currencies and asset prices
- US Payrolls data is the highlight tonight, with a solid 200k print expected
ASB Dairy Update: Fonterra's 2023/4 range matches ASB's long-held view
04 Aug 2023
- Fonterra has dropped its milk price guidance for the coming season by a full $1, now at $6.25-7.75 per kgMS (a mid-point of $7 instead of $8).
- We have long expected to see a milk pricearound these sorts of levels, with our forecast sitting around the $7.00 to7.25 per kgMS mark since we launched it at the beginning of the year.
- A milk price around this kind of ballpark will putpressure on farmer finances and add the broader headwinds facing the economy.
Daily Alert: Labour pains
03 Aug 2023
- Q2 labour market data was yesterday’s local focus, with the print confirming things remain pretty tight
- We still expect the labour market to loosen up over the next twelve months, with wage inflation set to cool
- Events in the political sphere have largely dominated the international headlines, particularly the news that ex-President Trump has been indicted for his attempts to overturn the 2020 election
Commodities Weekly: Spilt milk
03 Aug 2023
- Dairy prices have tumbled in excess of market expectations at the latest auction, notching up their largest single-auction fall in nearly six years
- Broad market themes remain little changed, with there being more than sufficient global milk to meet risible supply
- Not long ago, market expectations were wildly north of ASB’s $7.25 per kgMS Farmgate milk price forecast for the season – they’ve now moved much closer to our view. But it’s early days yet
Daily Alert: RBA unchanged
02 Aug 2023
- The RBA surprised many bank economists yesterday by keeping the cash rate on hold at 4.1% for the second consecutive meeting
- Aussie house prices continued to rise in July but at a slower pace than in recent months (still up 5% on 6-month ago levels)
- Global equities were largely in the red overnight
Q2 2023 Labour Market Data Review: Labour market tightness remains
02 Aug 2023
- Despite recessionary conditions the NZ labour market has remained tight, with solid gains in employment and record labour force utilisation. This looks to reflect an element of catch-up and likely overstates the underlying strength of labour demand
- Labour cost growth was not as high as expected but held close to record annual highs with widespread lifts. There are signs of a wage-price spiral becoming embedded
- Subpar demand and rising supply should see more labour market slack emerge over 2023 and inflation cool, but the return to 1-3% CPI inflation is not yet assured. There remains a risk of a higher OCR peak than 5.5% this cycle
Daily Alert: Will they or won’t they?
01 Aug 2023
- An unscheduled bond purchase operation yesterday by the BOJ helped temporarily dampen global yields and weakened the yen. This has capped global yields overnight
- Optimism over soft landings have supported sentiment, but global equities have struggled for direction. Commodity prices have nudged higher, with broad based gains
- The RBA decision is today at 4.30pm, with a disconnect between market pricing (about 15% odds of a hike) and the analyst community (majority in favour of a 25bp hike). Our CBA colleagues expect a 25bp hike
Daily Alert: Local employment data in focus
31 Jul 2023
- Market sentiment ended the week in broadly positive fashion
- The upshot saw near-term global yields broadly lower over the weekend
- NZ swap yields were little changed over the week too
Economic Weekly: Monetary policy’s hard labour
31 Jul 2023
- This week brings us the most pivotal remaining pieces of NZ data ahead of the RBNZ’s August 14 Monetary Policy Statement: the labour market figures
- CPI inflation has clearly peaked. The issue is whether the monetary tightness in place is going to get inflation back into the target band sufficiently quickly
- Provided the RBNZ remains confident inflation will be back in the band over the second half of 2024, there will be no need to push the OCR up even further
Daily Alert: Strong US data bolsters yields as ECB flirts with a pause
28 Jul 2023
- Overnight, the pendulum of market sentiment has swung back in hawkish direction off the back of some strong US economic data
- With the US economy proving resilient even in the face of plenty of Fed hikes, Treasury yields have been under upward pressure
- By contrast, European yields are a shade lower in the aftermath of the ECB meeting overnight
Q2 2023 Labour Market Data Preview: From boil to simmer
28 Jul 2023
- Q2 figures are expected to show an easing in tight labour market conditions, with the unemployment rate edging up from historical lows. Wage growth should remain strong, although high inflation is sapping spending power
- The subpar demand for labour and increasing labour supply are expected to act to alleviate labour market pressures. In time this should help to dampen wage pressures and core inflation
- There looks to be a high hurdle to OCR moves over the next few months, but if wage and core inflation fails to cool sufficiently, the OCR peak could be above 5.50% this cycle
Commodities Weekly: Grain Pain
28 Jul 2023
- Wheat prices have leapt higher in the aftermath of Russia’s decision to end its Black Sea port deal with Ukraine
- Tighter grain supply can support broader commodity prices to some degree, but flagging demand remains the main thing in the driver’s seat
- The ASB Commodities Index has reached a fresh circa three-year low in USD terms this week, though a weaker Kiwi continues to somewhat limit the impact in NZD terms
Daily Alert: Fed hikes by 25bps and leaves options open for September
27 Jul 2023
- Lower than expected Australian CPI weighs on NZ yields and the NZD yesterday
- US Fed hikes by 25bps and leaves its options open for future settings. US yields and the USD are lower
- ECB decision is the major event tonight. A 25bp hike is expected
Daily Alert: Waiting on the Fed
26 Jul 2023
- News of a stimulus package from China drove market moves yesterday, in what was an otherwise quiet day
- Overnight, US Conference Board consumer confidence data printed at a 2-year high, with rises recorded in both the present situation and expectations index
- Over in Europe, the ECB’s Bank Lending Survey showed a record decline in credit demand in Q2 23
Daily Alert: Data cools ahead of central bank meetings
25 Jul 2023
- Flash July PMIs in both the UK and Eurozone missed expectations
- Eurozone yields fell across the board on the softer than expected PMI data
- Market pricing for ECB rate hikes was tweaked around the edges following the soft PMI data
Daily Alert: Central Bank signals set to dominate another week
24 Jul 2023
- It’s a big week for the world’s major central banks, with the Fed (Wed 6am), ECB (Thu midnight) and BoJ (Friday) all meeting
- Global yields have been little changed over the weekend in the absence of major data or other catalysts
- NZ yields begin the week modestly higher, but below their peaks over recent weeks
Economic Weekly: The superglue stickiness of inflation
24 Jul 2023
- First the good news. NZ CPI price inflation fell back to 6% yoy, bracketed by market expectations of 5.9% and the RBNZ’s May MPS forecast of 6.1%
- Headline inflation is clearly down from its 7.3% annual peak of mid-2022
- But there is a ‘but’. Underlying inflation pressures, and particularly the domestic-driven parts, are proving to be very sticky
Daily Alert: Earnings, labour market resilience drive offshore sentiment
21 Jul 2023
- Weekly jobless claims data in the US has been the latest print to highlight the resilience of the US economy
- Closer to home, Aussie swap yields lifted 8-12bps over the curve off the back of strong labour market data yesterday (more below), with the market pricing an additional 11bps of 2023 hikes (to 4.34%)
- On the equity market front, the latest earnings data has driven sentiment, with the results being disappointing
Daily Alert: What’s above 3% and sticky?
20 Jul 2023
- The major local event yesterday was the release of Q2 CPI data, which showed core inflation is proving sticky
- Inflation looks to be past its peak and downside risks are building, but it is easing only very slowly
- Global yields have been mixed overnight
Daily Alert: NZ CPI time
19 Jul 2023
- Today’s CPI at 10.45am is the key local release for NZ market direction this week
- Over in Australia, the RBA minutes released yesterday indicated the decision to leave the cash rate on hold in July was another close call
- The value of US retail purchases rose 0.2% in June after an upwardly revised 0.5% increase in May, Commerce Department data showed overnight
Term Deposit Report July 2023: RBNZ looks reasonably comfortable with rate settings
19 Jul 2023
- Term deposit rates have returned to levels above where they have averaged over the past 20 years and are expected to settle around current levels this year
- All term deposit rates are lower than annual CPI inflation
- Thankfully, inflation has started to come down from last year’s peak above 7% p.a., to 6% p.a.
Commodities Weekly: Softly, softly
19 Jul 2023
- Prices have continued to weaken at the latest GDT, with Chinese purchases still weak and buyers in no rush to secure product
- Slightly better supply and significantly weaker demand remain a recipe for a lower farmgate milk price this season
- We retain our $7.25 per kgMS forecast
2023 Q2 CPI Review: Core inflation proving very hard to stamp out
19 Jul 2023
- The CPI rose 1.1% qoq in Q2 2023, in line with the RBNZ expectations, but slightly higher than the median economist pick (including our own forecast)
- Importantly, domestic inflation remains high, sticky and is lagging the pull back we’ve seen in recent pricing surveys
- Sticky non-tradable inflation will keep the RBNZ on alert and of the view that monetary policy will need to remain restrictive for the foreseeable future. But we ultimately expect the RBNZ to remain on hold
Daily Alert: Chinese growth disappoints
18 Jul 2023
- China’s GDP growth fell from 2.2%/qtr to only 0.8%/qtr in Q2 2023
- US Treasury Secretary Janet Yellen said China’s economic slowdown risks causing ripple effects across the global economy, though she doesn’t expect a recession in the US
- China Evergrande Group reported a loss attributable to shareholders of 105.9 billion yuan (US $14.8 billion) for the full year in 2022 according to Hong Kong stock exchange filings yesterday
Home Loan Rate Report: RBNZ on hold, mortgage rates peaking
18 Jul 2023
- The Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) to 5.5% in May and held it steady at its July meeting
- ASB economists see the current 5.5% OCR level as the peak for this cycle, and mortgages are likely at or near a peak
- This report is an update of the June ASB Home Loan Report with the latest mortgage rates and thoughts on the outlook as at Mid-July
Daily Alert: Soft USD drives Kiwi higher
17 Jul 2023
- NZD is up on week-ago levels, courtesy of a weak USD last week
- REINZ data last Thursday (seasonally adjusted by ASB) showed NZ house prices have managed their first meaningful lift since November 2021
- US and European shares were mixed on Friday, despite some encouraging results to kick off Q2 reporting season
Economic Weekly: A further fall in inflation
17 Jul 2023
- The RBNZ decision last Wednesday was as generally expected with the OCR on hold at 5.5%
- And the statement said little had changed since its May assessment that a 5.5% OCR was enough to get inflation under control
- The Bank remained sanguine (though uncertain) about migration’s impact on inflation, the hot-button issue that sparked speculation ahead of the May announcement that the RBNZ would come out talking tough
Commodities Weekly: Success and failure
13 Jul 2023
- This week, we spotlight one of the big successes of the agri sector, with kiwifruit export values running close to record highs despite an array of challenges
- But there is also a less spectacular story going on, with China’s faltering economic recovery contributing to another fall at the ‘pulse’ GDT on Wednesday night
- The ASB Commodities Index fell to a two-year low in NZD terms last week
REINZ Housing data June 2023: It’s an upswing Jim, but not as we know it
13 Jul 2023
- REINZ data affirm the NZ housing market looks to be at a turning point, with prices managing their first meaningful lift in more than eighteen months
- With mortgage rates close to peaking, supply stabilising and stronger population growth of late, prices can make further gains over the coming months
- But we think this upswing will look different to the last one, with prices recovering slowly rather than galloping away
2023 Q2 CPI Preview: A gradual descent
13 Jul 2023
- We expect a 0.9% quarterly increase in Q2 headline CPI, with annual inflation falling below 6% for the first time since December 2021
- The tradable/non-tradable split matters for RBNZ policy, and we expect non-tradable inflation to remain sticky. But downside risks to the inflation outlook are building
- Nonetheless, the RBNZ will maintain restrictive OCR settings for some time to ensure inflation will move back to target in a timely manner
Daily Alert: No surprises from the RBNZ
13 Jul 2023
- As was near-universally expected, the Bank left the OCR on hold at 5.5%, judging that the cash rate is already high enough to get inflation back on target over time
- That said, with inflation only just easing from high levels, the Bank certainly isn’t declaring victory
- Overnight, the big focus has been on US inflation data, which has cooled by more than expected
Daily Alert: RBNZ hanging up its hiking hat
12 Jul 2023
- Overnight, markets found solace in hopes that US CPI could show a deceleration in US inflation
- US equities were higher at the time of writing, with the S&P 500 up 0.4%, the Dow Jones 0.65% higher and the Nasdaq up a more modest 0.2%
- UK labour market data was a bit of a mixed bag
NZ Migration and Tourism May 2023: Net immigration cools for a second month
12 Jul 2023
- Net immigration inflows have cooled over the past two months, ending a strong run of inflows
- To date there are few signs of a net immigration boost to domestic demand, whereas stronger net immigration has supported labour market capacity in NZ
- Both tourist arrivals and departures eased in May, while the annual visitor arrival total ticked up to 2.45 million, up 2.19 million from the May 2022 year (when the border was closed most of the year)
Review of RBNZ July Monetary Policy Review: Comfortably Done
12 Jul 2023
- As widely expected, the RBNZ left the OCR on hold at 5.5%, and continued to signal it has done enough for now
- The RBNZ repeated its key statements that continued restrictive conditions will get inflation down
- We still see the RBNZ as done with tightening, though don’t expect a lower OCR until May next year
Daily Alert: China has a different inflation problem to elsewhere
11 Jul 2023
- China’s headline CPI inflation was flat in June
- Our CBA colleagues predict the People’s Bank of China will cut the 7-day reverse repo rate and the one-year Medium-term Lending Facility (MLF) rate by at least 10bp this quarter
- Shares were positive overnight, with European and US benchmarks largely in the green
Markets Monthly: Are we there yet?
11 Jul 2023
- The RBNZ delivered 0.75% of tightening in the June quarter, with a 0.5% Official Cash Rate increase in April, taking the OCR to 5.25%, and a 0.25% increase in May
- Events since the May Monetary Policy Statement support the RBNZ keeping the OCR on hold at 5.5%, which we currently think is the peak for this cycle
- Offshore, the story has been more mixed, as the major central banks ponder how and when to end their respective rate hike cycles
Daily Alert: RBNZ steps into the spotlight
10 Jul 2023
- On Wednesday we expect the RBNZ to hold the OCR at 5.5%, which would be the first time the OCR has not risen at an RBNZ meeting since August 2021
- US Non-farm Payrolls (employment) increased 209,000 last month, less than ourselves and other economists expected
- Shares were mixed on Friday, with European shares largely positive, but US benchmarks were down between 0.1% and 0.6%
Economic Weekly: Feeling flat
10 Jul 2023
- This week is set to bring a bit of a pattern shift: a RBNZ meeting without a change in the OCR
- That would be the first such meeting since August 2021, and even then, the RBNZ only held fire because the Government had the day before put the country into Level 4 lockdown
- Now the RBNZ is in the position of feeling that the 5.5% OCR is high enough to get inflation back into the 1-3% target band in an acceptable timeframe (the second half of next year in the RBNZ’s May forecasts)
Daily Alert: Strong US jobs data puts the Fed back in the hot seat
07 Jul 2023
- Markets have been roiled overnight by a much, much stronger set of private sector employment figures in the US
- Markets now see a July Fed hike as pretty close to a dead cert
- US yields have jumped higher on the increasing likelihood the Fed could need to do more than previously anticipated
Daily Alert: Fed minutes affirm recent Powell musings
06 Jul 2023
- Minutes for the last FOMC meeting overnight have confirmed what we knew already: while the Bank may have forgone a hike in June, more are on the way
- Unsurprisingly, yields have nudged higher on those headlines
- Equities have been broadly lower in light of that confirmation further hikes are still in the chamber
Preview of RBNZ July Monetary Policy Review: Holding Pattern
06 Jul 2023
- Events since the May Monetary Policy Statement support the RBNZ keeping the OCR on hold at 5.5%
- Inflation gauges are cooling – notably the migration surge is helping to ease labour supply constraints
- The RBNZ will remain wary that inflation could be stubborn to come down. Nevertheless, we continue to see 5.5% as the OCR peak
Commodities Weekly: Another status quo GDT keeps us conservative
05 Jul 2023
- Dairy prices soften again at this week’s auction, taking dairy prices back to three-year lows
- We remain conservative on the outlook for prices, with the absence of Chinese demand leaving a huge hole in the market and supply looking better placed than last season
- A lower NZD spot and forward points are driving Fonterra’s effective exchange rate in a favourable direction, but with the co-op already likely to be ~65% hedged, the impact will be progressively less from here
Daily Alert: Nothing to see here
05 Jul 2023
- Yesterday’s Q2 QSBO provided no smoking gun for the RBNZ
- The data showed a continuation of what we saw in Q1 – tentative improvements in sentiment, but from a very weak base
- The RBA left interest rates on hold at 4.1% yesterday, in line with our CBA colleagues’ expectations
Daily Alert: RBA day
04 Jul 2023
- In Australia, the three pieces of housing related data released yesterday were on the strong side of expectations
- The RBA will factor this latest data into the decision on the cash rate this afternoon
- We expect the RBA to leave the cash rate on hold in what our CBA colleagues are calling as a line ball decision
Quarterly Survey of Business Opinion 2023 Q2: Some comfort for the RBNZ - but don’t declare victory yet
04 Jul 2023
- The Q2 QSBO continues to show some marginal improvement in headline business confidence, albeit from soggy territory and with firms more pessimistic on the outlook for their own activity
- Capacity measures continue to trail the likelihood core inflation can carry on easing, though costs are proving stubborn for now
- It is still too early for the RBNZ to declare victory just yet, and interest rates will remain high for some time to come
Daily Alert: Eyes on the RBA
03 Jul 2023
- The University of Michigan’s consumer sentiment index improved to 64.4 from a preliminary reading of 63.9, according to the final June reading on Friday
- Shares were positive in Europe and the US, with the key benchmarks all closing in the green
- Oil prices lifted on Friday and are up on a week ago
Economic Weekly: Seeking a confidence boost
03 Jul 2023
- The RBNZ’s next OCR decision is just next week, even though the May “done and dusted” decision seems such a fresh memory
- In between the two decisions there isn’t a lot of data out. Q1 GDP, which was a fraction weaker than RBNZ expectations, was one key data release
- This Tuesday’s Quarterly Survey of Business Opinion from the Institute of Economic Research is another – and the last
Daily Alert: Whopper GDP revision puts pressure on the Fed
30 Jun 2023
- Markets have been shaken out of their slumber by a huge upward revision to first-quarter GDP data in the US
- The US economy actually expanded at an annualised pace of 2% over the quarter, well up from both the 1.3% previously reported and the market’s expectations of an upward revision in the 1.4% ballpark
- The clear implication is that the US economy is proving substantially more resilient than expected despite the Fed’s efforts at dousing it with cold water
Commodities Weekly: Logging a fault
30 Jun 2023
- The ASB Forestry Index is at a three year low in USD terms, and an eight-year low in NZD terms
- The Forestry sector is enormously exposed to trends in the Chinese property market
- The Chinese housing sector remains weak, and we don’t expect a swift turn around
Daily Alert: Nothing new from the central banker powwow
29 Jun 2023
- The monetary policy crossover event of the year has been taking place overnight, with the Central Banker equivalent of the Avengers meeting at a forum in Portugal
- Despite last meeting’s ‘skip,’ Powell continued to signpost further hikes in coming Fed meetings: “Although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough.”
- Lagarde signalled that a hike at the next ECB meeting is a virtual certainty. With Japanese inflationary pressures barely stirring, the BoJ remains the odd man out
Daily Alert: US economic data holding firm
28 Jun 2023
- Sharemarkets broadly rose overnight, following a raft of US economic data printing better than expected
- US economic data comfortably printed on the stronger than expected side of the ledger overnight
- In Canada, headline inflation slowed in line with expectations to 3.4% yoy in May
Daily Alert: Sharemarkets mixed as Powell’s message sinks in
27 Jun 2023
- Sharemarkets have been mixed overnight, with the US Dow slightly positive, but the S&P 500 and NASDAQ in the red with a few hours of trading to go
- In Europe, UK’s FTSE and Germany’s Dax were both down 0.1%, while the French CAC-40 was up 0.3%
- The NZD has lifted around 0.4% against the USD so far this week to trade back towards 0.6200
Sustainable Economics: NZ’s ETS is under review
27 Jun 2023
- The Government is seeking feedback on whether the ETS needs to be reformed. It’s looking at whether the ETS needs to prioritise gross emissions reductions (rather than net) and how to balance this with the need for ongoing emissions removals via afforestation
- We see merit in separating gross emissions reductions from emissions removals. We also agree that current ETS settings are over incentivising afforestation at the expense of gross emission reductions
- Policy is complex and we certainly don’t have all the answers. But clarity on how we will transition to any new design as well as robust stop gap measures will be important to reduce uncertainty and the risk of inaction. Because it’s the decisions made today that will influence future emissions
Daily Alert: More inflation data and central bank speak this week
26 Jun 2023
- The key events in markets last week were the larger than expected 0.5% rate hike from the Bank of England, and hawkish speeches from FOMC Chair Powell at Capitol Hill last week
- Global bond curves remain deeply inverted
- Preliminary Eurozone PMI data for June printed weaker-than expected, with the Manufacturing, Services, and Composite indices all printing below market expectations on Bloomberg
Economic Weekly: Seventh heaven
26 Jun 2023
- As a person from a region noted as having one eye, it would be remiss of me to overlook the outcome of Saturday night’s rugby game: the Crusaders’ seven consecutive championship wins are a phenomenal feat
- However, in some shock news, when we released our Regional Scoreboard for Q1 last week, somehow Canterbury was dislodged from the top spot it had sat in for the previous seven quarters...by Taranaki (coincidentally in the Chiefs catchment)
- The Scoreboard outcomes were pretty tight at the top, and could be likened to a certain 1995 high-altitude rugby game that won’t be mentioned. Perhaps the right thing to do would have been let the Super Rugby final determine the outcome
Daily Alert: Daily Alert: BOE hikes by 50bps and warns they might not be done yet
23 Jun 2023
- The Bank of England delivered a hawkish surprise, raising its policy interest rate by 50bps, with the Norges Bank also hiking by 50bps.
- Messages by central bankers were generally hawkish.
- Global yields were generally firmer, equities generally lower, with commodity prices tanking.
NZ Migration Outlook and Impacts: Not the same boost from migration this time around
23 Jun 2023
- The current influx of migrants does not look like it is significantly adding to demand pressures, while it appears to be enhancing NZ labour market capacity and the speed limit of the economy.
- We do not believe NZ is currently in a migration super cycle and expect net inflows to eventually cool.
- Even if net immigration inflows remain strong, we suspect the inflationary impacts are unlikely to be as marked or persistent as past booms, with much less upside risk to OCR settings.
Regional Economic Scoreboard: Dark Horse ‘Naki pips the Canty Goliath for a gold medal
23 Jun 2023
- Canterbury loses its crown after seven quarters in the sun, but a resilient housing market keeps it in silver medal position.
- Taranaki mounts a huge comeback up our scoreboard to sieze the gold medal, albeit from a softer starting point.
- The return of international visitors continues to benefit tourism hotspots, with Otago joining Canterbury in second place on the podium.
Daily Alert: Mr Powell goes to Washington
22 Jun 2023
- Things have been a bit more interesting overnight with a notable data print in the form of UK inflation figures
- FOMC Chair Jerome Powell has been In Washington giving testimony to Congress, where markets have been sniffing for clues on the next moves by the Fed after its pause last week
- Amid last week’s ‘skip,’ the tone of Powell’s testimony has generally been broadly consistent with the Bank’s line to this point
Daily Alert: Brakes on sentiment
21 Jun 2023
- There was little economic data for markets to pick through, overnight
- Market sentiment cooled somewhat as the US reopened after observing Juneteenth Day on Monday
- US housing data well and truly beat expectations overnight
Commodities Weekly: Another flat GDT keeps us conservative on the outlook
21 Jun 2023
- Dairy prices have been broadly flat at last night’s GDT event, with whopping gains for butter offset by continued weakness in SMP and a correction in near-term cheddar prices. WMP has been largely flat
- China’s absence was especially pronounced at last night’s auction, and we don’t anticipate demand from South-East Asia will be able to offset that absence forever
- Modest gains for the NZD have seen the ASB Commodities Index reach its lowest point since early 2021 in NZD terms
Dairy Update: Another flat GDT keeps us conservative on the outlook
21 Jun 2023
- Dairy prices have been broadly flat at last night’s GDT event, with whopping gains for butter offset by continued weakness in SMP and a correction in near-term cheddar prices. WMP has been largely flat
- China’s absence was especially pronounced at last night’s auction, and we don’t anticipate demand from South-East Asia will be able to offset that absence forever
- Modest gains for the NZD have seen the ASB Commodities Index reach its lowest point since early 2021 in NZD terms
Daily Alert: All quiet on the western front
20 Jun 2023
- It was a quiet start to the week on the economic data front, as the US observed Juneteenth Day overnight
- Sharemarkets were closed in the US, and down in Europe
- China President Xi Jinping and US Secretary of State Antony Blinken have met and called for stable ties
Daily Alert: Lull after last week’s central bank bonanza
19 Jun 2023
- The past week included policy announcements from the US FOMC, European Central Bank, and Bank of Japan, as well as the Peoples Bank of China’s latest lending facility rates
- The Bank of Japan left its policy interest rate and 10-year Japanese government bond yield (JGB) target unchanged
- USD/JPY spiked higher after the announcement, and the NZD also gained on the weaker JPY
Term Deposit Report June 2023: Done and dusted – are term deposits at a peak?
19 Jun 2023
- Term deposit rates have returned to levels above where they have averaged over the past 20 years and are expected to settle around current levels this year
- Despite the “above average” rates, inflation remains stubbornly high
- Inflation has lifted more than term deposit rates, and in doing so continues the challenge for savers trying to get their money in the right place
Economic Weekly: Looking beyond the technicalities
19 Jun 2023
- Technically NZ is in a recession by the slimmest of margins, using the definition of two quarters of consecutive contraction in GDP. In total GDP shrank by 0.8 percentage points over 2022 Q4 (-0.7%) and 2023 Q1 (-0.1%)
- Broadly, the decline is primarily driven by the RBNZ leaning against strong inflation pressures, with likely short-term disruption from the disastrous weather thrown in
- The goods, services and primary sectors all registered overall declines, with the composition largely as expected
Daily Alert: Soggy NZD data, happy offshore financial markets
16 Jun 2023
- Local GDP data released yesterday confirmed NZ is in a technical recession, contracting -0.1% qoq
- Yesterday’s data doesn’t alter the RBNZ calculus much, if at all
- Overnight, financial markets in the US have continued to digest yesterday’s FOMC meeting, where the Bank decided to ‘skip’ a rate hike
Commodities Weekly: Some thoughts on China, dairy sector resilience
16 Jun 2023
- Chinese economic data has continued to disappoint, underlining the patchy shape of the domestic recovery
- In other news, we’ve released our forecasts for dairy debt servicing costs and find costs would be an average of 20-25c per kgMS higher if farmers hadn’t paid down a huge chunk of debt over the past five years
- The ASB Commodities Index is around three-year lows in USD terms, and two-year lows in NZD terms
Home Loan Rate Report: RBNZ appears more comfortable with interest rates
16 Jun 2023
- The Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) to 5.5% in May and signalled it has most likely done enough to contain inflation
- ASB economists now see the current 5.5% level as the peak for this cycle
- The RBNZ looks done, with its inflation forecasts released in May very marginally lower and back within the target band from mid-2024
Daily Alert: FOMC skips June but ups the dot plots. Now for the ECB
15 Jun 2023
- FOMC skips by holding fed funds rate at 5.0%-5.25%, but retains tightening bias and signals a further 50bp of hikes over 2023 in the dot plots
- Market reaction was swift with the USD and US yields up, equities down.
- The ECB are widely expected to hike by 25bps tonight, marking 400bps of hikes since July 2022, with the deposit rate (3.5%) the highest in more than 20 years
REINZ Housing data May 2023: Housing market at a turning point
15 Jun 2023
- REINZ housing data appears to show the NZ housing market at a turning point, with prices largely flatlining and activity metrics warming, albeit from still weak levels
- Broader housing market drivers are also looking more supportive for prices, with solid net migration, supply indicators stabilising and mortgage rates look like they are close to peaking
- Nationwide house prices look set to edge higher given key support factors, but we don’t expect prices to gallop away given stretched affordability
2023 Q1 NZ GDP Review & Forecast Update: A soggy starting point
15 Jun 2023
- The NZ economy fell 0.1% over Q1, more or less bang-on expectations and confirming a technical recession
- Sluggish economic output is looking pretty broad-[based, with primary industries, the goods sector and the services sector all in recessionary territory. Cyclone Gabriel won’t have helped
- Stronger population growth has also been one of the major things supporting growth – on a per capita basis, GDP has fallen 1.1% and 0.7% over the past two quarters
Daily Alert: When the swing factor swings
14 Jun 2023
- Yesterday’s migration data suggests the boom may be running out of steam
- Sizeable revisions make it difficult to discern trends, but net permanent and long-term (PLT) migration slowed sharply in April
- At the same time, the data showed that tourism numbers look to have plateaued
Housing Confidence: Kiwis edge closer to a housing market turning point
13 Jun 2023
- House price expectations improve a shade, but remain deeply in the red
- Respondents are evenly split on whether or not it’s a good time to buy as they try and pick the market’s eventual turning point
- A hefty majority expect further interest rate rises, but more Kiwis think mortgages are getting close to their peak
Daily Alert: Reality bites
13 Jun 2023
- NZ card spending fell sharply in May
- The latest QV House Price Index shows nationwide home values decreased by 3.4% over the three months to the end of May 2023
- Sharemarkets have been positive overnight, with European and US share benchmarks lifting
NZ Migration and Tourism April 2023: Soaring net immigration cools
13 Jun 2023
- Net immigration inflows cool sharply in April, ending a strong run of inflows
- To date there are few signs of a net immigration boost to domestic demand, whereas stronger net immigration has supported labour market capacity in NZ
- Tourism inflows into NZ fall and with resident departures out of NZ still ticking up, it could mean a lower net boost to NZ than earlier assumed
Dairy Sector Debt and Resilience Outlook: Dairy Sector Resilience in Focus
13 Jun 2023
- Higher lending rates have added an average of 60c per kgMS to dairy farmer debt servicing costs over the last twelve months
- With the RBNZ likely finished hiking rates, we expect the debt servicing burden to only increase another 5-10c per kg from here
- Farmers have done good work to pay down debt and build resilience, and debt servicing costs could have been an additional 20-25c higher if indebtedness had remained at 2018 peaks. In this note we offer thoughts on how farmers can further build resilience into operations and balance sheets
Daily Alert: Monetary policy meetings dominate the week ahead
12 Jun 2023
- The week ahead includes policy announcements from the US FOMC, European Central Bank, and Bank of Japan, as well as the Peoples Bank of China’s latest lending facility rates
- Sharemarkets were mixed on Friday night, with US shares positive, and the main European benchmark indices easing lower
- China’s CPI rose in line with expectations by 0.2%/yr in May
Economic Weekly: Place your chips on the roulette wheel of growth
12 Jun 2023
- Since the last bits of partial data that help form the Q1 GDP jigsaw puzzle came out last week, the question many people are asking is: has NZ dipped into recession?
- We will find out at 10:45am this Thursday whether NZ has slipped into a technical recession (two consecutive quarters of negative growth)
- It’s very much on the knife-edge. We are forecasting +0.1%
May 2023 NZ Electronic Card Transactions: Crunch time
12 Jun 2023
- Total card spending fell sharply in May, adding to evidence that consumers are keeping their wallets shut
- There were falls across all sectors in May 2023 relative to April 2023, except for services spending
- The chill evident in recent consumer spending data is consistent with our view that the current 5.5% OCR will be the peak. But it’s premature to discuss rate cuts
Daily Alert: Yields down as labour market pressures ease
09 Jun 2023
- Yields and the USD fall as us initial jobless claims hit a post October 2021 high, suggesting that the tight US labour market will cool
- Bank of Canada Deputy Governor Beaudry flags risk of higher neutral interest rates post COVID-19
- We expect the NZ economy to have narrowly avoided recession, but to have shrank on a per capita basis
NZ Productivity Update: Still waiting for that productivity miracle
09 Jun 2023
- NZ’s productivity track record has been poor, with a further slowing in productivity evident since COVID-19
- There are glimmers of hope, with signs of improved productivity performance for parts of the services sector post COVID-19. All that COVID-19 pain may have delivered a productivity dividend
- Nonetheless, the outlook is for subpar rates of productivity growth to continue that will constrain the inflationary speed limit for the NZ economy despite the expected strengthening in the working age population
Daily Alert: Monetary Policy Dundee
08 Jun 2023
- Following on from Tuesday’s unexpected hike, RBA Governor Lowe kept up the hawkish tilt in comments yesterday, stating “recent information has suggested greater upside risks to the Bank’s inflation outlook.”
- It’s a marked contrast to the dovish message delivered by the RBNZ following its own 25bps lift a fortnight ago.
- Aussie national accounts data yesterday will also have concerned the Bank
Q1 2023 GDP Preview: Posteriors on pews propping up production?
08 Jun 2023
- We expect GDP growth lifted a teensy 0.1% in the three months to March, in a lumpy quarter battered by extreme weather events
- With a more stimulatory fiscal policy, plenty of infrastructure rebuild in the pipeline and – most importantly of all – migration surging, the economy may escape recession this year. The emphasis is on the ‘may.’
- But broader growth headwinds remain clear and present, and we still anticipate per-capita output will contract over 2023
Daily Alert: Pauses, skips and engine restarts
07 Jun 2023
- Markets continue to assess the outlook for central banks amid still-high inflation but softening economic activity
- Bond yields and equities fluctuated overnight
- US Treasury yields reversed earlier falls with larger gains for shorter tenors
Commodities Weekly: Struggling for direction
07 Jun 2023
- Dairy prices continue to struggle for direction, with WMP underperforming, SMP flat and fats lifting
- We remain conservative on the outlook for global dairy prices given the prevailing global demand and supply balance – along with China’s continued absence from the market
- We retain our below-market 2023/24 milk price forecast of $7.25 per kgMS, but there is a long way to go
Daily Alert: US debt ceiling deal finally gets done
06 Jun 2023
- Investors welcomed news that the US Senate passed a bill to suspend the government's $US31.4 trillion debt ceiling last week
- In US economic data last Friday, Non-farm Payrolls (employment) rose by 339,000 in May (survey: +195,000)
- US shares surged on Friday, with the Dow Jones index up 2.1%, the S&P 500 index up 1.5% and the Nasdaq index up 1.1%, hitting its highest level since April 2022
Economic Weekly: The population puzzle
06 Jun 2023
- GDP will be firmly back in the spotlight this week. The final flurry of partial GDP indicators are released this week which means ourselves (and other economic forecasters) will be busy firming up Q1 2023 GDP forecasts
- We have pencilled in a flat outturn for the quarter
- As a result, this week’s partial data will help to shed light on whether or not New Zealand avoided a technical recession in Q4 2022/Q1 2023 (remembering that GDP fell 0.6% qoq at the end of 2022)
ASB Rural Quarterly Report - May 2023
06 Jun 2023
These reports dive into the supply and demand dynamics underpinning Agri-commodity markets globally. Read our latest report below.
Commodities Weekly: ASB nudges 2023/4 milk price forecast to $7.25 per kgMS
02 Jun 2023
- We’ve nudged up our 2023/4 milk price forecast from $7.00 per kgMS to $7.25 per kgMS
- Dairy prices have moved largely in line with our expectations, but NZD continues to underperform and looks likely to extend its falls in the aftermath of last week’s RBNZ meeting
- We continue to expect a farmgate milk price in the bottom leg of Fonterra’s forecast range
Daily Alert: Debt ceiling deal optimism boosts markets
02 Jun 2023
- Optimism that a debt ceiling deal will get done – better late than never – and hopes of a FOMC June ‘skip’ to rate hikes set the positive tone to markets overnight
- The FOMCs Harker (2023 voter) reiterated that the FOMC should “skip” a June rate hike and that the incoming data should determine whether further hikes were warranted
- Also boosting sentiment were signs that the US labour market remained hot, with employment gains from the ADP survey remaining at a solid 278k clip in May (mkt: 170k), with initial (232k) and continuing jobless claims (1795k) modestly undershooting expectations
Q1 2023 Trade Data Review: Throwing fuel onto the trade deficit fire
02 Jun 2023
- NZ terms of trade ease by more than expected in Q1, underpinned by cyclical easing in commodity prices
- Import volumes remain stubbornly high, with petroleum import volumes surging in the aftermath of the Marsden Point refinery closure
- Unsurprisingly, service exports have surged since the NZ border opened, but more timely data suggests arrivals may be plateauing
Daily Alert: Debt ceiling imbroglio reaching the endgame
01 Jun 2023
- We’ve seen the continuation of the greatest ‘will they-won’t they’ since Ross and Rachel from Friends hooked up, as the US debt ceiling drama has rolled on overnight
- Besides the debt ceiling dramedy, broader economic news has been mixed overnight
- Markets have been cautious – and perhaps a little risk averse – overnight
Daily Alert: Waiting, watching, wondering
31 May 2023
- Unsurprisingly, market focus remains on whether the US government will be able to extend the debt ceiling quickly and avoid defaulting (which could occur as soon as 5 June)
- US Treasury yields declined, with falls reasonably uniform (10-12bps) across the curve
- Local swap rates and bond yields fell yesterday
Daily Alert: Will they, won’t they? US lawmakers to debate debt ceiling
30 May 2023
- The tentative deal made late Saturday to raise the US debt ceiling and avert a US government debt default will now get tested
- US Sharemarkets were closed overnight, but US sharemarket futures point to a positive response to the debt ceiling developments when they open tonight
- Sharemarkets elsewhere were mixed, with Japan’s Nikkei in positive territory, but other markets weakened and in some cases were closed
Daily Alert: US debt ceiling deal gets nearer
29 May 2023
- White House and Republican negotiators reached a tentative deal late Saturday to raise the US debt ceiling and avert a US government debt default
- Turkey's Erdogan won a fifth term as president, after he won a run-off election
- Global sharemarkets finished the week on a strong note, with the Euro Stoxx 50 index up 1.6%, and in the US, the S&P 500 was up 1.3%
Economic Weekly: RBNZ signals mission accomplished
29 May 2023
- When lifting the OCR by 25bp to 5.5% last week, the RBNZ confounded most people by signalling that it has now done enough to control inflation
- In contrast, forecasts ahead of the announcement were that the OCR would peak at 5.75% or 6%, and market pricing implied a 5.9% peak and some chance of a 50bp move last week alone
- We had shifted to expecting a final 50bp increase to 5.75%. Yet, just a few weeks ago, widespread views were a 25bp increase in May would be the final lift of this tightening cycle
Daily Alert: Debt ceiling negotiations drag on
26 May 2023
- “I still think we have time to get an agreement, and get it done,” House leader Kevin McCarthy said after yesterday’s meeting with President Biden’s team concluded
- US Q1 GDP was upwardly revised in the second reading released overnight
- Global sharemarkets were mixed overnight, with European sharemarket benchmarks down 0.3% to 0.7%
Commodities Weekly: Fonterra divulges its seasonal soothsaying
25 May 2023
- Fonterra has lowered its Milk Price guidance for the 2022/23 season and begun the 2023/24 season with a wide range of $7.25-8.75 per kgMS
- We continue to expect a Milk Price at or below the bottom end of the co-op’s forecast range
- Fonterra’s guidance relies on China-driven demand gaining ground over the season – we remain cautious on this front
Daily Alert: RBNZ hikes and appears done and dusted
25 May 2023
- The RBNZ surprised all and sundry by lifting the OCR 25bp and signalling it has most likely done enough to contain inflation
- NZ retail sales volumes were much weaker in Q1 2023 than either ourselves or the market expected
- The UK Consumer Prices Index rose 8.7% over the year to April, printing higher than any of the 36 estimates from economists surveyed by Bloomberg, or the Bank of England’s 8.4% expectation
Daily Alert: No debt deal yet: is it a +25 or a +50 for the RBNZ?
24 May 2023
- No US debt deal adds to market nerves, with the clock ticking
- Stocks lower, yields sideways, with the USD and yen gaining
- RBNZ decision at 2pm today is the focal point for local markets
Q1 2023 Retail Trade Review: Belt tightening begins
24 May 2023
- It appears consumers are starting to tighten their belts with retail volumes falling for two consecutive quarters
- With soaring living costs likely to prevail over 2023 and the prospect of even higher mortgage interest rates, 2023 will be challenging for the retail sector
- We expect a final 50bp OCR hike in May. Material weakness in household spending could eventually trigger OCR cuts, but those risks are lessened while net migration is running hot
RBNZ May Monetary Policy Statement Review: Done and dusted
24 May 2023
- The RBNZ surprised by lifting the OCR by 25bp (we expected 50bp) and signalling it has done enough
- Two things in focus over the past week - migration and the Budget – were downplayed to some extent
- We expect that the RBNZ is now firmly on hold, providing data keep showing that inflation pressures are easing
Daily Alert: Surely they will…
23 May 2023
- Market sentiment was driven by prospects for an agreement on raising the debt ceiling in an otherwise quiet overnight session
- Sharemarkets were mixed across Europe and the US as market participants continue to wait for developments on the US debt ceiling standoff
- Locally, focus will remain on the RBNZ’s May Monetary Policy Statement (MPS) on Wednesday
Daily Alert: Here we go again
22 May 2023
- After seemingly moving in a positive direction last week, discussions over the US debt ceiling have reached an impasse over the weekend
- With Washington headlines proving unhelpful, sharemarkets closed to the week in a slightly somber mood
- Here in NZ, strong migration numbers and a more stimulatory NZ budget have both driven RBNZ expectations higher, with several Banks revising their OCR forecasts higher
Economic Weekly: A wild ride
22 May 2023
- Last week was one-way traffic upwards for interest rates as local banks upped their OCR forecasts as the Budget splashed the cash and the impact of strong migration flows on inflation moved firmly into the spotlight
- Market moves were substantial
- Budget 2023 included targeted increases in income support payments for low-income individuals and families, significant increases in operational spending allowances, and substantial increases in capital spending, particularly for infrastructure
Daily Alert: Cheaper medicine, pricier mortgages
19 May 2023
- Yesterday’s Budget was substantially more stimulatory than we’d anticipated
- The government is still on track to comfortably meet its fiscal targets, with the books returning to surplus before too long and net debt peaking well below 30% of GDP
- Overnight, Treasury yields have gained sharply
RBNZ May Monetary Policy Statement Preview: More people, more fiscal, big hike?
19 May 2023
- We expect the RBNZ to lift the OCR a final 50bp in May to 5.75% and flag the risk of a further hike
- Inflation has peaked. But fiscal spending is keeping up the heat, and the RBNZ’s response to migration is also key
- The market is appropriately pricing in over 50bp of hikes, but appears too ahead of itself in pricing in rate cuts
Daily Alert: B-Day
18 May 2023
- It’s Budget Day here in Godzone. It’s likely to be a ‘no frills’ affair, $4bn in spending is set to be reprioritised
- The RBNZ will be carefully watching the size of the fiscal impulse (how much the budget adds to or subtracts from broader demand in the economy) as it plots whether to deliver a 25bps or 50bps hike next week
- Risk sentiment has been on the front foot overnight, driven by hopes a debt-ceiling breakthrough might be imminent
NZ Budget 2023: More spending + more debt = higher interest rates
18 May 2023
- Budget 2023 unveils weaker profiles for budget balances, and upward tweaks to Crown debt and bond issuance that are largely driven by higher government spending. The economic outlook was modestly upgraded and a recession is forecast to be avoided
- Government spending is expected to decline as a share of GDP, but operational and capital allowances were revised up, with a good chunk of the spending increases occurring over the next year or so
- Fiscal policy settings are deemed to be more expansionary relative to the HYEFU and will do little to prevent the OCR from moving up or drive a meaningful improvement in our gargantuan current account deficit
Daily Alert: China’s economy continues to misfire
17 May 2023
- China’s April data dump highlighted that the economic recovery remains lacklustre
- RBA minutes showed the decision to hike by 25bp in May was a close call – but ultimately strong services inflation tipped the dial towards resuming rate hikes
- Meanwhile the WBC/Melbourne Institute consumer confidence index fell by 7.9%/mth to 79.0 in May 2023
Commodities Weekly: Disappointment
17 May 2023
- Dairy prices have underperformed expectations at the GDT overnight
- Broader supply and demand dynamics remain largely unchanged
- Fonterra will release its guidance range in the coming weeks, but we retain our $7 per kgMS forecast for 2023/24 for now
Daily Alert: The art of the deal
16 May 2023
- Hopes of a breakthrough for the US debt ceiling negotiations have broadly supported risk appetite, but no news yet, with the window of opportunity closing. A deal needs to be struck, pronto
- Modest moves in equities and bond yields, with commodity prices firmer
- RBA Minutes, Eurozone Q1 GDP tonight, but the focus will be on the debt ceiling talks
Daily Alert: More, more and more again
15 May 2023
- Stats NZ released yet another bumper set of migration numbers on Friday
- There was also a sharper than expected fall in shorter-term surveyed inflation expectations according to the RBNZ’s survey of inflation expectations
- Interest rate markets shaved down their expectations for the peak in the OCR following the release
Economic Weekly: Butter, jam – or dripping?
15 May 2023
- This week the attention is firmly on the Budget. New Zealand’s in a tricky environment - caught between a rock and a few different hard places
- High inflation, probable recession, and disaster recovery costs are all things the Government will need to manage, as well as the small matter of it being an election year too
- In a touted ‘no-frills’ Budget, what exactly will New Zealand get on its bread, and how thinly will it be spread?
Daily Alert: Soggier sentiment underpins demand for safe havens
12 May 2023
- Risk sentiment has taken a turn for the worse overnight as markets have digested the latest lumps of data from the US
- Yields have fallen as the evidence mounts that the central bank hikes are succeeding in cooling economies
- Elsewhere in central bank worlds the Bank of England has opted for another 25bps hike
NZ Budget 2023 Preview: No frills may not be enough to deter RBNZ hikes
12 May 2023
- A “no frills” Budget is expected to be delivered, with marginally weaker profiles for budget balances, and modest upward tweaks to Crown debt and bond issuance reflecting downgrades to Treasury forecasts for economic activity and the costs of cyclone damage
- The $4bn in reprioritisation of spending and spending cuts in some areas should cap lifts in overall operational and capital allowances and see government spending decline as a share of GDP
- It remains to be seen whether this will be sufficient to deter further RBNZ OCR hikes or drive a meaningful improvement in our gargantuan current account deficit
Commodities Weekly: Supply side solace – but debt servicing costs remain high
12 May 2023
- Key farm input costs are easing, while strong population growth should help offer relief on worker shortages
- The exception is debt servicing costs, which are still looking lofty
- The ASB commodities index increased a very slight 0.2% last week in NZD terms, but commodity prices remain well down annually
NZ Migration and Tourism - March 2023: Surging migration boosts both sides of the economy
12 May 2023
- Clear trend of strengthening net immigration continues as arrivals of non-NZ citizens hit record highs
- On current trends, net immigration is on track to top 100,000 persons annually by mid-year
- Tourism inflows into NZ look to have plateaued, with Chinese visitor numbers still low. With resident departures out of NZ still ticking up, it could mean a lower net boost to NZ than earlier assumed
Markets Monthly: Nearing the end of the tightening cycle?
11 May 2023
- The major central banks and the RBNZ appear to be near the end of their respective tightening cycles
- Over recent months central bankers and market participants have grappled with mixed data regarding past economic growth and inflation, and the outlook
- Central Bank decisions have ranged from holding rates steady (e.g., Bank of Canada, Bank of Japan) through to steadily raising rates (e.g., US FOMC, European Central Bank)
Daily Alert: US inflation cools, markets rejoice
11 May 2023
- US inflation comes in marginally lower than expected, with annual headline inflation falling below 5% for the first time in 2 years
- Global yields sharply lower, the USD was down with modest reaction in equity markets
- Focus will be on the BOE decision tonight, with the consensus being a 25bp hike
REINZ Housing data – April 2023: Housing downturn set to be less severe than expected
11 May 2023
- REINZ housing data appears to show the NZ housing market on the turn, with prices stemming their descent and activity metrics showing very gradual signs of warming
- Broader housing market drivers are also looking more supportive for prices, with net migration running very strong, supply indicators stabilizing and mortgage rates increasingly close to peaking
- We may be getting close to a turning point, and we now expect prices to decline about 17% from their late 2021 peak by the latter part of this year
Daily Alert: The debt ceiling dilemma
10 May 2023
- US and European equities are broadly lower as there was little overnight to distract market participants from the US debt ceiling palaver
- There are few signs at this stage that US lawmakers are close to reaching a deal to avoid hitting the debt ceiling (possibly as soon as 1 June)
- Global oil prices have shaken off earlier falls
Sustainable Economics: NZ Carbon Market Overview
10 May 2023
- Carbon markets can help to reduce emissions by making it more costly to emit carbon dioxide
- In New Zealand there are both mandatory and voluntary carbon markets. Some businesses are required under law to pay for the emissions they produce, while others choose to do so voluntarily
- The price of emissions can differ depending on whether you are captured under NZ’s mandatory system or purchase offsets through voluntary carbon markets. Prices can also change over time. But supply and demand play a big role in the price of carbon units in both markets
Markets Monthly: March Madness
10 May 2023
- March madness held true last month. Bank collapses, economic data surprises and the ongoing march higher in central bank interest rates rocked markets over the month
- The collapse of Silicon Valley Bank (SVB), the second largest bank to fail in American history caused widespread ructions in financial markets
- However, interest rate markets bore the brunt of the moves
Daily Alert: Markets start week on a quiet note
09 May 2023
- Global sharemarkets have had a mixed start to the week. The Euro Stoxx 50 index rose 0.2%, but the German DAX benchmark was down 0.1%, while in the UK a public holiday was observed
- Global oil prices built on Friday’s gains, with West Texas Intermediate up another 2.7% or $2 overnight to trade around US$ 73.30 per barrel
- In Australia, the ABS released the March figures for building approvals and NAB released the April edition of its business survey yesterday
April 2023 NZ Electronic Card Transactions: Card spending increases but underlying weakness evident
09 May 2023
- Total card spending rose in April, likely supported by ongoing restocking as well as widespread price increases
- Lifts in consumer and durable spending offset falls across all other categories in the month
- Inflation is still too high and is consistent with one final 25bp rate hike by the RBNZ in May to a 5.50% OCR peak
Daily Alert: US labour market remains strong
08 May 2023
- US nonfarm payrolls (employment) increased 253,000 last month following a downwardly revised 165,000 March increase, Bureau of Labor Statistics figures showed
- Global sharemarkets were positive on Friday night, with key benchmark indices in the green in Europe and the US
- Global oil prices mirrored the pattern of the week prior, ending the week on a rally
Economic Weekly: Peak rates
08 May 2023
- It was an eventful week last week between the release of New Zealand labour market data and rate decisions at three major central banks
- It looks like the week ahead will be a bit lighter. However, the RBNZ’s survey of inflation expectations and migration data on Friday will be closely watched
- Offshore, Thursday’s Bank of England rate decision is the key event
Daily Alert: ECB hikes by 25bps, waters down tightening bias
05 May 2023
- ECB hikes by 25bps but the tone of policy assessment was not as hawkish as expected. Markets continue to water down subsequent tightening and bring forward rate cuts for central banks
- Jitters over regional US banks set a risk off tone overnight, with equities and yields generally lower, although the NZD has made gains
- RBA Statement of Monetary Policy and non-farm Payrolls are key events over the next 24 hours
Daily Alert: Fed hikes by 25bps but signals a likely pause in June
04 May 2023
- As was widely expected by markets and market analysts the US Federal Reserve hiked the fed funds rate by 25bps to 5.00% to 5.25%. However, FOMC Chair Powell confirmed a “meaningful change” in the policy outlook, with the FOMC explicitly dropping its explicit tightening bias
- Market reaction was initially modest but increased thereafter. US Treasury yields were down. There were modest overnight moves in other overseas markets
- In contrast to the relative calm elsewhere, energy commodity prices have continued to slide
Daily Alert: RBA cuts its smoko short
03 May 2023
- A heady week of central bank meetings kicked off with a surprise 25bps hike by the RBA yesterday, with the pause many had anticipated proving as elusive as a bunyip in a billabong
- The sticky inflation outlook remains the catalyst, with the RBA’s CPI forecasts little changed from the last meeting
- Given the sizable miss relative to expectations, antipodean market moves yesterday were as chunky as a koala after a eucalyptus binge
Q1 2023 Labour Market Data Review: Tight labour market starting point seals the deal on another RBNZ hike
03 May 2023
- The NZ labour market has remained tight, with sizeable gains in employment, record labour force participation, and with the unemployment rate and other utilisation metrics hovering around record lows
- Labour cost growth was not as strong as expected, but still hit a record annual high with widespread lifts
- Both weaker demand and stronger supply should see greater labour market slack emerge over 2023, but the RBNZ is unlikely to shirk from further monetary tightening. OCR cuts are unlikely until well into 2024
Commodities Weekly: Stemming the descent
03 May 2023
- Dairy prices have managed a reasonable lift overnight, stemming some of their recent falls
- We still expect 2023/24’s milk price to be lower than it was over the past couple of seasons, though there’s a smidge of upside risk to our $7.00 per kgMS pick
- Fonterra will release its own opening guidance range in the coming weeks
Daily Alert: Markets digest JPMorgan’s First Republic Bank deal
02 May 2023
- Global investors have a lot to digest this week, with the FOMC decision on Thursday, and JPMorgan Chase & Co.’s acquisition of First Republic Bank front of mind
- Global sharemarkets have been mixed overnight, with European benchmarks up small amounts, and the three US benchmarks flat or slightly negative with a few hours of trading to go
- Official PMI readings and the US’s ISM Manufacturing index were released overnight
Daily Alert: Signs of contraction for Chinese manufacturing
01 May 2023
- China’s official manufacturing purchasing manager index (PMI) fell to 49.2 from 51.9 in March, the National Bureau of Statistics said on Sunday
- Global sharemarkets were largely positive on Friday, with key benchmark indices in the green in Asia, Europe, and the US
- Fitch Ratings reduced France’s credit rating to AA- from AA, with a stable outlook
Home Loan Rate Report: Are we there yet?
01 May 2023
- Mortgage rates have been rising over the past year and a half, consistent with the Reserve Bank of New Zealand (RBNZ) progressively hiking the Official Cash Rate (OCR) since October 2021
- Over 2023, the RBNZ has increased the OCR by another 100 basis points or 1%
- However, over the same time, floating rates have risen by less than half that amount (40 basis points or 0.4%), and some fixed rates have actually fallen
Term Deposit Report April 2023: Near the peak?
01 May 2023
- Term deposit rates have returned to levels slightly above where they have averaged over the past 20 years and are expected to settle around current levels this year
- All term deposit rates are lower than annual CPI inflation (currently running at 6.7%)
- Inflation is expected to remain high over 2023, eroding the purchasing power of returns, even before tax is considered
Economic Weekly: Winning the Consensus Award
01 May 2023
- The ASB Economics team has been named the winner of the 2022 Consensus Economics Forecast Accuracy Awards for New Zealand forecasts
- Domestically we have both the RBNZ Financial Stability Report and the labour market statistics out on Wednesday morning
- Three key central banks are likely to lift rates this week, two potentially for the final time this cycle
Daily Alert: Earnings resilient despite the stagflation spectre
28 Apr 2023
- We’ve had a mixed bag of economic and financial news overnight
- The US economy looks to be slowing ahead of expectations, while inflation is proving more stubborn than hoped
- Treasury yields have jumping markedly
Commodities Weekly: A big dip for forestry – and a note of GDT caution
28 Apr 2023
- The ASB commodities index had a very slight rise of 0.3% when measured in NZ dollar terms last week
- In underlying USD terms, our index is at its lowest level since November 2020
- The big mover this month is our Forestry Index
Q1 2023 Labour Market Data Preview: Turning
28 Apr 2023
- The Q1 figures are expected to show some cooling in tight labour market conditions, with the unemployment rate edging higher from historical lows. Wage growth should remain strong, with annual labour cost inflation likely to hit record highs
- Slowing demand for labour and increasing labour supply are expected to further alleviate labour market pressures. In time this will dampen wage pressures and core inflation
- We look to be towards the end of the RBNZ’s rate hiking journey and expect a 25bp May OCR hike and a 5.50% peak this cycle
Daily Alert: Finely balanced
27 Apr 2023
- Risk sentiment has been finely balanced overnight. On the one hand, corporate earnings news has been pretty positive, at least in the tech space
- The upshot has seen equities tip into the red, with the exception of the tech-heavy Nasdaq
- Among other risk assets, commodity prices have dipped overnight
Daily Alert: Financial jitters return
26 Apr 2023
- Sentiment in markets has been largely negative so far this week
- US consumer confidence dropped to the lowest since last July
- In contrast, housing market data out this week in the US has been more encouraging
Daily Alert: Two-up
24 Apr 2023
- US and European sharemarkets were positive on Friday, with the German and French markets up 0.5%, and the three main US benchmark indices all up 0.1%
- Global oil prices lifted on Friday but were still lower over the week
- The NZX50 rose 0.4% on Friday and was up by the same amount over the week
Economic Weekly: Soft edges, hard core
24 Apr 2023
- Last week centred around a couple of significant data releases - Q1 2023 NZ CPI and March REINZ housing data
- Things will be somewhat quieter locally this week though, with NZ business and consumer confidence surveys the key releases
- The Q1 CPI in New Zealand, out last week, was below general market and RBNZ expectations, primarily due to lower prices of tradable goods
Daily Alert: NZ yields and the NZD fall as NZ inflation cools
21 Apr 2023
- NZ yields and the NZD fell after NZ CPI inflation undershoots RBNZ and market expectations
- Declining risk appetite characterised the overnight session given weak data (see below) and signals that more central bank hikes were on their way
- Equities, global yields and commodity prices were down overnight
Daily Alert: Inflation everywhere
20 Apr 2023
- The annual rate of UK CPI inflation eased to 10.1% in March from 10.4% in February
- In contrast, data in Canada yesterday showed annual inflation of a more modest 4.3%
- NZ Q1 CPI data is due 10.45am today. We think the annual inflation rate should print around 7.2%, which is close to the highest level observed since 1990
2023 Q1 CPI Review: Soft headline masks solid core
20 Apr 2023
- Q1 CPI comes in well below RBNZ expectations, with few signs of an immediate Cyclone Gabrielle boost as yet. Lower tradable prices largely accounted for the downward surprise
- There is still a large bow wave of inflationary pressure in place, with very high rates of core and non-tradable inflation evident. However, there are signs that domestic pricing pressures may also be cooling
- Downside risks to the inflation outlook have grown, but the RBNZ will likely maintain restrictive OCR settings for a concerted period to be confident inflation will settle below 3%. OCR cuts are unlikely until mid-2024
Daily Alert: Unfinished business
19 Apr 2023
- Signs of resilience on the economic data, receding bond market volatility and the lack of alarming banking sector headlines have contributed to the improved tone in markets
- Prices from the GDT auction rose 3.2%, with whole milk powder prices up 1.0% to USD3,089 per metric tonne. We are sticking with our $7.00 Fonterra milk price forecast for 2023/24 and await Fonterra’s opening forecast range for the year ahead which should be announced next month
- Local markets await Q1 CPI data tomorrow
Commodities Weekly: Prices lift at latest Global Dairy Trade event
19 Apr 2023
- Prices have lifted in the latest Global Dairy Trade event overnight, with the GDT Price Index up 3.2%
- The whole milk powder (WMP) index up was up 1.0%, with an average price US$3,089/MT
- Futures prices earlier in the week suggested the market was expecting WMP prices to decline 2.0% at the event
Daily Alert: Annual food price inflation the highest since 1989
18 Apr 2023
- There was an 0.8% increase in food prices over March, with annual price growth of 12.1%
- March rental and food price data were the final pieces of the CPI forecasting puzzle ahead of the actual CPI print on Thursday
- Richmond Fed President Thomas Barkin said he wants to see more evidence that US inflation is easing back to the central bank’s goal of 2%
Quarterly Economic Forecasts: Experiencing the hangover
18 Apr 2023
- In our last quarterly, published at the end of last year, we flagged that we were expecting the economy would fall into a recession over 2023. The reported contraction in December 2022 quarterly GDP suggests the economy is buckling a little earlier than expected
- We expect that in total the economy will contract upwards of 2% by early 2024, more than half the size of the 2008/09 decline
- Inflation is expected to remain persistently high and is unlikely to fall below 3% until 2025
REINZ Housing data – March 2023: Subtle signs of life in the housing market
18 Apr 2023
- NZ house prices continued to fall in March, but at a notably slower pace than we’ve seen during the housing downturn to date
- Activity measures ticked up across most of New Zealand, suggesting it was more than a post-Cyclone bounce
- We think house prices still have further to fall, but the cyclone impacts and accelerating net migration are adding a layer of uncertainty to the outlook
Daily Alert: Inflation setting the tone in markets
17 Apr 2023
- Sharemarkets were mixed on Friday, with European shares positive, and US sharemarkets in the red
- Global oil prices lifted at the end of the week as traders remain concerned about tight supply
- The NZX50 eased 0.4% on Friday and was virtually flat over the week (+.09%)
Economic Weekly: How inflated is inflation?
17 Apr 2023
- Things have settled a bit after the RBNZ surprised us with its 50bp increase, and it is school holidays for some people
- But that doesn’t necessarily mean there is no potential for more excitement
- The reason for this is the release of Q1 CPI on Thursday
2023 Q1 CPI Preview: Plus 7% again
17 Apr 2023
- We expect a 1.8% quarterly increase in Q1 headline CPI, with annual inflation steady at 7.2%
- The impact of recent weather events adds to the list of uncertainties over the inflation outlook
- Downside risks to the inflation outlook are building. Nonetheless, the RBNZ must maintain restrictive OCR settings to limit the longer-term economic damage caused by high inflation
Daily Alert: Nearing the end of central bank hikes?
14 Apr 2023
- Risk sentiment was broadly supported overnight as markets digested recent events, with hopes that central bank interest rate hikes may be nearing an end and that the looming downturn will be mild
- Lower than expected US producer prices helped support sentiment
- Equities and yields were up, with the USD lower, and Australasian currencies pushing higher
Commodities Weekly: China unlikely to ride to global commodity prices’ rescue
14 Apr 2023
- Angst around the slowing pace of global growth is back to the fore this week, with the IMF releasing its latest forecasts
- The key question is still to what extent China's recovery will prop up demand for commodities amid a generalised slowdown in most other parts of the world - we still think the answer is 'only partially' given China's modest growth targets
- Strong local WMP production and subdued consumption will mean Chinese dairy demand is slow to pick up
Daily Alert: One more, with feeling?
13 Apr 2023
- US CPI data out overnight has shown headline inflation moderating more than anticipated, but core inflation (which is ultimately the stuff the Fed has influence over) proving stubbornly persistent
- Markets have ultimately decided the Fed will likely need to do at least one more quarter point hike in June
- Treasury yields have also bounced around a bit as markets have digested the Fed’s next steps
Neutral OCR Update: The ASB Neutral OCR Corridor
13 Apr 2023
- Our estimates suggest the neutral OCR is currently just above 3%. This is in a similar ballpark to recent RBNZ estimates
- The neutral OCR is trending. After falling for close to 30 years, post-2020 estimates have turned up
- The neutral OCR outlook is highly uncertain, with the firm short-term inflation outlook adding to upward pressures. However, we believe its longer-term downward trend will eventually reassert itself over time
Daily Alert: Markets await US CPI tonight
12 Apr 2023
- Concerns over banking sector stresses look to be receding with markets refocusing to much more mundane issues, including the inflation outlook and the implication for interest rate settings
- There was not a lot of conviction behind market moves overnight given the uncertainty as to whether last month’s banking related wobbles were a one off or a precursor to greater financial market and economic ructions
- The focus is tonight’s US March CPI, with our CBA colleagues flagging some upside risk to the market consensus
March 2023 NZ Electronic Card Transactions: Replacement spending surge
12 Apr 2023
- Total card spending jumped in March, with evidence of repairing and restocking activity underway
- Storm-related spending is likely to be reasonably short-lived. Broader headwinds to the retail sector are intensifying
- Still-high inflation amid demand-supply imbalances tip the scales towards one final 25bp rate hike by the RBNZ in May to a peak of 5.50%, but it’s a line ball call
Daily Alert: US shares mixed in the wake of employment data
11 Apr 2023
- US Nonfarm payrolls (employment) increased by 236,000 (in line with the consensus of forecasts compiled by Bloomberg) after an upwardly revised 326,000 advance in February
- The US labour market data set the tone in Monday trade in US sharemarkets
- The NZX50 eased 0.3% on Thursday, with modest turnover of $98 million, as investors digested Wednesday’s RBNZ OCR hike
Economic Weekly: The Big Bang Theory
11 Apr 2023
- It is hard to get much more of a contrast than the one we saw last week between the RBNZ and RBA interest rate decisions
- The RBNZ was very much still of the opinion that the ‘least regret’ option is to keep lifting interest rates rapidly, while the RBA opted for a ‘wait and see’ approach
- The 50bp hike by the RBNZ last Wednesday, which now puts the OCR at 5.25%, was quite a surprise: every major economist (ourselves included) had picked a 25bp increase, and markets had 27bps priced in
Daily Alert: RBNZ surprises with a 50bps hike
06 Apr 2023
- The RBNZ hiked the OCR by 50bps to 5.25%, despite virtually every major economist expecting for a more cautious 25bps move and the market pricing ~27bps of hikes prior to the meeting (implying a 1% chance of a 50bps)
- In the RBNZ’s view, inflation remains ‘still too high and persistent,’ demand is still outstripping the supply side and the impact on inflation expectations from the cyclone recovery might be substantial in the medium term
- The key swing factor for the bigger move looks to have been a desire to head-off the risk that lower wholesale rates could flow through to the lending rates faced by businesses and households
Commodities Weekly: An Easter update on our views
06 Apr 2023
- This morning we released our April dairy update
- After another underperforming dairy auction, we think there is a risk the 2022/23 season milk price winds up towards the lower end of the $8.00-8.60 per kgMS guidance range the co-op announced on Monday
- What’s more, it looks increasingly likely the 2023/24 season gets off to a relatively subdued start given the relatively bearish demand signals at the auction, in line with our long-held view
Dairy Update: 2023/24 Dairy season kick-off lining up with ASB view
06 Apr 2023
- Dairy prices notch up another meaningful dip at this week’s GDT, with a sub-$8.30 farmgate milk price for 2022/23 in the offing and the 2023/24 season set to start on the backfoot
- We retain our $7 per kgMS farmgate milk price forecast for the next season, with the futures market steadily moving closer to us over the past month
- There is a high degree of uncertainty around the next season, but farmers should be prepared for a milk price meaningfully lower than the high payouts of recent years
Daily Alert: RBNZ vs RBA divide set to widen
05 Apr 2023
- Just when it was looking like markets were settling, softening US labour market data (see below) and a fresh bout of US banking sector jitters set a more brittle market tone. US equities and yields were down
- The overnight GDT auction was weaker than expected (-4.7%, WMP -1.5%) supporting ASB’s view that the 2023/24 dairy season will get off to a weak start
- RBNZ OCR decision today. Unlike the RBA we expect the RBNZ to press on with a 25bp hike and to retain a tightening bias
RBNZ April OCR Review: RBNZ comes out guns blazing
05 Apr 2023
- The RBNZ lifted the OCR by 50bp, to 5.25%. The broad consensus was a 25bp increase
- Inflation remains too high and too persistent, and the recent weather disasters are now assumed to be more inflationary than initially assumed in February
- A final 25bp increase in May, to 5.50%, is our new forecast – but it’s a lineball call
Daily Alert: RBA takes centre stage
04 Apr 2023
- Across the Tasman markets are pricing an on-hold decision for the Reserve Bank’s cash rate decision this afternoon
- Our CBA colleagues also think the RBA will keep the cash rate steady today but regard it as a close call, and indeed several Australian economists are calling for a hike today
- Meanwhile markets have a hike fully priced in for the RBNZ on Wednesday
Quarterly Survey of Business Opinion 2023 Q1: Capacity frictions ease, pointing to lower core inflation in the future
04 Apr 2023
- The Q1 QSBO depicted a marginally improved business sector backdrop, albeit with actual and expected domestic activity and investment intentions highlighting recessionary conditions
- Pricing and cost metrics remain too high to be consistent with sub 3% inflation. The next move in the OCR is up
- Easing capacity pressures in the labour market hold out the prospect of inflation moving lower on a sustained basis
Daily Alert: RBNZ and RBA meetings loom over the week
03 Apr 2023
- Markets have a hike fully priced in for the RBNZ on Wednesday
- Meanwhile across the Tasman markets are pricing an on-hold decision for the RBA tomorrow
- It was a quiet end to the week in the local rates market on Friday, as participants await the announcements
Economic Weekly: Contrasting moves from the Downunder Reserve Banks
03 Apr 2023
- It’s looking to be an eventful week ahead Downunder as we head into a very welcome Easter long weekend
- Both the RBNZ and the Reserve Bank of Australia will announce their respective monetary decisions: the RBNZ on Wednesday at 2pm and the RBA tomorrow afternoon
- We are forecasting the RBNZ lift the OCR by 25bps (though a 50bp hike remains in the realm of possibility) which will take the OCR to 5.0%, the highest it’s been since 2008 in the lead-up to the Global Financial Crisis
Daily Alert: r-e-s-P-C-E-t, find out what it means to me
31 Mar 2023
- Financial markets have been in ‘wait-and-see’ mode overnight, as we look ahead to the next round of key US inflation data over the weekend – the PCE deflator
- A series of Fed officials have been on the wires, generally offering generic shibboleths emphasising the Bank’s preparedness to do what it takes to get inflation under control
- The general tenor of those Fed comments leaned toward the hawkish, but markets have mostly looked through them ahead of PCE data released in the US over the weekend that will provide more definitive clues on the Fed’s path
Commodities Weekly: Seeing the wood from the trees
31 Mar 2023
- USD commodity prices were broadly flat last week, easing about 0.2%
- Similar themes have been evident over the last couple of months
- China accounts for about 55-60% of NZ forestry exports, so it’s a key driver
Daily Alert: Market sentiment improves overnight
30 Mar 2023
- US and European sharemarkets have been positive overnight, with the Euro Stoxx 50 index up 1.5%, and US sharemarket benchmarks up 0.9-1.7% this morning
- Global oil prices have been on the rise this week, but the rally ran out of puff overnight
- US pending home sales unexpectedly rose 0.8% in February
Daily Alert: Sharemarket rally falters overnight
29 Mar 2023
- US and European sharemarkets were mixed, with European shares continuing the recent rally and posting modest gains, but US shares are in the red with a few hours of trading still to go
- Overnight US consumer confidence printed slightly better than expected in March – with the strong labour market appearing to outweigh concerns about banking turmoil for now
- Five US Senators who are part of the Senate Banking Committee have sent a letter to Federal Reserve Chair Jerome Powell questioning whether the central bank exercised its full legal authority to oversee Silicon Valley Bank and other midsized financial institutions
RBNZ April OCR Preview: Nearing the end
29 Mar 2023
- We expect the RBNZ to lift the OCR by 25bp on Wednesday 5th April, though a 50bp hike is still possible
- Monetary settings are already highly restrictive, which along with a weaker than expected economic outlook, pronounced uncertainty and global banking wobbles are key reasons for the RBNZ to slow the pace of OCR hikes
- The tightening cycle is not quite finished – we’d expect another 25bp increase in May, to 5.25%
Regional Economic Scoreboard: All Canty does is win, win, win no matter what
29 Mar 2023
- This quarter, we debut the brand-spanking new, all-singing, all-dancing re-vamped ASB Regional Economic Scoreboard
- Canterbury notches up a 7th consecutive win, joining the ranks of other great Kiwi winning streaks
- It's a 'Tale of Two Islands' this quarter, with South Island regions like Otago making a comeback after their rough patch during the pandemic
Daily Alert: Meltdown fears recede
28 Mar 2023
- Fears of a pending financial market meltdown receded overnight
- Equities, yields and commodity prices firm
- A quiet session ahead looms
Daily Alert: Banking jitters continue
27 Mar 2023
- US and European sharemarkets were mixed on Friday
- After Credit Suisse’s problems, attention has turned to Deutsche Bank
- Despite the banking jitters, US shares managed to rally late in the week, and the three main US indices all finished in positive territory
Economic Weekly: Central bankers still fighting on the beaches and in the trenches
27 Mar 2023
- Apart from keeping an eye out for whether any more banks in the US fell over or got propped up, last week markets were firmly eyeing up what the US Federal Reserve would do
- Hike rates to keep combatting inflation? Hold rates, out of concern for financial stability?
- Either way, it was a damned if you do, damned if you don’t decision
Daily Alert: The hiking continues
24 Mar 2023
- Central Banks around the world have continued to hike overnight, following the Fed’s lead. The Bank of England opted for a 25bps increase (as had been widely expected) and affirmed its confidence in the ‘resilience’ of the UK banking sector following recent market turmoil
- More starkly, the Swiss National Bank lifted its policy rate a full 50bps, despite the recent drama surrounding Credit Suisse
- Treasury yields have actually eased overnight
Daily Alert: Fed hikes by 25bps but softens tone
23 Mar 2023
- Fed hikes by 25bps but softens its tightening bias
- Global yields and the USD down
- Quiet day ahead
Commodities Weekly: Melted cheese
23 Mar 2023
- Dairy prices have once again underperformed futures market pricing at the dairy auction this week
- It increasingly looks like this season’s farmgate milk price will be towards the lower end of Fonterra’s forecast range
- We retain our $7.00 per kgMS forecast for the next season
Term Deposit Report March 2023: Inflation wolf at the door
23 Mar 2023
- Term deposit rates have returned to levels slightly above where they have averaged over the past 20 years and are expected to settle around current levels this year
- That’s positive news for savers, but inflation has also been on the rise
- In fact, inflation has lifted higher than term deposit rates over the past year, and in doing so continues the challenge for savers trying to get their money in the right place
Daily Alert: Calm returns for now
22 Mar 2023
- Some semblance of calm looks to be returning to jittery markets
- Overnight saw a rebound in banking stocks, Treasury yields and the euro and USD gaining
- Focus is on the FOMC decision tomorrow at 7am, with a 25bp hike generally expected by analysts, but with markets more lukewarm
Markets Monthly: Market volatility returns with a vengeance
22 Mar 2023
- Sharemarkets both here and abroad have eased in February and March after January’s encouraging start to 2023
- The S&P/NZX50 Index fell 0.6% in February and global shares were down by over 2%
- Central banks continued to lift policy rates during February and early March
Household Living Cost Outlook for 2023: No respite for household budgets
22 Mar 2023
- Household budgets are getting clobbered by the soaring cost of living
- Recent natural disasters are expected to keep NZ inflation elevated
- Continued increases in the cost of living and weakening household balances sheets look set to continue to weigh on household sector activity over 2023, with recession looming
Home Loan Rate Report: OCR up, mortgage rates down?
22 Mar 2023
- Mortgage rates have been rising over the past year and a half, consistent with the Reserve Bank of New Zealand (RBNZ) progressively hiking the Official Cash Rate (OCR) since October 2021
- Yet in the month that followed the RBNZ’s February 2023 rate hike we have seen floating rates largely remain steady, and some fixed rates have been trimmed
- Concerns about slower economic growth over the years ahead, and a belief that inflation will eventually be tamed, have weighed on longer term interest rates this year
Daily Alert: Ambulance at the bottom of the cliff?
21 Mar 2023
- Markets remain wary, with the focus on financial contagion from banks despite soothing messages from regulators
- Overnight saw a modest recovery in risk appetite with stocks and Treasury yields up, but the NZD was generally lower
- Thursday’s FOMC Minutes is the next key event
Daily Alert: How is a Swiss Bank like a Swiss Cheese? Both are full of holes
20 Mar 2023
- It’s a been a volatile week for financial markets, with both yields and equities swinging around dramatically on shifts in financial market sentiment
- Concerns about the health of the global banking sector continued to dominate
- Falls in banking sector shares have led broader equities lower
Economic Weekly: Woah, we're half way there…
20 Mar 2023
- Nat’s crystal ball was fairly much on the money last week in picking a 0.5% quarterly decline in Q4 GDP, against the actual result of a 0.6% fall
- Unfortunately, the release suggests the economy is already halfway down the path to recession
- The TLDR version is: manufacturing, transportation, retailing, agriculture, arts/recreation were key drivers of the decline, while professional/technical services, construction, and mining still grew
Daily Alert: ECB hikes by 50bps but waters down tightening bias
17 Mar 2023
- ECB stick to their guns with a 50bp hike. Jittery markets were thrown a bone, with the ECB statement and ECB President Lagarde watering down their implicit tightening bias
- Market sentiment bolstered by more support to European and US banks, with yields and the equities up. Market sentiment, however, remained fickle
- NZ yields and the NZD dipped after Q4 NZ GDP fell 0.6% in Q4, in line with ASB expectations, but weaker than the market consensus (-0.2% qoq) and the RBNZ pick (+0.7% qoq). ASB has tweaked its OCR call, with 25bp hikes expected for April and May (5.25% OCR peak)
Commodities Weekly: Silicon Vall-atilit-ey
17 Mar 2023
- Volatility has been a big theme in financial markets over recent days
- As ‘risk assets’ in investor parlance, global commodity prices have suffered a bit of a hit too
- There’s a bit of a divergence between trends in market sentiment, and the latest views of economic forecasters
Daily Alert: Banking stocks in the firing line
16 Mar 2023
- Investors were unnerved after the largest shareholder in systemically important European bank Credit Suisse ruled out further cash injections, triggering a run on the bank’s shares and causing panic in markets
- Banking stocks were belted in the US and Europe with sizeable falls for government bond yields and a paring back in central bank rate hike pricing
- Q4 NZ GDP is expected to be weak, and this could push NZ yields and the NZD lower still
2022 Q4 NZ GDP: Running aground
16 Mar 2023
- The NZ economy fell 0.6% in Q4 2022 – close to ASB’s forecast but weaker than both the consensus and RBNZ views – and Q3’s whopper lift was revised lower. As we expected, weak manufacturing output and retail trade were the biggest weights on growth
- The path of the economy is going to be lumpy over the coming quarters, with recession in NZ a distinct possibility
- We have tweaked our OCR view and now expect a 25bp OCR hike in April but have stuck with a 5.25% OCR peak
Daily Alert: Spitting the dummy, then putting back
15 Mar 2023
- Financial markets across the Asia-Pacific had a mini-meltdown yesterday as the reverberations from Silicon Valley National Bank’s failure continued
- Offshore yields have regained ground overnight
- Still, it’s a reflection of the uncertain environment markets are navigating
NZ Current Account Deficit – Q4 2022: NZ Current Account deficit skyrockets in Q4
15 Mar 2023
- The NZ Current Account deficit has widened out to 8.9% of GDP in Q4, substantially larger than most forecasters expected
- A substantial widening in the goods deficit was the key driver as exports flatlined and imports rose substantially, but the services and primary income balances remain well in negative territory
- The NZ current account deficit will narrow over the course of 2023, though we may see a shade of further near-term widening
Daily Alert: Another one run wonder
14 Mar 2023
- Financial markets have been providing a few thrills at the start of the week, as participants nervously digest the latest developments stemming from the Silicon Valley National Bank going under
- Sharemarkets have been extremely volatile with the main indices in Europe closing 2% or more lower
- The NZX50 dipped 0.5% yesterday but recovered off session lows after news that United States regulators were taking swift action to manage the fallout from the Silicon Valley National Bank collapse
REINZ Housing data – February 2023: House price falls accelerate once again
14 Mar 2023
- NZ house prices have notched up another substantial fall in February, with Auckland underperforming
- Activity measures have hit new lows, albeit with Cyclone Gabrielle complicating the picture
- The NZ housing market won’t be turning around imminently, but the cyclone, higher net migration and a less clear path for the RBNZ have introduced a chunk of extra uncertainty into the outlook
Daily Alert: Epic Fail
13 Mar 2023
- The second-largest bank failure in America has taken place over the weekend, with lender Silicon Valley National Bank going under
- Under US regulations, deposits up to $250k per owner are insured by the FDIC – but that may only cover about 5% of SVNB’s deposits according to CNBC
- Unsurprisingly, risk assets have taken a beating amid all the anxiety, with sharemarkets tumbling over the weekend
Economic Weekly: A weak end to 2022
13 Mar 2023
- Breaking news over the weekend was the collapse of Silicon Valley Bank. SVB was heavily focussed on banking start-ups
- With all the final Q4 GDP indictors out last week, we have finalised our forecast for Q4 GDP
- The number we landed on is a contraction of 0.5% for the quarter. That’s not pretty but does follow some surprisingly strong prints earlier in the year
Q4 2022 GDP Preview: Down in the dumps
10 Mar 2023
- We expect GDP fell 0.5% in Q4, with an element of payback from Q3’s whopper 2% lift
- Q4 data is well and truly in the rear-view mirror, having been overtaken by subsequent events, it could still be much weaker than the RBNZ and most forecasters expect
- The cyclone Gabrielle rebuild is set to support growth in the near-term, but broader headwinds remain
Daily Alert: It’s all about the data
10 Mar 2023
- Markets are increasing focusing on the data
- US Treasury yields and the USD dip as us jobless claims come in weaker than expected
- US payrolls this weekend will be pivotal for market direction
Daily Alert: Parsing Powell’s pow-wow
09 Mar 2023
- FOMC Chair Jerome Powell’s congressional testimony yesterday has continued to reverberate overnight
- Powell’s comments over the past couple of days have given yields a lot of support
- European yields have diverged from their US counterparts, mostly easing overnight
February 2023 NZ Electronic Card Transactions: Gabrielle dampens card spending
09 Mar 2023
- Storm disruptions dampen total card spending, with non-retail, hospitality and apparel retail hit
- Volatility lies ahead with a storm-related boost occurring at a time when headwinds to the retail sector are intensifying
- Persistently-high inflation should see the OCR move higher in the coming months, with the extent of moves dependent on the inflation outlook
Commodities Weekly: Dairy prices taketh, the Kiwi giveth
08 Mar 2023
- Dairy prices have underperformed at the GDT auction overnight
- On the other hand, NZD has continued to trend lower, generating some upside risk for next season's farmgate milk price forecast
- We’ve adopted the $8,50/kgMS midpoint of Fonterra’s forecast range as our farmgate milk price forecast for the 2022/23 season, and retain our $7.00/kgMS forecast for 2023/24
Daily Alert: KAPowell
08 Mar 2023
- In his testimony overnight, US FOMC Chair Jerome Powell said the Federal Reserve is likely to lift interest rates higher and potentially faster than previously anticipated
- US sharemarket indices are down over 1% with a few hours of trade to go
- The NZX50 gained 0.1% yesterday, with turnover of $98 million, while the ASX 200 rose 0.5%
Daily Alert: RBA takes centre stage, another 25bp rate increase expected
07 Mar 2023
- The Reserve Bank of Australia (RBA) Board meet today to set the cash rate target
- A stronger than anticipated Q4 core inflation print triggered a hawkish tilt at the February meeting
- We expect the Board will increase the cash rate by 25 basis points to 3.60%
Daily Alert: Triple treat of central bank meetings this week
06 Mar 2023
- US and European sharemarkets finished the week on a strong note, with gains of over 1% for the main indices in Europe and the US
- ECB President Christine Lagarde said “It is very likely that we will raise interest rates by 50 basis points,” when asked what would happen at its meeting later this month
- Asian equity markets were buoyed by positive news from China on Friday
Housing Confidence: Gloom resumes
06 Mar 2023
- House price expectations take a tumble and are closing in on Global Financial Crisis lows
- Respondents once again think it’s a “bad” time to buy a house on net, but remain off recent lows
- Over three quarters of respondents expect higher interest rates over the next year, in line with our forecasts
Economic Weekly: Not much confidence in the housing market
06 Mar 2023
- This morning we put out the latest results for the ASB Housing Confidence Survey, covering the three months to January
- Gloomy would be a way to sum up the survey in a word
- House price expectations hit their weakest level since the 2008/09 Global Financial Crisis, with net 43% of respondents expecting prices to fall over the next year
Daily Alert: Ain’t bluffing
03 Mar 2023
- Markets have well and truly adopted the view that central bank policy rates will need to head higher to stem resilient inflationary pressures
- That’s been the theme over recent days and the trend has continued overnight, with Treasury yields advancing further on their already considerable gains earlier in the week
- Those moves have, in turn, boosted the USD against its peers
Daily Alert: Hard to tame
02 Mar 2023
- US inflation concerns returned overnight, after the ISM manufacturing index highlighted ongoing pricing pressures
- Australian Q4 2022 GDP undershot expectations at 0.5% qoq (market consensus 0.8%/qtr) and CPI dipped 0.1% in January, and the annual rate moderated to 7.4%
- NZ residential building consents continued their downward trend in January 2023, falling 1.5% mom (s.a.)
Daily Alert: Marching on
01 Mar 2023
- In Australia, nationwide retail trade rose by 1.9% in January 2023
- In NZ, ANZ’s latest Business Outlook Survey showed confidence lifted 9 points in February to -43
- European stocks weakened overnight, with the Euro Stoxx 50 index, the German DAX, French CAC-40, and UK’s FTSE all in the red
Trade Disruptions Update: March 2023
01 Mar 2023
- Global trade hit a record last year, despite disruptions
- The 2023 trade outlook faces a number of challenges: weak global growth, high interest rates, geopolitical unrest
- Nevertheless, supply chain congestion is likely to keep easing
Daily Alert: Stocks rebound as investors reset rate expectations
28 Feb 2023
- European stocks rebounded on Monday sending the Stoxx 600 Index 1.1% higher
- After last week’s circa 3% slump, US shares are also enjoying a positive session on Monday and the main indices are up between 0.4% and 0.9% with a few hours of trading to go
- It’s a busy week for Australian data, starting yesterday with the Bureau of Statistics Q4 2022 Business Indicators data
Commodities Weekly: Watch, worry, and wait
28 Feb 2023
- This week’s Niwa soil moisture anomaly graphic captures how widespread the rainfall has been, and Metservice forecasts highlight that it’s not all blue skies on the horizon. Rain continues to fall in some areas, and more is expected
- Cyclone Gabrielle and the earlier flooding created an unexpected backdrop to the RBNZ’s first meeting of the year last week
- The RBNZ lifted the OCR by 50bp, as widely expected by the mainstream economics community and by financial markets
Daily Alert: Investors spooked by stronger than expected US inflation
27 Feb 2023
- US and European sharemarkets fell on Friday
- The US PCE deflator was the key data release, and it printed higher than expected, with inflation re-accelerating
- The NZX50 lifted 0.15% on Friday, with turnover of $160 million
Economic Weekly: RBNZ sticks to its core role
27 Feb 2023
- The RBNZ lifted the OCR by 50bp, as widely expected by the mainstream economics community and by financial markets
- However, the lead-up to the announcement in the wake of Cyclone Gabrielle did bring a spotlight on what the RBNZ’s role is when faced with major natural disasters
- The question that was understandably being asked was: should the RBNZ be lifting the OCR in the wake of such an event?
Q4 2022 Retail Trade Review: Soft end to 2022
27 Feb 2023
- It was a weak end to 2022 retailing, with Q4 retail volumes contracting. Soaring living costs and RBNZ warnings have weighed on the demand for retail goods, with durable goods notably soft
- Recent storms are expected to provide a short-term boost to retail as consumers restock. It may provide an opportunity for retailers to trim high stock levels
- Beyond that, how the household sector copes with rising debt servicing (and wider living) costs will have a crucial bearing on how far up the OCR goes and how long restrictive monetary policy settings are maintained
Daily Alert: Prospect of more central bank hikes weighs on sentiment
24 Feb 2023
- The prospect of more (rather than less) central bank tightening to come has weighed on sentiment, with a softening tone evident
- Global yields have been somewhat choppy but weighed by weaker sentiment. Equity indices were also volatile, and lower in the US, with the USD and yen making gains and Australasian currencies on the back foot
- A quiet day ahead beckons, with US PCE inflation and Fed speakers tonight
Daily Alert: RBNZ keeps calm and carries on
23 Feb 2023
- Yesterday the RBNZ stayed the course and delivered a widely-expected 50bp hike, taking the OCR to 4.75%
- Given that inflation is still too high, the RBNZ flagged more rate hikes would be necessary
- Initial estimates from the impacts of the weather events were incorporated into the RBNZ’s forecasts – albeit while admitting a high degree of uncertainty
Daily Alert: Global yields shoot higher ahead of the RBNZ
22 Feb 2023
- Today marks the 12th anniversary since the Christchurch earthquakes that tragically killed 185 people So and caused much of the circa $40bn damage bill. Lest we forget
- Global interest rates have shot higher overnight, and the USD and sterling have moved higher, with markets coming around to the prospect that more central bank tightening might be needed to cool stubbornly high inflation
- RBNZ decision at 2pm. We expect a 50bp OCR hike (to 4.75%), a signal of further OCR hikes to come and to reaffirm its commitment to delivering sub-3% inflation
Commodities Weekly: Havoc
22 Feb 2023
- It has been a terrible week for many New Zealanders as Cyclone Gabrielle wreaked havoc around the country, including major disruptions to the primary sectors
- Prices were weaker than expected at the latest Global Dairy Trade event, with the GDT Price Index down 1.5%
- Overall commodity prices lifted last week within the ASB index, with a lower NZD providing a boost
RBNZ February Monetary Policy Statement Review: RBNZ sticks to its script
22 Feb 2023
- The RBNZ lifted the OCR the expected 50bp, notwithstanding the tragic weather disasters of recent weeks
- The underlying inflation environment remains strong, though signs of easing price pressures were noted
- We continue to expect the OCR to rise a further 50bp in April to 5.25%; the RBNZ still flags a 5.5% OCR peak
Daily Alert: Mixed start to the week for shares
21 Feb 2023
- European sharemarkets were weak overnight, and US markets were closed for Presidents’ Day
- The UK’s FTSE squeezed out a 0.1% lift, but the French and German markets were lower
- In contrast, Asian markets had a more positive session, with China’s Shanghai Composite index up over 2%
Daily Alert: Eyes turn towards the RBNZ
20 Feb 2023
- US and European sharemarkets were weak on Friday
- Centre stage in NZ will be the RBNZ OCR announcement on Wednesday, where we expect a 50bp rate increase
- The NZX50 fell 0.1% on Friday on turnover of $142.8 million
Economic Weekly: Dealing with the aftermath
20 Feb 2023
- Cyclone Gabrielle left carnage in its wake - particularly in Northland, Gisborne and the Hawke’s Bay. Auckland didn’t get drenched quite as badly as feared, given its already-waterlogged state, but took another hit nonetheless
- Other regions in the North Island have also been affected, such as the Coromandel Peninsula
- The full extent of the death toll is unknown, with a large number of people still unaccounted for amidst communications difficulties
Daily Alert: US data remains hotter than forecast
17 Feb 2023
- As markets try and pick the endpoint of the tightening cycle, data prints have been eagerly anticipated for hints central bank rate hikes are successfully cooling the economy or not
- PPI data out in the US overnight was firmly in the latter camp, showing producer prices rebounding by more than expected over January (+0.5% mom ex fuel and food vs a surveyed +0.3%)
- In this context, it’s unsurprising to see policymakers keep up the hawkish rhetoric, with the Cleveland Fed’s Loretta Mester (not a 2023 voter) stating she sees a ‘compelling’ case for another 50bps lift at the next FOMC meeting
Commodities Weekly: Bear Cubs and Catch-22s
17 Feb 2023
- Having been steadily revising their forecasts lower for a year or more, economic forecasters are now less pessimistic about the growth outlook for 2023
- Accordingly, the consensus estimate for economic growth among NZ’s 16 largest trading partners (based on ASB’s weighted index) has lifted substantially over the past month, from about 2.5% to around 2.9%
- Still, we see reasons for caution and still expect some easing in commodity prices over 2023
Daily Alert: Building resilience will take time
16 Feb 2023
- Cyclone Gabriel looks to be leaving but has left a wave of destruction in the North and East of the North Island. Some of the fixes will take years
- UK inflation surprises to the downside but stronger than expected US retail trade data supports US yields and the USD
- Australian labour market data highlights today
Daily Alert: US inflation proves slow to recede, but NZ inflation expectations cool
15 Feb 2023
- US yields rise as US inflation does not fall as much as hoped
- Lower NZ inflation expectations suggest a little less urgency for OCR hikes
- Markets wait RBA Governor Lowe testimony today and UK inflation tonight
Markets Monthly: Encouraging start for investment markets in January
14 Feb 2023
- Sharemarkets have made an encouraging start to 2023 both here and abroad
- The local market rose 4.3% in January and global shares were up 4.8% when measured in NZD terms
- The US FOMC, Bank of England and European Central bank all delivered 0.5% hikes early this year and retain tightening biases
Daily Alert: Investors’ eyes on US CPI tonight
14 Feb 2023
- US and European sharemarkets have started the week on a positive note
- Global bond yields have risen for shorter tenors overnight, but longer term yields are lower, inverting the curve further in the US
- The NZX50 dipped 0.8% yesterday as the local reporting season kicked off
International Outlook: China’s re-opening unlikely to save NZ from recession
14 Feb 2023
- At first glance, China’s earlier than expected re-opening appears to be a positive development for New Zealand’s economy in 2023
- But on closer inspection it is unlikely to unlock a wave of demand for NZ’s exports nor offset widespread weakness in other major export markets
- We don’t expect China will be a silver bullet for NZ’s economy this year and recession is still imminent
REINZ Housing data – January 2023: Eye of the storm
14 Feb 2023
- NZ house prices ease again in January, but with a more modest monthly fall than we’ve become used to
- Still, this is unlikely to be a turning point, with days to sell sitting at record highs and further interest rate lifts still to come in the near term
- We retain our chunky 25% peak-to-trough fall in house prices, though stronger population growth and slightly less restrictive interest rates could produce in a smaller dip
Daily Alert: Bracing for the storm
13 Feb 2023
- In Australia on Friday the RBA’s Statement on Monetary Policy presented upward revisions to its forecasts on underlying inflation and wages growth in 2023 which underpins the hawkish shift last Tuesday
- US and European sharemarkets finished the week on a soft note, with the main European indices in the red, and US shares mixed
- Global oil prices rose on Friday, with traders focused on tighter supply and strengthening demand
Economic Weekly: Blame it on the rain
13 Feb 2023
- Who would have thought that another pandemic (of storms) could trigger what feels like another lockdown: in parts of the country people are again working or studying from home where advisable as the country feels the impact of Cyclone Gabrielle
- Public transport has shut down in some areas as the storm hits
- As with a couple of weeks ago, there will be more short-term disruption and money diverted into putting things right afterwards
Daily Alert: Bracing for the downpour
10 Feb 2023
- It’s likely to be a quiet end to a quiet week, with mild market moves not too dramatic overnight and not much diarised for today
- In so far as there have been key themes overnight, risk sentiment looks to have cooled. Equities have dipped very mildly into the red, with the major Wall Street indices down 0-0.2%
- The Swedish RiksBank has become the latest Central Bank to meet as speculation about the end of the global tightening cycle mounts
January 2023 NZ Electronic Card Transactions: Strong start to 2023 but storm boost set to temporarily flatter retail
10 Feb 2023
- RBNZ warnings of pending recession look to have had a fleeting impact, with a solid January rebound for retail card values to seasonally-adjusted record highs. Higher retail prices are likely to have contributed
- Despite a solid start to 2023 and a storm-related boost in the coming months, headwinds to household spending over 2023 remain strong
- Persistently-high inflation should see OCR hikes in the coming months, with the extent of moves dependent on the inflation outlook
Commodities Weekly: Recovery, Risks and Resilience
10 Feb 2023
- Dairy prices have notched up a decent lift overnight, exceeding expectations and supporting our $8.65 per kgMS Farmgate milk price forecast for the present season
- We still expect dairy prices to ease over the medium term as global growth slows and retain our $7.00 per kgMS Farmgate milk price forecast for 2023/24
- There is a huge high degree of uncertainty about the 2023/24 forecast, but farmers have paid down a chunk of debt and begin the next season in resilient shape
Daily Alert: Keep the champagne on ice
09 Feb 2023
- Last night’s messaging from central bankers, that flagged impending rate hikes and watered down the prospect of policy interest rate cuts in 2023 given persistently high inflation, suggested that the champagne needed to be kept on ice
- A quiet session for global markets overnight
- Recent storms and policy decisions announced by the NZ government likely to add to inflation that we don’t see falling below 7% until later this year
Daily Alert: RBA lifts the cash rate and signals more to come
08 Feb 2023
- The Reserve Bank of Australia increased the cash rate target by 25bp to 3.35%, as was widely anticipated yesterday
- Our CBA colleagues now expect further 25bp rate hikes at both the March and April RBA Board meetings for a peak in the cash rate of 3.85%
- Australian interest rates surged by up to 20bps in the wake of the decision, and the AUD lifted
ASB Dairy Update: Recovery, Risks and Resilience
08 Feb 2023
- Dairy prices have notched up a decent lift overnight, exceeding expectations and supporting our $8.65 per kgMS Farmgate milk price forecast for the present season
- We still expect dairy prices to ease over the medium term as global growth slows and retain our $7.00 per kgMS Farmgate milk price forecast for 2023/24
- There is a huge chunkhigh degree of uncertainty about the 2023/24 forecast, but farmers have paid down a chunk of debt and begin the next season in resilient shape
Daily Alert: USD & yields surge, shares slip after US employment data
07 Feb 2023
- In the US on Friday, Non-farm Payrolls (employment) lifted by 517K in January, miles ahead analyst expectations which were centred on a lift around 189K
- US government bonds fell on Friday and again overnight (yields sharply higher)
- US sharemarkets were weaker on Friday and again overnight as investors digested a batch of strong economic readings, and the implications for more rate hikes from the FOMC
Economic Weekly: Making some forecast changes
07 Feb 2023
- We’ve made some forecast changes over the past week as the balance of risks has continued to shift
- The RBNZ’s next OCR increase is now more likely to be ‘just’ a 50bp increase after last week’s raft of labour market data
- And the NZD/USD is likely to retain most of its recent strength, though we still see scope for some short-term slippage
Daily Alert: Will the great interest rate unwind continue?
03 Feb 2023
- Global and NZ yields have continued to unwind 2022 lifts
- Eurozone and UK yields were down sharply despite 50bp of BOE and ECB hikes
- Equities continue to make gains despite a bleak economic outlook
Commodities Weekly: In the red, in the green
03 Feb 2023
- Our friends at CBA have revised their currency forecasts, and we now see the Kiwi gaining further ground against the USD in the near term.
- As the year wears on though, there’s still a good chance we wind up with a lower NZD.
- A higher NZD is one headwind facing commodity exporters this year, though falls towards the latter half of the year may offer some relief.
Daily Alert: Looking peaky
02 Feb 2023
- As we go to virtual press, the Fed has delivered a 25bps hike in the Federal Funds rate, in line with market expectations (which had 26bps priced prior to the meeting)
- Treasury yields initially ticked up post-FOMC, having been flat-to-moderately-lower prior to the decision, with the largest falls among longer-term yields
- FOMC anxieties got the better of sharemarkets overnight
Daily Alert: Working from home…
01 Feb 2023
- Dairy prices rose overnight at the latest Global Dairy Trade Pulse event
- Australian Retail trade fell by 3.9% in December 2022
- European sharemarkets were mixed overnight, with the French and German markets up, but the UK’s FTSE modestly lower
Q4 2022 Labour Market Data Review: Less-tight labour market with less RBNZ urgency needed
01 Feb 2023
- The labour market ended 2022 not as tight as expected, with the NZ unemployment rate and other utilisation metrics moving slightly above record lows
- Labour cost growth was not as strong, though still at a record annual high with widespread lifts
- We look to be close to a turning point for the labour market, and the need for outsized OCR hikes also looks less urgent. Accordingly, we believe the RBNZ can step back to ‘only’ a 50bp move in February and 5.25% OCR peak
Daily Alert: Rain, rain, go away
31 Jan 2023
- In US economic data on Friday data showed personal income rose by 0.2% in December and spending fell 0.2%
- Australia’s underlying budget deficit for 2022/23 was running at $A14.7bn for the 6 months to December 2022, a $A11.5bn improvement on the deficit profile from the October 2022 Budget
- European sharemarkets rose on Friday but were down overnight
Economic Weekly: Awash
31 Jan 2023
- The rain on Friday was so heavy and violent that having a shower would probably have kept you drier
- Many parts of the country, particularly Auckland, are assessing the damage and bracing for more bad weather this week
- It is going to take some time to get to grips with the economic impacts of what has happened
Daily Alert: Hard, soft or somewhere in between?
27 Jan 2023
- US GDP data released overnight showed the US economy slowing over Q4, but bested expectations nonetheless
- Risk sentiment has been OK
- Yields are modestly higher
Commodities Weekly: Crawling out of a rut
27 Jan 2023
- Local milk production shows signs of tentatively turning
- Milk solids production lifted 0.6% yoy over December – only the second year-on-year increase since July 2021
- We expect modest growth over the remainder of the season
Daily Alert: Everything Everywhere All at Once… almost
26 Jan 2023
- Inflation was top of the mind on both sides of the Tasman yesterday, with Q4 CPI prints in NZ and Aussie
- We’re sticking to our OCR forecast, which sees the RBNZ hike by 75bps at the Feb meeting and another 50bps in April before calling it a day
- Markets have become used to inflation prints surprising massively on the upside, so the news the number was actually below the RBNZ’s forecast saw a pullback in yields
Daily Alert: Inflation watching on both sides of the Tasman
25 Jan 2023
- Today sees the trans-Tasman focus on the pricing side of the economy with Q4 CPI data for NZ and Australia
- Markets adopted a more cautious tone overnight as the earlier optimism that a pared-back pace of central bank hikes would cure all ills faded
- Equity markets fluctuated heading into key Q4 corporate earnings reports
2022 Q4 CPI Review: Widespread price rises will concern the RBNZ
25 Jan 2023
- Q4 CPI was in line with the market consensus, but close to 30-year highs and miles above the 1-3% inflation target
- There is still a large bow wave of inflationary pressure in place, with widespread price increases and very high rates of core and non-tradable inflation evident
- Downside risks to the medium-term inflation outlook have grown, but the RBNZ must press forward with OCR hikes for now. OCR cuts still look a long way off
Daily Alert: Year of the Rabbit
24 Jan 2023
- It was a quiet session in Asia yesterday as expected, with Chinese financial markets closed for the week-long Lunar New Year holiday
- In US economic data the latest Conference Board leading index was slightly weaker than expected, falling 1% vs. expectations centred on a 0.7% dip
- European sharemarkets were positive overnight, with the French and German markets up 0.5%, and UK’s FTSE up 0.2%
Home Loan Rate Report: Going inverted
24 Jan 2023
- Mortgage rates have been rising over the past year and a half, consistent with the Reserve Bank of New Zealand (RBNZ) progressively hiking the Official Cash Rate (OCR) since October 2021
- Higher and persistent inflation pressures have fuelled concerns about how high the OCR (and in turn borrowing costs) may go to get inflation back in check
- But at the same time, concerns about slower economic growth over the years ahead, and a belief that inflation will eventually be tamed, have recently weighed on longer term interest rates
Daily Alert: Inflation data the focus for the week ahead
23 Jan 2023
- The resignation of Prime Minister Ardern was last week’s big news, and it will continue to be a focus for the week ahead
- In US economic data, existing home sales fell 1.5% in December to a 4.02 million annualised rate (survey: 3.95m) - a 12-year low
- European sharemarkets rose on Friday
Economic Weekly: RBNZ to press on with hikes despite downward inflation surprise
23 Jan 2023
- The shock resignation of Jacinda Ardern last week, selection of Chris Hipkins as our new Prime Minister and naming of the October 14 General Election date overshadowed local economic developments
- Ironically, however, the state of the economy will have a bearing on election outcomes. Signs to date have not been good
- What about inflation? Wednesday’s Q4 CPI print should come in below RBNZ projections (7.5% yoy), but we expect future annual inflation rates to only gradually slow
Daily Alert: PM Ardern steps down
20 Jan 2023
- Everyone and their dog has seen the news at this point, but local news yesterday was dominated by the announcement PM Jacinda Ardern is stepping down
- The mood among the market has remained soggy overnight
- Equities are in the red across Europe and North America
Commodities Weekly: Starting the year on the back foot – and a forecast update
20 Jan 2023
- Commodity prices have continued to shift lower over the summer, with the largest components in the ASB Commodities Index softening
- It’s lower underlying prices rather than exchange rate movement that have driven our Index lower
- We expect commodity prices to experience more downward pressure over 2023
Fonterra Milk Price Update: ASB lowers 22/23 forecast to $8.65, opens 23/24 at $7
20 Jan 2023
- Dairy prices have failed to gain ground over the summer, despite the reopening of the Chinese economy
- The Chinese economy will recover some ground this year, but weaker demand elsewhere should weigh on commodity prices
- We’ve revised our Fonterra farmgate milk price forecast for this season down to $8.65 per kgMS, and open our 23/24 forecast at $7.00 per kgMS
Daily Alert: Markets spooked by softer US data
19 Jan 2023
- Financial markets have been in a grim mood overnight, with equities retreating and government bond yields sharply lower
- The Treasury market has seized upon the softer run of data, notching up double-digit falls
- The downward shift in equities has also been substantial
2022 Q4 CPI Preview: Has NZ inflation peaked?
19 Jan 2023
- We expect a 1.6% quarterly increase in Q4 headline CPI, with annual hitting a fresh multi-decade high of 7.4%
- Sharply lower petrol prices mask widespread and increasing pricing pressures, with annual non-tradable and core inflation set to strengthen further
- Downside risks to the inflation outlook are building. Nonetheless, the RBNZ must press ahead with OCR hikes to limit the economic damage caused by high inflation
Daily Alert: Chinese reopening boost fails to sway markets
18 Jan 2023
- Bleak NZ business sentiment data points to challenging 2023 but RBNZ are expected to press on with hikes
- Chinese reopening fails to stir markets, with only modest moves overnight
- REINZ housing and card spending data today is expected to show NZ households in hibernation
December 2022 NZ Electronic Card Transactions: Muted end of year for retail, with a challenging 2023 ahead
18 Jan 2023
- RBNZ warnings of pending recession look to be hitting home, with a muted December for retail card values and with card spending volumes likely to have contracted in Q4 of last year
- Household spending is set to remain weak over 2023 as headwinds facing the sector intensify
- The RBNZ is still expected to press forward with OCR hikes in the coming months, but weakness in household spending could see eventual OCR cuts bought forward
REINZ Housing Data – December 2022: Wet weather
18 Jan 2023
- Rising interest rates, a less acute housing shortage and cautious prospective buyers continue to weigh on the housing market, with prices down another 1.2% mom in December
- It’s been another shocker for activity metrics, and we don’t expect the market to turn around before mid-2024
- We retain our chunky 25% peak-to-trough fall in house prices, with prices set to ease a further 15-17% from here
Daily Alert: Japanese yields on the rise
17 Jan 2023
- Tomorrow’s Bank of Japan (BoJ) meeting is shaping up to be a key event of the week
- The People’s Bank of China kept its one-year medium term lending facility rate unchanged at 2.75% yesterday
- For the financial world beyond JGBs, it’s been a quiet start to the week, with no major data released here or abroad yesterday, and the observance of the Martin Luther King Jr. Day holiday in the US overnight
Term Deposit Report January 2023: Term deposit rates return to more normal levels
17 Jan 2023
- Term deposit rates have returned to levels slightly above where they have averaged over the past 20 years
- That’s great news for savers, but inflation has also been on the rise
- Inflation has lifted more than term deposit rates, adding to the challenge for savers trying to get their money in the right place
Quarterly Survey of Business Opinion 2022 Q4: Sentiment slump points to difficult 2023
17 Jan 2023
- The Q4 QSBO depicted a weaker business sector backdrop, with actual and expected domestic activity contracting, investment intentions slumping, and firms cutting back on hiring
- Pricing and cost metrics worsened, with still acute labour shortages. This should keep domestic inflation elevated for a while yet, and points to stagflation-like conditions
- Future readings from the QSBO (particularly labour capacity metrics) could dictate how quickly inflationary pressures recede, impacting the OCR profile
Daily Alert: So far so good… apart from the weather
16 Jan 2023
- The S&P/NZX 50 index was up 0.8% on Friday and is up 2.5% over the year to date…so far so good, but investors nervously wait for the latest earnings reports from companies here and abroad
- Australian shares lifted on Friday by a similar amount to the NZ market, but have had a stronger start to the year, with the All Ords up 4.8% over the year to date
- European sharemarkets pressed higher on Friday, ending near 9-month highs
Economic Weekly: Dodging the Kraken and Beermageddon
16 Jan 2023
- Economically, 2023 will bring a bit of rain on growth, but should also see inflation pressures dampen later in the year
- Late last year we put out our latest Quarterly Forecasts. With the Official Cash Rate set to hit upwards of 5.5% in coming months amidst a weaker global economy, we expect the NZ economy to contract around 1% by the end of this year
- A lot of the slowdown will be concentrated in consumer spending and construction
Markets Monthly: Interest rates climb and shares fall over December
11 Jan 2023
- Sharemarkets were weak both here and abroad in December and were down significantly over 2022, except for the UK’s FTSE which posted a modest 1% gain over the year
- The Bank of Japan surprised global markets by adjusting its yield curve control program. The Bank widened the target on the 10-year JGB yield from 0.0% +/-25bp to 0% +/-50bp. Governor Kuroda emphasised the tweak to the program was to improve market functionality. Nevertheless, markets continued to speculate the Bank would further unwind its monetary stimulus. The Bank of Japan’s policy rate remained at -0.1%
- The US FOMC, Bank of England and European Central bank all delivered 0.5% hikes in December and retain tightening biases. The Reserve Bank of Australia delivered a 0.25% hike at its meetings in December but appears closer to the end of its tightening cycle than other central banks
Regional Economic Scoreboard: September Quarter 2022
22 Dec 2022
- It was a third consecutive top finish for Canterbury over the September 2022 quarter
- Strong employment, resilient retail spending, and an increasingly rare annual increases in house prices over the quarter contributed to the placing
- Second spot went to the Waikato and third to Tasman, the same as in the June quarter
Commodities Weekly: Soft footings
21 Dec 2022
- Dairy prices were weaker than expected at the last Global Dairy Trade event of the year, with Whole Milk powder prices dipping 4%
- Fonterra recently lowered and narrowed its forecast Farmgate Milk Price range to $8.50 - $ 9.50 per kgMS, with a midpoint of $9.00, while holding its advance rate
- ASB will review its $9.40 milk price forecast in early 2023, to incorporate the recent weakness in prices, and latest market developments
Quarterly Economic Forecasts: Going for a dip
20 Dec 2022
- Inflation pressures are proving to be surprisingly stubborn. As a result, the RBNZ is likely to keep lifting the OCR rapidly in the first half of 2023
- The impact of this rapid tightening is going to be a contraction in the economy over much of 2023
- Consumer spending volumes will shrink as households respond to increases in the cost of living and rising interest rates
Economic Weekly: Rooster to feather duster
19 Dec 2022
- NZ GDP for Q3 did what it has been doing since the pandemic started, delivering a surprise, which, to sound a bit contradictory, is pretty much what we expect these days
- As with Q2 (revised up to 1.9% qoq), it was good to be surprised by how strong measured growth was: 2.0% qoq for Q3 against the still strong 0.9% that was widely expected
- It was a good economic Christmas present, after the recent “Christmas is cancelled” vibe that followed the RBNZ’s November Monetary Policy Statement
Housing Confidence: Glimmer of light at the end of the tunnel, or a train?
16 Dec 2022
- Confidence that now is a good time to buy a house moved out of the red in the three months to October
- House price expectations were downbeat but stable: in contrast we have taken an axe to our own forecasts
- A significant majority of respondents still expect interest rates to rise over the next year, few expect falls
Daily Alert: Ending the year with a boom… and a bust
16 Dec 2022
- Domestic news yesterday was dominated by Q3’s GDP print, which showed NZ economic activity looking strong
- When the RBNZ sits down for its first meeting of the new year in February, it looks like it will be facing an economy that is in a much stronger position than previously thought
- Risk sentiment has taken a rather dramatic turn for the worst overnight
Markets Monthly: NZD higher & sharemarkets recover in November
16 Dec 2022
- The strong USD theme has taken a break over the past two months, and that has helped the NZD soar higher against the greenback
- Sharemarkets were positive both here and abroad in November but remain down on year-ago levels
- Inflation remains a major concern for central banks both here and abroad
Commodities Weekly: Commodities prices end the year in softer fashion
16 Dec 2022
- NZ dollar-denominated commodity prices end the year at 14-month lows, with both softer underlying prices and a stronger NZD the key culprits
- Slowing global growth and the gradual easing in supply constraints means prices are likely to trend lower, though we’re hopeful that the Chinese reopening and residual tightness in supply will prevent a dramatic decline
- Lower levels of farm debt mean farmers are looking resilient as the current downslope continues
Daily Alert: Fed pivots but remains on the hiking path
15 Dec 2022
- Fed hike by 50bps but appear to be far from done with a cleat tightening bias maintained and the dot plots revised up
- The BOE and ECB are expected to raise policy rates by 50bps tonight
- NZ Q3 GDP today should show continued momentum, but concerns remain on the outlook for 2023
Q3 2022 GDP Review: Resilience
15 Dec 2022
- The NZ economy continues to demonstrate remarkable resilience, underpinned by solid construction volumes and strong services activities
- GDP is backward looking and the challenge for economists is working out how much of this strength will be sustained – we still expect growth to slow over 2023
- Nevertheless, the economy is clearly in a much stronger starting point than the RBNZ will have anticipated as it embarks on the latter part of the tightening cycle – we wouldn’t rule out even further front-loading of next year’s rate hikes
Daily Alert: Markets seize on softer CPI
14 Dec 2022
- Market sentiment overnight has been dominated by the release of the latest CPI data in the US, which has printed on the softer side of expectations
- Treasury yields have eased markedly on that inflation print
- Equities initially rallied on the result, though they’ve pared back some of those gains
Economic Note: Tighter fiscal line will please the RBNZ
14 Dec 2022
- Updated Treasury forecasts provided a gloomy economic assessment but still managed to deliver the return to OBEGAL surplus in 2024/25 despite likely recession in 2023
- Debt levels were also revised up, but NZ’s fiscal metrics remain the envy of many OECD comparators and provide plenty of scope for future fiscal easing
- More restrictive fiscal settings will likely please the RBNZ but are unlikely to stop further OCR hikes over 2023. They could, however, bring forward subsequent OCR cuts
Term Deposit Report December 2022: Term deposit rates lift again
13 Dec 2022
- Term deposit rates have lifted again over recent months.
- Inflation has lifted by more than term deposit rates over the past year, and in doing so continues the challenge for savers trying to get their money in the right place, despite the recent rate increases.
- Inflation is expected to remain high over the year ahead, eroding the purchasing power of returns, even before tax is considered.
Daily Alert: Mixed start to a busy week
13 Dec 2022
- NZ tourism and migration data were published by Stats NZ yesterday and estimated a net population decline of 4,117 people in the year to 31 October due to migration.
- US sharemarkets have started the week on a positive note, with the three main indices in the green at the time of writing.
- US government bonds yields have pressed modestly higher.
Housing Update: REINZ November 2022 - Not heading for a summer swelter
13 Dec 2022
- Another month, another fall in house prices, notching up their largest month-on-month fall since the year 2000.
- Activity measures point to more softness ahead – this is not a market about to turn around.
- We’ve nudged up our forecast peak-to-trough house price fall to 25% – but remember, a lot depends on what data series is being used to measure the market.
Daily Alert: US shares tumble on inflation concerns
12 Dec 2022
- The US producer price index (PPI) rose by 0.3% in November.
- US sharemarkets tumbled on Friday as investor worries about inflation and interest rate hikes persisted after the stronger-than-expected PPI data.
- It’s a big week for central bankers, with the US FOMC (8.30am Thursday NZT), the European Central Bank and the Bank of England (both Friday morning NZT) all meeting.
Economic Weekly: Pre-Christmas Data Feast
12 Dec 2022
This week is the last big week of the year for NZ economic data, although there will be a few second-tier releases out next week. GDP, the Government’s Half Year Economic and Fiscal Update (HYEFU), and current account data will give insights into the recent resilience of the NZ economy and its vulnerabilities going forward.
ASB Daily Alert: Markets wary ahead of central bank meetings
09 Dec 2022
- Easing COVID restrictions in China have combatted heightened recession fears as the key market driver.
- However, views of a pending slowdown remain, with markets increasing wary of hawkish central bank messages by the FOMC. ECB and BOE next week.
- Overnight, global stocks were mixed, global bond yields were higher and the USD was lower.
Q3 2022 GDP Preview: Slow-mo
09 Dec 2022
- We expect GDP lifted 0.9% in Q3, down a bit from Q2’s 1.7% bounce.
- Growth is set to slow to a crawl next year thanks to by virtue of ongoing capacity constraints, a painful hit to the household sector, weaker global growth and a cooling housing market, among other headwinds.
- The RBNZ has signalled it is willing to help take growth into negative territory if that’s what it takes to bring employment back below its maximum sustainable level and suppress inflationary pressures.
November 2022 NZ Electronic Card Transactions: Black Friday fizzer as consumers batten down the hatches
09 Dec 2022
- RBNZ warnings of pending recession look to be hitting home, with a muted November lift for retail card values and decline in total spend, as a Black Friday bounce fails to emerge.
- Durable spending looks to have lost its mojo and is set to weaken over 2023 as higher debt servicing costs bite, with a contraction in spending looming for the household sector next year.
- The RBNZ is still expected to press forward with OCR hikes. We expect a further 125bps of OCR hikes next year (5.5% mid-2023 peak) to tame elevated inflation.
Daily Alert: Bank of Canada hikes, but opens the door to pause
08 Dec 2022
- The Bank of Canada delivered a 50-basis point hike at its meeting overnight, but did shift its forward guidance in a dovish direction.
- Aussie GDP data out yesterday showed the economy was essentially running at full capacity in the September quarter.
- China has continued to ease a number of COVID restrictions.
Household Debt Servicing Outlook: This is going to hurt
08 Dec 2022
- Higher debt servicing costs are expected to add roughly $80 per week to the average household budget by the end of next year.
- The impacts are uneven with highly indebted households to face considerably higher costs.
- Discretionary spending will be hard hit and we foresee recessionary conditions for the household sector in 2023.
Home Loan Rate Report: Mortgages lift following the RBNZ’s latest hike
08 Dec 2022
- Mortgage rates have been going up and up over the past year and a half, and the Reserve Bank of New Zealand (RBNZ) has been progressively hiking the Official Cash Rate (OCR) since October 2021.
- Mortgage rates have lifted again over the past month in the wake of the RBNZ’s latest hike.
- Mortgages are expected to increase further in 2023 as the RBNZ keeps lifting the OCR, even in the face of slowing economic growth.
Daily Alert: RBA hikes by 25bps, now for the Bank of Canada
07 Dec 2022
- Australian yields and the AUD rose after the RBA hiked the cash rate by 0.25% (to 3.10%), with the stronger AUD proving to be fleeting
- Markets have traded with a cautious tone overnight, with falls for equities, bond yields easing and oil prices lower. The rise in global dairy auction prices is a clear positive for our Fonterra $9.40 milk price forecast
- Bank of Canada decision tonight, with markets sitting on the fence between a 25bp and 50bp hike
Commodities Weekly: The Proverbial Panda in the Room
07 Dec 2022
- Milk powder prices have advanced a teensy bit at the GDT auction overnight, in a result on the more bullish side of futures expectations.
- The absence of Chinese demand remains a headwind for dairy prices, but that is balanced against the prevaling tightness in global supply and the favourable effective exchange rate Fonterra is likely to deliver.
- We retain our $9.40 per kgMS farmgate milk price forecast for the season.
Daily Alert: Eyes on the RBA
06 Dec 2022
- Today’s key event is the Reserve Bank of Australia cash rate announcement at 4.30pm NZT, where a 0.25% rate increase is expected
- US sharemarkets have started the week on the back foot, as investors got a little nervous about the Fed Pivot theme that’s been driving equities recently
- Global oil prices took their lead from the overnight theme that the Fed had more work to do, and prices fell 1% or more, with West Texas Intermediate back below $80 per barrel
Daily Alert: US labour market data stronger than expected
05 Dec 2022
- In US economic data, the economy added 263,000 non-farm payroll jobs in November, stronger than expectations centred on a lift of around 200K
- US sharemarkets ended mixed on Friday after rallying off session lows
- European sharemarkets eased modestly on Friday
Economic Weekly: A summer chill
05 Dec 2022
- As we hit the start of summer and hope for some sun and respite from the rain, the economic data point to some cooling of momentum ahead after – fingers crossed – reasonable growth in Q3
- Business confidence in last week’s ANZ survey for November softened, with general business sentiment heading back to recent lows
- Businesses’ expectations for their own activity outlook fell to a level not seen since sentiment was recovering from the March 2020 lockdown-related plunge
Daily Alert: Markets remain selective with the USD under the cosh
02 Dec 2022
- Markets have generally been selective in responding to the dovish parts of Chair Powell’s recent comments
- The weaker tone of data and concerns of monetary policy overtightening has seen recession fears surface and instil a more cautious tone in markets. Yields and the USD were lower
- Payrolls data this week likely to set direction
Daily Alert: Powell signals looming Fed pivot
01 Dec 2022
- Dire NZ business sentiment data points to NZ slowdown
- Global markets have been cheered by the prospective opening up of the Chinese economy
- USD and US interest rates ease as Fed Chair Powell signals looming a Fed pivot to a slower pace of interest rate hikes
Daily Alert: Doves vs. Hawks
30 Nov 2022
- German CPI inflation rose 11.3% from a year earlier in November, down from October’s 11.6% annual increase
- Whilst the European inflation data provided some evidence for any ECB doves arguing for a slow down in tightening, Fed speakers on the other side of the Atlantic continue to hose down expectations of a slower pace of tightening in the US
- Whole milk prices eased a touch at the overnight GDT Pulse event
Commodities Weekly: Currency Affairs
30 Nov 2022
- Unfortunately for farmers, the NZD of late has been stronger than expected
- Having shed nearly 15 cents since the first quarter of the year, NZD/USD has lifted off its low of circa 0.5600 to claw back roughly six US cents at the time of writing
- Weak risk sentiment and narrowing interest rate differentials are a big part of why NZD/USD has been soggy over 2022
Daily Alert: A bit of flight-to-safety as we open the week
29 Nov 2022
- It’s been a lively start to the week, with sharemarkets dipping, safe-haven currencies gaining ground and Treasury yields edging upwards
- Concerns around the outlook in China have also been contributing to the negative vibe
- The upshot is that Treasury yields have lifted, albeit not dramatically so
Daily Alert: China protests against Covid restrictions
28 Nov 2022
- China's central bank, the People's Bank of China, announced on Friday that it is going to cut its required reserve ratio (RRR) for most banks by 25 basis points from December 5, 2022
- Meanwhile Bloomberg reports that protests against Covid restrictions spread across China on Sunday
- A tepid Q3 rebound in NZ retail volumes (+.04% QoQ) from the weak first half of the year highlights that 2022 is turning out to be very different for the retail sector after a stellar 2021
Economic Weekly: Making a huge splash
28 Nov 2022
- Last week we likened the RBNZ’s looming decision to a choice between a waterbomb in a pond (75bp) vs. the outward calm of a duck paddling (50bp)
- The outcome was the expected waterbomb – but it metaphorically emptied the pond
- The 75bp increase itself wasn’t a complete surprise (all the major NZ banks were forecasting it)
Daily Alert: Your move
25 Nov 2022
- US markets largely shut for Thanksgiving holidays so quiet session in overnight markets
- Dovish tinge from earlier FED Minutes weighs on yields and supported equities, but Riksbank delivers 75bp hike and BOE comments remain hawkish.
- The RBNZ have thrown down the challenge to spend carefully so the focus will be on whether kiwis are hearing the message
Q3 2022 Retail Trade Review: Retail spending in the RBNZ’s sights
25 Nov 2022
- Much weaker than expected rebound in Q3 retail volumes results as rising consumer prices weigh on demand for retail goods and durable goods retrace from earlier peaks. We suspect consumers are also shifting expenditures back towards pre-COVID-19 norms. That will largely be missed by the retail trade figures but will be picked up by economy-wide GDP
- Despite a number of headwinds and weak sentiment the household sector in general has held up well to date. Nonetheless, retail activity is clearly in the RBNZ’s sights and is likely to struggle over the period ahead as the monetary policy brakes are applied more forcefully
- How the household sector copes with rising debt servicing (and wider living) costs will have a crucial bearing on how far up the OCR goes and how long restrictive settings are maintained
Commodities Weekly: Fair weather trends
25 Nov 2022
- If our favored weather indicators are anything to go by, farming conditions over the past few months have theoretically been quite positive
- Despite that fact, we’ve had the weakest agri output in many seasons
- Difficulty securing workers, costly inputs and the ongoing compliance burden remain constraints across the agri sector
Sector Impacts: Transitioning out of COVID-19
24 Nov 2022
- Over the last three years the New Zealand economy has held up reasonably well
- Economic performance has been uneven
- The outlook is still inherently uncertain, but we sketch out the outlook for several key sectors of the NZ economy
Daily Alert: Crikey
24 Nov 2022
- The RBNZ has opted to end the year with a 75bps hike, hinted it had debated whether to hike by as much as 100bps, trotted out some uber-hawkish phraseology, and nudged its OCR track all the way up to a peak of 5.5% in mid-2023 (before easing from mid-2024 onwards)
- The statement was comfortably on the hawkish side of expectations
- The Bank is sending a clear message: getting inflation under control is priority, the path of least regret is to frontload the remaining hiking, and it won’t blink until its clear inflation is under control and employment is getting back below its maximum sustainable level.
Daily Alert: To hike 75 or not to hike 75, that is the question
23 Nov 2022
- It’s D-day today, with the RBNZ announcing whether it will deliver a 50 or 75bps move hike it packs up and decamps to the beach for the summer ‘olidays
- Expect further headlines out of China over the coming days as Sino-watchers aim to work out the government’s next steps in the fight against COVID
- Beyond soggy Chinese growth, slowing international trade is another big challenge for the global economy (with volumes set to grow a risible 1% per the WTO)
RBNZ November Monetary Policy Statement Review: Speak loudly and swing a big stick
23 Nov 2022
- The RBNZ lifted the OCR by 75bp and sounded extremely hawkish – including discussing a 100bp hike
- Rising inflation expectations have contributed to the added urgency
- From here we expect the RBNZ to lift the OCR by 75bp in February and 50bp in April
Daily Alert: All Quiet on the Western Front
22 Nov 2022
- It’s been a quiet start, to what should be a quiet week, apart from a decent bout of volatility in oil markets overnight and the potential for some local excitement tomorrow around the time of the RBNZ OCR decision
- Chinese banks maintained benchmark lending rates for a third month as expected after the People’s Bank of China (PBoC) kept its key rates unchanged last week
- Meanwhile the city of Shijiazhuang that was rumoured to be a test case for China dispensing with all virus restrictions has suspended schools, locked down universities and asked residents to stay at home for five days
Daily Alert: Fed officials continue to scare off the doves
21 Nov 2022
- US government bonds fell on Friday (yields higher) in response to "hawkish" talk by Federal Reserve officials
- European sharemarkets were firmer on Friday
- US sharemarkets were firmer on Friday
Economic Weekly: The monetary pond - waterbomb vs. the placid duck
21 Nov 2022
- This should literally be a big week for the RBNZ: we and many other forecasters are predicting that the RBNZ will lift the OCR by 75bp on Wednesday, which would be a step up in pace after five consecutive 50bp moves
- It is by no means a done deal, which is reflected in interest rate pricing that puts the odds of a 75bp move (vs. 50bp) at around 60%
- Many central banks have already made very large moves
Daily Alert: FOMC officials water down policy pause
18 Nov 2022
- Comments by FOMC officials overnight look to have dimmed hopes of a policy pause (or perhaps even a policy pivot), setting the tone in markets overnight
- Yields were higher, with stocks little changed and commodity prices lower on concerns over global demand
- The UK Autumn Budget took an austere line. Wary markets look to have given it a pass mark, with UK yields up a notch and sterling down a fraction
Daily Alert: What’s a stray missile between friends?
17 Nov 2022
- Geopolitics has again been in the frame overnight
- Markets have also focused on the latest comments emanating from the Fed
- Treasury yields are a bit higher in the front end and a bit lower in the back
Daily Alert: Back in business
16 Nov 2022
- Lower than expected US producer price inflation and signs of a thawing in US and Chinese relations bolster risk appetite, although Russian missile strike in Poland this morning has soured the mood
- Global equities rose, with yields lower, but oil prices lifting on missile strike news
- Welcome rise in dairy auction prices supports our $9.40 Fonterra milk price forecast for this season
Commodities Weekly: Reading the Xi leaves
16 Nov 2022
- Prices have made a surprise bounce at last night’s dairy auction
- Demand from China is still missing in action and it’s hard to see prices making more sustained gains until it returns – that’s unlikely barring a surprise COVID policy reversal by Xi Jinping
- We retain our lofty $9.40 per kgMS farmgate milk price forecast for the season, with tight global supply and the much weaker NZD the key ‘legs’ our forecast rests on
RBNZ November Monetary Policy Statement Preview: Hike it like it’s hot
16 Nov 2022
- We expect the RBNZ to hike by 75bp next week and forecast an OCR peak upwards of 5%
- Although it is relatively late in the tightening cycle, inflation pressures are looking increasingly stubborn
- Markets are largely positioned for a ‘resolute’ RBNZ, with reaction to a hesitant stance likely to be largest
Daily Alert: What next
15 Nov 2022
- Markets open the week without a lot of obvious themes or clear direction
- Nearly a week after the election and the count for the US midterm goes on, though we know the outcome of most of the key races at this point
- The latest Fed speakers have struck very different tones
REINZ Housing data – October 2022: When it REINZ, it pours
15 Nov 2022
- NZ house prices notch up their 11th consecutive monthly decline, albeit with the downturn still proceeding in a relatively orderly fashion
- Activity measures remained in the gutter – there’s still no sign of a turnaround any time soon
- We expect it will be mid-2023 before we start to see the housing market pick up again, with RBNZ signals around the OCR peak and signs of any pick-up in net migration numbers will be our canary in the coal mine for a market turnaround
Daily Alert: Crypto chaos, midterm ripples
14 Nov 2022
- There’s a lot going on in the cryptocurrency space. Crypto VIP Sam Bankman-Fried has been interviewed by regulators over the weekend
- US midterm elections: At the time of writing, it appears the democrats will keep control of the Senate
- Chinese health officials on Saturday described recent covid policy changes as a refinement of rules, rather than a relaxing of controls
Economic Weekly: Go your own way
14 Nov 2022
- Last week we had more signs that central banks’ paths are starting to diverge after months of almost synchronised and rapid tightening
- US inflation showed signs it may be easing, while in NZ inflation expectations lurched higher – another recent sign that the RBNZ still has a job on its hands
- US inflation for October not only eased, it eased by more than expected. Headline annual inflation dropped from 8.2% to 7.7%
Commodities Weekly: Nearly normal - but with a big NZD cherry on top
11 Nov 2022
- After their bumper run over the past 18 months, global (USD-denominated) commodity prices have eased enough to be be back at ‘normal’ levels or thereabout, with weaker demand (especally from China) the main culprit.
- But the weak NZD/USD continues to offer NZ exporters a massive, massive boost, such that prices are only a little bit lower in NZD terms.
- NZD weakness is likely to continue, giving exporters a bit of additional breathing room.
Daily Alert: Lower US inflation bolsters market sentiment
11 Nov 2022
- RBNZ review finds that monetary policy should have been tightened earlier in 2021 by reducing asset purchases and raising the OCR.
- Lower than expected US inflation helped bolster the market mood overnight, with FOMC members signalling a slower pace of rate hikes may be needed.
- Stocks were higher, yields sharply lower and the USD down.
Daily Alert: Watching and waiting
10 Nov 2022
- The US midterm elections are a major focus in the US. It could take days or even weeks to get a final result, but at this stage it doesn’t look like the swing to Republicans is nowhere near as strong as expected.
- Risk sentiment was poor overnight, with the midterm uncertainty, earnings disappointments and volatile crypto currencies all weighing on the mood.
- The USD lifted off the week’s lows, and in turn, the NZD eased back below 0.5900 overnight. The next focus is US CPI tonight.
Daily Alert: US midterm elections underway
09 Nov 2022
- In the US, the mid-term elections are the major focus. It appears a regular midterm swing against the party occupying the White House will happen again.
- The main global sharemarkets have been positive overnight. The Euro Stoxx 50 index of European shares was up 0.8% overnight, and the main US indices are up around 1% running into the close.
- The USD index (DXY) eased further overnight. That allowed the NZD to trade right up to 0.6000 against the greenback.
Markets Monthly: Shares & NZD recover some lost ground in October
09 Nov 2022
- Sharemarkets were positive both here and abroad in October but are still in deep negative territory for the year.
- Bond prices recovered some of their earlier losses as yields eased in New Zealand and Australia during the month. However, the upward march in yields has continued here and abroad in early November.
- The USD surged in September, sending NZD/USD 7% lower over the month. The NZD has clawed back some of that decline in late October and early November.
Term deposit rates getting closer to normal
09 Nov 2022
- Term deposit rates are getting back to more normal levels where they have averaged over the past 10-20 years.
- However, inflation has lifted by far more than term deposit rates over the past year, and in doing so continues the challenge for savers trying to get their money in the right place.
- ASB Economics expect to see some more increases in term deposit interest rates over the year ahead, but do not expect rates to return to the higher levels seen over the past 10-20 years.
Home Loan Rate Report: Long-term mortgages lift again
09 Nov 2022
- Over the past 18 months mortgage rates have gone up and up and the Reserve Bank of New Zealand has been progressively hiking the Official Cash Rate.
- Mortgage rates have lifted again over the past month and are expected to increase further.
- ASB Economics continue to think it is prudent to budget for higher mortgage rates over this year and next.
October 2022 NZ Electronic Card Transactions: Solid October for retail as hospitality spending hits record high
09 Nov 2022
- Another solid month for card values, driven by higher hospitality and durable spending and partly reflective of higher prices.
- We have retained our subpar outlook for retail spending given the number of headwinds. Still, it is not all doom and gloom for the sector.
- The household sector is the canary in the coalmine as to how it copes with rising debt servicing costs and will have a crucial bearing on OCR settings.
Daily Alert: Quiet start to the week
08 Nov 2022
- The main global sharemarkets have mainly been positive so far this week, with UK’s FTSE an exception (down 0.5% overnight). The US session has been reasonably volatile, with investors potentially wary ahead of tomorrow’s mid-term elections.
- Long term yields have lifted overnight, with UK 10-year gilt yields up 10bps. The Bank of England sold its target of £750 million of medium-maturity bonds overnight. Demand was weaker than last week’s sale of shorter-maturity debt.
- The USD has eased over the week to date, and that’s help NZD get back above 0.5900. The NZD was trading below 0.5600 only a month ago. AUD also lifted overnight, and NZD/AUD has eased modestly, trading back towards 0.9160.
- The main global sharemarkets have mainly been positive so far this week, with UK’s FTSE an exception (down 0.5% overnight). The US session has been reasonably volatile, with investors potentially wary ahead of tomorrow’s mid-term elections.
Daily Alert: US jobs and unemployment nudge above expectations
07 Nov 2022
- US Non-farm Payrolls grew 261k over October, a bit ahead of the 200k consensus, though still the slowest pace of jobs growth since the end of 2020.
- US equities ended the week in the green, ending a 4-day rout. The S&P500 (+1.4%) posted broad gains across all major industry groups, led by the materials sector
- The NZD traded in a 0.5750 to 0.5950 USD range late last week and is currently towards the top of this range.
- US Non-farm Payrolls grew 261k over October, a bit ahead of the 200k consensus, though still the slowest pace of jobs growth since the end of 2020.
Economic Weekly: Speeding up or slowing down the pace
07 Nov 2022
- Some central banks are starting to eye up how much tightening is enough, potentially slowing the future pace of rate increases.
- Last week’s NZ labour data reinforced the RBNZ still has a lot to do.
- Amongst this week’s data, watch NZ inflation expectations and US inflation figures.
Daily Alert: The Powell Effect
04 Nov 2022
- Initial positivity in sentiment after yesterday's FOMC meeting quickly evaporated following uber-hawkish comments from Jerome Powell at the subsequent press.
- That dynamic has mostly continued to play out overnight with equities declining further and Treasury yields holding onto their gains.
- Hawkish Fed chat and investor angst have are a recipe for USD strength.
- Initial positivity in sentiment after yesterday's FOMC meeting quickly evaporated following uber-hawkish comments from Jerome Powell at the subsequent press.
Daily Alert: Another treble, but Fed hints at easing up on the gas
03 Nov 2022
- As had been widely expected by all sundry, the Fed’s FOMC has delivered another 75bps hike this morning.
- But it's the forward guidance markets have focused on, with the Bank hinting it might start moving in smaller increments.
- It's the turn of the Bank of England to follow overnight.
Q3 NZ Labour Market Review: The wages of sin
03 Nov 2022
- As expected, the NZ labour market remained pretty darn tight in Q3, though higher participation kept unemployment froorm moving too much lower despite very strong employment growth.
- Tight labour market conditions are set to persist well into 2023.
- With wage inflation stirring, the RBNZ still has work to do.
Commodities Weekly: How now brown cow?
02 Nov 2022
- Dairy prices were down by even more than futures prices had suggested prior to last night’s Global Dairy Trade (GDT) event.
- Commodity prices eased by 1.0% in NZD terms last week, as the NZD strengthened.
- Having been trading around 0.5570 a few weeks ago, the NZD has traded back towards 0.5900 against the USD this week.
RBA lifts cash rate by 0.25%, next comes the BoE and FOMC
02 Nov 2022
- Australia’s Reserve Bank (RBA) Board lifted the cash rate by 25 basis points (bp), or 0.25%, taking it to a 9½-year high of 2.85%.
- Dairy prices were down at last night’s global Dairy Trade event. At the auction, the whole milk powder index was down 3.4%, with an average price of US$3,279/MT.
- It’s a busy day ahead, with Q3 labour market data due here at 10.45am, and the Bank of England and US FOMC meeting overnight.
Daily Alert: Markets await Fed verdict
01 Nov 2022
- Markets nervously await the Thursday Fed decision with yields up and equities paring recent gains
- Eurozone October CPI inflation topped expectations and hit a record high 10.7% yoy.
- RBA decision today: Our CBA colleagues expect a 25bp hike (to 2.85%), but would not rule out a 50bp increase
Daily Alert: US shares lift on encouraging earnings
31 Oct 2022
- US sharemarkets lifted on Friday with broad-based gains being recorded. In response to earnings results, shares in Apple rose 7.6% while Amazon lost 6.8%. Oil giants rose in response to strong earnings.
- Global oil prices fell by as much as 1.3% on Friday as China widened its Covid19 restrictions.
- The week ahead is packed with data and events, including labour market data in New Zealand, and central bank meetings in Australia, the UK, and the US.
Economic Weekly: Well down the path, but not resting just yet
31 Oct 2022
- Central Banks around the world have thrown an awful lot of tightening at the wall over the past 12-18 months
- As global monetary policy enters the ‘mature’ phase, speculation has mounted about whether we might be nearing a ‘pivot point’
- NZ labour market data will be the next key monetary policy signal
Commodities Weekly: Race to the Bottom
28 Oct 2022
- News around the global economy continues to look pretty mixed, with the outlook in China softening.
- While demand for agri commodities is likely to be weaker than we once expected, tight supply and the weaker NZD will help offset the impact on prices some degree - there's a race to the bottom going on.
- The upshot is that we see NZcommodity prices over the remainder of 2022 and beginning of 2023 being ‘prettygood’ or perhaps even ‘very good,’ rather than ‘incredible’ or ‘outstanding’ aswe saw earlier in the year.
Q3 2022 Labour Market Data Preview: Annual labour cost growth set to hit record high
28 Oct 2022
- The Q3 figures are expected to show an extremely tight labour market. We expect a modest increase in employment, likely pushing the unemployment rate towards record lows given muted growth in the labour force.
- Labour cost growth is expected to hit fresh annual record highs, pointing to elevated readings for core CPI inflation going forward.
- The RBNZ will need to slow the demand for labour to cool medium-term inflationary pressures. We expect a 75bps hike in November OCR decision and further hikes beyond that, but note the risks are skewed towards the RBNZ doing less rather than more.
Daily Alert: Relief rally continues
26 Oct 2022
- The confirmation of ex UK Chancellor (and former hedge fund manager) Rishi Sunak as new UK Prime Minister after weeks of turmoil has seen markets breathe a collective sigh of relief
- Global interest rates have retraced, and equities have lifted
- Australia Q3 CPI the highlight today.
Term Deposit Report: Upward pressure on term deposit rates continues
26 Oct 2022
- Inflation has lifted by far more than term deposit rates over the past year, and in doing so increases the challenges for savers trying to get their money in the right place.
- The RBNZ delivered its first Official Cash Rate (OCR) increase in over seven years in October 2021 and followed up with further hikes at subsequent meetings in late 2021 and this year. More hikes are coming, and we expect the OCR to get above 5%.
- The expected OCR increases are factored into longer-term interest rates in New Zealand, including term deposits.
- Inflation has lifted by far more than term deposit rates over the past year, and in doing so increases the challenges for savers trying to get their money in the right place.
Markets Monthly: Yields jump and sharemarkets slump in September
26 Oct 2022
- September was a painful month for many investors, with both the growth and income parts of portfolios under pressure. Bond prices fell as yields rocketed higher, and sharemarkets around the world fell by 5-10%.
- The USD surged, sending NZD/USD 7% lower over the month.
- Inflation remains a major concern for central banks. More rate hikes are expected from the Reserve Bank of New Zealand, and other central banks around the world.
Daily Alert: Rishi Sunak named Britain’s 57th Prime Minister
25 Oct 2022
- Currency markets have been volatile, with UK politics and currency intervention in JPY having an impact.
- US sharemarkets posted solid gains last week and have strengthened further overnight as earnings season continues.
- It’s a quiet week in NZ for data, but busy offshore, with three central banks meetings (BoJ, BoC and ECB). The Australian Federal Budget and CPI are the key events across the Tasman.
Economic Weekly: Nearing a tipping point
25 Oct 2022
- Strong NZ inflation data prompt ASB to revise up its OCR call, with a potential 5.25% peak by mid-2023
- We see considerably less upside to local yields, with the USD to dominate currency market direction
- Central bank announcements and Australia and US inflation data will remain front of mind this week
Daily Alert: The lettuce wilts, but yields rise anyway
21 Oct 2022
- Sterling rose after Liz Truss announced her resignation as UK PM. Her chaotic 44 days in office were memorable for all the wrong reasons, and a reminder that politicians should think carefully about what they promise. A new leader could be confirmed by Monday
- Hawkish Fed rhetoric set the market tone overnight with global yields higher and equities a touch lower
- USD strength remains the prevailing currency theme with the Greenback pushing above 150 yen overnight
Commodities Weekly: A change of view
21 Oct 2022
- This week, we’ve made some tweaks to our forecasts – both on the commodity front and the broader economy
- First up, we’ve revised our milk price forecast for the 2022/23 season from $10.00 per kgMS to a still-lofty $9.40 per kgMS
- While ultra-tight global dairy supply remains a major support for international dairy prices, the near-term demand just isn’t there at present, pushing our forecast lower
Daily Alert: Neel of fortune
20 Oct 2022
- Moods have mostly been soggy overnight, with the sense that more aggressive hiking by the Federal Reserve is still to come widely cited as the catalyst
- Comments from the Minneapolis Fed’s Neel Kashkari – historically one of the more dovish officials, but tacking to an uber-hawkish line of late – have helped drive the uncertainty
- Markets have responded via yields shooting higher
Home Loan Rate Report: High CPI prompts further interest rate increases
20 Oct 2022
- Fixed-term mortgage rates have risen significantly since early 2021 and, despite the recent dip in some fixed-term mortgage rates, we predict more increases over the rest of the year
- We think it is prudent for borrowers to budget on mortgage interest rates being higher than they are now over the coming years
- We expect most fixed-term mortgage interest rates will peak within a 7-7.5% range over the year ahead. Floating rates could peak around 9%. However, as is often the case, the outlook is far from certain
Daily Alert: Trans-Tasman interest rate divide set to widen
19 Oct 2022
- ASB revises up its OCR call following strong NZ inflation print
- We now expect a 75bp hike in November (OCR 4.24%), followed by back-to-back 50bp hikes in February and April (5.25% OCR peak)
- Constructive session overnight but falls in the GDT auction have our Fonterra milk price forecasts under review
Fonterra Milk Price Forecast Update: Not ‘fantastic,’ merely ‘very good’
19 Oct 2022
- Dairy prices have eased more than either we, or the market, expected overnight
- Given the ultra-tight global supply outlook, we’re still picking dairy prices to head higher, but the demand just isn’t there right now and that weighs heavily on our forecast given prices for a huge chunk of the season’s product are being struck right now
- We’ve revised our farmgate milk price forecast lower to $9.40 per kgMS, which is still one of the highest figures on record
Daily Alert: New broom sweeps clean
18 Oct 2022
- UK’s new Chancellor of the Exchequer Jeremy Hunt has cancelled more of Prime Minister Liz Truss’s economic program
- UK gilts have rallied on the news, with the 10-year gilt yield rallying back below 4% overnight
- Sharemarket sentiment in Europe and the US improved overnight, with the UK market up 0.9% and the Euro Stoxx 50 up 1.8%
2022 Q3 CPI Review: Firm Q3 inflation print to prompt swifter RBNZ response
18 Oct 2022
- Q3 CPI much stronger than ASB, market and RBNZ expectations, with annual CPI inflation stuck close to 30-year highs
- There is still a large bow wave of inflationary pressure in place, with high rates of core and non-tradable inflation still in evidence and the risk of these outcomes becoming increasingly entrenched
- Inflation is much too high. Increasingly restrictive OCR settings are required. We now expect a 75bp increase in November, a 50bp hike in February and final lift in April (50bp pencilled in) – implying a peak of 5.25%
Economic Weekly: High Inflation yet to be conquered
17 Oct 2022
- Local and global markets are likely to remain transfixed by political turmoil in the UK
- NZ CPI inflation headlines this week’s local action
- Annual NZ inflation has likely peaked but an outlook of stubbornly high core and domestic inflation should keep the RBNZ in hiking mode
Daily Alert: Week ends with more UK chaos
17 Oct 2022
- British Prime Minister Liz Truss fired the Chancellor of the Exchequer Kwasi Kwarteng on Friday, and reversed a planned cut in corporation tax to “reassure the markets of our fiscal discipline.”
- In US economic data, retail sales were flat in September against expectations of a 0.2% monthly lift
- European sharemarkets rose on Friday
Daily Alert: CPI overshoot stokes talk of a hundy bps-er
14 Oct 2022
- The US CPI has printed considerably stronger than expected in September
- Unsurprisingly, Treasury yields have lifted on that result
- Weirdly, and despite that strong CPI print, global sharemarkets have actually performed well overnight
2022 Q3 CPI Preview: Firm underbelly but less dire NZ inflation outlook beckons
14 Oct 2022
- We expect a 1.5% quarterly increase in Q3 headline CPI, with annual inflation falling to 6.5%. The future is still highly uncertain, but the inflation outlook is looking considerably less dire than it did a few months ago
- Sharply lower global shipping costs flag the risk of a swift deceleration in tradable CPI inflation. Our expectation is that housing group inflation will likely soon peak, if it has not done so already. However, core inflation should remain elevated for a while yet
- Inflation remains much too high for the RBNZ’s comfort and increasingly restrictive OCR settings are required
Commodities Weekly: Our endorsement for bird of the year
14 Oct 2022
- Underlying commodity prices have eased a lot since their Q2 peak
- But the tumble in the Kiwi has been just as dramatic during that time
- We expect NZD to remain pretty flightless over the short-to-medium term
Daily Alert: UK policymakers Gilt-y of an omnishambles
13 Oct 2022
- On the monetary-policy-shambles front, the Bank of England Governor Andrew Bailey has caused widespread market disruption after giving bizarrely mixed messages on how far the Bank will go to prevent a crisis in UK pensions
- The BoE has had an absolute clanger, but the Government has left it with no good options
- The UK government has also got into an ugly blame game over responsibility for the financial market volatility
Daily Alert: A temporary respite?
12 Oct 2022
- Yields pullback given global growth concerns and central bank actions
- Markets remain flighty and volatile, and the current respite could be temporary
- Tomorrow’s Fed minutes and Friday’s US CPI report loom
Home Loan Rate Report: Upward pressure on mortgage rates resumes
12 Oct 2022
- Recession concerns have been an opposing force to the inflation fears that have been driving interest rates higher
- Those concerns saw interest rates retreat from earlier highs over winter, and some mortgage rates were trimmed – particularly the longer-term rates
- But the RBNZ continues to signal more OCR increases over the year ahead, and the upward pressure on mortgage rates has resumed
REINZ Housing data – September 2022: The low-down
12 Oct 2022
- The NZ house price correction continues to proceed in an orderly fashion, with another modest month-on-month fall
- Activity measures suggest this isn’t a market on the cusp of turning around
- We’ve adjusted our forecast for a peak-to-trough fall in house prices to about -15% (previously -12%)
Daily Alert: Sharemarkets jittery ahead of earnings season
11 Oct 2022
- Sharemarkets in Europe and the US were flat/down
- After last week’s holidays, the Hang Seng and Shanghai Composite indices were down 2-3% yesterday
- JP Morgan and Citigroup are among the US banks that release earnings later this week, kicking off the Q3 US reporting period
September 2022 NZ Electronic Card Transactions: Reorientation of spending patterns continues
11 Oct 2022
- Solid September lift in card values, driven by higher apparel, fuel and hospitality spending and partly reflective of higher prices
- Retail card spending volumes are likely to have flatlined in Q3 and we have retained our subpar outlook for retail spending given the number of headwinds. However, the reorientation of consumer demand towards services and strong income growth suggests that household spending should fare better
- We expect a further 75bp of OCR hikes (4.25% peak) to tame elevated inflation, with a more resilient household sector potentially meaning a longer period of restrictive OCR settings
Daily Alert: Market volatility continues
10 Oct 2022
- US sharemarkets were weaker on Friday after a solid jobs report laid the foundation for more rate hikes
- European sharemarkets also eased on Friday
- The local S&P/NZX 50 Sharemarket Index fell 0.19% on Friday, while yields pressed higher across the curve
Economic Weekly: RBNZ still galloping while RBA slows to a trot
10 Oct 2022
- The RBNZ’s commitment to swiftly lifting the OCR remained evident last Wednesday in the statement that accompanied the fifth consecutive 50bp OCR increase
- All the recent messages around increasing the OCR at pace, being resolute, and committed to getting inflation under control remained
- Moreover, the RBNZ’s Monetary Policy Committee was a bit more explicit in mulling the merits of a 75bp hike, before ultimately determining another 50bps lift was the best course of action
Daily Alert: Yields up, investors angsty as central banks keep pressure on
07 Oct 2022
- Investor angst has been the big theme overnight ahead of the weekend’s marquee jobs report
- Meanwhile, a cavalcade of central bankers (particularly from the Fed) have been on the wires re-enforcing the hawkish line that’s familiar to us all at this point
- While central banks around the world have started to diverge a little (think of that easing in the pace of tightening by the RBA), the Fed’s peers in Europe remain similarly worried about the inflation outlook
Daily Alert: Hawkish RBNZ highlights Trans-Tasman central banking divide
06 Oct 2022
- RBNZ hike the OCR by 50bp and maintain a clear “at pace” tightening bias, , illustrating the stark divide in Australasian central bank outlooks
- Helping convey the message that central bank rate hikes may have further to run was a fresh dose of hawkish rhetoric from the Fed
- Equities were down, bond yields were up, with signalled production cuts by OPEC+ pointing to potentially more inflation headaches ahead
Daily Alert: RBA stuns market with 25bp hike, RBNZ unlikely to follow
05 Oct 2022
- Australian yields dropped, the AUD dipped, and Australian stocks soared after the RBA hiked the cash rate by 25bps (to 2.60%), in line with the view of our CBA colleagues but short of the 50bp hike expected by most market analysts
- The dovish tilt by the RBA provided markets with hope that the peak in global interest rates may be close at hand, boosting equities and supporting the bond market rally
- We expect the fifth consecutive 50bps hike to be delivered today by the RBNZ (OCR 3.5%) with the signal of more to come, but for the expected short statement to give little away as the RBNZ kicks for touch until the November MPS
Commodities Weekly: Give and take
05 Oct 2022
- Dairy prices have notched up a surprisingly soft performance at the latest GDT overnight
- Global dairy supply remains extremely constrained, but there is a risk demand proves less resilient than we've previously expected
- We retain our $10 per kgMS Farmgate Milk Price forecast, but we'll be keeping an eye on the next handful of auctions
RBNZ October Monetary Policy Review: Not done with the 50s yet
05 Oct 2022
- The RBNZ lift the OCR by 50bp to 3.5%, as widely expected
- The key messages in the statement suggest the RBNZ is on track to deliver another 50bp in November and it remains firm in its stance
- We continue to expect a 4.25% peak in early 2023, with the risks clearly skewed up
Daily Alert: UK U-turn
04 Oct 2022
- The remarkable news flow out of the UK continues, with the latest development being the scrapping of last week’s plan to remove the top 45% tax rate in the UK
- Sharemarkets pressed higher and bonds rallied (yields lower) in European and US trade overnight
- In the US, the three main sharemarket indices are up circa 3% at the time of writing, while the US 10-year Treasury yield has dropped 19bps to yield 3.64%
QBSO Q3 2022: Something for everyone
04 Oct 2022
- The Q3 QSBO depicted mixed signs in the business sector, with weak activity signalled for the second half of 2022, pricing pressures receding, capacity metrics mixed, and costs still elevated
- It is not just the lack of demand holding the economy back. The lack of labour remains the major constraint on expansion despite a welcome easing in skilled and unskilled labour shortages
- Future readings from the QSBO (particularly labour capacity metrics) will likely have an impact on how much more work the RBNZ will have to do. We expect a 50bp hike tomorrow (to 3.50%) and a 4.25% early 2023 peak. Risks are tilted to the upside
Daily Alert: Not a great week unless you’re a bear
03 Oct 2022
- This past week has been dominated by events in the UK
- European sharemarkets lifted on Friday
- In US economic data, personal income rose by 0.3% in August while spending was up 0.4%
Economic Weekly: RBNZ up while BoE tries to keep the lid on
03 Oct 2022
- We’ll be focusing on the RBNZ this week and a bit on the RBA’s rate announcement, although there may also continue to be a lot of looking sideways at the UK
- We expect the RBNZ to lift the OCR 50bp this Wednesday afternoon, and to make similar noises about raising the OCR until it is “confident there is sufficient restraint” in place and being “resolute” in meeting its remit
- You can get more detail in our preview, but that is the guts of what we expect the statement and summary notes of the Monetary Policy Committee meeting to say
Commodities Weekly: Financial market jitters intensify
30 Sep 2022
- The key theme in foreign exchange markets this year has been USD strength
- The USD index is trading at the highest level since the early 2000s, and this week NZD/USD has dipped below 0.5700 for the first time since the early days of the pandemic
- Over the past week we have seen elevated volatility in financial markets, stemming from developments in the UK
Daily Alert: Market jitters continue
30 Sep 2022
- US Federal Reserve officials continued to talk tough on inflation and keep raising interest rates
- Volatility in bond markets was also high overnight, with long term yields rising in the US and Europe
- The activity responses in the ANZ Business Outlook survey edged up, pretty much as expected
Daily Alert: Bank of England steps in
29 Sep 2022
- After the recent dramatic lifts in UK gilt (bond) yields, the Bank of England announced overnight it will step in to steady the market
- There has been a large interest rate market response to the news
- The intervention and sharp decline in bond yields has also supported US equity markets, with the Dow up around 1.6% at the time of writing, the UK FTSE up a more modest 0.3%
RBNZ October Monetary Policy Preview: 50 calibre
29 Sep 2022
- We expect the RBNZ to deliver its fifth consecutive 50bp increase, on October 5
- Recent events will have kept the RBNZ confident that it needs to keep lifting the OCR swiftly
- We see the OCR peaking at 4.25% early next year, though risks remain skewed more up than down
Daily Alert: This time it’s different?
28 Sep 2022
- Concerns over a central bank driven downturn continue to weigh on market sentiment overnight, with yields higher, equities generally weaker
- Central bankers look to have stuck to the script and kept their focus on inflation
- NZD little changed and oil and energy prices higher
Regional Economic Scoreboard: Q2 2022
28 Sep 2022
- Another brilliant performance from Canterbury, which tops the rankings in our Regional Economic Scoreboard once again
- The strong housing sector, employment, and consumption data all support that Canterbury is enjoying the fruits of several economic factors hitting their stride
- Still, our scoreboard is cyclical in nature and as much as we love to see Canterbury continue in stride, we will be keeping a keen eye on how other regions battle the next twelve months of shifting challenges (household cost pressure) and opportunities (such as global demand for food and NZ’s recently-opened borders)
Daily Alert: Pounded
27 Sep 2022
- The big market news of the weekend has been mounting concerns about the UK’s fiscal outlook, which has sparked weakness in the UK Pound that has spread to other markets
- Under the new UK Prime Minister, Liz Truss, the UK Government has announced a range of tax cuts
- The tax package has upped concerns about the UK fiscal position, as the economy also heads into recession
Economic Weekly: When government debt takes a Pounding
27 Sep 2022
- While NZ had a long weekend in memory of Queen Elizabeth II, the UK sparked off a round of financial market volatility that is catching up with NZ this morning
- Under the helm of the new Prime Minister, the UK Government has announced a package of tax cuts and cancelled tax increases, including abolishing the top 45% tax rate, cancelling a proposed corporate tax increase, and setting up investment zones in the UK that will enable businesses to benefit from lower tax rates and less red tape within them
- The package is intended to help lift the UK’s long-term growth rate to 2.5%, “delivering high productivity and wages”. However, coming hot on the heels of an expense energy cost relief package, with a background of a likely recession, it has raised concerns about the soundness of the UK fiscal position
Daily Alert: We are the world
23 Sep 2022
- Central Bank O’Rama has continued over the last 24 hours, with a cavalcade of monetary policy makers joining the Fed in hiking policy rates and slathering markets with hawkish rhetoric
- The upshot has seen global yields positively surge
- Surging yields have been accompanied by a bout of equity market volatility
Daily Alert: Fed hikes by 75bp, now for the Old Lady to follow
22 Sep 2022
- As was widely expected the US FOMC hiked the Federal Funds rate by 75bps to 3.0%-3.25%, which was what FOMC Chair Powell termed to be “the lowest level of what might be restrictive”
- Market reaction was consistent with the view that the FOMC were serious on lowering inflation with short-term yields up. Longer-term yields down, the USD holding onto recent gains, with equities lower
- The Bank of England decision tonight with a 50bp hike generally expected, but markets wary of a 75bp hike
Term Deposit Report: More RBNZ rate hikes expected
22 Sep 2022
- Term deposit rates have been lifting off their all-time lows recorded during the pandemic, including increases over the past month
- Annual CPI inflation has spiked and is expected to peak at around current levels (circa 7.3%) this year and remain above 3% over the next two years
- More hikes are coming, and we expect the OCR to get above 4%
Commodities Weekly: Firming up nicely
22 Sep 2022
- Fonterra is out this morning with its FY22 financial result
- There’s not too much in the result to surprise farmers
- The co-op’s normalised profit is up 1%, with reported profit down about 3% given the impairment of Fonterra’s stake in DPA Brazil
Daily Alert: Yields higher ahead of the Fed
21 Sep 2022
- Global yields generally up despite weaker than expected Canadian CPI print
- Solid GDT auction overnight, supporting our $10 Fonterra milk price forecast view
- USD index at 20 year highs, pushing NZD to 2 ½ year lows.
Household Living Cost Update: The income offset
21 Sep 2022
- Soaring living costs are expected to add roughly $110 per week to household budgets over the next 12 months.
- High wage inflation and an extremely stretched labour market have also been good for household income growth, and this should provide a sizeable offset.
- We still expect a subpar outlook for household spending and a 4.25% OCR peak, but stronger outcomes for the former are possible that will have implications for OCR settings in the context of still tight capacity pressures.
The household sector has gone from leading the domestic expansion to being more of a bystander. Current headwinds facing the sector include the rising cost of living, lower house prices and weaker balance sheets, and lower population growth. This has contributed to downbeat headlines and weak measures of consumer sentiment. Updating our earlier work suggests households will continue to face higher living costs. All up, household weekly outgoings look set to rise by roughly $110 per week over the next 12 months or so although exposures will vary. Large borrowers are expected to be particularly exposed, but the household sector in general looks to be well placed to handle higher debt-servicing costs. We have also been surprised with how quickly household incomes have climbed, with increases in after-tax incomes expected to modestly exceed the surging cost of living. This does not mean a repeat of the 2021 honeymoon period. Household spending growth is likely to remain subpar over the next year or so. This should cap some of the upside risk to the OCR outlook, but not all, given our expectation capacity pressures will remain tight. We see the OCR peaking at 4.25% early next year. However, stronger household spending could further add to inflation, tighten the labour market, and see even more restrictive monetary settings.
Daily Alert: No news, but new lows for NZD/USD & NZD/AUD
20 Sep 2022
- There isn’t a lot to write about from the world of financial markets this morning
- In the absence of new news, the key themes of last week have simply carried through to the new one
- Global interest rates continue to press higher, supressing risk appetite, and supporting the USD
Daily Alert: FedEx earning guidance withdrawal weighs on sharemarkets
19 Sep 2022
- Queen Elizabeth II’s funeral will take place at 10pm tonight NZ time and is expected to dominate the news flow at the start of this week
- European sharemarkets were weaker on Friday
- US sharemarkets were also weaker on Friday with investor sentiment dulled by the withdrawal of earnings guidance by FedEx
Economic Weekly: There’s life, Jim, and more than we knew it
19 Sep 2022
- Q2 GDP brought a welcome surprise to many in exceeding median expectations by growing 1.7% over the quarter, virtually matching the RBNZ’s 1.8% August estimate
- It took GDP back above its pre-August 2021 lockdown level
- A significant revelation in the release was the impact of relaxed NZ border restrictions on boosting tourism spending in NZ, with sizeable climbs in transportation, accommodation, and recreation value-add
Daily Alert: Global wobbles see new lows for NZD/USD
16 Sep 2022
- Markets remain on the defensive as global interest rates continue to push higher in the wake of the US inflation shocker of earlier in the week
- US economic data released overnight was all a bit mixed
- Global equity indices remain under pressure given the up-creep in rate expectations
Daily Alert: Yields continue to march higher
15 Sep 2022
- Markets paused for breath allowing equity market traders to lick their wounds after yesterday morning’s stronger US core inflation print (6.3% yoy) triggered sharp falls
- Market moves in the US Treasury market were modest, but telling, with yields up a fraction across the curve, building upon earlier session gains (2Y 3.79% ,10Y 3.41%)
- Equity markets were generally heavy, with the major US indices limping towards the market close
Commodities Weekly: Going nowhere fast
15 Sep 2022
- An extremely congested logistics sector has been a feature of the global economy over the last two years, helping push prices for many goods to record highs
- There are hints that shipping capacity is starting to free up, but the magnitude depends on which barometer you look at
- Even as supply chains recover, we expect constrained production to keep prices high for most agri commodities
Q2 2022 GDP Review: Economy soars in Q2
15 Sep 2022
- Q2 GDP above market consensus, but in line with RBNZ expectations
- Subsequent GDP prints are expected to remain volatile as the economy continues the process of transitioning back to pre-COVID-19 norms. The pace of growth will slow, but base momentum should remain decent
- We now expect a further 25bp hike in early 2023 on top of the 100bps of hikes by the end of this year, taking the OCR to 4.25%. OCR cuts would be conditional on pressures of capacity and elevated core inflation cooling
Daily Alert: Markets scatter on US inflation clanger
14 Sep 2022
- A clanger of a US CPI print has set a cat amongst the financial markets pigeons overnight
- US inflation was stronger than expected in August
- The reaction in markets has been large
Daily Alert: Equities rally, yields lift ahead of CPI print
13 Sep 2022
- The tone in markets has been mostly positive overnight, albeit with relatively little in the way of major news ahead of tonight’s CPI print in the US
- Equity markets are in the green across Europe and North America
- Treasury yields were solidly higher in the overnight trade
REINZ Housing data – August 2022: An August Echo
13 Sep 2022
- Another month, another tick down in house prices, with Welly looking particularly soggy
- There’s no ‘smoking gun’ to say the market is on the turn with activity measures looking decidedly mixed
- The much-ballyhooed NZ house price correction continues to proceed at an orderly pace, and we retain our forecast for a 12% peak-to-trough fall
Daily Alert: Sharemarkets snap losing streak
12 Sep 2022
- The Bank of England said it would postpone its September Monetary Policy Committee meeting by one week following the death of Queen Elizabeth II
- European sharemarkets climbed on Friday
- US sharemarkets rallied on Friday as investors shrugged-off hawkish remarks from US Federal Reserve officials and concerns about the economic outlook
Economic Weekly: The meaning of growth
12 Sep 2022
- NZ Q2 GDP is going to be where the spotlight will shine this week, on Thursday
- After some healthy manufacturing and services data last week, our final estimate has settled on 1.2% for the quarter
- That’s actually not too far from what we thought back in early August
Daily Alert: Central bank scramble continues
09 Sep 2022
- First off, we pay tribute to the passing of Queen Elizabeth II overnight, aged 96, after 70 years on the throne
- The, much less consequential, news in global financial markets overnight has once again revolved around hawkish-sounding central banks (ECB & Fed) and consequent higher interest rates
- The European Central Bank hiked its policy rate 75bps as expected (to 0.75%) and were gung-ho about the prospect for more super-sized hikes
August 2022 NZ Electronic Card Transactions: Retail starting to gain traction
09 Sep 2022
- Modest August lift in spending, some of which is reflective of higher prices. However, core spending posted its strongest rise in 4 months
- We have retained our subpar outlook for domestic household spending activity given the number of headwinds facing households. However, rising household incomes highlight some upside risk to this view
- We expect further OCR hikes to tame elevated inflation, with a more resilient household sector potentially meaning a longer period of restrictive OCR settings
Q2 2022 GDP Preview: Come on, feel the noise
09 Sep 2022
- We expect GDP lifted 1.2% in Q2, with the economy now a fraction above mid-2021 levels – but it’s a noisy quarter and our confidence in quarter-to-quarter swings is low
- Growth is set to slow, with severe capacity constraints, painful cost pressures, higher interest rates, weaker global growth and a cooling housing market all persistent themes
- But the economy isn’t on the brink of collapse either: we still see scope for a re-orientation in growth towards the external sector, and we expect domestic demand to prove comparatively resilient
Daily Alert: Sterling falls to 40-year low
08 Sep 2022
- The biggest headline overnight has been GBP’s fall to a new 40-year low, down to 1.153 against the USD
- Markets have been digesting comments from a slew of Fed officials overnight, as well as the Bank’s latest Beige Book
- In a more emphatic sign of how aggressive central posturing remains, the Bank of Canada has delivered another 75bps hike to take Canada’s policy rate to 3.25%
Markets Monthly: Yield lift resumes, share returns mixed in August
08 Sep 2022
- July was encouraging for investors around the world: shares both here and abroad posted gains, and bond values lifted as yields retreated from recent highs
- In contrast, August was mixed for investments, with Australasian shares rising, global shares dipping, and bond yields resuming their upward lift that had taken a pause in late June and July
- Inflation concerns remain a key theme in financial markets, and the central bank response here and abroad is to keep raising interest rates
Daily Alert: RBA delivers 50bp hike, Bank of Canada/ECB might top this
07 Sep 2022
- RBA hiked the cash rate by 50bps to 2.35%, the fourth consecutive 50bp hike, with the cash rate at its highest level since 2015. The central bank focus shifts to the Northern Hemisphere
- The return of US markets from their Labor Day sojourn provided more of a spark in global markets, with yields higher and the USD index hitting 20 year highs
- Dairy prices have lifted strongly at the latest GDT overnight, with the overall index up 4.9% and prices for whole milk powder jumping 5.1%. We retain our $10 per kgMS Fonterra milk price forecast for the 2022/23 season
Commodities Weekly: Spring forward
07 Sep 2022
- Prices have risen solidly at last night’s GDT auction in line with our long-held view, and we expect further gains on the way
- Very tight dairy supply, relatively resilient demand and a favourable NZD/USD remain a recipe for a strong farmgate milk price
- We’re sticking to our $10 per kgMS farmgate milk price for the 22/23 season and explore the drivers in this edition of Commodities Weekly
Fonterra Milk Price Forecast Update: Spring Forward
07 Sep 2022
- Prices have risen solidly at last night’s GDT auction in line with our long-held view, and we expect further gains on the way
- Very tight dairy supply, relatively resilient demand and a favourable NZD/USD remain a recipe for a strong farmgate milk price
- We’re sticking to our $10 per kgMS farmgate milk price for the 22/23 season and explore the drivers in this Rural Economic Note
Daily Alert: EUR/USD slumps to 20-year lows
06 Sep 2022
- Movements in financial markets have been modest overnight reflecting closure of US markets for Labor Day
- But there was nevertheless a further deterioration in sentiment towards all things Europe, as the EU energy crisis worsens
- European stocks (excluding the UK FTSE) closed 0.9% (Spanish Ibex) to 2.2% (German Dax) lower, and the EUR/USD dipped below 0.9900 for the first time in 20 years
Daily Alert: August US employment growth better than expected
05 Sep 2022
- Friday night’s US Non-farm Payrolls report showed employment rose by 315,000 in August, slightly stronger than analyst expectations centred on a 298,000 lift
- European sharemarkets rose on Friday with the pan-European STOXX 600 index up by 2.0% - the first rise in six sessions
- US sharemarkets fell on Friday
Economic Weekly: A Fortnite of building Downunder GDP
05 Sep 2022
- It’s the season when NZ starts getting some of the key quarterly data that help build up estimates of how the economy fared in Q2
- Recall, NZ GDP registered a 0.2% fall in Q1, but subsequent data has shown the labour market to be exceptionally tight, with inflation rates well above 3% on various measures
- Historic it might be, but GDP and broader economic activity has a key bearing on future labour market and inflation outcomes
Daily Alert: Greenback in black
02 Sep 2022
- Broad strength in all things US was the most eye-catching theme in financial markets overnight
- The greenback is drawing strength from both less upbeat risk sentiment, as central banks globally reassert tightening expectations, and US economic outperformance (at least against the G3)
- US bond yields have been on the march since chair Powell’s weekend address
Q2 2022 Terms of Trade: Both sides now
02 Sep 2022
- NZ’s terms of trade ease back 2.4% in Q2 from record highs thanks to a bumper lift in import prices
- Export volumes bounce back and look set to increase slowly, while slowing domestic demand will continue to weigh on import demand over time
- There might be a bit more of a J curve dynamic to come, but we expect NZ’s terms of trade to move higher again over the coming quarters
Commodities Weekly: Not great but heading in the right direction?
02 Sep 2022
- In a fortnight’s time, we’ll get the latest GDP figures from Stats NZ
- We expect that agricultural output has continued to tentatively recover over the Q2 and Q3
- Agri output maybe on the up, but we expect the recovery to be slow and the impact on each sector to be uneven
Daily Alert: Markets struggling to regain poise
01 Sep 2022
- Markets look to be struggling to regroup after earlier ructions triggered by various global central bankers, with Fed Hawk chiming in last night
- This, and stronger than expected Eurozone inflation set the tone
- Global yields were up, stocks down and with lower risk appetite weighing on the NZD
Quarterly Economic Forecasts: Burning down the house
31 Aug 2022
- The global inferno of rising inflation and rapid interest rate lifts has continued
- NZ, one of the early countries to experience surging inflation, remains at the forefront of the firefighting, with the OCR up to 3% and a potential 4% peak looming
- In NZ, headline inflation has most likely peaked
Daily Alert: Singing from the same song sheet
31 Aug 2022
- A trickle of Fed speakers have been out on the wires overnight
- Shifts in Treasury yields have been fairly modest despite those comments
- Equities have tumbled lower despite the Fed’s reassurances that the US economy isn’t in recession, and some decent economic data
August ANZ Business Outlook: Rinse, repeat
31 Aug 2022
- Rinse, repeat. Activity expectations improve and pricing intentions ease a fraction, as with last month
- But big picture still one of an economy generating too much inflation as it groans under supply constraints
- Nothing to throw the RBNZ off its stated course of getting the OCR to 4% this year
Daily Alert: Hawkish Fed message continues to reverberate
30 Aug 2022
- Sizeable NZ market repercussions from Fed Chair Powell’s weekend comments
- Tough talk by a chorus of ECB members boosted Eurozone yields overnight, with supply concerns boosting oil prices
- Stocks were down, yields were up, with the euro the strongest performer
Daily Alert: Sharemarkets slump on Fed Chair’s hawkish talk
29 Aug 2022
- US Federal Reserve Chair Jerome Powell noted in a speech to the Jackson Hole central bank symposium: “Restoring price stability will likely require maintaining a restrictive policy stance for some time.”
- European sharemarkets fell on Friday
- US sharemarkets slumped on Friday as the Fed chair suggested interest rates would be higher for longer
Economic Weekly: The Forceful Fed
29 Aug 2022
- The annual Jackson Hole Economic Symposium, a high-profile gathering of global central banks, was held late last week
- With all the key central bankers from around the world there, including our own RBNZ Governor, the public utterances get a lot of focus from markets
- Key of the speeches is the one from the US Federal Reserve Chair, Jerome Powell, which often sets the tone for global financial markets
Daily Alert: Jay Day
26 Aug 2022
- Markets have held a constructive mood overnight, albeit with volumes and interest being fairly low as investors await Jay Powell’s address to the Fed’s Jackson Hole symposium tonight
- Share-markets have notched up modest gains (Eurostoxx50 +0.2%, US indices +0.6-1.2%) and risk aversion indicators have eased (VIX index down from 23% to 22.2%)
- Fed officials jostled for the mic on the side-lines of Jackson Hole, but there was nothing particularly new or market moving
Commodities Weekly: The signal and the noise
26 Aug 2022
- This morning, Fonterra modestly edged down its Farmgate Milk Price forecast for the 2022/23 season
- The recent downward trend in global dairy prices is the driver
- Global production remains tightly constrained
Housing Confidence: Seeing is Believing
25 Aug 2022
- Housing confidence falls to 13-year lows as the housing market downturn deepens
- Buyer sentiment bounces off low levels, as falling house prices and booming wage growth ease affordability pressure
- Interest rate expectations hold at record highsSome summary points
Q2 2022 NZ Retail Trade Review: Q2 retail slump flags H1 2022 recession risk for NZ economy
25 Aug 2022
- Much weaker than expected Q2 retail volumes highlight the risk that NZ was in a technical recession in the first half of 2022. This is not our core view, however
- The trifecta of soaring living costs, weaker household balance sheets and sluggish population growth are expected to weigh on household spending activity over the remainder of 2022
- The RBNZ will continue to hike nonetheless and, while a 4% OCR is unlikely to sink the household sector, it will eventually pave the way for OCR cuts
Housing Confidence: Seeing is Believing
25 Aug 2022
- Housing confidence falls to 13-year lows as the housing market downturn deepens
- Buyer sentiment bounces off low levels, as falling house prices and booming wage growth ease affordability pressure
- Interest rate expectations hold at record highs
Daily Alert: Waiting for Jerome
25 Aug 2022
- The tone in markets has been mildly positive overnight, albeit with traders generally in ‘wait and see’ mode as they look for further news out of Jackson Hole as the week wears on
- Pre-Powell speculation has translated into some mild upward pressure on Treasury yields
- Sharemarkets are mildly in the green
Daily Alert: Markets remain wary ahead of Jackson Hole
24 Aug 2022
- Markets remain wary and listless ahead of the weekend’s pivotal Jackson Hole meetings,
- Given the shadow cast by hawkish central banks, market action was skittish with generally low volumes traded. Stocks were little changed, yields were up and the USD was down,
- Data was generally weak.
- Markets remain wary and listless ahead of the weekend’s pivotal Jackson Hole meetings,
Daily Alert: Markets fall down the Jackson Hole
23 Aug 2022
- Market moods have turned sharply towards the negative as we open the week
- Consequently, sharemarkets are in the red across Europe and North America, with some chunky falls
- Yields are universally higher across the US and Europe overnight, as markets brace themselves for those hawkish headlines
Daily Alert: Sharemarkets weaken and yields rise here and abroad
22 Aug 2022
- European sharemarkets weakened on Friday in response to new inflation data
- US sharemarkets fell on Friday
- The local sharemarket dipped on Friday and was down slightly (-0.4%) over the week
NZ Labour Supply Outlook: Labouring past the sweet spot
22 Aug 2022
- NZ is past its labour supply sweet spot, and we foresee much lower growth in the labour force ahead
- Even with our subpar economic growth outlook this suggests (barring a protracted downturn) the unemployment rate will remain below the 4%-4.5% ‘Goldilocks Zone’ for longer than the RBNZ expects
- The tight labour market and elevated domestic inflation outlook requires the RBNZ to maintain a brisk pace of OCR hikes despite extremely sluggish growth. Barring global and local catastrophe, we now expect 50bp OCR hikes in October and November. After peaking at 4%, we envisage OCR cuts from 2024, but this depends on sufficient slack in the labour market being generated
Economic Weekly: Reining it in, with two more 50bp moves
22 Aug 2022
- The 50bp Official Cash Rate hike delivered by the RBNZ on Wednesday last week took the OCR to 3%, its highest since 2015, with the cumulative 275bps in OCR hikes since late 2021 one of the most marked and pronounced on record
- The RBNZ are not finished yet, with the August Monetary Policy Statement, maintaining a “resolute” mindset and a commitment to move “at pace” to get inflation back into the 1%-3% target band
- One thing that stood out, though, was the extent to which the RBNZ upped its concerns about the extreme tightness of the labour market
Daily Alert: Quiet end to the week in prospect
19 Aug 2022
- It’s been a generally positive night for risk assets but, despite this, the NZD/USD has lost ground
- The overnight news flow was relatively light
- Fed speakers were out in force, but generally stuck to the script
Markets Monthly: Sharemarkets lift and bond yields retreat in July
18 Aug 2022
- After some challenging months, July was encouraging for investors around the world
- Sharemarkets both here and abroad recouped some of their earlier losses, and bond yields retreated from recent highs
- The NZD has lifted off recent lows and gained 1.5% on a trade-weighted basis in July
Daily Alert: No rest for the RBNZ
18 Aug 2022
- The RBNZ delivered a ‘no surprises’ MPS yesterday, hiking the OCR by 50bps and largely keeping up the hawkish rhetoric
- We’ve tweaked our own OCR view, and also have a forecast peak of 4% pencilled in
- For now, rates markets have settled in a similar spot to us, pricing a ~4% OCR by early 2023, where it’s expected to more or less remain thereafter
Commidities Weekly: ASB retains $10/kgMS farmgate milk price forecast
17 Aug 2022
- Dairy prices have performed a bit better than markets expected at the auction overnight
- Prices have undergone a correction over the NZ autumn and winter, but the fundamentals continue to suggest prices will regain ground over the coming months
- On that front, the global production outlook continues to look weak
Daily Alert: Now the hard work begins
17 Aug 2022
- Mixed session overnight with gains in equities fading and yields up
- RBA Minutes, strong Canadian core CPI prints suggest central bankers have more work to do
- We expect a hawkish RBNZ statement with a 50bp OCR hike and for the published OCR track to show the RBNZ are serious on ensuring inflation settles within the 1-3% policy target
RBNZ August Monetary Policy Statement Review: Still on a hard charge
17 Aug 2022
- The RBNZ lifted the OCR the expected 50bp to 3% and continued to flag further swift action
- There was added concern about labour market pressures – and a substantial lift in expected wage inflation
- A 4% OCR peak looks a little more likely, given some hawkish details under the hood
Daily Alert: China unexpectedly cuts interest rates
16 Aug 2022
- China’s monthly ‘data dump’ for July fell short of market expectations
- Going against the grain of expectations – though in keeping with recent signs of economic weakness – the People’s Bank of China cut interest rates yesterday
- Japan’s GDP growth recovered 0.5% qoq in Q2, with Q1 revised from a contraction to 0.1% lift
Daily Alert: Shares up on earnings and hopes inflation has peaked
15 Aug 2022
- In US economic data, import prices fell by 1.4% in July (survey -1.0%) but were up 8.8% on the year
- European sharemarkets closed higher on Friday
- US sharemarkets were firmer on Friday on hopes that inflation has peaked
Economic Weekly: Still a few hikes to go
15 Aug 2022
- We start this week waiting for the big but not so surprising news: the RBNZ August Monetary Policy Statement
- Wednesday’s Monetary Policy Statement is expected to go ahead with the anticipated 50bp interest rate hike, taking the Official Cash Rate to 3% this August
- We expect similar language in this statement as in the last two monetary policy announcements, mainly implying the commitment to hike the Official Cash Rate to bring inflation back to the 1%-3% target band within an acceptable timeframe
Home Loan Report: Conflicting forces give borrowers a break
12 Aug 2022
- It’s been a one-way street for borrowers over the past year – mortgage rates have gone up and up as the Reserve Bank of New Zealand (RBNZ) has progressively hiked the Official Cash Rate (OCR)
- Higher and higher rates of inflation have fuelled concerns about how high the OCR (and in turn borrowing costs) might need to go to get inflation back in check
- Similar developments have been playing out offshore
Daily Alert: NZ housing and migration still soggy
12 Aug 2022
- Overnight US equity markets reversed some of the previous night’s relief that US inflation wasn’t as strong as it could have been
- The USD edged down slightly further against the main currencies
- The NZ REINZ house price index released on Thursday, fell 1.4% m/m in July, bringing the cumulative decline since the November 2021 peak to 8.1%
Commodities Weekly: Delicate China
12 Aug 2022
- Our weighted forecast for economic growth among NZ’s major trading partners continues to fall
- The largest of the latest revisions have been for the Chinese economy
- The softer Chinese property sector outlook poses a clear downside risk to log prices, as we’ve long signalled
Daily Alert: Market reacts to lower US inflation print but Fed plays it cool
11 Aug 2022
- The session overnight was a game of two halves, with markets listless and nervous leading up to the all-important US July Inflation print, but then letting loose after a modest downward US inflation surprise
- Fed members stuck to the script and reiterated that the lower inflation print did not shift the policy outlook
- USD sharply lower overnight, with the kiwi soaring to 64 US cents
REINZ Housing data – July 2022: Hibernation
11 Aug 2022
- Few redeeming features in July housing market stats
- Auckland a stand-out weakspot
- The correction in NZ house prices remains orderly, and we retain our forecast for a 12% peak-to-trough decline
RBNZ August Monetary Policy Statement Preview: The OCR rocket continues to soar
11 Aug 2022
- The RBNZ will deliver another (modest by 2022 global standards) 50bp OCR increase on August 17
- Watch for added concern about labour market pressures, despite a likely tempering of the growth outlook
- We continue to expect a 3.75% OCR peak, with the RBNZ still eyeing around 4% give or take
Daily Alert: Curve inversion continues ahead of US CPI
10 Aug 2022
- Global financial markets again hit snooze overnight, as investors await tonight’s US inflation figures
- Bond yields eked out small gains on little news flow, albeit with the US yield curve pushing even further into inverted territory
- Yesterday’s round of Aussie confidence data showed surprisingly divergent trends
Daily Alert: Slow start, feat. more inversion
09 Aug 2022
- There would have been sighs of relief all round at Number 2 The Terrace yesterday following a surprisingly benign set of inflation expectations figures
- But, in the event, the all-important two- and five-year inflation expectations estimates both fell (to 3.1% and 2.3% respectively), despite headline inflation sitting at 30-year highs above 7%
- Overnight, markets have started the week in sleepy fashion
Term Deposit Report: Inflation remains enemy number one for savers
09 Aug 2022
- Inflation has lifted by far more than term deposit rates over the past year, and in doing so increases the challenges for savers trying to get their money in the right place
- The expected OCR increases are factored into longer-term interest rates in New Zealand, including term deposits
- Despite the increases we have seen in term deposit rates this year, rates for terms shorter than 18 months remain low (under 4%) relative to levels in the past
July 2022 NZ Electronic Card Transactions: Soft start to second half of the year for retail
09 Aug 2022
- Flat July spending, kicking off what looks to be a soft second half of the year for domestic retail
- Signs of a school holiday boost for some retail pockets, although easing border restrictions will likely prove to be a mixed blessing
- We have retained our subpar outlook for domestic household spending activity given the number of headwinds facing households
Daily Alert: Strong US employment data sets Friday’s tone
08 Aug 2022
- US Non-farm Payrolls (employment) increased 528,000 in July, much stronger than analyst expectations that were centred on a monthly increase of around 250,000
- US sharemarkets were mixed on Friday
- US treasuries were sharply weaker on Friday (yields higher) in response to the strong jobs report
Economic Weekly: Entering into a price-wage spiral?
08 Aug 2022
- Last week we witnessed the continuation of labour shortages in New Zealand, as depicted in the labour market data released on Wednesday
- Tightness in the labour market is also one of the major reasons why inflation could take longer than anticipated to cool down and move towards the inflation target rate band of 1-3%
- With economic growth slowing down and headwinds creeping in one after the other, the RBNZ has a tough task ahead of them to curb inflation while also engineering a soft landing
Daily Alert: Markets shrug off Taiwan tensions, grim BoE forecasts
05 Aug 2022
- Market sentiment has been fairly resilient overnight despite a bit of diverse headwinds.
- The Bank of England has been out with some grim forecasts, Fed speakers have been on the wires re-enforcing a hawkish line, and the latest earnings data has disappointed
- Most seriously of all, China has launched a series of military drills in the Taiwan Strait in response to a recent visit by US House Speaker Nancy Pelosi to Taiwan, which China regards as part of its territory.
- Market sentiment has been fairly resilient overnight despite a bit of diverse headwinds.
Daily Alert: In a tight spot
04 Aug 2022
- Yesterday’s Q2 NZ labour market print saw the unemployment tick north from multi-decade lows (to 3.3%), but wage growth accelerate
- Market pricing pared back a shade off the back of the result, with broader swap yields down 1-12bps off a flattening curve
- Overnight, sentiment has tilted towards the positive
Daily Alert: Rates up, dairy prices down
03 Aug 2022
- Dairy prices were weaker than expected at the Global Dairy Trade event overnight
- The Reserve Bank of Australia hiked its cash rate target by 50 basis points to 1.85%
- Monthly US JOLT job openings fell by 605k to 10.7 million at the end of June
Commodities Weekly: Winter chill blows through dairy prices
03 Aug 2022
- Milk powder prices fell at the Global Dairy Trade auction overnight by even more than futures markets have been recently suggesting
- The overall GDT price index is down by 5%, with prices falling in all the product sub-indices
- The whole milk powder index fell 6.1% and the skim milk powder index was down 5.3%
Q2 2022 Labour Market Data Review: Wage price spiral spells trouble for the RBNZ
03 Aug 2022
- The Q2 NZ unemployment rate edges up from record lows, but the labour market still looks exceptionally tight with employment well above its maximum sustainable level
- Labour cost growth soars to a post-GFC high with more sizeable rises to come as workers seek compensation for the skyrocketing cost of living in a tight labour market
- The labour market is expected to remain exceptionally tight heading into 2023, with the RBNZ needing to increasingly lean on aggregate demand so as to cool medium-term inflationary pressure
Daily Alert: Fickle global scene keeps markets wary
02 Aug 2022
- Today, we released the August edition of the ASB Trade Disruptions Report. Have a read
- The global scene remained fickle, with equities struggling for direction and longer-term yields weighed by concerns over global growth
- Focus this afternoon crosses the ditch, with our CBA cobber’s expecting a 50bp RBA cash rate hike (to 1.85%)
Trade Disruptions Report: August 2022
02 Aug 2022
- Global trade outlook weakens as inflation, labour shortages and the Ukraine conflict compound COVID woes
- Import prices continue to rise, up 15% on pre-COVID levels, with further increases to come
- Export volumes not expected to return to 2020 peak until 2024
Daily Alert: US shares close the month on a strong note
01 Aug 2022
- US sharemarkets rose on Friday in response to strong earnings results
- European sharemarkets rose on Friday in response to strong earnings and better-than-expected June quarter euro zone economic growth
- The local sharemarket benchmark S&P/NZX 50 Index rose 1.45% on Friday and was up 2% over the week, and 5.7% for August
Economic Weekly: Labour market to tighten even further
01 Aug 2022
- The ANZ NZ consumer and business surveys released last week for the month of July showed fractional improvement compared to June, albeit still at worrisome levels
- The business survey, again, shed light on the extremely tight labour market being a major constraint to firms’ production
- The upcoming labour market data this week will be one to watch for the RBNZ as it seeks clarity on whether inflationary pressures in the economy are starting to cool down
Daily Alert: Bad news is good news as signs of recession mount
29 Jul 2022
- Domestic business sentiment measures remained weak, and while are not yet forecasting recession for the NZ economy the direction of risk is clear
- US economic activity contracts in Q2 suggesting the US economy is in mild recession
- Global yields fell, stocks rose with the Yen, Swiss franc and NZD the stronger performers
Commodities Weekly: Growth dips but commodity supply remains tight
29 Jul 2022
- There have been some chunky downward revisions in global growth forecasts this week
- Despite the worsening outlook, extremely tight supply conditions remain the prevailing theme for agri commodity markets
- The present slowdown will look very different from the last one
Daily Alert: Yields dip, equities surge as Fed forgoes a 100bp-er
28 Jul 2022
- The FOMC has opted to deliver another 75bps hike in the Fed Funds rate overnight, forgoing speculation the Bank would deliver a full-percentage point lift
- It’s the forward guidance from Jerome Powell that’s been the most notable
- The upshot is that market pricing for the next couple of Fed meetings comes off a little bit, with about 97bps now priced by the end of the year
Q2 2022 Labour Market Data Preview: Tight as a drum
28 Jul 2022
- The Q2 2022 figures are expected to show an extremely tight labour market, with labour shortages expected to push the unemployment rate to record lows
- Annual wage growth is expected to hit its highest rate since 2008. Rises in living costs will outstrip this, with the household sector this year a shadow of its 2021 self
- In the absence of a sizeable increase in labour supply the RBNZ will need to increasingly lean on aggregate demand so as to cool medium-term inflationary pressure. We expect a 50bp August hike but would not rule out a 75bp move
Home Loan Report: Looking for the peak
28 Jul 2022
- Fixed-term mortgage rates have been lifting since early 2021, and we predict more increases over the rest of the year for the popular fixed rates (1-2 year terms)
- Long-term mortgage rates have risen the most over the past year but could be near the peak
- Short term rates still have a way to go and are expected to lift the most over 2022, as the RBNZ keeps lifting the OCR
July ANZ Business Outlook: Dark ‘n’ stormy
28 Jul 2022
- Activity metrics largely unchanged, at worrisome levels
- Support for our view inflation may be peaking
- No implications for RBNZ
Daily Alert: Back to reality
27 Jul 2022
- The nervous calm of the past week or so was shattered overnight as financial markets lurched onto the backfoot
- The S&P500 is currently down 1.2% following 0.3-0.9% declines in European bourses
- It shouldn’t have surprised anyone, but the IMF’s slashing of its global growth forecasts brought recession worries back into the frame
Daily Alert: What’s a 100bps between friends
26 Jul 2022
- There’s been little in the way of major data or (unscheduled event risk for that matter) as we open the week, with the imminent release of a bunch of earnings data being the focus for sharemarkets
- The upshot has seen the major Wall Street indices move lowe
- US Treasury yields have notched up a few more gains ahead of this week’s FOMC meeting
Daily Alert: Sharemarkets mixed Friday, but up over the week
25 Jul 2022
- US sharemarkets eased on Friday
- US treasuries were stronger on Friday (yields lower) after the latest business activity readings in the US, UK and Euro zone all weakened compared with month-ago levels
- European sharemarkets were firmer on Friday
Economic Weekly: A waiting game
25 Jul 2022
- Yes, inflation is high — but we expect it to have peaked this cycle
- We’re cautiously optimistic the direction of travel is downwards, but it is going to be at a snail’s pace
- The worry is now more about the persistence of inflation and not so much the peak
Daily Alert: ECB hikes 50bps, bond yields fall
22 Jul 2022
- Punchy newsflow out of Europe overnight has produced surprisingly little in the way of lasting market reaction, at least in FX markets
- The European Central Bank lifted its policy rate 50bps overnight, the first increase in 11 years
- In response, the EUR wobbled a little but is ultimately little changed around 1.020
Daily Alert: Super Mario runs out of 1-Ups?
21 Jul 2022
- Market sentiment has been tentatively positive in the US overnight, with no obvious catalyst as such
- The upshot has seen US and European equities diverge overnight
- With no inflation data prints out or comments from Fed officials, shifts in Treasury yields have been modest overnight
Daily Alert: It’s mostly priced in
20 Jul 2022
- US and European stocks rise as investors judge much of the pessimism is already priced into markets. Yields were generally up
- The Mansion House speech by BOE Governor Bailey launched a strong defence in favour of BOE independence from political tinkering
- Australian yields and the AUD firms after RBA signal further rate hikes. Our CBA colleagues expect a further 125bp of 2022 hikes for the RBA (2.6% cash rate) as do we for the RBNZ (3.75% OCR)
Commodities Weekly: Focus on the fundamentals
20 Jul 2022
- Milk powder prices have fallen at the GobalDairyTrade auction overnight
- The NZ spring looms as the next key inflection point for the season, so we are not stressing too much about auction-to-auction swings in pricing
- On that front, we’re still focused on the supply fundamentals, which are extremely tight
Daily Alert: ASB revises up its OCR view after strong NZ inflation print
19 Jul 2022
- NZ rates and the NZD firmed after NZ CPI inflation topped ASB, market and RBNZ expectations, with the 7.3% annual print the highest in more than 30 years
- More restrictive OCR settings look to be needed, and ASB now expect 50bp hikes in August and October, a 25bp November hike and a 3.75% end of 2022 OCR peak. However, persistently high inflation runs the risk of more aggressive OCR action, including a possible 75bp August hike and higher OCR endpoint this cycle
- Markets remained twitchy overnight, with recession fears lurking as central banks tackle what is looking to be increasingly entrenched high inflation
Daily Alert: US banking stocks supported by latest results
18 Jul 2022
- US sharemarkets posted firm gains on Friday
- The pan-European STOXX 600 index of European shares rose by 1.8% on Friday
- Global oil prices lifted on Friday after a US official told Reuters that an immediate Saudi oil output boost was not expected
Economic Weekly: Catch me if you can!
18 Jul 2022
- We had a couple of marquee events last week, one of which was expected and the other beyond expectations
- Wednesday’s RBNZ interest rate hike was all pretty much business as usual, but the US CPI print on Wednesday night surprised substantially on the upside
- The Q2 Consumer Price Index for New Zealand has added fuel to the fire this morning, also surprising on the upside
2022 Q2 CPI Review: Plus 7% inflation and ASB changes its OCR view
18 Jul 2022
- Q2 CPI stronger than ASB, market and RBNZ expectations with the 7.3% annual CPI inflation print its highest in more than 30 years. Record high annual non-tradable inflation will be of concern to the RBNZ
- We think annual CPI inflation has likely peaked, but this is still uncertain. Unless labour market pressures concertedly ease, current high inflation outcomes run the risk of being increasingly entrenched
- Firmer RBNZ actions are required, and we now expect 50bp hikes in August and October, a 25bp November hike and a 3.75% end of 2022 OCR peak
Term Deposit Report: Multi-year highs in TD rates trumped by inflation
18 Jul 2022
- Inflation has lifted by far more than term deposit rates over the past year, and in doing so increases the challenges for savers trying to get their money in the right place
- The RBNZ delivered its first Official Cash Rate (OCR) increase in over seven years in October 2021 and followed up with further hikes at subsequent meetings in late 2021 and this year
- More hikes are coming, eventually taking the OCR to around 3.75%
Daily Alert: Put your hands in the air and step away from the 100bps hike
15 Jul 2022
- It’s been a relatively volatile session overnight, with the S&P500 down as much as 2% at one point as markets have continued to digest the implications of yesterday’s US CPI print, though a late recovery means things haven’t ended up quite as red
- All-up, it’s been a relatively rocky night for equities. The S&P500 is now down about 0.3% after that previous deep fall, while the Dow is 0.6% lower and the Nasdaq is flattish at 0.1% lower
- Those Fed comments have undone some of the shift in the Treasury yields in the aftermath of yesterday’s CPI print
Commodities Weekly: Pigs might fly… then fall… then fly again
15 Jul 2022
- Disease worries are back in vogue for global meat markets
- Foot and mouth concerns are getting all the pick-up, but for the moment, it’s the Chinese pig herd we’re more focused on
- Unfavourable market dynamics have snuffed out the pig herd’s rapid recovery from African Swine Fever
Daily Alert: Shocker US CPI roils markets
14 Jul 2022
- We’ve had the RBNZ meeting here in NZ yesterday afternoon, but the real highlight for international markets has been the release of the June US CPI print, which has been a source of anticipatory jitters all week
- That print was a pretty massive upside surprise on already-lofty market expectations, showing inflationary pressures are still very strong in the US
- The print has spurred speculation the Fed will opt for a full percentage point hike at its next meeting
Daily Alert: Nerves inflating
13 Jul 2022
- Australian data showed a loss of momentum, leading to some softness in Australian interest rates during the day
- Overnight, US markets got twitchier as tonight’s US inflation print looms closer: persistent inflation pressure will likely keep the US Fed on an aggressive tightening cycle and keep recession fears stoked
- Within all this mix, the NZD has remained largely unchanged over the past 24 hours, getting some propping up from the expected 50bp OCR increase today
REINZ Housing data – June 2022: Trickling down?
13 Jul 2022
- June was another weak month for NZ’s housing market, as expected
- The key uncertainty in the housing environment relates to the interest rate outlook and people’s sensitivity to rising interest rates
- No implications for our forecasts
2022 Q2 CPI Preview: Plus 7(%)
13 Jul 2022
- We expect a 1.5% quarterly increase in Q2 headline CPI, pushing annual inflation to 7.1%, its highest rate in more than 30 years. The outlook is uncertain, but mid-2022 looks to be the peak in annual NZ CPI inflation this cycle
- In the absence of a concerted easing in labour market pressures, current high inflation outcomes run the risk of being increasingly entrenched and well above the upper limit of the 1-3% inflation target
- Restrictive OCR settings are required, and we expect 3.5% peak for the OCR in late 2022. OCR cuts beyond then will depend crucially on the labour market
RBNZ July Monetary Policy Review: Tough Talk
13 Jul 2022
- As long signalled and widely expected, the RBNZ has hiked the OCR by another 50bps to 2.5%
- The Bank has largely copied and pasted its wording from the May MPS, in a sign its calculus hasn’t changed much
- We continue to expect the RBNZ to lift the OCR by 50bp in August, with an eventual peak of 3.50% reached at the end of 2022
Daily Alert: Shaky start to the week for shares
12 Jul 2022
- NZ retail card spending rose 0.1% in June (on a month earlier, seasonally adjusted), and was up 1.9% on year ago levels
- New Zealand's sharemarket was up nearly 4% last week, but the NZX 50 slipped 0.6% yesterday
- Sharemarkets elsewhere have also had a poor start to the week, except for Japan (Nikkei up 1%), and a flat UK market
Daily Alert: Former Japanese Prime Minister Shinzo Abe assassinated
11 Jul 2022
- Abe was killed by a lone gunman in the city of Nara, while delivering a campaign speech for the Liberal Democratic Party (LDP) ahead of Sunday's elections for Japan’s upper house
- In US economic data, Non-farm Payrolls (jobs) rose by 372,000 in June, better than the consensus expectation of a lift around 265,000
- US sharemarkets were mixed on Friday
Economic Weekly: Inflation to peak, but slow descent ahead
11 Jul 2022
- The most important event of the week is the RBNZ’s highly anticipated interest rate hike on Wednesday
- Ahead of that, the data out last week won’t have swayed the RBNZ away from its strong hint for a 50bp OCR increase
- The Q2 Quarterly Survey of Business Opinion from the NZIER, released last Tuesday, was in line with our expectations
June 2022 NZ Electronic Card Transactions: Stronger than the start of the year
11 Jul 2022
- June card spending not as strong as May, but the quarter as a whole is up
- The trifecta of headwinds points to a sub-par outlook for domestic household spending activity over 2022
- The June Quarter, with significant increases in retail card spending across all industries, tentatively is suggesting that NZ economy might have avoided recession. However, it is still very early days for Q2 data
Daily Alert: Comm prices recover a little ground as Fed readies another 75
08 Jul 2022
- We’ve had another night where the tone in markets has been tentatively positive, earmarked by rising equities and a good night for the pro-cyclical currencies (like NZD)
- Certainly, Central Bank hawks aren’t blinking, with the Fed’s James Bullard reiterating his resolve in raising rates, while the Fed’s Christopher Waller endorsed another 75bp-er
- Equities have enjoyed another decent night
RBNZ July Monetary Policy Preview: Triple threat
08 Jul 2022
- Another 50bps hike beckons at next week’s RBNZ meeting, with the Bank’s calculus broadly unchanged from May
- Sentiment is weakening and speculation about a downturn is mounting, but the starting point for the labour market is very tight and inflationary pressures remain lofty
- The biggest risk to the RBNZ’s mandate is still that higher inflation becomes entrenched in the NZ economy
Daily Alert: FOMC Minutes keep focus on the inflation fight
07 Jul 2022
- The FOMC Minutes kept the focus on fighting inflation and signalled the intent to quickly move the Fed funds rate into restrictive levels to do so
- Across the pond, BOE policymaker comments were also understandable hawkish given that the UK economy is currently grappling with 9% inflation
- Global equities were generally firmer overnight with gains in US Treasury yields and the USD
Markets Monthly: Central banks hike. Sharemarkets and the NZD drop
06 Jul 2022
- June was a very challenging month for sharemarket investors around the world
- Australian and NZ sharemarkets were down 9.5% and 4.2%, respectively
- US shares were down 8.4% over the month, and the MSCI index of world shares was down 8.8%
Daily Alert: USD hits 20-year highs, NZD/USD to 2-year lows
06 Jul 2022
- Local equity and wholesale interest rate markets are set to open under downward pressure this morning after recession fears again gripped financial markets overnight
- Risk sentiment has soured across most markets with the main share indices down 0.3-2.7%
- Commodity prices have posted steep declines, reflecting both fears about global demand and a strengthening USD
Commodities Weekly: Hold please caller
06 Jul 2022
- Prices have fallen by more than futures markets were pegging at the latest GDT overnight
- We are sticking to our $10 per kgMS Milk Price forecast for the season
- We are still sceptical prices can fall very far in an environment where global milk supply is extremely tight
Daily Alert: Markets await RBA decision
05 Jul 2022
- The 4:30pm RBA decision is the major event today. We expect 50bp July rate hikes by both trans-Tasman cousins (to 1.35% for the RBA and 2.50% for the RBNZ)
- US markets shut with markets generally listless and cautious overnight given worries over slowing global growth and high rates of inflation
- Today’s NZIER QSBO should highlight stagflationary conditions in the business sector
2022 Q2 Quarterly Survey of Business Opinion: Stagflation on the horizon
05 Jul 2022
- The Q2 QSBO depicted stagflation-like conditions for the business sector, with shrinking economic activity, still-intense capacity pressures and soaring prices and costs
- Risks of a hard-landing continue to increase, albeit it’s not our core view at present
- Despite a soft activity backdrop, the OCR needs to move higher to try and cool increasingly entrenched high inflation. We expect a 50bp hike next week and a 3.50% OCR peak
Daily Alert: Shares close another week down
04 Jul 2022
- US sharemarkets rose on Friday in light trading ahead of a long holiday weekend
- European sharemarkets were little-changed on Friday
- New Zealand's sharemarket benchmark index dropped 1.1% on Friday
Economic Weekly: Fireworks or fizzer this 4th of July week?
04 Jul 2022
- Last week’s focus was all about the ANZ Business and Consumer Confidence survey
- Confidence and the consumer are again in the spotlight this week
- We will keep an eye out for the Q2 Quarterly Survey of Business Opinion from the NZIER and electronic card spending surveys that will be released over the next week
Commodities Weekly: Crying over a lack of spilt milk
01 Jul 2022
- EU dairy production is still looking pretty woeful in the latest data, covering April
- It’s already been a poor year so far for the northern hemisphere, with the EU’s three largest producers, Germany, France and the Netherlands (as well as the UK) consistently recording chunky year-on-year declines
- Output in those four largest producers ran 1-2½% behind April last year, a bad sign given this is the usual peak milk production season
Daily Alert: NZD/USD shakes it off…for now
01 Jul 2022
- Markets have spent the night on the back-foot as incoming economic data has continued to print on the softer side of expectations
- On closer inspection this reflects US-specific, rather than global, recession fears taking some of the edge off the USD
- Across the pond, German bund yields set the tone for the night, slumping across the curve following a surprise lift in German unemployment to 5.3% in June (5.0% expected)
NZ Inflation Persistence: How long lasting will the surge in NZ inflation be?
01 Jul 2022
- Developments in the labour market play a pivotal role in impacting inflation, although many of the factors influencing labour market conditions are outside of the RBNZ’s control
- Short of a material loosening in tight labour market conditions, there is the risk of annual CPI inflation remaining above 3% for considerably longer than the RBNZ May 2022 MPS forecasts imply
- Prospects of a soft economic landing look less assured and the RBNZ may face uncomfortable trade-offs ahead
Daily Alert: Powell signals ‘pain’ ahead
30 Jun 2022
- It’s been a relatively quiet week for financial markets, and things haven’t got much livelier overnight
- Things might get a smidgen more interesting on the local front today
- Treasury yields have edged lower overnight
May ANZ Business Outlook: Hazy Shade of Winter
30 Jun 2022
- Business sentiment takes another tumble as signs of stumbling activity broaden
- Supply, rather than demand, constraints are key culprit. But this doesn’t change the calculus for the RBNZ
- Tentative signs of stabilisation in inflation indicators, but RBNZ will want to see some moderation from here
Regional Economic Scoreboard: Canty clasps another title
29 Jun 2022
- Another scoreboard, another glorious performance for the home of the mighty Waimakariri River and towering Aoraki/Mount Cook, as Canterbury tops the rankings once again
- If some nifty footwork by Richie Mounga was the foundation of the Crusader's Super Rugby win, Canterbury's similarly reliable eocnomic first five-eighth is its resilient housing market.
- Still with headwinds mounting and growth set to slow over the next twelve months, its going to be a challenging period for just about every region.
Daily Alert: Markets pensive
29 Jun 2022
- Markets remained in a pensive mood, with fears over pending global recession and potential stagflation amplified by weak sentiment data
- Equity markets have weakened overnight, while Global yields reversed earlier climbs
- Economic activity in the NZ economy might have dipped in Q1, but the labour market looks to be tightening
Daily Alert: Hit snooze
28 Jun 2022
- It’s been a fairly listless overnight session in financial markets
- Hopes that we might see an extended pause in 2022’s ‘pain trade’ of higher bond yields and lower equities have been dashed
- Despite the dearth of news, bond yields are once again pushing higher
Daily Alert: Sharemarkets end the past week on a strong note
27 Jun 2022
- US sharemarkets recorded solid gains on Friday
- European sharemarkets also posted solid gains on Friday
- New Zealand's sharemarket benchmark index rose 1.3% on Thursday, then was closed for the Matariki public holiday on Friday
Economic Weekly: Weak Confidence and Strong Dairy
27 Jun 2022
- This week’s attention is on the ANZ Business and Consumer Confidence surveys
- Inflationary pressures having been building and interest rates rising rapidly, and the global economy is fragile – all likely to weigh on sentiment
- The World Bank is raising concerns of stagflation for the global economy considering the high levels of inflation, Russia-Ukraine war impacts and disrupted global supply chains
Daily Alert: Global recession fears mount sending yields lower
23 Jun 2022
- Markets traded with a more guarded tone overnight with yields lower on recession fears
- In his Senate semi-annual testimony from Fed chair Powell was refreshingly frank acknowledging the possibility of recession
- UK and Canadian inflation hit 40-year highs
Home Loan Report: Bracing for higher mortgage rates
23 Jun 2022
- The RBNZ has lifted the Official Cash Rate significantly off the record low level set during the pandemic, and continues to signal more increases over the year ahead.
- Similarly, mortgage rates have lifted significantly off the lows set during the pandemic. Long-term mortgage rates have risen the most over the past year but could be nearing a peak.
- Short term rates still have a way to go and are expected to lift the most over 2022, as the RBNZ keeps lifting the OCR.
- The RBNZ has lifted the Official Cash Rate significantly off the record low level set during the pandemic, and continues to signal more increases over the year ahead.
Can we cope with higher mortgage rates? Redux
23 Jun 2022
- We estimate that higher mortgage interest rates will add a (net) $5.6b to aggregate household outgoings over the coming 18 months. It’s a big number, but we expect it to be fully offset by strong income growth.
- However, adding in other cost of living hikes lifts this estimate to more like $15b. Strong growth in household wealth will help buffer this impact, but most of it is tied up in housing. And you can’t pay the bills with your house.
- We’re left with support for our view that consumer spending growth will weaken to anaemic levels later this year, in line with our and RBNZ forecasts.
Commodities Weekly: Fonterra boosts the goal posts
23 Jun 2022
- On Wednesday, we lifted our dairy price forecast for the 2022/23 season to a whopping $10 per kgMS (up from our previous pick of $9.20).
- This morning, Fonterra lifted its own guidance, bringing it closer in line with our own.
- Note that milk price futures on the NZX-SGX market continue to trade north of the upper end of Fonterra’s new guidance range.
Daily Alert: No news is good news
22 Jun 2022
- More positive (less negative?) sentiment continues to creep back into financial markets, driven by nothing in particular
- Global stock indices posted decent gains with the S&P500 up 2.8% and the Eurostoxx 50 lifting 0.7%
- Better risk sentiment also filtered through to bond markets with the US 10-year Treasury yield up a hearty 9bps or so after reopening after the US holiday
Fonterra Milk Price Update: ASB revises 2022/23 milk price forecast to $10.00
22 Jun 2022
- We have revised our 2022/23 milk price forecast from $9.20 to $10.00 per kgMS, the first double digit milk price on record
- Global dairy supply is still woeful and we’ve dramatically adjusted our view on the NZD
- Dairy prices have underperformed the futures market a tad at the latest dairy auction, but it’s not a biggie and we are focusing on the fundamentals
Daily Alert: Not a lot goin’ on
21 Jun 2022
- Financial markets are closed in the US in observance of the Juneteenth holiday (commemorating the emancipation of slaves at the end of the Civil War)
- When the US market opens tonight it will have a couple of comments to digest from a number of Fed speakers
- In other monetary policy news, major Chinese banks have left their lending rates unchanged in line with last week’s decision by the People’s Bank not to inject further stimulus into the local economy
Daily Alert: Shares mixed on Friday, but slide 5% over the week
20 Jun 2022
- The US Federal Reserve issued its twice-yearly monetary policy report to Congress, saying that "The Committee's commitment to restoring price stability - which is necessary for sustaining a strong labor market - is unconditional."
- US sharemarkets were mixed on Friday
- European sharemarkets were mixed on Friday
Economic Weekly: A rollercoaster ride
20 Jun 2022
- There were two major developments last week: The New Zealand GDP figure out for Q1 and the release of the policy rate by the US Federal Reserve
- Omicron appeared to affect the NZ economy more than expected in Q1, contributing to the quarterly GDP fall of 0.2% (market expectations were for weak but positive growth)
- Q1 experienced shortages of labour and materials, capacity constraints, wage inflation and higher costs of living, all adding to the already existing inflation and supply chain issues
Term Deposit Report: Trying to keep ahead of inflation
20 Jun 2022
- Term deposit rates have lifted significantly over the past year, including increases over the past month
- However, inflation has lifted by far more than term deposit rates recently
- High inflation increases the challenges for savers trying to get their money in the right place
Commodities Weekly: In the gutter, but looking at the stars
17 Jun 2022
- NZ agricultural output was largely flat over the first quarter of the year
- It’s not too surprising in light of the challenges faced by the sector in the first part of the year
- High input costs and logistical challenges look set to remain a feature, though the weather shows signs of tentatively improving
Daily Alert: Markets take 75bp FOMC hike in their stride
16 Jun 2022
- The FOMC deliver a front-loaded 75bp hike, the largest since 1994, taking the Federal Funds rate to 1.50-1.75%
- The FOMC dot plots signalled a total of 325bps of hikes for 2022, implying a further 175bps of hikes for the remainder of the year. Market reaction was modest
- NZ Q1 GDP and Australian employment data and the BOE rates decision cap off a busy 24 hours ahead
Q1 2022 GDP Review: Sad Face
16 Jun 2022
- NZ GDP fell 0.2% over the first quarter of 2022, wrongfooting forecasters (like us!) who expected a stronger figure
- We shouldn’t obsess too much over the quarter-to-quarter shifts given how volatile GDP prints have been lately, particularly with Omicron hitting
- As we’ve long signalled, substantial headwinds are mounting and growth over 2022 and 2023 will be much slower
Daily Alert: Don’t Fight the Fed, NZD/USD hits 2-year lows
15 Jun 2022
- The old adage above has been the driving narrative in global financial markets over the past 24 hours, producing some unsettlingly large moves
- One and two-year NZ swap yields both leapt around 25bps yesterday, to the highest level since early 2009 in the case of the former (4.04%) and 2010 the latter (4.4%)
- There’s a good chance these moves in NZ yields extend on our open given offshore yields have continued to press higher overnight
REINZ Housing data – May 2022: Slow leak continues
15 Jun 2022
- May was another weak month for all things NZ housing, as expected
- The decline in house prices to date has been very orderly - more slow leak than blowout
- No implications for our forecasts
Daily Alert: Markets fearful ahead of the Thursday FOMC decision
14 Jun 2022
- Markets remained fearful ahead of Thursday’s FOMC decision, concerned that the Fed converts hawkish rhetoric into action at a time when global growth is slowing
- Equity markets were down heavily and are approaching (or look to be entering) bear market territory (20%+ falls from peaks)
- US Treasury yields shot higher across the curve, with 20-35bp lifts. Further sizeable rises in NZ yields are in prospect today
Daily Alert: Sharemarket slump continues
13 Jun 2022
- US sharemarkets slumped on Friday as investors feared that the Federal Reserve would need to be more aggressive in lifting rates to control inflation
- European sharemarkets fell on Friday
- China’s May CPI printed a little lower than expected at 2.1%/yr (2.2% expected), while the producer price index slowed to 6.4%/yr from 8.0%/yr
Economic Weekly: Carry On Hiking, for now
13 Jun 2022
- Q1 GDP figures are the major event highlight locally this week
- Estimating growth numbers has got a bit tougher in the post-COVID world as timing effects have had a heavy impact on the swings from quarter to quarter
- Accordingly, surveys show a wide spread of forecasts by economists - we’ve got a lift of 0.6% pencilled in as our pick
Daily Alert: Eurotrip
10 Jun 2022
- Market sentiment has been pretty woeful overnight
- The highlight on the events calendar has been the latest ECB meeting
- Markets have interpreted those ECB signals as hawkish
May 2022 NZ Electronic Card Transactions: Higher fuel bills support May card spend but retail headwinds intensify
10 Jun 2022
- Stronger than expected gain in May card spending after April bounce, with higher fuel and apparel spending and the normalisation of spending patterns to pre-COVID-19 norms continuing
- Fuel spending was boosted by higher fuel prices and likely increased mobility. Rising fuel prices represent an added headwind to discretionary retail
- We have retained our subpar outlook for domestic household spending activity given our view of mounting headwinds facing the retail sector
Commodities Weekly: Beefing up and c-lamb-ering higher
10 Jun 2022
- Meat prices are undergoing their seasonal lifts
- After reaching a low point around the $5.00/kg mark, our weighted average beef price is tentatively turning upward
- For lamb prices, the turnaround has been even more dramatic – already back near the $8.78/kg mark after hitting a low point above most previous season’s high points.
Q1 2022 GDP Preview: And now, the slowdown
10 Jun 2022
- It looks like the NZ economy lifted 0.6% over the three months to March, despite the Omicron outbreak.
- The future is more important than the past and, on that front, growth is set to slow over 2022 and 2023.
- Like Murder on the Orient Express, a plethora of headwinds are ready to stick the knife in, with higher interest rates, ongoing cost pressures, slowing construction, softer agriculture production and more cautious households in the frame.
Daily Alert: Caution abounds
09 Jun 2022
- Caution remained evident in global markets, with concerns over high inflation and central bank actions to tackle it
- Global equities down, yields up, with oil prices moving higher
- Markets wary ahead of ECB decision tonight
Daily Alert: RBA gets the memo
08 Jun 2022
- The RBA appears to have taken a leaf out the RBNZ’s book yesterday, acquiring fresh urgency to get on top of inflation
- AUD/USD surged by roughly 1% above 0.7240 following the RBA’s policy decision but quickly pared back gains because of broad USD strength
- In contrast, and as we flagged yesterday, the NZD/AUD has lost just under ½ a cent in the wake of the RBA surprise
Markets Monthly: Central banks playing catch up
08 Jun 2022
- Inflation and monetary policy reviews remained a key theme driving financial markets over the past month
- Central banks are worried about inflation getting away on them, and are rapidly raising rates to cool things down
- The RBNZ lifted the OCR by 50 basis points (bp) in the latest policy review in May from 1.5 to 2.0%
ASB Dairy Update: The worm turns
08 Jun 2022
- As we’d long predicted, dairy prices have lifted at the latest auction overnight, setting the stage for further gains despite a bit of churn in the WMP product mix
- The fundamentals underpinning our forecast haven’t changed, with global supply still ultra-tight
- Another milk price north of the $9 mark looms
Daily Alert: NZD/AUD susceptible to larger RBA move
07 Jun 2022
- Those turning on their work phones this morning after the long weekend won’t notice too much of a change from Friday. Global asset markets have been fairly calm through Friday night and yesterday’s holiday
- Sharemarkets have drifted a little lower (S&P500 down 1.5% from Thursday’s close), commodity prices are up slightly (oil US$118/barrel), and bond yields have continued their uptrend (US 10-year treasury yield back above 3%)
- Good US economic news remains bad news
Economic Weekly: Life in the slow lane
07 Jun 2022
- If you feel like things are slowing down at the moment, it is not just the post-Omicron surge in traffic that is bogging things down
- The pace of the global and NZ economy is set to be softer over the next couple of years as high inflation, rising interest rates and war all bite
- Last week we released our latest Quarterly Forecasts
Daily Alert: Non-farm payrolls in sight as hawks circle
03 Jun 2022
- The tone in markets has been mildly positive overnight as investors await this week’s key data print, US non-farm payroll jobs
- Equities are in the green
- Government bond yields are uniformly higher
Housing Confidence: Thump
03 Jun 2022
- The public’s house price expectations have crashed back down to earth, although a small majority still expect prices to rise over the coming 12 months
- The silver lining is a small bounce in buyer sentiment, but most still reckon it’s a bad time to buy
- There’s a bow-wave of mortgage rate re-fixing approaching, but households can at least see it coming. A net 81% of respondents expect interest rates to keep rising over the coming 12-months – a 26-year high
Commodities Weekly: Not going out
03 Jun 2022
- Export data released earlier in the week suggests volumes for most NZ agri commodities started 2022 on a weak note
- Agri production is similarly soft in many parts of the world
- For now, higher prices continue to offset lower volumes
Daily Alert: Markets cautious as inflation lingers
02 Jun 2022
- Markets adopted a more cautious tone, unnerved by concerns over inflation and signs of slowing global growth
- Central bankers continue to flat future rate hikes
- Data shows resilience but softening signs in China
Q1 2022 Terms of Trade: Heading higher from here
02 Jun 2022
- NZ’s terms of trade nudge back towards records highs
- Export volumes are woeful, and we think the recovery will be slow
- We expect our terms of trade to peak towards the end of the year, with a soft landing to follow
Daily Alert: Back on the bandwagon
01 Jun 2022
- After a brief reprieve last week, global markets were back on the higher interest rates/lower equities trade overnight as stagflation concerns flared up again
- A stronger set of European inflation figures set the tone
- European bond yields bounced 6-8bps on the inflation data with key equity indices across the continent down 0.9% (Spanish Ibex) to 1.4% (French CAC)
Daily Alert: US markets closed as European yields surge
31 May 2022
- Markets in the US have been closed for Memorial Day so it’s been a quiet start to the week
- In Europe there have been some pretty chunky lifts in bond yields
- Despite those inflation woes, European equities have mostly lifted
Quarterly Economic Forecasts: Out of the Frying Pan, into the Fire
31 May 2022
- The influences on NZ’s economy are shifting, though still leaving a lot of challenges for everyone to juggle
- Economically speaking, NZ is largely out of the COVID frying pan
- But NZ is facing the fiery heat of inflation and the RBNZ’s response to it
May ANZ Business Outlook: Thin ice
31 May 2022
- Inflation indicators didn’t get any worse, affording some comfort to the RBNZ that inflation may be peaking
- Activity measures mostly deteriorated – supporting our view that the RBNZ is too optimistic on the near-term growth outlook. Business and consumer confidence are around recessionary levels
- No implications for our updated OCR view. We continue to expect a further 150bps of OCR hikes this year
Daily Alert: US and European shares post solid gains on Friday
30 May 2022
- In US economic data, personal income rose by 0.4% in April (survey: +0.5%) while spending was up 0.9% (survey: +0.8%)
- US sharemarkets climbed on Friday on expectations that inflation had peaked
- European sharemarkets advanced on Friday
Home Loan Report: RBNZ delivers another 0.5% hike, more to come
30 May 2022
- The RBNZ lifted the Official Cash Rate by 0.5% in April and then again in May
- The RBNZ continues to signal more increases over the year ahead
- Mortgage rates have lifted significantly off the lows set early last year
Economic Weekly: Kilimanjaro
30 May 2022
- Last week’s RBNZ Monetary Policy Statement was the only game in town for the local economy.
- While everyone and their dog expected the Bank to deliver 50bps of OCR hikes, punters watched to see how it would acknowledge the headwinds darkening the growth outlook, whilst still committing to stamping out lofty inflationary pressures
- Market expectations were ultra-hawkish ahead of the meeting, with another double hike of 50bps priced for July (instead of the regulation 25bps), and an endpoint of 3.75-4% in sight
Term Deposit Report: Term deposit and inflation rates are both on the rise
30 May 2022
- Term deposit rates have been lifting off their all-time lows over the past year
- Inflation has been low over recent years but has risen sharply and is eroding the returns from term deposits
- Related to the rising inflation situation and the economic recovery in the wake of the COVID-19 pandemic, the RBNZ started lifting the Official Cash Rate in October 2021
Daily Alert: Retail therapy
27 May 2022
- The mood overnight has been pretty positive in financial markets
- Shifts in yields have been fairly modest after the excitement of recent days
- The positive risk sentiment doesn’t seem to have boosted the USD, which is down marginally against the rest of the G10
Commodities Weekly: A little bit of give and take
27 May 2022
- Global commodity prices have been slowly edging lower since they peaked in March.
- With global growth decelerating, we think agri prices have probably peaked for this cycle, but a substantial correction doesn’t look likely given very soft production for many goods.
- On the other hand, rising interest rates will put pressure on many producers, as the RBNZ looks to tighten monetary policy even more agressively than previously signalled.
Daily Alert: Recent Fed and RBNZ 50bp hikes will not be the last
26 May 2022
- The RBNZ hiked the OCR by 50bps (to 2.0%) and delivering a stringent policy assessment with a prolonged period of restrictive monetary settings needed to meet its medium-term policy objectives
- The FOMC Minutes this morning also confirmed the RBNZ weren’t the only ones intending to continue hiking in 50bp increments
- There was little market reaction to the FOMC minutes
Daily Alert: Pre-RBNZ anxiety
25 May 2022
- The risk sentiment dial has swung back to negative overnight, as familiar anxieties about ailing global growth return
- Global share-markets are back in the red following yesterday’s brief respite
- Both the US services PMI (53.5 vs. 55.2 expected) and April new home sales underwhelmed
RBNZ May Monetary Policy Review: RBNZ up for the fight
25 May 2022
- The RBNZ is worried about continuing to overshoot its objectives, and has come out swinging
- Two consecutive 50bps rate hikes have been delivered, and we now expect a further two in July and August reflecting the Bank’s renewed urgency to get the OCR onto the tighter side of neutral
- We nudge up our forecast OCR peak only slightly, to 3.50%, and bring forward our projected easing cycle to February 2024
Daily Alert: Favourable signs boost sentiment
24 May 2022
- Markets traded in a generally favourable mindset overnight helped by signals the Biden administration was considering its stance on the Trump tariffs to China
- Overnight comments by central bankers suggested a growing consensus to remove policy stimulus and potentially take rates to restrictive levels to cool inflation
- NZ Q1 retail trade data today should confirm slowing momentum, with household spending facing a number of headwinds over 2022
Q1 2022 NZ Retail Trade Review: Sluggish start to 2022 retail likely to continue
24 May 2022
- Sluggish start to retail volumes in 2022 following the post-Delta bounce
- The trifecta of soaring living costs, weaker household balance sheets and sluggish population growth are expected to weigh on household spending activity
- Recession for 2022 cannot be ruled out, but the RNBZ will continue to hike the OCR nonetheless
Daily Alert: Eyes turn to the RBNZ
23 May 2022
- We expect the RBNZ to deliver a “double-double” on Wednesday, a second consecutive 50bps hike to take the OCR to 2.00%
- This outcome is close to fully priced by financial markets
- What is much less certain is what the RBNZ does with its interest rate forecasts and forward guidance
Economic Weekly: Public Enemy #1
23 May 2022
- Brows are furrowing everywhere as inflation suddenly becomes ubiquitous
- Appropriately, it’s also getting the full attention of the country’s economic managers
- Inflationary impacts were littered throughout Budget 2022
Daily Alert: USD slips despite markets’ funk
20 May 2022
- Budget 2022 showed a slightly delayed return to surplus given the weaker economic backdrop, challenges posed by high inflation, and widespread capacity constraints
- This resulted in a mildly less restrictive fiscal impulse from 2023 onwards (relative to the HYEFU update), providing a small boost to NZ wholesale interest rates (3-4bps) and the NZD/USD (+30-40 points) yesterday
- The bond programme was lifted by $26b over 5 years, roughly as expected, with most of this related to the buy-back of RBNZ bond holdings
NZ People Movements: Life in a time of COVID
20 May 2022
- Google mobility data show the pandemic has considerably reduced the use of public transport
- Time spent at workplaces has also seen major shifts and considerable fluctuation. Post-pandemic working styles are likely to see long-lasting change
- The mobility data suggest milder activity impacts vs. 2020 & 2022 if future COVID waves follow
Daily Alert: All eyes on Wellington for Budget 2022
19 May 2022
- The Government’s Budget 2022 is delivered today
- The NZ Treasury has recommended NZ adopt a headline public debt measure closer to international norms and that is more reflective of the real state of our fiscal position
- After a positive session in Asia, it has been a tough night for US and European shares
RBNZ May Monetary Policy Statement Preview: No Quarter
19 May 2022
- RBNZ to deliver successive 50bps hike next week
- Recession risks will be acknowledged but inflation is still top of the ‘to-do’ list
- We continue to expect a more cautious, data dependent approach from July, with the pace of hikes returning to the regulation 25bps-per-meeting run-rate
NZ Budget 2022 Review: Budget 2022 takes a longer-term view but clear risks lie ahead
19 May 2022
- Budget 2022 showed a later return to surplus given the weaker global backdrop, challenges posed by high inflation, and widespread capacity constraints. Higher inflation has boosted Crown expenditures and revenues
- The Budget also introduced a (lower) headline net public debt measure and two fiscal rules that attempt to strike the balance between prudence, flexibility and taking a longer-term view
- The Government has unveiled an ambitious programme but needs to convert announcements into action and the delivery of its policy agenda.
Commodities Weekly: A fruitful index update
19 May 2022
- We have re-based the ASB NZ Commodities Index to reflect changes to the composition of our exports
- There’s been no change in the components of the index. Wool and fruit have had considerable re-weightings
- We believe our new index provides Kiwis with their most accurate measure of NZ commodit prices
Daily Alert: And breathe
18 May 2022
- Another wave of relief swept across financial markets overnight, reflected in higher equity markets, a lower USD, and a decent bounce in global bond yields
- The general recovery in risk sentiment reflects two factors: First, hopes the Chinese COVID situation has turned a corner
- Second, economic data released overnight have tended to impress, scuttling recession fears for the moment
ASB Dairy Update: Bull in a China strop
18 May 2022
- There’s been another decline in dairy prices at the auction overnight.
- A vexed mood among Chinese buyers has pushed prices lower over the past five auctions, but last night's decline was driven by Fonterra shuffling the mix of whole milk powder on offer.
- We are still bullish on the dairy price outlook and retain our $9.50 per kgms forecast for 2021/22 and our $9.20 per kgms forecast for 2022/23.
Daily Alert: Scaling the wall of worry – just about
17 May 2022
- Despite some soggy economic data out of China (see our write-up below), market sentiment has started the week in OK condition
- Sharemarkets have been mixed, with Wall Street benchmarks oscillating between losses and small gains
- Treasury yields have pared back very modestly as we open the week
Daily Alert: US & European sharemarkets close the week on a strong note
16 May 2022
- European and US sharemarkets climbed on Friday
- US sharemarkets surged higher, supported by US Federal Reserve Chair Jerome Powell’s reassurance on Thursday that bigger interest rate hikes would be off the table for now
- US treasuries fell on Friday (yields higher)
Economic Weekly: Volatility in Financial Markets Continues
16 May 2022
- Concerns about high inflation, central bank action, along with the war in Ukraine continue to weigh on the global growth outlook and rattle financial markets
- Expectations of aggressive central bank tightening and heighted concerns about an energy crisis in Europe, as well as rapidly slowing activity in China all combined to impact sentiment last week
- In the FX space, the NZD is trading below 0.6300 against the USD
Daily Alert: Another day, another sell-off
13 May 2022
- Overnight, sentiment has been poor, as gloom and risk aversion have again set in among markets
- Investors have been ducking for cover in the usual safe-haven asset classes
- Similarly, Treasuries have rallied (yields lower)
Home Economics: Bracing for Impact
13 May 2022
- House prices are falling but the bulk of the impact from the mortgage rate surge is yet to come
- Faster and larger lifts in mortgage rates mean we now expect modest house price declines through to mid-2023. All told, we expect around a 12% decline. In real terms though, this would amount to a 20% correction
- We expect a house price inflation recovery to kick in over the second half of 2023, tied to our forecasts for an upturn in net migration and flattening mortgage rates
Commodities Weekly: A flightless bird
13 May 2022
- Recent weeks have seen a major underperformance of the NZD against the USD, with woeful risk sentiment the culprit.
- We suspect this story has a bit longer to run - the current low level of the Kiwi is a wee bit out of proportion with the fundamentals and the currency will no doubt bounce back over time, but the near-term headlines will probably re-enforce the prevailing mood.
- The softer Kiwi is a real boon for farmers and exporters - underlying USD-denominated commodity prices have come off about 10% since their March peak according to our index, but our NZD index is only down 4%.
Daily Alert: US inflation whipsaws NZD/USD
12 May 2022
- Stronger-than-expected US inflation figures whipsawed inflation-obsessed US markets overnight
- Investors initially took fright at the stronger US headline inflation print (0.3% m/m vs. 0.2% expected), with a range of (arguably more important) core measures also beating expectations
- Comments from Atlanta Fed President Bostic appeared to line up with market expectations of at least two more consecutive 50bps hikes in the Fed Funds rate
NZ Budget 2022 Preview: Taking a longer-term view
12 May 2022
- Budget 2022 is expected to show a later return to surplus, given the weaker global backdrop, challenges posed by high inflation and widespread capacity constraints
- It will also introduce a (lower) headline net public debt measure and two fiscal rules that attempt to strike the balance between prudence, flexibility and taking a longer-term view
- To us the focus will be on whether the new approach manages to deliver the Government’s policy objectives over time
REINZ Housing data – April 2022: Cooler Climes
12 May 2022
- The retreat in NZ’s housing market continued in April, albeit at a slightly reduced pace
- There was nothing in the data to change our view that house prices will remain under downward pressure for at least the remainder of this year
- We’ll provide a more detailed run-down of our house price forecasts in our Home Economics publication to be released later today
Daily Alert: Markets remain skittish
11 May 2022
- Markets have remained skittish and volatile, with concerns over central bank actions, the persistence of extremely high levels of inflation and the global growth outlook weighing
- Equities have been volatile, the USD has strengthened and US long-term Treasury yields have eased
- US CPI is the focus tonight
Daily Alert: Safety first
10 May 2022
- Recent risk-averse themes have once again made themselves known as we open the week: equities are in the doldrums and safe-haven assets have found support
- Falls in Treasury yields have been notable – down 9-17 bps and the curve broadly flattening
- Central Bank pooh-bahs on the wires have been eager to strike a balance between tough talk on inflation and soothing noises counselling against overtightening
April 2022 NZ Electronic Card Transactions: Spending soars in April, but momentum unlikely to be sustained
10 May 2022
- Jump in April card spending underpinned by stronger apparel, hospitality, services and consumable retail. Higher retail prices may also be responsible
- Overall card spending just a smidge below 2021 peaks, with some signs spending patterns are pivoting towards pre-COVID-19 norms
- Despite the April jump, we don’t expect this growth momentum to be sustained given our view of mounting headwinds facing the retail sector
Daily Alert: Sharemarket slump continues
09 May 2022
- US sharemarkets fell on Friday with nine of 11 S&P sectors weaker
- European sharemarkets were weaker on Friday
- In US economic data, Non-farm Payrolls (jobs) rose by 428,000 in April , stronger than surveyed expectations centred on a 391,000 increase
Economic Weekly: Charge of the Central Bank Brigade
09 May 2022
- Last week was dominated by central banks continuing to hike interest rates offshore
- The US Federal Reserve Open Market Committee much expectedly lifted the Fed Funds rate by 50 basis points to 0.75%-1.0%
- Chair Jay Powell noted that further 50bp lifts were on the table for the next couple of meetings
Daily Alert: Equities tumble, yields jump on market flip-flop
06 May 2022
- Markets have had a shocker overnight
- Yields are also back on the march
- In typically grand fashion, analysts have described the overnight moves as a ‘capitulation’ trade per the Financial Times
Markets Monthly: Inflation is back, and central banks are responding
06 May 2022
- New Zealand CPI inflation is running at the highest rate in more than 30 years, printing at a rate of 6.9% over the year ending 31 March
- ASB economists feared that it could print above 7%
- The weakness relative to our forecast was largely due to a lower lift in “tradable” prices which is likely to reverse this quarter
Daily Alert: FED hikes by 50bps with more to come. RBNZ to follow suit
05 May 2022
- As was widely expected the FOMC hiked the federal funds rate by 50bps (0.75%-1.00%), with Chair Powell signalling 50bp hikes “should be on the table” in the next couple of meetings
- US interest rates and the USD fall while stocks rise as markets pare back the likelihood of more aggressive FOMC tightening
- We continue to expect a 50bp RBNZ OCR hike in May with yesterday’s Q1 labour market data confirming an extremely tight labour market and signs of rising inflation
Daily Alert: Everyone gets it wrong as RBA hikes 25bps
04 May 2022
- Aussie whole yields jumped 5-20bps and the AUD jumped to the top of the FX leaderboard yesterday after the RBA hiked its cash rate 25bps to 0.35%
- Driving the RBA’s decision was a massive upward revision to its inflation forecasts
- This morning’s GDT dairy auction was weaker than expected
Commodities Weekly: Don't Panic
04 May 2022
- Prices have dipped more than most expected at the latest dairy auction overnight.
- It’s important to keep this dip in context. An 8½% fall in the overall GDT index is a large move over the course of a single auction, but the result only takes WMP and SMP prices back where they were in mid-January.
- Our view is the dairy market fundamentals still look pretty favourable to prices and we retain our milk price forecasts.
Q1 2022 Labour Market Data Review: Labour market set to remain tight over 2022
04 May 2022
- The unemployment rate starts 2022 at a record low, with employment above its maximum sustainable level
- Wage growth accelerated to a post-GFC high with more sizeable rises to come as workers seek compensation for the skyrocketing cost of living
- The labour market is biased to tighten further over 2022 with the OCR needing to move up further
Daily Alert: Crossing the Tasman
03 May 2022
- Central Bank O-Rama kicks off today, with the RBA meeting at 4:30pm today (to be followed by the Fed and BoE later on)
- Overnight, the big theme has been ongoing volatility in markets, with the VIX index continuing to spike
- European equities have taken a bigger hammering
Term Deposit Report: Inflation is back, and impacting savers
03 May 2022
- The RBNZ delivered its first Official Cash Rate increase in over seven years in October 2021 and followed up with further hikes at subsequent meetings in late 2021 and early 2022
- More OCR increases are expected over the year ahead, and this is priced into longer-term interest rates in New Zealand, including term deposits
- Despite the increase we have seen this year, most rates on offer are still very low and are expected to remain below historical averages over the coming years
Daily Alert: US sharemarket slumps ahead of a big week for central banks
02 May 2022
- US sharemarkets slumped on Friday
- In contrast, European sharemarkets rose on Friday in response to positive earnings results and a rally in mining stocks
- The world’s central banks will be in focus this week, with the Reserve Bank of Australia, the Bank of England, and the US Federal Open Market Committee all meeting to set their respective target interest rates
Economic Weekly: Labour market tight in Omicron midst
02 May 2022
- The ANZ business confidence report had a mixed batch of April confidence readings
- Business sentiment remains gloomy as headline confidence fell slightly from March’s already-supressed level
- But a sprinkling of mildly encouraging signs was enough to keep our forecasts in play for low-but-ok GDP growth, and a slow easing in headline inflation from the likely H1 2022 peak
Daily Alert: Equities find their feet, US dollar hits the rocket boosters
29 Apr 2022
- It’s been another action-packed session overnight
- Global stock markets and risk appetite surged back into the green, reversing much of this week’s weakness
- Global bond yields have continued to press ever-higher, this time led by Europe
Q1 2022 Labour Market Data Preview: Worker shortages to keep labour market tight
29 Apr 2022
- Next week’s Q1 figures are expected to show modestly tighter labour market conditions, with employment flat-lining, but with the unemployment rate likely to test record lows
- Annual wage growth is expected to hit its highest rate since 2008, given the tight labour market and rocketing cost of living. Accelerating nominal wage growth is on the cards for 2022, but high inflation will outstrip this
- The phased reopening of the border over 2022 could be disruptive for the labour market initially placing additional strains on already-stretched labour market capacity and lifting wage inflation
Daily Alert: Australia no longer a special case as inflation soars
28 Apr 2022
- The AUD and Australian yields spiked after Q1 headline Australian CPI inflation topped expectations and hit a a more than 20 year high
- Market sentiment has remained cautious overnight
- Global stocks and treasury yields up and European gas prices soar as Russia cuts off Poland and Bulgaria
Commodities Weekly: ASB Commodities Index eases over the week
28 Apr 2022
- The ASB Commodities Index decreased in NZD, SDR and USD terms last week
- The overall NZD Commodities Index was down 1.2%, having slipped 0.4% a week earlier
- Nonetheless, the NZD index is within 2% of the record high set in March and is up 16.9% on a year ago
April ANZ Business Outlook: Hope Creeps
28 Apr 2022
- Business sentiment remains in the doldrums, with a mixed batch of April confidence readings.
- But a sprinkling of mildly encouraging signs was enough to keep our forecasts in play for low-but-ok GDP growth, and a slow easing in headline inflation from the likely H1 2022 peak
- There was nothing to dissuade the RBNZ from hiking the OCR another 50bps in May, as remains our view, with a steady series of 25bps lifts to follow thereafter
Daily Alert: Australia about to board the high-inflation bandwagon?
27 Apr 2022
- The general ‘risk-off’ sentiment of the past few days deepened overnight, despite a dearth of new news
- Investor anxieties haven’t changed
- In the background, the US corporate earnings season hasn’t provided its usual source of comfort for US equity markets
Daily Alert: COVID-19 and Fed triggered slowdown instils caution
26 Apr 2022
- COVID-19 and Fed triggered slowdown instil caution in markets over the long weekend
- Stocks, government bond yields and commodity prices lower
- Australian Q1 CPI is focus this week, with annual core inflation expected to move above 2-3% RBA inflation target
Economic Weekly: Consumers feeling the pinch of soaring inflation
26 Apr 2022
- Q1 CPI inflation was slightly lower than we expected, however it is still the highest in more than 30 years at 6.9% p.a.
- The weakness relative to our forecast was largely due to a less than rapid lift in tradable prices which is likely to reverse next quarter
- There is expected to be payback in Q2 with airfares and supply chain frictions set to boost prices
Daily Alert: Persistence matters not the inflation peak and Powell signals 50bp May Fed hike
22 Apr 2022
- Headline NZ CPI inflation surprised on the downside (just 1.8% qoq, 6.93% yoy) in Q1 but that was about where the downside surprises ended, with core inflation soaring
- FOMC Chair Powell made his position about as clear as he could in the world of central banking signalling it was appropriate for the FOMC to front load (or speed up) policy tightening, with a 50bp hike “being on the table”
- Global yields jump overnight, with US stocks pressured lower
Daily Alert: Chucking it into reverse
21 Apr 2022
- Market movements overnight have been choppy with the general trend being for a mild reversal of recent price action
- After an encouraging open thanks to a positive lead from Europe (Euro Stoxx 50 +1.7%), US equity markets are dipping back into the red as we write (S&P500 -0.1%, NASDAQ -0.9%)
- There was no obvious catalyst for the sudden pull-back in US yields, other than a short-term correction perhaps being overdue given how ridiculously fast yields have risen
2022 Q1 CPI Review: Nudging 7%
21 Apr 2022
- Annual consumer price inflation generally undershot expectations but still hit its highest level in more than 30 years
- Much of the downward surprise to our inflation pick looks to be due to timing and will likely reverse. Increases in consumer prices look to be widespread, with the risk of high inflation becoming more entrenched
- We expect the RBNZ to move swiftly and deliver a 50bp hike in May. The degree of additional tightening beyond that is dependent on the outlook for inflation and inflation expectations, and how the NZ economy responds to tighter financial conditions
Daily Alert: Yields move higher despite heightened Ukraine tensions
20 Apr 2022
- Yields move higher despite heightened political tensions, IMF downgrades to global growth and more policy support from China
- Risks of a hard landing in NZ are climbing, and we expect OCR cuts will be needed after the RBNZ acts stringently to bring inflation under control
- The latest dairy auction was soft, but we retain out positive NZ 9.50 kgMS milk price forecast for 2021/22
Commodities Weekly: Prices fall at the latest GDT event
20 Apr 2022
- Dairy prices were weak at the Global Dairy Trade event overnight
- The overall GDT price index was down 3.6%, and all the product indices recorded declines
- It is the third consecutive drop in the index, from an all-time high back at the start of March
Daily Alert: NZ inflation literally the big one this week
19 Apr 2022
- We have finalised our longer-term OCR outlook after last Wednesday’s 50bp OCR increase
- Last Thursday’s release of March Australian employment showed an 18k jobs lift and steady unemployment at its joint lowest rate of 4%
- Friday night’s April University of Michigan Consumer Sentiment survey showed a sharper than expected jump in sentiment to 65.7, a 3-month high, from 59.4
Economic Weekly: RBNZ fires both barrels as inflation spectre looms
19 Apr 2022
- The RBNZ lifted the OCR by 50 basis points in the latest monetary policy review in April from 1.0-1.5%
- The need for the increase stems from the concern about inflation getting entrenched
- The motivation to move rates swiftly was to use a ‘least regrets’ approach to quickly move the OCR closer to the circa 2% neutral levels to reduce the risk of higher inflation becoming embedded
Daily Alert: RBNZ delivers dovish 50bp hike while Bank of Canada followed with 50bp lift
14 Apr 2022
- The RBNZ consulted their least regrets manual and hiked the OCR by 50bps to 1.50%, citing the need to move to a neutral stance sooner to reduce the risk of high inflation becoming more embedded. Importantly, the RBNZ did not convey an explicit tightening bias
- Hot on the heels of the RBNZ, the Bank of Canada (BOC) hiked its overnight benchmark policy interest rate by 50bps to 1.0%. The BOC policy assessment was more strident than the RBNZ, signalling further hikes to offset soaring inflation
- Global yields were down while equities and commodity prices rose
REINZ Housing data – March 2022: Higher, earlier = lower & slower
14 Apr 2022
- March REINZ data show NZ’s housing market in full retreat
- As credit tightening and higher mortgage rates hobble demand
- The RBNZ is getting a wriggle on with interest rates so we now see a deeper 8% fall in house price inflation by the end of this year (previously 6%), and only a lacklustre recovery in late 2023
2022 Q1 CPI Preview: Annual NZ CPI Inflation to crack the 7% barrier
14 Apr 2022
- We expect a 2.2% quarterly increase in the headline CPI over Q1, lifting annual headline inflation to 7.3%, its highest rate in more than 30 years. Risks are tilted to the downside for our Q1 pick
- However, annual CPI inflation is expected to remain elevated over 2022 and remain outside the 1-3% target range until probably 2024
- High near-term inflation and stretched capacity warrant the RBNZ hiking by 50bps in May and moving the OCR into restrictive territory beyond that
Home Loan Rate Report: RBNZ steps up the pace of interest rate increases
14 Apr 2022
- The RBNZ lifted the Official Cash Rate by 0.5% in April and continues to signal more increases over the year ahead
- Mortgage rates have lifted significantly off the lows set early last year
- Long-term mortgage rates have risen the most over the past year but could be nearing a peak
Commodities Weekly: 50 not out
14 Apr 2022
- The RBNZ hiked the OCR by 50bps to 1.50% this week, seeking to head off the risk that higher inflation becomes embedded.
- No-onecan predict exactly where the OCR will peak and when (or indeed when the cyclewill begin to unwind), but we have a good sense of the direction of travel overthe next twelve months.
- Higher interest rates are likely to widen the gaps between thewinners and losers in commodity markets as they add to the cost pressuresbusinesses are facing.
Home Loan Rate Report: RBNZ steps up the pace of interest rate increases
14 Apr 2022
- The RBNZ lifted the Official Cash Rate by 0.5% in April and continues to signal more increases over the year ahead
- Mortgage rates have lifted significantly off the lows set early last year
- Long-term mortgage rates have risen the most over the past year but could be nearing a peak
Daily Alert: NZD/EUR back on the march; RBNZ decision to bring volatility
13 Apr 2022
- Market feathers were ruffled overnight by a rare event – a downside surprise on inflation
- Market reaction was probably overstated by the fact yields were overdue a near-term correction given their surge higher of recent weeks (and as covered in our weekly)
- Global commodity prices have been the other big mover of the night
RBNZ April Monetary Policy Review: RBNZ hikes by 50 but light on forward guidance
13 Apr 2022
- The RBNZ hiked the OCR by 50bps to 1.50% but was light on future guidance
- The motivation to move rates swiftly was to use a least regrets approach to quickly move the OCR closer to circa 2% neutral levels to reduce the risk of higher inflation becoming embedded
- We have revised up our OCR forecast view and now expect a 50bp hike in May, followed by a sequence of 25bp hikes to a 3.25% OCR peak this cycle. Pre-emptive OCR hikes will reduce the need for hikes further down the track
Regional Economic Scoreboard Q4 2021: The podium remains Canterbury 1st, Manawatū 2nd & Northland 3rd
12 Apr 2022
- Canterbury tops the table again, ahead of Manawatū and Northland
- Waikato, Gisborne and Otago all slide down the rankings, but Taranaki jumps up nine positions
- Despite remaining in Alert Level 3 for most of the quarter, Auckland moves from 11th to 8th place
Daily Alert: ‘Evans above
12 Apr 2022
- It’s been an uncharacteristically lively start to the week, punctuated by some very hawkish comments from a key Fed official overnight
- Unsurprisingly given the flow of recent data and the signalling from the Fed, Treasury yields have mostly moved higher overnight, with the curve steepening
- Meanwhile, it hasn’t been a great night for equities, which have notched up some largish falls
Quarterly Survey of Business Opinion: An awkward spot
12 Apr 2022
- Q1 QSBO confirms slowing economic momentum, still-intense capacity pressures and soaring prices and costs
- NZ CPI inflation looks set to remain elevated over 2022 as firms pass on cost increases
- The OCR needs to move higher. We expect a 25bp hike tomorrow and a 2.75% OCR peak but acknowledge the very strong risk of a larger move and for a swifter and more pronounced pace of RBNZ hikes
Daily Alert: Sharemarkets mixed as yields continue to press higher
11 Apr 2022
- European sharemarkets rose on Friday as investors took advantage of beaten down stock valuations
- US sharemarkets were mixed on Friday as investors grappled with the US Federal Reserve's campaign against elevated price pressures
- US treasury yields climbed on Friday as bond traders bet on a more hawkish policy stance from the US Federal Reserve
Economic Weekly: Global rates sulk turns to tantrum, but recessions still unlikely
11 Apr 2022
- Of all the changing thematics to watch this year, the question of whether central banks can bring inflation to heel without upending the global economy remains number one in our view
- The stakes just keep ratcheting up
- Risks to global inflation continue to move to the upside
March 2022 NZ Electronic Card Transactions: Uneven March for card spending with challenges ahead over 2022
11 Apr 2022
- A mixed March month, but with retail volumes flat in Q1 as Omicron shunts consumers to the side lines
- It’s early days, but there were signs of recovery in non-retail spending as spending patterns start to pivot towards pre-COVID-19 norms
- It is our expectation the retail outlook in general will be challenging over 2022 as headwinds facing the retail sector intensify. Durables retail is looking particularly challenging
Daily Alert: Yields continue to climb in FOMC aftermath
08 Apr 2022
- Risk sentiment has mostly been on the front foot overnight, at least in North America, but the real story remains the ongoing climb in bond yields following on from yesterday’s FOMC minutes
- Comments from James Bullard have struck a re-enforced message overnight, saying the Fed is ‘behind the curve’ and supporting a 3.25% Fed Funds rate by the end of the year
- The upshot has seen longer term US Treasury yields head further north to three-year highs
Daily Alert: March Fed hikes are the just the start with bond sales from May
07 Apr 2022
- Hawkish FOMC minutes signal March hikes are just the start, with monthly bond sales of USD95bn starting from next month
- Next week’s OCR decision will be a coin toss, but we are opting for a 25bp hike and a forthright statement
- There are plenty of risks out there that should keep markets on edge
Daily Alert: RBA joins the club
06 Apr 2022
- The most eye-catching markets development of the past 24 hours has been yet another lurch higher in interest rates, as central bank rhetoric turns ever-more hawkish in response to spiking inflation and tight labour markets
- As well flagged in yesterday’s missive, the RBA duly ditched the word “patience” from its Statement, effectively signalling the inflation and labour market outlook is now conducive to lifting the cash rate and thus ending a long stand-off with the market about when it would do so
- The RBA’s hawkish shift had a big impact on antipodean markets, despite the fact it’s been widely anticipated for some time
RBNZ April Monetary Policy Preview: 50-50 for a 50bp April RBNZ hike
06 Apr 2022
- We are opting for a 25bp OCR hike next week, but the RBNZ could easily hike by 50bps
- The RBNZ is expected to maintain a clear tightening bias and signal it is open to subsequent 50bp hikes if needed
- For now, we are sticking to our call for a sequential path of 25bp hikes and a 2.75% early 2023 peak
Commodities Weekly: Shang-hai noon
06 Apr 2022
- Dairy prices edged lower overnight, wrongfooting expectations of a modest lift.
- The latest lockdown in China looks like the culprit, there’s been an awful lot of disruption to domestic Chinese supply chains, with the upshot being local dairy production has been redirected away from fresh milk and into less-perishable powders
- Don’t expect recent reticence for NZ product from Chinese buyers to last and while demand is set to ease a bit over the year, that tight supply picture should keep prices well supported - the upshot is that we’ve retained our lofty milk prices forecasts for this season and next.
Market Monthly: Fed hikes, inflation, and war all drive markets
06 Apr 2022
- Interest rate hikes were a major theme over March
- The US Federal Open Market Committee kicked off its tightening cycle with a 25-basis point (0.25%) lift in the Federal Funds rate (to a 0.25%-0.5% range)
- The Committee also noted future rate hikes and the running down of its asset holdings
Daily Alert: Sometimes patience ain’t a virtue
05 Apr 2022
- It’s been the usual quiet start to the week in financial markets, but things are set to get a bit livelier today with the RBA meeting at 4.30pm
- Moves in Treasury yields were relatively modest as markets await Wednesday’s Fed minutes
- Despite that, equities have opened the week higher
Daily Alert: Sharemarkets press higher offshore while the local market remains flat
04 Apr 2022
- In US economic data, Non-farm Payrolls (employment) data were mixed
- European sharemarkets climbed on Friday
- US sharemarkets closed modestly higher on Friday as investors digested the latest jobs report
Economic Weekly: 50/50 on a 50?
04 Apr 2022
- Results in last week’s ANZ Business Outlook confirmed that input costs are continuing to rise apace
- Surging cost pressures have obviously been making headlines for some time, as have their usual hellspawn, stronger pricing intentions
- Policymakers are in a tight spot in the current environment
Daily Alert: Biden brings the good oil
01 Apr 2022
- A faint risk-off mood prevailed in financial markets overnight, on relatively little news
- Yesterday’s lacklustre read on Chinese services production is being touted as part of the reason for the droop in market sentiment
- The key news for the night was the announcement the US will release 180m barrels from its large strategic oil reserves
Commodities Weekly: Beef and Lamb - looking through the Omicron obstacles
01 Apr 2022
- The impact of Omicron has been felt by beef and lamb processors over the past month or so.
- While processing backlogs have swelled, NZ Omicron cases have hopefully peaked, giving capacity scope to improve from here on out.
- Meanwhile, high global prices show little sign of undergoing a swift correction
Daily Alert: Flashing amber on risks of a hard landing
31 Mar 2022
- ANZ business outlook and anecdotes have us revising up our NZ CPI forecasts, and we now expect a 7½% peak
- The US economy still looks to be going gangbusters, but the US Treasury market is flagging reasons for caution
- Heightened geopolitical tensions were back on the radar screens for markets overnight, with risk aversion the predominant mood
Trade Disruptions Update - March 2022
31 Mar 2022
Since December’s perfect storm, we’ve seen yet more cost pressures rain down on Kiwi importers and exporters.
Russia’s war in the Ukraine is creating further disruption on already stretched supply chains and freight costs continue to rise to never seen before heights.
But with signatures still wet on a new UK trade deal and our borders opening up, we hope to see new opportunities on the horizon for kiwis trading abroad.
Our economics and international trade teams have created this note as an update to our Trade Disruptions Report from December 2021. A new complete report will be released in June.
Daily Alert: Markets recovering their poise
30 Mar 2022
- Financial markets are in the process of reversing some of the moves driven by the Russian invasion, amid tentative signs of progress in talks overnight
- JPY weakness has been a notable feature of FX markets lately
- Fed officials continue to talk around the fact they’re likely going to hike 50bps at the next meeting
Markets Monthly: Bond yields keep pressing higher in February
30 Mar 2022
- Markets were choppy in February, with inflation concerns and Russia-Ukraine tensions weighing on investor sentiment
- The pandemic remains a major concern for investors but was less influential on markets in February
- The RBNZ lifted the Official Cash Rate in February and signalled more increases over the year ahead
March ANZ Business Outlook: This is getting awkward
30 Mar 2022
- Business sentiment stabilises, at still subdued levels
- No such luck on cost/inflation measures. We lift our forecast peak in CPI inflation to 7.5% from 7.0%
- April RBNZ decision (+25bps vs. +50bps) increasingly a line-ball call. We stick with 25bps for now
Daily Alert: Markets mixed as we open the week
29 Mar 2022
- The mood in markets overnight has been relatively neutral with few clear patterns evident
- Commodity Prices have taken a breather after their vertical march of late
- Treasury yields are higher in the front end, but lower in the back
Daily Alert: Oil prices lift further
28 Mar 2022
- Global oil prices rose 1.4% on Friday
- In US economic data, pending home sales fell by 4.1% in February (survey: +1%)
- European sharemarkets were higher on Friday
Economic Weekly: Confidence likely to be softer mid-wave
28 Mar 2022
- Results in the ANZ’s Business Outlook survey for March are likely to show even weaker levels of confidence than in February
- One of the key activity results to watch in the survey is businesses’ views of how they expect to trade over the coming 12 months
- Inflation is also in the picture this week
Daily Alert: Markets dance to their own tune
25 Mar 2022
- Markets have danced to their own tune, with the strong tone of global data highlighting the economic resilience in spite of a major conflict and a global pandemic
- Oil prices remained volatile, with futures down 2% as meetings between global leaders have yet to mention fresh sanctions on Russian oil
- Extremely sparse on the local event calendar. Have a safe weekend and support local retail where you can
Commodities Weekly: Focus on the fundamentals
25 Mar 2022
- Last week saw prices for a number of hard and soft commodities tick down, in a reversal of recent trends.
- Context is key in the current environment.
- We still think the fundamentals favour commodity prices holding their ground, with dairy and oil likely to be two of the top performers.
Daily Alert: What goes up must come down (but only a smidge)
24 Mar 2022
- Overnight, the main theme has been a minor reversal of the trends seen over recent days.
- Equities are down across North America and Europe
- Bond yields have edged lower across the board
Daily Alert: NZD/JPY climbing likes it’s 2015
23 Mar 2022
- The NZD/USD surged around ¾ cent overnight in a table-topping performance
- The NZD gains are all attributable to firmer global risk appetite
- Smoothing through some of the daily chop, financial market sentiment has been on a tentative recovery path since mid-March
Household Living Cost Outlook: Under Siege
23 Mar 2022
- Cost increases are escalating and becoming increasingly widespread
- Our estimates suggest higher consumer prices and rising interest rates will add an average of $150 per week of costs to household budgets over 2022. Some households will be paying a lot more
- Weakening household balances sheets and higher living costs look set to exert downward pressure on household spending over 2022, likely tempering the extent of OCR hikes needed
Term Deposit Report: Running to stand still
23 Mar 2022
- Term deposit interest rates have been lifting off record lows over the past year but returns remain significantly below historical averages
- Inflation is now rising sharply and in the near term will erode all the return from term deposits
- Higher returns are possible through focusing on longer-term investments and diversification into different assets with different risk profiles
Daily Alert: Forthright Powell boosts yields
22 Mar 2022
- Comments by Powell that the Fed should move “expeditiously” towards tighter settings to lower excessive inflation spook markets
- US Treasury yields surged
- Oil prices gained overnight as the Ukraine conflict drags on
Daily Alert: A week light on the events calendar
21 Mar 2022
- The events calendar this week is thin, giving markets an opportunity to digest the heady mix of Central Bank communications and data prints we got last week, as well as the ongoing news flow out of Ukraine
- Market sentiment swung around last week as news headlines came and went, particularly out of Ukraine
- Oil prices eased from a baseline last week
Economic Weekly: A gradual grind higher
21 Mar 2022
- Although last week’s Q4 GDP figure feels like it is looking way back in the rear-vision mirror, it confirmed that the NZ economy was able to substantially get back on track
- Nevertheless, that Q3 hole is not going to be made up for, leaving at least $2.4 billion of foregone activity compared to Q3
- Growth over 2022 as a whole is set to be moderate
Daily Alert: Kiwi flies despite GDP miss
18 Mar 2022
- The small miss on fourth quarter GDP growth (3.0% q/q vs. 3.3% market, 3.6% ASB) hasn’t produced any lasting market reaction
- Despite this, inflation is set to peak at close to 7% and remain above the RBNZ target range until 2024
- Aussie jobs bonanza
Daily Alert: FOMC hikes by 25bps and signals much more to come
17 Mar 2022
- Fed hikes by 25bps, but signals much more to come, with dot plots significantly revised up
- US Treasury yields soar
- Q4 NZ GDP and the Australian February jobs data cap off a busy Thursday
Q4 2021 GDP Review: Another comeback, but a bit less springy
17 Mar 2022
- NZ GDP bounced back 3% over Q4, only partially clawing back the hit it took from the Delta wave
- The NZ economy’s resilience through the pandemic has been very impressive, though higher-frequency data suggests growth has moderated over Q1, as the Omicron outbreak has set in
- This quarter’s result isn’t the sort of dramatic overperformance we’ve become used to, and hints at broader headwinds set to deepen
Commodities Weekly: A flea bite on the nose of Goliath
16 Mar 2022
- There was a surprise easing in prices at the latest GDT auction overnight.
- It’s a flea bite on the nose of Goliath given how far prices have come.
- It’s a mistake to get too hung up the auction-to-auction swings – pay attention to the broader fundamentals. They support prices holding their ground or advancing further in the near term.
Daily Alert: Good Oil
16 Mar 2022
- Market sentiment has flipped firmly back to positive over the past 24 hours, kick-started by a sharp fall in oil prices
- Broader markets have expressed some relief
- Talks between Russia and Ukraine have continued, without any break-through
Daily Alert: NZ cuts fuel excise while global oil prices fall anyway
15 Mar 2022
- NZ cuts fuel excise by 25 cents per litre which should provide a temporary respite
- Overnight saw a choppy session for markets, with contrasting headlines seeing a tick-up in volatility ahead of the key FOMC policy decision on Thursday morning
- Oil prices were sharply lower, but global yields soared
Q4 2021 GDP Preview: A bounce back Jim, but not as we know it
15 Mar 2022
- Like Lazarus with a triple bypass, the NZ economy has once again recovered from a stringent lockdown, clawing back over Q4 most of its lost output
- The NZ economy’s resilience over the past eighteen months has been impressive, but headwinds are mounting, with capacity pressures, rising interest rates and a more cautious household sector set to bite
- Growth over 2022 will be slower and patchier, with a booming construction industry and a cash-splashing household sector set to play less of a role
Home Loan Rate Report: Mortgage rate increases expected to continue
15 Mar 2022
- RBNZ has lifted the Official Cash Rate (OCR) three times since last October. More OCR increases are expected over 2022
- Mortgage rates have lifted significantly off the lows set early last year
- Long term rates are up the most over the past year. Short term rates will increase this year as the RBNZ keeps lifting the OCR
Daily Alert: Putin and Powell in the driver's seat this week
14 Mar 2022
- Market sentiment last week largely continued to trade off the flow of headlines in Ukraine and from the world's Central Bank grandees, with lumpy intraday moves being the result
- Major equity indices on Wall Street ended the week lower
- Treasury yields and their European cousins are on the up
Economic Weekly: It’s all up in the Costpocalypse (unless it’s down)
14 Mar 2022
- There is a lot of focus on what is going up at the moment, particularly prices
- It isn’t all one-way traffic, with some economic indicators heading in the other direction
- Let’s start with some good news: an anticipated 3.6% rebound in Q4 GDP
REINZ Housing data – February 2021: Slow leak
14 Mar 2022
- Property boom continues to deflate
- As prior excess demand evaporates
- We retain our 2022 NZ house price inflation forecast of -6%
Daily Alert: ECB throws a cat amongst the doves
11 Mar 2022
- Market sentiment has once again deteriorated overnight, following the previous night’s brief reprieve
- Last night’s ECB meeting served up a clear last hawkish surprise
- The other big event of the night – February US inflation data – was more of damp squib
Commodities Weekly: No end in sight
11 Mar 2022
- Another week, another all time high for the ASB Commodities Index in NZD terms.
- There's a bit of give and take for farmers at the moment, with both agri commodities and key input costs on the rise.
- For now, recent market dynamics mean that most farmers can expect higher revenue to offset higher input costs, but keep an eye on relative price movements.
Daily Alert: Yields rise on hopes of solution to Ukraine conflict
10 Mar 2022
- Tensions ease as President Zelensky said that the Ukraine was open to discussing Russian demands of neutrality as long as it is given security guarantees
- Market reaction has been swift. Commodity prices were down across the board, with a solid bounce in European and US equities
- US CPI inflation and the ECB decision tonight
Housing Confidence: Confidence creaks as market peaks
10 Mar 2022
- The public’s perceptions about house prices are changing as the indicators turn down
- Confidence in rising prices is creaking, and buyer sentiment has fallen to the lowest level in 26 years
- At the same time, the public has never been more convinced interest rates are going to keep rising
February 2022 NZ Electronic Card Transactions: Omicron hit to card spending in February, with more volatility ahead
10 Mar 2022
- Steep February fall in card spending as consumers hunker down amidst the Omicron outbreak. Falls were generalised.
- Further volatility lies ahead, with retail spending likely to fall further in March, with a modest recovery thereafter.
- It is our expectation the retail outlook in general will be challenging over 2022 as headwinds facing the retail sector intensify.
Daily Alert: Skittish markets overnight
09 Mar 2022
- Markets have remained skittish as the Ukrainian conflict has dragged on
- Choppy trading has ensued
- Oil prices hit 14 year highs and 7%+ inflation looms for NZ
Daily Alert: Commodity prices show no sign of taking a breather
08 Mar 2022
- Markets have largely picked up where they left off as we begin the week, with risk sentiment on the back foot
- The upshot has seen equities continue to tumble
- Commodity prices have continued to build on last week’s gains
Economic Weekly: David vs. Goliath
07 Mar 2022
- Russia’s invasion of the Ukraine continues, though this has appeared to lose momentum in recent days
- Economic and financial sanctions on Russia from the West are crippling Russia’s ability to trade and undertake financial transactions
- For much of the rest of the world, the economic impacts are most likely to be evident on the pricing side of the ledger
Daily Alert: European assets underperform as Ukraine crisis rolls on
07 Mar 2022
- Geopolitical rumblings remain the focus of international news, with the IMF warning of widespread supply disruptions and price shocks stemming from Russia’s invasion of Ukraine
- The most dramatic impact of the crisis on international markets remains some eye-popping lifts in commodity prices
- In equity markets, European securities have diverged from their peers across the Atlantic
Daily Alert: NZD outperforms, Europe underperforms, Russian economy in trouble
04 Mar 2022
- Financial markets are no longer characterised by risk aversion and indiscriminate selling, but Russia’s invasion of Ukraine remains the clear focus
- At the same time, sanctions and restrictions designed to cripple the Russian economy have continued
- European assets remain under pressure given both proximity and trade exposures to Russia
Daily Alert: Powell throws markets a bone
03 Mar 2022
- The situation in Ukraine remains as grim as ever overnight, with Russian forces laying siege to key cities
- Despite those grim headlines, market sentiment has managed a bit of a bounce after getting pulled through the wringer earlier in the week
- On similar themes, bond yields have reversed some of the declines they’ve seen over the past week or so
Daily Alert: Fallout
02 Mar 2022
- Russia’s invasion of Ukraine appears to be escalating in intensity
- Writing on market impacts appears trivial next to the humanitarian costs of the war. But markets are increasingly rattled
- Commodity prices have been a stand-out mover. Crude oil prices have blasted back through $100/barrel with prices for the various grades surging 7.5-8.5% overnight
Commodities Weekly: ASB lifts milk price forecasts for this season & next
02 Mar 2022
- Gains at the latest dairy auction overnight have been broad-based and substantial, while the dynamic in global markets suggests supply is likely to remain tight for a while to come.
- We’ve added another 25c to this season's forecast to take our best guess to $9.50 per kgMS.
- We have adjusted up our opening forecast for 2022/23 to $9.20 per kgMS, a little below the futures market.
Daily Alert: Further escalation in Ukraine drives market jitters
01 Mar 2022
- The conflict in Ukraine has continued to escalate overnight, even as negotiations have begun between Kyiv and Moscow
- For markets more broadly, the upshot is that risk sentiment has taken an anxious turn after its bounce on Friday
- All three of the major Wall Street equities indices are lower
Economic Weekly: Russia’s invasion adds to the world’s challenges
28 Feb 2022
- Russia’s invasion of the Ukraine is the next challenge for the global economy to deal with
- The main impacts on NZ will be felt through oil prices and export commodity prices
- Meanwhile, the RBNZ raised the OCR and indicated it wants to go on with the job of lifting interest rates
Daily Alert: Ukrainian conflict intensifies, while world watches, worries and waits
28 Feb 2022
- The international community and global markets remain fixated on the Ukraine conflict that will set the market tone this week
- Global stocks rose on Friday and commodity prices partly retraced earlier climb
- RBNZ Governor Orr’s speech signalled the departure from gradualism and flagged the potential for a faster pace of OCR hikes
February ANZ Business Outlook: Under Pressure
28 Feb 2022
- Feb ANZBO survey shows businesses under pressure from all sides
- Pricing and inflation expectations indicators surged as expected, validating the RBNZ’s more hawkish turn last week
- We still expect the Omicron hit to be brief, with business sentiment to subsequently recover
Daily Note: Commodity prices soar on Russian invasion
25 Feb 2022
- The full-scale Russian invasion of Ukraine has prompted some big moves in financial markets overnight
- Global commodity prices have soared on the expected supply disruptions to particularly oil and gas markets, but also some of the soft commodities Russia exports
- FX markets have behaved in the expected fashion with the relative safe-haven of the JPY, CHF, and USD in demand and the NZD slumping to the bottom of the overnight performance rankings
Q4 2021 NZ Retail Trade Review: Retail rebounds post-Delta, but Omicron hit awaits
25 Feb 2022
- Post-lockdown bounce in Q4 retail volumes, which ended the year just shy of record highs
- Volatility expected to continue, with the Omicron outbreak set to batter part of the retail sector in the first half of 2022, as many consumers hunker down
- Headwinds facing the retail sector should remain after Omicron fades
Daily Note: RBNZ delivers 25bp hawkish hike
24 Feb 2022
- The RBNZ hiked the OCR 25bps in line with the market consensus (to 1.0%), but the statement was more hawkish than generally expected. The NZD and NZ yields were up sharply
- Markets look to have taken the Ukraine news in their stride, looking to be generally nonplussed by the threat of the potential escalation in sanctions
- Gains to oil prices look to be running out of puff, but pain lies ahead for NZ motorists
Commodities Weekly: Trouble with a capital ‘T’
24 Feb 2022
- The ASB Commodities Index hit a new record NZD high last week, bursting through the 130 mark for the first time ever on a 1.8% lift.
- The crisis in Russia is the next big drama facing commodity markets.
- Don’t worry to much about a sharp correction in dairy prices, but the conflict is probably bad news for those hoping for some downward pressure on farm input inflation.
Quarterly Economic Forecasts: Journeying through the Alphabet
23 Feb 2022
- In the short term, precautionary behaviour and worker absenteeism through sickness/isolation requirements will be the main economic impacts of the Omicron outbreak
- In the background, inflation pressures will remain strong and labour shortages will persist
- Despite the ongoing pandemic, the OCR is heading towards 2.75% by early 2023
ASB Daily Note: Stocks down, commodities up as all eyes remain on Ukraine
23 Feb 2022
- Global equity markets have suffered their third consecutive down day as Putin edges closer to war in Ukraine
- NZD and AUD amongst the strongest performing G10 currencies overnight
- RBNZ in focus today
RBNZ February Monetary Policy Statement Review: Cranking it up
23 Feb 2022
- The RBNZ lifted the OCR 25bp to 1%, though considered the merits of a 50bp lift
- The Statement was ‘hawkish’ with the RBNZ showing signs it is wary of getting behind the curve
- We expect steady 25bp increases to an OCR peak of 2.75% - but the risks are skewed to a faster pace of hikes and a higher OCR endpoint
Daily Alert: Ardern flags life with COVID-19 in NZ and the eventual easing of restrictions
22 Feb 2022
- Omicron concerns generally look to be generally receding offshore
- Market sentiment in Europe was weighed by geopolitical tensions in the Ukraine
- Markets look ahead to the RBNZ statement tomorrow (we expect a 25bp hike)
Economic Weekly: the year of (monetary policy) delivery
21 Feb 2022
Arguably, the hard work has been done. Over the second half of last year, the RBNZ correctly deduced that it was time to wean the economy off super-low interest rates. The Bank’s policy bias was flipped 180 degrees, the money printing presses were abruptly shuttered, and the public was prepared for higher interest rates.
Daily Alert: We don't talk about Bullard
21 Feb 2022
- Markets closed out last week with risk sentiment very much on the backfoot, capping a period of headline-driven jitters
- The divide among Fed policymakers over the speed of its first-rate hikes of the cycle is one big source of angst
- For now, markets are punting that the Fed will hew to the more cautious path of hikes, with US pricing paring back closer to a single hike
Daily Alert: Gimme shelter
18 Feb 2022
- It’s been a case of ‘more of the same’ for markets overnight, as the week’s familiar themes have continued to make headlines
- The ongoing tussle over Ukraine is still dominating international news and, this time, developments overnight have been less than positive
- Anxieties have sent investors flocking to safe assets (Treasuries, the Japanese Yen and the Swiss Franc being the big beneficiaries) and away from (stocks, commodities, bitcoin and pro-cyclical currencies)
- It’s been a case of ‘more of the same’ for markets overnight, as the week’s familiar themes have continued to make headlines
RBNZ February Monetary Policy Statement Preview: (Overinflation) Nightmare on Bond Street
18 Feb 2022
- Inflation pressures have just kept on lifting ahead of RBNZ expectations
- Expect the RBNZ to lift the OCR by 25bp, even though you could argue the RBNZ is behind the curve
- Watch for any announcements about how the RBNZ will reduce its bond holdings over time
Interest rate increases look set to come steadily over 2022, even as NZ braces for the impending wave of Omicron to sweep over. The reality is that inflation pressures have intensified in the three months since the RBNZ raised the OCR to 0.75%. At that point the RBNZ was already forecasting the Official Cash Rate would exceed 2.5%. With the release of this Wednesday’s Monetary Policy Statement, the RBNZ is likely to forecast an OCR peak of around 3%, give or take, which would be roughly in line with interest rate market pricing.
We ourselves are forecasting a peak of 2.75%. It’s a clichéd uncertain world, and the OCR could easily end up higher or lower. The lift in inflation is more than the usual demand-driven pick up, as the supply side is struggling to keep up. It’s always possible the RBNZ ends up leaning even harder on demand. Conversely, we are very mindful that interest rates are lifting from a very low base, and household behaviours could be very sensitive to the increases.With this meeting, as has been the case with the past two, there is some speculation that the RBNZ will want to catch up a little by lifting the OCR by 50bp. As we argued ahead of November’s 25bp lift, when data were also stronger than expected in the lead-up to the decision, the market is already doing a lot of the RBNZ’s work. Delivering ‘just’ a 25bp OCR increase while signalling an even higher OCR end point would continue this. And, when people are again battening down the hatches in response to this latest COVID outbreak, business and consumer sentiment could do without another unwelcome surprise.
Financial markets will be interested in any details of how the RBNZ plans to reduce its substantial bond holdings. Whatever the exact details, the RBNZ will want to ensure that it reduces its holdings in an orderly fashion that doesn’t destabilise markets. Bond markets are all too good at having nightmares over central bank plans for winding back quantitative easing.Daily Alert: FOMC keeps its options open
17 Feb 2022
- This morning’s January FOMC Minutes preceded the stonking 7.5% January CPI print, but the tone suggested that the Committee was prepared to keep their options open and would review policy settings each meeting with the path of policy tightening dependent on economic and financial developments
- The choppiness in market moves and swings in risk sentiment continued overnight as concerns over high inflation and the Ukraine crisis dented earlier optimism
- Contrasting inflation readings highlighted divergences. Multi-decade highs were notched for UK annual CPI inflation (headline 5.5% yoy, mkt: 5.4% yoy, core CPI 4.4% yoy, mkt: 4.3% yoy) and Canadian headline CPI (5.1% yoy, mkt: 4.8% yoy)
Daily Alert: Back on the good foot
16 Feb 2022
- Global risk sentiment was back on the good foot overnight, as geopolitical tensions eased
- Movements in currencies have been fairly limited. The NZD/USD has managed to grind up 20 points or so on the back of the less risk averse mood, but still looks a little heavy
- In the US tonight, we’re looking for a bumper January for retail spending (+1.9%mom) as the US Consumer Strikes Back, ahead of the FOMC Minutes this time tomorrow morning (8am)
- Global risk sentiment was back on the good foot overnight, as geopolitical tensions eased
Commodities Weekly: Another auction, another whopper
16 Feb 2022
- To re-use a phrase that is becoming frequently exhausted: dairy prices have enjoyed another whopping auction overnight.
- We’d expected further price gains in the near term, so today’s result doesn’t impact our forecast much - recall that a record high farmgate milk price forecast is already locked in for the current season.
- The key question is how much will supply recover next season and take some of the heat out of prices.
Daily Alert: Hawk in the Kremlin, Hawk at the Fed
15 Feb 2022
- Risk sentiment has swung around a bit overnight as overseas markets emerge bleary-eyed from the weekend
- Talks between Russia and the West over Ukraine are continuing, but it’s not clear whether Putin's intentions are genuine or playing for time
- One particular Fed official continues to publicly push quite aggressively for a faster pace of rate hikes
Economic Weekly: Beware the cobra
14 Feb 2022
- The dangers of 'perverse results' were on our mind last week during the kerfuffle over the suggestion rent controls had been mooted as a tool to tackle the housing crisis
- The intention behind such a policy is a simple one, set an upper limit on the amount of rent that can be charged and thus expand the proportion of housing affordable to tenants on low incomes (or at least prevent it from deteriorating further) - unfortunately experience suggests rent controls usually worsen housing crises
- It’s not just the housing market giving us a cautionary tale on the dangers of perverse incentives - the pandemic has given us a few choice examples too
Daily Alert: Sharemarkets rattled by fears of conflict in Ukraine
14 Feb 2022
- US treasuries were firmer on Friday (yields lower) as fears of conflict in Ukraine drove investors to the relative safety of assets like bonds, gold and the Japanese yen
- European and US sharemarkets were weaker on Friday
- The local sharemarket fell 1.9% on Friday, while government bond yields lifted
Daily Alert: 50bps lift-off priced for Fed after inflation surge, Bullard sounds jumpy
11 Feb 2022
- Stronger-than-expected US inflation sends ripples across most asset markets
- 50bps start to the Fed’s tightening cycle next month now seen as the most likely
- Q1 RBNZ survey of inflation expectations local highlight today
Commodities Weekly: Soft wood
11 Feb 2022
- The outlook for the Chinese economy suggests export demand for NZ logs will get off to a soft start this year.
- Despite improving Chinese economic growth over Q4, CBA estimates real estate investment continued to decelerate (falling from -5%/yr in November to -13%/yr in December).
- Meanwhile, the ASB Commodities Index launched itself to a new record high last week.
Daily Alert: Markets in holding pattern ahead of key inflation data
09 Feb 2022
- Markets were generally quiet overnight and were largely in a holding pattern ahead of key US inflation data later this week, and with no major data or events to set direction. After a flurry in recent weeks there was little central bank chatter to stir markets up.
- Still, global yields have continued to grind higher. US Treasury 10-year yields (currently 1.95%) touched 1.97%, their highest since mid-2019, with 2-year yields (1.33%) at a post-pandemic high.
- The big-3 US equity indices - S&P 500, Dow and Nasdaq – were up around 1% overnight, with increases in big tech stocks, cyclicals and small caps.
Inflation pandemic, more interest rate booster shots
08 Feb 2022
- Just as NZ is getting to grips with the likelihood that COVID will eventually be part of everyday life (i.e. become endemic), NZ is also dealing with the growing risk that inflation moves from being a pandemic to becoming endemic – entrenched in the economy like it was back in the 1970s and 1980s
- We now think the RBNZ will need to push the OCR up to 2.75% by early 2023 – that is three 25bp booster shots more than in our previous view
- We stress this is our best guess of where interest rates will track. If there is anything we have all learnt from the past two years, it is that outlooks can change very quickly
If there is anything we have all learnt from the past two years, it is that outlooks can change very quickly. If all goes swimmingly well, a booming economy undented by any more shocks may need even higher interest rates than what we now forecast to keep growing demand in check with what we (and the rest of the world) can supply at a sustainable cost. Conversely, further economic disruption that causes wallets to get lost down the side of the couch, or marked sensitivity to rising interest rates, could easily see the OCR peak at a lower level. Whatever the peak, the key point is that short-term interest rates look like they have a lot further to rise, and people need to be mindful of how that will impact on their financial position over the next few years. The door is slamming shut on the run of incredibly low interest rates.
Inflation expectations out this week will understandably be under the spotlight. In highlighting how people perceive inflation will track, they give a gauge of people’s preparedness to accept rising prices or to try lifting prices. Perception can bring about reality, which is what the RBNZ will be watching out for.Daily Alert: Staged opening of the NZ border announced as the ECB and BOE take hawkish turns
04 Feb 2022
- Hawkish pivots by the ECB and BOE unsettle markets
- Equity markets stumble overnight with yields sharply higher
- US payrolls the focus this long weekend
Daily Alert: No smoking gun for 50bps hike in wages data, we lift OCR forecasts to 2.75% peak
03 Feb 2022
- Yesterday's Q4 labour market data onslaught revealed a tightening in the labour market along the lines we (and the RBNZ) had been expecting
- The surprise in the numbers was that there wasn't a bigger lift in wage growth
- We nevertheless formalised the risk we've been flagging and yesterday raised our forecasts for the RBNZ’s OCR
Commodities Weekly: A couple of updates on our views
03 Feb 2022
- We've updated a few of our forecasts - both on the agri front and more generally
- Firstly, we’ve nudged up our 2021/22 farmgate milk price forecast to $9.25 per kgMS and opened our 2022/23 forecast at a bullish $8.80 per kgMS (albeit south of the futures market’s current lofty expectations).
- We also now expect the RBNZ will need to lift the OCR a bit further, reaching an endpoint of 2.75% in 2023.
Daily Alert: RBA ends QE but runs the risk of being behind the curve
02 Feb 2022
- RBA holds rates and signals end to bond purchases next week
- Markets take on more constructive tone after last week's rout
- Q4 NZ labour market data should show new record low for the unemployment rate and rising wage inflation
Q4 2021 Labour Market Data Review: Labour market set to tighten further in 2022
02 Feb 2022
- The unemployment rate ends 2021 at a record low, with employment above its maximum sustainable level. Wage growth was more moderate than expected
- The labour market is biased to tighten further and wage pressures escalate over 2022 and we expect inflation to remain persistently high
- We now expect the OCR to peak at 2.75% in early 2023, with both upside and downside risks to the interest rate outlook
The Q4 unemployment rate fell to 3.2%, a record low for the post-1986 quarterly history of the Household Labour Force Survey. The HLFS was bang on with ASB expectations and suggests that employment ended 2021 above its maximum sustainable level. We have changed our OCR call in light of the tight labour market and high medium-term inflation outlook. A steady pace of 25bp hikes is expected each meeting, with the OCR now peaking at 2.75% in early 2023. Risks to the OCR onlook are two-sided. On the downside, the tightening in financial conditions would hit the housing market, crimp domestic spending, and require more moderate OCR tightening. On the upside, inflation could prove to be more ingrained and capacity pressures more intense than is commonly assumed.Fonterra Milk Price Update: All dressed up to the nines
02 Feb 2022
- Another fortnight, another whopper dairy auction.
- We've lifted our farmgate milk price forecast for the 2021/22 season to $9.25 per kgMS.
- We open next season’s farmgate milk priceforecast at a lofty $8.80 per kgMS (albeit with a very, very, very wide marginof error at this stage in proceedings).
Economic Weekly: A problem shared is... still a problem
01 Feb 2022
- We all went our separate ways for a while, but it seems the global economy is becoming more synchronous again with inflation surging in many countries
- NZ’s annual inflation rate hit 5.9% last week, with the details confirming that inflation pressure is broadening
- This week’s crop of labour market data is expected to show wage inflation lifting to 10-year highs and unemployment falling to a circa 40-year low of 3.2%
Daily Alert: Stand by for (monetary policy) action
01 Feb 2022
- Machinations by the Federal Reserve dominated markets last week
- Central banks will continue to dominate the narrative this week
- We expect Q4 NZ labour market data to show a record low unemployment rate, underscoring the need for more RBNZ rate hikes
Daily Alert: NZ inflation still on manoeuvres; Markets cautious following Fed signals
28 Jan 2022
- Yesterday morning’s Q4 NZ CPI print was a little bit below our expectations, but still showed inflation pushing past the RBNZ’s previous round of forecasts in the November MPS.
- NZrates were on the march ahead of the CPI release but backtracked a bit on theresult.
- Equitieshave been mixed overnight, stuck between the positive data flow, caution aroundthe start to the tightening cycle and the usual well-documented anxieties.
Q4 2021 Labour Market Data Preview: Labour market set to tighten further in 2022
28 Jan 2022
- The Q4 2021 figures are expected to show a tightening in labour market conditions, with sluggish employment growth, but the unemployment rate and wider underutilisation measures printing around record lows
- Annual wage growth is expected to hit its highest rate in more than a decade, given the tight labour market and rising cost of living. Accelerating nominal wage growth is on the cards for 2022, but this will likely be outstripped by high inflation
- The Omicron outbreak in early 2022 will be disruptive for the labour market and, while its impacts are assumed to be temporary, it will place additional strains on already-stretched labour market capacity and wage inflation
The labour market figures may still be clouded by 2021 COVID-19 disruptions but are expected to show that the labour market tightened at the end of last year, with employment above its maximum sustainable level. Given the shortage of workers and the likelihood of some pullback from the strong Q3 HLFS print, employment growth is expected to be sluggish over Q4. The unemployment rate is expected to fall to a record low, with other labour utilisation metrics to tighten further. Wage growth is expected to accelerate to its highest annual rate in more than a decade and become more broad-based over 2022. Omicron disruptions to the labour market and wider economy are expected in early 2022 and could further tighten the domestic labour market, although the impact of the outbreak should be short-lived. For now, we assume a steady pace of 25bp hikes and a 2% OCR endpoint but note that a tighter labour market and persistently-high inflation calls for more action by the RBNZ.Daily Alert: Fed delivers on expectations, first rate hike to be delivered in March
27 Jan 2022
- The first read on the just-released FOMC Statement is that it was bang on market expectations. Market reaction has hence been very limited.
- The Fed kept the Fed Funds rate at 0-0.25% but strongly signalled a hike at the next (March) meeting. This was already well priced by markets prior to the meeting.
- Markets were feeling a little more perky prior to the FOMC meeting. Stock indices on both sides of the Atlantic enjoyed a solid bounce (Eurostoxx 50 +2.1%) and indicators of risk aversion like the VIX index eased off a bit.
2021 Q4 NZ Consumers Price Index Review: Annual CPI inflation set to top 6% in early 2022
27 Jan 2022
- Q4 NZ CPI was above market and RBNZ expectations, with annual CPI inflation a shade below 6% but still the highest in more than 30 years. NZ inflation looks set to crack the 6% annual inflation mark early in 2022
- High NZ inflation does not look to be transitory. A broadening front of rising inflation is emerging that will be difficult to slow
- The RBNZ clearly has more work to do, with today’s Q4 2021 CPI print raising the odds of a faster pace of OCR hikes and a higher OCR endpoint than the RBNZ’s ‘considered steps’ mantra
Daily Alert: Market anxieties in focus ahead of the Fed
26 Jan 2022
- The upcoming Fed meeting at 8am tomorrow morning NZT looms large over the next 24 hours.
- Overnight, marketshave been jittery ahead of the Fed, with risk sentiment mixed.
- Today, AssociateHealth Minister Ayesha Verrall is set to outline the government’s plannedresponse to the Omicron outbreak over its likely course.
Commodities Weekly: Ukraine coup de main - No dairy pain again; may strain grain supply chain
26 Jan 2022
- Looming Russian agression towards Ukraine is the latest anxiety testing markets, and conventional wisdom suggests some form of conflict is likely.
- We don’t expect a repeat of 2014, where the Russia-Ukraine conflict helped trigger a crash in dairy prices.
- However, there is the potential for volatility in global feed prices thanks to Ukraine's status as a major grain exporter.
Daily Alert: Early days in NZ but global stocks crushed as FOMC meeting approaches
25 Jan 2022
- Still very early days in NZ with the Omicron outbreak, with some positive signs from Australia.
- Markets traded with a more defensive tone overnight with the looming FOMC rates decision, heightening geopolitical tensions over the Ukraine, and warnings by WHO Chief Ghebreyesus that new COVID-19 variants could quickly emerge, unnerving investors.
- Markets await Thursday's FOMC and Bank of Canada decision and the NZ CPI.
Economic Weekly: Red-dy or not, here it comes
24 Jan 2022
Yesterday we got the heads-up that the Prime Minister would be giving a media conference, which usually means two things: one, there is an unwanted COVID development; two, it’s time to buy 6 months’ worth of toilet paper. With the Omicron variant of COVID likely out in the community, NZ moved to Red from midnight last night.
Economically, the impacts of this looming outbreak will have very different drivers to what we have been used to. In the past, NZ has heavily curtailed what sort of activities – commerce and leisure – we have been able to do. As a result, NZ hugely limited the health impacts of COVID but at some cost to the economy in terms of government-set constraints on businesses. Omicron is different. It is far more infectious but looks less deadly. It is still early days, but government restrictions may not be as onerous. There will a huge number of infections, widespread disruptions and pressures on our health system, and these are what will dominate the economy over coming months.
This time around, Government-set restraints – and their impact – will be very light. The Red setting allows many activities to carry on for the vaccinated, with the main impacts being on large events/gatherings and hospitality capacity. Businesses and organisations will be required to manage their workplace so as to minimise exposure risks. Widespread lockdowns such as Auckland experienced last year look like a thing of the past.
Instead, the main economic impacts are going to come from worker absenteeism and people’s behavioural shifts. Infected people and their close contacts will be required to isolate, which in some circumstances will mean people isolating for up to a month. That can result in a lot of staffing disruption. Our CBA colleagues estimate that in Australia roughly 1 million people (out of 26mn) could be in isolation at present. Labour hours worked over January could be down 3-4% over January (after making an allowance for people who can continue working from home). People’s behaviour may also differ from what we have been used to. In the past, the Government essentially laid out what was deemed too risky to do. Now, people will be making their own risk assessments about what they feel comfortable doing during a large outbreak, and spending patterns may differ. CBA’s guesstimates from card spending show Australian consumer spending to be roughly 3% down over the holiday period compared to where it would have been, with services spending taking the hit. NZ’s Level 4 lockdown last year saw card spending drop 20% over August, as a comparison.
Preliminary findings from Australia also suggest that the economic impact of Omicron may not be as deep as the Delta outbreak (though far more people are going to get sick, unfortunately). For businesses, it will be important to work through how to minimise the impact of staffing disruptions and how to adapt to/anticipate customer behaviours.
Life will go on. For the economy NZ Q4 CPI inflation figures on Thursday are a key focus. Despite (or because of) the pandemic, inflation pressures are soaring. We expect annual inflation for the December 2021 quarter to hit 6.1% and then to nudge higher in early 2022. Omicron or not, the RBNZ will continue lifting the OCR this year. Our forecast is for the OCR to peak at 2% by the end of the year, but the risks are more up than down.
Daily Alert: Global sharemarket weakness continues.
24 Jan 2022
- Global sharemarkets fell on Friday. The pan-European STOXX 600 index fell by 1.8% to be down 1.4% on the week - the third week of declines.
- US sharemarkets fell on Friday with the Dow Jones down for the sixth straight day. Shares in Netflix slid by 21.8% after earnings results and guidance disappointed investors.
- The S&P/NZX 50 index fell 1.2% on Friday, and yields declined, with the 10-year Government bond yield down 6 basis points.
Daily Alert: Pause in global bond selloff provides brief respite for markets
21 Jan 2022
- Overnight, a pause in the global bond market sell-off provided a brief respite for markets.
- The ECB meeting Minutes were peppered with some caution over rising inflation and concerns policy credibility was being eroded. However, in an interview the ECB’s Lagarde sought to play down those fears.
- Australian dollar and Australian short-term yields lift after the unemployment rate falls to a 13 year low.
Daily Alert: Local yields back on the march
20 Jan 2022
- It’s been a fairly constructive overnight session for equities and risk appetite and the NZD/USD has ground back up to around 0.6800 as a result.
- The more constructive mood likely reflects in part a pause in the global bond market uptrend. This has been a standout thematic for the year to date and has clear implications for (particularly long-dated) NZ yields.
- A couple of inflation updates continued the global trend of both headline and core inflation printing above expectations. UK headline inflation came in above the 5.2% expected (5.4%) and core inflation lifted back up to 4.2% (3.9% expected).
What to look out for in 2022
20 Jan 2022
- Here we outline five key things to watch out for in 2022
- COVID-19 will continue to set the narrative
- Our hope is for a better 2022 but we are wary
Our note of 2021 highlighted COVID-19, the shape of the NZ recovery, the housing market, population and NZ interest rates as the top things to look at. These were interlinked and have a strong COVID-19 theme running through them. We had speculated that growth over 2021 would be bumpy, that risks to the housing market were two-sided and that inflation and interest rates could rise sooner than expected. We were only partly right.Looking ahead, our core view is that COVID-19 will continue to dominate the social, political, economic and market narrative and will have a significant bearing on how 2022 ends up. Our top five things to look out for will be heavily influenced by COVID-19. Key questions for the 2022 outlook include:
- Economic disruptions caused by COVID-19 – is the worst behind us?
- High inflation – temporary or persistent?
- Housing market – soft or hard landing?
- Capacity frictions – will these abate or intensify over 2022?
- Interest rates – how much will they rise in 2022?Our hope is that the COVID-19 fog will clear, but the course of the pandemic is still highly uncertain. With the sizeable risk of an Omicron outbreak in NZ, we are not out of the woods just yet. There are also a lot of other things going on that will shape the 2022 outlook.Daily Alert: A less than ideal mix for NZ while US yields soar
19 Jan 2022
- A less than ideal mix of high inflation and low (or no) growth has emerged in NZ, with December housing data pointed to rapid cooling.
- Fears of central banks being behind the curve broadly characterised market action overnight, with yields up and global stocks down.
- The 300th Global Dairy auction overnight did not disappoint with whole milk powder prices up a sizeable 5.6% to USD4,082 per metric tonne, and we will reassess our forecasts of a record $8.75 kgMS Fonterra milk price payout for the 2021/22 season.
- A less than ideal mix of high inflation and low (or no) growth has emerged in NZ, with December housing data pointed to rapid cooling.
Commodities Weekly: ASB shifts 21/22 milk price forecast to $9.10
19 Jan 2022
- Dairy prices notched up impressive gains at the latest Global Dairy Trade event overnight.
- Tight global supply is the driving prices higher.
- We’ve revised our 2021/22 farmgate milk price forecast upwards to $9.10 per kgMS.
December 2021 NZ Electronic Card Transactions: Flat December for card spending, with cautious signs for 2022
19 Jan 2022
- Flat outturn for December card spending following strong rises in October and November.
- Card spending up around 7.5% in Q4, as consumer spending rebounds from the Q3 Delta slump.
- The risk of an Omicron outbreak in NZ, stock shortages, rising consumer prices, higher interest rates and receding housing market tailwinds point to a cautious 2022 for retail.
Fonterra Milk Price Update: ASB shifts 21/22 milk price forecast to $9.10
19 Jan 2022
- Dairy prices notched up impressive gains at the latest Global Dairy Trade event overnight.
- Tight global supply is the driving prices higher.
- We’ve revised our 2021/22 farmgate milk price forecast upwards to $9.10 per kgMS.
NZIER Quarterly Survey of Business Opinion Q4 2021: Labour and supply shortages intensify
18 Jan 2022
- The Q4 NZIER Quarterly Survey of Business Opinion revealed a further tightening in labour market conditions.
- Inflation pressures also remain acute, with annual CPI inflation likely to lift to over 6% in Q4.
- Labour shortages, global supply chain disruptions and elevated inflation pressures are likely to remain persistent challenges through 2022.
REINZ Housing data – December 2021: New year, new market
18 Jan 2022
- December figures confirm the housing boom ended in 2021
- As supply and demand brought rapidly back into balance
- One month does not a correction make, but December data still weaker than expected
What we got wrong in 2021
17 Jan 2022
As the Earth finishes another lap around the sun, inevitably our attentions turn to what’s on the cards for the year ahead. But the start of a new year is also a good time for reflecting on the past twelve months. For us, that means having a good look at the predictions we (and a lot of other forecasters) got wrong in 2021, and whether we can glean some insights moving forward.
Daily Alert: Sharemarkets start 2022 on a soft note
17 Jan 2022
- Global sharemarket performance was strong over 2021, with the MSCI global index up 20%, the US S&P500 up 27%, and Australia’s All-Ords index up nearly 14%.
- European sharemarkets fell on Friday. The pan-European STOXX 600 index shed 1%, while also marking its worst week since late November.
- US sharemarkets were mixed on Friday. Disappointing trading results from JPMorgan Chase (-6.2%) and Citigroup (-1.3%) weighed on the Dow Jones index. But Wells Fargo shares rose 3.7% on a bullish forecast for a measure of lending.
Commodities Weekly: A summer recap
13 Jan 2022
- The ASB commodities index kicks of 2022 in rude health, hovering near the all-time high it hit as 2021 closed.
- Hot weather has been hitting the country hard.
- Fonterra has revised down its forecast milk collections for the 2022 season.
Markets monthly: Mixed year for local investments
10 Jan 2022
- The local share and bond markets were somewhat disconnected with offshore counterparts over 2021.
- Global sharemarket performance was strong over 2021, with the MSCI global index up 20%.
- In contrast, the local sharemarket was down over the course of the year. The 0.4% drop in the local sharemarket was the first annual decline for the S&P/NZX50 Gross benchmark since 2011.
Daily Alert: Time to reflect as the BoE rate hike delivers another 2021 surprise
17 Dec 2021
- Following yesterday’s hawkish tilt by the FOMC, the BOE went one better by surprising markets and voting 8-1 to hike the bank rate by 15bps to 0.25%, the first G7 central bank to hike post-COVID-19.
- However, ECB President Lagarde reaffirmed 2022 ECB rate hikes were very unlikely despite possible upside risks to the inflation outlook.
- This is our last Daily Alert for 2021. Tune in on the 17th January for our first full daily update for 2022. Have a safe and enjoyable holiday break.
- Following yesterday’s hawkish tilt by the FOMC, the BOE went one better by surprising markets and voting 8-1 to hike the bank rate by 15bps to 0.25%, the first G7 central bank to hike post-COVID-19.
Regional Economic Scoreboard Q3 2021: Canty's back baby
17 Dec 2021
- Canterbury pips Northland and the Manawatū for the top spot on our scoreboard this quarter.
- Southland remains soggy, but there are signs of a turnaround for Otago.
- Auckland takes a tumble as Alert Levels bite.
Markets Monthly: Inflation and interest rates on the rise
16 Dec 2021
- Over recent months the focus has been very much on some of the inflationary pressures that have built around the world. Related to this, central banks are starting to respond, including the RBNZ.
- While the US sharemarket has pressed upwards to set fresh record highs in early December, the local sharemarket has traded below its peak set back in January, not helped by a 3% dip in November.
- It’s been a mixed time for the NZD recently, with the local currency weakening on most cross rates during November to be down 3.4% on a trade weighted basis for the month.
Daily Alert: Fed delivers hawkish pivot, massive 24 hours for event risk ahead
16 Dec 2021
- The first read on the just-released FOMC decision is a Statement that was not too far from market expectations for a more hawkish pivot.
- Markets’ knee-jerk response has been to push US interest rates and the USD higher, although not aggressively so given a hawkish pivot had been widely expected.
- The big news from yesterday’s HYEFU fiscal update was the slashing of the Government’s bond programme.
Commodities Weekly: Ending on a high
16 Dec 2021
- The ASB Commodities Index ends the year at a record NZD high, boosted by strong dairy and meat prices.
- Still, a number of smaller sectors aren't seeing the same price strength, and are being harder hit by capacity constraints.
- We expect this dynamic to continue over the first half of 2021.
GDP Q3 2021 Review: Delta hits Q3 GDP, but damage less than earlier feared
16 Dec 2021
- NZ GDP contracted 3.7% qoq over Q3 2021 largely due to the COVID-19 Delta outbreak which sent NZ back into Alert Level 4 lockdown, hampering non-essential business activity.
- The size of the fall was close to our final forecast and market expectations, although it was considerably less than the decline experienced during the first Alert Level 4 lockdown over the first half of 2020.
- Once again, the NZ economy has demonstrated remarkable reliance in the face of COVID-19 and we expect NZ economic activity will return to pre-Delta levels over the first half of 2022.
Stand by for central-bank-o-rama
15 Dec 2021
- Market sentiment has remained a bit skittish overnight, just as we get ready to dive into the week’s big central bank meetings with the Fed out tomorrow morning.
- Sharemarkets are atrans-Atlantic sea of red.
- After falling thenight before, Treasury yields have recovered – but only a little.
NZ 2021 Half Year Economic and Fiscal Update: HYEFU depicts resilient fiscal outlook
15 Dec 2021
- The HYEFU revealed a resilient economic outlook and improved trajectory for the public finances: lower government borrowing, the eventual return to OBEGAL surpluses in 2023/24 flagged, and lower Crown borrowing.
- The HYEFU reaffirmed the need for ongoing fiscal policy support considering the highly uncertain outlook, with higher Crown expenditures maintained over the forecast profile.
- Time will tell whether the Government has struck the right balance between meeting short-term demands and preparing for future economic and fiscal challenges.
Daily Alert: A case of the Mondays
14 Dec 2021
- Having finished last week on a high, market sentiment has suffered a case of the Monday’s (hat tip to Office Space).
- Global equity indices have back-pedalled off Friday’s record highs.
- UK PM Johnson announced the first UK death from the Omicron variant overnight, and refused to rule out imposing additional restrictions before Christmas to try and control its spread.
Delta derailed 2021, here’s hoping for a better 2022
13 Dec 2021
2021 was not the year anyone expected and was largely shaped by the COVID-19 pandemic. Vaccines – using technology that has been developed over the past few decades – were rolled out, but misinformation and distrust undermined vaccination efforts globally. The emergence of the more contagious Delta variant changed the COVID-19 landscape. Many countries which had successfully maintained an elimination strategy while waiting for vaccine production to ramp up, including NZ, were forced to change tack once the virus eventually evaded tightly-controlled international borders. Supply chain shortages became even worse over the past year as international shipping struggled to cope with demand. As a result, inflation reared its ugly head, adding another twist for policy makers to contend with. But in NZ – despite the Delta outbreak and the awful 100+ day lockdown Auckland endured – we are ending the year on a somewhat positive note. Like Australia, NZ saw pleasingly-strong vaccine take-up. As a result of high vaccination rates, COVID-19 case numbers are falling in Auckland despite an easing in restrictions. Vaccination remains the way for our economy to move to a ‘new’ normal and avoid lockdowns. Many New Zealanders socialise outdoors through summer, and this should also keep the virus somewhat manageable for the next few months.
Daily Alert: US inflation rate is the highest since 1982
13 Dec 2021
- US consumer prices lifted 0.8% in November to be up 6.8% on the year (survey: +6.8%) – the highest result since June 1982.
- Major currencies were firmer against the US dollar in European and US trade on Friday.
- Locally, the week’s highlight is the NZ Q3 GDP print on Thursday.
REINZ Housing Data November 2021: Shifting through the gears
13 Dec 2021
- November data allow more confidence in the fact the housing market has turned
- Housing supply is now, finally, rising to meet demand
- Supporting our forecasts for a sharp slowing in house price inflation next year
- November data allow more confidence in the fact the housing market has turned
GDP Preview Q3 2021: Delta’s damage could be relatively moderate
10 Dec 2021
- We expect Q3 GDP declined 3.3% due to the Delta community outbreak; our final forecast suggests GDP declined by much less than experienced in the 2020 Alert Level 4 lockdown.
- Economic data released over recent weeks suggest that activity held up much better than we had expected, supported by strong momentum prior to the outbreak and possibly a stronger-than-expected regional performance under Alert Level 2 settings.
- Ultimately, it’s not the size of the fall that matters, but how quickly activity returns to pre-Delta levels. We expect this to be sometime over the first half of next year.
Sizeable November gain, but 2022 retail outlook cloudy
10 Dec 2021
- Continued recovery from lockdown lulls, with a Black Friday boost for apparel and durable spending
- Card spending on track to expand in the region of 12% in Q4 as restrictions are eased and the economy bounces back from Q3 delta slump. This buoyancy should continue heading into early 2022.
- Beyond that, still-present COVID-19 restrictions, stock shortages, rising consumer prices, higher interest rates and receding housing market tailwinds should temper household spending activity.
Daily Alert: Still early days on Omicron, but initial signs remain hopeful
09 Dec 2021
- Markets traded with a positive tone overnight. It’s still early days on gauging the impact of the Omicron variant, but overnight signs were hopeful.
- The Bank of Canada kept settings unchanged.
- Today's local highlight includes a host of Q3 survey data, for the manufacturing, wholesale trade and some business services sectors that constitute a sizeable chunk of GDP.
Trade Disruptions: December 2021
09 Dec 2021
COVID-19 has had two major effects on global trade.
Firstly, it has confined the world's population to their homes, leading to a huge increase in online buying from around the world. Government stimulus has boosted people's ability to buy more online as other pastimes and expenses such as travel and entertainment have been curtailed.
Secondly, it has also forced the closure of factories, constrained labour and put more pressure on how goods are moved domestically and internationally.
The combination of these factors has created the perfect storm for major disruption to supply chains, which we expect to continue well into 2022.
Our economics and international trade teams have created this report to help business and industry better understand these changes and the drivers behind them. We also give our forecasted view of the potential resolution of these challenges. In doing so, we hope to help business and industry plan, steer into challenges and weather the storm.
Daily Alert: One more time with feeling
08 Dec 2021
- The recovery in risk sentiment continued and broadened overnight, as markets continue to unwind some of the Omicron negativity of last week.
- This morning’s GDT dairy auction was another good ‘un, albeit with key whole-milk powder prices rising just 0.6% this time, underperforming the likes of butter (2.9%), cheese (+1.0%), and skim-milk powder (+1.3%).
- There’s been plenty of RBNZ chatter to absorb over the 24 hours, but most of it has been in keeping with the previouslyespoused views and hence hasn’t moved markets.
Commodities Weekly: Groundhog auction
08 Dec 2021
- Another GDT, another lift for dairy prices.
- At this point in the season, a record-high farmgate price is practically guaranteed and every auction where WMP prices simply hold onto the gains they’ve already made supports that prospect.
- We retain our $8.75 per kgMS forecast for the season, with some scope for upside risk.
Cautiously optimistic, still
06 Dec 2021
The emergence of the Omicron variant is the latest (unwelcome) risk to stir into the 2022 economic maelstrom. But we still don’t know enough about it to be able to say anything sensible about the potential economic damage. It could be some weeks before we do. For now, we maintain a cautiously optimistic view of the NZ economy next year. And we saw plenty of snippets of positive economic news out last week to support this view.
Daily Alert: Sharemarkets weak on Friday amidst mixed data
06 Dec 2021
- In US economic data, Non-farm Payrolls (employment) rose by 210,000 jobs in November, much weaker than expectations centred on a lift of 550,000.
- A holiday season US government shutdown has been avoided after lawmakers agreed to extend government spending (or suspend the debt ceiling) until 18 February 2022.
- European sharemarkets fell on Friday.
Housing Confidence: Don't Look Down
06 Dec 2021
- The overwhelming majority of kiwis expect interest rates to keep rising.
- But this hasn’t shaken kiwis’ housing confidence, which actually increased last quarter.
- Conversely, perceptions of whether it’s a good time to buy crumble to 5-year lows.
- The overwhelming majority of kiwis expect interest rates to keep rising.
Term Deposit Report: Interest rates have risen but so has inflation
06 Dec 2021
- Term deposit interest rates have lifted off their lows over the year, including several increases over recent months.
- The RBNZ delivered its first Official Cash Rate increase in over seven years in October and followed up with another hike in November.
- More OCR increases are forecast for 2022, and this is priced into longer term interest rates in New Zealand, including term deposits.
Daily Alert: Traffic lights introduced
03 Dec 2021
- This morning marks the start of the new COVID-19 protection framework for NZ, aka the traffic light system.
- Markets remained volatile as they traded off Omicron news and increasingly hawkish FOMC comments.
- US payrolls the key highlight tonight.
Commodities Weekly: Crooked timber
03 Dec 2021
- Forestry prices have recorded another sharp fall.
- Wharfgate log prices are easing, and much softer demand out of China is the culprit.
- Volatility looks set to continue.
Home Loan Rate Report: Long-term rates back above 5%
03 Dec 2021
- The RBNZ has lifted the Official Cash Rate (OCR) in October and November. More OCR increases are expected over 2022.
- Mortgage rates have lifted significantly over 2021.
- Long term rates are up the most so far. Short term rates will increase as the RBNZ keeps lifting the OCR.
Fonterra Milk Price Update: History doesn't always repeat
03 Dec 2021
- Fonterra has narrowed its 2021/22 forecast farmgate milk price range, taking the midpoint to a record high of $8.70 per kgMS.
- The move affirms our view we are unlikely to see a repeat of what happened last time dairy prices were this high when the co-op had to lower its farmgate price by 55c to avoid making a loss.
- That's because, this season, dairy price gains are proving broad-based, rather than concentrated among whole milk powder.
Daily Alert: Saying Haere Rā to Alert Levels
02 Dec 2021
- Market sentiment swung back to positive overnight, as markets continue to get whipped around by news on the Omicron variant.
- European share markets bounced strongly (Eurostoxx +2.86%), but the recovery looks a little unconvincing in places and, in the US, it generally lost steam as the night wore on.
- US economic data released overnight didn’t throw up any major surprises.
- Market sentiment swung back to positive overnight, as markets continue to get whipped around by news on the Omicron variant.
Q3 Terms of Trade: Get on high
02 Dec 2021
- NZ’s terms of trade hit a new record high in Q3, but the pace of gains slowed.
- A fall in dairy exports drove overall export volumes lower, while import volumes proved resilient.
- We expect higher import prices to drive NZ’s terms of trade lower over the coming quarters but expect it to remain elevated.
Daily Alert: Powell comments on inflation spooks markets
01 Dec 2021
- The final November ANZBO survey did not show signs of a pending Traffic Light Boost
- Swings in market sentiment have continued, with concerns over the efficacy of current vaccinations to the Omicron variant and hawkish comments by FOMC Chair Powell instilling a risk-off tone in markets overnight.
- Powell noted it was time to drop “transitory” to describe US high inflation that could linger well into 2022.
Housing Insights: House Prices - From hero to zero in 2022
01 Dec 2021
- Supply and demand dynamics in the housing market are finally changing.
- Lofty house prices are at risk from the confluence of three big macro forces next year.
- We’ve updated our forecasts to take account of these risks, and now expect small falls in house prices over the second half of 2022.
- Supply and demand dynamics in the housing market are finally changing.
Daily Alert: Markets take a post-Omicron chill pill
30 Nov 2021
- Market sentiment has generally been positive overnight, with investors taking a more measured view of the risks posed by the new Omicron COVID.
- Global sharemarkets have made broad-based gains, with major equity indices a sea of green.
- Treasury yields are higher overnight.
Economic Weekly: Omicron reminds us the pandemic is not over yet
29 Nov 2021
Over the weekend the World Health Organisation named Omicron a COVID-19 variant of concern, while governments around the world scrambled to restrict international travel from high-risk countries. It remains too soon to know the degree of threat the new variant will pose to the management of the pandemic, but it is a timely reminder that the pandemic is far from over and many uncertainties and risks remain. Global financial markets reacted negatively to the news. The new variant comes as many European nations are struggling with rising COVID case numbers heading into the Northern Hemisphere winter and are looking to introduce new restrictions, particularly aimed at limiting movement and interactions of the unvaccinated.
Meanwhile, the speed with which travel restrictions and border closures were put in place over the weekend is also a timely reminder that international travel in 2022 won’t be in anyway ‘normal’. With NZ set to allow home isolation for fully-vaccinated citizens and residents from early next year, many are likely to be eying up an international trip. However, the lessons from Omicron (and the bursting of the TransTasman Bubble) are that international borders and quarantine requirements can be altered with little to no notice. People looking to travel overseas need to be prepared with a contingency plan and ready to fly home at a moment’s notice (or risk becoming stuck for a prolonged and unknown period as is the case for those who remained in Australia). This also highlights the challenges and risks of opening up for international tourism over 2022.
The development of the Omicron variant also reinforces the RBNZ’s decision to lift the OCR in “considered steps”, opting for a 25 basis point lift in the OCR last week, rather than a 50 basis point lift. The RBNZ’s message to financial markets was that, yes – interest rates do need to go up, but how high remains uncertain so don’t get too far ahead of yourselves. Indeed, a new vaccine resistant COVID-19 variant really would materially hamper the recovery for the NZ and global economy next year. On domestic considerations, the RBNZ is wary of how much mortgage rates have already lifted, and – as strong as the economy has been over 2021 – is mindful of the number of headwinds facing households over 2022. Higher interest rates and the rising cost of living outstripping wage increases could have quite the cooling effect on spending. This could be potentially compounded by wealthier NZ households redirecting money away from domestic tourism and retail spending to international travel instead. Furthermore, credit conditions are tightening beyond just the lift in mortgage rates – tighter Loan to Value Ratio restrictions are just kicking in, along with some banks beginning to impose debt-to-income lending limits.
On some positive news (for Aucklanders at least) Freedom Day is close approaching for the vaccinated, and no doubt many NZers will be tuned in at 4pm to see what regions will be Red and what regions will be Orange under the new traffic light system. Like it or loathe it, the traffic light system is a positive step forward for the NZ economy, and with highly-transmissible COVID variants it looks like systems which restrict the movements of the unvaccinated are about to become the international norm. jane.turner@asb.co.nz
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Daily Alert: Omicron rattles markets
29 Nov 2021
- Omicron, the latest COVID variant, has now been detected in the UK, South Africa, Israel, the Netherlands, Hong Kong, Belgium and Australia.
- European sharemarkets plummeted amid widespread selling of risk assets on Friday as the new coronavirus variant identified in South Africa HAS raised risks for the global economic recovery.
- US sharemarkets also tumbled on Friday on fears about the latest coronavirus variant.
Living la Vida COVID
26 Nov 2021
- New Zealand is expected to begin opening its borders in the first half of 2022 but will face ongoing domestic headwinds in its economic recovery.
- Inflation is likely to near 6% (a thirty year high) by the end of this year and remain above 3% into 2023.
- ASB expects the OCR to reach 2% which will have an impact on other interest rates.
- Annual house price growth is sitting around 30% but predicted to slow to 22% this year and 2.5% by the end of 2022.
Daily Alert: A common problem
26 Nov 2021
- This morning we released our Quarterly Forecasts that highlighted the challenges facing the NZ economy in the years ahead as it adjusts to the ‘new normal’ of a post delta NZ economic landscape.
- NZ is not alone.
- With the US celebrating thanksgiving, and with US equity and bond markets closed, there was little market action overnight, with trading on low volumes. Markets should be quiet again tonight.
Daily Alert: School's out for summer
25 Nov 2021
- The RBNZ came and went and did roughly what we thought they’d do. They’re now out of the game until the end of summer (23 February), so we’ll all have to find something else to write about. In brief: the OCR was lifted the regulation 25bps not 50bps, the Bank said explicitly that it planned to take the OCR up to the tighter side of (2%) neutral, and it duly forecast a further 7½ OCR raises through to the end of 2023, a peak of 2.6%.
- This was all pretty close to what we’d expected, so we haven’t altered our interest rate view. We continue to see a lower peak OCR of 2.0% compared to the RBNZ and market.
- Markets were a little more surprised, with the RBNZ’s OCR forecasts and explicit ruling out of 50bps moves (“considered steps…were the most appropriate”) a clear reality check for the aggressive pricing that had been factored in.
Commodities Weekly: Mind the gap
25 Nov 2021
- Yesterday, the RBNZ lifted the OCR a second time, with further hikes on the way.
- We've revised our NZD forecasts up, partly off the back of the interest rate outlook.
- Higher interest rates and a less favourable exchange rate will widen the gap between the current agri-sector winners and losers.
Daily Alert: 50 bps - Deal Orr No Deal?
24 Nov 2021
- Today, it’s all about the RBNZ, with the latest MPS out at its usual 2:00pm time and with a hike of at least 25bps more or less certain in light of the likely resilience of the labour market and the strength of inflationary pressures, the big speculation is around whether the bank will pull the trigger on a 50bps hike.
- Overnight, tech shares have extended losses, with Zoom down 12% and analysts citing fears of slowing post-pandemic growth.
- Meanwhile, bond yields are broadly higher across North America and Europe.
RBNZ November 2021 MPS Review: Considered Steps
24 Nov 2021
- The RBNZ lifted the OCR by 25bps to 0.75% and signalled lifting the OCR in “considered steps” over 2022.
- The outlook is still inherently uncertain and fluid, though against that inflation pressures are steadily building.
- The RBNZ flagged an OCR end-point around 2.6%. This is consistent with our view that the recent run-up in market pricing and NZ yields had gotten too far ahead of itself.
Daily Alert: Powell Part Deux
23 Nov 2021
- It’s been another quiet start to week both yesterday and overnight.
- The biggest financial market news has been President Biden’s decision to renominate Jerome Powell to a second term as Fed Chair.
- Global bond yields have opened the week with some sizable increases across the curve.
2021 Q3 NZ Retail Trade Review: Lockdown hit to Q3 retail not as bad as feared
23 Nov 2021
- Hit to Q3 retail volumes with overall activity hitting a brick wall as the economy went into lockdown from mid-August. The fall was not as sharp as feared and highlights NZ’s economic resilience.
- Hospitality and tourism retail hardest hit, with the prolonged lockdown hammering Auckland retail.
- We expect a Q4 bounce in retail activity, but remain more circumspect on the outlook for retail activity in 2022.
Smokey-hot outlook for inflation
22 Nov 2021
All eyes are on the RBNZ announcement at 2pm Wednesday afternoon. It seems all but certain that the RBNZ will raise the OCR for the second time during the current lockdown. It is now far less certain how big the increase will be. The run of data has been relentlessly strong in showing sharply rising inflation pressures, and markets had started pricing in some chance of a 50bp hike. Last week’s RBNZ survey of expectations showed a sharp rise in inflation expectations and has pushed market pricing to a 45% chance of a 50bp increase. Whatever the outcome, financial markets will move.
For the record, we expect a 25bp increase and some tough talk about rising inflation. There is not much in it, but right now doesn’t seem the right time for a 50bp increase – despite the inflation signs. They may sound like words from the bowels of an Auckland COVID bunker, and to some extent they are. It’s literally going to be 3 and a half months between drinks for Auckland hospitality and other businesses that have been feeling prolonged pain. Although a smaller OCR hike may not in itself make a material financial difference right now relative to a bigger one, this is a time when trying not to further dampen confidence is important. Furthermore, we are heading into the unknowns of the Summer of COVID. It will take a little more time to know how well the health system copes and whether some winding back of new-found freedoms is needed – which has happened recently in Europe, for example.
Daily Alert: Hump day volatility in prospect
22 Nov 2021
- Financial market sentiment deteriorated towards the end of the last week, and this continued on Friday.
- Unsettling investors on Friday was news that Austria will enter a nationwide lockdown tonight, as surging COVID cases threaten the country’s health system.
- Here in NZ, the showstopper will be the RBNZ meeting on Wednesday afternoon.
Daily Alert: Time for the RBNZ to talk tough as inflation expectations soar
19 Nov 2021
- The closely watched RBNZ 2-year ahead expectation for annual CPI inflation jumped to 2.96%, a 13-year high.
- We expect a 25bp OCR hike next week, but a hawkish statement from the RBNZ and upward revisions to their OCR profile relative to August.
- There were few significant developments overnight.
- The closely watched RBNZ 2-year ahead expectation for annual CPI inflation jumped to 2.96%, a 13-year high.
Daily Alert: GBP outperforms as UK joins the inflation party
18 Nov 2021
- The UK is the latest in a long line of countries to experience a surge in inflation. October CPI inflation jumped from 3.1% to 4.2% yoy according to figures released overnight, a 10-year high and well ahead of the consensus (and Bank of England) expectation of 3.9%.
- Outside of the UK, there wasn’t a lot of action in financial markets overnight. A mild ‘risk-off’ tone prevailed.
- US housing market data released overnight were mixed. Housing starts fell 0.7% in October, confounding expectations for a decent increase.
- The UK is the latest in a long line of countries to experience a surge in inflation. October CPI inflation jumped from 3.1% to 4.2% yoy according to figures released overnight, a 10-year high and well ahead of the consensus (and Bank of England) expectation of 3.9%.
RBNZ November Monetary Policy Statement Preview: Catch-up footy
18 Nov 2021
- Inflation pressures are rampant and the RBNZ is playing catch-up.
- A 50bps OCR hike next week is a strong risk, but we (just) maintain our call for +25bps.
- The Bank needs the market to keep doing its work for it. So we expect a hawkish Statement and OCR projections to be lifted to show a terminal OCR on the tighter side of ‘neutral’.
- Inflation pressures are rampant and the RBNZ is playing catch-up.
Daily Alert: RBA and markets just don’t see eye to eye
17 Nov 2021
- Australian yields and the AUD spiked after yesterday’s RBA Minutes acknowledged the risks to the RBA’s inflation forecast.
- The latest GDT auction was not as strong as signalled by the futures market, but we have maintained our bullish $8.75 kgMS Fonterra milk price forecast for 2021/22.
- Australian wage data and RBNZ inflation expectations data the key data to watch over the next few days.
- Australian yields and the AUD spiked after yesterday’s RBA Minutes acknowledged the risks to the RBA’s inflation forecast.
Commodities Weekly: This way up
17 Nov 2021
- There have been broad gains at the latest GDT auction overnight, with buyers still prepared to pay a premium thanks to tighter supply..
- The GDT contract curve implies WMP prices have further momentum to come.
- A record high farmgate milk price is all but locked-in for this season and there is increasing upside tisk to our already-bullish $8.75 per kgms forecast.
Daily Alert: Risk sentiment starts the week in mixed fashion
16 Nov 2021
- Global sharemarkets have begun the week in a decidedly mixed mood.
- Treasury yields are higher and the curve steeper as we begin the week, helped along by a strong result in a key US manufacturing index.
- Commodity currencies have been the strongest performers in the FX market overnight – somewhat counterintuitively given most metals and energy commodities have actually pared back a bit.
Red Light, Green Light – and regional border date
15 Nov 2021
This week Cabinet may give clarity around when the regional borders – particularly Auckland’s hard border – get removed. There may also be firmer indications about the start of the Traffic Light System, given the fevered speculation that is stirring. Auckland will go Red around November 30th (nudge, wink), but what about elsewhere?
It is crunch time for Christmas and summer holiday planning. Knowing when and under what circumstances people can leave Auckland is critical for organising well-earned breaks and catch-ups with friends and relatives that haven’t been possible for months. Holiday destinations up and down the country need to plan for whether a third of the country is going to be mobile over summer. More soberingly, much of the rest of the country is also going to need to get used to the idea that COVID is going to spread to their region in coming months. It will be the summer of COVID.
Daily Alert: US shares ease for the first week in six
15 Nov 2021
- US sharemarkets were firmer on Friday but down over the week - the first fall in six weeks.
- The NZ sharemarket was down 0.9% on Friday and was down 1.3% over the week, being 4.8% off its record high from January.
- Shorter-term inflation expectations within the RBNZ survey of expectations on Thursday are expected to drift higher, consistent with the firming evident in recent CPI inflation outturns.
Daily Alert: Steady the ship
12 Nov 2021
- Offshore markets have spent the night steadying themselves after the US inflation-inspired volatility of the previous night.
- October REINZ data out yesterday showed another strong month for NZ’s housing market, albeit with a return to form from Auckland over-inflating the headline numbers.
- NZ food price data for October (-0.9% mom, +3.7% yoy) didn’t change our view that annual CPI inflation is on track to hit 6% later this year.
Daily Alert: Yields up as US inflation soars
11 Nov 2021
- Our earlier suspicion that recent ANZ NZ business outlook figures had looked too good to be true were partly vindicated.
- Global yields and USD surge after strong US CPI print.
- Black Caps through to T20 finals.
Commodities Weekly: A record NZD high
11 Nov 2021
- The ASB Commodities Index hit a record NZD high last week, bursting through the 120 mark.
- It’s gains for the dairy and meat sectors that are underpinning our index’s strength at the moment.
- We remain constructive on the medium-term export commodity price outlook
REINZ Housing Data – October 2021
11 Nov 2021
- Another strong month for NZ’s housing market, albeit with an Auckland bounce over-inflating the headline numbers a little
- Some signs excess-demand pressures are abating
- We continue to forecast a material slowing in house price inflation for next year
- Another strong month for NZ’s housing market, albeit with an Auckland bounce over-inflating the headline numbers a little
Mind the gap – NZ housing shortfall a little bit smaller
11 Nov 2021
- NZ’s cumulative housing shortage declined as expected over the past year. But more of this shift came from Auckland than we had expected, while housing shortages outside of Auckland fell by less than expected.
- We believe Auckland and NZ’s cumulative housing shortfall will be met in around 12 months’ time.
- This suggests that high rates of construction activity cannot be sustained beyond 2022 without a very strong recovery in net migration and population growth.
Daily Alert: Hump day
10 Nov 2021
- Global risk sentiment has shifted into negative terrain overnight.
- Treasury yields havemoved lower.
- There have been sizable losses forAUD & NZD.
Daily Alert: NZD outperforms in otherwise quiet night
09 Nov 2021
- Financial markets are still in weekend-mode for the most part. There hasn’t been much in the way of news & events to cover overnight.
- Bond and equity markets have consolidated. US 10-year bond yields ground up a few bps to 1.48%, still some 20bps below their October highs.
- There was more action in commodity markets. A positive night for energy (oil +0.7%) and metals prices (copper +0.8%) has emboldened commodity currencies, with the NZD sitting at the top of the overnight FX performance rankings.
October 2021 NZ Electronic Card Transactions: October lift, with more to come heading into summer
09 Nov 2021
- Solid October bounce in October card spending following weak August and September, with the result in line with ASB expectations.
- Card spending on track to expand in Q4 as restrictions are eased and the economy bounces back from Q3 delta slump.
- Continuing COVID-19 restrictions, stock shortages, higher interest rates and high consumer prices should temper subsequent household spending activity and the extent of OCR hikes needed.
Economic Weekly: Labour market tightens amidst suburban urea surge
08 Nov 2021
We have long been inured to labour market data surprises – particularly during the pandemic. Yet, the figures last Wednesday showing a plunge in the unemployment rate to 3.4% were still eyebrow-raising. Employment rose 2% over the quarter as well. The labour market was absolutely on fire before the mid-August jump up in alert levels occurred. Although job losses have likely mounted as strict restrictions remain in some parts of the country and unemployment is likely to lift over the December quarter, we expect unemployment rate will then fall back to remain comfortably below 4% over 2022. Wage growth will continue to pick up, reinforcing that inflation pressures will be prolonged.
Both a speech from the Reserve Bank of NZ (RBNZ) Governor and the RBNZ’s bi-annual Financial Stability Report showed the RBNZ is concerned that the pace of house price growth is unsustainable. Although the Governor pointed the finger at the supply-side response as the long-term solution for containing prices to a ‘sustainable’ level, the RBNZ will continue to develop and implement macro-prudential tools. Consultation on debt servicing restrictions will start later this month, which will include debt-to-income (DTI) limits and floors on the interest rates banks use to test debt serviceability. It will be some time next year before any new measures could be used. The RBNZ estimates it would take banks around 6 months to implement DTI restrictions once it has been designed. In contrast, setting an interest rate floor on serviceability calculations could be implemented sooner. Along with a rising cost of credit, availability of credit for borrowers with relatively stretched debt servicing capacity is set to tighten further if the housing boom continues.
This week, watch out for October electronic card transactions, which should show a partial (10%) rebound from the August & September weakness. The easing of restrictions, particularly to Level 2 in much of the country, should lift hospitality, apparel, fuel, and non-retail card spending. Also keep an eye out on Thursday for the preliminary results of ANZ’s November Business Outlook survey.
Last Monday’s 4pm announcement brought some relief for the retail sector in the parts of Waikato and (soon hopefully) Auckland that are sustaining Level 3 restrictions. It will enable a much greater degree of trading to occur than click & collect or beleaguered couriers can, particularly for those products that people prefer to view in person. Unfortunately, as a less follicly-challenged colleague pointed out, hairdressers and some other close-contact services are still not able to open – though in timely fashion Movember has just started.
With COP26 in full swing, it may be worth the Government considering the environmental aspects of the Level 3 Step 2 gathering rules. With people allowed ‘outdoor’ picnics of 25 random people, there is going to be a lot of added strain on suburban urea absorption. That may be good for sales of bushes at garden centres, but has implications for methane emissions and nitrate run-off. Perhaps indoor ablutions could now be permitted?
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Daily Alert: US share indices set fresh record highs
08 Nov 2021
In US economic data, Non-farm Payrolls (employment) rose by 531,000 in October (stronger than expectations centred on a 450,000 lift).
Key US share indexes finished at record highs on Friday with energy and industrials driving gains.
Locally, on Tuesday we expect data to show a circa 10% monthly lift in October card spending that followed a flat September month and sharp August falls.
Term Deposit Report: Rates on the Rise
08 Nov 2021
- Term deposit interest rates have lifted off their lows over the year, including several increases over recent months.
- The RBNZ has delivered its first Official Cash Rate increase in over seven years. More OCR increases are forecast, so more upward pressure on term deposits is expected.
- Nonetheless, rates on offer are still very low and are expected to remain below historical averages over the coming years.
Farmshed Economics: He who dairies, wins
08 Nov 2021
- It increasingly looks like we are in for a record dairy season, with meat prices also looking on good shape.
- Labourpains, rising input costs, higher interest rates and stretched shipping capacity remain big themes.
- Thenear term looks good for dairy, beef and lamb; but the outlook is more mixedfor our other key agri exports.
Daily Alert: BOE holds and a collective sigh of relief in markets post-FOMC
05 Nov 2021
- UK yields and sterling falls as BOE pushed back against market interest rate expectations
- Markets have breathed a collective sigh of relief on the FOMC’s signal that it was willing to be 'patient' with rate settings
- US payrolls the focus this weekend.
Home Loan Rate Report: Mortgage rate increases continue
05 Nov 2021
- The RBNZ has begun lifting the Official Cash Rate.
- More RBNZ rate hikes are expected, which will contribute to more upward pressure on mortgage rates.
- The RBNZ has begun lifting the Official Cash Rate.
Daily Alert: Let the taper begin
04 Nov 2021
- As expected, the Fed’s Open Markets Committee has announced it will start to taper asset purchases later in November.
- Given the move was widely expected, market reaction has been relatively muted.
- Yesterday’s Q3 NZ employment data showed most measures of labour market tightness outperforming expectations.
Commodities Weekly: Another feather in the dairy sector's cap
03 Nov 2021
- Its been another excellent dairy auction overnight.
- The production outlook is improving somewhat, but securing product remains a focus for buyers.
- All-up, we are happy with our record $8.75 per kgMS forecast for the season.
Q3 2021 Labour Market Review: Employers hold onto staff through lockdown
03 Nov 2021
- The unemployment rate fell by much more than expected, plunging to 3.4% in Q3 2021 from 4%. The labour market continued to tighten despite the community COVID-19 outbreak and Alert Level 4 lockdown.
- Employment jumped higher, also much stronger than expected. Firms appear to be willing to hire/hold onto staff even if they were unable to work during Alert Level 4 restrictions.
- Wage inflation is starting to lift and the very tight labour market and rising cost of living will drive wage inflation higher still over the coming year.
Daily Alert: Aussie yields go walkabout
02 Nov 2021
- The most notable market development during local time yesterday was a huge correction in Aussie yields.
- On the other hand, NZ yields took a breather yesterday ahead of the big central bank announcements later in the week.
- Sharemarkets have been mixed overnight.
Murky labour market data and an elf shortage
01 Nov 2021
There are a few Antipodean events out for the week for markets to get their teeth into this week: NZ labour market data; the RBNZ’s Financial Stability Report (FSR), and; the Reserve Bank of Australia’s interest rate announcement.
The labour market data will, unfortunately, give a murky picture of what is going on. We know the labour market was running red hot prior to the start of the delta community outbreak, but heat has come on businesses up and down the country as a result of months of disruption. The response rate for the Household Labour Force Survey (HLFS) has been impacted, which reduces its reliability. The Quarterly Employment Survey, an employer-based measure of jobs, likely missed the lockdown impact altogether. For the record though, we expect the measured unemployment rate to print at 3.9%, but to rise in the future. Wage pressures are likely to mount.
Wednesday morning brings the FSR, with housing a key financial stability risk the RBNZ is focusing on. Introducing debt-to-income ratios is the next step the RBNZ will proceed with. The FSR will be preceded by a speech Tuesday morning from RBNZ Governor Adrian Orr detailing “the unsustainable level of house prices” and “why the bank cares about the concentration of risk associated with housing and the current drivers of house prices”.
On Tuesday afternoon, financial markets will be bracing for both the Melbourne Cup and to see if the RBA starts to walk away from its bond yield target and its commitment to keep the cash rate on hold until 2024.
Daily Alert: RBA meeting looming large for Tuesday
01 Nov 2021
- In US economic data, personal income fell by 1.0% in September (survey: -0.3%). Spending rose by 0.6% as expected.
- European sharemarkets were mixed on Friday. Insurers and banks rose but mining, energy, utilities and real estate fell.
- US Treasuries were mixed on Friday. US 10-year yields fell 2 points to 1.56%, while US 2-year yields rose by 1 point to near 0.50%.
RBNZ survey reinforces shifting credit trends
01 Nov 2021
- Credit demand continues to firm overall, but limited appetite for capex funding suggests caution still abounds.
- Sectoral differences becoming more apparent in credit availability metrics.
- Banks report strong appetite for corporate and agricultural lending. By contrast, the credit cycle in all things property appears to be in the twilight phase.
Daily Alert: Australasian yields continue to march higher
29 Oct 2021
- Large moves in Australian yields as the RBA did not defend its 0.1% yield curve control (YCC) target.
- The hyper-sensitivity of markets to inflation has continued.
- US PCE data tonight the focus for markets.
- Large moves in Australian yields as the RBA did not defend its 0.1% yield curve control (YCC) target.
Commodities Weekly: An update on our views
29 Oct 2021
- We now expect the RBNZ will speed up the pace of further OCR hikes, taking the OCR to a higher end point
- We’ve also revised our view on the forestry market and expect prices to normalise further from here.
- We expect gains from the recently-announced UK-NZ Free Trade Agreement to be modest.
Labour Market Data Preview Q3 2021: A glance back to pre-Delta times
29 Oct 2021
Q3 wage growth is likely to be very strong, with risks skewed to a larger-than-expected increase. The tight labour market, rising cost of living and increased inflation expectations will continue to put upward pressure on wages.
Measurement challenges due to lockdown will impact the insights we can take from the Q3 labour market data. The impact of the Alert Level 4 on HLFS employment will be difficult to interpret. Meanwhile, the QES data can confirm how strong the labour market was prior to the community outbreak of COVID-19.
Even if the labour market softens somewhat over the second half of 2021, it will most likely bring the balance of labour market conditions from extremely tight, to still somewhat tight.
Daily Alert: Antipodean interest rates on the march
28 Oct 2021
- The most eye-catching development in markets over the past 24 hours has been the rocket higher in antipodean wholesale interest rates.
- Headline Australian Q3 inflation printed on expectations at 0.8% qoq (3.0% yoy), but it was really all about the 0.7% lift in the policy-relevant trimmed mean measure.
- Aussie markets had already been dubious about the RBA’s ‘no rate hikes till 2024’ forward guidance but the clearer confirmation that Australia is not exempted from the global inflation shock saw markets pull forward the expected timing of the first RBA tightening further to around May 2022.
Daily Alert: Inflation watching across the Tasman
27 Oct 2021
- The focus shifts to today’s 1.30pm Q3 Australian CPI release.
- For now, inflation worries were placed on the backburner, with the major US and European equities up overnight and the S&P500 and Dow notching record highs as strong corporate earnings provided some positivity.
- Today’s October reading for the ANZ business outlook might shed some light on unexpectedly strong preliminary readings for own activity metrics.
Economic Weekly: I see Red, I see Red, I see Red…in early December?
26 Oct 2021
The much-awaited roadmap out of the current Alert Levels arrived on Friday with the traffic light system to regulate future restrictions. In the interim, the path to more freedom means 90% of 12+ year-olds being fully vaccinated before there will be a shift to the new system.
The paths differ for within Auckland and beyond. Auckland, with its hard border in place for now, can move to ‘Red Alert’ once all three of the region’s DHBs have reached 90% full vaccination rates. Currently, the most lagging DHB had a first and second jab rate of 88% and 73%, respectively. Our rough estimate suggests the second dose target could be hit in the first week of December – bringing more freedom, assuming hospitals aren’t overloaded at that point.
The rest of the country will get to move to ‘Orange Alert’ once all other DHBs have hit the 90% target, with the potential for the South Island to move earlier – if all its DHBs hit the 90% target before the North Island and it remains free of community transmission. Outside of Auckland, some DHB regions in both Islands have second jab rates in the low 60% mark. That suggests the transition – and full easing of regional borders – could be later than early December. It also leaves the question of what to do if some regions don’t hit the target in some reasonable timeframe. Cabinet will review progress on November 29.
The system brought a clearer stance on vaccination: no jab no fun i.e. no access to many venues or services. It sounds like the Government is working on enabling employers to impose vaccine requirements on staff, which would make sense to do so. There is little point limiting entry access to vaccinated customers only for them to be served by unvaccinated staff. As it is, employers face thorny challenges around Health and Safety requirements for their staff and privacy issues. Having the Government sort that out through clear laws will save a lot of time and money for employers, particularly SMEs that don’t have the deep pockets for Health & Safety consultants and lawyers.
What does this mean for the economy? Unfortunately for Auckland businesses (and those in other areas affected by restrictions), it means roughly another 5 weeks of some form of Level 3 restrictions: over 15 weeks in total of heavy restrictions. That’s a long time to keep dragging a picnic blanket around like Linus to seek some comfort. The Government has doubled the Resurgence Support Payments for businesses. But the Government should keep plugged into on-the-ground business associations and be prepared to bolster that support. Most of us are making some form of sacrifice at the moment. But it is the owners of many Auckland SME’s, hospitality and entertain venues that are facing huge financial and mental strain. And soberingly, lockdown conditions could be running up close to Christmas, delivering a significant dent in what is typically a seasonal highpoint in revenues. The country owes it to these businesses to be compensated for the sacrifice they are making – through no fault of their own – to buy time for the last few to get vaccinated. nick.tuffley@asb.co.nz
Daily Alert: Markets start the week on the front foot
26 Oct 2021
- Equity markets have opened the week in fine fettle, with risk sentiment on the up.
- All the major Wall Street indices have notched up healthy gains, with the Dow up 0.22%, S&P500 lifting 0.49% and the Nasdaq gaining 0.88%.
- Treasury yields have begun the week little changed, with the 2-year circa 2bps lower and the 10-year flat.
Daily Alert: Aiming higher
22 Oct 2021
- We lifted our RBNZ Official Cash Rate forecasts yesterday; we’ve added an extra 50bps of hikes into the back end of 2022 such that the OCR is forecast to reach 2% by the end of next year (previously 1.5%).
- Local yields continued to consolidate yesterday after the big moves earlier in the week.
- All eyes in NZ will be on the Government’s update on COVID restrictions today, and the shape of the new framework that might replace the Alert Level system.
Inflation Watch and the OCR
21 Oct 2021
- Annual CPI inflation will reach close to 6% at the end of this year and is likely to remain persistently elevated well into 2022.
- We have revised up our interest rate forecasts, with the OCR to peak at 2% in late 2022 (previously 1.5%).
- Going forward, we will be keeping close tabs on the labour market and inflation anchors for signs of a concerted shift.
Daily Alert: Markets scale the wall of worry as earnings data rolls in
21 Oct 2021
- The more positive shift in risk sentiment has continued overnight, helped by strong corporate earnings data.
- Treasury yields werelower overnight, with the 10-year paring back from the 1.67% mark it peaked atyesterday.
- In line with the liftin risk sentiment, safe-haven currencies have been the losers overnight and NZDhas done well.
Daily Alert: NZD still wearing yellow
20 Oct 2021
- NZD/USD has jumped another 1.1% over the past 24 hours to once again sit atop the overnight FX performance table.
- Record high commodity export prices remain a key source of fundamental support for the NZD.
- A new bill to amend the Resource Management Act, jointly announced yesterday by the Government and Opposition, introduces several measures to allow increased residential densification and development.
Commodities Weekly: ASB lifts 21/22 Milk Price forecast to $8.75 per kgms
20 Oct 2021
- We’ve lifted our 2021/22 season forecast by 55c to $8.75 per kgms.
- It looks increasingly likely production will undershoot the expectations most of us held earlier in the year, while auction trends show demand maintaining momentum.
- We caution there’s still an awful lot of uncertainty, but the trends over the beginning of spring suggest that the possibility a record farmgate milk price for the season is very much live.
ASB lifts 21/22 Milk Price forecast to $8.75 per kgms
20 Oct 2021
- We’ve lifted our 2021/22 season forecast by 55c to $8.75 per kgms.
- It looks increasingly likely production will undershoot the expectations most of us held earlier in the year, while auction trends show demand maintaining momentum.
- We caution there’s still an awful lot of uncertainty, but the trends over the beginning of spring suggest that the possibility a record farmgate milk price for the season is very much live.
Daily Alert: NZ yields jump as inflation soars
19 Oct 2021
- Yesterday saw a 2.2% Q3 jump in CPI prices and decade-high 4.9% annual inflation print, well above market, ASB and RBNZ expectations.
- Currency market reaction to the NZ CPI print was modest, but yesterday has seen a large pick up in NZ yields and upward revisions for OCR rate hike pricing.
- Markets were generally quiet overnight.
Economic Weekly: COVID's impact on NZ's inflation surge
18 Oct 2021
The Q3 Consumer Price Index, released this morning, revealing a stronger than expected lift in annual CPI inflation, to 4.9% - a full note covering the data will be released this morning. The key question going forward is how high will annual CPI inflation peak and how persistent will above-target inflation be.
There are multiple factors driving higher inflation pressure – much of the lift in inflation pressures over the past year has been internationally sourced (see chart opposite). Recovering global economic demand has pulled commodity prices higher, while at the same time a supply shock from supply chain disruptions has contributed to cost-push inflation. There isn’t much the RBNZ can do about globally-sourced inflation pressure but monitor and react to the impact on NZ wage and price setting behaviours. Already, inflation pressures have led to a lift in the RBNZ’s much watched 2-year-ahead inflation expectations measure above the 2% inflation target midpoint, to 2.3%. This increase is likely a contributing factor to the RBNZ’s determination to unwind policy stimulus despite current COVID uncertainties.
Going forward over the next year, the key driver of inflation pressures was expected to shift towards domestic drivers, as the labour market was extraordinarily tight prior to the NZ Delta community outbreak (indeed domestically driven inflation lifted by much more than we expected in Q3). However, going forward the labour market outlook is less clear. Since the August outbreak, the numbers on job seeker benefits have lifted, albeit a mere fraction of the lift seen in the March 2020 outbreak – which suggests firms are making a strong effort to hold onto staff. However, the longer Alert level 3 restrictions drag on in Auckland, the slower and less complete the NZ economic recovery will be – and this will also be reflected in the labour market. We believe the restrictions are likely having a disproportionate impact on small business owners. Without further support to those locked out of their businesses for over 2 months, there is a concern that many of these small business owners can’t hang on much longer.
Finally, we are potentially only months away from border restrictions being eased, possibly allowing more NZer’s to come home. NZ could see a perfect storm of softening labour demand, but an increase in labour supply from early next year and if this was to happen it would relieve some of the domestic inflation risks for the RBNZ. However, the key word here is if – there remains a significant degree of uncertainty over the next 3-6 months as the world continues to learn how to manage Delta.
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Daily Alert: Global shares post solid gains while local shares dip
18 Oct 2021
- European sharemarkets closed higher on Friday and US sharemarkets advanced on Friday; in contrast, the local sharemarket dipped 0.3% and on Friday, and 0.6% over the week.
- US Treasury prices fell on Friday (yields higher) in response to a surprise lift in retail sales.
- We expect a 1.7% qoq climb in Q3 in consumer prices today at 10.45am, with annual CPI inflation hitting a decade-high 4.4%.
2021 Q3 CPI Review: Annual CPI inflation on track to top 5% over 2021
18 Oct 2021
- Consumer prices surged 2.2% in Q3, pushing annual CPI inflation to a new decade high of 4.9% and considerably above ASB, market and RBNZ expectations.
- ASB expects annual headline inflation to move above 5% by the end of the year. There is the clear risk that high inflation outcomes persist well into 2022 (and likely beyond that).
- The path of the OCR is largely contingent on the economic scarring caused by the ongoing restrictions to contain the spread of COVID and whether inflation expectations and other inflation anchors become unstuck.
- Consumer prices surged 2.2% in Q3, pushing annual CPI inflation to a new decade high of 4.9% and considerably above ASB, market and RBNZ expectations.
Daily Alert: Fly-day Friday
15 Oct 2021
- The NZD/USD is back above 0.7000 (0.7020), having strapped on gains of 1% in the last 24 hours to top the G10 FX leader board.
- There was no obvious catalyst for the brighter mood in offshore markets.
- A speech from the RBNZ Deputy Governor yesterday was mostly one for the boffins; there was nothing market-moving.
Daily Alert: FOMC Minutes signal end of 2021 taper
14 Oct 2021
- The FOMC Minutes of the September meetings signalled broad agreement for the tapering of the USD120bn in monthly asset purchases to begin by the end of this year, with tapering to concluded by mid-2022.
- Global yield curves were under flattening pressure, consistent with the pending removal of interest rate stimulus.
- NZ yields/OCR market pricing and the NZD ground higher after the preliminary October ANZ NZ business outlook surprised with its resilience.
Home Loan Rate Report: RBNZ lifts the OCR, mortgage rate rises expected
14 Oct 2021
- The RBNZ lifted the Official Cash Rate (OCR) in October, as expected.
- More OCR increases are expected at upcoming meetings.
- Related to this, mortgage rates have lifted, and more increases are expected over the year ahead.
Markets Monthly: Doomscrolling
13 Oct 2021
- Having spent much of 2021 in an optimistic mood, financial markets have taken a sharp turn in the other direction over recent weeks.
- The New Zealand sharemarket has lagged global markets this year, but has played some catch up over recent months
- The RBNZ has lifted the Official Cash Rate for the first time in seven years. Term deposit and mortgage rates have been rising.
- Having spent much of 2021 in an optimistic mood, financial markets have taken a sharp turn in the other direction over recent weeks.
Daily Alert: You can't always get what you want
13 Oct 2021
- Shipping delay woes, supply chain chaos and constrained capacity have remained prominent themes in the headlines over the last 24 hours.
- Supply chainpressures are also one of the factors cited by the IMF in cutting its growthoutlook overnight.
- The comments we’vehad from Fed speakers have been quite hawkish overnight, but marketswill obviously be focused on the release of FOMC minutes tomorrow morning.
Commodities Weekly: The hard and the soft of it
13 Oct 2021
- Metals and energy commodities have surged over recent weeks.
- We expect agri commodities to remain well supported over the remainder of the year, but to underperform most hard commodities.
- The ASB Commodities Index has hit another record high, remaning well supported by the relatively low NZD.
Term Deposit Report: RBNZ delivers first rate rise in seven years
13 Oct 2021
- Term deposit interest rates have lifted off their lows over recent months.
- The RBNZ has delivered its first Official Cash Rate increase in over seven years, so more upward pressure on term deposits is expected.
- Nonetheless, rates on offer are still very low and are expected to remain significantly below historical averages over the coming years.
2021 Q3 CPI Preview: The Big Bounce
13 Oct 2021
- We expect a 1.7% Q3 increase in headline CPI, lifting annual headline inflation to 4.4% – its highest in a decade.
- Annual CPI inflation looks set to move above 4.5% by the end of the year and remain outside the 1-3% target range until well into 2022, with the risk of a more prolonged overshoot.
- With high inflation running the risk of being entrenched, more OCR hikes are needed over time. However, the RBNZ will likely tread carefully and in small steps.
Business Sentiment in October: Auckland businesses unnerved by COVID challenge
13 Oct 2021
- Business sentiment remains resilient, despite the prospect of Auckland remaining under L3 restrictions for the next 4-8 weeks.
- Cost and inflation pressures remain uncomfortably high.
- RBNZ to cautiously remove monetary stimulus, returning the OCR to 1.5% by the end of 2022.
Daily Alert: Hot commodities
12 Oct 2021
- There was no change to NZ COVID Alert Levels at yesterday’s post Cabinet update; continuing to lift vaccination levels is now the priority and they are set to become mandatory for health and education workers.
- With no major data orevent risk on the cards, local markets enjoyed a snoozy Monday.
- Overnight, the mostnotable development has been another surge higher in energy prices.
Soft September lift in card spend, with Q4 retail rebound to be tempered by delta drag
12 Oct 2021
- Tepid September rise in card spending off depressed August levels.
- Card spending down in Q3, pointing to a large quarterly contraction in retail activity and GDP.
- High alert levels and stock shortages should temper the rebound in household spending. The OCR is likely to continue to gradually move up, nonetheless.
- Tepid September rise in card spending off depressed August levels.
Economic Weekly: Another global risk to add to the pile
11 Oct 2021
The RBNZ duly delivered the first lift in the OCR in seven years last week. Markets barely blinked and, indeed, no one should have been particularly surprised. It was one of the more well-signalled and widely expected RBNZ actions in some time. The accompanying Statement was also (commendably) clear. The plan is to keep going with stimulus removal. Things can change of course, and the economic pain and uncertainty associated with COVID restrictions was rightfully acknowledged. But, for now, we’re left with little reason to change our existing views on the OCR (another 25bps lift in November), fixed mortgage rates (slow trend higher to continue), and wholesale interest rates (ditto).
The more significant economic news last week was global. Parking COVID for a moment (ah, if only), soaring global energy prices captured most of the attention. They’re further muddying the growth/inflation implications of the global recovery, something that naturally has implications for NZ.
Since the start of September, crude oil prices have jumped around 15%, to hit 7-year highs around US$80/barrel. US and UK natural gas futures are both up in the order of 65-70% since September. Coal prices are not far behind. As with many of the other sources of global inflation at present, supply bottlenecks are a major factor. The key question is how long these price spikes will last. No one is really sure, but they’re coming at a difficult time. Central banks globally are already walking a tightrope, balancing higher inflation against a still-fragile economic recovery. The energy price spike will make the balancing act even more difficult, giving another leg-up to inflation concerns while taking some of the shine off global growth momentum as consumers pull back on spending to pay higher petrol/heating bills.
We think there’s enough of a buffer from huge pent-up savings to keep the global recovery on track. But, in the least, higher energy prices are another blow for those in the ‘inflation is all transitory’ camp. And, indeed, global central banks continue to edge towards following the RBNZ’s lead in starting to reduce stimulus. Global interest rates turned noticeably higher last week. US 10-year yields are at the highest level in four months, and this helped pull NZ 10-year wholesale rates up to 2½ year highs.
Of course, there is a silver lining in all this for NZ. Soaring commodity prices haven’t just been limited to energy. As our own commodities scribe recently flagged, NZ commodity export prices are at all-time highs. The combination of solid global prices and a flat-to-falling exchange rate is proving to be a boon for farm-gate returns in NZ.
Inflation will remain in focus this week, particularly with the September read on US inflation expected to print above 5% on Wednesday night. In NZ, there’s a couple of key events to keep an eye on. First, the preliminary read on October ANZ business confidence will likely show underlying business sentiment taking a knock from September. But key for us will be how labour market and inflation indicators fare. Finally, we’d of course be remiss not be mention this afternoon’s update on NZ COVID restrictions. Stay safe.
Daily Alert: A mixed end to the week for data and sharemarkets
11 Oct 2021
- US Non-farm Payrolls (employment) rose by 194,000 in September, much weaker than analysts’ expectations that were centred on a lift of 500,000.
- European sharemarkets were mixed on Friday while US sharemarkets were modestly weaker on Friday.
- US Treasury prices fell on Friday (yields higher) as analysts continue to expect the Federal Reserve to reduce bond purchases from November.
Daily Alert: Delta spreads in NZ but markets in more positive mindset overnight
08 Oct 2021
- The delta variant outbreak continues to spread in NZ
- Markets traded with a positive vibe last night, boosted by an alleviation of US debt ceiling concerns.
- Non-farm payrolls the key focus this weekend.
Daily Alert: RBNZ out of the blocks
07 Oct 2021
- The RBNZ hiked the OCR by 25bps (to 0.50%), and maintained an explicit tightening bias.
- We expect follow up 25bp hikes, with risks of a more drawn out cycle if there is more marked economic scarring from the recent delta outbreak.
- Republican Olive branch on debt ceiling sees sentiment improve and US markets stabilise after a nervous start.
Daily Alert: Reflation reflates
06 Oct 2021
- The ‘reflation’ trade has made a come-back in overnight trade.
- Some of the more eye-catching moves have been in commodities and rates markets, with two obviously linked.
- Locally, we have the RBNZ MPR at 2pm where a 25bps rate rise is fully priced into interest rate markets and universally forecast by the economics community should, in theory, make for an orderly reaction if the 25bps lift is duly delivered.
Commodities Weekly: GDT underperforms, but the outlook still looks good
06 Oct 2021
- Dairy prices were flat at the latest auction overnight, but tighter supply and resilient demand are likely to keep prices well supported over the remainder of the season.
- We retain our $8.20 kgms Fonterra milk price forecast for the season.
- The ASB Commodities Index hit a new all-time NZD high last week, edgingpast the previous record it reached in June
RBNZ October OCR Review: Up, up and away
06 Oct 2021
- The RBNZ lifted the OCR by 25bps to 0.50% at today’s Monetary Policy Review.
- The focus is firmly on the medium-term outlook, with the ongoing lockdown not seen as materially shifting that.
- We expect the OCR to rise in November and February, eventually reaching 1.5%. But COVID could temper that.
Daily Alert: Equities take a battering as sell-off resumes
05 Oct 2021
- Most major sharemarkets in Europe and North America have notched up noticeable falls overnight.
- As we’ve noted overprevious publications, the ‘wall of worry’ – the Evergrande saga, the latest USdebt ceiling stoush, stagflation fears and the gradual tightening in monetarypolicy – has started to weigh on marketsof late.
- The other function ofstagflation woes is that commodity prices have lifted overnight, in contrastthe usual risk-off trend.
Economic Weekly: Nail-biting decision week
04 Oct 2021
This is going to be a pretty momentous week for decisions by the powers that be. Monday 4pm brings the next decision on Alert Levels and a ‘roadmap’ out of lockdown. Wednesday 2pm is the moment we see whether the RBNZ delivers its first OCR increase in seven years, notwithstanding the current Delta outbreak won’t be stamped out at that point even if the Alert Level decision and the ‘roadmap’ will at least be known.
This afternoon’s Cabinet decision on Alert Levels has to be one of the toughest to make yet. New cases are if anything picking up in pace along with rising ‘unexplained’ cases. The virus has clearly leaked out of Auckland, with parts of Waikato now at Level 3. It appears increasingly risky to ease Auckland’s Alert Level 3, as doing so right now strongly suggests COVID would get even more entrenched in the community. But seven weeks of restrictions are taking their toll on people and businesses alike. Fatigue, rule-breaking and financial pressures are rising.
The Government will today lay out its ‘roadmap’ out of lockdowns, which sounds like it will involve vaccination targets for the easing of restrictions (particularly those that pop household bubbles). Should the plan for Auckland require ongoing Level 3 style restrictions be extended for potentially weeks, then providing added financial support for businesses would be prudent to give businesses some further means to survive until they are able to trade with more freedom. NZ is poised on the knife-edge of heading down Australia’s patch, where elimination is over for key states and restrictions are retained to buy time for vaccinations to hit high population thresholds by slowing COVID’s spread. If NZ heads that way, then restrictions risk being in place for longer to take pressure off the health system. But other pressures will build.
The RBNZ’s Wednesday decision looks more straightforward, though not without its own risks of hindsight being a cruel judge. We still expect the RBNZ to lift the OCR this week, as noted in more detail in our preview. There’s no doubt the lengthy shift up Alert Levels has added a lot of new uncertainty into the mix. But, given the medium-term outlooks for inflation pressures and labour market tightness, cautiously tightening monetary policy is still the ‘least regret’s approach – at least for now.
RBNZ October Monetary Policy Review: The moment we've all been waiting for
01 Oct 2021
- The RBNZ is very likely to lift the OCR by 25bps to 0.50% at next week’s Monetary Policy Review.
- Much of the increase has already been priced into wholesale and retail rates.
- NZ interest rates will continue to head higher from here, though we expect them to peak at historically-low levels after a cautious tightening cycle by the RBNZ.
Commodities Weekly: Commodity prices remain resilient over start of Spring
30 Sep 2021
- We are now well into spring and commodity prices continue to prove very strong.
- While we suspect our NZD index may have peaked in strength, the underlying demand and supply balance for dairy, meat and forestry products, should keep our index above long-run averages over the remainder of the year.
- Last week's export data continues to show NZ exporters benefitting from the positive outlook, despite widespread reports of freight disruption.
Daily Alert: Rise in COVID-19 cases weighs on NZD
30 Sep 2021
- NZ yields, the NZD and confidence of a shift lower in alert levels in Auckland from next week all dipped after 45 new community cases were announced yesterday.
- Concerns over US fiscal policy remain, along with those over higher inflation and the Evergrande situation.
- Business sentiment data and the NZ COVID-19 count released at 1pm today.
Business Sentiment September: Businesses resilient but upside inflation risks remain
30 Sep 2021
- Overall business sentiment and key activity metrics from the ANZ survey remain resilient, but off their June peaks.
- Cost and inflation pressures remain stubbornly high.
- We are hoping that the economy will swiftly bounce back from its delta dip, but with COVID-19 still in the community we will have to wait and see.
Daily Alert: NZD belted as investors’ ‘wall of worry’ grows
29 Sep 2021
- Risk appetite hit the skids again overnight, carving around ½ cent off the NZD/USD.
- The sharp run-up in energy prices has further inflamed what is probably the key worry for markets which is the withdrawal of monetary stimulus.
- The NZD/USD is likely to remain on the defensive today/tonight given broad USD strength and retreating risk appetite.
Daily Alert: Yields open the week higher
28 Sep 2021
- With absolutely nothing out on the data calendar or much in the way of event risk, local markets have enjoyed their usual quiet Monday.
- Overnight,bond yields have lifted in much of Europe and North America.
- Theeconomic implications of yesterday’s German elections could be far-ranging,with a changing of the guard on the cards in Berlin as Angela Merkel retires.
Regional Economic Scoreboard Q2 2021: Volatility Abounds
28 Sep 2021
- Volatility on the Scoreboard this quarter reflects regional COVID-19 recovery differences.
- The West Coast takes the lead with the most significant turn-around, with Canterbury in second place helping to narrow the North and South Island divide.
- Next quarter’s Scoreboard expected to paint a different picture after current lockdown.
Are we there yet
27 Sep 2021
It’s now a week until the Government signals whether or not Auckland can move from ‘Level 4 with takeaways’ to start enjoying a little more freedom at Delta Level 2, and whether the rest of the country can ease out of Level 2. The novel availability of takeaways and click & collect will help the 09 region soldier on, though has deprived NZ’s genuine bootleggers (or more accurately boot-thighers?) of an apparently lucrative opportunity to parcel out baggie’s of fried chicken goodness to a desperate population.
The question on many people’s minds for the next week will be: are we there yet? But, where exactly is there? Increasingly, this Delta outbreak is teaching us that the future will look different to the Level 1 business as usual we have become accustomed to. We have – hopefully – got on top of this latest outbreak. But not without a considerable toll on businesses and people’s wellbeing. If there was to be another community outbreak, there is no guarantee there would be enough gas left in the tank to successfully complete another extended stay-at-home lockdown – if that is what it would take to head off mass infection, hospitalisation or deaths. Which really brings the blowtorch on lifting vaccination rates and making testing and tracing truly world class to keep a lid on hospitalisations and deaths. And on getting the health sector better able to cope with outbreaks.
Daily Alert: Bond yields surge higher
27 Sep 2021
- Bond yields here and abroad continue to lift, with the local 10-year yield surging above 2% on Friday.
- The local sharemarket dipped on Friday, weighed down by a 3% retreat in Fisher & Paykel Healthcare’s share price.
- Building consent data for August are due on Thursday, and the September ANZ Business Outlook is also released.
Daily Alert: Sharemarkets continue their comeback
24 Sep 2021
- Market sentiment has been well in positive territory overnight, typified by broad gains for equities, higher commodity prices and a weaker USD.
- The Bank of England meeting overnight has rounded out our week of big central bank meetings.
- NZ monthly trade data are out today, but will have no market implications given weekly data have already been released by Stats NZ.
COVID responses, choices, and economic influences
24 Sep 2021
- NZ’s Delta outbreak and latest lockdown raise questions about the way forward.
- Lockdowns are costly and increasingly unsustainable, vaccinations offer the way out.
- Society’s choices for elimination, border restrictions, and freedoms for the vaccinated will shape industries.
Daily Alert: Dot plots signal earlier and faster pace of FOMC hikes
23 Sep 2021
- US short-term yields and the USD rise after the FOMC ‘dot plot’ interest rate projections from 2022 were shaded up relative to those in June
- Leading up to the FOMC, improved risk appetite was evident on hopes that difficulties of embattled Chinese property developer Evergrande can be resolved.
- Local yields lower yesterday as the market continued to digest the RBNZ’s cautious message on rate hikes.
Household Sector Outlook: Prepare for higher interest rates
23 Sep 2021
- We expect the OCR to move up soon, taking mortgage interest rates with them. Uncertainty is pronounced, but a historically low peak in average mortgage interest rates is expected this cycle.
- Moderately higher interest rates are unlikely to derail the household sector, but the RBNZ will remain watchful.
- Borrowers should budget and prepare for higher interest rates.
Daily Alert: Curb your enthusiasm
22 Sep 2021
- Local markets have, rightly, backed off the idea of a 50bps RBNZ rate hike in October or November following a speech from RBNZ Assistant Governor Hawkesby yesterday.
- Overnight, there’s been a modest recovery in risk appetite.
- This morning’s GDT auction saw the main price index rise 1%, a solid result following the 4% lift at the previous auction.
Mea Culpa: ASB lifts milk price forecast to $8.20 kgms
22 Sep 2021
- Dairy prices have made further gains at the latest GlobalDairyTrade auction overnight.
- We were premature in lowering our Fonterra milkprice forecast to $7.90kgms back in July.
- We admit our mistake, say ‘mea culpa’ and returnour 2021/22 forecast to $8.20 kgms.
Mea Culpa: ASB lifts milk price forecast to $8.20 kgms
22 Sep 2021
- Dairy prices have made further gains at the latest GlobalDairyTrade auction overnight.
- We were premature in lowering our Fonterra milk price forecast to $7.90kgms back in July.
- We admit our mistake, say ‘mea culpa’ and return our 2021/22 forecast to $8.20 kgms.
Daily Alert: Shares continue their falls
21 Sep 2021
- Overnight, there’s been a deepening of the tumble in equities that began on Friday.
- Evergrande, a major Chinese property developer, is heavily indebted and is teetering on the brink of collapse after the introduction of new borrowing rules by Beijing.
- Outside of equities, the risk-off tone in markets was evident across the board.
Q2’s travel bubble boost popped
20 Sep 2021
The Q2 GDP figures were very positive as a Level 1 economy and the brief opening of the trans-Tasman bubble brought a surge of retail and travel activity. 2.8% quarterly growth was well ahead of our relatively optimistic 1.5% pick and the RBNZ’s 0.7% forecast from its August Monetary Policy Statement.
On the face of it that is an astonishing achievement, particularly coming after 1.4% quarterly growth in Q1. Ahead of this lockdown, the economy was in aggregate on a tear. And revisions meant the measured dip in activity during last year’s Level 4 lockdown wasn’t quite as deep.
There are a few cautionary tales in the Q2 outcome. The growth was heavily driven by the opening up of the trans-Tasman bubble, which has been well and truly popped for the time being by the delta outbreaks on both sides of the Tasman and means all that Q2 travel surge will get unwound in Q3. Meanwhile, domestic spending by households – as reported – was surprisingly slow. There was also what appeared to be a surprisingly modest outflow of spending by New Zealanders crossing the ditch. There are challenges in measuring activity accurately when there has been so much reshaping of industry and seasonal patterns. Still, there were plenty of positives. Agriculture boomed, up 5%. Construction, manufacturing, arts and recreation services & professional/business-related services performed solidly.
Daily Alert: Global shares ease on Friday, NZ sharemarket bucked the downtrend
20 Sep 2021
- US and European sharemarkets closed lower on Friday, but the local sharemarket lifted 1.2%.
- The People’s Bank of China injected a net 90 billion yuan of short-term cash (the most since February) into the financial system to improve liquidity conditions.
- The Bank of Japan meet Wednesday, the FOMC Thursday morning NZT, and Bank of England on Thursday night. We expect them to maintain the status quo. The most attention will be on the US FOMC.
Daily Alert: Strong NZ GDP print raises OCR hike odds
17 Sep 2021
- It may be in the rear vision mirror, but yesterday’s stonking 2.8% qoq Q2 climb in NZ GDP (17.4% yoy) caused a few market ripples, with short-term yields up roughly 5bps and a brief bounce in the NZD.
- In our view the RBNZ will look through the near-term disruption caused by the recent outbreak, with the path of least regrets necessitating the prompt reduction of monetary stimulus.
- Much quieter today in Australasia with the NZ August manufacturing PMI out.
Daily Alert: Sentiment see-saws
16 Sep 2021
- The defensive tone following yesterday’s weaker than expected Chinese data paved the way to a modest rebound in sentiment in the US session on reduced fears of a global slowdown.
- Markets have remained highly sensitive to inflation signals,
- Volatility is on the cards today with Q2 NZ GDP and Australian employment reports out today.
Q2 2021 GDP Review: Strong NZ growth momentum prior to lockdown
16 Sep 2021
- NZ real GDP expanded at a robust 2.8% qoq pace over Q2, confirming the NZ economy had considerable momentum prior to the more recent community COVID-19 outbreak. There were positive revisions to the level of GDP, with the magnitude of the 2020 Q2 dip and Q3 rebound revised a touch lower.
- The Q2 figures look increasingly dated given more recent events. The most recent lockdown is set to add further volatility to GDP figures through the remainder of the year. Uncertainty is high, but we expect the sharp Q3 dip to be short-lived and followed by a strong Q4 rebound.
- We expect the RBNZ to ‘look through’ near-term volatility and reduce monetary stimulus, with a series of 25bp hikes starting from next month. We envisage a gradual path of OCR hikes and a low 1.50% OCR endpoint.
Daily Alert: Lockdown diaries day…whatever
15 Sep 2021
- A small downside miss on August US inflation figures has been the most notable event in markets overnight.
- Some dovish chat from RBA Governor Lowe yesterday provided the fuel for NZD/AUD to poke its nose above 0.9700 overnight – a fresh 18-month high.
- Locally, the consensus expects NZ’s current account deficit widened from 2.2% of GDP to 3.3% in Q2 (data 10:45am).
Commodities Weekly: Lamb market looking far from sheepish
15 Sep 2021
- Lamb prices continue to exceed record highs.
- From a revenue perspective, we expect high prices will continue to offset any trend lower in volumes over the remainder.
- We think prices could peak at the $9.65 – 9.75 range.
Home Loan Rate Report: Mortgage rates keep moving higher
14 Sep 2021
- Despite the August COVID-19 outbreak causing the Reserve Bank of New Zealand (RBNZ) to keep the Official Cash rate at a record low 0.25%, mortgage interest rates keep rising.
- Mortgage rates have lifted in September, and more increases are expected over the year ahead.
- The ASB Economics team thinks every RBNZ meeting should be considered "live" for Official Cash Rate increases, although the latest COVID-19 outbreak is a reminder that the situation is fluid.
Term Deposit Report: Interest rates tick higher in September
14 Sep 2021
- There has been a lift off the low term deposit interest rates over recent months, including increases in September.
- Nonetheless, rates on offer are still very low and are expected to remain significantly below historical averages over the coming years.
- Inflation has been low but is on the rise, eroding the return from term deposits.
- There has been a lift off the low term deposit interest rates over recent months, including increases in September.
REINZ Housing data - August 2021
14 Sep 2021
- Housing market sails through August lockdowns
- Still no evidence rate of house price inflation is slowing
- Two-pronged response likely from RBNZ in October
Economy charged into lockdown
13 Sep 2021
It may feel a bit like looking through the rear-vision mirror but indications are the economy was on a charge up until lockdown hit. Q2 GDP figures out on Thursday will give the full picture. We expect a 1.5% quarterly increase will be reported. Retail spending, accommodation (helped by the trans-Tasman bubble), manufacturing, logistics and various services all played a role in supporting huge momentum over the first half of the year. And watch for ANZ’s preliminary business confidence survey results this afternoon for a gauge on how businesses view the impact of this lockdown.
Housing has been one driver of the economy this year, and the latest ASB Housing Confidence Survey showed people’s expectations of house prices have been dampened only slightly by factors such as tax changes, tighter RBNZ lending restrictions, and anticipated mortgage rate increases.
Retail spending had been steadily growing until August, when it took the expected hit from lockdown. Retail transactions on electronic cards plunged 20% in August. Consumables sales rose 9.3%, officially confirming what the bare supermarket shelves told us. But with two toilet paper suppliers apparently set to pull out of NZ, perhaps we can rationalise to ourselves our toilet paper purchases.
Tomorrow marks four weeks of lockdown conditions of various strictness for this outbreak. The 4pm media conference today will bring a decision on any easing of Alert Levels for Auckland or the rest of the country. Judging from the epidemiologist pundits, there is every chance that the current strict conditions get extended further, given the continued run of mystery cases that are turning up. If Level 4 conditions get extended, that will take Auckland towards uncharted territory. Last year’s main lockdown had 33 days at Level 4 and 49 in total at Levels 3 and 4. A further week of Level 4 would take Auckland to 35 days before then presumably some period at Level 3.
We all need to hang in there in our bunkers to stamp out transmission, even if it does mean reaching for the sourdough recipes to get a break from scones. The alternative would be overwhelming the health system. But the longer strict conditions remain, the greater the prospect of scarring to the economy through damage to businesses. The Government has announced additional business resurgence payments to help cushion the blow, but should remain alert to how it can further help out where the blowtorch of lockdown is felt most acutely. And no-one should be shy about taking up any form of support that will help get them through. Hang in there.
Daily Alert: Sharemarket softness continued on Friday
13 Sep 2021
- Data on Friday showed August card spending plummeted as NZ entered the latest lockdown.
- The ANZ business outlook survey for September is due today and will be the first full insight into the business community’s reaction to the current Delta outbreak.
- Locally, second quarter GDP data are due on Thursday.
Darn the torpedoes
13 Sep 2021
- Kiwi's expectations of continued house price increases have been surprisingly hard to sink.
- And the perception remains that it is still a relatively challenging time to buy a house at present.
- Respondents were increasingly aware of the likely upward journey for interest rates.
- Kiwi's expectations of continued house price increases have been surprisingly hard to sink.
Business Confidence September: Businesses defiant in the face of Delta
13 Sep 2021
- Business sentiment resilient in the face of Delta, and points to a strong bounce back in economic activity once Alert Level restrictions are eased.
- Business optimism may still slip once the full survey results are released, as Auckland’s Alert Level 4 drags on.
- Cost and inflation pressures remain elevated, although may be starting to turn a corner.
Daily Alert: To taper or not to taper, that is the question
10 Sep 2021
- The NZ COVID-19 count continued to trickle lower, with another 13 community cases reported yesterday (all in Auckland).
- The euro firmed after the ECB kept its key policy interest rates unchanged, settings unchanged, and with an “unanimous decision on all respects” (according to ECB President Lagarde) opted to conduct asset purchases at a “moderately lower pace” than earlier this year.
- It might be the rear vision mirror but data to date have suggested the NZ economy had considerable momentum heading into the lockdowns.
Lockdown hit to card spend (hopefully) expected to be short-lived
10 Sep 2021
- August card spending plummets as NZ enters lockdown. Given the timing of the lockdown, August falls were not as sharp as in the April 2020 lockdown. Consumable retail spending was again the major standout.
- The relaxation in restrictions in much of the country and hopes that Auckland will soon follow suit point to a swift rebound in card spending. Despite this, a large Q3 contraction in retail activity and GDP looms
- Looking though the near-term volatility, the household sector is in generally solid shape, with a robust medium-term outlook for household spending. We expect OCR hikes from next month as the RBNZ looks though near-term weakness and focuses on the positive medium-term economic outlook and rising inflation.
Q2 2021 GDP Preview: Strong momentum before the outbreak
10 Sep 2021
- We expect Q2 GDP lifted 1.5% over the quarter, although uncertainty around quarterly GDP growth outcomes is higher than usual given large market median forecast errors over the past year.
- If a strong lift in Q2 is confirmed, then the NZ economy had considerable momentum prior to the current community COVID-19 outbreak, reinforcing the need for the RBNZ to start lifting the OCR once the Delta crisis has passed.
- We expect the Delta outbreak to reduce Q3 GDP by 6-7%, but for the economy to quickly bounce back as it has done in the past.
Keep up the pace NZ
09 Sep 2021
- It was another quiet day in the local market peppered by some more positive developments on the COVID front.
- Overnight, risk sentiment has been a bit choppy,with equities lower across the board in Europe and North America.
- Despite the softer tone overnight, the NZD hasactually been one of the better performing currencies.
Daily Alert: A bob each way from the RBA
08 Sep 2021
- Risk appetite softened a little overnight.
- Against a general expectation the RBA would walk-back its prior decision to taper bond buying, the Board in the event elected to have a bob each way.
- The NZ interest rate market, meanwhile, continues to dance to its own beat.
Commodities Weekly: Spring dairy price gains have sprung
08 Sep 2021
- Trends have been positive at the latest dairy auction overnight.
- WMP prices are looking strong and stable across the contract curve.
- What we’ve seen looks pretty positive, supporting our view that thefarmgate milk price for the 21/22 season is likely to remain very strong in ahistorical sense.
Daily Alert: ¯\_(ツ)_/¯
07 Sep 2021
- It’s been a typically quiet start to the week with little in the way of market volatility or earth-shattering news yesterday.
- Overnight, markets have been shut for Labour Day in the US.
- Outside of the US, the most notable theme has been continued gains for equities.
Economic Weekly: Don’t give up Auckland, we are on the right track
06 Sep 2021
Over the weekend, it was very encouraging to see the number of new COVID-19 cases continue to trend down. This demonstrates NZ’s Alert Level 4 lockdown is working – and not just slowing the virus spread but stopping the spread. For now, elimination remains NZ’s best strategy for both the economy and health outcomes. Elimination means back to “normal” faster and enables the economy to quickly bounce back. We currently expect Q3 GDP to contract around 6-7% due to the NZ community outbreak and the subsequent lockdown. And assuming elimination is successful, we expect GDP to bounce back over Q4 – with an 8% rebound pencilled in.
Some may have been disheartened last week to see Australian states New South Wales and Victoria give up on the elimination strategy, after failing to stop the spread of the Delta variant in these communities (RIP trans-Tasman Bubble). But NZ should not take this is a sign of inevitable defeat. Google uses its popular maps app to measure changes in people movement, and it’s provided a great insight into the effectiveness of lockdown restrictions. Comparing Auckland with New South Wales (NSW) and Victoria (see charts below), NZ’s Alert Level 4 has been more effective at keeping more people at home and reducing the number of people needing to physically be at retail locations. This comparison clearly shows that restrictions in NSW and Victoria were on par with NZ’s Alert Level 3 in limiting the movement of people, not Alert Level 4. Alert Level 4 restrictions are hard and stressful, but a month here will be better than staying at Alert Level 3 for a number of months as has been the case for NSW. Furthermore, disappointing US employment figures over the weekend show that living with the virus before most people are vaccinated does slow and inhibits economies’ ability to recover.
Daily Alert: US employment growth disappoints. NASDAQ sets a record and yields rise anyway
06 Sep 2021
- In US economic data, Non-farm Payrolls (employment) rose by 235,000 in August much weaker than the consensus of analysts’ forecasts centred on a lift around of 750,000.
- On Friday the RBNZ announced it is seeking views on its proposal to reduce risky mortgage lending by further reducing the amount of high Loan-to-Value Ratio (LVR) lending to owner-occupiers.
- We expect Q1 building activity (building work put in place) to lift 1.7% - adding to the previous quarter’s lift of 3.7%.
Daily Alert: Kiwi flies on USD’s demise
03 Sep 2021
- The most eye-catching development in financial markets overnight has been the broad-based decline in the US dollar.
- Yesterday we learned the NZ terms of trade lifted a further 3.3% in Q2; as with interest rate differentials, the high terms of trade are of course a strong fundamental support for the NZ dollar.
- Economic data have been thin on the ground overnight.
Riding out the (lockdown) storm
03 Sep 2021
- The current lockdown/tightening of Alert Level restrictions will cool strong momentum in household sector activity.
- COVID-19 adds uncertainty to the outlook, but firms and households have been here before.
- Provided the lockdown does not drag on, we expect a strong post-lockdown bounce in household spending and overall GDP. Households should prepare for higher borrowing costs.
The household sector has been at the forefront of the domestic post-COVID-19 expansion. The combination of strong household balance sheets, increasing household incomes, record low average interest rates for the household sector and Kiwi’s love affair with property and durable spending has been in evidence. This has resulted in a strong momentum in economy-wide household spending and economic overheating, notwithstanding the significant post-COVID-19 hit to many NZ firms and households.The recent delta variant outbreak and subsequent lockdown have cooled things down. A number of households will bear the brunt. Uncertainty is high, but firms and households have been through this before and are generally resilient. Providing the lockdown is short-lived (weeks rather than months), our view is that household spending will be temporarily dampened, followed by a decent rebound. Households should prepare for higher borrowing costs.
Daily Alert: Soft employment data dims prospect of imminent Fed taper
02 Sep 2021
- NZ covid cases rise.
- Prospects of imminent FOMC tapering dampened by soft employment data.
- Equity markets trade with positive vibe.
NZ Terms of Trade Q2 Review: Back around record highs
02 Sep 2021
- NZ’s terms of trade headed higher at a strong clip over Q2, supported by rising commodity prices.
- There’s little sign thatconstrained shipping capacity is limiting export and import volumes.
- We expect NZ’s terms of trade to remain well supported over the medium term.
Daily Alert: Hope Springs
01 Sep 2021
- It’s lockdown day 15 but also the first day of spring which should help bolster weary spirits.
- Local data released yesterday were again given a wide berth given they mostly pre-dated lockdown.
- Nothing locally aside from the now de-rigueur 1pm COVID update.
Commodities Weekly: Meat you at the top
01 Sep 2021
- NZD meat prices have been on an absolute tear over the past couple of months.
- There’s little sign that the lifting in alert levels a fortnight ago is impacting prices, but we think they should get further support from the return of African Swine Fever in China.
- A lot will be contingent on the ability of individual producers to take advantage of high prices, given the twin challenges of supply chain disruption and the labour shortages.
Daily Alert: Lockdown extension belies a quiet opener to the week
31 Aug 2021
- It’s been a typically quiet start to the week, with little in the way of major data or headlines to kick things off outside of the usual delta outbreak update.
- There hasn’t been all that much in the way ofmajor headlines overnight either, though markets have traded with a mildrisk-on skew.
- Besides the dailycase number data, today’s local highlight is the ANZ business outlook surveyout at 1pm, though it may have limited insights to offer.
Four More Weeks?
30 Aug 2021
The past week has given us more information about the likely duration of this lockdown. After a week of seeing the number of contacts explode, we have also started to see the number of new cases level off. This latter development means the exponential rise of unfettered transmission has been knocked in its head. As has occurred in Australia, many new cases are within households of infected people, highlighting how infectious the delta variant is. However, the ‘curve’ has yet to bend down, meaning a need for caution remains. And we will need to be wary of whether another Australian pattern – essential workers getting infected at work and bringing infections home – becomes an issue here, too.
Daily Alert: Reading the tea leaves for taper signs
30 Aug 2021
- At the weekend US Fed Chairman Powell spoke at the Jackson Hole central bank (virtual) gathering, with all the focus on comments the Chair had to say about the changes of the Fed tapering its asset purchases.
- Global oil prices rose by around on Friday as US oil producers began to shut production facilities in the Gulf of Mexico ahead of the expected arrival of a hurricane.
- In local data, ANZ releases the full August month business outlook survey results on Tuesday 31st August at 1pm.
NZ COVID count climbs, with nervous markets on lookout for taper talk at Jackson Hole
27 Aug 2021
- NZ COVID cases continue to climb, pointing to the likelihood of Alert Level 4 restrictions being extended (at least in Auckland) until well into September.
- Markets were in a nervous mood overnight, leading up to thelooming (virtual) FOMC Jackson Hole meetings and trading with a modest risk-offtone.
- Global equities were slightly lower overnight.
Global markets shrug off COVID-19 concerns, with cases rising in NZ
26 Aug 2021
- Risks are increasingly tilted to Alert Level 4 restrictions (at least in Auckland) being extended well into September.
- Markets have shrugged off pandemic concerns,with improving risk appetite evident on thin volumes traded ahead of the keyFOMC Jackson Hole meeting at the end of this week.
- Global equities hovered around record highs.
Commodities Weekly: A week of it
26 Aug 2021
- We expect there to be relatively little impact on demand for most major NZ exports from the latest lockdown.
- We expect forestry prices may be the among the most impacted commoditiesthis time around too – and the lockdown has come at a time where log exportprices have fallen sharply.
- Uncertainty remains very, very high.
Daily Alert: NZD back on its uppers, as RBNZ stays on message
25 Aug 2021
- Both the NZ dollar and NZ interest rates have staged reasonable rebounds over the past 24 hours, particularly the former; global and domestic factors have both contributed.
- The RBNZ communications machine is still going full tilt following last week’s last-minute call to delay rate hikes.
- Yesterday’s Q2 retail trade survey was a belter with the 3.3% quarterly expansion in retail volume well above street (2.5%) and our own expectations and provided further confirmation the economy was basically red-lining going into lockdown.
Home Economics: Upcycling
25 Aug 2021
- We’ve upped the amount of ‘cycle’ in our house price inflation forecasts: more this year, less next.
- Therecent COVID outbreak means a chunk of activity will get postponed, rather thancancelled. But we don’t think this will have a lasting impact on the houseprice outlook, assuming the lockdown is brief.
- Higher mortgage ratesare a gamechanger. But most of the house price impact will occur next year. Wehaven’t materially changed our mortgage rate forecasts despite the RBNZ’sAugust pause.
Daily Alert: Keep calm and carry on
24 Aug 2021
- The entirety of New Zealand will remain at Alert Level 4 until at least 11.59pm Friday the 27th, and Auckland until at least 11.59pm Tuesday the 31st.
- In other local news yesterday, RBNZ officials have been on the wires stressing that OCR hikes are probably still on the agenda despite our new lockdown.
- Risk sentiment has been positive overnight, with sharemarkets making gains amid the news the US FDA has approved a new COVID-19 vaccine for use.
Q2 2021 NZ Retail Trade Review: Strong retail sector momentum continues heading into lockdown
24 Aug 2021
- Stronger-than-expected lift in Q2 retail volumes to fresh record highs, with the consumer driving the domestic expansion.
- Trans-Tasman bubble boost and strong durable retail evident.
- A Q3 pullback in retail trade activity is highly likely given the delta variant outbreak in NZ. We are hoping the dip is short-lived and have pencilled in a strong retail rebound by the end of the year.
Delta variant throws a curveball
23 Aug 2021
About a week after the Government’s indication of how it plans to ease open the border, and on the eve of the RBNZ’s pivotal monetary policy announcement, the game abruptly changed. COVID is no respecter of the best-laid plans of mice and humans. So here we are, back into the strictest lockdown settings that we have not needed since the initial outbreak. It will be tough for many, but we have learnt crucial lessons from Australia about the pitfalls of dallying. NSW’s chances of eliminating its outbreak are vanishing quickly and it is in a drag race to get people vaccinated to contain growing pressure on its health system. Our L4 looks likely to be extended at today’s announcement.
Daily Alert: Settle in, we might be here a while longer
23 Aug 2021
- Rising active cases in the community and a ballooning list of locations of interest and close contacts to trace are ominous signs that stringent lockdowns will be extended.
- The NZ sharemarket was down 0.1% on Friday, but rose 1.4% over the week, in contrast with global shares that rose Friday but eased over the week.
- We expect another strong quarter for retail sales when Q2 data are released on Tuesday, continuing the theme of the NZ consumer driving the domestic expansion.
Delta variant throws a curveball
23 Aug 2021
About a week after the Government’s indication of how it plans to ease open the border, and on the eve of the RBNZ’s pivotal monetary policy announcement, the game abruptly changed. COVID is no respecter of the best-laid plans of mice and humans. So here we are, back into the strictest lockdown settings that we have not needed since the initial outbreak. It will be tough for many, but we have learnt crucial lessons from Australia about the pitfalls of dallying. NSW’s chances of eliminating its outbreak are vanishing quickly and it is in a drag race to get people vaccinated to contain growing pressure on its health system. Our L4 looks likely to be extended at today’s announcement.
Daily Alert: COVID-19 decision looms
20 Aug 2021
- News on the NZ delta variant outbreak to date illustrate the risks facing NZ.
- Markets traded with a broadly risk-off tone overnight, given anxiety over the pending withdrawal of Fed stimulus.
- Today’s 3pm COVID-19 announcement will be closely watched, with the Government expected to make a decision today over whether and when COVID-19 alert levels can be lowered.
Home Loan Rate Report: Mortgage rate increases remain on the horizon
20 Aug 2021
- The RBNZ did not lift the Official Cash Rate (OCR) in August as widely expected, instead pausing because of the latest COVID-19 outbreak and related Alert Level 4 lockdown.
- The pause to assess the latest developments is entirely appropriate, but OCR increases are still on the cards for upcoming meetings, and more mortgage rate increases are expected.
- The ASB Economics team thinks every Reserve Bank of New Zealand (RBNZ) meeting should be considered “live” for Official Cash Rate (OCR) increases, although the latest COVID-19 outbreak is a reminder that the situation is fluid.
Daily Alert: A hawk in dove’s plumage
19 Aug 2021
- Given all the uncertainty, the RBNZ opted to keep the OCR on hold yesterday – but the tone of the statement clearly suggests it was planning a hike before the community case bombshell.
- From here, the speed of any tightening clearly hinges on the events of this lockdown.
- No major data out in NZ today – instead its further developments on the COVID community cluster front that will be in the driver’s seat.
Daily Alert: Here we go again, with RBNZ now expected to hold OCR at 0.25% today
18 Aug 2021
- Yesterday afternoon a community case of COVID-19 was discovered in Auckland; the NZ Government moved swiftly, announcing that from 11.59pm last night NZ would move to Alert Level 4 for at least the next 3 days, with Auckland and the Coromandel to be at Level 4 for at least 7 days.
- The lockdown has increased the option value of waiting and ASB now expects the RBNZ to hold the OCR at 0.25% today.
- Meanwhile, prices from the GDT auction rose 0.3%, but whole milk powder prices fell 1.5% to USD3,552 per metric tonne and we have retained our $7.90 kgMS Fonterra milk price forecast for the 2022 season.
Commodities Weekly: Wake me up when September begins
18 Aug 2021
- Moves in dairy prices have been modest at the latest auction.
- The NZ spring will be the real test for prices as we enter the peak production months.
- On a separate note, the ASB Commodities Index hit a two-and-a-half-month low in NZD terms last week but remains very strong in a historical sense.
RBNZ August Monetary Policy Statement Review: Lockdown prompts RBNZ to pause for now
18 Aug 2021
- The RBNZ kept the OCR on hold, as we had expected at the 11th hour.
- The current COVID outbreak was the reason to remain on hold – otherwise it was clear the RBNZ intended to lift the OCR at an orderly pace starting from today.
- Assuming the outbreak is stamped out relatively soon, we expect the RBNZ to start lifting the OCR from October.
RBNZ OCR COVID RESPONSE: RBNZ likely to pause given COVID community case
18 Aug 2021
- We expect the RBNZ will opt to keep the OCR on hold on Wednesday August 18, rather than lift it.
- A suspected community delta COVID case (and 4 infections linked to it so far) and the snap Level 4 lockdown mean the RBNZ is making a decision in the blind about the extent of the outbreak.
- Assuming the lockdown is relatively short, we’d expect the RBNZ to lift the OCR from October.
Daily Alert: Taking the edge off
17 Aug 2021
- A softer-than-expected slug of Chinese activity data out yesterday has seen investors start the week in a more cautious frame of mind.
- Economic data/events overnight have been thin on the ground.
- There’s just the RBA Board Minutes to look forward to in this part of the world.
Economic Weekly: Ready. Set. GO
16 Aug 2021
- On Wednesday, we expect the Reserve Bank to respond to sustained inflationary pressure and the hot labour market with a 25bps OCR hike to 0.50%
- We expect that move to kick off a tightening cycle that will see the OCR reach 1% by the end of the year.
- While it’s certainly conceivable the Bank might need to perform a U-turn – particularly in the event of a Sydney-style delta variant outbreak – we think the risks are skewed towards both a faster pace and greater scale of OCR hikes than our core forecasts imply.
Daily Alert: The Final Countdown
16 Aug 2021
- US sharemarkets edged higher on Friday as a lift in the value of shares in Walt Disney outweighed news of a slump in consumer sentiment while Treasuries were higher on Friday (yields lower) in response to a slump in consumer sentiment to decade lows.
- The local sharemarket was up 0.6% on Friday, but flat for the week, and 6% off the January high. NZ 10-year yields rose 11 basis points over the week.
- The week’s main event is Wednesday’s RBNZ announcement; we expect the RBNZ to lift the OCR by 25bp to 0.50%.
Daily Alert: Status quo is king
13 Aug 2021
- Yesterday we got our last clue about the direction of inflation ahead of next week’s MPS, with the RBNZ’s Survey of Expectations.
- Globally, there have been few major headlines or shocking developments to roil things up, with the status quo the order of the day.
- It’s back to another quiet day domestically after yesterday’s inflation expectation data – the Business NZ PMI data is the highlight today at 10.30am.
Daily Alert: Markets lap up softer US inflation data
12 Aug 2021
- Market sentiment has been well supported overnight in classic risk-on fashion, as earmarked by trans-Atlantic gains for equity markets, rising commodity prices and a softer USD.
- It’s been a good night for equity markets, with most major indices making solid gains.
- Here in NZ, we’ll get the last key piece of inflation data ahead of the RBNZ meeting next week at 3pm with the latest inflation expectations readings.
REINZ Housing data – July 2021: The Song Remains the Same
12 Aug 2021
- NZ housing boom rumbles on.
- But we continue to expect the market to cool.
- We expect the RBNZ to lift the OCR next week and for mortgage rates to keep rising.
RBNZ August Monetary Policy Statement Preview: The fastest gun in the West
12 Aug 2021
- The latest economic data show inflationary pressures lifting dramatically and the labour market strengthening.
- The balance of risks has shifted and the ‘least regrets’ approach for the RBNZ is now to begin hiking sooner rather than later.
- We now expect the RBNZ to lift the OCR by 25bp to 0.50% at next week’s August Monetary Policy Statement, with the OCR rising to 1.00% by the end of the year.
Daily Alert: US Senate passes USD1 trillion infrastructure package
11 Aug 2021
- The US Senate passed a USD1 trillion bi-partisan infrastructure bill (69-30) after months of gridlock and the prospect of continued policy stimulus provided a mild boost to markets overnight.
- A period of volatility beckons as markets try to distinguish between growth-supportive factors and possible growth suppressants.
- Developments across the Tasman don’t seem quite as rosy, with delta variant cases in New South Wales (356 new cases yesterday) climbing and suggesting no imminent end to the Sydney lockdowns.
Commodities Weekly: A perfect storm?
11 Aug 2021
- Next week’s RBNZ meeting looks set to be a big moment for the NZ economy and we now expect the OCR to lift relatively quickly back to 1% by the end of the year.
- Prices for some commodities are starting to ease off their highs, and there’s a risk that trend could combine with a higher kiwi to crimp returns at the farmgate.
- Moves last week in the ASB Commodities Index were modest.
Term Deposit Report: Interest rates rise, but inflation lifts more
11 Aug 2021
- Over the past year term deposit rates have been at the lowest level on record going back to the 1960s but we have turned a corner in 2021.
- There has been a lift off the lows for all but the shorter-term deposit interest rates over recent months, including increases in July.
- Nonetheless, rates on offer are still very low and are expected to remain significantly below historical averages over the coming years.
Daily Alert: Markets hit snooze
10 Aug 2021
- It’s been an uneventful start to the week in financial markets.
- Economic data have been sparse to start the week.
- Locally, we expect a solid 1% m/m increase in this morning’s July electronic card spending data.
Home Loan Rate Report: Mortgage rates on the rise
10 Aug 2021
- We are past the low point, and fixed-term mortgage rates have been lifting.
- The ASB Economics team thinks every Reserve Bank of New Zealand (RBNZ) meeting should now be considered “live” for Official Cash Rate (OCR) increases.
- Our expectation that the RBNZ will lift the OCR several times in succession influences our mortgage forecasts and our thoughts regarding the various strategies for borrowers.
July 2021 NZ Electronic Card Transactions: Benefit boost for July card spending
10 Aug 2021
- July card spending registers solid increases, likely helped by rising income support payments.
- Spending growth accelerates to a 6% to 7% 3-monthy pace as consumers continue to drive the domestic expansion.
- Despite the prospect of higher interest rates, we remain positive on the outlook for retail spending.
Economic Weekly: Don’t Look Back in Anger - the case for a fast start
09 Aug 2021
As well as a Britpop banger with nonsensical lyrics, our title is also a tidy re-phrasing of the Reserve Bank’s favoured ‘least regrets’ framework. That is, the future’s all a bit murky so choose the path likely to cause you the least amount of future cringe. Sensible advice, and not just for monetary policy…
Anyway, the least regrets idea has had a big influence on policy setting during the COVID era. If in doubt, throw the kitchen sink at it, because things look awful. But things have changed. The path of ‘least regret’ has flipped 180 degrees to the RBNZ not reducing stimulus fast enough. The Bank confirmed as much in July. This is important in framing the risks around policy making over the remainder of the year.
The RBNZ has already met its inflation and employment objectives. Actually, we now know it probably met them a couple of months ago. There’s still debate about the permanence of the upcoming spike in headline inflation. But core inflation is likely to remain above 2%. Further, last week’s labour market data confirmed we’re at, or above, Maximum Sustainable Employment. Sub 4% unemployment beckons next quarter and we expect wage growth to accelerate further. And yet, the Official Cash Rate is still at 0.25%.
Last week we changed our call to expect 25bps rate hikes at each of the next three available RBNZ meetings, which would get the OCR back to its pre-pandemic level by year-end. As Lisa Carrington has shown the world, a fast start can pay dividends. And so it would also be worth the RBNZ considering the pros and cons of starting with a 50bps lift. The traditional argument against is that a double-up can spook markets and cause volatility. But markets are already pricing a 12% chance of a 50bps raise, and we doubt a 50bp lift would surprise the economic consensus.
Yes, there are risks from the spreading Delta variant. The Australian outbreak is too close for comfort. But the clear and present danger is that economy continues to overheat, allowing inflation to get away. If things change down the track (*touch wood*), the RBNZ can always back off, just like we saw from the Reserve Bank of Australia last week.
The other reason to get a fast start is housing. We never bought into the dire predictions for house prices we saw in the wake of the Government’s tax changes. And, indeed, momentum has slowed a little, but not enough. Annual house price inflation is still chugging along at a 15-20% annualised pace. This week’s only notable economic data release – REINZ housing figures for July – is likely to highlight the point.
The RBNZ is frustrated with continued “risky lending” and is going back to the macroprudential tool-shed to find a bigger hammer. Ideally it wouldn’t have to. Using interest rates to douse the housing market is cleaner and potentially less distortionary. Making a fast start with interest rates – whether it’s three 25bps hikes in a row or an initial 50bps – might avoid having to play catch up down the line. With one eye on COVID, it seems to be the path of lesser regret.
Daily Alert: US labour market strength continues
09 Aug 2021
- US Non-farm Payrolls (employment) rose by 943,000 in July, which was much stronger than expectations of a lift closer to 870,000.
- US sharemarkets were mixed on Friday while the New Zealand sharemarket lifted 0.1% on Friday, and 1.4% over the week.
- In the US the focus will be on the July inflation print Wednesday while locally, July electronic card spending data are due tomorrow.
Quarterly Economic Forecasts: Delta Force
06 Aug 2021
- New Zealand’s labour shortage has intensified and is likely to last years.
- Inflation is likely to spike to 4% – the highest it’s been since GST was increased in 2010 – and then settle around 2.5%.
- ASB expects the OCR to reach 1.5% which will flow through into interest rates.
Daily Alert: ASB - OCR set to lift 75bps by the end of 2021
05 Aug 2021
- It was a cracking set of labour market data yesterday, with things looking increasingly tight out there.
- We’ve adjusted our OCR call off the back of those figures, and now see the RBNZ opting for three swift 25bps hikes at its next three meetings.
- The NZD has continued to enjoy a moment in the sun overnight, holding onto most of its post-labour market gains.
Daily Alert: RBNZ’s housing patience wearing thin
04 Aug 2021
- The NZD/USD is back above 0.7000, a performance good enough for first place in the overnight FX performance leaderboard.
- Local OCR expectations are on the march again following yesterday’s signal from the RBNZ that mortgage lending standards will be tightened later this year.
- In an apparent vote of confidence in the resilience of the Aussie economy, the RBA stuck to its guns yesterday.
Commodities Weekly: Mixed signals
04 Aug 2021
- There were some mixed signals at the latest GlobalDairyTrade auction overnight.
- We retain our $7.90 forecast for the 21/22 season, but acknowledge uncertainty remains high.
- The ASB Commodities Index continues to oscillate around record highs in NZD terms.
Q2 2021 Labour Market Data Review: Labour market tightens more than expected
04 Aug 2021
- Unemployment rate falls by more than expected, drops to 4%. The underutilsation rate also falls sharply.
- Wage inflation picked up by more than expected, reflecting the tight labour market.
- The labour market is at maximum sustainable employment – the RBNZ needs to lift the OCR off emergency levels.
Daily Alert: Ardern announces quarantine-free travel for some Pacific workers to NZ
03 Aug 2021
- Yesterday PM Ardern announced that NZ will allow one-way quarantine-free travel of migrant Recognised Seasonal Employer (RSE) workers into NZ from Tonga, Western Samoa and Vanuatu.
- Energy and metal commodity prices were generally lower.
- The July US manufacturing ISM undershot expectations, falling to 59.5, the lowest level since January (mkt: 60.9).
Economic Weekly: Wage inflation is set to rise
02 Aug 2021
The NZ labour market is back in the spotlight this week, with StatsNZ releasing the Q2 labour market statistics on Wednesday morning (see our preview here). Over the past 6 months, the labour market has tightened significantly as the NZ economy has continued to grow, but with labour supply constrained by international border restrictions. Following the release of the NZIER Quarterly Survey of Business Opinion, the strength of the labour market recovery no longer looks to be in doubt. We expect the Q2 labour market data to confirm this strength. We expect to see the unemployment rate to fall to 4.4%, from 4.7%, with further declines to come over the year ahead.
From the RBNZ’s perspective, it will be looking for confirmation the labour market is at, or very close to, maximum sustainable employment. This should clear the path for the RBNZ to start returning the Official Cash Rate to pre-COVID levels, and we expect the first move to be later this month. To assess maximum sustainable employment, the RBNZ looks at a range of measures beyond the headline unemployment rate. Of particular focus will be the labour market underutilisation rate, which has shown limited improvement thus far. This is due to the high number of underemployed actively looking for additional hours. In addition, the unemployment rate of 20–24-year-old has also been heavily impacted by COVID-19 and, as of Q1, yet to see material improvement.
The key consequence of the tightening labour market will be the inflationary pressure it generates. Wage inflation tends to result in more persistent inflation forces within the economy. The higher cost of goods over the past year, due to COVID-19 related production shortages and shipping delays, are much easier for firms to pass on if workers are also receiving solid income growth to offset the higher cost of living. We expect to see the first material increase in wage growth over Q2 – with annual LCI wage inflation lifting to 2.1%. And we expect wage inflation to continue to build over the coming year – rising to around 3% by the end of the year.
The RBNZ will want to get in front of this potential wage/price spiral and get the OCR off emergency settings sooner rather than later. The economy is at capacity (though capacity is lower than what it would otherwise have been if it wasn’t for COVID-19) and inflation pressures are set to build rapidly over the coming year. The lessons from the 2004-2007 tightening cycle is that if inflation pressures get ahead of the central bank, then it ends up lifting interest rates by even more than would have been the case if it had acted sooner. Much like our lesson from containing COVID-19 infections, a hard and early approach can prevent a longer, more painful lockdown later on.
Daily Alert: US shares dip and yields lower on mixed data and earnings reports
02 Aug 2021
- US personal income and expenditure data were stronger than expected on Friday.
- US Treasury yields were firmer on Friday (yields lower) while US sharemarkets were also weaker on Friday.
- Later in the week on Wednesday, we expect local Q2 labour data to show strong employment growth, and the unemployment rate fall to 4.4% from 4.7% in Q1.
Daily Alert: Stocks and Treasury yields on the up, USD down post FOMC
30 Jul 2021
- Markets have continued to digest the US Federal Open Market Committee’s message, with action overnight showing mixed movements by market.
- The virus outbreak remains in focus in Australia.
- Locally we have ANZ NZ consumer sentiment (prior: 114.1) at 10am, followed by June building consents which should confirm annual residential consent issuance around recent highs but with building costs remaining on an upward trajectory.
Daily Alert: USD and US Treasury yields fall on dovish Powell comments
29 Jul 2021
- As was widely expected the US Federal Open Market Committee held the Federal funds rate at 0-0.25% and maintained its USD120bm in monthly asset purchases.
- This triggered a seesaw reaction in markets and treasury yields initially ticked up but are currently 1-2bps below pre-announcement levels (10Y 1.23%) while equity markets were cheered by the signal that interest rate rises still were a long way off and firmed post-FOMC.
- Locally, the full July reading of the ANZ NZ business outlook at 1pm should confirm resilient business sentiment at a time of elevated cost, inflationary and capacity pressures.
Daily Alert: Chinese equities tumble on US-China tensions
28 Jul 2021
- US-China tensions were a source of volatility yesterday, with Chinese equities notching up some sharp falls yesterday.
- With US-China tensions in focus and worries about the uptick in Delta COVID cases in focus, Treasury yields have fallen overnight.
- At the Fed meeting, we expect the key policy levers to remain unchanged, but will be keeping an eye out for signs of a shift tone.
Commodities Weekly: Battling through the logistics chaos
28 Jul 2021
- Over recent months we’ve seen lots of reports about global shipping disruption constraining trade.
- Despite all those headlines, export volumes appear to be proving resilient thus far – those recent gains in export values have been both price AND volume driven.
- Meanwhile, there was a little bit more downward movement in the ASB Commodities Index last week, but it remains not far off record highs.
Q2 2021 Labour Market Data Preview: Time to ask for that pay rise
28 Jul 2021
- Focus of the Q2 labour market data will be on wage inflation and the RBNZ’s indicators of labour market utilisation.
- We expect Q2 LCI wage inflation to lift by 0.8% over the quarter, up 2.1% over the year. Wage pressures are set to continue to increase over the coming year.
- The RBNZ will also be watching the Q2 HLFS labour market underutilisation rate and the unemployment rate of 20–24-year-olds as confirmation that there is reduced slack in the labour market.
Daily Alert: Waiting for the dough
27 Jul 2021
- Maybe investors are waiting for the Fed meeting later in the week, or maybe they’re more interested in the Olympics, but either way it’s been an uneventful start to the week in markets.
- Currency markets have showed some of the bigger moves of the night.
- All quiet in NZ with only a non-market moving speech from the RBA on the slate in Australia (Deputy Governor Debelle speaks on “Outcomes of the 3‑year review of the FX Global Code”).
Economic Weekly: Watching the tallies
26 Jul 2021
This week the NZ data calendar is a little light, with less likelihood of the recent string of market-jolting events that have made an imminent Official Cash Rate increase look almost certain. Much of the week will be spent watching the Olympic medal tally – and the COVID case tally across the Tasman for signs the current Delta strain outbreak is coming under control.
That outbreak has put the trans-Tasman bubble on hold for at least 8 weeks. NSW is grappling to get on top of its outbreak and is still experiencing large numbers of community cases. The situation is more encouraging in other states that have recent experienced COVID cases, such as Victoria and Queensland, with the former set to ease some restrictions.
It is all a warning to NZ of the changed risk dynamics of the more infectious Delta variant. With still-small percentages of the population fully vaccinated, both Australia and NZ are very vulnerable to outbreaks and need to rely on swift lockdowns to contain outbreaks.
Domestic events are relatively light this week, with just the ANZ business and consumer confidence surveys on Thursday and Friday, respectively. The business confidence survey is the final read for July. It will still get an eye cast over it, given the preliminary ANZ read and the NZIER survey showed added inflation pressures are coming through dramatically. Still, any market implications will be dampened by the fact that expectations for future OCR increases have already been brought forward very sharply.
In Australia, their CPI will be dissected for signs of rising inflation pressures. There are many similarities between Australia and NZ, with supply-chain cost pressures and growing labour shortages. The immediate monetary policy implications aren’t so strong as in NZ, however, as the Reserve Bank of Australia will be a lot more cautious about the state of the Australian economy once the current outbreak is finally contained.
The US Federal Reserve is meeting later this week. We don’t expect any shifts in interest rates or asset purchases at this point. But it’ll be worth a watch in case there are some tweaks to the guidance around how long future asset purchases will continue: we think the Fed will start reducing the pace of asset purchases before the end of the year.
After last week’s soft dairy auction, we have tweaked our 2021/22 farmgate milk price forecast down a touch to $7.90/kg milk solids. Of late GDT auction prices have pulled back slightly faster than we had anticipated. Still, something near $8/kg would be a great outcome. And meat prices have been surging as COVID restrictions have eased in the UK and EU. Let’s hope that encouraging trend can continue.
Daily Alert: Upbeat earnings send US shares to another record close
26 Jul 2021
- US sharemarkets rose to record highs on Friday with sentiment boosted by upbeat earnings.
- New Zealand shares rose 0.1% Friday and 0.5% over the past week.
- On Thursday the final reading of the July ANZ Business outlook survey is due, while on Friday the ANZ consumer confidence is due, as well as June building consents.
Daily Alert: ECB keeping the taps on
23 Jul 2021
- After its wobbles earlier in the week, market sentiment has continued to strengthen overnight.
- Global share markets remain a bit below the highs they hit last week but have notched up some lifts overnight while global bond yields are lower right across the board, with yield curves under flattening pressure.
- The ECB has very much stuck to a dovish tone at its latest statement, as was expected by all and sundry.
Daily Alert: It’s not dead, it’s restin’
22 Jul 2021
- The recovery in risk appetite we noted yesterday has broadened and strengthened overnight.
- Admit a dearth of economic data, there was some focus on the cracking start to the US corporate earnings season.
- Today the focus will be on tonight’s European Central Bank meeting where the ECB isn’t expected to make any policy changes but it will incorporate changes from the recent strategy update, which are expected to be dovish in nature.
Daily Alert: Australian outlook deteriorates
21 Jul 2021
- After a nervy start to the week, financial market sentiment staged a comeback overnight.
- Dairy prices fell 2.9% at the GDT dairy auction overnight, with whole milk powder down a larger 3.8%.
- The Aussie dollar remains in the headlines for all the wrong reasons.
Commodities Weekly: ASB revises 21/22 milk price forecast to $7.90 kgms
21 Jul 2021
- Prices wrongfooted market expectations overnight, falling by 2.9%, and beyond the headline moves, the shape of the contract curve is a clearly bearish signal.
- We knew dairy prices wouldn’t sustain their earlier heights forever, but prices are falling a bit faster than we’d anticipated.
- The ASB Commodities Index eased a shade in NZD terms last week, but remains only a hair’s breadth below record highs.
Fonterra Milk Price Forecast Update: ASB revises 21/22 milk price forecast to $7.90 kgms
21 Jul 2021
- Prices wrongfooted market expectations overnight, falling by 2.9%, and beyond the headline moves, the shape of the contract curve is a clearly bearish signal.
- We knew dairy prices wouldn’t sustain their earlier heights forever, but prices are falling a bit faster than we’d anticipated.
- The key question is where prices will find their floor, and on that front we are still positive.
Markets Monthly: Sharemarkets lift while bond yields ease
20 Jul 2021
- Long-term global bond yields were down over June, despite investors continuing to fret about rising inflation pressures.
- 10-year yields are also down over the full second quarter but remain significantly up on a year ago.
- Meanwhile, the local sharemarket and most of the major global sharemarkets lifted over June.
Daily Alert: Shares tumble on COVID woes
20 Jul 2021
- It’s been an uncharacteristically lively start to the week, with risk sentiment around the world declining sharply overnight.
- Rising cases of the ‘delta’ COVID variant look to be the main culprit, with investors fleeing into ‘safe-haven’ assets amid anxiety about the implications of the more-transmissible strain on the global economy.
- Amid all this drama, safe-haven US Treasuries have been an attractive option for investors while, in line with the shift in risk sentiment, commodity prices have suffered broad losses.
Economic Weekly: Heading off the inflation sucker punch
19 Jul 2021
When asked about strategy in the ring, the great Mike Tyson – up there with Adam Smith and J.M. Keynes as one of history’s great Economic sages – once said, “everybody’s got a plan until they get punched in the mouth.”
Until relatively recently, major central banks had similar plans for how they expected the next couple of years to play out. While the pandemic fallout hadn’t been as bad as feared in many parts of the world, the recovery would be a fragile thing and monetary policy would need to remain highly accommodative for some time as the labour market wended its way back to health. ‘Transitory’ factors would see inflation tick up over the short term, before once again abating. Rate hikes would come slowly and at a gradual pace. The RBNZ was very much part of this cohort.
Over the past couple of months, a succession of left and right jabs has meant those plans have gone out the window. For the RBNZ, the left punch here has been the resilience in the labour market, with the economy looking closer to full employment, much earlier than the Bank previously forecast. The right hook has been the continuing build up in inflationary pressures, culminating in the monster CPI result on Friday, which saw annual inflation hitting 3.3% (versus the RBNZ’s expectations of a 2.8% lift). Neither factor looks likely to throw in the towel any time soon – in particular, we expect headline inflation to approach 4% over the second half of the year as stretched capacity pressures linger.
Sure enough, we saw the RBNZ change tack and make a sharp hawkish turn at last Wednesday’s Monetary Policy Review (after some hints back in May), announcing the end of the Large-Scale Asset Purchase programme and excising wording around the ‘considerable time and patience’ the recovery would need. We now expect a swift one-two of 25bps OCR hikes in August and November.
Still, despite the change of plan, not all of our views have shifted dramatically. While there is some risk the Bank moves to quickly normalise policy, we still think it’s more likely to stick to a gradual pace given the lingering uncertainty – NSW’s mishandled outbreak of the Delta COVID variant shows there are clearly still downside risks remaining. And we continue to expect a relatively low OCR endpoint of 1.50%.
Still, the direction of travel is clear – wholesale and retail rates are past their lows and are likely to head higher, sooner than previously expected. For borrowers and savers, it’s a prudent time to review interest rate exposures and check you’ve got the right mix for your financial needs.
Daily Alert: Inflation concerns
19 Jul 2021
- The 1.3% lift in the NZ consumer price index over the second quarter of the year was much stronger than ASB, RBNZ and market expectations.
- The Bank of Japan made no policy or forward guidance changes and introduced a new fund provisioning measure to support private financial institutions' various efforts in fields related to climate change.
- Meanwhile, US and European sharemarkets were weaker on Friday.
Daily Alert: All eyes on the CPI
16 Jul 2021
- Market sentiment has been mixed overnight, with the key headlines once again coming from Washington DC.
- The bond market looks to have taken Powell’s comments to heed, with yields falling across the curve with a flattening bias, equities have been decidedly mixed overnight.
- The big highlight today is the Q2 CPI NZ reading out at 10am – a closely watched release as it gets closer and closer to crunch time for the RBNZ.
2021 Q2 CPI Review: Q2 CPI skyrockets, with annual inflation to move higher
16 Jul 2021
- The Q2 CPI was much stronger than ASB, RBNZ and market expectations. Both tradable and non-tradable CPI prices were much, much firmer than RBNZ expectations.
- Annual inflation from the core measures surged above 3% and looks set to move higher.
- Looking ahead, we expect annual headline inflation to approach 4% in the second half of this year, with the risk that high inflation outcomes persist well into 2022. OCR hikes are coming very soon.
Daily Alert: ASB expects OCR hikes from August following hawkish RBNZ assessment
15 Jul 2021
- NZ yields and the NZD jumped after the RBNZ signalled it will remove monetary stimulus.
- ASB now expects a 25bp OCR hike in August (to 0.50%), with a follow up 25bp hike in November 2021 (0.75%), but for a gradual path of hikes thereafter, with the OCR peaking at 1.50% by mid-2023.
- With Q2 NZ CPI looming tomorrow, there is clear upside risk to ASB’s +0.8% qoq, 2.8% yoy pick and, in fact, annual CPI inflation could push above 3%.
Farmshed Economics: Pain and glory
15 Jul 2021
- It’s been a glorious autumn and a cracking start to winter for commodity prices.
- Dairy is the real star of the show at the moment.
- Still, worker shortages and surging costs are causing farmers some pain.
Daily Alert: US inflation hits 5.4%, markets hold their nerve
14 Jul 2021
- A stonker of a US inflation print dominated market sentiment overnight.
- In response, US fixed interest markets brought forward the expected timing of the first lift in the Fed Funds rates to late 2022 and US bond yields lifted.
- Also out yesterday, China’s June trade data topped expectations, easing concerns over a sharp Chinese slowdown.
Commodities Weekly: The comeback
14 Jul 2021
- Beef and lamb prices are enjoying a remarkable comeback, with demand and supply factors fuelling the surge.
- Both beef and lamb could be in for a record season.
- The ASB Commodities Index continues to oscillate around record NZD highs.
RBNZ ready for rates take-off
14 Jul 2021
The RBNZ kept the OCR unchanged (as expected) but – significantly – will halt asset purchases by July 23rd.
The RBNZ has agreed that “stimulus could now be reduced to minimise the risk of not meeting its mandate”.
An August rate hike looks more likely than not – if key upcoming data confirm that pressures are building.
Daily Alert: Delta variant concerns linger
13 Jul 2021
- Markets traded in a listless fashion overnight, awaiting key corporate earnings data and forthcoming US inflation data for direction.
- Oil prices were weighed by the stronger USD and concerns over the impact of the delta variant on demand.
- REINZ NZ housing market data for June (9am) should depict a tight domestic housing market, and upside pressures on prices notwithstanding recent government and RBNZ measures to slow the market.
REINZ Housing data – June 2021: Winter warmer
13 Jul 2021
- Slowing in house price inflation continues, at a glacial pace.
- But activity indicators suggest market remains as tight as ever.
- Market still not slowing as rapidly as most expect, but higher mortgage rates could change the game.
2021 Q2 CPI Preview: Persistently higher inflation becoming more difficult for the RBNZ to look through
13 Jul 2021
- We expect a 0.8% qoq increase in Q2 headline CPI, lifting annual headline inflation to 2.8% – its highest in a decade and with upside risk.
- Annual CPI inflation looks set to move above 3% over the second half of this year and remain stuck well above 2% next year due to a combination of cost shocks and increasing capacity pressures.
- With inflation set to settle above the midpoint of the 1-3% inflation band and with the economy at (or close to) full employment, we expect the RBNZ to hike the OCR before the end of the year (likely November).
Economic Weekly: The outlook for Wednesday
12 Jul 2021
The RBNZ will face into an interesting set of crosswinds when it meets this Wednesday.
The domestic economy has clearly continued to run hotter than the RBNZ’s wintry forecasts. The mercury-busting capacity indicators from last week’s QSBO confirm the economy is overheating, a risk we’ve warned of before. The economy is at or close to full employment and labour shortages are rife. What’s more, we think capacity indicators will tighten further. The tailwinds for consumer price inflation and wage growth are thus much stronger than the RBNZ previously forecast.
In short, the economy no longer needs its winter warmers. Accordingly, we brought forward our forecast for the first RBNZ rate hike to this November (from May 2022) last week. It’s since quickly become the consensus. But the question has to be asked, if we’re all so sure rock-bottom interest rates are no longer needed, why wait? After all, November is still four months away and the RBNZ’s favoured “least regrets” analysis much have surely flipped 180 degrees from “chuck the kitchen sink at it” to “woooah back!”
We don’t buy the argument that the debt-laden housing market can’t handle higher rates. Our own research finds households have plenty of buffer to cope with higher mortgage rates. Instead, the key restraining factor is probably the odd polar blast shooting across NZ from the global economy. There’s growing unease about the spreading delta variant, and the attendant health and economic risks. It’s proving frustratingly difficult to contain even in highly vaccinated countries, or those back in lockdown. There’s also the fact that central banks globally – and importantly the US Federal Reserve and RBA – remain reluctant to ease off the accelerator. This means the RBNZ would be going it alone, at least at first. The RBA is still talking about leaving rates where they are until 2024. A three-year gap in NZ-AU tightening cycles would be unprecedented...and seems unlikely to occur one way or the other.
Waiting would give the RBNZ time to assess the above. But this brings its own risks. The economy’s potential to supply could fall further behind demand, forcing the RBNZ to play catch-up. For this reason, we favour the stitch in time approach of getting started sooner. We wouldn’t rule out the possibility of the Bank making a start as soon as August, using this week’s meeting as a possible set-up. In the least, we think the Bank will move to an explicit tightening bias on Wednesday. Any signal about an end-date for its asset purchase (quantitative easing) programme would confirm this.
This week’s economic data are expected to support the case for higher interest rates. Tomorrow morning’s June REINZ data will likely show the housing market remaining stubbornly strong. We think house prices likely recorded another 1-2% gain over the month, even as annual house price inflation cools a little from last month’s 30% record. On Friday, annual CPI inflation is expected to print at an above-market 2.8%, a big jump from last quarter’s 1.5% and a 10-year high. Above-3% inflation beckons by the end of the year.
Daily Alert: Play it again John. US sharemarkets at record high
12 Jul 2021
- US sharemarkets rose on Friday after investors regained some confidence in the global growth outlook.
- The year’s theme of underperformance continued for the NZ sharemarket, which was down 0.5% on Friday.
- The RBNZ meeting on Wednesday is the local highlight.
June 2021 NZ Electronic Card Transactions: Card spending accelerates in June quarter as consumers support the expansion
12 Jul 2021
- June card spending continues its strong recent run, buoyed by strong hospitality and services retail.
- Spending up 4.5% to 5.5% over the June quarter for total and retail spending as consumers continue to support the expansion. Some of the increase looks to have been due to higher prices.
- We remain positive on the outlook for retail spending and the economy in general over 2021. OCR hikes are coming.
Daily Alert: Fed up
09 Jul 2021
- Markets remain in a grumpy state; sentiment has become more cautious this week and, overnight, the mood worsened.
- Encouragingly, China may be about to turn on the monetary stimulus tap again which would ultimately bode well for commodity‑sensitive currencies and risk assets.
- Next week looms large for the economic trainspotters (like us) trying to fine-tune RBNZ expectations.
Term Deposit Report: Long-term rates continue to slowly lift
09 Jul 2021
- Over the past year term deposit rates have been at the lowest level on record going back to the 1960s.
- But we appear to have turned a corner in 2021.
- Nonetheless, rates on offer are still very low and are expected to remain significantly below historical averages over the coming years.
Daily Alert: Anti-climax
08 Jul 2021
- With nothing, nada, zero, zilch out on the data calendar yesterday or overnight, the US Fed minutes out at 6am this morning have been the big highlight for markets.
- With no ‘smoking tapering gun’ in the FOMC minutes, Treasury yields are lower, but not dramatically so.
- The ongoing volatility in commodity markets is continuing but shows little sign of spreading into markets more broadly.
Home loan rate report: How high, how far, how fast?
08 Jul 2021
- We are past the low point for most mortgage interest rates, and long-term mortgage rates have been lifting. Our forecasts suggest more increases are coming for mortgage rates over the rest of the year.
- ASB now expects the Reserve Bank of New Zealand (RBNZ) to start raising the Official Cash Rate (OCR) from its record-low setting of 0.25% in November 2021.
- Taking advantage of the lower rates on offer now, combined with our expectations that mortgage rates will keep lifting over the years ahead, influence our thoughts on mortgage strategies.
RBNZ July Monetary Policy Preview: Fast and Furious: ’21
08 Jul 2021
- Since the RBNZ’s last MPS, inflationary pressures and capacity problems have continued to dramatically intensify.
- We now expect the RBNZ’s first post-COVID rate hike to come in November 2021.
- We expect the RBNZ to remain cautious, even as it hikes, with the pace of further OCR hikes to be gradual.
Capacity update: Tight and getting tighter
08 Jul 2021
- Our estimates of starting point capacity pressures suggest that the NZ economy is effectively at (or close) to full employment.
- Largely as a result of labour shortages, capacity constraints are also becoming more widespread and are no longer the sole domain of a few key pockets of the NZ economy.
- Pressures on labour market and broader economy-wide capacity look set to tighten further, firming wage and underlying price pressures. The time for emergency policy settings has passed and OCR hikes are coming soon.
Daily Alert: ASB expects a November 2021 start to RBNZ OCR hikes and a 1.50% OCR endpoint
07 Jul 2021
- ASB now expects OCR hikes from November this year (previously May 2022), with the OCR to peak at 1.50% from late 2023 (previously 1.25%).
- US Treasury markets clearly did not see the price action in antipodean markets with yields lower across the curve, with a flattening bias.
- Nothing today locally or across the Tasman, with little on the global data calendar tonight.
Commodities Weekly: GDT prices lose a bit of froth
07 Jul 2021
- Prices have edged downward at the latest GDT overnight.
- The moves point to some downside risk to our $8.20 kgms forecast for the season.
- Meanwhile, last week, the ASB Commodities Index burst through a new record high in NZD terms.
Daily Alert: QSBO, RBA to break up a dull start to the week
06 Jul 2021
- We’ve kicked off the week with a very boring Monday in the world of financial markets.
- The most dramatic events of recent days have actually taken place in commodity markets, with a standoff in OPEC continuing over recent hours.
- Today should be a little bit more exciting with the release of the latest NZ Quarterly Survey of Business Opinion by the NZIER at 10am.
QSBO Q2 2021 - Inflation pressures hit rapid boil
06 Jul 2021
- Q2 QSBO confirms extreme labour market capacity pressures, suggesting strong lift in wage inflation.
- Inflation set to lift strongly over the coming year; in aggregate firms appear able to pass on cost increases.
- Stronger wage growth coupled with generalised CPI increases are a risky mix for the RBNZ, we expect the RBNZ to start normalising the Official Cash Rate from November this year.
Economic Weekly: Focus turns to inflation
05 Jul 2021
The NZ economy has performed well throughout the COVID-19 pandemic, particularly compared to most of its international peers. But the economic bounce back has not been evenly shared across NZ, as highlighted by Nat Keall in our most recent Regional Scoreboard, released today. The North-South divide has widened further over Q1 2021, as the South Island appears to have taken the brunt of the impact of international border closures. Tourism hubs like Queenstown continue to face significant challenges, with employment numbers down 5.2% from the beginning of last year. In fact, in Q1 this year Otago was below the national average on every other metric we measure, posting a huge 27% fall in construction. Rural regions generally outperformed the major urban centres on the Scoreboard, with the resilience of the country’s primary sector helping support the broader New Zealand economy through the pandemic.
With NZ’s economic recovery well established, and the global economic recovery now firing, focus is now shifting to the rapid lift in costs and inflationary pressure. The recovery in demand in NZ over the past 6 months has come at a time when resource constraints are becoming more acute. In NZ, we are predicting annual CPI inflation to lift sharply from the second quarter of 2021, to reach 3.2% by the end of this year. This week’s NZIER Quarterly Survey of Business Opinion (6th July) will provide an indication of how much of the rise in cost pressures is being passed onto consumers, with further confirmation to come in the following week’s Q2 CPI release (16th July).
Central banks have become more wary of leaving monetary settings too stimulatory in an environment of improving demand and a quickly building on inflationary pressures. The RBNZ adopted an explicit tightening bias in May, with a number of US Federal Reserve officials recently noting that the time to normalise interest rates may be sooner than previously indicated. This week the focus shifts to the Reserve Bank of Australia. At Tuesday’s board meeting the RBA will provide an update on its yield curve control and the bond buying program. Despite the current COVID-19 outbreak in Sydney, our colleagues at CBA expect the RBA to start tapering the pace of bond purchases from September, either via scaling back the amounts being purchased or spreading out the purchases over a longer period of time. The RBA may also use the opportunity to move to a more flexible programme. CBA recently updated its Australian interest rate view, and now expect the RBA to start lifting the 0.1% cash rate in November 2022. Nevertheless, we still expect the RBNZ to be towards the front of the rate hike queue, starting with a 25bp hike in the OCR in May next year or possibly sooner if the economy continues to perform well jane.turner@asb.co.nz
Daily Alert: Another week, another all-time high for US shares
05 Jul 2021
- US sharemarkets advanced on Friday, while US treasury yields fell on Friday as investors digested the US household labour report that showed a slight increase in the unemployment rate.
- The NZ sharemarket was up 0.2% on Friday and 0.5% over the week.
- The NZIER Quarterly Survey of Business Opinion(QSBO) is due tomorrow.
Regional Economic Scoreboard Q1 2021: Island divide widens
05 Jul 2021
- The island divide continues this quarter with the North Island taking the top nine spots and the South Island the bottom seven.
- Northland retains its top spot on the scoreboard for the third consecutive quarter.
- Strong housing and construction growth across the country has boosted fortunes for many regions.
Daily Alert: Marking time
02 Jul 2021
- Markets largely treaded water overnight, trading in light volumes.
- Manufacturing PMIs remained well into expansionary mode and there were signs of continued labour market recovery.
- Later today, improving signs are expected from the ANZ June NZ consumer confidence report (10am), while housing credit figures from Australia are expected to remain robust.
Daily Alert: More of the same
01 Jul 2021
- In the absence of any major data or eye-catching headlines, it’s been a case of ‘more of the same’ from markets overnight.
- Perhaps the most notable headlines of the night came from the Dallas Fed’s Robert Kaplan, who said he hoped the FOMC would start tightening monetary policy earlier than previous signalled.
- Oddly enough, global bond yields have pared back overnight, despite those hawkish policy signals.
Daily Alert: Kiwi’s wings clipped again
30 Jun 2021
- The most eye-catching development overnight has been a ½ cent fall in the NZD/USD to around 0.6990.
- Outside of currency markets, trade was a little more choppy and directionless.
- Meanwhile, housing markets everywhere continue to surge, with NZ having the dubious honour of leading the charge on this front.
Commodities Weekly: Kiwifruit season off to another solid start
30 Jun 2021
- Kiwifruit exports are enjoying a strong start to the new season but can’t quite match last year’s frothy heights.
- Export volumes are performing strongly, overcoming a few hurdles.
- The ASB Commodities Index edged down a smidgen from its record high last week.
Daily Alert: A cautious start
29 Jun 2021
- It’s been a slow start to the week in most financial markets.
- The head of the German central bank summed up the view of many investors overnight, warning there are “upside risks to price developments being predominant in the euro area”.
- RBNZ Governor Orr is speaking at 4:10pm, but the fact he is speaking to the Bank’s Statement of Intent suggests the market implications of such will be limited.
Housing Insights: Can we cope with higher mortgage rates?
29 Jun 2021
- We find households in aggregate have plenty of buffer to cope with higher mortgage rates. Household gearing and mortgage serviceability metrics are at low levels.
- But there are some sensitive spots, such as new entrants to the housing market. There’s also a bit of re-set risk out there – 77% of all mortgage debt is on fixed-rate terms of less than a year.
- At a macro level, the RBNZ will get more bang for its buck when interest rates eventually do rise. Higher mortgage rates are also a key factor behind our view house price inflation will slow down from here.
Housing insights: Can we cope with higher mortgage rates?
29 Jun 2021
- We find households in aggregate have plenty of buffer to cope with higher mortgage rates. Household gearing and mortgage serviceability metrics are at low levels.
- But there are some sensitive spots, such as new entrants to the housing market. There’s also a bit of re-set risk out there – 77% of all mortgage debt is on fixed-rate terms of less than a year.
- At a macro level, the RBNZ will get more bang for its buck when interest rates eventually do rise. Higher mortgage rates are also a key factor behind our view house price inflation will slow down from here.
Economic Weekly: A celebration and a warning
28 Jun 2021
In our last Economic Weekly, we noted the peculiar truth that the New Zealand economy is hotting up, despite the multibillion-dollar hole left by the absence of most of the tourism sector. In part, that’s because while it’s been a grim eighteen months for our service exports, NZ’s goods exports are enjoying a golden run.
We were given a reminder of this last Friday, with Stats NZ’s release of the monthly merchandise trade for May. The big headline was the circa 31% year-on-year recovery in imports (a function of their massive crash during lockdown this time last year) hidden in the trend was the news monthly goods exports hit their highest level ever at a cool $5.9 billion.
The achievement caps a remarkable eighteen months for the sector, with export values surprising forecasters with their resilience through the pandemic. It’s a microcosm of the broader strength of international goods trade through the pandemic, which wrongfooted expectations for a collapse in activity amid COVID’s unprecedented demand and supply shocks (see The Economist’s piece last year likening this to the scene in Kill Bill where Uma Thurman’s character punches her way out of a coffin).
Now, as the global economy emerges from the worst of the pandemic, the outlook for the export continues to improve. Surging commodity prices are the big driver – as consumption has recovered overseas, global supply has struggled to keep up with demand, boosting prices for dairy, meat and forestry products by between 10 and 30% each since the beginning of the year (to continue the Tarantino metaphor, the impact on export revenue is akin to the adrenaline shot administered by John Travolta in Pulp Fiction). Despite all the headlines about shipping bottlenecks and widespread logistics disruption, NZ export volumes are also holding up well, as we noted a couple of weeks ago.
Having survived the challenges of COVID thus far, battling protectionism and global geopolitics are the next big challenges for the export sector. Last week saw mixed signals on that front. On the one hand, the US and EU moved to resolve the world’s longest running trade dispute. On the other hand – closer to home –Aussie-China trade tensions have escalated further, with a new anti-dumping complaint raised before the WTO.
We are hopeful that global policymakers will remain mindful of the win-win gains to be had from trade, and the world can avoid a protracted surge in protectionism. Still, the export sector may need to continue employing some of that same resilience it’s shown through the pandemic – leveraging strong relationships offshore and diversifying into new markets as much as possible.
Daily Alert: Fresh all-time high for S&P 500 US share index
28 Jun 2021
- The S&P 500 index rose by 0.3% to a record high close and the Nasdaq index is just 0.1% off its record highs.
- Global oil prices rose by up to 0.5% Friday with key benchmark prices at the highest levels since October 2018.
- There are no significant data releases scheduled here or offshore today.
Daily Alert: Normal service resuming
25 Jun 2021
- Global markets were calm overnight, with a mild ‘risk-on’ vibe tending to shine through.
- The Bank of England didn’t “do a Fed”; in contrast, the BoE’s more dovish message saw the GBP underperform and UK interest rates fall.
- ‘Twas a quiet day in local markets yesterday with most folk simply bathing in the aftermath of what was likely NZ’s greatest ever sporting accomplishment yesterday morning.
Daily Alert: On top of the (test cricket) world!
24 Jun 2021
- A brilliant session for the Black Caps overnight, who won the first ICC World Test Championship final.
- Locally, the NZD and local yields dipped after the Wellington region was put on Alert Level 2 (from 6pm Wednesday until 11.59pm on Sunday).
- Given tightening capacity pressures and the strong inflation outlook, our CBA colleagues have changed their published view and now expect hikes in the 0.1% RBA cash rate from November 2022, with the cash rate to peak at 1.25% by Q3 2023.
Daily Alert: Powell in the hot seat
23 Jun 2021
- The overnight highlight has been Jerome Powell’s testimony to congress.
- In commodity markets, oil prices are still trading near six-year highs.
- Sunny weather locally, acting as a nice synecdoche for the positive climate more broadly.
Commodities Weekly: NZ commodity prices hit record high
23 Jun 2021
- NZD commodity prices hit their highest level on record last week.
- All-up, NZD prices for virtually every major commodity we monitor are running ahead of 10-year averages.
- The lower NZD is turning ‘strong’ global prices into ‘eye-watering’ NZD-denominated prices.
Daily Alert: Yield curves steepen as fears of imminent monetary tightening fade
22 Jun 2021
- A relative calm returned to markets overnight as earlier fears over aggressive central bank tightening eased.
- Hopes of no imminent FOMC tightening provided a lift to US equities with decent gains in the major indices following the post-FOMC wobbles.
- The USD was also lower and this looks to have provided a bit of a lift to commodity prices.
Economic Weekly: Playing off the front foot
21 Jun 2021
It sounds bizarre. After all, we’re still in a global pandemic with the borders shut and our formerly top export earning sector on the ropes. But the NZ economy is increasingly at risk of overheating.
The supply side of the economy is clearly restrained by the closed border and disruptions to global supply chains and inventory levels. At the same time, the strength of demand continues to outstrip even the most optimistic of forecasters. The associated lift in cost and inflation pressures is increasingly proving too worrisome for central banks to keep waving away as entirely temporary.
Illustrative of this solidarity in demand, we got more evidence last week that housing market heat is being released only gradually. It was enough for us to act on the risk we flagged last month and nudge up our house price expectations for calendar 2021 (2022 expectations were lowered). But the show-stopper was of course first quarter GDP figures. The 1.6% quarterly surge in activity blew everyone’s forecasts out of the water, as kiwis continue to front-foot pandemic uncertainty and build and spend like crazy. No one was more surprised than the RBNZ who, admittedly, didn’t have the benefit of the most recent GDP indicators. Overall economic output was revealed to be 2.7% stronger than the RBNZ forecast less than a month ago. That’s a surprise equivalent to a year’s worth of growth! All the while, labour market data and anecdote points to a market that is getting tighter by the day.
We’ve previously written about the markets vs. central bank interest rate ‘battle royale’. We’ve tended to side more with financial markets’ view that central banks would ultimately need to bring forward their stimulus withdrawal plans. This now appears to be (slowly) playing out. The highly influential US Federal Reserve was the latest to shuffle forward its plans last week. It tentatively pegged two rate hikes for 2023, where it previously had none. Hardly imminent sure, but it was the sniff markets were waiting for and wholesale rates around the world pushed higher still.
In NZ, our forecast for a May 2022 lift in the RBNZ’s Official Cash Rate has become the consensus in the wake of last Thursday’s GDP/FOMC double act. But, in light of the above, we’re now weighing the risk that the RBNZ opts to get off the mark even earlier than May. The fact the US Fed is shuffling forward and the NZ dollar remains remarkably restrained may leave the Bank more comfortable in doing so.
Whatever the exact meeting date, the message for borrowers is that record low rates are on borrowed time. Two of our recent publications explore the issue in more detail. We flagged the risk of higher wholesale rates in our latest Corporate Hedging Toolbox and outlined some hedging considerations for corporates. Meanwhile, our latest Home Loan Report examines the moving parts for mortgage borrowers and nudges up our mortgage rate forecasts.
Finally, the local economics news slows right down this week. But of course the sporting excitement reaches fever pitch, with our beloved BlackCaps chasing cricket’s biggest prize in England. Here’s hoping the weather holds off and the team can stay on the front foot.
Daily Alert: FOMC still hangs over the market, bad weather hangs over the cricket
21 Jun 2021
- Market sentiment continues to be influenced by the US FOMC meeting last Thursday.
- Despite the less dovish FOMC and inflation concerns in markets these days, US 10-year yields dipped 7bps on Friday, to trade around similar levels to a week ago.
- It’s a very quiet start to the week, with no local data due.
Daily Alert: Surprises keep on coming
18 Jun 2021
- Data yesterday from Stats NZ showed growth over Q1 was much, much stronger than anyone had forecast.
- There’s an increasing risk the RBNZ lifts the OCR earlier than we’d previously forecast (we had pencilled in May 2022).
- While many countries around the world are still struggling with COVID outbreaks, growth and employment data continues to surprise on the upside in North American and Australasia.
Home Loan Rate Report: Long-term mortgage rates lifting
18 Jun 2021
- We are past the low point for most mortgage interest rates, and long-term rates have been lifting. Our forecasts suggest some modest upward pressure on all but the near-term mortgage rates over the rest of the year.
- ASB now expects the Reserve Bank of New Zealand (RBNZ) to start raising the 0.25% Official Cash Rate (OCR) by May 2022 – if not earlier.
- Taking advantage of the lower rates on offer now, combined with our expectations that mortgage rates will only rise modestly over the years ahead, influence our thoughts on mortgage strategies.
Daily Alert: Fed kicks off Super Thursday by signalling 50bps of hikes by 2023
17 Jun 2021
- The US Federal Open Market Committee kept its key policy settings broadly unchanged, holding its policy interest rates in a 0.0% to 0.25% range and maintaining QE at a USD120bn monthly pace.
- However, what caused a stir in markets was the admission by the Fed that the period of ultra-low interest rates was unlikely to continue forever, considering the brighter signs in the US economy.
- Market reaction to the Fed was swift, particularly in the Treasury market; the USD index jumped after the Fed announcement pushing the NZD down by close to 1 US cent.
NZ economy sizzles through summer
17 Jun 2021
- Q1 GDP lifted by more than expected, up at whopping 1.6% over the quarter, compared to market expectations centred on a 0.5% lift.
- The strength in Q1 was broad-based across domestic demand, with strong lifts in household spending, business investment and Government spending.
- Stronger than expected domestic demand, coupled with growing cost pressures, are a potent mix for inflation pressures. We currently expect the RBNZ to start normalising interest rates in May 2022, but risks are now very firmly skewed to an earlier move.
Daily Alert: NZD/USD at key support, Fed meeting awaited
16 Jun 2021
- It’s all a bit subdued in financial markets as market participants await tomorrow morning’s Fed announcement.
- Yesterday’s RBA Board minutes saw the RBA play a straight bat, disappointing those looking for hints about what could be announced at the highly anticipated July meeting.
- Meanwhile, the NZ housing market ship is turning, but it’s turning slowly.
Commodities Weekly: Whole Milk Powder prices edge down a smidgen
16 Jun 2021
- Whole Milk prices have edged down a smidgen at the latest GlobalDairyTrade auction overnight.
- We retain our $8.20 kgms forecast for the season, with risks tilting towards a slighly lower (but still historically impressive) figure.
- Meanwhile, the ASB Commodities Index continues its Cinderella run, with NZD prices lifting even closer to record highs last week.
Daily Alert: Getting delta bad hand?
15 Jun 2021
- With little major data out, geopolitical and pandemic headlines have been the key developments overnight.
- New research is also casting a light on the ‘delta’ COVID variant.
- The latest REINZ house price data is out at 9am today, providing another clue on the direction of the housing market following the government’s tax changes.
REINZ Housing data May 2021: Shifting sands
15 Jun 2021
- More records for NZ house prices in May, even as sales activity continues to (slowly) cool.
- The ship is turning slowly.
- We lift our 2021 house price forecasts, but tab down 2022.
Economic Weekly: NZ summer spending spree to support GDP
14 Jun 2021
This week’s economic highlight will be the release of the Q1 GDP estimate by StatsNZ, on Thursday 17th June. We keep an open mind ahead of the release and note that uncertainty remains very high. Quarterly GDP moves appear to have become more volatile and difficult to predict due to the COVID-19 pandemic and the severe disruption to NZ and global economic activity. We expect Q1 GDP to record a lift of 0.8% over the quarter, following the previous quarter’s 1% contraction (see our full preview here). Just a few months ago many economists, including ourselves and the RBNZ, expected that Q1 GDP would register a decline as the summer tourism peak was expected to be hit hard as international visitors remained mostly locked out of NZ. But the Retail Trade Survey turned that narrative upside down, suggesting that NZ households set forth on a Q1 shopping spree, supporting the hospitality sector through summer and unleashing a retail frenzy for durable goods. Housing construction is also likely to support a lift in output, despite reports of dire shortages of key materials and labour in the construction sector. Meanwhile, international shipping delays shifted the pre-Christmas peak in imports to Q1 instead. Overall, Q1 GDP figures are likely to reinforce NZ’s outstanding economic resilience through the pandemic.
Going forward, the ‘so what’ for borrowers, savers and policy makers sits less with GDP outcomes and more with inflation developments. The RBNZ knows the NZ economy has performed well so far, but GDP has largely tracked sideways since the pandemic – losses in international tourism have been offset by increased domestic household spending and construction activity. The ability for the NZ economy to grow over the coming year is likely to remain stunted by its closed international borders, impacting demand via reduced international tourism earnings. But GDP growth is also being impacted via supply constraints from global supply chain disruption impacting the flow of goods into NZ while the supply of labour into NZ is also constrained by the closure of the international border. These supply constraints, particularly relative to strong NZ household demand, are seeing cost pressures rising and as a result we forecast consumer price inflation lift strongly over the coming year. The fierce debate among economists is whether elevated rates of inflation will be short-term (i.e. limited to one-year) due to the pandemic. Or will some of this inflation become persistent and last longer than a year. For more discussion see Mark Smith’s note on inflation here. The RBNZ is nervous about the latter and is preparing to lift the OCR sometime next year. We will be watching upcoming inflation figures very closely over the coming year, to see how much of the cost increase is being passed onto consumers and how much pricing power firms hold. As a result, this week’s GDP figures could take a less prominent position in policy makers’ and financial markets’ focus.
Daily Alert: Howzat!
14 Jun 2021
- NZ Cricket fans didn’t have to stay up late last night, as the Black Caps quickly wrapped up the second test in the UK morning.
- The NZ sharemarket was up 0.3% on Friday, and 0.4% over the week while the NZ 10-year Government bond yield dropped 20 basis points over the past week, including a 5 basis point drop on Friday.
- The RBA June meeting Minutes (14 June) and a speech by RBA Governor Philip Lowe (16 June) will be keenly watched by market participants this week.
Quarterly Economic Forecast: Economy facing shifting challenges as COVID-19 rebound ramps up
11 Jun 2021
- The global economic recovery is looking more promising by the day.
- New Zealand’s continued strong recovery is set to hit growing pains.
- Inflation pressures are starting to lift, and ASB expects the OCR to increase from mid-2022.
Daily Alert: US inflation soars but market snores
11 Jun 2021
- Market reaction was modest following last night’s stronger-than-expected US inflation print, with a brief blip in US yields and the USD.
- US equities initially dropped but subsequently pushed higher, with markets betting that the FOMC will look through the higher inflation print.
- Meanwhile, the ECB held its major policy interest rates at record lows and stuck to its dovish script.
GDP Preview Q1 2021 - Spending spree lifts economy
11 Jun 2021
- We expect Q1 GDP lifted 0.8% qoq, as strong spending by NZ households likely offset the absence of spending by international tourists.
- We expect strong construction activity also supported GDP growth, meanwhile delayed international shipments in late 2020 likely shifted economic activity from Q4 2020 into Q1 2021.
- NZ GDP remains surprisingly volatile and difficult to forecast, we are braced for the possibility of further revisions or unexpected outcomes.
Daily Alert: Another quiet night ahead of ECB, US inflation data
10 Jun 2021
- The tone has been relatively muted overnight as global markets await the ECB and the latest US inflation data.
- In line with the relatively quiet night, there have been few dramatic moves in currency markets.
- Nothing major out locally today or across the Tasman, with the exception of NZ May electronic cards data.
Commodities Weekly: Primary sector export resilience on show
10 Jun 2021
- While a lot of ink has been spilled about the sharp recovery in commodity prices of late, the resilience in export volumes has been a big a driver of the export sector’s strength.
- All-up it’s a remarkable run of data given the doom-and- gloom predictions the pandemic would lead to a near collapse in international trade.
- Meanwhile, the ASB Commodities Index hit an eighteen-month high in NZD terms last week.
May 2021 NZ Electronic Card Transactions: May spending surprises but higher retail prices may be the catalyst
10 Jun 2021
- May card spending continues to surprise to the upside, demonstrating the resilience of the NZ consumer.
- It may, however, reflect the impact of higher retail prices which is likely to be weighing on the purchasing power of consumers.
- We remain positive on the outlook for retail spending over 2021, which will continue to support the NZ economy. However, rising retail prices and escalating costs may dampen the retail rebound we see unfolding.
Inflation Watch: Will the perfect storm intensify?
10 Jun 2021
- ASB expects annual headline CPI inflation to rise to around 3% by the end of 2021 as cost shocks and demand pressures from selected pockets filter through into consumer prices. Annual headline Inflation is then expected to settle in the mid-2’s as some transitory influences fade.
- Not only will annual CPI inflation likely peak at a higher rate than the RBNZ expects, but it also looks set to remain persistently higher. This could bring forward the timing of OCR hikes.
- We will be keeping close tabs on surveyed inflation expectations, capacity gauges and other indicators of pricing pressures.
Daily Alert: Nothing to see here
09 Jun 2021
- It’s been a lacklustre 24 hours in global financial markets.
- US data released overnight continued to paint a picture of steady progress in the labour market, but with labour supply constraints becoming more acute.
- Locally, we get the last bits of data to factor into Q1 GDP computations this morning.
Economic Weekly: A rising tide
08 Jun 2021
Commodity prices have surged over the first half of 2021. As of this week, the ASB Commodity Index (a weighted index of major commodities based on their share of NZ exports) has reached an eighteen-month high in NZD terms. Price gains have been sustained for quite some time. In fact, our NZD index reached its highest monthly average ever during March and May.
Gains are proving impressively broad-based. While COVID-19 impacted different commodities unevenly, the bulk of NZ’s major exported commodities are being buoyed by the rising tide. Dairy prices have surged to eight-year highs, forestry prices are at a record high and fruit prices hit record levels at the end of last season. Meat prices aren’t quite as frothy given their pandemic tumble, but our meat index has risen 15% since the beginning of March.
A range of demand and supply side factors are underpinning the gains. Most obviously, consumption is picking up around the world as economies tentatively lift pandemic restrictions. Forecasts for global growth over 2021 and 2022 have been revised up, which usually accompanies strengthening demand for key commodities. New Zealand’s exposure to China has proven a particular boon on that front. Ongoing shipping disruption and global logistics woes are adding to the mix, prompting a sizable premium to be paid secure supply.
Analysts overseas are heralding the dawn of a new commodity price ‘supercycle’ – a decades long period of above-trend price growth. Past supercycles followed the industrialisation of the US in the 19th century, the post-WW2 economic recovery in Europe, and China’s integration into the global economy during the early 2000s.
We’re a bit sceptical the post-pandemic era will herald a similar boom. At least some of the factors underpinning recent gains are likely to prove temporary. The timing for a return to normality is highly uncertain, but shipping woes should be resolved in time. Similarly, supply responses will take some of the heat out of higher prices for some commodities, notably dairy. We suspect the next supercycle won’t begin until the Indian economy further liberalises.
Nevertheless, we expect commodity prices to remain elevated over 2021, and there’s a good chance our index exceeds its record high in the coming weeks. It’s all supportive of our bullish Term of Trade view, our favourable NZD outlook and our belief inflationary pressures could prove a bit more sustained than the RBNZ expects. To stay up to date with all the latest developments, make sure to subscribe to our Commodities Weekly here.
Daily Alert: NZD recovers over the long weekend
08 Jun 2021
- USD slumped on Friday after US Non-farm Payrolls for May showed employment expanded by less than expected; US Non-farm Payrolls (employment) rose by 559,000 in May (survey: +675,000), however, the unemployment rate still fell from 6.1% to 5.8% (survey 5.9%).
- US sharemarkets climbed to near all-time highs on Friday, pushed higher by gains in technology shares.
- Meanwhile, the local sharemarket gained 0.8% last week, but remains 8% off its peak set back in January and the local 10-year yield was little changed on week-ago levels.
Markets Monthly: Mixed month of May for financial markets
04 Jun 2021
- Long-term global bond yields were mixed over May, even though there were plenty of headlines about rising inflation pressures.
- At its May meeting, all the RBNZ’s key policy levers remained steady and following the meeting, ASB economists brought forward our forecast of the first RBNZ OCR increase to May 2022 (from August).
- The NZD was mixed during the month and dipped 0.3% on a trade-weighted basis.
Daily Alert: NZD/USD tumbles ¾ cent, Lords test evenly poised
04 Jun 2021
- The most eye-catching development overnight, apart from Devon Conway’s stunning 200 on debut at Lords, has been a sharp sell-off in the NZ dollar.
- Yesterday’s slug of antipodean data provided another welcome dose of economic warmth.
- Locally, we expect this morning’s NZ Q1 construction activity numbers to lift 2.8% - bouncing back from the previous quarter’s 1.5% fall.
Daily Alert: Markets say ‘wait-and-see’ ahead of US jobs data
03 Jun 2021
- Moves in global sharemarkets have been modest overnight, with ‘wait-and-see’ being the order of the day ahead of US employment data at the end of the week.
- Overnight has also seen the release of the latest Beige Book from the Fed, the Bank’s compendium of the latest economic anecdotes from around the country.
- There’s no local data out today, though there are a few bits and pieces out across the Tasman.
Commodities Weekly: Dairy prices hold their gains, ASB shifts its OCR view
02 Jun 2021
- Dairy prices have continued to hold on to most of their gains at last night’s auction.
- While this is the fifth consecutive auction where prices have eased, the real story is the continued strength in WMP prices.
- Meanwhile, the ASB Commodities Index continues to trade near record highs.
Q1 Terms of Trade: Plot twist
02 Jun 2021
- NZ’s terms of trade were little changed in Q1, remaining at historically high levels.
- Export and import prices both fell in a rather surprising development, but we are sceptical the trend will continue.
- There is little sign of freight disruption crimping import activity just yet – but for how long?
Daily Alert: Markets end May with a whimper
01 Jun 2021
- Holidays in the US and UK have delivered a quiet start to the week for global financial markets.
- Sky-rocketing cost pressures and pricing intentions remained the stand-out features of the latest ANZ business confidence survey.
- On the data front, we might see some pull-back from April NZ building consents figures after the surge in March
Residential Building Consents and Construction Sector Capacity
01 Jun 2021
- Residential building consent demand remains strong.
- However, evidence is mounting that the construction sector is severely capacity constrained.
- The construction output will struggle to meet demand and we expect construction inflation to surge over the coming year.
Economic Weekly: Aftermathematics
31 May 2021
Last week’s RBNZ meeting wasn’t quite the drab affair most anticipated. It wasn’t that the RBNZ materially changed its economic view of the world. It was more that it felt the downside risks surrounding the outlook had sufficiently receded to both (a) drop its easing bias, and (b) display a forecast interest rate track that had the Official Cash Rate rising 150bps, from 0.25% in mid-2022 to 1.75% in mid-2024.
It’s important to remember that the RBNZ’s published interest rate forecast is not a promise to follow through. All of the Bank’s forecasts are conditional. They can be quickly shelved if things don’t turn out as planned. And let’s not forget there have been plenty of cases, even in the past five years, where best laid plans have had to be changed. Twelve months is a long time in the post-COVID era.
Still, in the here and now, the outlook continues to improve. We’d been mulling the risk our prior view of an August 2022 start to the RBNZ tightening cycle might have to be brought forward. And the clear intent and signalling of the RBNZ last week was catalyst enough for us to do so, and we shifted our forecast for the first 25bps rate rise to May (full write-up here).
Supporting our new stance is the fact that we already see things turning out a bit stronger than the RBNZ’s (updated) forecasts. Importantly, we don’t share the RBNZ’s view that the coming inflation spike will be largely transitory (see chart). And we also believe the Bank could be surprised by the strength of the labour market. We expect the unemployment rate to fall to 4% by the end of 2022. The Bank has 4.6%. Recent employment partials have, if anything, come in on the stronger side of our expectations.
So, what are the implications of all this? Here’s our quick take on the aftermathematics:
· Higher wholesale interest rates. We’ve nudged up our swap forecasts by 10-30bps. See our forecast tables.
· Related to this, we’re now more convinced we’re past the lows in mortgage rates. Our forecasts suggest some modest upward pressure on all but the near-term mortgage rates over the rest of the year.
· This supports our view the pace of house price increases will slow down over the second half of the year.
There’s more upside for the NZ dollar. Admittedly, our constructive NZD view is mostly linked to the global reflation trade and higher NZ commodity prices. But the fact the RBNZ is comfortable being perceived as one of the first central banks likely to lift rates (joining the Bank of England and Bank of Canada) will add to NZD demand.
Daily Alert: Busy week ahead for local and offshore data
31 May 2021
- RBNZ Governor Orr spoke on Bloomberg TV and continued with the upbeat tone from Wednesday’s MPS. Key takeaways were the RBNZ is not worried about hiking ahead of other central banks and that although inflation expectations are well anchored, if they become unanchored, the Bank is prepared to react.
- Sharemarkets pressed higher over the past week, with US share indices up 0.1-0.2% on Friday and 1-2% over the week. In contrast, the NZ Sharemarket dipped 0.5% on Friday and was down 2.5% over the week.
- Residential building consents have remained elevated over the early months of 2021, although the number of consents issued have edged back from its December 2020 peak. Data for April are released on Tuesday.
Business Sentiment in May: Turning up the heat
31 May 2021
- Business sentiment measures point to firming demand and strong GDP growth over Q2 2021, with ANZ business own activity expectations slightly above decade-averages in May.
- Cost pressures continue to drive pricing intentions to record high levels.
- Cost pressures coupled with a strong demand back drop are a recipe for inflation pressures to pick up on a persistent basis.
Daily Alert: After the storm
28 May 2021
- Local markets consolidated their post-RBNZ moves yesterday.
- While another slug of upbeat US economic data buoyed the mood.
- On the data front, NZ consumer confidence figures will also be worth a look (10am) but the big risk event is tonight’s US core PCE deflator – the most closely watched core inflation measure in the US.
Housing Confidence Survey: Speed wobble
28 May 2021
- Kiwis’ confidence that house prices will keep rising wobbles, but remains strong.
- Further knocking back perceptions of whether it’s a good time to buy a house.
- More evidence that housing market pressure is being released only gradually.
Daily Alert: ASB expects RBNZ to lift OCR next May
27 May 2021
- The RBNZ has all its key policy settings unchanged but struck a less dovish tone at yesterday’s Monetary Policy Review.
- Fonterra’s opening forecast Farmgate Milk Price range for the 2021/22 season was set at NZ$7.25 8.75/KgMs.
- No NZ releases are due today, but Governor Orr does speak about the MPS to a select committee in Parliament at 9.10am this morning.
Home Loan Rate Report: Long term rates start to rise
27 May 2021
- The resilience of the local economy over the second half of 2020 and the prospects of more improvement over 2021 impacts our outlook for interest rates, including mortgages.
- ASB now expects the RBNZ to start raising the 0.25% OCR by May 2022. However, we do not expect the OCR to move up significantly over time, with the OCR to peak at 1.25% in late 2023/early 2024. This suggests that mortgage interest rates are likely to ‘settle’ at still-historically low levels.
- We believe we are at (or past) the low point for mortgage interest rates. Our forecasts suggest some modest upward pressure on all but the near-term mortgage rates over the rest of the year.
Term Deposit Report: Interest rates slowly lift off the lows
27 May 2021
- Low interest rates have been helping borrowers and frustrating savers over recent years.
- We appear to have turned a corner in 2021 and have seen a lift off the lows for all but the shorter-term deposit interest rates over recent months.
- However, rates are still very low, and are expected to remain significantly below historical averages over the coming years.
Daily Alert: A difficult balancing act for the RBNZ
26 May 2021
- At 2pm today the RBNZ Monetary Policy Statement is expected to maintain current expansionary policy settings and a dovish tone.
- Reassuring noises from central bankers overseas and signs Chinese authorities were taking action to curb commodity prices helped push global yields lower.
- USD weakness has continued, with the NZD the strongest performers of the G10 currency league, leading up to today’s RBNZ policy decision.
Commodities Weekly: Fonterra kicks off 21/22 with a wide opener
26 May 2021
- Fonterra has released its first milk price forecast for the range 21/22 season - and it’s a wide opener.
- The co-op has also narrowed this season’s forecast range to $7.45- $7.65 per kgms, resulting in a slightly lower midpoint of $7.55.
- Meanwhile, another ripper week sees the ASB Commodities Index just 1% shy of its record high.
RBNZ May Monetary Policy Statement: RBNZ adjusts its tone, ASB brings forward OCR view
26 May 2021
- The RBNZ has all its key policy settings unchanged but struck a less dovish tone at today’s monetary policy review.
- The RBNZ dropped its explicit commitment to cut the OCR further and published an OCR track signalling rate hikes from the latter half of 2022.
- We have brought forward our OCR view and now expect the first OCR hike to come a little earlier in May 2022 (instead of August 2022).
Daily Alert: NZ retail spending romps home in Q1, lifting our growth forecasts
25 May 2021
- We’ve kicked off the week with a stonking bit of good news in the form of yesterday’s retail trade data where the bigger-than-expected lift in retail sales tips our Q1 GDP forecast into positive territory.
- Globally overnight, the tone has very much been ‘risk-on,’ with decent gains for equities and a softer USD the order of the day.
- In other news, Chinese officials have signalled their displeasure at surging commodity prices.
Economic Weekly: Better outlook puts government in enviable position
24 May 2021
Plenty of ex-finance ministers will have been looking enviously at the position the government found itself in at last Thursday’s budget. Budgets are usually something of a zero-sum game. Every extra piece of tax relief or extra spending somewhere has to be balanced by a tax rise, more debt issuance or cuts elsewhere. Invariably, the ‘losers’ are more vocal than the ‘winners,’ and even relatively benign-seeming measures can put noses out of joint (for a great example of this overseas, check out the weeks long row the UK government triggered with its ‘pasty tax’).
The government didn’t have to worry about any of that this time around. Courtesy of NZ’s far-better-than-expected post-pandemic performance and a vastly improved economic outlook, it’s been able to sustain massive investments across a range of areas (including social development, health, housing and infrastructure), without any un-signalled tax rises and all while showing an improving fiscal position over the next five years. Its rare circumstances hand a government of any stripe such an opportunity.Overall, we think the government has been sensible, returning to fiscal prudence, while avoiding the trap of tightening spending too quickly and threatening the recovery. The big headline – a large increase in welfare payments – should aid the recovery. Beyond any moral imperative, low-income households spend a greater portion of their income than higher income households, so more cash in hand should help boost consumption. The focus on infrastructure is welcome too, though we suspect capacity constraints may pose a challenge.
This week, the focus shifts from fiscal to monetary policy, with the RBNZ releasing the latest MPS at 2pm on Wednesday. There will be some large revisions in the RBNZ’s forecasts too (see our graph opposite comparing its previous unemployment forecasts with our own), but we expect the bank to keep to the dovish tone and avoid being drawn on the timetable for tightening. Like its pals in central government, the RBNZ will be mindful of the downside risks remaining, and eager to avoid crimping the recovery by tightening too quickly.
Daily Alert: Markets move sideways as global recovery gains momentum
24 May 2021
- Markets traded in a sideways fashion heading into the weekend.
- San Francisco Fed President Daly (2021 voter) stuck to the script, viewing the pick-up in US inflation to be temporary (cooling over 2022), noting that US monetary policy settings were in a good place and that policy makers needed to be patient.
- The May RBNZ MPS at 2pm on Wednesday is the key NZ highlight.
Q1 2021 NZ Retail Trade Review: Resilient retail keeps NZ economy afloat
24 May 2021
- Much stronger than expected lift in Q1 retail volumes, which are hovering around record highs. We no longer expect a Q1 dip in GDP, with the consumer keeping the NZ economy afloat.
- The strength was generalised, with few signs of supply disruptions impacting retail activity or boosting retail prices. Durable retail was particularly strong.
- While a Q2 pullback in retail trade activity is possible, we retain our positive outlook for retail volumes over the remainder of the year.
RBNZ May Monetary Policy Statement Preview: The virtues of keeping your options open
24 May 2021
- Since the RBNZ’s last MPS, the economic outlook has continued to brighten, and inflation pressures continue to mount.
- Nevertheless, we expect the RBNZ to keep a cautious tone, emphasising the uncertainties remaining.
- Policy settings should remain on hold, and we still expect the RBNZ to refrain from lifting the OCR until August 2022 at the earliest.
Daily Alert: Budget 2021 to add oomph to the upturn
21 May 2021
- There weren’t too many bolts from the blue from Budget 2021.
- Globally overnight, markets have generally reversed the Fed minutes-induced movements of yesterday, as investors deduced that Fed tightening is still a long way off.
- The clear highlightof the day will be the release of May ‘flash’ PMIs released around the world, starting with Australia at 11am (NZ time).
Daily Alert: Fed minutes hint at taper talk
20 May 2021
- The release of the latest Fed minutes has been the big development overnight.
- Unsurprisingly, Treasury yields lifted in the aftermath of the statement.
- And, it’s been a soggy session for sharemarkets.
Budget 2021 Review - It's time to deliver
20 May 2021
- Budget 2021 showed an improved NZ economic and fiscal outlook, with smaller operating deficits, a lower peak in crown debt and a modestly scaled-back NZ Government bond programme compared to previous COVID-era updates.
- The stronger fiscal position leaves the Government with more policy options. Rebuilding the economy and enhancing wellbeing have been given top priority. Operational and capital allowances for government spending have been increased, albeit modestly, with government spending expected to decline as a share of GDP over the projection period.
- The Government have committed to rebuilding the economy and enhancing societal and economic wellbeing. Massive investments are signalled. It will take time to assess whether this will pay dividends.
Commodities Weekly: ASB revises 21/22 milk price forecast to $8.20/kgms
19 May 2021
- Prices broadly held their ground at last night’s dairy auction.
- The resilience in prices has exceeded our expectations and consequently, we’ve changed our view and now forecast a farmgate milk price of $8.20 per kgms for 21/22.
- There was some modest easing in the ASB Commodities Index last week, but it remains close to record highs.
Rural Economic Note: ASB revises 21/22 milk price forecast to $8.20/kgms
19 May 2021
- Prices broadly held their ground at last night’s dairy auction.
- Prices are holding onto their gains and we find ourselves increasingly bullish about the next season.
- Consequently, we’ve changed our view and now forecast a farmgate milk price of $8.20 per kgms for 21/22.
Daily Alert: Bitcoin rollercoaster upstages a quiet start to the week
18 May 2021
- Equities have opened the week a wee bit lower; as at the time of writing, the Dow’s down about 0.22%, the S&P500 is down about 0.28% and the Nasdaq’s down about 0.70%.
- The biggest action has been in cryptocurrency markets, where the saga of the buccaneering South African billionaire continues. .
- Locally, there were a few bits of second-tier local data out yesterday to begin the week.
Economic Weekly: Keeping the taps on trickle in Budget 21
17 May 2021
The NZ 2021 Budget (Thursday 20th May, 2pm) takes centre stage this week. NZ has dealt with the COVID-19 pandemic relatively well and our economic performance has held up remarkably as a result. Compared to the chaos and dire economic forecasts which formed the backdrop for the 2020 Budget, the 2021 Budget should be comparatively straight forward. Nonetheless, debt is up, owing to a lift in spending over the past year, while revenue has trended sideways. As a result, the NZ Government has little wiggle room with spending decisions and will need to take a more considered targeted approach to this Budget, compared to last year’s ‘kitchen sink’ approach.
The global pandemic is not over yet, so there remains the expense of keeping borders closed and vaccinating the entire country free of charge this year. Furthermore, the NZ economy is still in a fragile place and the Government needs to avoid weaning off fiscal support too soon. To be working in harmony with monetary policy settings, fiscal settings also need to be stimulating the economy over 2021, rather than restraining it. Finally, infrastructure is creaking at the seams as the population growth of recent years has placed pressure on everything including health, education and transport.
A detailed look at our forecasts for this week’s Budget is in a full note by Senior Economist Mark Smith (see here). Compared to previous fiscal updates, the stronger economic backdrop means that annual deficits are expected to be smaller over the forecast horizon, and public debt is expected to rise less rapidly - and then fall away faster. We forecast net core Crown debt will peak under 50% of GDP by 2023/23 and then drop back to 41% by 2025. The Australians have a similar target in last week’s Budget, with Australian net debt forecast to peak at 40.9% in 2024. This places NZ and Australia in a relatively strong position compared to some of our international counter parts who have been hit harder by COVID-19, such as the UK and the US which are both forecast to see net debt rising to over 100% of GDP by 2025 (according to the IMF’s April World Economic Forecasts).
Financial markets will be more closely focused on the projected bond issuance programme, and we expect the NZ Government bond programme will be trimmed by up to $40bn over the next 4 years. We expect issuance of around $20-25 billion per year over the next three years.
Daily Alert: US shares lift despite soft US data batch
17 May 2021
- US sharemarkets climbed on Friday, led higher by technology shares; Facebook (+3.5%), Tesla (+3.2%), Alphabet (+2.2%) and Microsoft (+2.1%) shares all lifted.
- New Zealand's manufacturing sector continued to expand during April, according to the latest BNZ-BusinessNZ Performance of Manufacturing Index.
- Budget 2021 on Thursday is expected to show a turnaround in fiscal fortunes from the gloom that characterised much of 2020.
Daily Alert: Stocks bounce back after inflation wobbles
14 May 2021
- Equities have regained some ground overnight after their inflation-induced wobbles of late.
- In comments overnight, Fed officials have continued to emphasise their dovish position in the aftermath of yesterday’s CPI lift.
- Here in NZ, we’ll get the latest manufacturing PMI data from BusinessNZ at 10.30.
NZ Budget 2021 Preview: Striking the right balance
14 May 2021
- The NZ economy and public finances have held up much better than earlier thought and we expect Budget 2021 to show smaller forecast fiscal deficits, a lower peak in Crown debt and an associated scaled-back NZ Government bond programme.
- The focus is turning increasingly towards a more targeted and fiscally prudent message. Delivering on this will not be easy.
- Longer-term fiscal challenges also remain, with the Government expected to signal an enhanced focus on converting policy intent into action and results. The proof will be in the pudding.
Daily Alert: Markets rattled by super-charged US inflation surprise
13 May 2021
- Investors’ inflation concerns were whacked into overdrive overnight, as US April CPI figures showed inflation unexpectedly surging to a 12-year high.
- In terms of monetary policy implications, the April inflation spike is not necessarily out of line with the Fed’s view that inflation will rise over the next few months, but that this increase will ultimately be temporary.
- Locally, this morning’s NZ food price figures should show a decent (seasonal) increase.
REINZ Housing data April 2021: Resilient to change
13 May 2021
- April REINZ data betray first signs of property market cooling.
- But fall in sales likely overstated, and supply is as tight as ever.
- Supports our view the market is holding up. There’s already upside on our updated forecasts.
Daily Alert: Stocks hit, but other markets carry on
12 May 2021
- Risk sentiment took a decent hit overnight but, interestingly, there hasn’t been any fallout for currencies.
- Inflation fears largely square the circle and investors are increasingly worried that rising inflation pressures will force central banks to capitulate on their ‘patience’ mantra and start reducing stimulus earlier than forward guidance.
- Locally, the 4% mom lift in NZ April retail card spending reported yesterday was much stronger than expectations.
Commodities Weekly: Unintended consequences
12 May 2021
- Prices for forestry products have risen over 2021 thus far while shipping pressures around the world have continued to intensify.
- We expect that trade distortions overseas will drive up demand for NZ logs over 2021 and 2022.
- Meanwhile, it’s been yet another strong week for the ASB Commodities Index.
Daily Alert: Surging commodity prices highlight reflation risks
11 May 2021
- Fears of rising inflation continue to give palpitations to markets, with the surge in commodity prices the recent trigger.
- The major US equity indices were generally down overnight, with surging commodity prices stoking fears of a pick-up in inflation, margin compression and a derailment of global growth.
- Locally, we expect data on Tuesday to show a solid increase in monthly total and retail card spending in April (ASB: +1.5-2% mom expected), with a school holiday boost and the reopening of the trans-Tasman travel bubble on April 19 expected to be supportive.
April 2021 NZ Electronic Card Transactions: April boost to retail and we remain positive on the retail outlook
11 May 2021
- Strong lift in April card spending, with favourable base effects sees a close to doubling in annual spend.
- Tentative signs of a Trans-Tasman bubble and school holiday boost.
- After a slow start to the year, we remain positive on the outlook for retail spending over 2021, which is likely to continue to support the NZ economy. However, the retail sector outlook includes both tailwinds and some headwinds.
Economic Weekly: Upside risks building
10 May 2021
Economists are well versed in espousing downside risks. To be sure, these remain plentiful. We’re in a global pandemic after all. But it’s also important to acknowledge the positives. And it’s actually these upside risks that are looking more pertinent as the economic data has rolled in over the past few weeks.
The global backdrop, while patchy, is looking better by the day. COVID hotspots remain, with the tragedy in India particularly troubling. But global growth as a whole is now expected to expand a strong 6.3% this year. China and Asia are out in front. But the impressive turnaround in the fortunes of the US and UK is certainly bearing out the ‘who vaccinates wins’ thematic. Three quarters of the population in those countries have now had at least one vaccine dose, enabling a more rapid economic reopening. Forecasters in the UK, for example, now expect GDP growth to exceed 5% both this year and next.
The steadying in the global economy is bolstering demand for commodities generally, including our own export commodities. In fact, there’s something of an export price boom underway – it’s just that the housing boom tends to attract all the column inches. Global prices are holding around the highest level in seven years. And thanks to a restrained currency, prices in NZ dollar terms are not far from the highest level ever. We think prices will hold up or even push a little higher this year. The income windfall for NZ’s agriculturally-exposed regions is providing the foundation upon which NZ’s economic recovery is being built.
Against this backdrop, confidence in the economic upturn is growing. Last week’s ANZ business confidence survey saw investment and employment intentions continue to ratchet higher. The former are now at 4-year highs, and suggestive of GDP growth miles ahead of our forecasts (chart ‘o’ the week).
Stretched capacity, shortages of labour, and spiralling costs are flies in the ointment we’ve discussed before. Business surveys are pointing to these things worsening. Cost and pricing intentions are at the highest levels on record. We’re still of the view the impacts on inflation will mostly be temporary, but we’re keeping an eye on it. By contrast, the turn higher in wage inflation we expect this year will proffer more of a sustained, albeit modest, inflationary impulse. Last week’s labour market figures provided support for this view. Unemployment printed below market/RBNZ expectations at 4.7%. It will continue to track lower from here, in our view. Should this pan out, the RBNZ could be brushing up against its Maximum Sustainable Employment objective in a few quarters time. The upshot from all this from an interest rate perspective is that we’re a little more confident in our view that the RBNZ will be able to start reducing stimulus next year. We continue to expect an August 2022 OCR hike, something we note the market is now close to fully pricing. There’s also room for RBNZ bond purchases to be tapered further.
Daily Alert: US labour data disappoint, but shares rally to record highs anyway
10 May 2021
- US Non-farm Payrolls (employment) rose by just 266k in April (consensus: +1 million) and job gains were revised 78k lower from the previous two months.
- US sharemarkets climbed on Friday as weaker-than-expected US jobs data eased investor concerns about higher inflation and a cutback in stimulus.
- Locally, we expect data on Tuesday to show a solid increase in monthly total and retail card spending in April.
Daily Alert: Central bankers keep foot on the gas pedal
07 May 2021
- As was widely expected, the Bank of England held current policy settings, with the bank rate at a historic low 0.1%.
- There were a number of other comments by global central bankers – including RBA Deputy Governor Debelle – which highlighted that policy makers were closely watching domestic and global developments.
- Locally, the RBNZ NZ Survey of Expectations (3pm) will likely show a firming in one- and two-year ahead inflation expectations towards (or slightly above) 2%, but we anticipate that longer-term inflation expectations will stay anchored close to 2%.
Markets Monthly: Bond sell off takes a breather while shares rally
07 May 2021
- Long-term government bond yields here and abroad eased over the month but are significantly higher than the levels at the start of 2021, and a year ago.
- Meanwhile, the local sharemarket’s underperformance over 2021 has continued.
- At its April OCR Review, the RBNZ kept all its monetary policy settings steady and emphasised that stimulatory monetary policy will be needed for some time.
Daily Alert: US data prints confirm the recovery
06 May 2021
- Overnight, investor moods lifted off the back of strong earnings data from some market behemoths and a couple of strong data prints.
- Locally, it was an unusually busy morning on the data front here in NZ yesterday, with both the RBNZ’s latest Financial Stability Report and Q1 employment data out.
- Two domestic releases are out today – March building consents and the provisional ANZBO, but they will be quiet affairs compared with yesterday’s excitement.
Daily Alert: Sell in May comes into play as equity investors exit
05 May 2021
- Markets traded with a modest risk-off tone overnight, with broad-based declines in global stocks and a stronger USD.
- The action was a little more modest in government bond markets, with Treasury yields a fraction lower (US10Y 1.59%) with a curve flattening bias.
- The RBNZ Financial Stability Report (9am), will be perused for how the RBNZ views risks from the housing market, although no announcement on whether the Bank is keen to add further tools to restrict housing lending are likely until the end of this month.
Commodities Weekly: Saturated fats
05 May 2021
- Butter prices were lower, but powders held their ground at the latest GDT overnight.
- The key takeaway for farmers is that powders are maintaining their value.
- Meanwhile, the ASB Commodities Index edged down last week.
RBNZ May Financial Stability Report: Holding pattern
05 May 2021
- Similar financial system assessment: sound but vulnerabilities remain.
- Initial thoughts on other potential macro-prudential measures: RBNZ favours debt serviceability measures.
- RBNZ ready to act further if housing-related risks remain, but in wait-and-see mode given recent policy moves.
Q1 2021 Labour Market Data Review: Labour market firmly on the road to recovery
05 May 2021
- The unemployment rate fell by more than expected in the March quarter, to 4.7%. The market median expectation was for the unemployment rate to remain unchanged at 4.9%.
- Employment lifted by more than expected, up a robust 0.5% over the quarter.
- Annual wage growth was steady, and is poised to lift over the coming quarters.
Daily Alert: Sentiment snap-back
04 May 2021
- Financial market sentiment has quickly righted itself following Friday’s month-end wobble.
- The global recovery remains on track and this should keep financial market sentiment on the straight and narrow.
- Two of the other factors that have supported the global recovery and hence market sentiment have been easing COVID restrictions and strong corporate earnings, and both were in evidence again overnight.
Economic Weekly: Knockin’ on housing’s door
03 May 2021
After a period of gazing at overseas events, the focus for this week is more firmly back onshore with Wednesday bringing another dairy auction, the RBNZ’s Financial Stability Report (FSR), and labour market data.
Dairy prices should prove resilient enough to support $7.50+ farmgate milk prices for this season and next. Local production is faring well heading into autumn, and in time it will be interesting enough to see how this late flush counterbalances the continued strong buying interest from China.
The FSR is going to bring the attention back onto NZ’s housepocalypsearmageddon. The November FSR was released when the housing market was evidently heating up over and above a post-lockdown rebound and the Finance Minister had just written to the RBNZ Governor suggesting that monetary policy decisions take into account house prices.
Since then, the action has only heated up in the market and in the Government’s responses. The Government has tweaked the RBNZ’s Monetary Policy Remit so the Monetary Policy Committee needs to assess the impacts of monetary policy decisions on the Government’s housing policies (namely discourage investors from buying pre-existing homes). The RBNZ also needs to have regard to house price sustainability with its financial stability decisions. Finance Minister Robertson has also announced that he will establish a new framework for deciding what type of lending the RBNZ is permitted to restrict. Until now, there has been no formal oversight of what tools the RBNZ can use other than the RBNZ Governor and Finance Minister signing a Memorandum of Understanding over what lending restrictions the RBNZ would employ. The devil will be in the details of how prescriptive this process will be and whether there are any tensions between what types of lending the Government would like to see restricted (and what not) relative to the RBNZ’s assessment of where it sees the financial stability risks as being greatest.
And of course, when it comes to assessing the risks, the housing outlook is up in the air in the wake of the Government’s tax changes to discourage residential property investors. Accountant: put my tax deduction in the ground, I can’t use it anymore. We’d expect the RBNZ to still be unsure about the impacts on house prices and financial stability. The changes are likely to sound the death knell for continued unbridled capital gains and further stretch in house prices relative to incomes and rents. But there is also the risk that the tax changes are a little too effective, so the RBNZ want to take the time to see what happens – and has no new tools to use yet anyway.
To round out a busy Wednesday morning, the labour data for the March quarter will be out. The influences on employment and wages are a curious mix of flat activity, slow population growth, emerging skill shortages yet regional pockets suffering from the lack of international tourists. We expect flat employment over the quarter yet a marginally lower unemployment rate, with annual wage growth likely to start building over the course of the year.
Daily Alert: Sharemarkets end April on a soft note
03 May 2021
- Sharemarkets ended April by paring back on the month’s rally, with the major markets around the world down 0.5%-1% on Friday.
- New Zealand’s ANZ consumer confidence index showed consumer sentiment surged back to pre-pandemic levels in April to lie only a fraction below the historical average.
- In NZ, employment data are due on Wednesday; we are expecting the unemployment rate to edge down to 4.8% over the March quarter (from 4.9% in Q4) on the back of flat employment growth.
Daily Alert: Biden widens the spending floodgates
30 Apr 2021
- The combination of strong US data, the dovish Fed assessment, the prospect of further policy stimulus and upbeat corporate earnings underpinned broadly positive market sentiment.
- Yesterday, the full April ANZ NZ business confidence report showed a generalised strengthening in own activity, employment, and investment intentions.
- Today, ANZ NZ consumer confidence at 10am is expected to remain subpar, with downbeat expectations on the near-term economic outlook and potential easing of house price expectations.
Daily Alert: Fed keeps the dovish line
29 Apr 2021
- At its latest meeting the Fed upgraded its economic assessment, but Jerome Powell stuck to a dovish line and refused to be drawn on the timeframe for tightening policy settings.
- The other key event of the last 24 hours was yesterday’s Aussie CPI result for the March quarter, which was softer than anticipated.
- With Aussie CPI and FOMC out of the way, the biggest release left for the week is the Q1 US GDP number, which is out just after midnight overnight.
Q1 2021 Labour Market Data Preview: Labour market may be tighter than it seems
29 Apr 2021
- The level of employment likely remained steady over the March quarter, and we expect to see a small fall in the unemployment rate.
- Labour market conditions are uneven across sectors, and a skills mismatch may prevent marked falls in the unemployment rate over the coming year.
- Wage inflation pressures should start to pick up over the coming year, as the inability to recruit offshore increases competition for domestic candidates in sectors with labour shortages.
Sector Impacts of COVID-19: What happened in 2020 and could happen in 2021?
29 Apr 2021
- The hit from COVID-19 does not look to have been as large and long-lasting as feared a year ago, with the level of economic activity and employment broadly back to pre-pandemic levels.
- Similarly, the sector impacts do not look to be as widespread as feared. Some sectors have clearly borne the brunt of the COVID-19 hit, but the majority have done well, with a few stellar performers.
- Going forward, we expect anaemic growth over 2021 although risks are tilting towards a stronger than expected rebound in economic activity and employment from sectors that copped the bulk of the hit in 2020.
Daily Alert: I’m Waiting for the Man
28 Apr 2021
- Overnight movements in financial markets have been small, despite a decent amount of news flow.
- The overnight data highlight was the US April Conference Board consumer confidence index, which soared to a 14-month high, joining a swathe of other data pointing to booming conditions in the US economy.
- Tomorrow morning brings the data highlight of the week in the form of the US FOMC policy announcement.
Commodities Weekly: (Re)Open Season
28 Apr 2021
- The latest high frequency economic data show economic activity picking up – and the hospitality sector is feeling the love.
- Among major commodities, we expect meat will be the main beneficiary from the trend towards reopening in the Northern Hemisphere.
- Meanwhile, the ASB Commodities Index was little changed last week.
Economic Weekly: Unwinding
27 Apr 2021
It may be an obvious truth, but it’s worth repeating: the scale of fiscal and monetary stimulus the global economy has received over the past year or so dwarves the levels of support rolled out in any previous crisis. Central banks have sent policy rates to record lows and expanded asset purchases to record highs, before getting creative with new tools.
National governments have run roughshod over balanced budget commitments as they’ve piled on debt to stop ailing businesses from failing, expand social safety nets and inject funding into strained health systems. More than USD$5 trillion has been spent by the US Federal Government vs the circa USD$1.6 trillion earmarked in 2008-9 (and there is more on the way with a big infrastructure package signalled). The European Commission is dishing out €672.5 billion to member states – a decade ago, the body lacked the power to issue common debt. There have been some bold pledges from policymakers too. Just over twelve months ago, French President Emmanuel Macron and the German Economy Minister each pledged that not a single business would face bankruptcy because of the crisis.
There is still considerable uncertainty facing the global economy, but as 2021 wears on, speculation continues to mount about the likely timeframe for unwinding all this support. Inflation metrics around the world continue to tick upwards, and growth forecasts have been revised steadily upward. On the fiscal side of things, the level of support has already dropped off over recent months as programmes have expired. Anxieties about public debt will further come to the fore from here. Less new spending isn’t so much of a worry in the US (where the recovery has bested expectations and the amount spent is already massive), but is more of a concern in Europe, where forecasts have been revised down, the pace of existing stimulus is already proceeding too slowly and there are risks of a wave of corporate bankruptcies as support rolls off.
For monetary policy, most central banks still see more risk in tightening too quickly than too slowly – particularly given we don’t know how sustained the recovery or the uptick in inflation will be. To that end, monetary policymakers have been keen to keep their public comments as dovish as possible to stem the move up in yields over recent months.
Still, there are signs of some shift in the dovish consensus. Last week, the Bank of Canada became the first major central bank to signal a change in tone. The BoC added the usual caveats about uncertainty and ‘pockets of weakness’ in the economy, but the emphasis was all on the stronger-than-expected outlook. Notably, the bank announced it would scale back its asset purchases and brought forward its timetable for hiking rates.
This week it’s all about the US Federal Reserve, with its Federal Open Market Committee (FOMC) meeting at 6am NZT on Thursday morning. Almost everyone (including us) expects the FOMC to stick to a more dovish line than its cousin to the north. Fed Chair Jerome Powell has studiously avoided putting an exact timeframe on tightening policy settings, and the bank was burnt by the ‘taper tantrum’ back in 2013 when it markets reacted negatively to the news the Fed was putting the brakes on its QE programme. Still, in times like these, markets will be closely reading every word for signs of a shift in tone.
Daily Alert: US shares drift near record highs ahead of earnings and FOMC
27 Apr 2021
- US sharemarkets advanced on Friday after the release of strong economic data.
- Locally, New Zealand’s March milk production lifted 9.8% on the same month a year ago on a tonnage basis.
- We expect NZ recorded a $NZ304mn monthly trade deficit in March and the result means NZ’s annual trade surplus will continue narrowing to $NZ1.3bn after reaching record highs late last year.
Daily Alert: Wall Street lower on tax speculation
23 Apr 2021
- US sharemarkets moved lower overnight, following reports President Biden wants to increase capital gains tax.
- At the latest ECB meeting overnight, the bank kept policy settings unchanged and largely maintained a dovish stance.
- Another day with little of note in terms of Australasian data, with Aussie PMI readings at 11am breaking up an otherwise quiet day.
Daily Alert: Bank of Canada becomes first to signal a shift in tone
22 Apr 2021
- Overnight, bond yields eased back in Europe but are up in North America, as the Bank of Canada became the first major central bank to signal a move away from a dovish tone.
- Locally, yesterday’s marquee event was the NZ CPI data for Q1, which threw up few surprises for markets.
- Overnight, the ECB meeting will be the key event, with markets expecting policy settings to remain unchanged.
Daily Alert: Throwing it into reverse
21 Apr 2021
- Markets threw it into reverse overnight, with the strong market sentiment of late succumbing to more of a ‘risk off’ mood.
- The April RBA Board meeting was a low-key affair and so it was with yesterday’s Minutes.
- Last night’s GDT auction turned out a little weaker than futures markets expected and we’re expecting this morning’s NZ CPI to print just south of RBNZ expectations.
Commodities Weekly: ASB revises 21/22 milk price forecast to $7.50
21 Apr 2021
- Dairy prices were little changed at last night’s GlobalDairyTrade auction.
- The shape of the contract curve suggests prices maintain momentum heading into next season.
- We retain our $7.60 kgms forecast for the 20/21 season but have revised our 21/22 forecast up to $7.50 (from $7.30).
2021 Q1 CPI Review: Lower than expected starting point for RBNZ, but price pressures to build
21 Apr 2021
- Q1 CPI inflation in line with ASB and market expectations, but below the RBNZ pick. Tradable CPI increase was generally softer than the RBNZ expected.
- Looking ahead, we expect annual headline inflation to move above 2% for much of the rest of this year and next, as a perfect storm of stretched capacity, supply bottlenecks, and higher costs flow through in consumer prices.
- For now, we expect the RBNZ to remain patient and defer from raising the OCR until later next year.
Daily Alert: Stocks mark time ahead of key corporate earnings
20 Apr 2021
- Markets are awaiting corporate earnings data later this week for signs of a post-pandemic bounce.
- Clouds remain and there is scope for disappointment if these bullish expectations are not met.
- In local data releases, we have non-resident bond holdings for March (51.7% prior), followed by the GDT auction tonight (signs are pointing up) and tomorrow’s Q1 NZ CPI print.
Economic Weekly: The evolution of the rolling maul
19 Apr 2021
COVID’s rolling maul of unexpected economic challenges rumbles on.
The unusual nature of the post-COVID cycle has given rise to a series of issues no one could have foreseen. From an out-of-control housing boom, to fretting about how to restrain it, port logjams and broader supply chain difficulties…the latest issue to pop out of the maul is capacity constraints. Shortages, in other words. Not just of building materials and other (mostly imported) goods but, increasingly, labour.
These constraints are quickly becoming the number one issue for many of the firms we talk to, and they’re also becoming more obvious in the data. Take last week’s NZIER Quarterly Survey of Business Opinion (QSBO). Reported difficulties of finding skilled labour reached a 2-year high. Firms’ cost expectations over the coming quarter hit a high not seen since 2008. And the percentage of firms reporting sales/demand as the main factor limiting turnover fell to the lowest level since 1974.
Higher prices (inflation) and a squeeze on profitability are two of the more obvious macro implications. Both of these were on display in the QSBO. Labour shortages also support our growing sense that: a) unemployment will remain in the “4’s” this year rather than head back up through 5%, and b) wage inflation is set to accelerate from here. We’ve recently moved to explicitly factor higher wage inflation and lower unemployment into our published forecasts (see table).
Offering higher wages to attract staff will only work up to a point though, if the requisite workers simply aren’t available. Such is the reality of the closed borders and the recruitment issues parts of the agricultural sector in particular are having. This speaks to another consequence of a capacity constrained economy – lower output than otherwise. Some industries – notably construction and horticulture – are constrained to the extent that activity will have to be scaled back. This adds to the growth challenges we see for the economy this year. Still, whispers of ‘stagflation’ are premature. Next year is still shaping up to be a strong one given strengthening global tailwinds.
Overall, we’re left more confident in our view that inflation is set to lift this year, starting with Wednesday’s Q1 print. The key question everyone is asking though is how long-lasting the uptick in inflation will be. Temporary as the world’s central banks expect? Or less so, as market pricing for earlier stimulus withdrawal would imply. Uncertainty abounds, but we expect inflation to hold at higher levels than RBNZ forecasts (chart above), supporting our view the RBNZ will begin the stimulus withdrawal process in the back half of next year.
Daily Alert: Hello Aussie. Let’s get together!
19 Apr 2021
- Today is the day that we open the bubble with Australia; this has many economic implications.
- Locally, the Consumer Price Index (CPI) for Q1 2021 is due on Wednesday; we are expecting a 0.8% qoq outcome, slightly below RBNZ expectations of a 1.1% lift.
- Overseas, the RBA April meeting minutes are due on Tuesday, but with the April Board meeting being a low-key affair, the minutes shouldn’t spark too much action in Aussie financial markets.
Daily Alert: OK boomer
16 Apr 2021
- Markets are riding high on growing evidence the US economy is booming.
- Curiously, and despite this booming set of economic data, bond yields have notched up sizeable falls.
- Locally, this morning’s BNZ manufacturing PMI for March shouldn’t ruffle too many feathers, and should remain comfortably above the 50.0 level indicating expansion in the sector.
2021 Q1 CPI Preview: Firmer inflation outlook to be accommodated for now by RBNZ
16 Apr 2021
- We expect a 0.8% qoq increase in Q4 headline CPI, with annual headline inflation for 2020 edging up to 1.5%, the fourth consecutive quarterly sub-2% outturn.
- However, we expect annual inflation to push towards 2½% next quarter and to remain above 2% for most of the next year or so due to a combination of cost shocks and increasing capacity pressures in some pockets.
- The inflation outlook is still uncertain, with the RBNZ likely to defer from increasing the OCR until it is confident inflation will trend above 2% and the path of the economy and labour market are on a sound footing.
Daily Alert: No surprises from the RBNZ
15 Apr 2021
- The RBNZ left policy levers unchanged and maintained its dovish tone at yesterday’s Monetary Policy Review.
- It was a mixed session for sharemarkets overnight, as some equity indices eased off recent record highs.
- The key event today is the Aussie employment data while here in NZ, the latest REINZ house sales data are out at 9am.
Housing Insights: No hard landing for housing
15 Apr 2021
- No signs of slowing from March housing data, as they pre-date government announcements.
- We expect the market to cool from here.
- We’ve lowered our house price forecasts, but not aggressively so. There are still plenty of supports out there.
Housing Insights: No hard landing for housing
15 Apr 2021
- No signs of slowing from March housing data, as they pre-date government announcements.
- We expect the market to cool from here.
- We’ve lowered our house price forecasts, but not aggressively so. There are still plenty of supports out there.
Daily Alert: Markets look through higher US inflation readings
14 Apr 2021
- Overnight the focus for markets was US March inflation data, which did not disappoint with consumer prices jumping a stronger than expected 0.6% mom.
- Equity markets took the higher inflation print in their stride, with the S&P500 and Nasdaq touching record highs.
- Locally, the Q1 NZIER Quarterly Survey of Business Opinion (QSBO) signalled a low growth/higher inflation mix for the economy.
Commodities Weekly: The sweet spot
14 Apr 2021
- The NZD has continued to trade in a lower range in the last three weeks following the Government’s housing announcement.
- We still think the fundamentals support a higher NZD, and strong commodity prices are a big part of the story.
- It was another quiet week for the ASB Commodities Index.
RBNZ April Monetary Policy Review: The long and winding inflation road
14 Apr 2021
- The RBNZ reiterated that a higher OCR is a long way off and that it stands ready to add stimulus if needed.
- The global outlook is brighter, some pockets of inflation are appearing, but the housing outlook is unclear.
- We expect the RBNZ will be on hold until at least August 2022. There is a lot of water to flow under the bridge.
Daily Alert: GBP outperforms as Britons return to the pub
13 Apr 2021
- It’s been a fairly slow start to the week, with financial markets mostly continuing the consolidatory trend of last week.
- Meanwhile, in the UK, the clinking of pint glasses could be heard for the first time in three months.
- Locally, we’re looking for a second consecutive monthly fall in retail card spending figures, when March data is released this morning.
March 2021 NZ Electronic Card Transactions: Households take back seat despite March lift to card spending
13 Apr 2021
- March sees a pick-up in card spending, with favourable base effects pushing annual growth in card spending into positive territory.
- Nevertheless, card spending values were generally down in Q1, with households no longer driving growth and signalling the NZ economy was potentially back in recession in late 2020/early 2021.
- We expect card spending growth to cool over 2021, with the introduction of the Trans-Tasman travel bubble expected to provide a mixed blessing for NZ retailers.
Economic Weekly: Travel bubble boost and RBNZ interest rate angst
12 Apr 2021
The Reserve Bank of New Zealand’s (RBNZ) April Official Cash Rate (OCR) review on Wednesday is likely to be the key focus of domestic markets this week. The April OCR review is typically a one-page statement plus a summary of the Monetary Policy Committee’s meeting, and does not publish updated forecasts. The key focus of the RBNZ communication will keeping a lid on longer-term interest rate expectations - 10-year interest rates have jumped sharply in NZ and abroad over 2021. This lift has been supported by improved global financial market sentiment as the end of the COVID-19 pandemic seems in sight. And while that may be the case for the US, which could reach herd immunity within the next three months, there is still a long way to go in NZ before we can open the borders and return to normal. The RBNZ will be wanting to avoid a premature tightening in monetary conditions in NZ. The unexpected fall in December quarter GDP highlights the fragility of the NZ economic recovery over the year ahead. Read our full RBNZ preview here.
Last week, NZ has finally confirmed a reciprocal travel bubble with Australia. The announcement is likely to be some relief to those with friends and family across the ditch. It also opens the possibility for more New Zealanders to relocate back home from Australia. However, the hopes that it would also boost the numbers relocating from further abroad were dashed somewhat, as it was revealed that some of the MIQ facilities that have been used for ‘low-risk’ Australian arrivals are not appropriate to safely manage arrivals from higher-risk countries.
For the economy, our view is that the Trans-Tasman travel bubble will have limited net impact on the economy, with the possibility of a small positive. However, the bubble may only have limited benefits to the tourism industry. The bubble is more appropriate for those visiting friends and family, rather than holiday makers given there is the ongoing possibility of being stranded if there was a community outbreak. Given the relative frequency of outbreaks due to MIQ breaches in both in NZ and Australia over recent months, a short-term pause or suspension of quarantine-exempt flights is likely at some point. The Prime Minister has made it very clear that travellers need to be prepared for such a scenario. Nonetheless, to the extent that Australian visitors here to see family may also take the opportunity to visit some of NZ’s tourism highlights, the travel bubble may help shift some of the spending towards some of the regions which have been struggling due to closed borders. Over summer anecdotes suggest NZers preferred to holiday at the beach rather than Queenstown and the southern regions have been struggling. However, with winter approaching, Queenstown could be set for a solid ski season with the possibility of both NZers and Australians keen to hit the slopes given the lack of other winter holiday alternatives.
Daily Alert: At the inflection point with focus on the data
12 Apr 2021
- In a US media interview in the weekend, Fed Chair Powell noted the US economy was at an “inflection point” and poised for stronger growth due to rising vaccinations and powerful policy support.
- Last Friday was a snooze-fest for local markets, with the NZD trading in tight ranges, modest falls for longer-term NZ swap yields and slightly larger falls for NZ bond yields.
- There are no data releases scheduled for today locally, except a possibility REINZ releases its March housing data.
Daily Alert: Stimulus chat music to markets’ ears
09 Apr 2021
- It’s been another fairly quiet night in financial markets, continuing the theme of the week.
- Soothing words from policy makers about ongoing stimulus have been a key underpinning of the strength in market sentiment.
- A quiet day to end a quiet week is in prospect.
Preview of the RBNZ April Monetary Policy Review: Travel bubbles, housing troubles, outlook muddles
09 Apr 2021
- Developments since the February Monetary Policy Statement have been mixed.
- The global environment continues to look better, while domestically the housing market outlook is cloudier.
- The RBNZ’s message will remain that it is in no hurry to start unwinding the current monetary stimulus.
Daily Alert: Fed minutes stick to the dovish tone
08 Apr 2021
- Fed meeting minutes released earlier this morning reiterated the bank’s dovish tone and suggested there’s no sign of any tapering just yet.
- With the Fed sticking to recent themes, bond market reaction was relatively limited, while movements in sharemarkets have been mixed overnight.
- Locally, it is another quiet day on the cards with the provisional ANZ Business Confidence reading for April the main event.
ANZ Business Outlook Survey: Cost pressures intensify, firms fret about profits
08 Apr 2021
- Cost pressures continue to grow, putting upward pressure on pricing intentions.
- Business confidence holds up, along with encouraging levels of employment and investment intentions.
- Going forward, profitability remains key and rising costs could potentially derail the 2021 economic recovery.
Daily Alert: Trans-Tasman bubble from April 19, but flyer beware
07 Apr 2021
- Yesterday NZ Prime Minister Ardern announced that from 11.59pm on April 18 two-way quarantine free Trans-Tasman travel will resume.
- Global prospects continue to look up, buoyed by vaccine rollouts and the massive dollop of policy stimulus.
- The RBA held the cash rate and target on the 3-year Australian bond at 0.1% and maintained the broad parameters of the Term Funding Facility and the government bond purchase program.
Commodities Weekly: Dairy prices hold their gains
07 Apr 2021
- Prices were flattish at the GlobalDairyTrade auction overnight.
- Recent price gains have been led by strong demand from China, but this auction saw other regions return to the party.
- All-up, we retain our $7.60 forecast for the 20/21 season, and our $7.30 opening forecast for 21/22.
Markets Monthly: Financial markets remain mixed in March
06 Apr 2021
- During March we saw a couple of recent financial market themes take a breather.
- The big local news during the month was the Government’s housing policy announcements.
- During March the NZD lost the gains posted in February and weakened against the major currencies monitored in this report.
Daily Alert: US President Biden proposes US$2 trillion infrastructure spending plan
06 Apr 2021
- Last Thursday (NZT) US President Joe Biden unveiled yesterday the first of a two-part fiscal plan to raise US economic growth potential.
- US Non-farm Payrolls data last Friday showed the U.S. economy added more new jobs than expected in March.
- Meanwhile, we expect policy to remain on hold at the Reserve Bank of Australia’s announcement this afternoon.
Daily Alert: Markets in positive mindset ahead of Biden speech
01 Apr 2021
- Markets traded with a generally positive tone ahead of this morning’s speech by US President Biden on US infrastructure spending.
- Locally, the full March reading of the NZ ANZ business outlook showed a modest fall in most of the activity metrics from the survey (apart from climbing employment intentions) pointing to slowing momentum.
- In data releases, a slew of manufacturing PMI data is out for China, the UK, Eurozone, US (ISM manufacturing and manufacturing PMI), along with US initial jobless claims (mkt: 675k) and March payrolls data (mkt: +650k, prior 379k).
Daily Alert: Looming boost to US infrastructure buoys markets
31 Mar 2021
- The rapid rollout of Covid-19 vaccines and the prospect of additional US government spending continued to buoy markets overnight.
- Adding to the positive theme was the stronger than expected lift in US consumer sentiment, with headline confidence on the Conference Board measure hitting 109.1 (mkt: 96.9, prior 90.4), its highest level in a year.
- Locally, NZ borrower Kainga Ora (HNZL) is due to come to market with $NZ100m of supply that should be well supported.
Commodities Weekly: Shooting up
31 Mar 2021
- NZD forestry prices have lifted strongly over recent months.
- The strength of the forestry sector looks to be benefitting regional New Zealand.
- Meanwhile, a weaker NZD saw the ASB Commodities Index manage a decent lift in local currency terms last week (+1.4%), edging back towards record highs.
Daily Alert: Global shipping gets its groove back?
30 Mar 2021
- Yesterday ended with a good news story, with the massive container ship Ever Given dislodged from the banks of the Suez Canal.
- Equities were mixed overnight, as markets weighed optimism over global trade and the US vaccine rollout against the news that a single investment firm was behind a series of block trades last week.
- In the local market yesterday, the NZ sharemarket managed a modest lift.
Economic Weekly: Housing front and centre
29 Mar 2021
Notwithstanding the global pandemic, the NZ housing market has hogged the local media headlines as well as the domestic political and market narrative. House price inflation is rampant (22% yoy and climbing). There is the view that the circa $1.5 trillion housing market has become a one-way bet, benefitting property owners and bolstering investor demand at the expense of those wanting to get onto the housing ladder. Something needed to be done.
Last week, the Government rolled out a trifecta of policies to bolster housing affordability and provision (see our take). Ultimately, we need to build more homes, but it will take time for the $3.8bn Housing Acceleration Fund to bear fruit. In the interim, the Government has moved to slow the buying demand from residential property investors, who typically account for around 30% of all property purchases and own more than 600,000 rental properties. Moves to extend the bright-line test from 5 years to 10 will effectively see a longer lock-in period for property investors and fewer property sales.
However, the policy that caught the most attention was the removal of interest rate deductibility from investor housing. Starting from October this year, deductibility will be reduced in 25% increments and will be fully phased out by April 2025. This policy will generate a significant amount of additional tax to be paid by property investors and will weigh on investor cashflows. The nationwide impacts would be in the region of $0.5-$1bn per annum according to our estimates. The impacts will uneven and will hit property investors with higher levels of debt and smaller cashflow buffers. It will lower the purchase price for dwellings that investors would be willing to pay. It could also trigger widespread increases in dwelling rents as landlords seek to recoup higher after-tax costs.
There could be more to come. In May the RBNZ will be reporting back to the Government on whether to impose debt-to-income limits and to curb interest-only mortgage lending for investors. Considering more than 40% of investor lending over the past year was interest only, the impacts on investor cashflows and demand could be sizeable.
What will be impacts of these policies be? The simple answer is that we do not know at this early stage. Our initial thinking is that house price growth will slow more sharply than we had factored in, but that the policies will not necessarily trigger outright price falls. Broader economic activity would also be weaker than it would otherwise be, while higher rents could add to NZ CPI inflation. We will be closely monitoring the housing market over the next few months with a focus on property listings, sales volumes, house prices and dwelling rents. Stay tuned. mark.smith4@asb.co.nz.
Daily Alert: Another week, another record close for US sharemarket
29 Mar 2021
- US sharemarkets climbed on Friday on optimism over the vaccine rollout, while investors rebalanced portfolios ahead of quarter-end.
- Global oil prices rose 4% on Friday on concerns that global supplies of crude and refined products could be disrupted for weeks as workers try to dislodge a massive container vessel blocking the Suez Canal.
- Locally, February building consents data are due on Tuesday, and the ANZ Business Outlook results are due on Wednesday.
Regional Economic Scoreboard: A tale of two islands
29 Mar 2021
- Northland retains its top spot – with almost five percent job growth year on year.
- North Island still outperforming the South Island.
- Housing and construction boom fueling growth.
Daily Alert: Latest US data surprises on the upside
26 Mar 2021
- US economic data overnight was positive overnight.
- It was another mixed session in the Asia-Pacific equity market yesterday, but the NZX and the ASX were among the winners.
- No major data of note out in NZ or across the ditch, with other international headlines – like the latest developments in the Suez and North Korea – likely to generate more attention.
Daily Alert: Return to normality
25 Mar 2021
- Markets traded in a sideways fashion overnight, with few catalysts to see a marked change in tone.
- The retracement in global yields continued as markets distanced themselves from the reflation thematic of higher yields and steeper curves.
- NZ yields continued their post housing announcement slide yesterday, with outsized moves for longer-term maturities.
Changes to housing policies: Housing investors singled out for special treatment
25 Mar 2021
- The Government has recently announced three policies to bolster housing affordability and provision, primarily by acting to slow investor demand.
- These changes present a headwind to property investor demand, particularly for highly-indebted investors with stretched cashflows. The impacts are more manageable for established investors who are not as highly geared.
- Our economic and house price forecasts are under review.
Daily Alert: Housing announcements take wind out of NZD’s sails
24 Mar 2021
- There’s been a significant financial market reaction to yesterday’s government announcement of a package of measures designed to restore balance to the NZ housing market.
- It is now likely that house price inflation will slow at a faster rate from here than our prior forecasts allowed for, and the risk house prices experience outright falls later in the year has increased.
- Overnight, sentiment wobbled a little as investors cast a wary eye over reviewed lockdown measures in parts of Europe and the implications for global growth in Q1.
Commodities Weekly: Dodging drought, a dairy deluge
24 Mar 2021
- The latest DCANZ data showed milk production growth well up over February.
- Accordingly, we have nudged up our forecast for the end of the season, and now expect production growth in the 1.4% range – a record result.
- Meanwhile, a bit of softening in dairy prices saw the ASB Commodities Index ease last week.
Daily Alert: Tech shares lift on falling yields
23 Mar 2021
- There were broad gains for equity markets overnight, led by strength in tech shares.
- Equities were boosted, in part by a softening in yields overnight.
- There are no data released scheduled for today in NZ or Asia, although the Government’s housing announcement this morning will in focus for what actions the Government takes.
Economic Weekly: GDP sidelined as global rates battle royale rages
22 Mar 2021
Last week’s GDP figures came and went with little fanfare. Barely a zephyr rippled through financial markets as Stats NZ reported the NZ economy went backwards to the tune of 1% in the fourth quarter of 2020. The currency held all of its recent gains and interest rate markets went on pricing a >50% chance of an RBNZ rate hike in February. Admittedly, there were probably a few on a Thursday go-slow in the wake of Te Rehutai’s Wednesday exploits. But still.
It’s a sign of the times that such a weak set of data, indeed much weaker than expected, were largely ignored. And yet, it was the correct reaction in our view. There was always going to be some chop as the economy re-set itself following the 14% post-lockdown surge of Q3. And there’s every chance we see another negative quarter in Q1 as the closed borders continue to weigh heavily on some sectors. While this would mark another ‘technical recession’ (awful language we know, particularly for those feeling its effects most acutely), our broader economic and interest rate view hasn’t changed. 2021 still looks like a year of flattish consolidation for the economy, with 2022 being “our year”.
The more influential news last week was actually offshore. The arm wrestle between markets keen to price higher and steeper yield curves, and central bankers trying to hold them back, stepped up a notch. The global reflation story has been the big theme of 2021 and, as the chart shows, is a key driver of the uplift we’ve seen in NZ wholesale interest rates. Indicative of such, 10-year swap yields closed last week around 10bps higher, despite the weaker NZ economic data.
We saw central banks in Australia, the US, and the UK all trot out similar iterations of the tightly clung-to line that interest rates are going nowhere until they are totally convinced inflation and/or employment targets are being met, not just on a forecast basis, but in real-time. This is occurring even as central banks continue to put through chunky economic forecast upgrades, as both the BoE and Fed did last week. Only one side can ultimately win the arm wrestle of course, and our sense is that markets probably have the upper hand. This underpins our forecasts for NZ wholesale yields continuing to rise, on a trend basis.
It’s more famine than feast on the economic data front this week. However, we’ll be keeping our eyes peeled for government announcements on whether an April Trans-Tasman travel bubble will go ahead, as well as a package of measures designed to address rampant house price inflation. mike.jones@asb.co.nz
Daily Alert: Big tech stocks lift amongst broader sharemarket weakness
22 Mar 2021
- US-China political tensions increased at a summit in Alaska, and US sharemarkets were mixed on Friday.
- The Bank of Japan made tweaks to some of its policies but made no changes to its price stability objective and inflation overshooting commitment last week.
- The US Federal Reserve's announcement that it would let a temporary bank leverage rule exemption expire on March 31 initially pushed US 10-year yields up to fresh 14-month highs near 1.75% before easing back to near 1.73% at the close.
Markets Monthly: Yields keep lifting and NZ sharemarket struggles on
19 Mar 2021
- Two key themes in financial markets have continued to assert themselves over February and the beginning of March: rising long-term yields and sharemarket volatility.
- International sharemarkets were volatile but overall positive in February; by contrast, the New Zealand sharemarket continued to underperform over February.
- In currency markets, the NZD was strong over February, supported by the prospect of higher relative interest rates and whopping commodity prices.
Daily Alert: NZ economy shrinks over 2020 as COVID-19 headwinds blow
19 Mar 2021
- NZ yields dipped after the larger than expected 1.0% quarterly fall in Q4 NZ GDP, with the NZ economy shrinking 0.9% over 2020.
- Overseas, the Bank of England (BOE) maintained policy settings, holding its major policy rate at 0.1%, leaving its £895bn QE programme unchanged.
- Some time today is the Bank of Japan policy decision, with markets looking for whether the BoJ might modestly widen its target band for the 10yr JGB yield from the current +/-20bp.
Daily Alert: Fed pushes back on rate hike expectations and it is still NZ’s cup
18 Mar 2021
- As was widely expected, the US Federal Open Market committee (FOMC) maintained its existing policy settings.
- The dovish Fed assessment weighed on the USD, Treasury yields dipped across the curve and US equity indices lifted.
- There was limited market reaction after NZ Q4 current account deficit came in at 0.8% of GDP, in line with expectations and the smallest calendar year deficit since 2002.
Q4 2020 GDP Review: NZ economy stumbles after Q3 surge
18 Mar 2021
- StatsNZ estimates that GDP fell 1% in Q4, much weaker than economists expected.
- Q4 GDP is down 0.9% compared to year-ago levels and pre-pandemic levels. The unexpected fall in Q4 GDP suggests the NZ economy has not fared as well as previously believed through the COVID-19 pandemic.
- The Q4 GDP result will quash any talk of rate hikes. We expect the OCR to remain on hold for the rest of the year. If further stimulus is required, it would be most effective through targeted fiscal policy given the uneven impacts of COVID-19 on the economy.
Daily Alert: Dairy markets still on the foils, ASB lifts its forecast
17 Mar 2021
- Last night’s GDT dairy auction revealed the expected pull-back in dairy prices following their 15%-odd surge of a fortnight ago.
- Overnight, offshore markets marked time ahead of tomorrow morning’s Federal Open Market Committee decision.
- In the wake of yesterday’s Feb RBA Board minutes, our CBA colleagues have dropped their prior expectation that the RBA would remove its 3-year 0.1% bond yield target in H2 2021.
Commodities Weekly: ASB revises milk price forecast for 20/21
17 Mar 2021
- There was a bit of correction at last night’s GlobalDairyTrade auction.
- We have revised our forecast for the 20/21 season to $7.60 but retain our $7.30 view for 21/22.
- Meanwhile, the ASB Commodities Index continued its strong run last week.
Rural Economic Note: ASB revises 20/21 milk price forecast to $7.60 KGMS
17 Mar 2021
- Dairy prices remain very high despite a modest bit of correction overnight.
- We have revised our milk price forecast for the 20/21 season from $7.40 to $7.60, retaining our $7.30 view for 21/22.
- In other dairy news, Fonterra’s half-year financial results show a profit of $391 million.
Daily Alert: Chinese data point to strengthening recovery
16 Mar 2021
- US Treasury yields also eased down a shade overnight, as the reflation trade took a pause.
- Two points of February data from China yesterday pointed to the continuing strength of the Chinese recovery.
- There is nothing in the way of major domestic data out, with the only local release being card data for January from the RBNZ.
Economic Weekly: A big week looms
15 Mar 2021
It’s a packed calendar for events this week, with a number of key developments we’ll be watching out for.
First up, it’s a big week for dairy markets, with Tuesday night’s Global Dairy Trade auction set to be one of the most closely watched such events in a long time. At the last auction, prices lifted through the roof with whole milk powder up an astonishing 21% on the previous auction. A bit of moderation might be on the cards at this auction, with Fonterra lifting the volumes on offer, but we expect dairy prices to remain supported, with growing Chinese demand continuing to outstrip supply. Keep an eye out for an update on our milk price outlook for the season post-auction.
Offshore, it’s a packed week in the world of Central Banking, with the Federal Reserve Open Markets Committee meeting on Thursday morning NZT. There is unlikely to be any changes to any of the Fed’s key policy settings but will still be an interesting watch given market developments over recent weeks. With the global economic outlook steadily improving, a further spending spree on the way in the US and commodity prices on the move, markets no longer view higher inflation as such a distant prospect and speculation has begun mounting around when policy makers will begin unwinding all that stimulus. To that end, wholesale interest rates have moved up sharply over the first quarter.
Policy makers are wary of the risks that premature tightening has for the recovery. In public comments by officials, the typical central bank line of late has been some variation of “yes, the economic outlook has improved of late,” but with a heavy caveat along the lines of “we are still a long way from our maximum employment target” and/or “there’s an awful lot of uncertainty out there and we are committed to a least regrets approach.” That’s usually accompanied by a judicious bit of finger wagging at financial markets for pricing in rate hikes earlier than policymakers think is desirable.
Conscious of the need to balance acknowledging reality with stemming the move up in yields, we expect the Fed to keep singing from that song sheet. Still, markets will be carefully watching for whether any committee members project a higher Federal Funds rate in the next two years.
But of course, the week’s marquee event will be NZ’s Q4 GDP release on Thursday at 10.45am. After Q3’s monster comeback, we expect the NZ economy took a pause for breath, declining by 0.1% qoq. The expected decline in some sectors appears to be due to production returning to business as usual after a glut of post-lockdown overtime. Still, NZ GDP is likely to remain above pre-pandemic levels – a creditable performance. You can read our full GDP preview here, and stay tuned for our review on Thursday.
Daily Alert: NZ comes out of the latest lockdown, while Italy heads back in
15 Mar 2021
- Global investor sentiment was supported by US President Joe Biden’s signing of the two trillion-dollar stimulus package on Friday.
- The NZSX 50 rose 1.3% on Friday, while NZ 10-year Government bond yields ended the week down 20 basis points at 1.73%, and down 14 points at 1.05% for the 5-year bond.
- Meanwhile, we expect data on Thursday to show Q4 NZ GDP contracted by 0.1%, with the quarter’s GDP just 0.1% above year-ago and pre-pandemic levels.
Daily Alert: Clearing the final hurdle
12 Mar 2021
- Yesterday, the US stimulus package cleared its final political hurdle, passing the House of Representatives by a 220-211 margin.
- Turning to the world of monetary policy, overnight the ECB committed to ramp up its bond purchases in a bid to cap rising yields.
- Locally, yesterday’s REINZ data provided yet more evidence of mammoth domestic house price inflation.
Housing Confidence: All that glitters is not gold
12 Mar 2021
- Kiwis have never been more confident house prices will keep rising.
- But buying sentiment is crumbling as affordability is stretched further.
- It’s a challenging mix for policy-makers. But we think housing momentum is likely to level off soon.
Q4 2020 GDP Preview: Take a breather
12 Mar 2021
- We expect Q4 GDP declined 0.1% qoq, as the NZ economy caught its breath following the stunning recovery over Q3.
- NZ GDP will still be above pre-pandemic levels in Q4 and one of the strongest economic performers among our key trading partners.
- GDP activity looking flat over summer, but the 2022 outlook is now looking brighter.
Daily Alert: Equities up as US stimulus nears
11 Mar 2021
- Recent trends toward softer equities, rising yields and USD strength all continued to come under pressure.
- US inflation data for February was out overnight and came in broadly in line with expectations at +1.7%.
- Locally, yesterday’s NZ electronic card transactions data showed border restrictions continue to crimp spending.
REINZ Housing Data: Summer scorcher
11 Mar 2021
- House price inflation heads into the 20’s.
- Partly a dash to beat LVR restrictions?
- We look for the pace of house price inflation to slow from here.
Farmshed Economics: On the up
11 Mar 2021
- After the chaos of 2020, which saw prices for many goods crash or flatline, we’ve begun the new year with some sizable lifts.
- Markets are increasingly pegging a surge in economic activity once vaccine uptake is widespread and it’s safe for restrictions to ease.
- Prices for many of the agricultural products we monitor are also on the rise though the situation is a bit more complicated.
Daily Alert: Back the truck up
10 Mar 2021
- There’s been a classic flip-flop overnight; the recent trends for weaker stocks, higher yields, and a stronger USD were all thrown into reverse.
- The main ‘news’ in yesterday’s March preliminary ANZ business confidence survey was the ongoing march higher in inflation indicators.
- Locally, we’re expecting another small fall (1.5% mom) in NZ retail card spending figures (10:45am), this time for February.
Home Economics: Simmer down
10 Mar 2021
- Pace of house price increases to slow from here.
- As mortgage rates bottom and LVR restrictions return.
- We don’t expect outright falls in house prices. The housing shortage is easing only gradually and mortgage rates are not about to race higher.
Commodities Weekly: On a tear
10 Mar 2021
- Last week saw huge gains for the ASB Commodities Index, underpinned by a mammoth dairy auction.
- NZD prices in our index are now nearing their highest level since it began; we expect the index to remain high over the medium term.
- Given the sharp lift in commodity prices, further strength in the NZD is likely too.
Feb 2021 NZ Electronic Card Transactions: Card spending cools as tourism headwinds intensify
10 Mar 2021
- Card spending falls in February as the border restrictions on tourism and the lift in Covid-19 alert levels impact, with total card spending down a whopping 8.1% over the last 12 months.
- Kiwi’s love affair with durable spending continues, but most other subgroups feel the pinch.
- We expect moderate growth for card spending over 2021 given sharply slowing population growth.
Daily Alert: Imminent passage of USD1.9 tr fiscal package bolsters sentiment
09 Mar 2021
- Markets traded with more of a positive tone overnight, bolstered by the pending introduction of massive US fiscal stimulus.
- Government bond yields generally firmed on expectations of economic recovery and concerns over the rise in inflation.
- Locally, NZ business employment and manufacturing data will be pivotal for Q4 NZ GDP.
ANZ Business Outlook Survey: Rising costs to push consumer prices higher
09 Mar 2021
- Cost pressures continue to grow, putting upward pressure on pricing intentions.
- RBNZ will look through short-term cost-push spike in inflation while broader economic demand remains below average.
- Business confidence steady in early March on a seasonally-adjusted basis.
Economic Weekly: NZ vaccinations to reduce risk of another Valentine’s day COVID-19 heartbreak
08 Mar 2021
As Auckland enters back into Alert Level 2 and NZ back into Alert Level 1 this week, fingers and toes remained crossed that we don’t see any additional unexplained community cases again. With the NZ vaccination campaign now underway for border workers, the risks of further breaches into the community will reduce over the coming months. Our chart of the week compares NZ and Australia’s vaccination progress (% of population), although note that NZ’s figures are only updated weekly. On Wednesday last week, NZ and Australia had both managed to vaccinate 0.2% of their populations. But the road to the end of the pandemic remains long and treacherous and, with NZ reliant on offshore producers for vaccines, Italy’s recent move to block exports of COVID-19 vaccines to Australia is a concerning development for NZ.
This week, February electronic card spending data will reveal the impact of the initial lift in Alert Level restrictions from Valentine’s day outbreak. Spending in February 2021 will likely be well down compared to February 2020 for three reasons:
1) The rise in Alert Levels from the initial response to the Valentine’s day outbreak.
2) The reduced number of overseas visitors weighing on tourism-related spending.
3) February 2020 had an extra day as it was a leap year (which all else equal can reduce spending by 3.4%).
Normally we can rely on StatsNZ’s seasonal-adjustment to take into account of leap years, but StatsNZ has not been able to consistently produce seasonally-adjusted figures over recent months due the dramatic changes in spending patterns brought about by COVID-19.
Our own internal data show that for most weeks during February, household spending was running comfortably ahead of year-ago levels and was particularly strong over Waitangi Weekend. However, spending did drop below year-ago levels during the week with Auckland at Alert Level 3 for 3 days and the rest of the country at Alert Level 2. Card sending over the subsequent week did return to around normal levels, but did not compensate for the previous week’s drop.
Daily Alert: US employment keeps lifting, Chinese exports slump, global yields keep rising higher
08 Mar 2021
- In US economic data, Non-farm Payrolls (employment) rose by 379,000 in February, stronger than analysts’ expectations.
- US sharemarkets rebounded from lows in a volatile session on Friday, and US longer-term treasuries yields also pressed higher.
- Locally, the March preliminary reading of ANZ’s Business Outlook Survey is due out on Tuesday.
Home Loan Rate Report: Mortgage rate turning point
08 Mar 2021
- The resilience of the local economy over the second half of 2020 and the prospects of more improvement over 2021 impacts our outlook for interest rates, including mortgages.
- Our forecasts suggest we could be around the low-point for mortgage rates.
- Borrowers are prudent to plan to deal with higher interest rate costs over the long run, rather than budget on rates remaining this low indefinitely.
Daily Alert: Interest rates spike higher again as central bankers disappoint
05 Mar 2021
- Regular service resumed in local interest rate markets yesterday, with the NZ yield curve rising and steepening again.
- A RBNZ speech yesterday didn’t contain any particularly new information, but Governor Orr did expand a little more on how the Bank might respond to its new directive to support government housing policy.
- Cabinet will make a decision today on whether NZ will shift back down COVID alert levels on Sunday morning.
COVID-19 Chartpack
05 Mar 2021
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Inflation Watch: How prolonged will the lift in inflation be?
05 Mar 2021
- We expect annual headline CPI inflation to end up close to 2½% by the end of 2021 as cost shocks and demand pressures from selected pockets filter through into consumer prices.
- Overall annual headline Inflation is set to cool over 2022 as some transitory influences fade, although we don’t think the fall in inflation will be as marked as the RBNZ assumes.
- The inflation outlook beyond 2021 is highly uncertain. We will be keeping close tabs on surveyed inflation expectations, capacity gauges and other indicators of pricing pressures.
Daily Alert: Bond yields rise as optimism and inflation stirs
04 Mar 2021
- The period of market consolidation proved to be short-lived with a renewed bout of volatility in US Treasury yields overnight.
- Meanwhile, global equities were a mixed bag.
- Locally, there could be some market headlines from RBNZ Governor Orr’s speech after 9.15am this morning.
Term Deposit Report: Longer-term rates lift, short terms stay anchored
04 Mar 2021
- Low interest rates have been helping borrowers and frustrating savers over recent years.
- Term deposit interest rates were steadily trimmed over 2020 and are significantly below the average levels of the past 10-15 years.
- While we appear to be turning a corner in early 2021 and have seen a lift off the lows for the longer-term rates over the past month, we still expect term deposit interest rates to remain significantly below historical averages over the coming years.
Daily Alert: Frothy developments
03 Mar 2021
- Financial markets have continued to consolidate over the past 24 hours following the bond market craziness of late last week.
- Helping keep a lid on yields yesterday was RBNZ Assistant Governor Hawkesby who joined the chorus of central bankers hitting the wires recently to lean against the big rise in bond yield.
- Locally there’s a bunch of second tier data that markets will largely ignore (ANZ commodity prices & building consents), but in Australia fourth quarter GDP will be in focus.
Commodities Weekly: March madness
03 Mar 2021
- Dairy prices have kicked off the month with an astonishing lift at the latest GDT auction with price gains far beyond market expectations.
- We expect prices to moderate at least little, over subsequent auctions, but ‘when’ and ‘how much’ are big questions.
- The farmgate milk prices for both 20/21 and 21/22 could finish up to 20c higher than we have currently forecast.
Residential Building Consents and Housing Construction Outlook: Housing construction demand continues to climb
03 Mar 2021
- NZ housing construction demand continues to climb, with building consents issued in January 2021 up 18% on year-ago levels.
- While NZ is enjoying a building boom, the NZ housing market is still under-supplied.
- We expect housing construction to remain elevated over the coming year.
Daily Alert: Rollercoaster ride continues
02 Mar 2021
- The rollercoaster ride in global markets continued overnight, with solid global manufacturing data and hopes of impending economic re-openings bolstering sentiment.
- The US February ISM manufacturing index surged to 60.8, its highest level in 3 years and equal highest reading since 1987.
- Locally, NZ merchandise Terms of Trade are expected to recover some of their Q3 decline and remain at historically-high levels.
Q4 2020 Terms of Trade: Continuing the comeback
02 Mar 2021
- NZ’s Terms of Trade lifted by 1.3% over Q4, recovering some of the ground lost by the sharp fall in Q3.
- Both export and import volumes rose, continuing their comeback after their COVID-induced disruption in the first half of last year.
- NZ’s goods Terms of Trade remain at historically high levels, with the resilience of the goods export sector helping support the ongoing recovery.
Economic Weekly: Bringing out the f-word
01 Mar 2021
What seem like inconsequential decisions at the time can ripple through to have major consequences. A decision Saturday to defer a zoo visit until Sunday triggered an awkward explanation in the morning to a houseful of expectant kids, with some frustration about “coronavirus” manifesting at times during a more housebound day. That scene played out in a much more serious scale for the country over the weekend as events were abruptly cancelled in response to the continued growth in the current community cluster, with “frustrating” being the official word from the top to describe what has led NZ back into this week’s lockdown restrictions.
Our back-of-the envelope mechanical calculations suggest L3 Auckland/L2 elsewhere lockdowns carry a weekly cost of around $240 million – though note this estimate does not account for any catch-up activity after lockdown conditions get loosened. This lockdown (Lockdown 3.1 or 4.0?) is likely to be proportionately larger in its impact than the mid-February one, as it includes parts of 2 weekends. It is the services sector – particularly hospitality and events – that bears the brunt of the impact, even if contactless sales do enable some venues to open during people’s leisure time.
That sum could be well off the mark. Nevertheless, it serves to highlight the value in spending money to do what we can to minimise the ‘human factors’ part of the whole process, to ensure that the right people isolate appropriately and they are supported while they make a sacrifice for the wider community. Life in a time of pandemic is a constant learning opportunity – let’s hope we can collectively refine how we manage our way through. It’s a long time to hold on until the next season of Bridgerton is out.
The data calendar has a few updates this week for how some of NZ’s more robust sectors travelled through the closing stages of last year and early parts of this year. Our goods Terms of Trade (export prices relative to import prices) should show a Q4 lift of around 1.7%. That would put NZ’s international purchasing power back only 3% below the record high set just last year. That’s a pretty impressive performance in the midst of a global pandemic and it’s helping to offset the hit to export sectors bearing the brunt of the continued border closure. Building activity is another area of the economy that has held up. Friday’s building work put in place release will show whether the sector continued to grow after rebounding sharply post-lockdown, with non-residential work still having scope for more catch-up. Wednesday’s building consent figures will provide an update on the pipeline of work that will get underway this year. Unsurprisingly, residential consents have been on a tear of late given the heat in the housing market. nick.tuffley@asb.co.nz
Daily Alert: Next round of US stimulus gets closer as wholesale rates continue their climb
01 Mar 2021
- Over the weekend, the US House of Representatives approved the $1.9 trillion stimulus package championed by President Biden, taking the bill one step closer to fruition.
- Global bond yields eased a shade on Friday but remained well up over the week while share markets were lower across the board on Friday.
- The key international event this week is the RBA’s interest rate announcement on Tuesday afternoon.
Daily Alert: Wall Street hit by tech sell-off, rising yields
26 Feb 2021
- A sizable sell-off in tech shares hit Wall Street overnight while yields continued their climbs overnight, with some sizeable lifts.
- The market moves are being driven in part by the latest US economic data, which has been strong.
- Upcoming data releases will take a backseat to the political developments in the US, where House Democrats are set to pass their $1.9 trillion stimulus package, sending the legislation to the Senate to approve next week.
Daily Alert: RBNZ updates its outlook, but keeps the dovish tone
25 Feb 2021
- At the RBNZ’s first Monetary Policy Statement of the year, the bank acknowledged the better position of the NZ economy, but sought to hold a dovish line, despite viewing the risks to the economic outlook as now being more balanced.
- The local market focused more on the RBNZ’s improving baseline scenario than its efforts to tow a dovish line.
- The NZD made solid gains yesterday in the aftermath of the RBNZ announcement and remained the standout performer overnight, lifting against all of its G10 peers.
Daily Alert: Dousing the flames
24 Feb 2021
- Higher yields and steeper curves have been the global dynamic over the past few weeks as vaccine developments and rollouts have provided light at the end of the tunnel.
- Central bankers have tried their best to douse fears that the global economy is overheating.
- Today’s RBNZ decision looms; we expect that the RBNZ will do its best to hold back the tide by highlighting the risks and uncertainties to the outlook.
Commodities Weekly: Supercycle me
24 Feb 2021
- Prices for most commodities have risen markedly over recent weeks.
- Talk of a new commodity price ‘supercycle’ is getting a lot of speculation.
- Meanwhile, in line with the trend towards higher commodity prices of late, most components of our index posted gains in USD terms last week.
RBNZ OCR and Monetary Policy Statement Review Feb 2021: Holding back the incoming interest rate tide
24 Feb 2021
- The RBNZ kept the OCR at 0.25% and emphasised that “prolonged monetary support” remains necessary.
- The RBNZ is wary about how much underlying strength the economy has after such a robust 2020 rebound.
- We expect the RBNZ will gradually start lifting the OCR from August 2022
Q4 2020 NZ Retail Trade Review: Q4 pullback in retail from record surge
23 Feb 2021
- Pullback in retail volumes after their record Q3 surge, leaving retail volumes close to 5% higher over 2020.
- The retail sector in general has been considerably stronger than envisaged in the depths of the COVID-19 gloom last year. Durable retail has been the clear standout.
- The outlook is for a less volatile period of retail activity but for more modest growth over 2021. Business spending will need to step up to provide more backbone to the expansion we see unfolding over the next few years.
Economic Weekly: Are we going the right way?
22 Feb 2021
Financial markets are nervously awaiting the Reserve Bank’s policy decision on Wednesday afternoon. ‘Nervously’ because it’s been a long time between drinks. The last such decision was on November 11. More importantly, a lot has happened in that time. The global vaccine roll-out has begun in earnest, global inflation is ‘a thing’ again, NZ economic activity has clearly exceeded RBNZ expectations and…NZ house prices have risen another 8%.
All of this has led to some big changes in market pricing. Negative rates chat has been shelved and yield curves have risen and steepened everywhere as markets around the world have looked ahead to a COVID-less world. Local wholesale interest rates are between 10 and 90bps higher than November. The currency is about 4% stronger.
But investors are now wondering whether the RBNZ will entirely share this upbeat assessment. After all, financial markets and the central bank have not always seen eye-to-eye in the past when it comes to assessing the run of the economic green. It’s about validation – akin to my toddler racing up a side street on her bike, before checking herself and throwing back a look of “Am I going the right way?”
An inclination from the RBNZ to play conservatively – more Kane Williamson than Brendon McCullum – risks some reversal of the recent big lift in wholesale interest rates and NZD/USD. Our view, outlined in our preview, is that the Bank’s emphasis will be more on the downside than the up. COVID is a marathon, not a sprint.
But the Bank will have to acknowledge and upgrade its economic forecasts to reflect the stronger run of data since November. And, whatever the wash-up on the day, our view is that the trend has indeed turned. We now expect the first OCR hike next year. Our updated interest rate forecasts have the recent uptrend (slowly) continuing. The risk profile facing the currency is similar – see the Special Topic of our latest Corporate Hedging Toolbox. The point for Wednesday is that there is more potential for volatility than usual, something for risk managers to bear in mind.
Finally, all of the above seems a little inconsequential given today we mark ten years since the devastating 2011 Canterbury earthquake. Our thoughts are firmly with the people of Christchurch and all those affected.
Quarterly Economic Forecast: We’ve come a long way, baby
22 Feb 2021
- It has been a wild journey over the past year, from a sharp contraction through to a strong rebound.
- After 2020’s swift snap back, 2021 is likely to see very modest growth while the borders remain closed.
- Interest rates are around their lows and could rise next year – but there is still policy support in reserve.
Daily Alert: Yields rise as the RBNZ meeting looms
22 Feb 2021
- The RBNZ meeting on Wednesday afternoon is the big focus for the week ahead.
- The improving economy is putting a lot of upward pressure on long term bond yields and swap rates and the RBNZ’s take on things is keenly anticipated.
- On Tuesday we expect Q4 retail trade volumes to modestly decline circa 1% on the Q3 level, which would still be a strong result considering the massive catch-up in spending that occurred over the third quarter.
Markets Monthly: Yields rocket higher & shares are mixed in early ’21
19 Feb 2021
- Government bond yields in NZ, Australia and the US continued to rise over January and February and are now well above the all-time lows set in Q3 2020.
- Sharemarkets were mixed in January, with Australian and Japanese indices posting modest gains, but US shares dipping over the month.
- Locally, the first RBNZ meeting takes place on 24th February; the central bank is expected to hold the OCR steady at 0.25% at this meeting, and over the course of 2021.
Daily Alert: The bond market giveth, and the bond market taketh away
19 Feb 2021
- Global equity markets’ barnstorming run hit a small speedbump overnight, contributing to a slightly more cautious tone across broader financial markets.
- The ongoing sell-off in global interest rates is also starting to pose some headwinds for stock markets.
- In our time zone, Aussie retail sales for January are expected to register a decent bounce (market & CBA forecast +2% mom) from December’s weakness.
COVID-19 Chartpack
19 Feb 2021
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- As the global vaccine rollout gets underway, we have added a couple of new charts to track the next stage in the pandemic.
Daily Alert: Latest US data exceed expectations
18 Feb 2021
- Following the government’s announcement yesterday, New Zealand has stepped down COVID alert levels.
- In the aftermath of the positive data prints, US Treasury yields have continued to oscillate near one-year highs.
- Meanwhile, we have revised our OCR outlook; we now expect the RBNZ to begin gradually lifting the OCR from the second half of 2022, with August 2022 as our tentative starting point.
Daily Alert: Return of reflation trade boosts yields
17 Feb 2021
- The reflation trade looks to be back in vogue with the economic outlook bolstered by the prospect for more US fiscal support and increasing vaccine rollouts.
- The latest global dairy trade auction was a ripper, with the GDT price index up 3%.
- NZ January housing market data remained robust, with annual house price inflation lifting to 19.2%, its highest since 2004.
Commodities Weekly: Gangbusters
17 Feb 2021
- It was a whopper of a dairy auction overnight, as strengthening demand pushed prices up across the board – but particularly for whole milk powder.
- Looking ahead, we open our forecast for the 21/22 season at $7.30.
- Meanwhile, it was a quiet week for the (predominantly) agricultural ASB Commodities Index.
RBNZ February Monetary Policy Statement Preview: Understate the upside, accentuate the downside
17 Feb 2021
- The starting point for the RBNZ’s economic outlook is much better than was assumed late last year.
- The RBNZ’s medium-term economic objectives look to be much closer to being met and we expect the OCR to move up from the second half of 2022.
- Nevertheless, we expect the RBNZ will keep the emphasis on the continued risks, challenges and uncertainties.
Daily Alert: Sharemarkets continue their winning streak - besides the NZX
16 Feb 2021
- Auckland remains at COVID Alert Level 3 and the rest of New Zealand remains at COVID Alert Level 2 after yesterday’s cabinet meeting.
- While it was a quiet one for the local market yesterday, the mood in the rest of the Asia-Pacific and European markets was more upbeat.
- Meanwhile, prices for many commodities are continuing to hit post-pandemic highs.
Economic Weekly: Here we go again, again…
15 Feb 2021
Sunday dinner got rudely interrupted by the unwelcome news that NZ is heading into some repeat of last August’s Auckland L3 and rest-of-NZ L2 lockdown. The UK COVID variant has made it out into the community, with the source of infection as yet unknown.
So, economically speaking, what does this mean? The key determining factor is how long the lockdown goes on for, and for that we will have to wait and see. If it is merely a matter of days, the economic impact will be minimal. Spending that would have happened (particularly in the services sectors) over this Monday – Wednesday period will likely be caught up on in following days or weeks. If restrictions continue over the weekend, the potential for foregone revenue in hospitality, for example, starts to step up.
But it is really important that we reflect on what we have learned about the economy since the August lockdown. NZ businesses proved surprisingly adaptable to operating under restrictions. Many retailers, for example, have stepped up their online or contactless sales methods, enabling a fair degree of commerce to continue. It is largely those activities that require face-to-face contact that bear the brunt. Even then, however, the longer-term impact will depend on the extent to which people catch up on what they originally wanted to do vs. outright cancellation.
When the August 2020 lockdown started, we estimated that the weekly value of lost activity was likely to be around 0.15% of annual GDP. These estimates were derived from estimating how much of the economy was not permitted to operate and didn’t take into account any potential for post-lockdown catch-ups activity. This time around we think the GDP impact could be slightly less than half that given how NZ adapted in the last lockdown. NZ GDP rebounded by a more than expected 14% in the September 2020 quarter even while spending a chunk of the time under restrictions.
One of the clear indications of how we adapted was that people movements to places of commerce during the August lockdown were greater for given levels of lockdown than was the case during the first March – June lockdown. We could also review the lockdown restrictions to focus on ‘safe’ vs. ‘essential’ activity.
On a final note, what is it about toilet paper? Unlike money it actually grows on trees (sort of) in NZ. It’s coffee supplies we need to be worrying about, plus whether or not it is now socially acceptable to watch Bridgerton during lockdown! Take care out there and we hope you have to hand everything you need to get through this latest – and hopefully – brief lockdown.
Daily Alert: NZ COVID alert levels lift; US share indices set fresh record highs. Trump acquitted
15 Feb 2021
- Auckland is at Alert Level 3, the rest of New Zealand is at Alert Level 2.
- Over the weekend, the US Senate voted to acquit former president Trump on the charge of inciting insurrection at the Capitol on 6th January.
- While European and US sharemarkets rose on Friday, the local sharemarket declined 1.3% on Friday and 3.6% over the past week.
Daily Alert: Waiting for signs
12 Feb 2021
- Markets were largely directionless overnight, waiting for signals on the US fiscal package and largely ignoring the Trump impeachment trial.
- US Treasury yields edged higher on low volumes ahead of major US debt sales (10Y 1.16%), with a mild curve steepening bias.
- Locally, NZ retail card spending data for January showed a deceleration in annual growth to 1.9% from the 3.5% annual rate in December.
Daily Alert: Tame inflation dents reflation trade
11 Feb 2021
- Climbing global equities and the reflation trade-led steepening in global yield curves has been the predominant market theme so far this year.
- Tame January US consumer price inflation data did not provide much ammunition to support overheating, with plenty of slack in the global economy dampening pricing pressures.
- Locally, NZ yields were slightly lower yesterday and the curve flatter, unwinding recent gains.
Commodities Index: Strong dairy prices lift ASB’s commodity index
10 Feb 2021
- It was another strong week for the ASB Commodity Price Indices last week, with the ongoing strength in dairy prices driving the index higher in all denominations.
- Overall, the index was up 1.2% over the week, while a modest dip in the NZD boosted the index gain to 1.4% when measured in NZD terms.
- Meanwhile, a big mover in financial markets over recent weeks has been interest rates.
Home Loan Rate Report: Are we there yet?
10 Feb 2021
- The resilience of the local economy over the second half of 2020, and the prospects of more improvement over 2021, impacts our outlook for interest rates, including mortgages. Our forecasts suggest we could be at, or near the low-point for mortgage rates.
- Taking advantage of the lower rates on offer now, combined with our expectations that mortgage rates will only rise slowly over the years ahead, influences our thoughts on mortgage strategies. Fixing and then rolling fixed-term mortgages is forecast to be the cheapest option over a 5-year time horizon.
- Borrowers are prudent to plan to deal with higher interest rate costs over the long run, rather than budget on rates remaining this low indefinitely. And for those who want interest rate certainty now, the cost of fixing for longer terms, at below 3%, is very low compared to the past.
Economic Weekly: When getting it wrong is something to celebrate
09 Feb 2021
Economics is a profession in which being wrong with your predictions is an all-too-common part of the job. After all, if we were that good at getting our predictions right we would have long ago retired to our private paradise islands after giving Warren Buffett a run for his money or have a charitable foundation that dwarfed that of Bill and Melinda Gates.
It’s a tough life being wrong so much! And that is why we spend so much time focusing on why we think something will happen as much as what will happen. It is important that people understand the context, the underlying assumptions, the various alternative outcomes that could occur under different conditions. That way people can take all of it on board when making their own decisions about how the economy could affect them in the future. We are trying to be roughly right (in giving a broad direction of travel) than precisely wrong.
Stepping back to late March and early April of last year, one of the key assumptions that underpinned many people’s expectations for the economy was how many jobs would be lost and how influential any uncertainty around job security would be on people’s spending behaviour. It was a period in which we (and others) estimated that about one-third of economic output would be lost for an unknown period, with wide ranges of assumptions made about when COVID restrictions would be lifted here and abroad. It was a time when no-one really knew how people would react to such a sharp and globally-synchronised grinding to a halt of normal activity in the face of a very different threat that people were not psychologically used to dealing with. And, at the time, the full extent of fiscal and monetary support – and its ultimate effectiveness – were also unknown.
In the end, the number of job losses has been mercifully small, and mainly confined to those parts of the economy most directly affected by the border closure. Last week’s release of the Q4 lift in jobs showed just how strongly the labour market has performed. Factors such as the wage subsidy will have made a difference, through encouraging employers to keep people employed even as businesses had no idea about whether they will continue to operate or how many people they will need in the future. Extremely low interest rates also turned the housing market rebound into a strong boom. Along the way, for many the fear of losing their job disappeared very quickly once the restrictive COVID levels were past. Money earmarked for overseas holidays has also been channelled into having a good time in NZ, whether through feathering the nest, touring the country, buying holiday properties or new ‘toys’. All this, within the freedom of primarily Level 1 conditions, has muted job losses and helped create new ones. It’s one of those times when it is a huge relief to be so wrong.
We expect employment to continue trending higher. The unemployment rate may already be at or past the peak – well below our lockdown predictions of ~9%. nick.tuffley@asb.co.nz
Daily Alert: That’s a bit steep!
05 Feb 2021
- Globally, yield curve steepening remains the most eye-catching trend in financial markets.
- The outperformance of the NZ economy has seen the yield curve lift and steepen more than most.
- Elsewhere overnight, market sentiment has continued to claw back last week’s Gamestop-related losses.
Term Deposit Report: Another year of low interest rates expected
05 Feb 2021
- Low interest rates have been helping borrowers and frustrating savers over recent years.
- Term deposit interest rates have been steadily trimmed over the past year and are significantly below the average levels of the past 10-15 years.
- Interest rates are expected to stay low for several years, and we could still see some declines from today’s levels.
Economic Note: Covid-19 Chartpack
05 Feb 2021
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- As the global vaccine rollout gets underway, we have added a couple of new charts to track the next stage in the pandemic.
Daily Alert: NZD and NZ rates up as further evidence of NZ's economic resilience emerges
04 Feb 2021
- The NZD rose and NZ yields firmed across the curve after Q4 NZ labour market data highlighted the flexibility and resilience of the NZ economy.
- A bit more stability appeared to return to equity markets following the retail-trading frenzy of late last week.
- Overseas, US Treasury yields rose and the curve steepened (10Y 1.13%), helped by climbing issuance of longer-dated Treasury bonds and the positive tone of US data.
Daily Alert: Fonterra Milk Price forecast bumped to $7.40 kg/ms
03 Feb 2021
- Dairy prices lifted a further 1.8% at last night’s GDT dairy auction and the continued strength in milk prices has prompted us to lift our forecast for Fonterra’s Milk Price for the current (2020/21) season from $7.00 to $7.40 kg/ms.
- The big news in yesterday’s RBA Board decision was the announcement to extend the bond buying program by a further $A100bn over six months, when the current Quantitative Easing (QE) program is completed in mid-April (all other policy measures were left unchanged).
- Locally, this morning’s slew of labour market indicators are the highlight of the local data week.
Commodities Weekly: Dairy prices post further gains
03 Feb 2021
- Dairy prices lifted a further 1.8% at the latest Global Dairy Trade event overnight.
- The overall strength at this auction, combined with the steady gains recorded at the proceeding events, has prompted us to lift our milk price forecast for the season from $7.00 to $7.40.
- Meanwhile, it was another strong week for the ASB Commodity Price Indices last week, but the strong NZD continues to be a headwind to commodity prices in NZD terms.
Q4 2020 Labour Market Review: Has unemployment already peaked?
03 Feb 2021
- NZ’s amazing economic run continues, with an unemployment rate in the “4s” the latest example.
- Whether or not this can be believed, it’s hard to escape the conclusion that the labour market was much tighter than anyone expected in the final quarter of 2020. Forecasts for a trend increase in the unemployment rate this year now look too pessimistic.
- Last year’s flood of RBNZ (and fiscal) stimulus has done the trick, and no more is required. We agree with the market pricing some risk of a lift in interest rates in 2022.
Fonterra Milk Price Forecast Update: ASB revises 20/21 milk price forecast to $7.40 KGMS
03 Feb 2021
- Dairy prices have been rising steadily over recent months and posted further gains overnight.
- The overall strength in dairy prices has prompted us to lift our milk price forecast for the 20/21 season from $7.00 to $7.40.
- Fonterra lifts its guidance in the wake of the GDT event today, to $6.90 - $7.50.
Economic Weekly: Blowing bubbles
02 Feb 2021
The heady rise of the GameStop share price stole the financial market focus over the past week. This rise was reportedly driven higher by a group of sharemarket enthusiasts on a social media platform Reddit who challenged hedge funds’ short positions on the stock. By driving demand higher, those short positions become increasingly expensive and risky to hold, in turn forcing the hedge fund managers to buy the stock to close out the position. Anecdotally, the trading strategy posted on Reddit started out late last year over a genuine view that GameStock was undervalued (back when it was around $5 per share), believing the size of the short position to be unjustified relative to GameStock’s financial performance (listen to NPR Planet Money podcast ‘Cant Stop Game Stop’ for a great summary of the GameStock share price debacle and a simple explanation of short positions and the idea behind triggering a ‘short squeeze’). However, it appears the trading strategy has caught on more widely and got somewhat out of hand, driving the price to astronomical levels hand - GameStop’s current share price is currently $222, evoking comparisons to the Tulip Bubble. Reddit traders have now reportedly shifted focus to silver, driving silver prices higher over the weekend. The volatility has some financial market participants nervous about the fall-out once the bubble finally bursts.
Back in NZ, the focus is on the December quarter employment figures released on Wednesday morning. We expect the unemployment rate to lift from 5.3% to 5.6%, in line with market expectations and also the RBNZ’s November forecast. See our full preview here. Overall, the labour market picture is looking much better than expected and it’s likely the peak in the unemployment rate is likely to be lower over 2021, compared to our forecasts from late last year. The economy has recovered faster than expected over Q3 last year, with the level of economic output (GDP) bouncing back to pre-COVID levels. The ANZ monthly business confidence survey suggests this momentum continued over Q4, with business confidence also back above pre-COVID levels by December. Furthermore, monthly job data from StatsNZ also point to improving labour demand (see chart opposite). Coupled with stronger than expected inflation data for Q4, the economy has proved itself to be on much sounder footing than ourselves and the RBNZ expected had been expecting, which reinforces our view that no further monetary stimulus is required at this point. Nonetheless, challenges to the economic outlook remain, with economic growth likely to be fairly soft this year slowed by weak exports of services and weak population growth. With borders expected to remain closed for the rest of the year and the impacts felt unevenly across the economy, there remains a case for targeted fiscal support.
Daily Alert: Silver in the spotlight
02 Feb 2021
- Silver prices surged to near eight-year highs after Reddit traders turned their focus from GameStop shares last week to silver.
- The RBA’s meeting today is the key event in our time zone today.
- Tomorrow the Q4 labour market report is due; we expect to see the unemployment rate to lift to 5.6%, from Q3’s 5.3%.
Daily Alert: Wall Street mounts a comeback as Q4 US GDP confirms shrinkage
29 Jan 2021
- Advance US GDP data overnight was a bit weaker than markets had been anticipating but the tone on Wall Street was positive overnight, despite the softer read.
- After touching the lowest level in nearly a month yesterday, the US 10-year yield has now lifted back above 1% and the yield curve has steepened.
- Yesterday’s NZ merchandise trade data showed the annual trade surplus easing a shade in December, but still close to historic highs.
COVID-19 Chartpack
29 Jan 2021
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
- This week, we have added a couple of new charts to track the ongoing global vaccine rollout, and refreshed how we present new COVID case numbers around the world.
Q4 2020 Labour Market Data Preview: Ch-Ch-Ch-Ch-Changes
29 Jan 2021
- The outlook for NZ’s labour market has brightened. Outright declines in employment appear to be behind us.
- Unemployment is still expected to drift a little higher over 2021, as labour demand remains tepid.
- Beware the usual survey volatility in next week’s Q4 data. Markets/RBNZ likely most sensitive to a positive surprise.
Daily Alert: Waiting for a sign
27 Jan 2021
- Markets traded in a listless fashion overnight.
- COVID-19 continued to dampen sentiment as the World Health Organisation said vaccine coverage would not reach a point that could stop virus transmission in the foreseeable future.
- Today there is little of note on the local calendar but the major focus for Australasian markets is the Q4 Australian CPI print.
Commodities Weekly: Summer hitting the regions with an uneven impact
27 Jan 2021
- In contrast to last year’s swelter – where it was hot and dry everywhere – the summer weather this year is hitting the regions rather unevenly.
- With conditions not as dry as they were this time last year, we maintain our view of a lift in dairy production over the present season, but only a modest one.
- Meanwhile, it was another strong week for the ASB Commodity Price Indices last week, with solid lifts in both NZD and USD terms.
Economic Weekly: Après Trump, le déluge?
25 Jan 2021
After four years of headline-grabbing stunts, an endless rotating cast of supporting characters, and a chaotic final transition, the Trump era came to an end last week with Joe Biden formally inaugurated as the 46th US President. The new administration has already hit the ground running, with a flurry of executive actions designed to undo many of the Trump administration’s policies, from ending construction of the much-ballyhooed US-Mexico border wall, to re-entering the Paris Climate Accords and the World Health Organisation. For kiwis who are shellshocked by the wall-to-wall political coverage of the last few years, it might be tempting to think we can all stop thinking about American politics again, but given the United States’ influence over the global economy that’s an unlikely prospect.
Item one on the Biden agenda will be to speed up the US vaccine rollout, which is running ahead of most developed countries, but still a massive logistical challenge. One of the first executive orders signed by the new president has been to invoke the Defence Production Act, empowering the US Federal Government to direct businesses to manufacture materials and equipment needed to fight the pandemic. You can keep track of the vaccine progress in the US – as well as everywhere else – in our Weekly Chart packs.
Further economic stimulus is the other big ticket on the agenda for the new administration, with a USD$1.9 trillion packaged being touted by Biden. Rising hopes for a big package are one reason we saw the yield curve steepen and a decent lift in equities globally towards the end of last year, but there are still a few hurdles to clear given the narrow majority in the Senate held by the Democrats.
Most pertinently for kiwis, it will be worth watching for more clues on the Biden team’s approach to international trade. Free trade advocates will be hoping for a departure from the Trump era, which saw the US-China trade war commence and tariffs whacked on US friend and foe alike.
Yet the new administration is already making protectionist noises, with Biden releasing a ‘Buy American’ plan and new Treasury Secretary Janet Yellen taking a firm tone towards China in her confirmation hearing, so the key difference between this administration may merely be one of degrees. New Zealand managed to weather the trade war with little disruption, with annual exports hitting new highs through the Trump era. But US-China trade tensions under the Biden administration could follow a different shape, particularly if Biden seeks to enlist allies from elsewhere in the Asia-Pacific in a less disorderly, more multilateral way. So even with Donald Trump out of the White House, we might not have seen the last of the surprises out of the US just yet.
Daily Alert: Mixed end to the week for data and sharemarkets in Europe and the USA
25 Jan 2021
- While US economic data data released on Friday was buoyant, US sharemarkets closed the week mixed.
- The Q4 NZ CPI inflation figures were firmer than market and RBNZ expectations on Friday, with the CPI lifting 0.5% over the quarter, to be 1.4% up on a year earlier.
- Offshore the highlight is the FOMC meeting in the US on Thursday morning (NZT), and the advanced reading of Q4 US GDP on Thursday night.
Daily Alert: Biden not biding his time
22 Jan 2021
- President Biden kicked off his first day in the oval office yesterday with a flurry of executive actions.
- Overnight, the new President has been focusing on coronavirus, while the spotlight will turn to economic matters tomorrow.
- Locally, it’s CPI Friday today, with NZ inflation figures for Q4 out later this morning.
2020 Q4 CPI Review
22 Jan 2021
- CPI firmer than RBNZ and market expectations, continuing the run of surprise CPI outturns.
- Supply disruptions and higher transport prices accounted for much of the upward surprise, with annual core inflation prints clustered around 2%.
- The inflation outlook is highly uncertain. More upside risk is now accumulating to the medium-term inflation outlook, but the RBNZ is expected to maintain highly stimulatory settings until it is confident that economic activity and the labour market have turned the corner
Economic Note: COVID-19 Chartpack
22 Jan 2021
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- As the global vaccine rollout gets underway, we have added a couple of new charts to track the next stage in the pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Daily Alert: A new era, with massive challenges ahead
21 Jan 2021
- Markets remained fixated on the US, as Joe Biden was sworn in as the 46th US President, and at 78 he’s the oldest incoming US president in history.
- Markets were cheered by the smooth transition of power with the major US equity indices up, and the S&P500 and Nasdaq hitting record highs.
- Meanwhile, NZ net immigration and tourism arrivals data for November is expected to be weak given the border restrictions, which will have a key bearing on population and economic growth.
Daily Alert: It’s all about the money, money, money
20 Jan 2021
- A mild ‘risk on’ vibe returned to global financial markets overnight.
- A ringing endorsement for the massive stimulus plans of US President-elect Biden from Treasury Secretary nominee Janet Yellen provided the key boost to risk appetite.
- Meanwhile, Kiwis’ 2020 retail spendathon eased up a little in December, according to our seasonally adjusted estimates of StatsNZ data released yesterday.
Commodities Weekly: Dairy prices continue their ripper run
20 Jan 2021
- It was another rip-snorter of a dairy auction overnight, as prices advanced yet again.
- All the indicators continue to suggest demand for dairy products is likely to hold up well, through to the end of the season.
- Meanwhile, the ASB Commodities Index lifted a solid 2.3% in NZD terms last week, thanks to a good lift in dairy prices and a paring back in the kiwi.
Daily Alert: China still at the vanguard of global recovery
19 Jan 2021
- It was a holiday in the US overnight (Martin Luther King Day), and this has spelled the usual torpor across global financial markets.
- Meanwhile, China remains at the vanguard of the global economic recovery with fourth quarter Chinese GDP figures beating already-solid expectations.
- Tonight, the Eurozone ZEW economic survey will be something of a curtain-raiser ahead of the more-closely watched European PMIs later in the week.
Quarterly Survey of Business Opinion: Cost pressures grow as shortages bite
19 Jan 2021
- Q4 QSBO confirms further improvement in business confidence.
- Shortages of skilled labour will be the key challenge to firms over the coming year.
- We expect inflation pressures to lift (from low levels) over the coming year, so long as demand remains strong enough for firms to pass on higher costs.
Economic Weekly: Hello 2021, please be kind!
18 Jan 2021
Over the holiday period, no doubt many of us gave some sort of appropriate salute to 2020 and looked ahead to the prospect of a better 2021. The start of the year is always a time for reflection, and there are a number of things worth thinking about as we look ahead to a year in which the economy should be in better shape than last year’s rollercoaster ride.
The most astonishing thing about 2020 was that – for all the upheaval globally – NZ’s economy rebounded sufficiently strongly in the September quarter (+14%!) that GDP is now higher than it was at the end of 2019. That is a milestone we hadn’t expected for some time. The bounce also puts us firmly ahead of many of our key trading partners. We expected sharp rebounds in areas of the economy that were most affected by the March-June lockdown restrictions, but even so, the extent of the bounce in sectors such as construction and retail was more than anticipated. You can read our review here. Adaptability, huge financial support, and keeping COVID-free have all helped.
For 2021, we expect muted growth, somewhere around 1-2% in annual terms. In part, that outlook reflects how quickly some sectors have already got back on their feet, and how swiftly households have responded to super low interest rates. But NZ’s largely closed border and the ongoing global economic impacts of the pandemic will continue to constrain NZ’s full economic potential for a little while longer. Even as the first vaccines are being swiftly rolled out, the UK and a number of European countries have tightened up their COVID restrictions, which will drag on overall global growth.
Vaccination will still take a while to roll out in NZ and globally, leaving vulnerabilities in place and ongoing restrictions at our border. The new strains of COVID-19 – particularly the virulent UK one – create added threats to both when our border can be safely opened up and to the idyllic COVID-free way of life we have returned to. Vulnerabilities remain, and in 2021, vigilance will remain the price of liberty from COVID-19. Mark Smith’s Watch List for 2021 gives more thoughts.
This week the NZ data flow starts off with an update on the extent of the Christmas spend-up (via Electronic Cards Transactions), net migration flows (still very subdued), and Q4 inflation figures. We expect inflation to be low for late 2020 and much of 2021, with an annual rate of 1.1% anticipated for Friday’s December 2020 quarter release.
Daily Alert: All eyes on the US Capital this week
18 Jan 2021
- Eyes will be on the US Capital this week, with the new President Joe Biden due to be sworn in on Wednesday 20th January.
- In US economic data, retail sales were weaker than expected in December, and fell 0.7%,while industrial production was on the strong side of expectations and rose 1.6%.
- The Bank of Japan and European Central Bank meetings on Thursday will be the offshore economic highlights of the week, but the inauguration of Joe Biden on 20th January will surely take centre stage.
Daily Alert: Markets move along after Trump impeached again
15 Jan 2021
- US President Trump added another milestone to his resume being the only US President in history to be impeached twice.
- US Treasury yields firmed to 10-month highs (10Y 1.11%) with the curve continuing to steepen and pointing to increasing optimism.
- Locally, NZ residential consent issuance for the November 2020 year rose to 38,604 consents, the highest annual total since 1974.
COVID-19 Chartpack
15 Jan 2021
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
2020 Q4 CPI Preview: Low inflation starting point but with upside risks building
15 Jan 2021
- We expect a 0.2% qoq increase in Q4 headline CPI, with annual headline inflation for 2020 easing to 1.1%.
- Inflation looks set to move below 1% in the first half of 2021, but subsequently firm, with more upside risk to the inflation profile this year and beyond.
- The inflation outlook is still inherently uncertain. Although we do not expect the OCR to move lower over 2021, the RBNZ is expected to maintain highly stimulatory settings until it is confident economic activity and the labour market have turned the corner.
Daily Alert: Political developments still dominating column inches
14 Jan 2021
- Political news has been dominating headlines overnight, as the hullabaloo in the US continues.
- US Markets still aren’t all that bothered by the stoush in the US, with major equity indices advancing overnight.
- Oil prices are continuing their winning streak with Brent crude prices hitting USD$57.42 overnight – nearly at an annual high.
Daily Alert: Markets watching and waiting for further stimulus news
13 Jan 2021
- Sharemarkets were mixed overnight as investors maintained a slightly cautious tone.
- Treasury yields lifted overnight as markets continued to expect further economic stimulus in the US, with the tenors on some yields exceeding 10-month highs.
- On the COVID front, it’s still a bit of a race against time as countries seek to ramp up their vaccination programmes, as outbreaks rage.
Commoditie s Weekly: Beef and lamb start the year on uncertain hoofing
13 Jan 2021
- 2021 kicked off on a high note last week with the strong GDT dairy auction result, but it’s a more muted start to the year for beef and lamb prices.
- Two downside factors in paticular are weighing on the meat sector: ongoing COVID woes oversees and tentative signs the world is emerging from the global protein shortage of recent years.
- Meanwhile, the ASB Commodities Index fell 0.9% in NZD terms last week.
Watch list for 2021: What will 2021 bring?
13 Jan 2021
- Here we outline five key things to watch out for in 2021.
- COVID-19 will continue have a major bearing on the outlook for 2021 and will dominate the political, economic and market narrative. There are also a host of other upside and downside risks for NZ to consider.
- The volatility that marked 2020 may stick around for a while yet, but 2022 is shaping up well.
Sharemarkets & NZD lift in December and early ‘21
08 Jan 2021
- Sharemarkets continued to rise over December, with concerns of rising COVID-19 cases in many major economies, as well as US political uncertainty offset by the start of the roll out of vaccines and hopes for a better 2021.
- After a tumultuous first quarter, the NZ sharemarket rose 13.9% over 2020, including a 2.5% lift in December. The local market is at an all-time high in early January. US sharemarkets reached fresh record highs at the end of 2020.
- Government bond yields in NZ, Australia and the US continued to rise over December.
Dairy prices lift at first event of 2021
06 Jan 2021
- Dairy prices lift at first GDT event of 2021.
- ASB’s 20/21 milk price forecast of $7.00 gets a buffer.
- The ASB Commodities Index eased 0.5% in NZD terms last week, as the strong kiwi dollar continued to weigh on the index.
COVID-19 Chartpack
06 Jan 2021
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
- COVID-19 infections have surged in the UK in recent weeks.
Daily Alert: NZ ends 2020 with a gangbuster GDP lift
18 Dec 2020
- Yesterday’s NZ GDP result confirmed the NZ economy is recovering much stronger and much faster than previously expected.
- The Bank of England opted to leave its policy rate on hold at 0.1% in its last announcement of the year, as had been widely expected.
- There are three final pieces of domestic data for 2020 out this morning, with ANZ Consumer Confidence out at 10am, the November Trade balance at 10.45am and the ANZ Business Outlook survey at 1pm.
Regional Economic Scoreboard Q3 2020: Northland and New Zealand’s rural sector steal the show
18 Dec 2020
- Northland climbs seven spots to take top place.
- Rural New Zealand dominates this quarter with Bay of Plenty and Waikato rounding out the top three.
- Taranaki dropped eight spots, slipping from fourth to 12th after a mediocre quarter.
Daily Alert: Markets in positive mindset
17 Dec 2020
- As was widely expected, the US Federal Open Market Committee (FOMC) left its policy interest rates unchanged at around operational lows and maintained the current rate of asset purchases.
- There was minimal immediate market reaction as yesterday’s release of the NZ Government’s Half-Year Economic & Fiscal Update (HYEFU) confirmed expectations of an improving (albeit still weak) fiscal outlook.
- The main local focus today is NZ Q3 GDP.
Q3 2020 GDP Review: Truly epic recovery
17 Dec 2020
- StatsNZ estimates that GDP lifted a whopping 14% in Q3, bouncing back from the previous quarter’s sharp lockdown-induced decline and stronger than ASB, the RBNZ and the market median expectations.
- StatsNZ revised its estimate of the decline in Q2, to 11% from 12.2% previously published. All up, economic activity held up much better than expected and previously reported. Economic activity is now up 0.4% on year-ago levels, vs the market forecast of a 1.8% decline.
- The NZ economy looks to have been more resilient and has recovered from lockdown much faster than expected earlier this year. The key question going forward is whether momentum can be sustained.
Daily Alert: A key week lies ahead
16 Dec 2020
- This week is pivotal for the global economy.
- Despite the rapid development (and hopeful deployment) of COVID-19 vaccines, a long Northern Hemisphere winter lies ahead.
- Yesterday NZ Prime Minister Ardern announced that quarantine-free travel between NZ and Australia could begin before the end of March 2021 on the proviso that COVID-19 risks are appropriately managed.
Daily Alert: Will they, won't they
16 Dec 2020
- Financial market sentiment swung back towards optimism overnight.
- Local financial markets were largely disinterested yesterday, despite plenty of news flow.
- The NZ Government’s Half-Year Economic & Fiscal Update (HYEFU) at 1pm should show a better fiscal position than when the PREFU was unveiled in mid-September.
Commodities Weekly: Ending 2020 on a more uplifting note
16 Dec 2020
- Prices edged up again at the latest GlobalDairyTrade auction overnight.
- The result reflects the fact that global demand is still holding up well, providing support for dairy prices.
- Meanwhile, the ASB Commodities Index eased 0.6% in NZD terms last week, as the strong kiwi continued to weigh on the index.
NZ Q1 Current Account Review: Narrowest deficit in decades
16 Dec 2020
- The current account deficit narrowed further to -0.8% of GDP in the September 2020 year, the lowest since 2001.
- On a quarterly basis, the goods balance softened a little after a recovery in imports, whilst the services balance tipped back into surplus as exports improved a little from their depths last quarter.
- There is scope for the annual current account deficit to narrow further and then to widen again thereafter.
NZ 2020 Half Year Economic and Fiscal Update: Improved fiscal outlook demonstrates NZ’s resilience
16 Dec 2020
- The HYEFU reveals an improved economic and fiscal outlook, and lower government borrowing.
- Fiscal policy has played a key role in supporting the NZ economy over a difficult period. This in turn has reduced the COVID-19 hit to the fiscal position.
- While things are moving in the right direction, we are still climbing out of a deep economic and fiscal hole and the outlook is inherently uncertain. In time, more may need to be done to restore the public finances to a sounder position and to meet future challenges. This, however, is a conversation for another day.
Economic Weekly: Bouncing back
14 Dec 2020
There is a fair bit of data out this week – it’s a bit like the twelve days of Christmas, but for economic aficionados. Notably, we’ll get an early Christmas present on Thursday morning from Stats NZ – the Santa Clause of the data world – with the release of the Q3 GDP result.
We expect the result to show a 13% qoq lift, which would represent a solid bounce back after the 12.2% decline we saw last quarter. That will still leave the economy about 2.2% smaller than it was before the pandemic went global, but all up the New Zealand economy has proven much more resilient than most expected earlier in the year. Recent data has shown activity bounce back on a whole range of fronts over the course of Q3, from retail trade to construction and export activity.
The result means NZ’s economic performance over the first nine months of 2020 is likely to have proven one of the stronger performers amongst its major peers. You can read the full preview from our GDP guru Jane Turner here.
All up, it means there’s plenty for kiwis to be thankful for these holidays. Our strong public health response to the pandemic – as well as our geographic isolation, and a fair bit of luck – mean we’ve had far fewer per capita COVID infections than our peers, and kiwi’s activity has generally been less curtailed too.
That’s not to say everything is hunky dory of course. With the New Zealand border likely to remain shut for a while to come yet, exports of services are likely to be disrupted for a while yet (we’ll get a reminder of that in this week’s BoP and GDP releases) . Still, the heart-warming scenes last week of the first vaccine recipients in the UK are a reminder that there is a light at the end of the tunnel – even if the timing around the global rollout remains uncertain.
This is our last Economics Weekly for 2020 – we’ll be back in the New Year. Stay safe and enjoy the summer – we’ll see you on January 11th.
Daily Alert: RBNZ and the complicated issues of housing
14 Dec 2020
- On Friday the RBNZ provided the Minister of Finance its fuller response to his request to look into how the RBNZ and Government could “work together to address the issue of rising house prices”.
- The NZ sharemarket rose 0.5% on Friday to a new record high but may play catch up with the softer sentiment offshore when trading commences today.
- The Half-Year Economic & Fiscal Update (Wednesday 1pm) and GDP (Thursday 10.45am) are the local highlights.
Daily Alert: NZD/GBP soars on Brexit woes
11 Dec 2020
- Currency markets have been where most of the action has been overnight.
- By contrast, equity and bond markets have had a fairly forgettable session, despite some chunky news flow.
- Locally, NZ data out yesterday revealed electronic card spending rose by 0.1% in November.
RBNZ response to Finance Minister on housing: Look to supply-side factors
11 Dec 2020
- The RBNZ has responded in more detail to the Minister of Finance’s recent request for the RBNZ to see what it can do about rising house prices.
- The RBNZ has put much of the emphasis on solving housing supply challenges, within a range of complex drivers.
- The RBNZ’s preference would be for any formal house price consideration to be added as part of its financial policy remit, rather than being an added consideration for monetary policy.
Q3 2020 GDP Preview: Epic recovery
11 Dec 2020
- We expect StatsNZ’s first estimate of Q3 GDP to show a 13% qoq lift, a solid bounce back from the 12.2% decline in Q2.
- The NZ economy appears to be recovering from recession faster than expected.
- The key question is how much momentum can be sustained over 2021.
COVID-19 Chartpack Dec 11
11 Dec 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Daily Alert: Horse trading continues as stocks slip
10 Dec 2020
- Hopes of a US fiscal stimulus deal remain up in the air, keeping markets on edge.
- It's still remains unclear whether the UK and EU will reach (and ratify) a post‑Brexit trade deal by year‑end.
- NZ Q3 data yesterday confirmed the rebound in economic activity is likely to prove stronger than earlier expected.
Housing Insights: Canterbury’s Housing Supply Crusade a Recipe for Auckland’s Blues?
10 Dec 2020
- House price inflation in Canterbury has tracked below most other regions over the past 10 years. Houses in Canterbury are consequently much more affordable than elsewhere.
- We perform an Auckland vs. Canterbury case study toinvestigate why this might be the case.
- With demand conditions similar, we find Canterbury’s strongsupply response to be the most likely driver.
Daily Alert: Deadlines, deadlines
09 Dec 2020
- The global COVID vaccine rollout has begun in earnest, with the first vaccinations commencing in the UK.
- It was a quiet session trading in Europe as markets waited on the outcome of the Brexit talks.
- Meanwhile, the RBNZ has provided a bit more clarity on its plans for the re-imposition of LVRs next year.
Commodities Weekly: $7th Heaven
09 Dec 2020
- Fonterra has adjusted the midpoint of its forecast range to $7.00 kgMS for the 20/21 season.
- The NZD has lifted sharply over the past month, but we don't envisage it will have much of an impact on the milk price forecast at this point in the season.
- The ASB Commodities Index rose 0.5% in NZD terms last week.
Markets Monthly for November 2020: Sharemarkets and the NZD shoot the lights out
08 Dec 2020
- Sharemarkets surged over the month, with many global sharemarkets posting their biggest monthly percentage gains in decades.
- The US election results and progress in the development of vaccines to protect against the COVID-19 virus were key drivers.
- In currency markets, the Kiwi has been flying. NZD/USD lifted nearly 6%, and the NZD trade-weighted index was up 3.8% over November.
Economic Weekly: Construction lifts as housing shortage grew in 2019
07 Dec 2020
Building Activity figures released by StatsNZ last week confirmed that construction activity continued its post-lockdown recovery without skipping a beat. Building work completed over the September quarter lifted a whopping 35% - with residential building activity leading the charge and activity surging to above pre-COVID levels. Strong demand from an on-going need for additional housing continues to support residential construction activity. Earlier this year, when expectations for the economy were grim, we had expected that pending construction plans would be ditched amid heightened economic uncertainty and rising unemployment. However, NZ’s stoic ability to keep calm and carry on proved economists wrong – the NZ economy quickly pulled itself together after lockdown and NZ housing demand is possibly the strongest since the 2006/07 housing boom.
Prior to the COVID-19 outbreak, net migration into NZ surged over the second half of 2019 – likely in response to the increasingly tight NZ labour market and demand for skilled labour. Given the change in methodology for calculating NZ population growth by StatsNZ, the sheer strength of this population surge wasn’t immediately clear. Now it is. NZ’s housing stock was already stretched due to chronic housing shortages which have emerged right across NZ. Despite NZ housing construction rising to record levels, it has not been able to keep pace with population growth. Recent updates to NZ’s population count by StatsNZ (a very delayed input of the woeful 2018 Census) revealed the NZ housing shortage is worse than ever.
An outcome of the devastating COVID-19 pandemic is the opportunity for NZ to finally deal with its housing shortage. Population growth over this year is set to be very soft by historical standards, due to limited MIQ capacity capping NZ net migration (indeed over winter, NZ has recorded net outflows with departures outstripping arrivals). But with construction holding up at record levels, NZ can finally make a good progress in reducing the extent of the housing shortage. NZ can probably overbuild for a good couple of years before housing stock is at risk of being ‘over supplied’.
But this approach, if not carefully managed, comes with some risk. Price signals are the catalyst for private investors to build – higher prices for existing housing stock increase the incentive to build new houses. This risk is, come 2022 and 2023, if population growth does not recover fast enough, will NZ be set for a rather uncomfortable correction in house prices and housing construction? jane.turner@asb.co.nz
Daily Alert: Nervous calm
07 Dec 2020
- There’s been a bit of respite for the NZD/USD and risk appetite generally in overnight trade, albeit the moves don’t look particularly convincing.
- There’s been plenty of news out over the past 24 hours, although none of it has been particularly market moving.
- In local data, we saw another 3.8% monthly increase in building permits over August.
Daily Alert: Brexit talks entering the endgame
07 Dec 2020
- With little new data or central bank action to start the week, the biggest headlines have been political or COVID-related.
- Brexit talks also appear to be perched on a knife-edge.
- There was little in the way of major data out yesterday or overnight.
Quarterly Economic Forecast: A demonstration of resilience
02 Dec 2020
- The NZ economy has come through 2020 surprisingly well given the ‘unprecedented’ backdrop.
- Vaccines give some light at the end of the tunnel, though the border closure will remain a 2021 constraint.
- We no longer expect the RBNZ will cut the OCR below zero given how strongly households have responded.
Bumper lift for dairy prices at latest GDT
02 Dec 2020
- There was a solid lift in prices at the first Global Dairy Trade auction for December.
- Thanks to solid demand, the risks to our $6.75 milk price forecast are now firmly skewed towards the upside, though the production outlook and the strength of the NZD are giving us pause.
- The strength of the kiwi is also weighing down the ASB Commodities Index, which fell 0.8% in NZD terms last week.
2020 Q3 Terms of Trade Review: Terms of trade ease in Q3, but export activity surges
02 Dec 2020
- There was a sharp fall in NZ's terms of trade in Q3, amid a sizable fall in export prices and a smaller fall for import prices.
- Goods export and import volumes posted big lifts, highlighting the ongoing resilience in New Zealand’s international merchandise trade activity.
- All up, NZ’s goods terms of trade remain at historically high levels, and the goods export sector continues to act as a strong support for the NZ economy.
Economic Weekly: So near, yet so far
30 Nov 2020
Vaccine news has continued to trickle out over the past week, with the news that yet another candidate – from Oxford University and AstraZeneca – has been successful in trials. It was a big positive considering it’s the first candidate that can be stored in normal refrigerators. However, the announcement was swiftly followed by controversy over the vaccine’s trial results in the subsequent days.
Elsewhere on the vaccine front, the US Food and Drug Administration is set to hold its hearings to approve the Pfizer-BioNTech vaccine in just over a week on December 10th. Speaking last week, Moncef Slaoui, the Chief Science Advisor to Operation Warp Speed (the American vaccine development programme), was hoping to ship the first vaccines within 24 hours of that hearing. He also estimated the US could be “substantially back to normal” by summer 2021 (i.e. our winter), sooner than most would have expected just a month or two ago. Still, the vaccine rollout will be a major logistical exercise. Public health systems all over the world have been stretched by months of worsening outbreaks, and the first cab off the rank (Pfizer’s vaccine) needs to be stored at -70° temperatures. That means any measures to flatten the curve in the interim will be key – so it’s positive that the new lockdown restrictions in many parts of Europe appear to be helping slow the spread (see our chart of the week above).
On the domestic front, Q3 trade data out on Wednesday will provide a bit more detail about how NZ imports and exports are holding up. In our last Weekly, we highlighted the sharp global trade recovery over recent months, and the way that NZ imports have been more disrupted by COVID than our exports. We saw confirmation of that trend last week too, with the news that the NZ trade balance has expanded to its largest surplus since the 1990s, thanks to a sharp a fall in import values, but relatively resilient exports.
The other key releases from Stats NZ are around construction activity, with building consents data out on Thursday, and work put-in-place on Friday. We expect both results will show an expansion, further illustrating the strong housing market activity that’s come to take up so many newspaper column inches recently. Given our rapid price growth and chronic housing shortage, it looks like the housing market will come to be a major political hot potato in the new parliamentary term, especially as COVID recedes from view. On Page two of our weekly, Mark Smith shares some thoughts on where to from here for housing.
Housing Confidence Survey: Bitter-sweet symphony
30 Nov 2020
- Housing Confidence soars as NZ’s housing market shifts up a gear.
- But stretched affordability is putting a dent in perceptions of whether it’s a good time to buy.
- We see little to slow the market down, so this mix of bitter-sweet looks set to continue in 2021.
COVID-19 Chartpack Nov 27
27 Nov 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
- This week, we have added a couple of shipping-related charts
Commodities Weekly: Standing tall
25 Nov 2020
- Forestry prices have weathered the COVID stormbetter than most, despite sharp falls earlier in the year.
- The ongoing China-Australia trade dispute may carry anupside for NZ forestry exporters, as does the booming NZ construction sector.
- The ASB Commodities index wasunchanged in NZD terms last week, as a lift in the NZD muted the impact ofprice rises for underlying commodities.
Nov 2020 RBNZ FSR: Financial resilience a joint effort, but housing headaches to continue
25 Nov 2020
- The NZ financial system remains sound and well placed to support NZ’s economic recovery. Nonetheless, the RBNZ urges the need for continued vigilance.
- Housing market risks were acknowledged, with the RBNZ confirming its intention that the loan-to-value ratio (LVR) restrictions will be re-imposed in March (after consultation). We were a little surprised that no new initiatives were proposed to be added to the RBNZ policy toolkit.
- We doubt whether the LVRs on their own will be sufficient to bring the housing market to heel. A negative OCR remains off the drawing board for now but will likely remain an option in future if need be.
Economic Weekly: Global trade recovery squeezes shipping capacity
23 Nov 2020
One of the (many) surprising aspects of the economic impact of COVID-19 is how well NZ goods exports have held up relative to goods imports during the pandemic. As an exporter, NZ is vulnerable to a fall in global demand – although one of the key lessons is that the fall in demand has not been evenly shared across economic sectors. With countries resorting to lockdowns once the virus spread escalates, demand for types of goods have shifted. For example, from eating out to eating at home – putting pressure on wholesale supply chains to quickly divert food from restaurants to supermarkets and meal kit delivery services. Likewise, less money is spent on commuting, but more money has been spent on technology to improve the home office. With NZ’s exports of goods skewed toward food, and given the world still needs to eat, NZ exports held up relatively well to date. In contrast, NZ’s imports of goods plunged in April and have been slow to recover – and will only return to year-ago levels in November (see NZ trade indicators in our weekly chart pack).
But why have NZ imports been slow to recover, when electronic spending data point to a strong recovery in retail therapy? The answer may lie in a shipping capacity shortage. COVID-19 severely disrupted trade flows earlier this year and the logistics of global trade have faced a number of unprecedented challenges this year. Once the economic activity started to resume from the initial lockdown, the ability to send goods from A to B became complicated. With international boarders closed and air passenger demand collapsing, the ability to send goods by air freight has become severely impacted. Even with airlines repurposing passenger planes to be freight-only planes, the number of weekly global commercial flights in November remains 2/3 of February flights. This has seen shipping demand surge.
The RWI/ISL Container Throughput index (chart opposite) can be viewed as an indicator of global shipping trade – while activity plunged during the early days of the global pandemic, by September container shipping activity has surged to be 5% higher than pre-COVID levels. This has spilled over into higher shipping costs and reports of delays getting goods out of key shipping hubs – such as China. These challenges are also underscored by a number of anecdotes in NZ of supply shortages of imported goods, such as car parts, construction materials and retail goods. With shipping indicators demonstrating that global demand is now running ahead of supply, the question is how quickly will cost pressures support a recovery in generalised inflation pressures – particularly in a country like NZ which is in a fortunate position to be largely COVID free. In the meantime, we suggest doing your Christmas shopping early this year to avoid missing out.
Retail Trade Survey Q3 2020: Record retail rebound as households underpin the expansion
23 Nov 2020
- Record Q3 broad-based surge in retail volumes as the economy bounced back from April lockdown, with households underpinning the economic rebound.
- Looking through the quarterly volatility suggests that COVID-19 and adjustments that households had to make could have triggered a more fundamental shifts in retail patterns. Durable and motor vehicle retail was particularly strong.
- The retail outlook is expected to remain mixed as households encounter retail tailwinds and headwinds.
COVID-19 Chartpack Nov 20
20 Nov 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Commodities Weekly: No news is good news
18 Nov 2020
- Prices lifted a modest 1.8% at the latest GDT auction.
- ASB retains its $6.75 forecast for the season.
- The ASB Commodities Index fell 0.1% in NZD terms amid continuing gains for the NZD/USD.
Economic Weekly: Frenemies, and an update on our views
16 Nov 2020
Bit on last week! We got updates on an avalanche of acronyms: OCR, FLP, LSAP, LVRs, REINZ…, there was some encouraging vaccine news, and the RBNZ and housing became official frenemies. We’ve briefly outlined below the net impacts on our views:
- We no longer expect the RBNZ’s Official Cash Rate to be taken into negative territory. Instead, we think it will remain at 0.25% for the foreseeable future. This reflects our view that the RBNZ’s Funding for Lending Programme (FLP) will be successful, as well as ongoing resilience on the part of the domestic economy.
- Consistent with the above, we’ve fine-tuned our interest rate forecasts. You will no longer find a negative sign anywhere in our swap forecasts and additional downside is expected to be limited. We’re not sure if last week’s 10-20bps lift in the swaps curve will be sustained, but the risks do seem to favour further curve steepening.
- By contrast, we still expect retail interest rates to keep falling. We’ve long held the view that the FLP would add to downward pressure on rates. We see 1- and 2-year mortgage rates falling towards 2% over the coming 12 months. Term deposit rates have more downside too.
- We think last week’s COVID vaccine news was indeed a positive development for the medium-term economic outlook. Yes, it’s only the first step with many regulatory and logistical hurdles still to be cleared. But the important part is we now have that first step. It’s positive for confidence, and uncertainty has reduced a little (the same could be said for the US election). At the margin, this may help shore up hiring/nvestment intentions.
- Also notable on the global scene, our CBA colleagues now expect a stronger Australian economic recovery. The expected 2020 fall in GDP of 3.3% is forecast to followed by a rebound of 4.2% in 2021, and 3.8% in 2022.
- Finally, house prices. They rose at the fastest pace in 17 years in October according to last week’s REINZ data. Having initially lauded the housing boom for helping to rescue the recovery, it’s quickly become a headache for the RBNZ, regardless of whether it believes it’s responsible. We think it will get worse. We’ve been calling for LVR restrictions to be returned and they now will be, in March. But we suspect this will slow rather than stall house price acceleration. House prices look set to easily eclipse the RBNZ’s latest forecast.
Home Loan Rate Report: Mortgage rates keep getting lower
16 Nov 2020
- The RBNZ’s massive response to the COVID-19 situation continues to put downward pressure on mortgage rates.
- Borrowers can lock in record low interest rates now, with ASB’s fixed term rates as low as 2.49%.
- Our forecasts suggest rates could get even lower over the year ahead. Fixing and then rolling shorter term mortgages is forecast to be the cheapest option over a 5-year time horizon.
- Mortgage interest rates look set to stay extremely low over the next several years. Nonetheless, borrowers are prudent to plan to deal with higher interest rate costs over the long run, rather than budget on rates remaining this low indefinitely.
Term Deposit Report: Term Deposit rates are expected to decline
13 Nov 2020
- Term deposit interest rates have been steadily trimmed over the past year and are significantly below the average levels of the past 10-15 years.
- In fact, term deposit rates are now at the lowest level on records going back to the 1960s.
- Interest rates are expected to decline even further from today’s level and stay low for several years.
COVID-19 Chartpack Nov 13
13 Nov 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Commodities Weekly: Brexit beckons
11 Nov 2020
- Whilst the Donald Trump show hasn’t been renewed for a second season, the Brexit show hasn’t quite finished.
- Brexit negotiations matter for NZ given Britain is still a key NZ export market for many commodities, particularly beef and lamb.
- Meanwhile, the ASB Commodities index fell in NZD terms last week, amid strong gains for the kiwi over the course of the week.
RBNZ Nov 2020 Monetary Policy Statement Review
11 Nov 2020
The RBNZ’s economic assessment was as expected: resilient in the short term, but plenty of risks still lingering.
The RBNZ will implement its Funding for Lending Programme in December, with details to come soon.
We have nonetheless changed our view on the OCR outlook to expect no further OCR cuts – though the direction of risk will remain firmly in that direction
Farmshed Economics: Winners and losers
11 Nov 2020
- It is around eight months since the World Health Organisation declared COVID-19 a public health emergency, and since then it’s been a wild ride for commodity markets.
- After steep falls earlier in the year, prices for many agricultural commodities have lifted off their lows and some are even touching year-ago levels.
- Still, the gains have not been evenly distributed, and the unique export mix and supply factors of each commodity have played a big part in where things have landed.
Markets Monthly: Sharemarkets take a rollercoaster ride
10 Nov 2020
- It’s been a wild ride for sharemarkets with plenty to spook equities during October, from rising COVID cases and new lockdowns around the world, to the Brexit standoff and anxiety about the US election. Sharemarkets have since rallied in the aftermath of the US election results, with some market indices – including New Zealand’s – back at all-time highs.
- The massive monetary stimulus by central banks continue to influence deposit and mortgage rates.
- There’s been plenty of volatility in the NZD too, but it has stayed broadly higher against most of its peers.
Economic Weekly: And now for something completely different…
09 Nov 2020
After four tumultuous years, a litany of eye-grabbing headlines and a countless number of tweets, the Trump era may now be nearing an end. After days of counting, most news agencies had seen enough in the key state of Pennsylvania and called the race for Joe Biden. As at the time of writing, Biden was building on his leads in both Pennsylvania and Georgia, and looked set to grab about 303 electoral college votes and win the nationwide popular vote by 4-6 million votes according to projections. That’s a fair way short of what polls suggested, but we pointed out last week that Biden’s lead was probably large and stable enough to withstand a substantial error and that’s proved correct.
Democrats also held onto the House of Representatives but look like they’ll be unable to overcome their geographic disadvantage in the Senate. For now, markets are taking that outcome in their stride, and the result saw a broad rally in equities after some pre-election anxieties (see chart below). Whilst the prospects for a big stimulus package are uncertain, markets are comforted by the fact that divided control will make big tax and regulatory changes unlikely. With a very different President in the White House, markets are probably hoping for a little more predictability too. Still, it’s not quite over just yet. As at the time of writing, President Trump is determined not to accept defeat and is challenging the result by whatever means he can. And remember, if all else fails, there’s always 2024…
This week, the domestic focus turns away from electoral politics and over to the very different world of monetary policy, with the RBNZ meeting on Wednesday. We expect the bank to leave its OCR, LSAP and forward guidance unchanged, but unveil further detail about its ‘Funding for Lending Programme’ or FLP, that will offer low-cost funding for banks. The bank is also likely to downplay the signs of life we’ve seen domestically, and highlight the headwinds facing global growth as COVID cases rise overseas. We still expect a negative OCR next year, but a lot will depend on the effectiveness of the FLP in delivering support, as well as the shape of the pandemic and its continuing economic impact. You can read our full preview here, and don’t forget to stay tuned for our review.
COVID-19 Chart Chartpack Nov 06
06 Nov 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
RBNZ November Monetary Policy Statement Preview: Marking time ahead of the FLP
06 Nov 2020
- The RBBZ is expected to unveil the details of its Funding for Lending Programme (FLP), which should be operational by the end of the year. Details will be key.
- Otherwise, we expect the RBNZ to leave its OCR, forward guidance, and LSAP parameters all unchanged next week.
- Despite brighter signs of late, we expect the Bank to highlight the downward skew to risks and signal the intent to increase policy accommodation, including keeping live the option of a negative OCR in early 2021.
Adding a Funding for Lending Programme to the toolkit: Funding for lending programme ready to launch
05 Nov 2020
- The RBNZ looks set to deploy a funding for lending programme (FLP) before the end of the year. Details of the scheme are set to be announced in the November Monetary Policy Statement, at which stage we expect the RBNZ to unveil its timetable for FLP implementation.
- We expect a sizeable scheme (in the region of $30bn), over a 3 to 5-year term and 12-month implementation window, with the RBNZ potentially offering a floating and capped interest rate to banks at around the OCR that would fall if the OCR were to be cut. The RBNZ will want to keep the scheme simple so as encourage strong take-up and may offer incentives to promote more lending in some key pockets.
- We expect the FLP to have only a modest impact on the composition of bank funding and customer interest rates, and hence on prospective OCR settings. If the FLP has a strong take-up and proves highly effective in further lowering customer interest rates and boosting economic activity, it will reduce the need for more policy support via other means.
Commodities Weekly: Stirred, not shaken
04 Nov 2020
- Prices retreated at the Global Dairy Trade Auction overnight, after three consecutive weeks of increases.
- We are retaining our $6.75 WMP forecast for the 2020/21 season.
- Meanwhile, there was a decent lift in the ASB Commodities Index last week, boosted both by the falling dollar and by underlying price movement.
Q3 2020 Labour Market Review: No surprises here
04 Nov 2020
- Little to surprise from Q3 labour market figures.
- Labour market conditions have deteriorated and are expected to continue to do so, but government support and NZ’s relative COVID success have been effective in limiting the damage.
- Both the labour and housing markets are tracking much stronger than RBNZ forecasts. Still, the deteriorating global picture will keep the Bank cautious. We expect more monetary stimulus and further falls in retail interest rates from here.
Economic Weekly: US election: Clear result could still be on the cards
02 Nov 2020
There are a few bits and pieces of domestic data out this week, but there’s really only one game in town: the US elections. After an eighteen-month campaign, the wait is nearly over, as we look to find out whether President Trump will spend four more years in the White House, of whether he’ll be defeated by his challenger, Joe Biden. The results will trickle in from around midday Wednesday NZT onwards, but how soon we’ll know the outcome will depend on how close things end up. If it’s a landslide, that should be apparent on the night, but with an unprecedented number of votes-by-mail that will take a while to count, we might be waiting a while longer if its closer. That means it’s important to be careful when reviewing the returns – Reuters warns of a ‘red mirage’, with early returns favouring President Trump’s Republican Party, before mail-in ballots favouring Biden’s Democratic Party come in.
A drawn-out result could trigger considerable volatility everywhere from bonds and equities to commodities and FX. With President Trump refusing to commit to accepting defeat, and the prospect that things could end up in the courts, it’s not at insignificant risk. The last time we had an unclear result, back in 2000 (Bush v. Gore), there was quite a lot of choppiness on Wall Street, which in turn led to volatility on the NZX (see chart below). Still, we shouldn’t overestimate the chances of an ambiguous result – there is a good chance of a clearer outcome.
Indeed, the most likely outcome is still a comfortable win by Biden. Everyone remembers the shock in 2016, but there are a few reasons to believe an upset this time is a bit less likely. Biden’s lead is wider than that enjoyed by Hillary Clinton three years ago (and ahead of the margin he probably needs to win America’s convoluted electoral college system). The polls have been much more stable this year too, with some pollsters and modellers also adjusting their methods to fix things that went wrong last time – like the failure to weight their samples by education, or account for correlations in errors between states. The Democrats are also (widely) favoured to hold onto the House of Representatives and (more narrowly) favoured to win control of the Senate. Remember that whatever happens, the new President and Congress won’t be sworn in until January, so the prospects for a new stimulus bill any time soon are still far from certain.
COVID-19 Chartpack Oct 30
30 Oct 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Q3 2020 Labour Market Data Preview: The climb begins
29 Oct 2020
- Q3 data will provide a cleaner read on the labour market, following Q2’s artificially low unemployment result.
- The wage subsidy and NZ’s impressive economic rebound have cushioned recession impacts on the labour market. But we still see the unemployment rate rising to 5.4% in Q3, on its way to a peak of 6½% next year.
- Markets and policymakers will likely look through any surprise volatility that has increasingly become the norm. The RBNZ is already responding to the expected continued slackening in the labour market over the coming 12 months.
Commodities Weekly: Slow and steady in September
28 Oct 2020
- The latest trade data showed kiwifruit export values holding steady during September, with both prices and volumes resilient.
- Looking ahead, challenges and opporunities loom for the sector, thanks to the border closure and a mysterious disease outbreak overseas.
- The ASB Commodities index fell 1% in NZD terms last week, with currency movement the main driver.
Term Deposit Report: TD rates keep getting lower
28 Oct 2020
- Low interest rates have been helping borrowers and frustrating savers over recent years.
- Term deposit interest rates have been steadily trimmed over the past year and are significantly below the average levels of the past 10-15 years.
- Interest rates are expected to decline even further from today’s level and stay low for several years.
Economic Weekly: Housing market complicates RBNZ’s balancing act
27 Oct 2020
The RBNZ’s job just got a lot trickier than usual. The RBNZ has multiple jobs to juggle – it has its Monetary Policy objectives - a dual target of inflation and maximum sustainable employment. But at the same time, it must also balance Financial Stability Risks. Most of the time, it can juggle both responsibilities, as the various risks move together through the economic cycle so relaxing Monetary Policy settings does not conflict with the RBNZ’s Financial Stability goals. However, there was no modern precedent for the COVID-19 pandemic, and during this highly unusual time we are all learning as we go.
In the early days of the COVID-19 pandemic, the RBNZ was quick to grasp the seriousness of the situation and was quick to deliver policy support via slashing the OCR, putting in place a range of monetary implementation measures and introducing Quantitative Easing in NZ. On the Financial Stability front, the RBNZ relaxed Loan to Value (LVR) lending restrictions across the board, in large part to support the housing market. Alas, economists (including ASB) got it wrong, and the surprisingly resilient economy, plus large falls in mortgage rates, plus relaxing LVR lending restrictions proved a very potent mix for the housing market (see here). Strong housing demand across the board (it’s not just investors that are buying), coupled with chronic housing shortages means the housing market is now very tight and house prices have lifted strongly to reflect that.
The RBNZ needs to recognise that the housing market risks have shifted dramatically – no longer are they facing the risk of falling house prices, but that of strongly increasing house prices. And by doing nothing, the RBNZ faces the risk of fuelling the fire of a housing market bubble, which, if underpinned by highly leveraged buyers, can increase financial stability risks down the line. The subdued inflation print last week will likely support the RBNZ’s conclusion that additional monetary support will still be needed for some time. Which means the RBNZ’s needs to consider reinstating the LVR lending restrictions at the November Financial Stability review – even if it means going back on its previous forward guidance.
Home Loan Rate Report: Mortgage rates keep getting lower
23 Oct 2020
- The RBNZ’s massive response to the COVID-19 situation has seen mortgages press lower over recent months.
- Our forecasts suggest rates could get even lower over the year ahead. Fixing and then rolling shorter term mortgages is forecast to be the cheapest option over a 5-year time horizon.
- Mortgage interest rates look set to stay extremely low over the next several years. Nonetheless, borrowers are prudent to plan to deal with higher interest rate costs over the long run, rather than budget on rates remaining this low indefinitely.
2020 Q3 CPI Review: Subdued
23 Oct 2020
· Q3 headline CPI came in considerably softer than market expectations, with annual readings for the headline and most measures for core inflation falling further below 2%.
· It is unclear whether the soft CPI result is due to more subdued than expected inflationary pressure or the CPI rebase that incorporated the new expenditure weights. We will have to wait until the next CPI outturn in January to find out which of these possibilities is the more valid.
· An uncertain inflation outlook adds to the challenges being faced by the RBNZ, which is facing a highly uncertain outlook for economic activity, notwithstanding brighter signs of late. We have pencilled in a negative OCR from April next year but note this is conditional on a number of factors being met.
COVID-19 Chartpack Oct 23
23 Oct 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Housing Insights: Housing boom - who's buying
21 Oct 2020
- Investors and first-home buyers have been the most active borrowers recently.
- High-LVR investor borrowing in particular has jumped.
- The central/lower North Island, notably Wellington, are the tightest markets amongst the regions.
Commodities Weekly: GDT prices firming up nicely
21 Oct 2020
- Prices rose again at the Global Dairy Trade auction overnight, the third consecutive auction where the overall index and the WMP index have risen.
- ASB’s milk price forecast remains at $6.75 for the 20/21 season.
- Meanwhile, the ASB Commodity Price Index lifted 1.1% in NZD terms last week, as a falling kiwi and rising underlying prices made for a potent combo.
Muddle, Bubble, Toil, or Trouble?
19 Oct 2020
The line above could almost be interpreted as the menu of economic outcomes available to the Reserve Bank, as it continues to ponder which alternative policy tool, if any, to deploy next. The show-stopper among these – a negative OCR – is looking a little less likely than it was a month ago. Not only has the economy continued to impress with its post-lockdown resilience, but certain sectors are positively humming. This highlights the uneven way COVID stimulus has filtered through the economy, and the care required in applying it. Beset by supply-side rigidities, stimulus has simply inflamed the excess demand obvious in the housing market (see ‘Chart of the Week’). Our latest Home Economics publication last week marked up our house price forecasts significantly. Equity markets, too, remain on a tear with the NZX50 up 46% since March. The risk is thus increasing we end up with “bubble”-like conditions in some sectors, even as others continue to “muddle”.
The weekend delivered an outright majority to the Labour Party. It’s the first time under the MMP electoral system that one party won enough seats (>60) to govern alone (acknowledging the results are not yet final). The result wasn’t a complete surprise given pre-election polling, and financial markets have taken the outcome in their stride. The emphatic result means we’re unlikely to see weeks of coalition wrangling as in past elections, something that can drag on business and financial market sentiment. Attention should move on quite quickly. We’ll provide a full run-down on our take in a note to be released later today.
Attention this week will be on the US election, and in particular the rising chances of a Democratic “clean sweep” of the White House, Senate, and House. Locally, Friday’s CPI and tomorrow’s QSBO will be worth watching. We expect the former to reveal a lift in annual inflation to 1.7% yoy.
NZ 2020 General Election Result: Labour able to govern alone
19 Oct 2020
· In an emphatic result, the Labour Party has won an outright majority – a first under the MMP electoral system.
· Regardless of whether Labour enters into any arrangements with other parties, it will retain full control.
· The COVID-19 pandemic needs decisiveness, which the outright majority can deliver. The pressure will be on to effectively lead the country forward.
COVID-19 Chartpack Oct 16
16 Oct 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
2020 Q3 CPI Preview: Middling headline and core inflation
16 Oct 2020
· We expect a 0.9% qoq increase in Q3 headline CPI, with annual headline inflation rising to 1.7%.
· The short-term outlook for inflation looks to have modestly improved compared to a few months ago, although the outlook for medium-term inflation remains highly uncertain.
· Entrenched low inflation provides a free hit and allows the RBNZ to deploy additional policy stimulus. We have pencilled in a negative OCR from April next year but note this is conditional on the economic outlook, operational hurdles being cleared, and the RBNZ being confident this is the best policy option available.
Commodities Weekly: Taking stock
14 Oct 2020
- The ASB Commodity Index lifted in both NZD and USD terms last week off the back of the strong dairy auction result.
- This week we take a look at how the different commodities are coping as the pandemic continues
- Dairy and forestry have proved resilient, but meat prices are still well below year ago levels
Home Economics: Housing shortage sustaining house price momentum
13 Oct 2020
- Blink and you would’ve missed it. The housing “correction” is behind us.
- A more severe housing shortage, a less gloomy outlook for the labour market, and the RBNZ’s effective “green light” for asset price cycles all promise to keep house prices rising at a rapid clip over the coming 12 months. Flat-lining net migration and some roll-back of policy support will slow rather than stall the market next year.
- We have materially upgraded our forecasts. We now expect annual house price inflation of 9% by year end, and have flipped the small negative we had in for June 2021 to an 11% positive annual increase.
Economic Weekly: NZ heads to the polls
12 Oct 2020
The NZ general election is now fast approaching, taking place this Saturday (17th October), but the polls are already open. New Zealanders have been encouraged to vote early this year to avoid large queues and are reportedly casting advance votes in record numbers. Polls suggest a centre-left government will be returned, although nothing is certain in politics. In terms of market reaction, its more about getting a clear result rather than who specifically wins – a clear election mandate would provide more surety to markets and the economy, whereas an inconclusive result could see a period of pronounced volatility. Between the two major parties, there are only modest differences in terms of policy - with starker differences between potential support parties (Greens and Act). Both major parties have demonstrated the ability and commitment to be competent fiscal managers. For more background information on NZ’s election, see our note by Mark Smith here.
Meanwhile, NZ economic data continues to surprise on the upside, leading us to further revise our GDP forecasts (higher) and unemployment forecasts (lower). The NZ housing market has barely skipped a beat this year, shrugging off the global pandemic. REINZ house sales data for September is likely to be released during the second half of the week and is expected to confirm accelerating housing market momentum.
StatsNZ recently updated its population estimates to account for the census data, and as a result the population is larger than previously reported. The implications of this revision are that housing shortages remain acute (see chart of the week below) and widespread across NZ. Lower mortgage rates are likely just adding fuel to the fire. Despite the NZ economy performing stronger than expected, and the housing market heating up, the RBNZ appears unlikely to back away from their policy stance anytime soon, with the RBNZ Chief Economist commenting last week that “we’d rather do too much too soon, than too little too late”.
NZ 2020 General Election Backgrounder - Same, same, but different
09 Oct 2020
· Current polling suggests a centre-left government will be returned, although nothing is certain in politics.
· The policy prescriptions of both major parties are broadly similar, with a few modest differentiators.
· We encourage politicians on both sides of the divide to provide a coherent vision of how they will transition the economy out of the crisis stage, lay the platform for sustained growth and address longer-term challenges.
COVID-19 Chartpack Oct 09
09 Oct 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Encouraging lift in GDT prices overnight
07 Oct 2020
- The ASB Commodity Price Index fell 0.7% in NZD terms last week, as the NZD/USD lifted 1.4%.
- Prices lifted 2.2% at the GDT auction overnight, the second consecutive lift.
- WMP is now back above US$3,000 a tonne, as downside risks to our $6.75 milk price forecast recede
Decisions, decisions
05 Oct 2020
Another week begins and another big decision looms for the government as it reviews whether to move Auckland down to COVID alert level one from Thursday. No doubt, there will be many factors for Cabinet to weigh, but the news since Alert Levels were last reviewed has typically highlighted New Zealand’s good position internationally. The total number of active cases is now down to 41 (eight are community cases) and, according to the Ministry of Health, no-one in the country is currently hospitalised with the virus. By contrast, many of the overseas headlines are scary. Last week, lockdown measures were re-imposed in parts of Western Europe, the three largest Canadian provinces declared they were in a second wave and UK officials said things were ‘heading in the wrong direction.’ And of course, Friday saw the news that President Trump has been diagnosed with the virus…
Data out last week continued to suggest that the NZ economy is holding up better than many feared, though it has still taken a sizable hit. Last week’s building consents data showed construction broadly holding up to its pre-COVID levels, and we saw a solid lift in business confidence. Mobility data seems to suggest that the time Auckland has been above Alert Level 1 hasn’t reduced activity as much as anticipated. Still, it’s not entirely smooth sailing for the domestic economy, and as we tick over into a new month and get that little bit closer to summer, it’s a reminder that the closure of the border is going to put a big dent in economic activity, even if we do end up with a trans-Tasman bubble at some point (see our chart of the week below).
Border restrictions aside, New Zealand is in a comparatively good position globally, so its notable that the RBNZ has been more explicit in signalling the potential for a negative policy interest rate. Central bank policy releases this week from two of the more sceptical central banks on negative policy rates – the RBA and the US Federal Reserve – will be worth perusing for their favoured next steps. We are very much operating in an unprecedented environment, and it’s fair to say that central banks – like the rest of us – have differing opinions on the right responses. Interesting times indeed.
Markets Monthly for September 2020: Sharemarkets ease from record highs
02 Oct 2020
- Sharemarkets posted strong gains over August, only to give up some of those gains in September.
- NZ Government bond yields eased even lower over September, and for the first time the yields on some bonds became negative.
- Central banks offshore are determined to keep interest rates low too and yields in the US and Australia declined during the month.
COVID-19 Chartpack Oct 02
02 Oct 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Commodities Weekly: Risk sentiment buffeting NZD
30 Sep 2020
- The ASB Commodity Price Index rose 1.7% in NZD terms last week, driven by a falling kiwi.
- Risk appetite has been a big theme recently, with sudden rises and falls in share markets heavily impacting the currency.
- Meanwhile, last week’s trade data release showed kiwifruit exports were proving especially resilient.
Economic Weekly: RBNZ readying to rock and roll on FLP
28 Sep 2020
Last week, the RBNZ released its September monetary policy review. For those aficionados who recall the previous monetary policy statement, it was playing a very familiar song, with the OCR on hold at 0.25%, and the Large-Scale Asset Purchase Programme still pegged at $100 billion. The RBNZ kept singing the blues, highlighting the downbeat economic global outlook, and “unprecedented contraction” in Q2 GDP. The bank continued to highlight its three favourite options for additional monetary stimulus, with a ‘Funding for Lending Programme’ (FLP) – a cheap form of direct lending to banks, rounding out the trio with a negative OCR and foreign asset purchases.
Yet there was a notable departure. Previously, the Bank had suggested it would roll out alternative monetary policy as part of a joint package of measures. This time around, the RBNZ suggested they could be deployed independently, with the FLP being the first. The review stated that the FLP would be ready for deployment by the end of this calendar year (possibly as soon as November), rather than alongside a negative OCR in 2021. In other words, the RBNZ has kept the same band playing the same tunes, but given one of the members a solo, and with a slightly faster tempo.
The news that the FLP could be deployed sooner and separately, was music to our ears. An earlier FLP gives financial institutions a measure of certainty and speeds up the transmission of lower borrowing costs to businesses and consumers. We could envisage the FLP being launched as early as the November MPS. We still expect the RBNZ to cut the OCR in 2021, with April as the most likely date. You can read our full review here.
Still, the shape and speed of further stimulus is hard to predict amidst all the uncertainty. Even interpreting the data when it does come in can be a challenge – what sounds like a sweet melody can be masking more worrying noises. For example, last week’s August trade showed a solid year-on-year lift in exports, seemingly highlighting the resilience of the NZ export sector. While that was true to a certain extent, the headline figures were also inflated by a large shipment of aircraft overseas for long-term storage while the border stays shut – a resonant reminder of tough times ahead. On a similar theme, data on the household sector seems to be both encouraging and worrying. On page 2, economist Mark Smith helps you interpret the cacophony.
COVID-19 Chartpack Sep 25
25 Sep 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Household sector outlook: The good, the not-so good and the ugly
24 Sep 2020
- NZ’s timely healthcare and economic policy responses have meant that the impacts of COVID-19 restrictions on the NZ household sector may not have been as damaging as they could have otherwise been.
- Nevertheless, the economic costs of the outbreak are sizeable and are likely to cumulate over time, with COVID-19 adding another layer of uncertainty to the household outlook.
- Our hope is that the household sector takes the COVID-19 hit on the chin and staggers on. The risk is that consumers retrench, deepening the downturn.
Commodities Weekly: The relative resilience of rural
23 Sep 2020
- The ASB Commodity Price Index fell a modest 0.1% in NZD terms last week, despite gains across a broad range of commodities in USD terms.
- And although the prices of most key commodities remain well down on year-ago levels, recent data has generally highlighted the relative resilience of the rural sector.
- Maenwhile, last week Fonterra finalised the 2019/20 milk price at $7.14 and maintained its wide forecast range of $5.90-$6.90 for 2020/21.
RBNZ MPR Review Sep 2020: RBNZ signals further interest rate relief for borrowers
23 Sep 2020
- As expected, the RBNZ maintained current settings and kept its easing bias.
- However, the RBNZ also cited that progress had been made on developing alternative monetary policy instruments, flagging that a Funding for Lending Programme will be introduced by the end of the year.
- We expect the RBNZ to sequence policy easing, with a funding for lending programme to be introduced later this year before the OCR is lowered in early 2021. Prior to this we expect the RBNZ to maintain a strong pace of asset purchases to push yields lower. Such moves are designed to further lower borrowing costs in the economy.
Economic Weekly: NZ enters recession – now for the recovery
21 Sep 2020
GDP figures for the June quarter released last week were within economist expectations and suggest economic activity contracted around 12% as a result of the initial COVID-19 pandemic response (see our full write up here). The key learning from the Q2 data is that activity appears to have recovered faster and stronger over the second half of the quarter once alert level restrictions were gradually eased through May and June.
As mentioned in recent commentary, we believe more activity was able to take place under Alert Level 2 and 3 than we initially assumed. Using the Q2 GDP data, we have updated our estimates – while we still estimate that only 67% of activity was able to take place under Alert Level 4, we now estimate 88% of activity took place under Alert Level 3 (up from 80%) and 96% of activity took place under Alert Level 2 (compared to 93% previously).
Furthermore, movement data suggest the economy’s ability to adapt to the Alert Level restrictions has continued to evolve. According to Google Maps movement data, there was more movement in Auckland’s workplaces, retail and recreation during August’s Level 3 restrictions compared to during May. Likewise, we are seeing less impact from Level 2 – with the rest of the country seeing very little overall reduction in movement/activity relative to Level 1.
As a result, we have revised our H2 2020 GDP forecasts higher. Other factors contributing to additional activity taking place include a higher number of international visitors remained in NZ than we initially expected. Over time, as these visitors do leave and are not replaced, the impact will be felt – and will likely be particularly noticeable to tourism operators over summer during the typical peak in international visitor numbers. However, we are also seeing some offset with New Zealander’s taking holidays at home – so do your part for the economy and book a summer holiday (and preferably not all at the same time – spread the demand through the summer months!).
COVID-19 Chartpack Sep 18
18 Sep 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Operating in a negative OCR Environment: Potential impacts of a negative OCR
18 Sep 2020
- There are various pros and cons behind the RBNZ potentially going down the negative interest rate path.
- Here we try to highlight some of the wider issues involved with the RBNZ adopting a negative OCR.
- Tying a negative OCR with a funding for lending programme increases the odds of a negative OCR being implemented successfully in NZ and providing further interest rate relief for borrowers. The RBNZ should consider introducing a funding for lending programme before cutting the OCR in early 2021.
RBNZ MPR Preview Sep 2020: And now we wait
18 Sep 2020
- We expect the RBNZ to leave the OCR, forward guidance, and LSAP parameters all unchanged next week.
- Wholesale and retail interest rates are grinding lower, important given the RBNZ’s laser-like focus on driving them down, and the economic picture is not materially different to prior RBNZ expectations.
- Markets will be most sensitive to any changes to forward guidance. We see a small risk that it is softened.
Fonterra Milk Price Forecast Update: Fonterra’s wide forecast range is a sign of the times
18 Sep 2020
- Fonterra’s milk price for the 2019/20 season is $7.14 KGMS, plus a final dividend of 5c announced.
- Fonterra sticks with its wide $5.90-$6.90 for the 20/21 season, which is understandable in this environment. Fonterra’s 20/21 forecast earnings per share is in a 20-35 cent range.
- We are sticking with our 20/21 $6.75 milk price prediction for now, but the present risks are skewed to a number closer to the mid-point of Fonterra’s forecast range.
Term Deposit Report: TD rates keep getting lower
17 Sep 2020
- Term deposit interest rates have been steadily trimmed over the past year and are significantly below the average levels of the past 10-15 years.
- In fact, term deposit rates are now at the lowest on records going back to the 1960s.
- Interest rates are expected to decline even further from today’s level and stay low for several years.
Q2 2020 GDP Review: Q2 GDP registers largest fall in recorded history
17 Sep 2020
- StatsNZ estimates that GDP shrank 12.2% over Q2, relatively close to ASB and market expectations (of -11% and -13%, respectively).
- As expected, the fall in economic output was largest in areas of the economy that were most impacted by the border closure or the inability to operate during Alert Level restrictions. Activity that was deemed essential or could be completed remotely from home saw smaller declines.
- It’s not the size of the fall that matters, but the size of the rebound and like many, we expect to see a strong bounce back in activity over Q3.
Markets Monthly for August 2020: Another month, another record for sharemarkets
16 Sep 2020
- Sharemarkets posted strong gains over August. NZ and US sharemarkets set fresh highs over the month. The MSCI index of world shares rose over 6%.
- The signals ranged from encouraging on the economic data front, to worrying, in terms of COVID-19 cases, politics and US-China tensions. Sharemarkets have since retreated from their respective highs in early September.
- Local government bond yields eased even lower over August, as the RBNZ stepped up its bond purchases; in contrast, Australian and US yields lifted last month, but remain very low.
Commodities Weekly: Dairy prices show encouraging lift overnight
16 Sep 2020
- It was pleasing to see dairy prices firming at the Global Dairy Trade event overnight.
- Fonterra will release its FY20 annual financial results this Friday and will confirm the final Farmgate Milk Price for the 2019/20 season (its last forecast range was $7.10-$7.20).
- The ASB Commodity Price was little changed last week; the index shed 0.2% in USD terms, but a slight downward drift in the NZD exchange rate meant that the NZD denominated index fell just 0.1%.
NZ 2020 Pre-election Economic and Fiscal Update: Same, same, but similar
16 Sep 2020
- The ‘money’ line for the Pre-Election Update is that the core Crown debt outlook is similar to the Budget’s.
- A better near-term but milder long-term economic outlook has slightly reduced the nominal GDP forecast.
- Heading into the election, the outlook as presented has few surprises for political parties and their policies.
Regional Economic Scoreboard Q2 2020: Mighty Manawatu makes its mark
15 Sep 2020
- Manawatu-Whanganui climbs six spots to take top place on the regional economic scoreboard this quarter.
- Hawke’s Bay and Gisborne both continue to be strong performers in second and third position.
- Weak retail sales and the lack of tourists kept Nelson on the bottom rung for the second quarter in a row.
Economic Weekly: Trying to stay positive
14 Sep 2020
This week brings a potentially significant event for the NZ economic outlook. And it’s not the Q2 GDP figures due Thursday. Today, Cabinet reviews NZ’s Alert Level settings. Any change would take effect midnight Wednesday. We know from the first time around that any shift down in Alert Levels would be significant for parts of the economy. Business confidence is rebounding, but we’re cognisant that operating at Level 2/2.5 is getting harder for some. Not only is the wage subsidy winding up, but balance sheets bruised in the first lockdown have less buffer now.
The GDP figures due Thursday will “officially” confirm NZ suffered a deep recession over the first half of the year. We’re forecasting a quarterly contraction of 11% (preview here). A terrible outcome undoubtedly, and easily the largest decline on record, but still a lot better than the circa -20% forecasts that were doing the rounds in March/April. The general run of the economic green since the June quarter has also pleasantly surprised most economic watchers.
Still, for every day that goes by with no prospect of the borders re-opening, no proven vaccine, and ongoing global scrambling to contain COVID-19 flare-ups, the more the medium-term outlook gets foggier. This is what we’re attributing to last week’s further ramp up in market speculation of RBNZ OCR cuts. In fact, yields on several NZ fixed income instruments briefly fell into the negatives for the first time ever. One for the scrapbook. Keep your eyes peeled for two notes from ASB Economics this week that will lay out the effects of negative rates. Mark Smith will publish on the pros and cons and general issues associated with negative rates, while this author sets out some implications and recommendations for corporates exposed to interest rate risk in the upcoming Q3 Corporate Hedging Toolbox.
Q2 2020 GDP Preview: When the crystal ball cracks
11 Sep 2020
- We expect StatsNZ’s first estimate of Q2 GDP to show an 11% contraction – adding to the 1.6% decline in Q1 GDP.
- Initial Q2 data have been consistently stronger (i.e. less weak) than expected, suggesting the fall in Q2 GDP is likely to be less than many initially feared.
- The impact of COVID-19 on economic growth is highly uncertain and StatsNZ has acknowledged methodology limitations will require revisions to its initial Q2 estimate.
COVID-19 Chartpack
11 Sep 2020
This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
NZ 2020 Pre-election Economic and Fiscal Update: I see Red, I see Red, I see Red!
11 Sep 2020
- The Pre-election Economic and Fiscal Update updates the fiscal outlook with refreshed economic assumptions.
- The 2021 outlook is likely to show less red ink, given the economy has fared better than Budget forecasts.
- But the longer-term outlook is likely to reflect a more gradual recovery relative to the Budget.
Commodities Weekly: NZD eases off recent peak
10 Sep 2020
- The ASB Commodity Price Index lifted 0.4% in NZD terms last week.
- Next week could be a little more eventful, for dairy prices at least.
- ASB will review our 20/21 $6.75 forecast after next week’s events.
Economic Weekly: NZ’s remarkable resilience
07 Sep 2020
We released our latest Quarterly Economic Forecasts today, and taking a look back and comparing our current forecasts against our previous set of Quarterly Forecasts finalised in May we have been surprised by the remarkable resilience of the NZ economy. Back in May, we were bracing ourselves for a recession double the size of that seen in the 2008/09 Global Financial Crisis (and still found ourselves at the more optimistic range of economic forecasters). Subsequently, we have found ourselves nudging our GDP forecasts higher – we now expect the economy to shrink around 5% when comparing the end of 2020 with the end of 2019, vs a 6% decline we had previously forecast. Furthermore, we see some risk of further upward revisions over coming weeks. Ahead of the upcoming Q2 GDP release (September 17th), StatsNZ releases key detailed economic surveys including last week’s Building Work Put in Place survey - which showed that construction activity held up better than expected, particularly construction of residential dwellings. This survey, along with other recent data, suggest that some types of activity recovered more quickly than we expected through Alert Levels 3 and Alert Levels 2 – and that production output was not as constrained by social distancing requirements as we had expected. If this finding is corroborated by additional surveys (such as the Economic Survey of Manufacturing, out on Wednesday) and ultimately Q2 GDP – we will also need to fine tune our estimates of how much economic activity takes place under Alert Level 3 and Alert Level 2. The upshot is that the economic cost of the current lockdown, for example, isn’t likely to be as high as we previously estimated. The ANZ August business confidence figures released last week showed little reaction in business confidence from the news of a second lockdown – the lack of pessimism may reflect that NZ pulled through the first lockdown much better than expected. We will be watching the September preliminary results closely to see if business confidence remains steady in light of the August resurgence.
Quarterly Economic Forecast: Groundhog Day
07 Sep 2020
- The economy has come out of the major lockdown better than previously expected, though still taken a hit.
- Nevertheless, global COVID-19 challenges point to global economic recovery being gradual and disrupted.
- A negative OCR will further support NZ, as would improving implementation of our COVID elimination plan.
COVID-19 Chartpack
04 Sep 2020
This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Over recent weeks we have made some improvements to the chart pack. We have included additional Google maps data charts which compare movements in Auckland vs the rest of the country. We have also improved our charts monitoring daily traffic data and monthly trade data trends. We hope readers find these new charts insightful and interesting.
Commodities Weekly: Fonterra sticks with wide forecast range for 20/21
02 Sep 2020
- The ASB Commodity Price Index was down 1.4% in NZD terms last week, with a strong 3.1% lift in the NZD the main mover over the week.
- At the first Global Dairy Trade Event for September the overall GDT Price index declined another 1.0%.
- Our forecast of $6.75 for the season ahead is under some pressure, and the risks are skewed to the downside at present.
Q2 Terms of Trade: Record high Terms of Trade support NZ’s resilience
02 Sep 2020
- Q2 Terms of Trade and NZ goods export prices post a new record high.
- Goods export and import volumes fall on COVID-19 disruption, but pockets of relative strength encouraging.
- Exports of services plunge as overseas visitors locked out.
Economic Weekly: Who borrows wins
31 Aug 2020
For all the pointy-headed chatter about RBNZ quantitative easing, negative policy rates, direct financing of banks and so on, we’re cognisant the average punter is probably wondering what it all might mean for them, should it all go ahead. Last week, we provided our take on a couple of the upshots.
First, our forecasts for term deposit rates and mortgage rates have been slashed. We think that an RBNZ scheme to lower the OCR below zero and lend directly to banks, if introduced, would heap downward pressure onto term deposit rates. This is especially so now that the banks’ minimum core funding ratio has been lowered to 50% from 75%. Cheaper bank funding costs (TDs account for around 60% of bank funding) would flow through to lower mortgage and business lending rates. They’re already at rock-bottom levels, but we see further downside. Our Senior Wealth Economist released his latest forecasts this morning. In short, we think term deposit rates could fall below 1% with mortgage rates for some terms below 2%.
Second, the promise of extremely low interest rates for years to come will continue to boost asset prices. Our previous forecast for a 6% fall in NZ house prices (itself one of the least pessimistic around) was upgraded last week to ‘just’ a 3% fall. Global equity markets also remain on a tear as investors factor in a permanently lower discount rate. Of note, the NZX 50 hit a fresh record high on Friday.
It’s worth remembering that all of this is exactly what the Reserve Bank is trying to engineer as it tries to reflate the economy. Boosting asset prices, encouraging debt accumulation, and the associated increase in inequality are unfortunate side-effects of the way easy monetary policy works. We can at least take comfort that we’re not alone. The US Federal Reserve’s commitment last week to allow inflation and employment to run hotter for longer, by keeping interest rates lower for longer than it might have in past cycles, promises to underpin all of these trends for some time to come. Where it all ends is anyone’s guess. At least us Aucklanders get to leave the house this week.
Home Loan Rate Report: Mortgage rates could press even lower
31 Aug 2020
- The RBNZ’s massive response to the COVID-19 situation has seen mortgages press lower over recent months and borrowers can lock in record low interest rates now, with fixed term rates as low as 2.55%.
- Our forecasts suggest rates could get even lower over the year ahead; fixing and then rolling shorter term mortgages terms is forecast to be the cheapest option over a 5-year time horizon.
- While mortgage interest rates look set to stay extremely low over the next several years, borrowers are prudent to plan to deal with higher interest rate costs over the long run, rather than budget on rates remaining this low indefinitely.
Housing Confidence: Seeing light at the end of the tunnel
28 Aug 2020
- Views on whether it is a good or a bad time to buy a house are the most optimistic since 2012.
- House price expectations have partly recovered from lockdown depths.
- Unsurprisingly, a greater proportion of respondents expect interest rates will fall further.
Economic Note: COVID-19 Chart Pack August 28
28 Aug 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Housing Insights: Lower mortgage rates…higher house prices
26 Aug 2020
- We lower our mortgage rate forecasts.
- And lift our house price forecasts.
- We now expect national house price inflation to fall 2.8% by March, milder than the 6% fall previously forecast.
Commodities Weekly: Looking forward to AL-2!
26 Aug 2020
- The ASB Commodity Price Index was down in 0.1% NZD terms last week, and down 0.5% in USD and SDR terms.
- A few weeks of Alert Level 3 in Auckland and the associated business closures is a reminder that COVID-19 is having, and will continue to have, a significant impact on consumers.
- Moving to Alert Level 2 in Auckland next week will allow restaurants to open, and social restrictions to ease somewhat; the associated demand will be welcomed by meat processors and retailers.
Economic Weekly: Lockdown diaries… day 13 of lockdown lite
24 Aug 2020
We have previously estimated that the current COVID Alert Level restrictions (i.e. Auckland Alert Level 3 and the rest of the country at Alert Level 2) would reduce weekly GDP by around 8%. Early data provide some insights into how NZ is responding. Data from Google show that NZ’s movement in key economic areas (i.e. workplaces, grocery, pharmacy, retail and recreation) is down 20%, but for Auckland movement is down 43% (see chart below). Traffic data paint a similar story. Light traffic in Auckland is down significantly (42%) and heavy traffic has also been impacted by the Level 3 restrictions (down 10%). Throughout the rest of the country, heavy traffic looks largely unaffected and light traffic is only down a smidge (6-10%). Card spending is down, with the average weekly spend of ASB cardholders down 16% (week ended 22 August) compared to the average weekly spending a fortnight ago, prior to the discovery of the latest outbreak. Meanwhile, electricity demand appears largely unchanged. The contrast between light and heavy traffic, card spending vs electricity usage, highlights that the brunt of the impact from the current lockdown is borne by the services industries.
Last week we officially changed our OCR call, along with other NZ bank economists, and now expect the RBNZ to cut the OCR into negative territory next year. In saying this, we retain some reservations around the effectiveness of a negative OCR and remain unsure the benefits outweigh the costs. A negative OCR remains a contentious issue internationally. In our Economic Note released last week, ASB Senior Economist Mark Smith commented that the jury of experts remains out, with the international central banking community split on the effectiveness of using a negative OCR. Furthermore, Mark noted that the European experience does not inspire a lot of confidence. If the RBNZ does cut the OCR into negative territory it will be in direct contrast to the Reserve Bank of Australia, which, so far, remains staunchly against using a negative cash rate. This contrasting position is likely to have some currency implications, and we have also tweaked our FX forecasts as a result (see Page 2 of the Weekly).
Retail Trade Survey Q2 2020: Record fall in retail volumes
24 Aug 2020
- Record Q2 fall in retail volumes as lockdown restrictions clobber non-essential retail.
- Sizeable Q3 rebound expected, but the resilience of the retail sector will still be tested.
- More policy support is needed to underpin consumer spending and we expect the OCR to fall below zero by next April.
COVID-19 Chartpack August 21
21 Aug 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Commodities Weekly: RBNZ scoping negative OCR setting
19 Aug 2020
- The ASB Commodity Price Index was flat in USD terms last week, but a 0.9% NZD decline helped the index rise in NZD terms.
- Dairy prices eased across the board at the latest Global Dairy Trade auction overnight, sending the GDT Price Index down 1.7%.
- In the wake of last week's RBNZ meeting, ASB economists changed our outlook for the OCR, and the RBNZ’s overall policy settings.
Changes to ASB’s interest rate outlook for New Zealand: Negative OCR and Funding for Lending tag team in action from 2021
18 Aug 2020
- We have formally changed our OCR forecast view and now expect the RBNZ to cut the OCR to -0.50% in early 2021, with the OCR to remain at this level before the COVID-19 storm passes (potentially as long as late 2022). The interest rate outlook is highly uncertain and OCR settings will be conditional on a number of factors.
- The negative OCR will be launched in conjunction with a Funding for Lending Programme (FLP) that will provide stable, low-cost funding to banks that can be lent out, mitigating some of the adverse impacts of a negative policy interest rate. We expect further details of this scheme to emerge in the coming months.
- In the interim, we expect the RBNZ to continue to use forward guidance and its expanded $100bn Large Scale Asset Purchase programme to push yields lower.
Economic Weekly: Go hard, go negative?
17 Aug 2020
It’s been a pretty epic week. We went from starting off by hitting 100 days without knowing about any community COVID-19 transmission to back into degrees of lockdown by mid-week. We’ll be there for a couple of weeks.
Our estimate of the lost economic activity from the lockdown is around $440 million per week that Auckland is in Level 3 and the rest of the country is in Level 2. Against that of course, are the health benefits from continuing the elimination strategy. The cost of the lockdown is useful for starting a conversation about the value of taking actions to prevent and minimise COVID outbreaks. Our feature piece this week explores several themes: the value of investing in border and tracing/tracing measures; understanding the trade-offs of containment actions; better understanding the cost/benefits of different strategies, and; working on our flexibility and adaptability.
The RBNZ announced last week that it will boost the ceiling on its asset purchases, and will start preparing to be able to enact a negative OCR and direct lending to banks (Funding for Lending Programme). The RBNZ’s economic outlook still seemed a touch on the strong side. That – and the extent of the latest lockdowns – means we now expect the RBNZ will implement the Funding for Lending Programme and a negative OCR early next year. We will update our forecasts very shortly to account for this view change. The RBNZ’s ‘unconstrained’ OCR (see chart) continues to flag the need for unconventional policy measures, though asset purchases remain the go-to for now.
Meanwhile, for some of us it’s back to running down the middle of the street, binge-watching Netflix, worrying about coffee supplies, and feeling less guilty about the cupboard full of toilet paper that has been gathering dust. Take care out there, whatever your level.
COVID-19 Chartpack - August 14
14 Aug 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Home Loan Rate Report: Mortgage rates are at record lows, so what next?
13 Aug 2020
- The RBNZ’s massive response to the COVID-19 situation has seen mortgages press lower over recent months.
- Borrowers can lock in record low interest rates now, with fixed term rates as low as 2.55%.
- Our forecasts suggest fixing and then rolling shorter term (1- and 2-year) mortgages terms is likely to be the cheapest option over a 5-year time horizon.
Commodities Weekly: Covid-19 continues to influence markets
12 Aug 2020
- The ASB Commodity Price Index eased again last week, led by sizeable falls for dairy, and more modest movements by the other major commodities in the index.
- COVID-19 continues to influence both supply and demand for key commodities.
- Meanwhile, NZD has eased back from its recent peak against the USD.
COVID-19 Economic Impacts: Running the COVID-19 Marathon
12 Aug 2020
- The economic impact of the fresh outbreak of COVID-19 in NZ is highly uncertain and will depend on the severity and duration of the outbreak, actions taken to contain it, and the ability of the economy to adapt.
- Our estimates suggest a modest impact on NZ’s GDP, but this could easily grow.
- COVID-19 looks like it will be around for a while. Now would be a good time to plan ahead to see if we can refine how we cope with COVID-19 so as to minimise the economic and social burdens posed by the outbreak.
RBNZ August 2020 MPS Review: Priming the Big Guns
12 Aug 2020
- The RBNZ expanded its asset purchase programme, as we flagged, and will prepare further monetary tools.
- Added tools are: a negative OCR; direct lending to banks, and; foreign asset purchases. The Bank’s order of preference on these appears to broadly match our own, as discussed in our recent note.
- Although the OCR remained at 0.25%, the bias for interest rates is clearly down for the time being.
RBNZ unlikely to fall for labour market dummy
10 Aug 2020
We haven’t materially changed our view of the NZ labour market following last week’s “rogue” unemployment number. Despite what you might have thought, unemployment was revealed by Stats NZ to have fallen in the three months to June (to just 4% no less), a period encompassing nearly all of lockdown and in which we estimate the economy went backwards to the tune of 17%. Of course, unemployment didn’t really fall. It’s more that Stats had some trouble with measurement and laid-off workers were unable to “actively” seek work during lockdown.
Some of the broader indicators we’d suggested following (e.g. hours worked, underutilisation) deteriorated markedly, and about as much as expected. Underneath the veneer of the wage subsidy, the jobs market is softening. And as roughly 450,000 workers roll off the subsidy in coming weeks things will get tougher. We still expect unemployment to rise into the “7s” in coming quarters, but have nudged out the forecast peak in unemployment to March 2021, from December.
We doubt the RBNZ will fall for the “dummy” offered by the Q2 labour stats. The RBNZ is forward-looking and will be wary of the fact employment is likely to undershoot its Maximum Sustainable Employment target for some time. This is part of the reason we expect the Bank to maintain a cautious tone at Wednesday’s meeting, despite NZ economic activity clearly exceeding its prior forecasts. We released a note last week ranking the options available to the Bank if it needs to ease monetary policy again. We argued that time is now on the Bank’s side now and it doesn’t need to announce further easing measures this week. But we could see some fine-tuning of its quantitative easing programme including a small lift in the current $60b cap and an extension to its expiry.
Markets Monthly for July 2020: Mixed signals
06 Aug 2020
- Sharemarkets were mixed over July; while NZ and US sharemarkets gained and traded back towards their respective record peaks over the month, other sharemarkets were mixed and remain further off the highs of early 2020.
- The signals have ranged from encouraging on the economic data front through to worrying in terms of COVID-19 cases, politics and US-China tensions.
- Government bond yields here and abroad eased even lower over the month, as the world’s major central banks and the RBNZ maintained ultra-loose policy settings.
Economic Note: COVID-19 Chart Pack
06 Aug 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Monetary Policy Matters: Assessing the RBNZ’s bag ‘o’ tricks
06 Aug 2020
- We assess and rank the tools the RBNZ could use to further ease monetary policy.
- More Quantitative Easing comes out on top, with further OCR cuts down the pecking order.
- Time is now on the Bank’s side and it doesn’t need to announce further easing measures at next week’s meeting. We could see some tinkering to the QE policy though, including the “cap” being raised up to $80b.
Commodities Weekly: Dairy prices fall overnight
05 Aug 2020
- The ASB Commodity Price Index dipped in all denominations last week.
- Meanwhile, it was disappointing to see prices fall at the Global Dairy Trade event overnight.
- Following the previous GDT event a fortnight ago, we lifted ASB’s forecast for the 2020/21 season from $6.50 to $6.75; prices need to stabilise around the current levels to support our milk price forecast.
Q2 2020 Labour Market Review: What a nice surprise
05 Aug 2020
- Unemployment falls, quashing widespread expectations of a large increase.
- Other measures paint a much weaker picture of labour market conditions.
- We are wary of changing our labour market view on what looks to be a rouge result, but concede that the unemployment rate could peak at a lower rate than we thought earlier.
Economic Weekly: It’s a long game
03 Aug 2020
- Victoria’s weekend announcement of added measures to counter COVID-19 reinforces what a challenge the world is facing in combatting the virus and also how quickly a promising outcome can so easily be derailed.
- NZ has been very fortunate that so much of its economy has got back to a new version of normal relatively quickly.
- Meantime we need to be mindful that economic outcomes are not instant even in a world that demands instant gratification or verification, and that there are more challenges than normal in measuring some types of economic activity.
Economic Note: COVID-19 Chart Pack
31 Jul 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Q2 2020 Labour Market Preview: Waypoint on a regrettable journey
30 Jul 2020
- June quarter labour data represent a waypoint on NZ’s journey towards a materially slacker labour market.
- The wage subsidy limited the Q2 damage, but we still expect the unemployment rate to rise to 6.4%.
- Uncertainty is higher than usual - the unemployment rate could conceivably print anywhere in a 5-8% range.
Economic Weekly: Wary of the ‘W’
27 Jul 2020
- The acceleration in COVID-19 cases in a number of countries raises the chances that these economies have a second dip after their initial rebounds out of the first round of COVID-19 containment measures.
- For NZ, there are still many challenges ahead given the borders are likely to be heavily restricted for some time and the rest of the world is having a tougher time than NZ in dealing with the pandemic.
- But, with confidence a critical factor impacting businesses’ preparedness to employ and invest, the quick recovery from extreme depths of pessimism is a ray of light amid the doom and gloom and clear challenges that the NZ economy faces in rebuilding and reshaping itself.
Economic Note: COVID-19 Chart Pack
23 Jul 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Commodities Weekly: Whole milk powder prices hang on to recent gains
22 Jul 2020
- Whole milk powder prices (WMP) lifted 14% the 7th June Global Dairy Trade (GDT) event, and hung onto those gains at the latest auction overnight, with the WMP index lifting 0.6%.
- Last week Fonterra revised both its 2019/20 and 2020/21 milk price forecast ranges.
- Meanwhile, the ASB Commodity Price Index rose 0.8% in NZD terms over the week ending 17th July, boosted by a 0.6% decline in the NZD vis-à-vis the USD.
Fonterra Milk Price Forecast Update: Prices moving in the right direction
22 Jul 2020
- Last week Fonterra revised both its 2019/20 and 2020/21 milk price forecast ranges.
- ASB adopts the $7.15 midpoint Fonterra’s f/c range for the milk price for the season gone.
- We have lifted our 2020/21 forecast farmgate milk price to $6.75 to reflect some of the improvement we have seen in dairy prices at the last two Global Dairy Trade events.
Home Economics: Doom or Boom? A post-lockdown housing stocktake
21 Jul 2020
- Recent housing commentary appears to encapsulate everything from doom to boom. We stocktake the post-lockdown state of house prices, rents, turnover, and inventory to try and provide some clarity.
- We’re left happy occupying the less pessimistic end of the house price forecasting spectrum. In fact, if anything the recent run of data and anecdotes have come in on the stronger side of our view. Still, it’s early days and we suspect pent-up demand will fade in coming months.
- Our overall view remains unchanged. We continue to expect a modest 6% fall in NZ national house prices.
Economic Weekly: Eyeing up a little more cream
20 Jul 2020
- In good news for dairy farmers, Fonterra has upgraded its milk price forecast for the 2021 dairy season to a range of $5.90-$6.90/kg of milk solids, from its initial $5.40-$6.90/kg range.
- The bounce in prices at the last auction would certainly justify an upward revision if it is sustained.
- And Fonterra’s own media release pointed to encouraging signs that Chinese dairy demand is recovering.
Commodities Weekly: NZD lifts to six-month high, gold hits an all-time high
20 Jul 2020
- The ASB Commodity Price Index dipped 0.4% in NZD terms over the week ending 24th July.
- NZD/USD has lifted over recent weeks, courtesy of a softer USD and support for the NZD itself from the strength in commodity prices.
- Meanwhile, the price of gold has just set a new record high of US $1,980 per ounce, beating the previous high of $1,920 set back in 2011.
COVID-19 Chart Pack
17 Jul 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Markets Monthly for June 2020: Mixed forces influence markets in June
16 Jul 2020
- By early June global sharemarket indices were well on the way to recovering from the sharp falls that occurred in March. Then on 11th June the major market indices dropped by 4 to 6.5% in a single day. Markets regained composure over the rest of the month, and pressed higher.
- The US NASDAQ index of shares is back trading at an all-time high in July. Other markets are still recovering. The NZ market is around 5% shy of its February peak, while the UK and Australian markets are still 20% and 15% respectively off their highs.
- Bond yields around the world remain extremely low, as central banks around the world continue to buy bonds.
2020Q2 CPI Review: COVID-19 disrupts inflation
16 Jul 2020
- CPI inflation fell 0.5% qoq in Q2, the fall was less than the RBNZ and the market expected.
- Domestic inflation pressures (non-tradable inflation) fell by more than ourselves and the RBNZ expected.
- We expect annual inflation to dip close to zero over the coming year, and the RBNZ must remain vigilant about deflation risks over 2021.
Commodities Weekly: NZD continues to firm
15 Jul 2020
- The ASB Commodity Price Index rose 0.5% in NZD terms over the week ending 10th July.
- And although it’s frustrating for exporters, the NZD continues to slowly lift.
- Overall, we expect New Zealand’s key food export prices to be well supported over the second half of the year.
Economic Weekly: Ringing the tills
13 Jul 2020
- The economic news out of NZ was fairly encouraging last week.
- Also positive was the further sharp rebound in business confidence in the ANZ’s preliminary survey results for July.
- However, some local developments this week will show a different slant on NZ’s recovery.
Regional Economic Scoreboard Q1 2020: Gisborne the place to be for the past four quarters
13 Jul 2020
- Gisborne came out tops for the fourth consecutive quarter in the latest ASB Regional Economic Scoreboard.
- Neighboring Hawke’s Bay and Taranaki have both climbed dramatically up the rankings, with these regions looking good as the economy went into lockdown.
- The dry summer was a big challenge at the start of the year, but COVID-19 emerged to become the biggest challenge the country has faced in many years, impacting all areas.
COVID-19 Chart Pack
10 Jul 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
- This week we have added charts of NZ daily border crossing data.
2020Q2 CPI Preview: Deflation risks linger
09 Jul 2020
- We expect a 0.4% qoq decline in headline CPI in Q2, with annual CPI inflation falling to 1.5%.
- Annual CPI inflation is expected to dip toward zero in early 2021 before recovering local and global momentum gradually push it higher. We do not expect 2%+ annual CPI inflation anytime soon.
- Low inflation means that monetary policy settings will likely remain highly expansionary for a concerted period.
Commodities Weekly: Whole Milk Powder prices jump
08 Jul 2020
- Prices rose strongly at the latest Global Dairy Trade Event, with whole milk powder prices (WMP) leading the gains.
- The WMP price gain is important, as it’s the key product that drives the milk price farmers receive.
- Meanwhile, the ASB Commodity Price Index dipped 0.2% in NZD terms over the week ending 3 July, with the NZD up 1.9% against the USD.
Quarterly Survey of Business Opinion: Business activity contracts in Q2
07 Jul 2020
- The Q2 NZIER QSBO confirmed a fall in business activity over Q2 as businesses took stock of trading conditions over recent months.
- Firms have reduced employment and signal more job cuts to come. We expect the unemployment rate to peak near 8% later this year.
- We will continue to place more emphasis on the monthly ANZ survey for the time being, as it is more timely and better able to capture this volatile, unusual and rapidly-changing economic backdrop.
Economic Weekly: Border patrol
06 Jul 2020
- The border closure remains in the spotlight, as both our key bulwark against COVID-19 but also as a constraint on our economy.
- In our feature piece, we look at the tourism sector’s outlook, the most impacted sector from the border closure.
- On the data release front, we have the NZIER’s Quarterly Survey of Business Opinion survey and retail card transactions.
COVID-19 Chart-pack
03 Jul 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Commodities Weekly: Surging COVID-19 cases causing concerns
01 Jul 2020
- The ASB Commodity Price Index lifted in all denominations last week, and the NZD/USD is trading near 0.6420, around 1½ cents off its recent high.
- The focus in financial markets remains on the renewed increase in COVID-19 infections in the US and elsewhere.
- Reeopening is proving challenging. An important aspect of this as far as New Zealand’s key exports are concerned is the likelihood that people will continue consuming more of their food at home than usual. We are seeing some signs of this in recent data.
Impacts of COVID-19 on the NZ Tourism sector: Tough travails for tourism
30 Jun 2020
- The tourism sector is perhaps the most visible casualty from COVID-19. Due to the loss of international tourism, NZ’s GDP will be 3-5% lower than it would otherwise be.
- Domestic tourism within New Zealand is 40% larger than inbound tourism, and the switch towards domestic tourist experiences for New Zealanders will lessen the economic hit. Some adjustments will still have to be made to cater for the different needs of domestic tourists.
- Considerable uncertainty remains on how quickly the tourism sector can bounce back. The return to pre-COVID-19 levels of free cross-border movement looks to be years, rather than months away.
Economic Weekly: US second wave starts rising
29 Jun 2020
- Global investor sentiment softened last week as the number of new COVID-19 cases continued to pick up in some regions of the US.
- Meanwhile, in NZ, where the virus has been eliminated except for imported cases in quarantine, and the economic outlook continues to improve, albeit from very low and weak levels.
- The true test for consumer sentiment is yet to come – with the outlook for the labour market key for underpinning consumer confidence.
COVID-19 Chart-pack June 26
26 Jun 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
COVID Economics - Frequently Asked Questions
25 Jun 2020
- The deepest recession on record, a $62 billion government spend-up, faltering global trade, negative interest rates, a COVID resurgence, yo-yoing share markets…
- The headlines are now filled with this sort of craziness. No wonder people are asking questions!
- We’ve put together a COVID Economics “FAQ” to address some of the more common ones we’re hearing.
Commodities Weekly: Tentative recovery continues in markets
24 Jun 2020
- The ASB Commodity Price Index lifted in all denominations last week, and the NZD continued to lift off recent lows.
- Oil price moves over recent weeks have been the most volatile of the commodities we monitor within this report.
- Currencies, sharemarkets and commodity prices continue to wax and wane on changing global sentiment.
RBNZ June OCR Review: Steady on the tiller
24 Jun 2020
- The RBNZ kept its policy settings the same, as expected: OCR at 0.25%, asset purchase ceiling at $60 billion.
- The RBNZ remains “prepared to provide additional stimulus as necessary”.
- The near-term picture is more encouraging, but the longer-term risks remain skewed to a weaker outlook.
Home Loan Rate Report: Mortgage rates drop as RBNZ pulls out the stops
24 Jun 2020
- Mortgage interest rates appeared to have hit their lows in late 2019. However, the RBNZ’s massive response to the COVID-19 situation has seen mortgages drop to fresh lows over recent months.
- Our forecasts suggest fixing and then rolling shorter term (1- and 2-year) mortgages terms is likely to be the cheapest option over a 5-year time horizon.
- We expect mortgage rates to stay low for several years. Nonetheless, borrowers should still plan to deal with higher interest rate costs as fixed terms mature in the future, rather than budget on rates remaining this low indefinitely.
Economic Weekly: NZ labour market pain still to come
22 Jun 2020
- Economic activity – globally and in NZ – remains on a mostly recovering trend. COVID-19 flare ups in certain parts of the world may slow this tentative global recovery, but not stop it.
- Despite the recovery in economic activity, the second half of the year will be difficult for NZ’s labour market.
- ‘Steady as she goes’ message expected from this week’s RBNZ meeting. We don’t expect any change in policy measures.
COVID-19 Chart-pack June 19th
19 Jun 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
Markets Monthly: Volatility pays a visit to markets in Early June
18 Jun 2020
- In early June we got a reminder that’s it’s not a one-way street when it comes to sharemarket direction, and large dips were recorded in global markets.
- Government bond yields here and abroad remain extremely low, as the RBNZ and the world’s major central banks maintain ultra-loose policy settings.
- The NZD firmed over May and was up 1% against the USD and on a trade-weighted basis during May.
Q1 2020 GDP Review: Q1 GDP fall is just the beginning
18 Jun 2020
- Q1 GDP fell 1.6% qoq, a larger contraction than ourselves and the market expected, but less severe than the RBNZ May MPS forecast.
- There remains a wide range of uncertainty around the Q1 estimate and revisions are likely in future.
- We expect the bulk of the COVID-19 impact to hit Q2 GDP, and forecast a 17% decline, followed by a modest 13% recovery in Q3.
RBNZ June 2020 Official Cash Rate Preview: Steady pedal to the metal
18 Jun 2020
- We expect the RBNZ will leave its policy settings unchanged, while emphasising it still has further options.
- The short-term economic dip may not be as deep as the RBNZ expected, but long-term recovery will be gradual.
- The extent of RBNZ stimulus is not much more extreme than in 2009-11, despite the extent of the downturn.
Commodities Weekly: A bout of volatility returns to financial markets
17 Jun 2020
- Late last week we got a timely reminder that market sentiment and the pace of the recovery from the COVID-19 pandemic is not a sure thing.
- The ASB Commodity Price Index dipped in all denominations last week, but a lower NZD cushioned the decline when measured in NZD terms.
- Meanwhile, prices moved in the right direction at this week’s Global Dairy Trade event.
Q1 2020 Current Account Review: Narrower deficit in a downturn
17 Jun 2020
- The Q1 current account deficit narrowed as expected to -2.7% of GDP, from -3.0%.
- The goods balance lifted, while the services and income balances weakened over the quarter.
- We expect the current account deficit will narrower further over 2020, despite the border closure.
Economic Note: Retail interest rates on the RBNZ watchlist
17 Jun 2020
- The RBNZ has not ruled out the possibility of a negative OCR and has introduced a Quantitative Easing (QE) programme.
- This looks to have been effective so far. Wholesale and retail interest rates have fallen and could move lower still.
- The test will be how effective QE will be as markets contemplate moving past the emergency stage of COVID-19 and focus on the path ahead for the economy and interest rate settings.
Economic Weekly: Equities wobble and NZ Q1 GDP due
15 Jun 2020
- Last week saw global equities stumble as rising COVID-19 infection rates in some US states saw investors wake up to the prospect of a second wave of US infections and the potential for reinstated lockdowns.
- The key event for domestic markets this week is StatsNZ’s first estimate of Q1 GDP.
- On Page 2 Mark Smith updates our estimates on the neutral OCR, and looks at some of the impacts of the RBNZ’s Quantitative Easing programme.
Q1 2020 GDP Preview: COVID-19 brings end to NZ’s 9-year economic expansion
12 Jun 2020
- We expect StatsNZ’s first estimate of Q1 GDP to show a 1.1% contraction – bringing an end to 9 years of uninterrupted economic expansion in NZ.
- The impact of COVID-19 on economic growth is highly uncertain and StatsNZ has acknowledged methodology limitations will require revisions to its initial Q1 estimate.
- It’s not the size of the fall that matters for policy, but the degree and timing of the recovery. We expect the economy will be slow to recover over 2020, although acknowledge recent indicators have been encouraging.
COVID-19 Chart-pack June 12
12 Jun 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
- This week we take a closer look at US employment figures.
Commodities Weekly: NZD headwind picks up for exporters
10 Jun 2020
- Commodity prices have lifted over recent weeks as sentiment regarding global growth improves.
- A notable recovery has been in oil prices, which have surged massively over April and May.
- Meanwhile, the ASB Commodity Price Index lifted in USD terms last week, but the gains in the underlying commodity price indices couldn’t offset the firmer NZD.
Economic Weekly: A better prognosis, but symptom flare ups likely
08 Jun 2020
- This week’s likely shift down to Alert Level 1 and associated shift up in the economy’s speed limit, will join a string of other news suggesting the NZ economy is faring a little better than most expected in the post-lockdown world.
- However, we’d be remiss in our role as purveyors of the dismal science if we didn’t warn about the come down.
- It's early days; the impact of COVID-19 on the labour and housing markets in particular was always going to be a story for the second half of the year.
Economic Note: COVID-19 thoughts, observations - and being grateful
08 Jun 2020
- NZ to date is doing well in getting on top of the COVID pandemic – but not without cost.
- The economic toll itself will cause substantial health costs, which increasingly need to be taken into account.
- Preserving jobs and setting up conditions for reimagining NZ’s economy are the task for the team of 5 million.
Commodities Weekly: Dairy prices a mixed bag at the latest GDT event
03 Jun 2020
- Dairy prices were mixed in the latest Global Dairy Trade event on Tuesday 2nd June, with the GDT index up 0.1%.
- At this stage of the year there’s not any implications for our milk price calculations
- Meanwhile, The ASB Commodity Price Index was mixed again last week.
COVID-19 Chart-pack
03 Jun 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We will aim to update this chart-pack weekly - and will continue to add additional charts that we find interesting.
- This week, we have added to our set of Google Maps charts and also added NZ flight movement data.
Economic Weekly: Signs of life
02 Jun 2020
- Business confidence continued to lift throughout May and ASB card spending data show that spending has recovered to around pre-COVID levels.
- This quick recovery in spending, coupled with a turning point in both business and consumer sentiment, is certainly a positive development.
- Looking back to Q1 and the early days of the global pandemic, the first estimates of Q1 GDP from across the world have trickled in over recent weeks (see chart opposite) to give an early taste of the economic damage inflicted by the pandemic.
Farmshed Economics: Old truisms hold
02 Jun 2020
- COVID-19 has changed the world; it has brought the most social disruption that majority of us have ever seen.
- But the more things change, the more some old truisms hold.
- In NZ’s case, it remains a comfort in being a food producer in uncertain times like these.
Quarterly Economic Forecast: Fast and furious
29 May 2020
- NZ abruptly went into a stringent lockdown on health risks, prompting a huge and rapid economic response.
- NZ comes out of stringent restrictions able to entertain the possibility of moving to ‘normal’ distancing.
- But the hard road of economic recovery is just starting and has several levels of its own to work through.
Commodities Weekly: Excellent start
29 May 2020
- Kiwifruit exports have continued their excellent start to the season.
- However, we retain some caution as the global economy is in recession and the fallout will extend through the year, if not into 2021.
- Meanwhile, the ASB Commodity Price Index was mixed last week.
ASB COVID-19 Chart-pack
28 May 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We will aim to update this chart-pack weekly - and will add additional charts that we find interesting over the coming weeks and months.
- This week we have added additional charts taking a closer look at Chinese economic activity.
Housing Confidence Survey: Whipsaw
27 May 2020
- Confidence in rising house prices whipsawed by COVID-19.
- Perceptions of whether it’s a good time to buy also decline as households batten down the hatches.
- Interest rate expectations flick back to lower for longer.
May 2020 RBNZ Financial Stability Report: Financial system well placed to support recovery
27 May 2020
- The financial system is in good shape, with extreme stress tests showing the limits of resilience.
- Banks’ direct exposures to the most-affected sectors are small, according to the RBNZ.
- Nevertheless, the RBNZ expects that loan losses will increase.
Commodities Weekly: Farm input price inflation lower for longer
22 May 2020
- Farm input inflation remained low over the March quarter.
- From here, we expect farm input inflation to remain low, and if anything, to fall further.
- Meanwhile, the ASB Commodity Price Index lifted in all denominations last week.
ASB COVID-19 Chart-pack
22 May 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We will aim to update this chart-pack weekly - and will add additional charts that we find interesting over the coming weeks and months.
- This week - Australian jobs and retail sales plunge in April.
2020Q1 Retail Trade: Modest COVID-19 hit, but significantly more in store for Q2
22 May 2020
- More modest than expected contraction in retail volumes in Q1, but some signs of a COVID-19 impact with surging supermarket sales offset by weaker hospitality and accommodation retail.
- We expect a record Q2 contraction in retail volumes given the impact of the lockdown for non-essential retail earlier in this period.
- Easing restrictions on non-essential retail and pent-up demand should trigger a retail rebound, but we still expect a close to 10% fall over 2020, given widespread job losses and the weak economic backdrop.
Sector impacts of COVID-19 - Sharing the pain
22 May 2020
- COVID-19 is expected to lower nominal value-added production GDP by around 7% over 2020, which cumulates to a loss of more than $30bn over 2020. The hit to production values (which measures intermediate inputs in addition to just the valued-add component) will be correspondingly greater.
- The hardest-hit sectors are those that have been directly impacted by the tighter border requirements and focus on physical distancing.
- Nevertheless, our sector analysis suggests that the direct impacts of COVID-19 are likely to be widespread, with production values for more than 60% of the economy expected to fall by more than the 7% fall for the NZ economy.
Fonterra Milk Price Forecast and Financial Results Update: Treading carefully
21 May 2020
- Fonterra announced an appropriately wide 2020/21 opening milk price forecast range of $5.40-$6.90/kg. We expect $6.50/kg, albeit with some downside risk to our forecast.
- Unsurprisingly, Fonterra reduced its 2019/20 forecast range to $7.10-$7.30/kg. We expect something in the midpoint of that range.
- Fonterra announced ecnouraging third quarter results, but it will be sometime before Fonterra undoes the damage of past poor performance.
GlobalDairyTrade Auction: Mixed bag
20 May 2020
- Dairy auction prices were a mixed bag overnight.
- Overall, global dairy prices are largely directionless as markets wait for a clearer COVID-19 picture.
- We maintain our cautiously optimistic milk price view, but continue to note that risks remain very high.
Economic Weekly: Willing to do all that it takes
18 May 2020
- Last week’s Budget and Reserve Bank of New Zealand (RBNZ) review confirmed both the Government and the Central Bank are willing to do all that it takes to support the NZ economy through the COVID-19 pandemic.
- We agree that borrow and spend on a massive scale is the best approach right now.
- Down the line, however, future Governments may have to make some tougher trade-offs.
Commodities Weekly: NZ commodity exports soldier on
15 May 2020
- The NZ commodity export sector has continued to fare relatively well post-COVID-19.
- This fits with our expectation that NZ’s food exports would remain relatively resilient.
- Meanwhile, the ASB Commodity Price Index was down last week in USD and NZD terms.
ASB COVID-19 Chartpack: Updated May 14th
14 May 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We will aim to update this chart-pack weekly - and will add additional charts that we find interesting over the coming weeks and months.
- This week, we have added charts monitoring movement as NZ moved out of Alert Level 4 to Alert Level 3, including NZTA transport data and Google Maps Mobility data.
Budget 2020 Review: Huge support, huge debt
14 May 2020
- Overall, Budget 2020 showed an appropriately large COVID-19 spending package. As expected, the wage subsidy was extended and made more targeted, training spending was boosted to go on top of the health and education spending already announced.
- The Government has also kept its powder dry with the announcement of the $50bn COVID Response and Recovery Fund (CRRF), albeit $30 of the fund has already been earmarked. This makes the Budget more stimulatory than anticipated. As a result, there is now a small amount of upside risk to our growth projections. At the margin, there’s also more support for idea the RBNZ will not have to cut the OCR to negative anytime soon.
- Unsurprisingly, and given the magnitude of the extra spend, net debt rises sharply, and bond issuance also jumps massively. Bond yields have jumped on the back of the bond issuance outlook.
RBNZ May 2020 Monetary Policy Statement Review: RBNZ aiming for lower interest rates
13 May 2020
- The RBNZ expanded its bond purchase programme to $60bn, from $33bn, as expected.
- The RBNZ clearly stated it wants to see interest rates in the economy fall further.
- A negative OCR is a possibility next year, but other tools are likely to be more effective and timelier.
Markets Monthly to May 2020: Sharemarkets claw back from March’s plunge
12 May 2020
- Global sharemarkets plunged in late February and through most of March, as investors reacted to the spread of the COVID-19 coronavirus. Concern turned to panic by late March.
- But by early May all the major global sharemarket indices we monitor have recovered significantly from their late March lows, reflecting confidence in the responses from governments and central banks. Nonetheless, indices are still down on the early 2020 highs.
- Central bank action has also restored confidence and reduced volatility in bond markets. New Zealand, Australian and US 10-year Government Bond yields have all pressed lower again, after some turbulent weeks in March.
Commodities Weekly: Horticulture land use jumps; dairy and sheep down
12 May 2020
- The strong growth in the horticultural sector has been reflected in a jump in horticultural land use.
- Fruit exports have become NZ’s fourth goods export engine, behind dairy, meat and forestry.
- Meanwhile, the ASB Commodity Price Index was mixed last week.
Economic Weekly: Three cheers for progress
11 May 2020
- In these bizarre and unpredictable economic times, businesses could use a little certainty.
- Today, Cabinet decides whether NZ will move to the Level 2 alert level later in the week, Wednesday brings the first ‘COVID-edition’ RBNZ Monetary Policy decision, and Thursday is the Budget.
- Even if we don't get all the answers this week, at least we’ll have some progress.
Budget 2020 Preview: COVID-19 economic response part II
08 May 2020
- We expect the Government to appropriately announce a Budget spending package of circa $15 to $20 billion, representing a doubling of the initial COVID-19 economic response package.
- Extra fiscal policy support and the weak economy are expected to culminate into sizeable fiscal deficits over the next few years.
- We subsequently expect net core crown debt to lift to over 60% of GDP and for a massive lift in the NZ Government bond programme. However, NZ should stack up well relative to our global peers.
ASB COVID-19 Chartpack May 8
08 May 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We will aim to update this chart-pack weekly - and will add additional charts that we find interesting over the coming weeks and months.
RBNZ May 2020 Monetary Policy Statement Preview: Running to stand still
07 May 2020
- We expect the RBNZ to increase its QE programme, to $60b.
- As it accommodates the larger debt issuance plans of the NZ government.
- Implementation flexibility cautions against getting too hung up on the exact number.
- Markets will be most sensitive to any guidance on negative interest rates. We think QE represents a more effective policy weapon but, equally, we don’t expect the RBNZ to rule out the OCR going negative in future.
Q1 2020 Labour Market Review: An outlook for the labour market
06 May 2020
- Q1 labour data limited in their usefulness, but confirm a strong starting point prior to COVID-19 blindside.
- The RBNZ and NZ Government are already responding to the likely much worse readings on the labour market we will get over the next two quarters.
- Most of this note is devoted to the outlook. We expect unemployment to rise to 9.0% in Q2 and 9.4% in Q3.
GlobalDairyTrade Auction: Calm after oil storm
06 May 2020
- Dairy auction prices largely stabilised overnight.
- The result is consistent with the recent rebound in oil prices after their earlier plunge.
- We maintain our cautiously optimistic milk price view, but note that risks remain very high.
Economic Weekly: Cheap thrills and comfort food
04 May 2020
- NZ consumed 5-weeks’ worth of takeaways during the first week of Level 3; this strong bounce in sales from pent-up demand signals some hope for many businesses grappling with the devastating impact of remaining closed as NZ fights to eliminate COVID-19.
- However, beyond this initial bounce-back in spending from pent-up demand, the outlook for household spending will be challenging for the rest of the year.
- With tough times coming, NZ households are likely to stick with cheap thrills and comfort food but, with job security in mind, households will take a more cautious approach to big ticket items such as the purchase of a new house, new car or home renovations.
Commodities Weekly: Kiwifruit exports start well - COVID-19 risks remain
01 May 2020
- Gold kiwifruit exports have started the season with a hiss and a roar.
- However, we caution that this strong start may not last.
- Meanwhile, the ASB Commodity Price Index continued to decline last week.
Housing Insights: Thinking about the new normal for housing
29 Apr 2020
- NZ’s housing market will emerge from lockdown into some big headwinds.
- House prices are likely already falling, but estimating how far/fast they fall is difficult.
- We provide our thoughts on the key factors to consider.
Housing Insights - Runnin' on empty: when will home listings rise?
29 Apr 2020
- Housing inventory is at rock bottom levels right around the country.
- We find some evidence to suggest listings, at least in Auckland, should rise from here.
- A failure to do so could see prices bust through our house price inflation forecasts.
Economic Weekly: We’re out! (but not as we know it)
28 Apr 2020
- As New Zealand emerges out of Level 4 lockdown, attention is inevitably shifting from the extent of economic damage wrought by the lockdown, to the shape of the recovery.
- We estimate economic activity will still only be around 80% of normal in Level 3 as the economy will be battling through the headwinds of damaged household incomes and business balance sheets, weak confidence, and a much larger debt burden.
- And we think it will take a full three years before the economy gets back to its pre-COVID starting point.
ASB COVID-19 Chart-pack April 28th
28 Apr 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We will aim to update this chart-pack weekly - and will add additional charts that we find interesting over the coming weeks and months.
Commodities Weekly: Plunging oil prices ultimately grease NZ’s wheels
24 Apr 2020
- Oil prices traded in negative territory this week for the first time ever.
- Lower oil and fuel prices ultimately boosts disposable incomes and demand for NZ food exports.
- Meanwhile, the ASB Commodity Price Index declined in all denominations last week.
Home Economics: Thinking about the new normal for housing
24 Apr 2020
- NZ’s housing market will emerge from lockdown into some big headwinds.
- House prices are likely already falling, but estimating how far/fast they fall is difficult.
- We provide our thoughts on the key factors to consider.
Economic Note: ASB COVID-19 Chartpack
22 Apr 2020
- This chart-pack monitors key economic and financial market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
- We will aim to update this chart-pack weekly - and will add additional charts that we find interesting over the coming weeks and months.
GlobalDairyTrade Auction: Oil spill
22 Apr 2020
- Dairy auction prices dipped overnight as sentiment from the oil price plunge spilled over into dairy markets.
- The result was notably weaker than our and futures market expectations ahead of the auction.
- Notably, this result and the oil price plunge adds to downside risks for the 20/21 season milk price.
Economic Weekly: Managing economic uncertainty
20 Apr 2020
- Economic forecasting is challenging at the best of times – often described as more of an art than a science.
- Given these limitations, users of economic forecasts have two options to manage uncertainty - alternative scenarios and forecast averaging.
- On Page 2, we describe two alternative scenarios to our central economic forecasts
2020 Q1 CPI Review: Strong starting point for inflation, but COVID-19 softens the outlook
20 Apr 2020
- NZ consumer prices rose 0.8% qoq in Q1 (2.5% yoy), considerably firmer than RBNZ and market expectations.
- The Q1 CPI snapshot was largely applicable to a pre-COVID-19 world. If it was not for COVID-19 pandemic the RBNZ would likely be contemplating OCR hikes rather than further policy easing.
- However, COVID-19 represents a massive deflationary shock for the economy and is likely to push headline and core inflation lower over the next couple of years.
Commodities Weekly: Farm expense deflation on the cards
17 Apr 2020
- We anticipate that the looming economic downturn will push farm expense inflation lower.
- Although feed prices are likely to buck the trend.
- Meanwhile, the ASB Commodity Price Index showed mixed movements last week.
2020Q1 CPI Preview: OK for now, but potential deflation looms
16 Apr 2020
- We expect a 0.4% qoq increase for the CPI in Q4, with annual CPI inflation ticking up to 2.2%.
- There will be few signs of a COVID-19 impact in the Q1 data. It will be a different story beyond then.
- We expect annual CPI inflation to test the bottom of the 1-3% medium-term target band given lower commodity prices, policy changes and growth headwinds from the virus outbreak impact.
COVID-19: Possible paths in an uncertain future
16 Apr 2020
- There are a number of possible paths for the NZ economy. The range of outcomes is wide.
- We summarise three scenarios that capture our central view, flanked by upside and downside scenarios.
- Where the economy actual heads up is still highly uncertain. Having a degree of flexibility in your plans is paramount if you want to take advantage of the opportunities that arise. It is also vital to be informed.
Economic Weekly: Channelling Mr Schuker
14 Apr 2020
- Our containment of the COVID-19 virus appears encouraging, with the curve flattening.
- But the lockdown is coming at significant cost to the economy, and we need to ensure we get the maximum benefit in containing the virus from that economic sacrifice.
- The Government is acutely aware of the hard trade-offs it faces, and our political leaders are in the unenviable position of bearing the burden of deciding what path will minimise overall health and social costs.
ASB COVID-19 Chartpack
14 Apr 2020
Introducing the ASB COVID-19 Economic Chartpack.
This chartpack will monitor key economic and finanical market trends for the NZ economy and key global trading partners as we navigate the COVID-19 pandemic.
We will aim to update this chartpack weekly - and will add additional charts that we find interesting over the coming weeks and months.
RBNZ: QE upsize likely in May
14 Apr 2020
- RBNZ has been front-loading government bond purchases.
- We estimate the Bank is $1.4b ahead of the initially communicated run rate.
- We think the programme could lift from $33b, to $40-50b at the May meeting.
Commodities Weekly - Double-edged sword
09 Apr 2020
- The 2020 gold kiwifruit crop is on track to set a record high.
- But the extra fruit is a double-edged sword, with global demand likely to be low post-COVID-19.
- As a result, we expect kiwifruit prices, particularly for gold, to trend towards the lower end of prices achieved over recent years.
GlobalDairyTrade Auction: Jury’s still out
08 Apr 2020
- Dairy auction prices lifted overnight, breaking a run of four consecutive price falls.
- However, it took a large (seasonal) fall in auction quantities sold to generate the price lift.
- While we won’t look a gift horse in the mouth, we remain cautious on the global market outlook as evidenced by recent our 20/21 milk price forecast revision down to $6.50/kg.
Economic Note: COVID-19: Market stocktake and what we’re watching
07 Apr 2020
- Our modelling suggests further material declines in the NZD/USD are unlikely from here unless the NZ outlook fundamentally changes. But we’re quick to reiterate our prior advice around focusing less on the (highly uncertain) outlook and more on stress-testing exposures, retaining flexiblity, preparing for continued volatility.
- We think the RBNZ will be successful in its quest to keep the wholesale interest rate curve very low and flat.
- We flag a few ‘stress gauges’ to watch that will be important in determining broader market sentiment.
Quarterly Survey of Business Opinion: Business confidence falls ahead of lockdown
07 Apr 2020
- The Q1 NZIER QSBO confirms a fall in business confidence during early March.
- Limited implications from the Q1 QSBO as survey predates the NZ lockdown.
- RBNZ and Government has moved aggressively to mitigate impact of virus outbreak on NZ economy.
Economic Weekly: The curve is flattening
06 Apr 2020
- NZ’s bold move to go hard and go early looks to be paying off, with early signs indicating NZ is flattening the curve.
- It is important to keep these victories in mind over the coming weeks as we must brace ourselves for some bad economic data.
- On Page 2 of our weekly, Senior Economist Mark Smith outlines his thoughts on the three key phases of the Pandemic for the NZ economy.
Commodities Weekly: Worst of meat capacity squeeze may be behind us
03 Apr 2020
- The worst of the meat processing capacity squeeze may now be behind us.
- In fact, easing capacity constraints are likely to help meat prices stabilise further over coming weeks.
- Meanwhile, the NZ dollar dominated ASB Commodity Price Index movements last week.
Farmshed Economics: COVID-19: what we know and what we don't
03 Apr 2020
- COVID-19 is changing our world.
- Comfortingly though, many aspects of farming will stay the same.
- However, in a number of other aspects, we are venturing into the unknown.
Economic Weekly: I am a rock, I am an island
30 Mar 2020
- Our team has gone through and come up with a first cut of what the economy will look like as it goes through the lockdown and comes out the other side.
- The broad story is a short but extremely sharp downturn and rebound, followed by a gradual grind higher for an economy that will be smaller coming out the other side.
- For now, we need to keep our physical distance from those outside of our bubble, but it is important that we continue to stay in touch and be each other’s supportive rocks.
Commodities Weekly: Drought relief
27 Mar 2020
- Rain has brought some drought relief over the past week, with more rain forecast over the next seven days.
- While the rain is welcome, in some locations, the timing of the rain has meant that it is contributing more to setting up for next season than “saving” this season.
- The ASB Commodity Price Index dropped considerably in USD terms last week, although a weaker NZD/USD has offset the fall.
Economic Note: COVID-19 and the economic path ahead
27 Mar 2020
- COVID-19 has been a game changer to both the NZ and global economic outlook. 2020 will be a very challenging year, with pronounced quarterly volatility. A sizable contraction in NZ GDP over 2020 looms, which will be larger than the early 1990s and Global Financial Crisis (GFC) recessions but will hopefully prove more short-lived.
- The Government and RBNZ have stepped up and their actions should help to mitigate the economic hit, with likely job losses and falls to house prices less severe than they could have been.
- The economy will recover. It always does. However, balance sheet constraints and weaker potential output growth will temper the rebound. We are not expecting a typical cyclical recovery – it’s not a typical time.
RBNZ Pulling Out The Stops: Three bold steps taken, but more may be needed
24 Mar 2020
- The RBNZ have cut the OCR to its lower operational bound of 0.25% and pledged it will remain at this level for at least the next 12 months. Whether the OCR eventually goes lower than 0.25% depends on the economic outlook, willingness of financial market participants to hold eligible NZD securities and the appetite of retail depositors.
- The RBNZ and other central banks have put in place a raft of measures to improve monetary policy implementation and to keep the financial system functioning have also been announced to calm jittery markets. These have helped for now, but more will be needed if markets flare up from here.
- On March 23, the RBNZ kick-started their Quantitative Easing (QE) programme, unveiling a large $30bn Large Scale Asset Purchase Programme of NZ Government bonds over the next 12 months. The package is front-loaded and will provide considerable short-term support to NZ interest rate markets, dampening yields. RBNZ QE could be ramped up further if needed, but we are concerned that a persistent COVID-19 hit to the public finances could see it dwarfed by climbing NZ public debt. We encourage the RBNZ to look at alternative options available.
Economic Weekly: Hanging in
23 Mar 2020
- We are in the midst of the largest economic shock in generations; a shock caused, not by the COVID-19 virus itself, but by the proactive measures NZ is taking to limit the spread of the virus.
- We’re in the process of updating our numbers to take into account the events of recent days.
- We’d encourage all of our readers to avail themselves of all the information and support packages available that we’ve detailed in this report, including ASB’s support package for our customers.
You and the Government Support Package: How to benefit from the Government’s support package
23 Mar 2020
- The Government has released a $12.1 billion support package to support employees, businesses and beneficiaries.
- In this note, you will find a summary of what actions you can take to ensure you benefit from the package.
- ASB also has support measures available on its COVID-19 page
Commodities Weekly: Dollar relief
20 Mar 2020
- The NZ dollar is playing a buffering role for NZ exports amidst COVID-19 outbreak
- Indeed, while the ASB NZ Commodity Price Index has fallen to its lowest level since October 2016 in USD terms, the fall in NZD terms since the 2019 peak has been a more modest 6.8%.
- A lower NZD will help the NZ commodity export sector to rebound faster than most.
Q4 GDP Review: The calm before the storm
19 Mar 2020
- Q4 GDP lifted largely in line with expectations, up 0.5% qoq with annual growth slowing to 1.8%.
- There are no market or policy implications from today’s GDP data. The COVID-19 coronavirus outbreak over the early months of 2020 has reshaped the NZ and global economic outlook, making Q4 2019 GDP outdated information.
- The recent rise in global government bond yields, including NZ 10-year Government bonds, increases the urgency for the RBNZ to begin asset purchases to keep interest rates low and stimulatory.
Home Economics: Housing immunity about to be tested
17 Mar 2020
- The NZ housing market got off to a flying start in early 2020.
- But COVID-19 has changed the game. The NZ economy is headed for recession, and we have slashed our house price inflation forecasts accordingly.
- We are now forecasting small house price declines for the next two quarters, and annual house price inflation to slow to zero by March 2021.
Fiscal fights back
17 Mar 2020
- The $12.1 billion COVID-19 package is a good start in terms of magnitude, particularly considering how quickly this package was put together.
- The Government’s books are in a good place to incorporate this spending and future COVID-19 packages.
- However, there is room for future improvement.
- Looking forward, we favour broader and simpler fiscal measures.
- A sharp contraction in the economy is unavoidable, but this package will soften the blow slightly.
Economic Weekly: Kitchen sink response time
16 Mar 2020
- The past week’s COVID-19 developments have been rapid; the effective closure of the border is a complete game changer for the NZ economy.
- The RBNZ has already cut the OCR by 75bp to 0.25%, and stands ready to provide more support if needed.
- It is important for businesses to be prepared for dealing with COVID-19 and its potential impacts on your business.
RBNZ cuts OCR 75 basis points in emergency meeting Monday 16 March
16 Mar 2020
- Events have – again – moved rapidly. The virus is spreading; further extreme government actions are in play.
- The RBNZ has cut the OCR by 75bp this morning to cushion the significant economic hit.
- We expect the RBNZ will reach for the unconventional policy toolkit over time.
Going viral
13 Mar 2020
- The WHO has declared COVID-19 a global pandemic.
- Oil prices plunged over the week.
- While NZ commodity prices continue to hold up relatively well, even food prices may not be immune.
Housing Confidence Survey: Housing confidence to be tested
12 Mar 2020
- Confidence in rising house prices hits the highest level in three years…
- …knocking back perceptions of whether it’s a good time to buy.
- Expectations on whether interest rates would fall again were dialled back. But recent events suggest lower rates are on the way once again.
COVID-19: Market impacts, responses, and ideas
12 Mar 2020
- There’s been a wide range of impacts on corporates from recent market turmoil and supply chain disruptions.
- We put forward a few ideas on managing financial markets exposures during these increasingly uncertain times.
- In this short note, we look at recent market movements through a NZ corporate lens, and ask a bunch of questions that many of our corporate customers will no doubt be pondering themselves.
GDP Preview Q4 2019: Outdated
12 Mar 2020
- We expect Q4 GDP increased 0.6%, with annual growth slipping to 1.8%.
- The Q4 GDP release is essentially outdated information, with attention focused on how the economy will be impacted by the COVID-19 coronavirus pandemic.
- We expect no growth over H1 2020, uncertainty over the short-term economic outlook is very high and there is a strong risk of the NZ economic slipping into a technical recession.
Home Loan Rate Report: Mortgage rates could dip on coronavirus response
10 Mar 2020
- Mortgage interest rates appeared to have hit their lows in late 2019. However, if the RBNZ changes its view and cuts the OCR again as we now forecast, we could see another dip for floating and fixed rates.
- The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) to a record low 1.0% last August and, as global concerns mount, we think the RBNZ will join other central banks and cut the OCR again soon.
- Our forecasts suggest fixing and then rolling shorter term mortgages terms is likely to be the cheapest option over a 5-year time horizon.
Economic Weekly: Central banks move into action
09 Mar 2020
- Coronavirus panic continued to escalate over the past week with offshore central banks moving to lower policy rates to buffer the economic shock.
- While the Reserve Bank of Australia lowered its Cash Rate 25 basis points last week, the Federal Reserve spooked markets with an unscheduled 50 basis point cut to the Fed Funds rate.
- We now expect the RBNZ to (calmly) cut the OCR 25 basis points apiece in March and May.
Regional Economic Scoreboard Q4 2019: Gisborne King of the castle as Coronavirus weighs on forecasts
06 Mar 2020
- Gisborne ended 2019 as King of the Scoreboard castle, making it three consecutive quarters on the trot.
- The Mighty Waikato jumped a whopping 11 spots to 3rd this quarter, while Hawke’s Bay fell from silver medal position last quarter to 11th.
- Despite climbing one spot this quarter, Otago may be at risk going forward from the Coronavirus impact on tourism and education in the region.
Commodities Weekly - Hit and miss
06 Mar 2020
- Rain has relieved drought in some regions.
- But in other regions, it has been a case of too little, too late for this season.
- Meanwhile, the kiwifruit sector is preparing for a bumper harvest.
Markets Monthly: Virus concerns escalate in February
05 Mar 2020
- Global sharemarkets plunged in late February, as investors became increasingly concerned about the spread of the COVID-19 coronavirus. All the major global indices we monitor were negative for the month.
- New Zealand, Australian and US 10-year Government Bond yields have all set fresh record lows in early March. The US Federal Reserve and the RBA eased their monetary policy settings in March.
- The NZD dipped over the month, declining 3.5% against the USD and 2.2% on a trade-weighted basis.
Thinking about coronavirus impacts on business: Be prepared – it doesn’t hurt
05 Mar 2020
- The COVID-19 virus outbreak – and its economic impact – is spreading.
- It is prudent for businesses to ensure they have made adequate preparation for NZ and global disruption.
- In this note we cover some key things for businesses to double-check they are on top of.
Housing Insights: Runnin' on Empty - when will home listings rise?
04 Mar 2020
- Housing inventory is at rock bottom levels right around the country.
- We find some evidence to suggest listings, at least in Auckland, should rise from here.
- A failure to do so could see prices bust through our house price inflation forecasts.
RBNZ OCR Update: OCR cuts coming soon
04 Mar 2020
- Given the swiftly-changing COVID-19 situation, we expect the RBNZ to now respond with OCR cuts.
- Fiscal policy will be the best targeted response, but the likelihood of a prolonged economic impact warrants monetary support as well.
- We have pencilled in 25bp cuts for each of March and May, though the outlook will remain fluid.
GlobalDairyTrade Auction: Down smalls
04 Mar 2020
- Dairy auction prices fell modestly overnight and are showing signs of stabilisation.
- Our view remains that the dairy market impact of the virus outbreak will prove modest and short-lived.
- We stick with our 2019/20 milk price forecast of $7.40/kg, but also note upside risks to our 2020/21 forecast.
Economic Weekly: Cool heads
02 Mar 2020
- Financial markets have abruptly shifted from pricing coronavirus as a short, sharp, largely China-centric shock to something that more closely resembling a global recession.
- We expect some form of co-ordinated fiscal and monetary stimulus to be rolled out in time locally, but we caution that uncertainty is rife and it’s not the time to panic.
- See Page 2 for our own take on the impact of COVID-19.
Commodities Weekly: COVID-19 - one step forward, two steps back
28 Feb 2020
- Fonterra reaffirms 2019/20 milk price forecast.
- However, coronavirus ourtbreak goes “global”, introducing fresh risks to NZ commodity prices.
- Meanwhile, the forestry and meat sectors are bearing the brunt of the outbreak’s impacts so far.
Quarterly Economic Forecast: Hoping for some immunity
27 Feb 2020
- The NZ economy was showing signs that it was turning up heading into the New Year.
- Coronavirus will cause a sharp and – we hope – short jolt to the economy in the first half of the year.
- Both the RBNZ and the Government are well placed to provide support if the outbreak has prolonged impacts.
Economic Weekly: Take two of these and call me in six months
25 Feb 2020
- We are in an environment where NZ’s policy makers are having to rush out cures well in advance of knowing the full extent of our economic ills
- Still, it’s been hard to argue with the treatment plan to date.
- No new policy measures are expected from this week’s RBNZ Financial Stability Report, but the Bank will seek to reassure markets that it has plenty more medicine to keep the recovery in the economic and financial markets going.
Economic Weekly: Double trouble
24 Feb 2020
- Financial markets took up defensive positions amid growing concerns around the spread of the coronavirus beyond China last week.
- On Page 2, we discuss what to look for in terms of data releases and financial market reaction over coming months as the outbreak develops and then runs its course.
- The added complication for NZ is that drought is hitting agricultural production and markets at the same time as the outbreak.
Q4 2019 Retail Trade: Solid end to 2019 retail; signs not as bright for early 2020
24 Feb 2020
- Solid retail volumes growth over Q4, albeit not to the scale delivered in Q3.
- Mixed performance by sector, with durable retail the standout.
- The COVID-19 coronavirus is likely to weigh on Q1 retail and potentially further out over 2020, casting a shadow on an otherwise positive outlook for the sector.
Commodities Weekly: Drought crimping agri’s style
21 Feb 2020
- We now expect 2019/20 dairy production to finish up lower than in 2018/19.
- Meanwhile meat prices are taking a hit, declining on both the extra slaughter induced by the dry and the coronavirus disruptions to supply chains.
- In contrast, a hot and dry summer can often boost production levels in the horticulture sector.
COVID-19 watch: Potential volatility ahead
20 Feb 2020
- The (uncertain) impact of the COVID-19 coronavirus represents a risk to the NZ and global outlook.
- It will take time for the impacts of the coronavirus to show in the published activity data.
- Financial markets could be susceptible to additional volatility over 2020, particularly if activity prints reveal surprises.
Home Loan Rate Report: Mortgage rates could be as low as they’ll get
19 Feb 2020
- The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) to a record low 1.0% last August. Since then it has maintained that developments do not warrant more policy stimulus despite risks to the outlook (including the coronavirus).
- Mortgage interest rates appear to have hit their lows in late 2019. From now on, we expect mortgage rates to gradually rise unless the RBNZ changes its view and cuts the OCR again. The RBNZ seem less likely to lower the OCR any further (their eventual move could be a hike). Regulatory changes could also provide upward impetus.
- Borrowers can lock in very low interest rates now, but should plan to deal with higher interest rate costs as fixed terms mature. Our forecasts suggest fixing in the 1- to 2-year horizon and then rolling over on similar terms is likely to be the cheapest option over a 5-year time horizon.
GlbalDariyTrade Auction: Twin watch - coronavirus and drought
19 Feb 2020
- We trim our 2019/20 milk price forecast by 10 cents to $7.40/kg.
- This forecast change is the net price impact of coronavirus (down) and NZ drought (up).
- We also trim our 2019/20 dairy production growth forecast to -0.5% and note the material drought hit to farm production and incomes in some key dairying regions.
Economic Weekly: RBNZ’s positive economic diagnosis despite virus
17 Feb 2020
- The RBNZ surprised us and markets last week with a relatively upbeat assessment of the economic outlook.
- Following the announcement, we changed our OCR view and now expect it to remain at 1% until 2022, followed by a series of mild OCR hikes.
- The coronavirus is likely to remain the main market theme this week.
Commodities Weekly: Drought declared
14 Feb 2020
- An official drought has been declared in Northland; other regions may soon see an official declaration too.
- In terms of commodity price impacts, the drought will have mixed effects by sector.
- Meanwhile, the ASB Commodity Price Index slid 2.7% last week in USD terms.
RBNZ February 2020 Monetary Policy Statement Review: High threshold for OCR inoculation
12 Feb 2020
- The RBNZ kept the OCR at 1% as expected. The RBNZ’s economic outlook (even with a minor coronavirus impact baked in) now shows very little need for OCR cuts at this point.
- Of surprise to us was the extent to which the RBNZ’s OCR forecast track has been lifted, to imply a full 25bp OCR hike by the end of 2021.
- We have pulled our forecast OCR cut after previously flagging its reducing probability, but a prolonged coronavirus impact could still spur a cut.
Markets Monthly for January 2020: Virus concerns set the tone in markets
11 Feb 2020
- Global sharemarkets started the month well, but subsequently eased in late January, as investors became increasingly concerned about the coronavirus outbreak.
- The NZ and Australian sharemarkets were positive over the month, gaining 2% and 4.7% respectively, while bond yields declined both here and abroad, reversing the lift recorded over Q4 2019.
- The NZD dipped over the month, declining 3.7% against the USD and 2.6% on a trade-weighted basis.
Economic Weekly: Coronavirus outbreak clouds RBNZ update
10 Feb 2020
- The week’s release highlight is the RBNZ interest rate announcement on Wednesday.
- We expect the RBNZ to hold the OCR at 1.00%, but to signal its preparedness to lower the OCR, if necessary.
- The RBNZ will likely note that the virus is a key risk to the OCR outlook.
Economic Note: Coronavirus economic impacts
10 Feb 2020
- The impacts of viral outbreaks on the global (and NZ) economies typically prove temporary.
- It is early days, but we anticipate a short hit to Q1 NZ GDP, equivalent to roughly 0.6% of GDP.
- At this stage, we assume no change to monetary or fiscal settings as a result of the outbreak.
- Should the impact prove worse than typical, then we’d expect OCR cut(s) and/or fiscal stimulus.
Viral outbreaks typically result in a sharp, but relatively brief, shock to both the NZ and global economies. Outcomes are highly sensitive to the location, severity and duration of the outbreak and measures taken to control it. The mortality rate of the coronavirus looks to be low, but its long incubation period makes early detection and containment difficult. The virus is still spreading rapidly.
The epicentre of the outbreak, China, is both the growth engine for the global economy and New Zealand’s largest trading partner. Already there are signs of a larger proportionate hit to global tourism from the virus. Economic impacts are also occurring because of the extensive (and disruptive) efforts to contain the virus that will impede the movement of goods and services.
For the NZ export sector, the impacts are likely to be uneven. Given the timing of the outbreak around the Chinese New Year, the impacts are especially acute for the tourism and education sectors. The goods sector will be impacted to varying degrees. All up, we anticipate a 0.6% hit to Q1 GDP relative to our baseline, primarily via lower services exports. However, a more severe outbreak globally could result in longer-lasting disruption to NZ exports and broader economic activity.
We are not detecting many signs of the virus impacting NZ adversely via financial channels. Equity markets are off lows. The economy’s key shock absorbers are working: the NZ dollar and interest rates are lower than they would otherwise be. A severe virus outbreak in NZ could push the NZD lower and see markets price in higher NZ risk.
For now, we expect NZ policymakers will not change policy settings. If, however, the virus reaches NZ or the global virus impacts turns out to be significant, additional policy support will be required. The RBNZ will move the OCR lower. Fiscal policy will also have a key role to play.
Coronavirus - commodity prices down, but not out?
07 Feb 2020
- The coronavirus first round impacts are starting to show through in commodity price data.
- As expected, NZ commodity prices have taken a decent hit.
- There are some signs though that the impact could prove short-lived.
- Nonetheless, the situation remains fluid and price volatility is likely to continue. Indeed, risks and uncertainties remain in play.
RBNZ February 2020 Monetary Policy Statement Preview: Watching and waiting
07 Feb 2020
- We expect the RBNZ to hold the OCR at 1.00% and reiterate that developments do not warrant a change in the monetary policy outlook but to signal their preparedness to lower the OCR if needed.
- The coronavirus outbreak has increased uncertainty over the policy outlook. At this point we doubt that the RBNZ will incorporate potential impacts of the outbreak in its central published forecasts and OCR track. The outbreak may, however, influence the RBNZ’s characterisation of the risks.
- We still expect the RBNZ to hold out the prospect of further policy stimulus and have pencilled in a 25bp cut in 2020. Provided the economy smoothly navigates various headwinds, 1% may be the floor in the OCR this cycle.
Q4 2019 Labour Market Review: Thank You, Next
05 Feb 2020
- The NZ labour market ended 2019 in a slightly stronger position than most expected.
- The RBNZ is nailing its labour market and inflation objectives, but this is quickly being overtaken by recent events, namely the coronavirus (hence the lack of market reaction today). We also remain wary of the potential for some slackening in the labour market over 2020.
- As a result, we are keeping our call for a 25bps rate cut in May for now, while continuing to acknowledge the risk the RBNZ has already done enough to stimulate the economy.
GlobalDairyTrade Auction: It could have been worse
05 Feb 2020
- Concerns around the coronavirus outbreak drove dairy prices lower overnight.
- However, there were signs in the auction detail that virus impact on dairy markets will prove short-lived.
- We maintain our 2019/20 milk price forecast at $7.50/kg, but note ongoing risks.
Economic Weekly: Where to look for coronavirus impacts
03 Feb 2020
- With the world increasingly gripped by the coronavirus, last week’s RBNZ speech provided a useful reminder of the three ways global ‘shocks’ affect NZ: trade, financial, and uncertainty.
- Upcoming trade and commodity price data (including this week’s GDT auction) will be important to monitor for any impacts.
- Financial market indicators, particularly those in China, will also be key to watch.
Commodities Weekly: Coronavirus - understanding the risks
31 Jan 2020
- The coronavirus outbreak poses the key short-term risk to NZ’s commodity exports and prices.
- The virus outbreak poses low risk to dairy prices, but seafood exports are haevily exposed.
- Meanwhile, the ASB Commodity Price Index lifted a touch last week in all denominations.
Q4 2019 Labour Market Preview: Job stability
30 Jan 2020
- Q4 jobs data to confirm economy remains close to full employment.
- Another reason the RBNZ can rest easy for now.
- But an expected creep higher in unemployment over 2020 warns against complacency.
Economic Weekly: Markets nervous on coronavirus outbreak spread
28 Jan 2020
- The Lunar New Year has kicked off to a shaky start with global financial markets rattled as reports confirm the spread of the coronavirus outbreak from China to several other countries.
- The virus emerges as a global health threat just as the NZ tourism industry approaches its seasonal peak.
- Economic data this week is likely to play second fiddle to virus headlines.
Commodities Weekly: Heating up, drying out
24 Jan 2020
- It’s early days in the NZ summer, but drought risks are rising.
- So far the dry weather has been having a (modest) impact on agricultural production, with dairy production showing signs of slowing.
- Meanwhile, the ASB Commodity Price Index was largely unchanged last week.
Mooching around the mid-point
24 Jan 2020
- CPI inflation lifted by more than we, the market and the RBNZ expected. All of the upside was in tradable inflation.
- Core measures of inflation are currently clustered around 2% - the midpoint of the RBNZ’s inflation target band.
- Domestic inflation pressures may ease over the coming year as a result of the 2019 economic growth deceleration, and the RBNZ must remain vigilant of the downside risks to the outlook. We continue to expect one further rate cut in 2020
GlobalDairyTrade Auction: Two in a row
22 Jan 2020
- Dairy auction prices continued their positive start to 2020.
- Emerging dry weather could put further upward pressure on dairy prices.
- All up, we maintain our 2019/20 milk price forecast at $7.50/kg.
Economic Weekly: Looking back to look forward
20 Jan 2020
- The first key NZ economic data releases of the year painted a mixed picture for the current state of the economy.
- Looking at the week ahead, we get to look back at Q4 inflation on Friday.
- Offshore, Australian Employment data for December will be the key focus.
Commodities Weekly - 2020 - Year of the Rat racing to keep up with 2019
17 Jan 2020
- After 2019’s record highs, we expect less spectacular NZ commodity prices in 2020.
- Nonetheless, we expect NZ commodity prices to remain at healthy levels on a historical basis.
- Meanwhile, a fall in the NZD/USD helped the ASB Commodity Price Index rise in NZD terms last week.
2019Q4 CPI Preview: In the inflationary sweet-spot
16 Jan 2020
- We expect a 0.4% qoq increase for the CPI in Q4, with annual CPI inflation ticking up to 1.8 %. Risks are broadly balanced.
- Annual core inflation measures are expected to remain clustered around 2%.
- The economy looks to have turned the corner, but a moderate inflation backdrop suggests the RBNZ can be patient in its OCR deliberations.
NZIER Quarterly Survey of Business Opinion: Q4 survey detail remains soft
14 Jan 2020
- The lift in NZIER QSBO business confidence over Q4 was less than we expected.
- Reported activity remained very weak in Q4 and consistent with quarterly GDP growth of just 0.1%.
- We continue to expect another 25 basis point OCR cut from the RBNZ over 2020.
Economic Weekly: A ratbag-free Year of the Rat
13 Jan 2020
- Hopefully, 2020 will bring some degree of calmness after a very discordant 2019.
- Nevertheless, 2020 will have other uncertainties that people will need to put to one side and keep up the focus on what really matters.
- Key NZ data should start on an encouraging note, with the Quarterly Survey of Business Opinion on Tuesday likely to reflect improved perceptions of the economic environment, as has the ANZ survey in its last two reads.
Markets Monthly for December 2019: Yields lift and sharemarkets surge into year end
09 Jan 2020
- Sharemarkets were strong in December, with the main US share indices setting fresh record highs. Positive sentiment regarding a US-China trade agreement was a key driver in December. Renewed US-Iran tensions are a concern in early 2020.
- The NZ sharemarket lifted 1.4% in December, and gained 30.4% over the year (NZX 50 gross index).
- Bond yields, both here and abroad, resumed the march higher over December. Bond yields have moved significantly higher over the past three months, but remain well below year-ago levels.
GlobalDairyTrade Auction: 2020 starts with a hiss and a growl
08 Jan 2020
- Dairy auction prices started 2020 on a positive note.
- Notably, skim milk powder prices have continued their purple patch.
- All up, we remain positive on the dairy outlook and maintain our 2019/20 milk price forecast at $7.50/kg.
Commodities Weekly: 2019 - the Year of Records
20 Dec 2019
- Lamb, beef, forestry and fruit prices all set record highs in NZD terms over 2019.
- Looking ahead, we expect NZ commodity prices to continue to remain healthy over 2020.
- Meanwhile, the ASB Commodity Price Index dipped in all denominations in the week ending 13 December.
2020 Vision: Five risks to look out for next year
20 Dec 2019
- We outline 5 key risks to the consensus economic view.
- Overall, we find more upside risks than down.
- This leaves us with upside risk on the NZD and NZ interest rates in 2020. It’s worth thinking about hedging strategies, and we’ve outlined a few ideas here.
Q3 GDP Review: GDP takes us on a roller-coaster ride of revisions
19 Dec 2019
- Q3 GDP grew 0.7% qoq (2.3% yoy), bang on ASB’s forecast, and stronger than both the market expectation and the RBNZ’s November MPS forecast.
- However, revisions to previous GDP estimates have altered the profile of GDP growth – in short 2018 GDP growth is stronger but 2019 GDP growth is weaker.
- The net result is that GDP is slightly ahead of the RBNZ’s Q3 GDP forecast, but a back-drop of GDP growth decelerating more sharply than previously believed over 2019. We continue to expect the RBNZ to cut the OCR once more in 2020.
2019: the year of the Sheep
19 Dec 2019
Auspiciously, 2019 was the ‘Year of the Pig’. As it turns out though, African Swine Fever meant that pigs were few and far between this year. For NZ farmers, this meant that 2019 quickly turned into the ‘Year of the Sheep’, with sheepmeat prices reaching unprecedented levels. Beef prices also set fresh record highs, while fruit prices also boomed. With the milk price joining the party in the second half of the year, 2019 has generally been a stellar year for farmers on the commodity price front.
At the start of the year, it was a stretch to imagine lamb prices topping the record highs of spring 2018. But top them they did! In fact, spurred on by African Swine Fever, lamb prices hit as high as $9.00/kg this year. Beef prices weren’t far behind as they also surpassed the previous record highs.
Meanwhile, 2019 has been another banner year for fruit exports. After cracking $3 billion in exports for the first time over 2018, fruit exports are set for another leg up to around $3.4 billion over 2019. The kiwifruit sector or more precisely gold kiwifruit exports have been doing much of the fruit industry’s heavy lifting.
On the whole, 2019 has been a good year for the milk price. While the 2018/19 season delivered a modest $6.35/kg milk price, the second half of 2019 saw the milk price hit the ground running. Indeed, we end the year with a bullish $7.50/kg forecast for 2019/20 in place.
Turning to financial markets, 2019 has seen interest rates tumble to record lows. However, while we expect benchmark rates to remain very low, we may be past the absolute lows in lending or customer rates.
The NZ dollar has also been a ‘star’ over 2019. As seen in the chart below, the relatively weak NZ dollar has helped boost farmgate prices in NZD terms.
Q3 Balance of Payments: September sees sustained stability
18 Dec 2019
- The annual current account deficit as a % of GDP remained stable over the September quarter.
- Although, revisions to earlier quarters mean that the deficit was smaller than expected.
- We expect the annual deficit to narrow a touch over coming quarters.
GlobalDairyTrade Auction: Bung note in otherwise good symphony
18 Dec 2019
- Dairy auction prices dipped by more than expected overnight.
- However, dairy prices have generally performed strongly over the first half of the 2019/20 season.
- We remain positive on the dairy outlook and maintain our 2019/20 milk price forecast at $7.50/kg.
Home Economics: Time to upgrade
17 Dec 2019
- The latest indicators suggest the NZ housing upturn is gathering steam, broadly as we’ve been expecting.
- The Auckland market has reawakened, joining already fizzing regional markets.
- We kick the tyres on our house price forecasts, and upgrade slightly our view of Auckland and Canterbury.
Economic Weekly: End of year cheer (and hopefully no hangover)
16 Dec 2019
- There was plenty to digest last week, and nearly all of it was positive.
- Locally, the data pulse also appears to have turned on a dime with retail, exports, manufacturing, and housing data all pleasantly surprising us recently.
- We retain our call for one further RBNZ rate cut in May but the risk is clearly rising that the RBNZ is done.
Regional Economic Scoreboard Q3 2019: Regions have a stable quarter on the scoreboard
16 Dec 2019
- The scoreboard remained fairly stable this quarter, with three regions holding their table position and a further six moving less than three places.
- Gisborne held onto its reign at the top of the leaderboard.
- Hawke’s Bay climbed back into medal position, taking out silver while Auckland jumped seven places to third equal after a bounce in consumer confidence.
Commodities Weekly: NZ dollar ending year on a high
13 Dec 2019
- The NZ dollar is ending 2019 on a high.
- The NZ dollar strength has followed the green shoots that have begun to appear in both the local and global economies.
- Meanwhile, the ASB Commodity Price Index rose modestly in USD terms (+0.7%) last week.
Q3 2019 GDP Preview: Q3 GDP could deliver some holiday cheer
13 Dec 2019
- We expect Q3 2019 GDP increased by 0.7% qoq, with annual growth lifting to 2.5%.
- Q3 economic data have been surprisingly robust despite very weak readings from typically-reliable sentiment-based indicators of GDP growth.
- StatsNZ will also update its earlier GDP estimates, which could result in some material revisions, adding an additional layer of uncertainty ahead of the release.
Home Loan Rate Report: Could this be the low point for mortgage rates?
12 Dec 2019
- At this juncture we think most mortgage interest rates won’t move much lower than they are now. Furthermore, there is now some upward pressure on fixed mortgage interest rates, coming courtesy of: the upward drift in global interest rates; markets recalibrating expectations for the RBNZ; and as regulatory changes take effect.
- Borrowers can lock in very low interest rates now, but should still plan to deal with higher interest rate costs over the long run.
- The RBNZ has surprised markets a couple of times recently. In August it cut the Official Cash Rate (OCR) by a bigger than expected 0.5% to a record low 1.0%. Since then it has maintained that developments do not warrant more policy stimulus despite slowing domestic and global growth. We thought the RBNZ would lower the OCR again in November, and think RBNZ will cut the OCR one more time in 2020.
Half-Year Economic and Fiscal Update 2019: One small step for infrastructure, no giant leap for growth
11 Dec 2019
- On the surface, the Half-Year Update 2019 shows a healthy set of Government books.
- As well-signalled, the Government has boosted infrastructure spending, with an increase in capital spending of $12bn announced in the Update.
- That said, we’d characterise the fiscal policy stance as cautious, with fiscal headroom having shrunk on the back of the weakening economic outlook since the May Budget.
Economic Weekly: Spend-ups and elections
09 Dec 2019
- The big NZ event this week is the Half Year Economic and Fiscal Update on Wednesday.
- Overseas the US Federal Reserve is likely to keep interest rates on hold this Thursday morning.
- Also, the UK General Election (and next key step in determining the path of Brexit) is Friday morning our time, with results out in our Friday afternoon.
Housing Confidence Survey: Good vibrations
09 Dec 2019
- Kiwis are picking up good vibrations from NZ’s housing market.
- All three of our key housing confidence measures lifted in Q3, for the second straight quarter.
- This sentiment matches the turn higher we are seeing in most key indicators of the housing market. House price inflation is picking up and we expect the upturn to continue through to at least the middle of 2020.
RBNZ December 2019 Bank Capital Requirements
06 Dec 2019
- The RBNZ has confirmed increased capital requirements for NZ locally-incorporated banks. The RBNZ has listened to feedback and eased some aspects of the original proposal. However, we note that some of the capital increases will be frontloaded for the large banks.
- We still think the new capital regime would result in larger increases in bank funding costs (and customer borrowing interest rates) than the 20.5 basis points assumed by the RBNZ. If interest rate impacts do turn out to be higher, the net benefits assumed by the RBNZ of higher capital may not be as strong and could even turn into a net cost.
- As previously noted, the impacts will be uneven across sectors, with more significant impacts on sectors with higher capital requirements. There is also increased risk of financial disintermediation.
- The pending imposition of bank capital requirements is a key reason why we expect a prolonged period of very low OCR settings, including a 25bp cut in May 2020 and for the OCR to remain at 0.75% until 2022.
Markets Monthly: Sharemarkets surge over November
05 Dec 2019
- Sharemarkets were strong in November, with the main US share indices reaching fresh record highs late in the month.
- Long-term yields dipped modestly lower both here and offshore in November.
- Conviction regarding multiple RBNZ interest rate cuts waned over the month, and the RBNZ remained on hold at its November review.
Commodities Weekly: Fonterra joins the milk price party
05 Dec 2019
- Fonterra has lifted its 2019/20 milk price forecast range to $7.00-$7.60/kg, from $6.55-$7.55/kg previously.
- Even with the lift, we still see upside to Fonterra’s milk price forecast and, to a lesser degree, to our own $7.50/kg forecast.
- Meanwhile, the ASB NZ Commodity Price Index lifted a touch in USD terms last week.
GlobalDairyTrade Auction: Catching breath
04 Dec 2019
- After a good run, overall dairy auction prices dipped a touch overnight.
- However, we anticipate that prices will lift again over coming months.
- With this in mind, we reconfirm our 2019/20 milk price forecast at $7.50/kg.
Economic Weekly: Pre-Christmas miracle
02 Dec 2019
- The November lift in the ANZ business confidence survey confirms confidence has at a minimum stabilised, and hopefully marks the first step towards a steady recovery.
- To celebrate the good news, we have scrubbed out one of our forecast 25bp OCR cuts and now only expect one further cut in 2020.
- On Thursday this week the RBNZ will reveal its final decision on bank minimum capital requirements.
Commodities Weekly: Farm expense inflation has bottomed – may now lift
29 Nov 2019
- Farm expense inflation has bottomed, and may now lift.
- Notably, feed prices are set to rise on the back of strong farm incomes and thus increased feed demand.
- Meanwhile, the ASB NZ Commodity Price Index set a fresh record high in NZD terms last week.
November 2019 RBNZ Financial Stability Report: Curtain raiser
27 Nov 2019
- The RBNZ chose not to relax loan-to-value restrictions, as some had speculated.
- Concern the low interest rate environment and loosening bank lending standards could further gee-up the housing market look to have been key considerations for holding the line.
- As expected there was no sneak peek on next Thursday’s bank capital decision.
2019Q3 Retail Trade: Retail soars in Q3
26 Nov 2019
- Sizeable Q3 rebound in retail volumes after a soft Q2. Core retail volumes also strong.
- Generalised strengthening evident, with the major centres benefitting.
- We don’t expect Q3 retail strength to be sustained, with the OCR to move lower next year.
Economic Weekly: Growth grind
25 Nov 2019
- We expect the NZ economy to be regathering momentum next year, with the lull in annual growth in the tail half of 2019 – effectively now.
- Next Thursday sees the RBNZ reveal its final decision on bank capital requirements for locally incorporated banks and we believe the (stricter) requirements will pose a more significant headwind to the NZ economy that the RBNZ expects.
- This, and a myriad of (predominantly negative) localand global risks will likely push the OCR move lower over 2020.
Quarterly Economic Prospects: Are we there yet?
25 Nov 2019
- We are still waiting for resolution of trade tensions and Brexit, and an end to NZ’s economic deceleration.
- Monetary policy has done some work to lift growth; the Government also has plenty it could do.
- Australia hasn’t had a recession for 28 years, something NZ can actively aspire to.
Commodities Weekly: Spring production slide
22 Nov 2019
- NZ dairy production growth continues to slow.
- Although notably, the slower production has led us to revise our milk price forecast higher.
- Meanwhile, the ASB NZ Commodity Price Index rose in USD terms last week.
Home Loan Rate Report: A bird in the hand or two in the bush?
21 Nov 2019
- Borrowers can lock in very low interest rates now, but should still plan to deal with higher interest rate costs over the long run.
- Since August, the RBNZ has maintained that developments do not warrant more policy stimulus despite slowing domestic and global growth. We still think RBNZ will cut the OCR again in the future.
- But if the floor in the OCR is 1.00%, mortgage interest rates are unlikely to move much lower than they are now. There is now some upward pressure on mortgage interest rates, given the upward drift in global interest rates, as markets recalibrate expectations for the RBNZ, and as pending regulatory changes take effect.
GlobalDairyTrade Auction: The high plateau
20 Nov 2019
- We bump up our 19/20 milk price forecast by 50 cents to $7.50/kg.
- We also set our initial 20/21 forecast at a bullish $7.50/kg, and we have lifted our long-run forecast range to $6.50/kg to $7.50/kg.
- Almost as importantly, we now believe that milk price volatility has fallen structurally.
Economic Weekly: RBNZ puts on its rose-tinted glasses
18 Nov 2019
- The RBNZ surprised financial markets by deciding to leave the OCR unchanged on Wednesday afternoon last week.
- The RBNZ has subsequently signalled it has a high threshold for further OCR cuts.
- Focus over the next few months now turns to business confidence, NZ economic data, offshore events (in particular US-China trade war developments) and the Government’s Half Year Economic and Fiscal Update.
Commodities Weekly - Rewriting the record books
15 Nov 2019
- The ASB Commodity Price Index hit a record high in NZD terms last week
- Lamb, beef and seafood prices have been leading the way.
- Looking ahead, we expect NZ commodity prices to continue to push higher over the remainder of 2019 and early 2020.
RBNZ November 2019 Monetary Policy Statement Review: Whoops: RBNZ holds, market tightens
13 Nov 2019
- The RBNZ surprised most people by keeping the OCR on hold. In response, wholesale interest rates have soared.
- Yet the RBNZ’s growth outlook remains on the optimistic side, and it has yet to factor in the economic impact of its looming bank capital increases.
- We still expect the RBNZ will eventually need to cut the OCR twice further in 2020, and still expect a 0.5% low.
Economic Weekly: The RBNZ giveth and the RBNZ taketh away
11 Nov 2019
- We’re entering another important week.
- We’ve retained our long-held view that the RBNZ should cut 25bps.
- Global growth is still sub-par, business confidence is woeful, and a few cracks are appearing in the labour market.
Commodities Weekly: Lamb prices - double delight
08 Nov 2019
- Lamb prices have set fresh record highs this spring.
- And the outlook is for prices to remain healthy out as far as the 2020/21 season.
- Meanwhile, the ASB Commodity Price Index posted a 0.9% gain in USD terms last week.
RBNZ November 2019 Monetary Policy Statement Preview: Pre-emption over sitting on the fence
08 Nov 2019
- Our conviction is that the RBNZ should (and likely will) cut the OCR by 25bps in November.
- The short-term growth outlook is subpar and risks are skewed to the downside, with the RBNZ needing to take out more insurance to prevent a more protracted undershoot of its employment and inflation objectives.
- We expect the RBNZ to hold out the prospect of further policy stimulus, if needed. To us, 0.75% is unlikely to be the OCR floor and a move lower in 2020 beckons.
Q3 2019 Labour Market Review: RBNZ hitting labour market KPIs, but for how long?
06 Nov 2019
- Q3 labour market statistics were generally supportive of the idea NZ labour market strength is past the peak, although the details of the reports were a little stronger than the headlines.
- Employment growth was weak, and the unemployment rate began what we expect to be a slow creep higher over the next 12 months.
- The RBNZ is currently meeting its labour market objectives, but we think it has more work to do to ensure this remains the case. We continue to expect a 25bps rate cut at next week's meeting and a further 25bps reduction in February.
GlobalDairyTrade Auction: Mediocre spring may drive milk price forecast higher
06 Nov 2019
- Overall dairy auction prices firmed a touch overnight.
- NZ production growth is slowing, boosting global dairy prices.
- Indeed, we see some potential to revise our already bullish 2019/20 milk price forecast higher, if auction prices climb further over coming auctions.
Markets Monthly for October 2019: Long-term bond yields lift during October
05 Nov 2019
- Sharemarkets were mixed in October, with US shares posting solid gains and the S&P 500 reaching a record high. Japan’s sharemarket lifted an impressive 5.4%, while UK and Australasian markets were down.
- The US Federal Funds rate range was cut 0.25% lower in October, but long-term US rates lifted. Upward pressure on yields was also present down under, with long term bond yields in Australia and New Zealand moving higher.
- Conviction regarding multiple RBNZ interest rate cuts waned over the month, but ASB still expect a November OCR cut. The NZD lifted against the USD, but declined against a strengthening GBP over the month.
Economic Weekly: RBNZ speech subject to market interpretation
01 Nov 2019
- The NZ labour market data released on Wednesday is the key focus this week.
- We will be closely watching to see how much of the weakness in forward-looking indicators shows up in Q3 labour market conditions.
- We continue to expect the RBNZ to cut the OCR 25bp at next week’s announcement.
Commodities Weekly: Kiwifruit export values take a September breather
01 Nov 2019
- After bumper months over July and August, kiwifruit export values slowed over September.
- Overall September export prices were 2.2% lower than in September 2018.
- A weaker NZ dollar helped the ASB Commodity Price Index modestly edge higher last week in NZD terms.
2019 Q3 Labour Market Preview
31 Oct 2019
- We expect September quarter labour market data to reveal a modest slackening in the labour market.
- The RBNZ is currently meeting its labour market objectives, but has more work to do to ensure employment remains around its “maximum sustainable” level.
- We continue to expect another 25bps RBNZ rate cut in November.
Economic Weekly: Make or break
29 Oct 2019
- Markets think they might be past the worst.
- Over the past fortnight, global equities have leapt to fresh highs and global yield curves have lifted and steepened.
- This week will see a veritable feast of top-tier data and central bank meetings; it could be "make or break" in this regard.
Home Loan Rate Report: Mortgage rates set fresh lows
29 Oct 2019
- Borrowers can lock in very low interest rates now, but should still plan to deal with higher interest rate costs over the long run.
- Interest rates for shorter-term mortgages had dipped lower this year, and eased further since the RBNZ’s August cut.
- Longer-term mortgage interest rates had already been falling prior to this year’s RBNZ rate cuts. The significant dip in these rates occurred between 2017 and early 2019.
Commodities Weekly: Slip slidin’ away
25 Oct 2019
- After a solid start, dairy production growth is slowing.
- From here, we expect milk production to slow further compared to last season.
- Meanwhile, the ASB Commodity Price Index lifted in USD terms last week.
Home Economics: And so it begins
22 Oct 2019
- The spring lift in NZ’s housing market we’ve been expecting appears to be upon us
- The Auckland market is looking far more sprightly, while hot regional markets have lost a little momentum
- We continue to expect nation-wide house price inflation to pick up to 5-6% yoy by mid-2020.
Economic Weekly: Boris’ bumbling Brexit bumbles on
21 Oct 2019
- Financial markets remained in a holding pattern last week.
- The Brexit saga continues to drag on but at the very least, it appears the risks of a no-deal Brexit have been reduced for now – spurring a bit of relief in the market.
- A sharper-than-expected slowdown in Q3 Chinese economic growth provides gives plenty of reasons to remain anxious on the economic outlook.
Commodities Weekly: Diwali – the festival of lights
18 Oct 2019
- India is a small export market for NZ, accounting for just 1.2% of NZ’s total good exports by value.
- NZ exports an eclectic mix of goods to India, with forestry the largest export category.
- Meanwhile, the ASB Commodity Price Index rose in all denominations last week.
2019Q3 CPI Review: Mixed messages from CPI print
16 Oct 2019
- Consumer prices rose 0.7% qoq in Q3 (1.5% yoy), slightly firmer than RBNZ and market expectations.
- Despite annual non-tradable inflation hitting an 8-year high, annual core inflation measures barely budged, and remained clustered around 2%.
- We believe a combination of domestic and global catalysts continue to hold down NZ inflation. We expect a further 50bps of OCR cuts by early 2020 and a 0.50% OCR trough this cycle.
GlobalDairyTrade Auction: Nearing the nitty gritty
16 Oct 2019
- Overall dairy auction prices firmed a touch overnight.
- We wait for NZ spring production data to provide further direction for global dairy prices.
- We suspect that spring production growth may underwhelm global dairy markets, putting upward pressure on prices over the remainder of 2019.
Economic Weekly: Deal or no deal?
14 Oct 2019
- The weekend produced a lot of high drama that, in some cases, will set the tone for the next 2 to 3 weeks.
- The US-China proposed trade truce, if followed through, will help calm the heightened tensions of late.
- This week, the big NZ focus will be on our Q3 inflation figures, with annual inflation expected to take a step down.
2019Q3 CPI Preview: Middling core and low annual headline CPI
10 Oct 2019
- We expect a 0.6% qoq increase for the CPI in Q3, dropping annual CPI inflation to 1.4%. Risks are broadly balanced.
- Annual core inflation measures are expected to remain somewhat firmer, clustered around 2% for the Statistics NZ measures, but stuck below 2% for the RBNZ sectoral factor model.
- A low inflation backdrop and growing spare capacity necessitates more policy support. We expect a further 50bps of OCR cuts and a 0.50% OCR floor this cycle.
Commodities Weekly: NZD looking comfortable in a lower range
09 Oct 2019
- At the time of writing NZD/USD has ground its way back above 0.6300, but last week it was near 0.6200, the lowest level in over four years.
- On a trade weighted (TWI) basis, the NZD is down circa 5% on its average level over the past 5 years, and around 15% off the peak recorded back in 2015.
- Meanwhile, the ASB Commodity Price Index rose in all denominations last week.
Economic Weekly: 50/50 – 50bps of cuts to 0.5% floor
07 Oct 2019
- Last week, both of the main business confidence surveys in NZ flagged that the NZ economy risks losing even more momentum than it already has.
- The collective sum of events of the past few months has made businesses less confident in their outlook and less keen on making investment commitments.
- We now expect the RBNZ to cut the OCR by a further 25bp in February next year, in addition to the 25bp cut we expect to see in November, taking the OCR down to 0.5%.
Rural Loan Report: October 2019
07 Oct 2019
- The Reserve Bank cut the Official Cash Rate to a record low in August.
- We expect two more 25bp cuts in November and February 2020, taking the OCR to a record low 0.50%.
- With that in mind, interest rates are likely to remain lower for longer.
Interest Rate Outlook: How low can you go? A checklist for the RBNZ
04 Oct 2019
- We believe the OCR floor is somewhere between -0.25% and -0.75%.
- Our preference would be for the OCR lever to be fully exercised before other measures are contemplated.
- There are a variety of other unconventional policy options available, but none are without cost. To provide the best bang for your policy buck, closer co-ordination will be needed.
Markets Monthly for September 2019: Sharemarkets lift while the NZD slide continues
03 Oct 2019
- Sharemarkets were volatile, but posted gains over the month of September.
- The European Central Bank and the US Federal Reserve eased policy settings during the month.
- The NZD slide continued, with the trade-weighted index down 0.7% for the month, and 4.2% over the quarter.
Commodities Weekly: Kiwifruit export values continue hot pace
03 Oct 2019
- Kiwifruit export values have continued their hot pace over August.
- Indeed, we ancticipate that another record export season is on the cards.
- Meanwhile, the ASB NZ Commodity Price Index dipped modestly last week.
GlobalDairyTrade Auction: Dairy rolls with the punches
02 Oct 2019
- Dairy auction prices were largely unchanged as expected overnight.
- Global dairy prices remain relatively resilient in the wake of the increasingly shambolic geo-political backdrop and slowing global growth.
- The result overnight reaffirms our 2019/20 milk price forecast of $7.00/kg while we wait for NZ spring production data to provide further direction for global dairy prices.
Q3 Quarterly Survey of Business Opinion: Economy stalls and inflation softens
01 Oct 2019
- Q3 QSBO suggests that the NZ economy ground to a halt over Q3.
- As the lack of demand, rather than capacity constraints, are seen to restrain activity. Inflation indicators are softening and spare capacity within the labour market looks to be growing.
- We now expect 2 more 25bp OCR cuts by the RBNZ by early 2020. The 50bp August OCR cut looks to have back-fired and depressed confidence, and we expect the RBNZ will revert to smaller 25bp steps.
Farmshed Economics: Records tumble in all directions
01 Oct 2019
- Records have tumbled in all directions over the last three months.
- That is, the rural and financial sectors have set record highs in the case of lamb prices and record lows in the case of interest rates.
- Records have tumbled in the wrong direction too, with Fonterra posting a 2018/19 record loss.
Economic Weekly: Timing the Trans-Tasman tweaks
30 Sep 2019
- The RBNZ kept the OCR unchanged last week as we expected; the expectation remains that the central bank cuts later this year.
- This week, the Q3 Quarterly Survey of Business Opinion provides us with a quality steer on current economic activity and will help us fine-tune the risks around our OCR view.
- And across the Tasman, the RBA is odds on to cut its interest rate to 0.75% tomorrow.
Commodities Weekly: Dairy production off to solid start
27 Sep 2019
- Dairy production has made a solid start to the 2019/20 season.
- Indeed, a kind winter has helped production start strong but from here, we expect milk production to slow compared to last season.
- Meanwhile, a softer NZ dollar helped the ASB Commodity Price Index lift higher in NZD terms last week.
2018/19 Fonterra Annual Results: The wrong records tumble
26 Sep 2019
- Fonterra has posted a record loss for a second successive year.
- Despite the earnings result being largely as expected, we find very little to be rosy about.
- On paper, Fonterra has a new simplified and sensible strategy, but we remain healthily sceptical given the string of poor results.
RBNZ September 2019 Official Cash Rate Review: Waiting on the wing
25 Sep 2019
- The RBNZ kept the OCR steady at 1%, in line with expectations.
- Growth risks remain, but the RBNZ appears more confident that recent policy stimulus will boost the economy.
- We continue to expect a further 25bp cut in November, with the risk of more action next year.
Economic Weekly: RBNZ musings, a low-flying bird and an AB’s victory
23 Sep 2019
- The RBNZ makes its interest rate announcement this Wednesday; we expect it to keep the OCR on hold at 1.00%, but after last month’s surprise, we’re also not ruling anything out.
- Meanwhile, the NZD/USD has slipped to levels prevailing back in June 2009.
- Turning to the Rugby World Cup, the All Blacks have laid down a marker in their 23-13 victory over the Springboks on Saturday.
Commodities Weekly: Forestry price falls contained for now
20 Sep 2019
- After taking a tumble in recent months, forestry prices have stabilised at least for now.
- A swift fall in local harvest has helped limit the decline in prices.
- Meanwhile, a softer NZ dollar helped the ASB Commodity Price Index rise modestly higher in NZD terms last week.
RBNZ September 2019 Official Cash Rate Preview: Never Say Never Again
20 Sep 2019
- In August the RBNZ surprised by delivering a 50bp OCR cut. We expect no move in September.
- But….for the time being we wouldn’t rule anything out! It’s a crazy world out there.
- We expect a 25bp OCR cut in November, and have a long list of reasons why the OCR could fall further in 2020.
Q1 GDP Review: Growth at six-year low – down, but not out
19 Sep 2019
- Q2 GDP grew 0.5% qoq (2.1% yoy), modestly above market expectations, but in line with the ASB/RBNZ pick. Growth remained uneven, with the services sector and agriculture keeping the economy afloat.
- Growth momentum has slowed with annual GDP growth at a six-year low.
- This period of sluggish performance is set to continue, and we expect growing spare capacity will see the RBNZ cut the OCR again in November.
Q2 Balance of Payments: Incremental improvement
18 Sep 2019
- The annual current account deficit narrowed in line with market expectations to 3.4% of GDP.
- Similarly, the Q2 deficit of $1,106m was effectively bang on forecast.
- We expect the annual deficit to continue narrowing gradually over the next couple of years.
GlobalDairyTrade Auction: Dairy calm in the global storm
18 Sep 2019
- Dairy auction prices posted modest price gains overnight.
- Notably, global dairy markets remain healthy despite slowing global growth and the US-China trade war.
- The result overnight reaffirms our 2019/20 milk price forecast of $7.00/kg.
Economic Weekly: Serving up a modest portion of growth
16 Sep 2019
- It’s a key week for NZ data this week, with the US Federal Reserve also a heavyweight event.
- While Thursday’s Q2 GDP is shaping up to be important, we also have a GDT dairy auction (Tuesday night) and the Q2 current account on Wednesday.
- The Bank of England and the Bank of Japan are also meeting this week, but both are expected to remain on hold at this point.
Q2 2019 GDP Preview: Services sector may support Q2 growth
13 Sep 2019
- We expect Q2 2019 GDP increased by 0.5% qoq, with annual growth slowing to just 2.1%.
- The RBNZ also expects muted Q2 GDP growth, with the 50 basis point OCR cut in August partly prompted by growing evidence of continued weak economic growth.
- The growth performance over the next year hinges on consumer confidence and the ongoing strength in the labour market.
Economic Note: Recession?
12 Sep 2019
- ASB estimates a 30% probability that the NZ economy was in recession over Q2 2019.
- Top-down indicators point to an underlying quarterly growth rate in Q2 of around 0.3-0.4%, with risks skewed to the downside (although our formal forecast is for 0.5% GDP growth in Q2).
- Consumer confidence is the key variable to watch – if the labour market weakens and consumer confidence falls, the odds of a recession will likely spike higher.
Economic Weekly: Brief relief
09 Sep 2019
- After a few weeks of nervous hand wringing, financial market participants finally received some good geo-political news.
- This week remains fairly quiet on the economic data front.
- Political headlines will contine to drive sentiment for the time being.
ASB Regional Economic Scoreboard - June 2019 Quarter
09 Sep 2019
- Gisborne has leapfrogged the sunny Hawke’s Bay to take out top spot this quarter.
- Wellington takes out the silver medal, climbing two spots to second.
- Northland reverses its fortunes, climbing 10 spots to claim the bronze medal.
- The Bay of Plenty and Manawatu-Whanganui dipped seven places each to 15th and 9th place respectively.
- The West Coast remains stubbornly at the bottom of the scoreboard.
Markets Monthly for August 2019: Bonds have more fun in volatile August
05 Sep 2019
- Risk aversion and volatility escalated in August as slowing global growth, elevated trade tensions, Brexit risks, and wider geopolitical tensions weighed on risk sentiment.
- While global equities posted sharp falls at the start of the month, August was generally better for global bond investors, with lower yields and flatter curves. US 30-year Treasury yields hit record lows, with some European yields falling further into negative territory.
- New Zealand yields traded around record lows after the RBNZ cut the official cash rate by 50bps in August and the NZD fell close to 3% on a trade-weighted basis in August, with larger falls against the USD, JPY and GBP.
GlobalDairyTrade Auction: Steady prices, higher volumes
04 Sep 2019
- Whole milk powder prices were down marginally, as expected, with overall dairy prices roughly flat.
- Meanwhile, auction volumes are lifting as spring production looms.
- We maintain our 2019/20 milk price forecast of $7.00/kg.
Economic Weekly: Stall speed?
02 Sep 2019
- Global and local economic news continues to sour, on balance.
- Local ‘soft’ data has tended to shift southwards too.
- The risks of a more protracted slowdown are rising.
Commodities Weekly: Lamb prices - double eight
30 Aug 2019
- Lamb prices have cracked the $8/kg mark for the second successive year.
- And at this juncture, we think that there is a 50/50 chance that lamb prices set fresh record highs over spring.
- Meanwhile, the ASB NZ Commodity Price Index was largely unchanged last week.
Economic Weekly: Sluggish retail spending sets the tone
26 Aug 2019
- NZ economic data continue to point to the slowdown becoming more entrenched with last week’s Q2 Retail Trade Survey confirming a soft quarter for retail spending.
- Focus this week will be on the August ANZ Business Outlook, which may partly capture the business community’s reaction to the Reserve Bank of New Zealand’s move to slash the Official Cash Rate by 50 basis points to 1%.
- Meanwhile, the deteriorating global backdrop will likely remain a drag on sentiment.
Home Economics: Bracing for spring growth
26 Aug 2019
- We expect nation-wide house price inflation to pick up from the current annual pace of around 1.5%, to 5-6% by mid next year. Spring will be a key test of our view.
- The RBNZ’s determination to get kiwis borrowing and spending could see a more enduring cycle take hold. But we think there are enough offsetting factors out there to limit the extent of the upturn.
- July housing data were consistent with the idea that the housing market may be slowly turning higher. Although, as our Regional Heatmap shows, conditions remain highly variable across the country.
Housing Confidence Survey: Home comforts
26 Aug 2019
- Housing confidence is tentatively turning higher. All three of our key confidence measures we monitor show respondents are feeling more positive about housing relative to the situation three months ago.
- This sentiment broadly matches the nascent signs of a turning we’ve seen in other housing data.
- House price expectations crept higher, interest rate expectations fell sharply, and more people believe now is a good time to buy a house.
Commodities Weekly: Farm expense inflation softening
23 Aug 2019
- Farm expense inflation is softening.
- Notably, feed price inflation has slowed over 2019.
- Meanwhile, a softer NZD/USD pushed the ASB Commodity Price Index 0.5% higher in NZD terms last week.
Retail Trade Q2 2019: Mid-year retail malaise looks set to continue
23 Aug 2019
- Mid-year lull in retail volumes after a solid start to 2019.
- Mixed bag for retail sector volumes. Weakening sentiment points to further weakness ahead.
- We have shaded down our Q2 GDP pick to +0.6% qoq and expect the OCR to move lower.
GlobalDairyTrade Auction: WMP and cheddar prices up, others ease overnight
21 Aug 2019
- Whole milk powder prices rose 2.1% at the latest GDT event overnight, with an average price of $3,100.
- Cheddar prices also lifted 0.8%, to be up 12% on year-ago levels.
- All up, we maintain our 2019/20 milk price forecast of $7.00/kg.
Economic Weekly: Red light or red herring?
19 Aug 2019
- It’s getting a bit panicky with investors now starting to price a real risk of global recession.
- The MSCI World Equity Index is now down 6% from its recent highs, risk aversion indicators are rising, safe-havens are back in demand, and everyone’s talking about inverted yield curves.
- All eyes this past week have been on global yield curves.
Quarterly Economic Forecast: Failure to launch?
19 Aug 2019
- The economy looks like it will fail to rebound significantly over the next year, with growth to lift only slightly.
- Ongoing domestic malaise remains the gravitational drag, though global headwinds are intensifying.
- Monetary policy may test its practical limits, which would bring quality Government action to the fore.
Commodities Weekly: Beefing up
16 Aug 2019
- Beef prices are climbing fast and may set record highs in some cases this spring.
- The Chinese market is dominating demand for NZ beef exports, with African Swine Fever and the US-China trade war contributing to strong Chinese demand.
- Meanwhile, the ASB Commodity Price Index fell across the board last week.
Mortgage rates edge even lower
16 Aug 2019
- The RBNZ cut Official Cash Rate (OCR) to a record low 1.0% in August, and could cut it again in the future.
- Floating rates swiftly dropped after the RBNZ’s surprise 0.5% OCR cut in August.
- Interest rates for shorter-term mortgages had dipped lower this year, and eased further in the wake of the RBNZ’s August cut.
- Longer-term mortgage interest rates had already been falling prior to this year’s RBNZ rate cuts. The significant dip in these rates occurred between 2017 and early 2019.
- Borrowers can lock in very low interest rates now, but should still plan to deal with higher interest rate costs over the long run.
Economic Weekly: Shock and Orr
12 Aug 2019
- The Reserve Bank of New Zealand's (RBNZ) Monetary Policy Committee (MPC) has proved to be a decisive decision-making group.
- The Committee delivered a surprisingly aggressive 50-basis-point Official Cash Rate cut at last week’s Monetary Policy Statement, versus the 25-basis-point cut that was widely expected.
- The RBNZ’s economic projections saw the need for at least 50 basis points of stimulus, and the MPC concluded there was little to gain from delivering this stimulus in a gradual fashion.
Commodities Weekly: Trade war! What is it good for?
09 Aug 2019
- The trade tensions between the US and China have escalated to a full-blown trade war over the last two weeks.
- However, NZ food exports are relatively well-placed to weather any trade storm.
- In fact, NZ food export prices may actually rise on the back of the trade war escalation.
RBNZ Aug 2019 Monetary Policy Statement Review: World’s fastest central banker
07 Aug 2019
- OCR cut by 50bp to 1% - the RBNZ surprised markets by front-loading action that had been widely anticipated for later in the year.
- The RBNZ’s OCR forecasts and the summary of the decision deliberations suggest a continued easing bias.
- We forecast a further (25bp) cut in November, but timing will be heavily influenced by global risks, which are fluid at present.
GlobalDairyTrade Auction: Watching brief
07 Aug 2019
- Dairy prices dipped as expected overnight.
- With the price fall coming against the backdrop of an escalating US-China trade war.
- All up though, the price fallout from the trade war escalation was relatively modest. Nonetheless, we keep a watching brief for further downward price pressure.
NZ Labour Market Review Q2 2019: Labour Market Radiates Some Warmth
06 Aug 2019
- Q2 labour market statistics were much stronger than expected. The unemployment rate fell to an 11-year low in contrast to widespread expectations for an increase.
- Broader measures of labour market capacity confirmed the labour market was genuinely tighter than expected in Q2.
- Wage inflation surged 0.8%qoq, largely as expected, and driven by April’s 7.3% minimum wage increase.
- Despite escalating global risks, today’s data support our view of measured RBNZ easing. We continue to expect a 25bps rate cut at tomorrow’s meeting, with a follow-up cut in November, taking the OCR to 1.00%.
Markets Monthly for July 2019: US Federal Funds rate cut for the first time since ‘08
05 Aug 2019
- The big focus in July was the US Federal Reserve. The Federal Funds Rate was cut 0.25% on 31 July (US time).
- Local fixed interest yields continue to decline in anticipation of more RBNZ Official Cash Rate cuts over the coming months and in tandem with falls for global yields.
- Global sharemarkets lifted over July, and several indices set fresh record highs. Australasian sharemarkets were particularly strong during the month.
Economic Weekly: Cut to the chase
05 Aug 2019
- It’s a very big week ahead, with NZ quarterly labour market data released and monetary policy announcements from both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA).
- We expect the RBNZ to cut the Official Cash Rate 25 basis points to 1.25% on Wednesday. afternoon, and it is likely to signal the possibility of a follow up cut within its published track.
- Meanwhile, we expect the RBA to keep the cash rate on hold at 1.0% at Tuesday’s meeting.
GlobalDairyTrade Auction: Comfort food
03 Aug 2019
- The NZ dairy (and the broader food) sector is better placed than many others to manage the considerable fallout from COVID-19.
- While we retain our relatively positive outlook for the NZ dairy sector, we have nonetheless adjusted our 19/20 milk price forecast down to $7.30/kg.
- Meanwhile, Fonterra is reporting early signs of turning its performance around.
Commodities Weekly: Kiwifruit export values take a June breather
02 Aug 2019
- After a red hot start to the season, kiwifruit export values slowed over June.
- That said, we still anticipate total export values will reach a record of around $2.25bn by season end.
- Meanwhile, the ASB Commodity Price Index was mixed last week.
RBNZ August 2019 Monetary Policy Statement Preview: MPC to reach consensus and cut OCR to record low
02 Aug 2019
- We expect the Monetary Policy Committee (MPC) to reach consensus and to cut the OCR by 25bps to 1.25%.
- The MPC is expected to reiterate a “more balanced” policy outlook, but we expect that they will retain an easing bias that will open the door to at least one further cut.
- We still expect a follow-up 25bp OCR cut in November and 1% OCR to be the trough this cycle, but the risk is that the OCR is cut earlier, and the OCR trough is deeper if the RBNZ front foots policy easing.
Q2 2019 Labour Market Preview: Worried about wages
01 Aug 2019
- June quarter labour data will likely confirm the RBNZ met its labour market objectives in Q2.
- But the outlook is deteriorating, and the Bank will be sensitive to downside surprises. Wage growth and labour market capacity measures will be particularly key to watch.
- The data come too late to influence the August MPS RBNZ forecasts, but will inform views on whether the Bank will need to continue cutting the OCR beyond August (as we expect) and the timing of cuts.
Economic Note: RBNZ to pick up the (labour market) slack?
31 Jul 2019
- A view on labour market capacity is becoming critical in thinking about how low NZ interest rates could go.
- Our work suggests there is more slack in the labour market than conventional estimates suggest, and the degree of slack looks set to increase.
- All else equal, this necessitates more policy support and we expect at least another 50bps of OCR cuts this cycle.
Economic Weekly: Finally, here comes the Fed
29 Jul 2019
- The US Federal Reserve has all but told us that it will begin lowering interest rates this Thursday.
- We’re forecasting a 25bp cut to the Fed Funds rate on Thursday, with a total of 75bps of further cuts by March.
- However, we expect the fallout for the USD, and hence upward pressure on NZD/USD, to be limited.
Commodities Weekly: Timberrrrr
25 Jul 2019
- Forestry prices have tumbled, ending a record-breaking run.
- Looking ahead, we anticipate prices will stay near these new lows at least over the remainder of 2019, if not well into 2020.
- Meanwhile, the ASB Commodity Price Index fell last week.
Commodities Weekly: Beef prices - the only way is up
23 Jul 2019
- Beef prices are poised to surge over the remainder of 2019.
- As African Swine Fever has ripped through the Chinese pork industry, and Chinese demand for other proteins lifts to fill the gap.
- Meanwhile, the ASB Commodity Price Index fell across the board in the week ending 5 July.
Economic Weekly: NZ inflation as expected, labour data next up
22 Jul 2019
- Annual NZ CPI inflation lifted to 1.7% in Q2, as widely expected. While annual inflation from some core measures firmed slightly, we do not see this as a barrier to the Reserve Bank of New Zealand (RBNZ) cutting the OCR to 1.25% at the August meeting
- This week is set to be relatively quiet, with key global events including the UK Conservative Party leadership announcement (Wednesday morning), the European Central Bank policy announcement (Thursday night) and US Q2 GDP (Saturday morning).
- In NZ, the June Trade Balance is due for release this week.
Commodities Weekly: Government and farmers reach emissions consensus
19 Jul 2019
- The Government and farmers have reached agreement on farm-level Greenhouse gas emissions pricing.
- Our early take is that achieving the Government’s net zero carbon target by 2050 will come with costs and a subsequent lift in commodity prices.
- Meanwhile, the Commodity Price Index was mixed last week.
Rural Economic Note: Breaking a weak run
17 Jul 2019
- Dairy prices posted healthy gains overnight.
- The positive result broke a weak run of recent auction results.
- All up, the auction result is consistent with our $7.00/kg milk price forecast for 2019/20.
Q2 2019 CPI Review: Contained inflation evident despite rising costs
16 Jul 2019
- Consumer prices rose 0.6% qoq in Q2, with annual CPI inflation ticking up to 1.7%. This was in line with market and RBNZ expectations.
- Annual core inflation measures ticked up fractionally, but remained clustered around 2%.
- We believe a combination of domestic and global catalysts will keep NZ inflation low, with the RBNZ to join the chorus of global central banks and cut policy interest rates. We expect a further 50bps of OCR cuts in the 2nd half of 2019.
June Housing Market Update: Flicker of Life
16 Jul 2019
- June housing data provided perhaps the first sign of the pick-up in the housing market we’ve been expecting.
- Still, regional differences remain marked. Auckland is weak, but showing signs of stabilisation. Christchurch and Wellington have lost some of their prior steam. The regions, for the most part, are still going great guns.
- We expect nationwide house price growth to nudge up to a modest 5-6% annual pace by mid-2020 largely thanks to the stimulus from falling mortgage rates. Regions more heavily exposed to the foreign buyer ban, most notably Auckland and Queenstown, will underperform.
Economic Weekly: More inflation please
15 Jul 2019
- For most of the ten or so years since the GFC, central banks globally have been fighting a (sometimes losing) battle to lift inflation back up towards target levels.
- In our view, slack in the labour market and wider economy will ensure New Zealand's medium-term inflation remains low but more policy support is needed keep inflation consistent with the RBNZ’s 1-3% target.
- We expect the OCR to be cut twice more this year.
2019 Q2 CPI Preview: Volatile headline inflation masks softening core
11 Jul 2019
- We expect the CPI to lift 0.6% qoq in Q2, with annual CPI inflation ticking up to 1.7%. Core inflation measures are expected to be clustered around (or slightly below) 2% yoy. Risks to our pick are tilted to the downside.
- Transitory influences are expected to contribute to ongoing volatility in annual CPI readings, but we expect additional slack in the labour market and wider economy to keep medium-term inflation low.
- More policy support is needed to keep inflation outturns consistent with the 1-3% medium-term target. We expect a further 50bps of OCR cuts in the 2nd half of 2019, with the OCR to end 2019 at 1%.
International Agri Insights: “To meat or not to meat”
11 Jul 2019
- There’s been a major new initiative for meat alternative products by US based Tyson’s Foods, one of the world’s largest food companies.
- US fast food chains have begun selling protein-based burgers in addition to traditional hamburgers and potential exists for considerable growth in meat alternatives at the expense of traditional meat products.
- However, meat alternatives are a very new product, thus the consumer and meat industry response is very uncertain.
Inflation Watch 2019: Low inflation outlook provides a green light for a lower OCR
09 Jul 2019
- We expect annual headline CPI inflation to remain below 2% over 2019, with a low short-term outlook for core and non-tradable inflation.
- The inflation outlook suggests there is no impediment to the OCR moving lower. We expect 25bp OCR cuts in August and November, with the OCR ending 2019 at 1.00%.
- Our view of the floor on the OCR will depend on the global scene, actions of global central banks, the domestic activity and inflation outlook and the degree of spare capacity within the NZ labour market.
Economic Weekly: Business confidence remains low
08 Jul 2019
- The Q2 NZIER Quarterly Survey of Business Opinion was weaker than we expected – again.
- We have changed our OCR call and now expect the Reserve Bank of New Zealand (RBNZ) to cut the Official Cash Rate (OCR) by 50bps (to 1%) by the end of the year.
- Following the weekend’s strong US payrolls print, the focus for markets will be whether the US Federal Open Market Committee will signal that the 2¼-2½% Federal Funds rate is likely to head lower, with markets still expecting 2019 Fed rate cuts.
Commodities Weekly: A season of two halves
05 Jul 2019
- The overall lift in 2018/19 season dairy production masked a season of two halves.
- Looking to 2019/20, we expect flat production growth.
- Meanwhile, a stronger NZD/USD led to a fall in the ASB Commodity Price Index in NZD terms last week.
Markets Monthly for June 2019: Bond yields fall and shares rally higher in June
03 Jul 2019
- The RBNZ held the OCR at 1.5% at the June Review. We expect 25bp cuts in August and November.
- Global government bond yields continue to decline, led by the US. New Zealand 10-year yields set fresh lows.
- Global sharemarkets recovered from the May dip, with a number of indices setting new records.
GlobalDairyTrade Auction: Treading water
03 Jul 2019
- Dairy prices largely trod water overnight.
- Milk fat prices continued their recent weak run, while key WMP prices were unchanged.
- All up, the auction result is consistent with our $7.00/kg milk price forecast for 2019/20.
Quarterly Survey of Business Opinion: QSBO confirms economy needs more policy support
02 Jul 2019
- NZIER Q2 Quarterly Survey of Business Opinion was weaker than we expected – again.
- Reported activity was very weak over Q2 and consistent with quarterly GDP growth of just 0.3-0.4%.
- We now expect the RBNZ to cut the OCR by 25 basis points both August and November.
Economic Weekly: Heading lower
01 Jul 2019
- The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) on hold at 1.5% last week, as expected.
- We continue to expect the RBNZ to cut the OCR to 1.25% in August, and weak business confidence highlights the risk the OCR could move lower still.
- Across the Tasman, we expect the Reserve Bank of Australia (RBA) to cut its cash rate again this week.
Commodities Weekly: Gold kiwifruit crop overtakes green
28 Jun 2019
- The gold kiwifruit crop overtakes green for the first time.
- Also, both gold and green prices have started the export season strongly.
- Meanwhile, the ASB Commodity Price Index was a mixed bag in the week ending 21 June.
Farmshed Economics: When pigs can't fly
28 Jun 2019
- The outbreak of African Swine Fever is leading to a boost in beef and lamb prices.
- The gold kiwifruit crop has passed the green crop for the first time on record.
- Meanwhile, the steady downward march of farmers’ borrowing rates over recent years may be coming to an end.
RBNZ June 2019 OCR Review: Dovish pause
26 Jun 2019
- The RBNZ kept the OCR on hold at 1.5% and flagged greater risk of weaker inflation, as expected.
- We continue to expect one further cut to 1.25%, in August.
- Further global weakness and any lift in assessed labour market slack could spur an even lower OCR.
Commodities Weekly: Lamb prices - $8/kg on the cards again this spring
25 Jun 2019
- Lamb prices are on the move again.
- With prices set to crack $8/kg again this spring.
- Meanwhile, a weaker NZD led the ASB Commodity higher in NZD terms last week.
RBNZ June 2019 OCR Preview: Easing bias in evidence
25 Jun 2019
- We expect the Monetary Policy Committee to hold the Official Cash rate at 1.50%, and to retain an easing bias.
- This is only expected to be a temporary respite, with the OCR set to hit another record low of 1.25% in August.
- Absent a marked deterioration in global prospects, we do not expect the NZ economy will require significantly more interest rate support. Talk of the OCR falling towards (and below) 0% and unconventional policy support being necessary looks a little premature at present, although the RBNZ should be prepared to act if needed.
Economic Note: Housing - It's not all about mortgage rates
25 Jun 2019
- Restrictions on non-resident house buying in NZ are biting, particularly in Auckland and Queenstown-Lakes.
- These regions are underperforming the broader, and increasingly patchy, housing market.
- This supports our view for only a modest pick-up in house price inflation over the second half of the year, despite plunging mortgage rates.
Q1 Balance of Payments: Trim milk diet for deficit
25 Jun 2019
- The annual current account deficit was slightly larger than market expectations, at 3.6% of GDP, in part on revisions that boosted the size of recent deficits.
- However, Q1 itself produced a stronger surplus than in Q1 last year, at $675mn.
- We expect the annual deficit to continue reducing over the next couple of years.
GlobalDairyTrade Auction: Dairy prices ease, we stick with $7kgms forecast
25 Jun 2019
- Prices eased again at last night’s GDT auction, with the GDT price index down 3.8%.
- WMP prices eased again, by 4.3%, slightly more than expected.
- We retain our $7.00/kg milk price forecast for 2019/20.
Economic Weekly: RBNZ to reaffirm easing bias
24 Jun 2019
- This week, we have the Reserve Bank of New Zealand (RBNZ) June OCR review on Wednesday followed by the latest monthly business outlook survey on Thursday.
- The RBNZ is widely expected to leave the OCR on hold but the risk is that recent offshore events trigger an aggressive move from the central bank.
- On Page 2, we take a closer look at changes in foreign buyer share of housing market transactions on a regional basis following the introduction of restrictions on non-resident housing purchases in NZ.
Economic Weekly: Super Thursday
24 Jun 2019
- Local financial markets are bracing themselves for volatility on ‘Super Thursday’ this week, with a trifecta of events taking place for the US, NZ and Australian interest rate outlooks.
- The US Federal Reserve kicks off the action on Thursday morning and is widely expected to leave interest rates unchanged this week.
- This is followed by the release of NZ Q1 GDP on Thursday morning and capped off with a potentially market-moving speech from the Reserve Bank of Australia Governor.
Q1 GDP Review: Q1 building boom masks weak underbelly
24 Jun 2019
- Q1 GDP growth lifted 0.6% qoq and annual growth remained at 2.5%. Strong construction and mining activity boosted an otherwise soft quarter for the economy.
- Services growth was weaker than expected and a continued slowdown in household spending and plant, equipment & machinery investment should concern the RBNZ.
- Q1 GDP growth was slightly stronger than the RBNZ expected, and we expect the RBNZ to leave the OCR unchanged at next week’s OCR review. However, we continue to expect the RBNZ to cut the OCR 25 basis points at the August Monetary Policy Statement.
May housing market update: Regional crosswinds intensify
24 Jun 2019
- The housing market stabilised in May. But regional differences became even more marked. Auckland remained a clear weak spot. In contrast, conditions in a number of other regions such as Wellington, Gisborne, Hawke’s Bay, and Southland remained very tight.
- We expect nationwide house price growth to pick up to a modest 5-6% annual pace by the end of the year as falling mortgage rates and the removal of tax-related uncertainty bolster demand. Regions more heavily exposed to the foreign buyer ban, most notably Auckland, will underperform.
- However, looking beyond 2019, we expect high levels of housing construction will alleviate areas with tight housing markets, and house price growth will gradually moderate.
Economic Weekly: Construction...BOOM!
10 Jun 2019
- Domestically, Q1 figures confirmed that NZ’s Terms of Trade continue to trend higher and construction activity boomed 6.2% over the quarter.
- Overseas, trade headlines, market gyrations and a selection of offshore data releases over the coming week (US inflation, Chinese activity and Australian labour market data) will be scrutinised for how quickly global growth is slowing.
- Our view of the risk profile suggests a new record low for the OCR awaits (1.50%).
Commodities Weekly: Mexican standoff
07 Jun 2019
- US President Donald Trump has said that his administration will impose tariffs on Mexico, beginning Monday 10 June.
- For NZ commodity exporters, the implications are limited at this stage
- Meanwhile, the ASB Commodity Price Index rose 0.3% in NZD terms last week, boosted by a weaker NZD/USD.
Markets Monthly for May 2019: RBNZ cuts, yields fall, and global shares slump in May
06 Jun 2019
- The RBNZ cut the Official Cash Rate to a record low 1.50% in May. We expect another cut is coming.
- Global government bond yields plunged, led by the US. New Zealand 10-year yields set fresh lows.
- Global sharemarkets retreated, as trade tensions and broader global growth concerns intensified.
Productivity update: Explaining low wage growth
06 Jun 2019
- Increasing productivity holds the key to boosting living standards, but it is an area where New Zealand has traditionally struggled.
- Trend growth in labour productivity over the next few years looks set to be somewhat weaker than historical averages.
- Our analysis identifies low consumer price inflation and slower productivity growth as potential explanations for low wage inflation in New Zealand.
GlobalDairyTrade Auction: Cheesy dip
05 Jun 2019
- Last night’s GDT auction saw a sharp correction in cheese and butter prices.
- WMP prices continued to consolidate, broadly in line with expectations.
- We retain our $7.00/kg milk price forecast for 2019/20.
Economic Weekly: How Lowe can he go?
04 Jun 2019
- The Reserve Bank of Australia makes its interest rate announcement today, with a 25bp cut widely expected.
- It’s also a busy week this side of the Tasman, with the dairy auction tonight, May house prices (due Thursday) and Q1 Building Work Put in Place (due on Friday).
- Offshore is equally busy with key releases being the Federal Reserve Beige Book (early Thursday morning), the ECB interest rate announcement (Thursday), and US Non-farm Payrolls (due overnight Friday).
Regional Economic Scoreboard Q1 2019: Winter may be coming but the North is heating up
04 Jun 2019
- The sunny Hawke’s Bay tops the Scoreboard for the second quarter in a row.
- The central North Island dominates with the Hawke’s Bay, Gisborne and Manawatu-Whanganui taking out the medals.
- Gisborne was this quarter’s fastest mover, jumping a massive 10 spots to third.
Q1 Terms of Trade: Comfort food
04 Jun 2019
- Q1 Terms of Trade post modest rise.
- From here, we expect the Terms of Trade to track higher over the remainder of 2019.
- Indeed, despite global trade tensions, NZ is so far benefitting from the combination of strong food export prices and subdued import prices.
Commodities Weekly: Kiwifruit export season off to another fast start
31 May 2019
- The kiwifruit export season has gotten off to a flying start.
- The strong start bodes well for the rest of the season.
- Meanwhile, the ASB Commodity Price Index dipped 0.4% in NZD terms last week.
Home Loan Rate Report: How low can they go?
30 May 2019
- The RBNZ cut Official Cash Rate (OCR) to a record low 1.5% in May, and could cut it again over the year ahead.
- Carded interest rates for shorter term mortgages have generally dipped this year, and could ease further.
- Borrowers can lock in very low interest rates now, and should still plan to deal with higher interest rate costs over the long run.
Budget 2019 Review: Being well-budgeted
30 May 2019
- The Wellbeing Budget showed a healthy set of Government books.
- Notably, the Government has announced additional spending, investment and borrowing compared to the Half-Year Update.
- However, we are a touch less optimistic than the Treasury on the growth and tax revenue outlook.
- On this basis, we suspect that there may be a small risk that the Government misses its net debt target, although time will tell.
May 2019 Financial Stability Report: Ongoing vigilance
29 May 2019
- The RBNZ chose not to change the owner-occupier and investor loan-to-value ratio restrictions (LVRs), that were last relaxed in January. This looks to be a prudent move.
- The RBNZ remain wary to financial stability risks in the housing and dairy sectors. Global risks remain.
- The RBNZ also tried to make the case for significantly higher bank capital requirements. We believe they have overstated the potential benefits and understated the potential costs.
Economic Weekly: Record Lowe's
27 May 2019
- New Zealand interest rates touched record lows last week.
- Our CBA colleagues now expect the RBA to cut the Australian cash rate by 50bps over 2019 and the US Federal Reserve is also expected to start cutting the Fed Funds rate from later this year.
- We don’t envisage any changes to loan-to-value restrictions at Wednesday’s RBNZ Financial Stability Report; Budget 2019 on Thursday is expected to be a prudent one.
Housing Confidence Survey: Proposed capital gains tax impacts housing views
27 May 2019
- House price expectations fell across the country in the three months to April 2019, with Auckland house price expectations turning negative for the first time since 2009.
- Interest rate expectations reveal most respondents expected interest rates to remain unchanged, or rise, ahead of the RBNZ’s cut to the Official Cash Rate in May.
- On balance, it’s a slightly better time to buy in Auckland, but most have no strong view either way.
Budget 2019 Preview: Well-budgeted being
24 May 2019
- As has been signalled, we expect the Budget to show the Government continuing to hit its fiscal targets.
- Although with the economy slowing, the Government may have had to tighten its purse strings a little.
- Meanwhile, Budget 2019 will reveal more of the Government’s approach and policy priorities under its new Wellbeing Budget framework.
International Agri Insights: US-China trade tensions: thrust and counter-thrust
24 May 2019
- The US Congress has not yet formally ratified the US Mexico Canada Agreement – the replacement for the North American Free Trade Agreement – and its ratification faces potentially significant Congressional opposition.
- The EU and the US are attempting to reach an agreement to begin negotiations on a broad range of trade issues, with the EU insisting agriculture will not be part of the negotiations and the US insisting it must be included.
- President Trump is currently negotiating directly with the Prime Minister of Japan on tariff reductions on US agriculture, but no final outcome is yet in place.
Commodities Weekly: Two steps back, one forecast forward
23 May 2019
- Fonterra has effectively cut its 2018/19 milk price forecast by 10 cents.
- At the same time, Fonterra’s business performance continues to disappoint, with a cut to its 2018/19 earnings forecast also announced.
- Looking ahead, Fonterra has set its 2019/20 season opening forecast at a relatively healthy level.
April 2019 Housing Market Update: Softer April market may not last
23 May 2019
- The housing market appeared to soften in a number of regions over April. The housing market was particularly weak in Auckland, with prices continuing to decline. The Northland, Otago, Bay of Plenty and Nelson housing markets were also notably quieter in April.
- Across most of NZ, the housing market remains tight and price growth strong. We expect lower mortgage rates and the Government decision to rule out a capital gains tax entirely will likely boost housing demand and result in elevated house price growth in the tighter regions. We expect firmer demand will put a floor under Auckland house prices.
- However, looking beyond 2019, we expect high levels of housing construction will alleviate areas with tight housing markets, and house price growth will gradually moderate.
Q1 Retail Trade Review - Lower retail price boost
22 May 2019
- Solid start to the year for retail volumes.
- Lower retail prices boost retail sector volumes.
- Despite the strong Q1 retail trade print, we expect a sluggish outturn for Q1 GDP.
Fonterra Milk Price Forecast Update Preview & GlobalDairyTrade Auction: Starting on the front foot
22 May 2019
- Tomorrow we expect Fonterra to lift its 18/19 milk price towards the upper end of its current $6.30 to $6.60/kg range.
- In addition, we expect Fonterra to set its opening 19/20 forecast at or around $7.00/kg.
- Meanwhile, overall dairy prices fell modestly overnight, breaking a run of 11 consecutive rises.
Economic Weekly: I believe in miracles
20 May 2019
- In a shock result, the sitting Coalition government in Australia is poised to retain power.
- Locally this week, dairy is likely to dominate local headlines.
- Offshore, both the RBA and the US Federal Reserve issue their Meeting Minutes on Tuesday and Thursday (NZ time), respectively.
Quarterly Economic Forecast: Topsy Turvy
17 May 2019
- Global growth has slowed further, and NZ’s expected pick-up is taking its time arriving.
- With NZ’s economy not performing to its full potential, it can be given a further nudge to spur the pick-up.
- We expect a further interest cut in the second half of this year.
Commodities Weekly: Farm expense inflation cools, but temporarily so
17 May 2019
- Farm expense inflation has cooled a little lately.
- However, we anticipate that feed cost inflation, in partiuclar, may fire again later in the year.
- Meanwhile, the ASB Commodity Price Index fell in USD terms last week.
Rural Loan Report: May 2019
17 May 2019
- Benchmark interest rates have touched record lows.
- The Reserve Bank cut the Official Cash Rate this month, and may cut once more this year.
- While benchmark interest rates could track lower this year, we flag the risk that rates rise in the longer term.
Economic Weekly: Clear cut
13 May 2019
- As we expected the RBNZ cut the OCR to 1.5% last Wednesday.
- Overseas, President Trump announced a tariff increase to 25% on $200bn worth of Chinese imports.
- Markets will remain squarely focused on US-China trade headlines.
Commodities Weekly: Trump tightens trade screws
10 May 2019
- Last weekend, President Trump put back a 25% tariff on $200bn worth of Chinese goods on the negotiating table.
- But late this week, he backtracked insisting a trade deal “could still be reached.”
- Meanwhile, the ASB Commodity Price Index was largely flat last week.
RBNZ May 2019 OCR and MPS Review: Taking the easing easy
08 May 2019
- The RBNZ has cut the OCR 25bp to 1.5%, against a backdrop of divided market opinion on whether there would be a cut or not. The new Monetary Policy Committee (MPC) reached a consensus.
- A slight easing bias remains, with the RBNZ’s OCR outlook flagging the possibility of a follow-up OCR cut.
- Future moves look to be data dependent. We have pencilled in an August cut, with risks tilted to a later cut.
GlobalDairyTrade Auction: Holding pattern
08 May 2019
- Dairy auction prices consolidated further overnight.
- The recent slide in NZ production now looks to be fully-priced in by markets.
- All up, we maintain our bullish milk price forecast outlook.
Markets Monthly for April 2019: Marshal of the doves?
06 May 2019
- Central banks continued to move in dovish directions during April, though none of the major central banks we monitor actually cut interest rates during the month.
- We think the RBNZ could marshal the flock of doves in May, becoming the first to cut interest rates this year.
- With higher interest rates an increasingly distant prospect, shares on the NZX50 hit record highs.
Economic Weekly: A close cut
06 May 2019
- The twin Tasman interest rate announcements highlight the week locally.
- Offshore, President Trump has re-heated US-China trade tensions by announcing a hike to tariffs on $200 billion worth of Chinese goods.
- Financial markets are likely to be volatile this week.
RBNZ May 2019 Monetary Policy Statement Preview: Making a statement
03 May 2019
- Next Wednesday at 2pm is the first Monetary Policy Statement of the RBNZ’s newly-minted Monetary Policy Committee, which is faced with a finely balanced decision over whether to cut the OCR or leave it on hold.
- The policy outlook appears to have softened since the RBNZ formally moved to an easing bias in March, and conditions for cutting the OCR now look to have been met.
- We expect the RBNZ to cut the OCR 25 bps to 1.50% and to maintain an easing bias. We expect the published OCR track to flag future cuts and culminate in a low OCR endpoint, which is consistent with our OCR outlook.
Commodities Weekly: March dairy production not as solid
01 May 2019
- Hot weather has led to a marked drop in dairy production.
- With strong growth in previous months, we are still on track for a good season – though a weaker one than previously expected.
- Meanwhile, the ASB Commodity Price Index lifted modestly in NZD terms over the week.
Q1 2019 Labour Market Review: Cooling demand for labour and low wage growth evident
01 May 2019
- The unemployment rate eased in line with expectations, but this was driven by lower labour force participation, with employment measures from the HLFS and QES both weak.
- Wage inflation has remained modest with limited evidence of a widespread strengthening.
- The prospect of increasing labour market slack and low wage inflation is likely to see OCR cuts in 2019.
Economic Weekly: When doves cry out
29 Apr 2019
- Domestically, things were quiet last week, with the Easter and ANZAC day holidays there were few local data announcements.
- But with March business confidence out tomorrow and Q1 employment on Wednesday, the RBNZ will have two more pieces of data to examine ahead of its meeting next week.
- Internationally, the Bank of Canada, Bank of Japan and Swedish Riksbank held meetings, where all three emphasised rates will remain low for some time to come.
Q1 2019 Labour Market Preview: HLFS volatility set to persist, with benign wage pressures
26 Apr 2019
- The Q1 labour market prints are expected to rebound from their Q4 “weakness”, with elevated labour market utilisation and a historically-low unemployment rate.
- We expect modest increases in labour costs, with a 0.4% qoq increase in the Private Sector Labour Cost Index (LCI) and annual LCI wage inflation steady at 2.0%.
- Our expectation is that the labour market will remain tight over 2019, but that wage growth will fail to fire sufficiently to push medium-term inflation higher. We expect 50bps of OCR cuts over 2019.
Capital Gains: Government's tax-tical retreat
24 Apr 2019
- The government's surprise decision not to implement a capital gains tax is likely to boost confidence in the agri-sector.
- The decision may also lead to an uplift in investment activity in the sector, whilst supporting rural land prices.
- Meanwhile, the ASB Commodity Price Index rose 0.9% in NZD terms, and fell 0.2% in USD terms.
Economic Weekly: Easter (barely) rising
23 Apr 2019
- The key domestic release last week was the Q1 CPI, with overall prices up a mere 0.1% qoq (+1.5% yoy), below market and RBNZ expectations.
- The other important domestic news was the Government’s surprise decision to rule out a capital gains tax.
- Overseas, Australian Q1 CPI and US Q1 GDP are the major data releases due out later this week.
March 2019 housing market update: Prepare for lift off
18 Apr 2019
- NZ housing trends remain mixed on a regional basis.
- Across most of NZ, the housing market remained hot over the first quarter of 2019.
- Auckland’s housing market softened, particularly over February and March, with prices recording a small decline over Q1 2019.
Commodities Weekly: Beef and lamb in China - Better ungulate than never
17 Apr 2019
- After long trailing demand for pork, Chinese demand for beef and lamb is rising, and that should continue thanks to African Swine Fever.
- For Kiwi sheep and beef farmers, higher Chinese demand will mean prices are well supported moving forward.
- Meanwhile, the ASB Commodity Price Index was stable, up 0.4% in USD terms and unchanged in NZD terms.
Q1 2019 CPI Review: Benign CPI inflation keeps OCR cuts in prospect
17 Apr 2019
- Consumer prices rose just 0.1% qoq, with annual CPI inflation easing to 1.5%. This was below our, RBNZ and market expectations.
- Annual core inflation measures remained clustered around 2%.
- We continue to doubt whether the NZ economy would have sufficient momentum to keep inflation comfortably within the 1-3% inflation target. A lower OCR beckons.
GlobalDairyTrade Auction: Butter up
17 Apr 2019
- Butter prices have skyrocketed this year.
- This price lift reflects the sudden slowdown in NZ production and robust demand.
- The very tight butter (milk fat) market suggests upside to our $7.00/kg milk price forecasts for 2019/20.
Economic Note: What to make of proposed bank capital requirements
16 Apr 2019
- The RBNZ has proposed increased capital requirements for NZ banks to bolster financial system resilience. Other global regulators are raising (or are proposing to raise) capital requirements.
- Higher capital ratios are expected to translate into a higher overall cost of NZ bank funding and higher customer borrowing rates. The range of estimates is wide, with our central estimates equating to about a 50bp impact by late 2023, with risks of a higher impact. Interest rate impacts will be also be uneven across the economy. Bank retail deposit interest rates may also fall.
- The full impact of higher bank capital requirements will take time to percolate through the economy, but its pending imposition is another reason why we have changed our forecast profile for the OCR, including 50bps of cuts over 2019 and the OCR then on hold at 1.25% until 2022.
Economic Weekly: Delicately poised
15 Apr 2019
- Last week, global central banks stuck with their cautious tones largely as expected.
- Locally, the Reserve Bank’s next move is more delicately balanced. Indeed, this week’s Q1 inflation data (due Wednesday) will help bring some clarity at least to the near-term OCR outlook.
- We expect inflation to lift 0.2% over the quarter, and an outturn similar or lower is likely to see interest rate markets price in an increased chance of a May OCR cut.
Commodities Weekly - M. bovis: Where there's a will, there's a Norway
12 Apr 2019
- MPI confirms ambitious plan for NZ to join Norway in becoming M. bovis-free.
- MPI’s confirmed plan may boost farmer confidence – at the margin.
- Meanwhile, the ASB NZ Commodity Price Index fell in USD terms last week.
International Agri Insights: The Year of the Pricey Pig
12 Apr 2019
- African Swine Fever (AFS) is likely to reduce China’s hog herd, resulting in a 5% drop in production.
- And while pork is China’s most consumed protein, there are indications Chinese consumers are moving from pork to other proteins – beef, sheep and chicken.
- China’s imports of pork, beef and chicken meat will increase to compensate for reduced pork production.
CPI Preview Q12019: Taking stock
11 Apr 2019
- We expect the CPI to lift 0.2% qoq in Q4, taking annual inflation for 2018 to 1.6%. Risks are broadly balanced.
- Core inflation measures are expected to be clustered around (or slightly below) 2% yoy.
- We do not expect the NZ economy to have sufficient momentum to keep medium-term inflation comfortably within the 1-3% target band. A lower OCR beckons and the RBNZ appears to be coming around to this view.
Economic Weekly: Best foot forward
08 Apr 2019
- Last week, we updated our interest rate view and we now expect the RBNZ to cut the OCR in May and August, whereas previously we had expected the cuts in August and November.
- The catalyst for the shift was weaker than expected Q1 business confidence data as indicated by the Quarterly Survey of Business Opinion, which points to a slowing in annual average growth from 2.8% in Q4 to 2.6% in Q1.
- On the global front this week, we get an update from the ECB on the outlook for the Eurozone economy, while the US Federal Reserve publishes its Meeting Minutes.
Commodities Weekly: Agriculture anxious as April arrives amid ambiguity
05 Apr 2019
- Pessimism among farmers worsened in March.
- In particular, very dry weather and uncertainty around a possible Capital Gains Tax dampened sentiment.
- Meanwhile, the ASB Commodity Price Index rose in both USD and NZD terms.
Rural Loan Report: April 2019
05 Apr 2019
- Benchmark interest rates have touched record lows over the past couple of weeks.
- However, for farmers, proposed increases to bank capital requirements may offset some of these falls.
- All up, we expect interest rates for rural borrowers to remain very low by historical standards over 2019.
Markets Monthly for March 2019: Bonds and shares rally as central banks get dovish
03 Apr 2019
- Sharemarkets were largely positive during the month, rising domestically and in the US and Europe, but flat in Australia and down in Japan.
- With most central banks making dovish noises, higher global interest rates appear increasingly distant.
- Bond yields eased significantly both here and abroad in March, with NZ 10-year yields setting record lows.
GlobalDairyTrade Auction: Finishing strong
03 Apr 2019
- Overall dairy prices consolidate recent gains overnight.
- Beneath the relatively modest headlines, we note that butter, casein and cheese prices continued to surge.
- All up, the auction result reinforces our $6.60/kg and $7.00/kg milk price forecasts for 2018/19 and 2019/20, respectively.
NZIER Q1 QSBO: Out of steam
02 Apr 2019
- NZIER Q1 Quarterly Survey of Business Opinion was weaker than we expected, pointing to soft Q1 GDP growth.
- Business confidence has fallen to the lowest levels since Canterbury earthquakes in 2010 and 2011.
- We now expect the RBNZ to cut the OCR by 25 basis points in May, followed by a second 25 basis point cut in August.
Farmshed Economics: The goal posts might shift, but it's still footy
02 Apr 2019
In this edition of Farmshed Economics, we have added a Special Topic on the proposed capital gains tax, titled The goal posts might shift, but it’s still footy. In it, we outline our thoughts on the Tax Working Group’s proposal. Note though that we have kept our thoughts at a fairly high level as there’s a good chance that the proposal gets watered down. And let’s not forget, there’s also a chance we don’t see it all. That is, if the Government doesn’t get re-elected in 2020, a National-led government is likely to unwind the changes.
Economic Weekly: Doves come home to roost
01 Apr 2019
- In a dovish surprise, the Reserve Bank (RBNZ) moved last week to a clear easing bias.
- This week, the RBA chimes in with its interest rate announcement and market pricing suggests the RBA could join the RBNZ and offshore brethren in moving to an easing bias.
- The local highlight is the Quarterly Survey of Business Opinion and on the business sentiment front, we are wary of a further fall from already-weak levels.
RBNZ prepares to stick its Orr in, sending NZD down
29 Mar 2019
Frustrated by soft growth, the RBNZ signals it is willing to cut the OCR.
The NZD/USD fell on the RBNZ annoucement.
The ASB Commoditiy Price Index lifted in USD and NZD terms.
Trade: Zero-sum attitudes persist globally
29 Mar 2019
- As a small and open economy that is heavily reliant on international trade, New Zealand remains vulnerable to slowing global growth and further escalation in global protectionism.
- In March, the Reserve Bank of New Zealand highlighted the worsening global outlook as a key reason for shifting to an easing bias and potentially cutting the Official Cash Rate (OCR).
- Reasonably healthy commodity export prices and our elevated Terms of Trade will offer respite to some, but not all, exporters.
Economic Note - OCR Reveiw
27 Mar 2019
- The RBNZ left the OCR at 1.75% but has moved to an easing bias with a cut seen as more likely than a hike.
- Global and domestic growth concerns, as well as a stronger NZD, contributed to the RBNZ’s softer stance.
- We have now moved to forecast OCR cuts from August, with the risk of an earlier move.
Economic Weekly: Singing from the same song sheet
25 Mar 2019
- Last week provided mixed news for both the local and global economy.
- Offshore, the Federal Reserve made a dovish interest rate announcement.
- And this week the RBNZ gets to chime in with its thoughts - we expect it will sing from the same song sheet as its global brethren in issuing a cautious statement.
Commodities Weekly - Summer swelter softens solids supply, supporting our $6.60/kg suppostion
22 Mar 2019
- As expected, the hot and dry summer led to lower milk solids production in February.
- We've cut our production forecast for the season, but still expect a record result.
- Lower production is lifting milk prices, however, and we've lifted our 18/19 milk price forecast to $6.60/kg.
RBNZ March 2019 OCR Preview: Joining the chorus
22 Mar 2019
- We expect the RBNZ to maintain the OCR at 1.75%, signal its intent to hold the OCR at low levels for a considerable period (likely till 2021) and retain the flexibility to either hike or cut.
- Nevertheless, increased downside global and domestic risks are likely to be acknowledged.
- The risk of an OCR cut remains, but for now we are sticking to our call for the OCR to remain on hold through till early 2021.
International Agri Insights - Postcards from Paradise
22 Mar 2019
In this latest edition of International Agri Insights, our US-based expert, Prof. Bill Bailey, shares his notes from his recent drive from Auckland to Palmerston North.
- National dairy herd peaked in 2014 and is slowly declining.
- Though the average dairy herd size has increased 30% since 2005.
- Fewer beef, sheep and deer were seen during the drive than in 2005.
- More Pioneer maize and green John Deere farm equipment noted.
- Forestry land is transitioning to pasture.
Q4 GDP Review: The good, the bad and the ugly
21 Mar 2019
- The good news is that Q4 GDP growth was more resilient than we had forecast, rising 0.6% qoq and in line with market expectations.
- The bad news is that annual growth was much weaker than expected, particularly from the RBNZ perspective, due to downward revisions to H1 2018 growth.
- And the GDP growth picture starts to look a little ugly, as we get increasingly wary about our view that GDP growth will recover over 2019.
Q4 Balance of Payments: NZ current account deficit remains modest
20 Mar 2019
- NZ’s current account deficit widened modestly over Q4.
- Looking ahead, we expect the annual current account deficit to narrow over 2019.
- For now, key risks to this outlook are offshore.
GlobalDairyTrade Auction: Ending on a high and a dry
20 Mar 2019
- We lift our 2018/19 milk price forecast by 35 cents to $6.60/kg.
- As hot and dry NZ weather has put the squeeze on production and dairy prices too.
- We also see upside risk to our already-bullish 2019/20 milk price forecast of $7.00/kg.
Economic Weekly: In our hearts
18 Mar 2019
- NZ has faced another gut-wrenching tragedy, and the people of Christchurch will remain uppermost in the hearts and minds of everyone.
- ASB has set up a Christchurch support fund bank account (12-3149-0137463-00) for those wanting to make donations to help the affected families.
- Meanwhile, in terms of data releases, Tuesday night has the latest GlobalDairyTrade auction and Thursday morning has NZ’s Q4 GDP release preceded by the US Federal Reserve’s latest interest rate decision.
Commodities Weekly: Re-based on a true story
15 Mar 2019
- We have re-based the ASB NZ Commodities Index to reflect changes to the composition of our exports.
- Oil has been removed from the index, whilst the weightings for fruit and forestry have grown considerably.
- We believe our new index provides Kiwis with their most accurate measure of NZ commodity prices.
Q4 2018 GDP Preview: Finishing 2018 on a whimper
15 Mar 2019
- We expect Q4 2018 GDP growth to be reported as 0.3% qoq, weighed down by soft services activity.
- Our core view is weak growth over H2 2018 was temporary, with the NZ economy enjoying many tailwinds.
- But our conviction in this view is wavering and Q1 NZIER business confidence results will be pivotal in shaping our H1 2019 GDP forecast.
February housing market update: It's getting hot out there
14 Mar 2019
In most of NZ, the housing market remained hot in the early months of 2019. Prices continue to grow strongly as the market remains supply constrained, with momentum continuing in recent hot spots. Some areas that showed signs of cooling (such as the Bay of Plenty) have tightened over recent months, seeing price growth accelerate over January and February.
Auckland’s housing market has remained broadly balanced over the past year, with prices trending sideways over the past three months. However, indicators suggest Auckland house prices may be in for a fall over Q2 2019.
Northland’s housing market has slowed sharply in recent months, with weak demand in the wake of the foreign buyer restriction and house listings remaining elevated.
Canterbury’s housing market has been broadly balanced over the past year, but we expect low levels of new supply coming onto the market may see prices start to lift over 2019.
Economic Weekly: Plumbing new depths
11 Mar 2019
- Global central banks took a dovish turn last week, led by the European Central Bank (ECB).
- This pushed German 10-year yields to 2½ year lows and other government bond yields followed suit, including NZ’s.
- This week, markets are turning their attention to Brexit votes in the UK House of Commons.
Markets Monthly for February 2019: Sharemarket recovery continues over February
08 Mar 2019
- Global equities continued to recover from the December quarter slump over February.
- The prospect of lower interest rates and improving US-China trade sentiment supported shares.
- The NZD was mixed, and eased against the USD and GBP during the month.
Commodities Weekly: Spring lamb prices in line for a silver medal
08 Mar 2019
- After hitting record highs last spring, lamb prices are bottoming at a healthy level
- In particular, strong US and Chinese demand is underpinning lamb prices.
- Looking to this spring, we expect prices to peak in the high $7.00/kg range.
GlobalDairyTrade Auction: Dairy prices march on
06 Mar 2019
- Dairy prices post the seventh consecutive price gain overnight.
- NZ production growth has peaked, while global demand is strong.
- These factors bode well for the farmgate milk price for this season and next.
Economic Weekly: Swings and roundabouts
04 Mar 2019
- It was a mixed bag for NZ last week as business confidence in the ANZ survey sank back, dashing hopes that the lift in sentiment late last year would continue into this year.
- And, while we expect economic growth to recover from a soft patch in 2018, continued weak business confidence flags a threat to that if it reflects indecision over hiring and capital expenditure.
- On a positive note, dwelling consents surged over January to hit a 44-year annual high and we see this week’s dairy auction as positive, reinforcing a solid price finish for the season.
Regional Economic Scoreboard Q4 2018: Sunny Hawke's Bay shines brightest in Q4
04 Mar 2019
- The sunny Hawke’s Bay tops this quarter’s Scoreboard.
- Otago grabs the silver medal, but it’s Dunedin leading the way for the region.
- Canterbury was this quarter’s fastest mover, jumping a massive 11 spots to 4th.
Q4 Terms of Trade: Zig zag
01 Mar 2019
- Q4 Terms of Trade dip on a combo of lower dairy prices and higher oil prices.
- However, the Q4 data did not capture a more recent dairy price surge and the drift lower in oil prices.
- Both of these moves will lead the Terms of Trade higher over 2019.
Fonterra's give and take
28 Feb 2019
Fonterra has lifted its 2018/19 milk price forecast range by 30 cents to $6.30-$6.60/kg.
At the same time, Fonterra’s business performance continues to disappoint, with a cut to its earnings forecast also announced.
On a net basis, these changes add around $225m to our forecast of Fonterra farmer incomes for the season.
Economic Weekly: Broadening the base
25 Feb 2019
- The Tax Working Group published its final report last week, proposing a major rework of the current tax system.
- Data-wise, this week has started with a bang, with Q4 retail spending printing very strong; on Thursday, we will also get the first ANZ Business Outlook Survey result for 2019.
- Offshore is light on major data releases, but after reports that China turned away Australian coal, geopolitical developments will remain front of mind for markets.
Economic Note: Tax Working Group recommendations
25 Feb 2019
- Last week the Tax Working Group (TWG) released its final report, which proposed a significant reworking of the current tax system.
- The imposition of a broad-based Capital Gains Tax could potentially have significant implications for the economy.
- The report is thorough and it will take time for markets, policymakers and investors to get to grips with the key details and implications.
Q4 Retail Trade: Boomer
25 Feb 2019
- Retail sector volumes post a strong Q4 as do core retail volumes.
- Lower retail fuel prices, the tight labour market, continued government support, and higher producer incomes key supports to the retail sector.
- Despite the strong Q4 retail trade print, we expect a sluggish outturn for Q4 GDP.
Commodities Weekly: More strong dairy production numbers in January
22 Feb 2019
- Dairy production remained strong during January.
- The season is already on track to shatter records, though the hot weather might start to weigh on February production.
- Despite bumper production domestically, dairy prices are likely to remain robust this season and next, given constrained supply globally.
Rural Loan Report: February 2019
21 Feb 2019
- Benchmark interest rates touched record lows earlier this month.
- The Reserve Bank remains on hold, but has indicated that the Official Cash Rate needs to stay lower for longer.
- We expect benchmark interest rates to stay low this year, but we flag the risk that rates rise in the longer term.
Quarterly Economic Forecast: It's getting untidy
20 Feb 2019
- NZ’s growth foundations still look reasonable. But caution remains in the wind, locally and globally.
- Global risks continue to loom, amidst signs of economic slowdown outside of the US.
- NZ cash rate increases look more distant, though bank capital changes will do some of the restraining work.
GlobalDairyTrade Auction: Dairy price cycle emerging from hibernation
20 Feb 2019
- Conditions for a new dairy price cycle have begun to emerge.
- Global dairy supply is tightening, with little backstop in terms of stocks.
- As a result, we see upside to our 2018/19 milk price forecast of $6.25/kg and set our 2019/20 forecast at a bullish $7.00/kg.
Economic Weekly: NZD outlook - firm with a chance of firmer
18 Feb 2019
- The RBNZ was on hold last week as expected and pushed out the timing of its first OCR hike by around six months.
- However, the RBNZ’s statement wasn’t as cautious as financial markets had expected and this sent NZ interest rates higher following the announcement, taking the NZD with it.
- On the whole, we expect the NZD to be stronger against all major crosses than we had forecast previously.
Commodities Weekly: The heat is on
15 Feb 2019
- NZ weather has been very hot over January and February.
- In some cases, livestock are literally “too hot to eat”.
- This heat may take the cream off an otherwise excellent production season.
Housing Confidence Survey: Cautious cheer for buyers as Year of the Pig begins
15 Feb 2019
- House price expectations slipped slightly again in the three months to January, though respondents were still more bullish than they were 12 months ago in the aftermath of the 2017 election.
- Interest rate expectations continue to decline significantly, remaining at two-year lows.
- For the first time in more than five years, a plurality think it’s a good time to buy – but only by a whisker.
February 2019 MPS Review
13 Feb 2019
- The RBNZ Monetary Policy Statement was broadly as expected: no OCR change, but a longer on-hold period.
- A greater degree of negative global risks contributed to the RBNZ pushing its tightening out by six months.
- We expect the RBNZ to remain on hold until early 2021, but contingent on growth lifting as forecast.
Economic Weekly: NZ interest rates retest record lows
11 Feb 2019
- Last week was remarkable for the shift lower in NZ interest rates when most rates shifted to or near record lows.
- The moves follow similar shifts in overseas markets, with the catalyst being ‘dovish’ moves from global central banks.
- This week the RBNZ will make its Official Cash Rate announcement and we expect it to echo the offshore moves to a more cautious stance.
Q2 Terms of Trade: Flying high for now
09 Feb 2019
- Q2 Terms of Trade post modest rise, and lie one third above historical averages.
- New Zealand’s specialisation on food exports leaves us reasonably well placed, although slowing global growth will likely crimp export sector returns more generally.
- The NZD is playing its role as a shock absorber, with recent falls helping to cushion the export sector. If the domestic demand outlook weakens, the OCR will need to move lower.
Markets Monthly for January 2019: Fed changes stance and shares lift over January
08 Feb 2019
- Sharemarkets around the world recovered over January, reversing some of the December slump.
- The local sharemarket lifted 2% over January, and is up 7% on a year ago (NZX50 Gross index).
- Brexit remains a cause of investor concern. The partial shutdown of the US Government has ended for now.
Commodities Weekly: Are record forestry prices too good to be true?
08 Feb 2019
- Forestry prices have hit record highs in NZD terms.
- However, falling global log imports suggest that the good times won’t last.
- Meanwhile, the ASB Commodity Price Index lifted in USD terms last week.
RBNZ OCR and MPS Preview Feb 2019: Interest rates to rise, not necessarily via the OCR
08 Feb 2019
- We expect little change in tone at the February MPS, except maybe to acknowledge the increase in downside risks to the economic outlook.
- We have altered our OCR view as a result of the RBNZ’s proposal for higher minimum capital requirements.
- As economic spare capacity runs out and inflation pressures lift, interest rates will still need to head higher over the coming years, just not through the RBNZ’s interbank interest rate mechanism (i.e. OCR).
Q4 2018 Labour Market Review: HLFS volatility persists, making life difficult for the RBNZ
07 Feb 2019
As was generally expected, the HLFS showed retracement from the strong Q3 outturns. Employment was virtually flat in Q4, the unemployment rate ticked up to 4.3%, and other measures of labour market utilisation eased from decade highs.
Wage inflation remained moderate with limited evidence that wage inflation is becoming more widespread.
The labour market is still reasonably tight and the RBNZ looks to be meeting its objectives of “supporting maximum sustainable employment within the economy”. However, the lack of an inflationary smoking gun keeps the prospect of possible OCR cuts alive.
GlobalDairyTrade Auction: Don't look a gift horse in the mouth
07 Feb 2019
- Dairy prices surprised by surging overnight.
- It appears dairy markets are factoring in the risk of drought disrupting NZ production.
- On the back of this result and earlier gains, we lift our 2018/19 milk price forecast by 25 cents to $6.25/kg.
Economic Weekly: NZ labour market likely to step back after strong Q3
04 Feb 2019
- Last week was all about the US Federal Reserve and its on-hold announcement and shift to a neutral bias.
- The key NZ event this week is the release of the Q4 labour market data.
- Key offshore economic events include rate announcements from the RBA and the Bank of England, due Tuesday and Thursday, respectively.
Q4 2018 Labour Market Preview: Modest reversal
04 Feb 2019
- The Q4 labour market prints are expected to retrace some of their Q3 “strength”, but still show elevated labour market utilisation and a historically-low unemployment rate.
- We expect moderate increases in labour costs, with a 0.6% qoq increase in the Private Sector Labour Cost Index (LCI), with annual LCI wage inflation ticking up to 2.0%. Risks are tilted to the downside.
- Our expectation is that the labour market will tighten over 2019, which will see pressures on core inflation firm, with the OCR set to move up from August 2020. If wages fail to fire, the OCR will remain low.
International Agri Insights: Flying blind
01 Feb 2019
- Closure of US government offices has slowed implementation of new Farm Bill programs.
- The absence of USDA market information during the closure has made US dairy farmers’ spring production decisions more difficult.
- With this in mind, the US government shutdown has introduced downside risks to the US production outlook.
History never repeats
31 Jan 2019
- NZ commodity export incomes posted solid gains over 2018.
- Meat exports led the way, jumping by $814m to $7.4bn over 2018.
- However for 2019, we anticipate a more mixed story for export receipts.
Economic Weekly: Inflation pressures remain steady over 2018
29 Jan 2019
NZ Q4 CPI inflation was the key highlight last week, with annual inflation printing in line with market expectations and the RBNZ sectoral factor model (a measure of core annual inflation) remaining unchanged at 1.7%.
This week is relatively quiet from a domestic perspective, but there will be plenty of action in offshore markets with a Fed policy announcement, further Brexit-related votes and headlines, Australian Q4 CPI inflation figures and potentially US Non-farm Payrolls and US Q4 GDP (US data releases may be delayed due to the US Government shutdown).
Dairy production still on record-setting pace
23 Jan 2019
- So far, 2018/19 dairy production has been very strong.
- Moreover, we can reconfirm our 2018/19 season production growth forecast of 5%.
- Meanwhile, the ASB New Zealand Commodity Price Index posted solid gains last week.
Q4 2018 CPI Review: Price pressures broaden in Q4
23 Jan 2019
- The Q4 CPI lifted 0.1% qoq, with the annual inflation rate unchanged at 1.9%. This was slightly higher than our forecast but lower than the RBNZ’s expectation.
- The soft headline result masks a lift in underlying inflation pressure over the quarter.
- However, given the recent slowing in economic growth, we expect the RBNZ to remain patient. We continue to expect the RBNZ to leave the OCR on hold until August 2020.
Economic Weekly: Flat NZ inflation in focus
21 Jan 2019
Last week was busy on the international front with a failed Brexit vote and confidence vote in the UK government, ongoing trade negotiations between the US and China and the now-record long US Government shutdown continuing.
This week promises to be just as eventful with a host of major data releases including Q4 Chinese GDP, NZ Q4 CPI and Australian employment data.
We take a closer look at our expectations for Q4 CPI as well as recap on last week’s NZIER QSBO release.
Lamb prices running out of steam
18 Jan 2019
- The last 18 months or so have been stellar for lamb prices.
- But lamb prices, so far over 2019, are hinting that they are running out of steam.
- Meanwhile, the ASB New Zealand Commodity Price Index lifted in USD terms last week.
Q4 2018 CPI Preview: To the core of the matter
18 Jan 2019
- We expect no change in overall consumer prices in Q4, with annual CPI inflation easing to 1.8%.
- Seasonal falls in food prices and the sharp reversal in petrol prices are weighing on inflation.
- With sharp moves in the headline number, the RBNZ’s sectoral factor model (an estimate of core inflation) will be closely watched and could paint a different picture.
EU comes to the aid of the dairy party
16 Jan 2019
- Dairy prices have started 2019 positively.
- As the EU finally sells down its intervention stocks.
- This development has taken away some of the downside risks to our 2018/19 milk price forecast of $6.00/kg.
NZIER Q4 Quarterly Survey of Business Opinion: Weak profitability casts shadow on outlook
15 Jan 2019
NZIER QSBO survey suggests economic activity remained relatively soft in Q4.
Businesses share our optimism and core view that economic growth will pick up from early 2019.
However, profitability continues to deteriorate as cost pressures rise and if this continues weak profitability presents a risk that growth and inflation will be weaker than we are currently expect.
Economic Weekly: Back to Reality
14 Jan 2019
It’s back to reality for those who have already returned back to work, with politics in the US and UK triggering a bumpy start to the year.
In NZ, we hope to start the New Year on a more positive note, looking to see a recovery in Q4 business confidence and signs that NZ can shake off its poor economic performance in Q3.
We discuss the weak Q3 GDP growth performance and our expectations for the economy over 2019.
Bonds rally and sharemarkets suffer
10 Jan 2019
- Sharemarkets around the world slumped over December, as a number of concerns troubled investors.
- The local sharemarket fared better than most in December (-0.4%) & remained in positive territory for 2018.
- In contrast, global sharemarkets were down for the month, quarter, and year ending 31 December 2018.
- Sharemarket volatility looks to have staged a comeback with large movements evident in most major markets.
- Long term bond yields declined both here and abroad, boosting valuations, while the NZD eased.
- Oil prices declined further, falling around 10% over the month.
Commodities Weekly: Clouds gather for the Year of the Pig - 2019
10 Jan 2019
- Clouds are gathering for commodity prices over 2019.
- As economic growth in NZ’s major export market, China, slows.
- We expect this slowing to lead to more modest demand and thus easing NZ commodity prices.
Global Dairy Trade Auction: Fats grease the start to 2019
07 Jan 2019
Dairy prices up in first auction for 2019, making 3 rises in a row.
Prices rose for all key products, albeit in the lightest sales volumes since July.
NZ production is looking strong, which we expect will constrain prices in the near term
Farmshed Economics: 2018 - a year of two halves
21 Dec 2018
- 2018 has been a year of two halves for the rural economy.
- Indeed, the dairy sector has epitomised the year of two halves.
- Meanwhile, lamb prices have been 2018’s star performer.
International Agri Insights: It's milk Jim, but not as we know it
21 Dec 2018
- Major US agricultural giant partners with California dairy biotechnology company.
- Company’s technology will produce whey and casein without dairy cows.
- Current dairy industry could face significant challenges from laboratory-produced dairy products.
Commodities Weekly: 2018: a year of two halves
20 Dec 2018
- NZ commodity prices strengthened through the first half of 2018, but then gave back all the gains over the second half.
- Compared to long-run averages, however, 2018 commodity prices have fared well.
- Looking to 2019, we expect NZ commodity prices to soften a little as slowing global growth finally weighs on prices.
- NZ commodity prices strengthened through the first half of 2018, but then gave back all the gains over the second half.
Q3 2018 GDP review: Economy temporarily offline
20 Dec 2018
Q3 GDP grew 0.3% qoq, weaker than our own forecast of 0.5% and market expectations of 0.6%, and significantly weaker than the RBNZ November MPS forecast of 0.7%.
But partially offsetting some of the negative surprise, growth over 2017 was revised higher, implying more momentum in the economy until recently.
The source of soft growth in Q3 was reasonably broad-based across most industries, as we had expected, but with activity in some sectors proving even weaker than we had anticipated.
Regional Economic Scoreboard Q3 2018: Southland steps up to top spot
19 Dec 2018
- Waikato moo-ves northward, climbing 10 places and nabbing the silver medal.
- Auckland heads south slipping to sit in last spot alongside Canterbury.
- The weather’s warming but Northland and the Bay of Plenty cool off.
Q3 Balance of Payments: NZ calm in rising global seas
19 Dec 2018
- NZ’s current account deficit remains at a manageable level.
- Also heading into 2019, we expect the annual current account deficit to narrow modestly.
- For now, most risks to this outlook are offshore.
GlobalDairyTrade Auction: Ending 2018 on a positive note
19 Dec 2018
- Dairy prices end 2018 on a positive note.
- Despite the rise, dairy prices end 2018 weaker than where they started.
- Moreover, with the NZ production outlook still strong, dairy prices are likely to start 2019 soft.
Economic Weekly: Ending 2018 on a whimper
17 Dec 2018
- This week, we preview Q3 GDP, appropriately the last major data release for 2018.
- Locally, we have the dairy auction overnight Tuesday, Q3 Balance of Payments Wednesday, with the November Trade Balance and ANZ Consumer Confidence due on Thursday and Friday.
- Offshore, the Fed makes its interest rate announcement on Thursday morning NZ time, while the BoJ and BoE are also due to make announcements this week.
Commodities Weekly: Wet start to summer
14 Dec 2018
- The NZ summer has started wet.
- For the dairy and meat sectors, the wet weather has proved a production boon.
- Meanwhile, rising dairy prices led the ASB Commodity Price Index a touch higher last week.
Q3 2018 GDP Preview: Losing steam
14 Dec 2018
- We expect Q3 2018 GDP grew 0.5%, due to slowing demand for both goods and services.
- We believe high petrol prices and weak business confidence sapped economic momentum over H2 2018.
- Annual benchmark revisions to National Accounts will also be incorporated at this release.
Half-Year Economic and Fiscal Update 2018: Keeping its powder dry
13 Dec 2018
The Half-Year Update 2018 shows a healthy set of Government books.
Notably, the Government has kept its powder dry for now, with unchanged operating spending allowances.
With the traditional fiscal measures coming in very similar to the Budget, the main message from this Update was the introduction of the Wellbeing Approach for Budget 2019.
Economic Note: Are NZ house prices heading for a fall?
12 Dec 2018
- New Zealand house price movements have tended to broadly track those in Australia, reflecting similar demand and supply side determinants. There is a close relationship between Auckland and Sydney prices.
- There is also evidence that since the Global Financial Crisis the relationship between house prices in the two countries has tightened as common influences look to have become more influential.
- Lower Australian house prices are a dampening influence on NZ house prices, but lower mortgage interest rates, still-elevated net immigration and underbuilding in NZ should help counterbalance any Australian drag.
Economic Weekly: Terms of trade remain lofty
10 Dec 2018
- Following last week's Q3 Terms of Trade data release, we take a closer look at New Zealand’s well-performing export sector on Page 2.
- Our Chart of the Week looks at one of the key concerns that weighed on sentiment last week as gains were erased in global equities.
- This week, focus will remain on Brexit with a UK Parliamentary vote scheduled for Tuesday night (NZT) while the local highlight will be the Government’s Half-Year Economic and Fiscal Update on Thursday.
Commodities Weekly: US and China call trade war truce, but will it hold?
07 Dec 2018
- US and China have called trade war truce.
- But recent developments have clouded the agreement.
- Meanwhile, the ASB New Zealand Commodity Price Index fell in NZD terms last week.
Fonterra Milk Price Forecast Update: Top-heavy
06 Dec 2018
- As expected, Fonterra has trimmed its 2018/19 milk price forecast range to $6.00-6.30/kg from $6.25‑$6.50/kg.
- Fonterra cited stronger-than-expected global production as the key reason for the forecast drop.
- We see Fonterra’s forecast as a tad optimistic - our own forecast of sits at $6.00/kg or the bottom of Fonterra’s range.
Markets Monthly for November 2018: NZD surges as risk of an OCR cut recedes
05 Dec 2018
- The NZD lifted over November, boosted by reasonable local data and an associated lift in local interest rates.
- Sharemarkets were mixed, with NZ and US indices posting modest gains, while Australian and UK indices fell.
- US-China tensions and Brexit developments troubled markets during the month, and oil prices plummeted.
GlobalDairyTrade Auction: Looking a gift horse in the mouth
05 Dec 2018
- Dairy prices snap the run of seven consecutive falls overnight.
- However, we suspect that currency movements explain most of the price gain.
- With that in mind and signs of further NZ production strength, we anticipate that dairy auction prices are more likely to stay soft than rise over the next few months.
Economic Weekly: RBNZ relaxes LVR restrictions a smidge more
03 Dec 2018
- The RBNZ relaxed the high LVR lending speed limits last week, acknowledging that financial stability risks are easing.
- We could expect some additional support to housing over the coming months, albeit potentially offset by flagged higher bank capital requirements and continued investor caution.
- Meanwhile, offshore key economic data releases include Australian Q3 GDP growth and US employment.
Economic Note: Performing the high-wire act
03 Dec 2018
- Q3 Terms of Trade slip a touch on higher oil prices.
- However, the Terms of Trade remain historically high and should stay so over coming quarters.
- Meanwhile, net exports are likely to make a positive contribution to Q3 GDP.
Farmshed Economics: Mixed blessings
30 Nov 2018
- November has been a busy month for rural and financial market developments.
- Over the month, we trimmed our 2018/19 milk price forecast by 25 cents to $6.00/kg.
- Meanwhile, the lamb and kiwifruit sectors continue to charge ahead.
Commodities Weekly: Kiwifruit - rollin', rollin', rollin', rawhide
29 Nov 2018
- Kiwifruit export values continue to roll on.
- In particular, export volumes have surged over September and October.
- Meanwhile, falling dairy prices led the ASB Commodity Price Index down last week.
Financial Stability Report Nov 2018: Let it go, let it go
28 Nov 2018
- The RBNZ relaxed both owner-occupier and investor loan-to-value ratio restrictions (LVRs), in effect from 1 January 2019.
- Financial stability risks in the housing and dairy sectors are easing.
- The easier restrictions could at the margin bring about more housing-related inflation, though the inflationary impact of the first LVR easing appeared insignificant.
Economic Weekly: Kiwi-Aussie housing connection
26 Nov 2018
- This week we explore the connection between the Australian and NZ housing markets.
- There are plenty of local data to look forward to this week, highlighted by the RBNZ’s Financial Stability Report on Wednesday.
- Offshore, Q3 US GDP data are due, while the Fed releases its Meeting Minutes on Friday NZ time.
Q3 Retail Trade: Higher fuel prices weigh on retail sector
26 Nov 2018
- Retail sector volumes stall in Q3, with higher fuel prices weighing on wider retail volumes.
- Sector details were mixed, with retail momentum trending lower over 2018.
- Flat Q3 retail volumes suggest some downside risk to our +0.6% qoq Q3 GDP pick. Changes to the OCR look some way off.
Commodities Weekly: October dairy production sets record high
23 Nov 2018
- October dairy production has set a new record high for any month.
- We have lifted our 2018/19 season production growth forecast from 4% to 5%.
- Meanwhile, the ASB Commodity Price Index fell 1.4% in NZD terms in the week ending 16 November.
LVRs: should they stay or should they go?
23 Nov 2018
- The RBNZ Financial Stability Report will focus on housing and dairy risks, which are gradually easing.
- Housing developments suggest there is a case for easing the LVR restrictions.
- But, at the margin, we think the RBNZ will wait slightly longer, though easier owner-occupier LVRs are possible.
Home Loan Rate Report: Low for longer
22 Nov 2018
- We expect floating and short-term fixed mortgage interest rates to remain around current levels well into 2019.
- The tick-shaped curve and our expectations of a mild RBNZ tightening cycle suggest shorter-term fixed rates should continue to offer good value.
- There are a number of forces influencing mortgage interest rates at present, with downward pressures on rates prevailing over recent months. Nonetheless, borrowers should still plan to deal with higher interest rate costs in the future.
GlobalDairyTrade Auction: Too much of a good thing
21 Nov 2018
- We trim our 2018/19 milk price forecast by 25 cents to $6.00/kg
- As record October NZ milk production drives dairy prices lower again.
- Indeed, the forecast revision proves you can have too much of a good thing.
Economic Weekly: Summer squeeze or summer breeze?
19 Nov 2018
- This morning we released our latest Quarterly Economic Forecasts.
- Read more about our view of where the NZ economy is headed on Page 2.
- With little major data released locally and abroad this week, expect equity market gyrations, trade tensions, Brexit developments and Italian budget deficit concerns to drive market sentiment this week.
Summer breeze or summer squeeze?
19 Nov 2018
- NZ’s growth outlook remains reasonable, though risks of weak growth have intensified a little further.
- Questions remain over how much cooling will be caused by weak business confidence and trade tensions.
- Inflation pressures are benign enough that interest rates can remain on hold well into 2020.
Housing Confidence: Price expectations falter
19 Nov 2018
- House price expectations eased in the three months to October, with price expectations lower across all regions.
- Lower interest rate expectations have likely been shaped by falling fixed mortgage rates and increasing expectations that the RBNZ may leave rates on hold for longer.
- The balance of respondents still think it’s a bad time to buy, but views were the least negative in over five years.
Commodities Weekly: Lamb prices - from a boil to a simmer
16 Nov 2018
- Lamb prices have moved from a boil to a simmer.
- Despite recent falls, the 2018/19 season is shaping up as a healthy one overall for farmers.
- Meanwhile, The ASB Commodity Price Index fell 1.1% in NZD terms in the week ending 9 November.
International Agri Insights: US Mid-term results divide legislature
15 Nov 2018
- US elections result in divided legislature – Democratic House and Republican Senate.
- Gridlock is not expected as Congressional leaders assume the mantle of responsibility for their actions.
- A new Congress is expected to approve Trump’s trade agreement with Canada and Mexico while potential farm legislation changes could have positive impacts on NZ agriculture.
Economic Weekly: Time will tell
12 Nov 2018
- The RBNZ’s quarterly Monetary Policy Statement showed minor tweaks to the economic forecasts, with most of the changes being around heightened concern on the risks to these forecasts.
- Time will ultimately tell which risk becomes reality and hence the direction of the OCR.
- On last week’s super-strong labour market report, we conclude that time will also tell on the underlying state of the labour market and the economy, as the outcome doesn’t quite fit with other signals we are seeing in the economy.
Commodities Weekly: Wool prices drifting lower
09 Nov 2018
- Wool prices set to drift lower over coming months.
- Although, mid-micron prices may fare better.
- Meanwhile, the ASB NZ Commodity Price Index dipped 1.9% in NZD terms last week.
RBNZ Nov 2018 OCR Review: Upside, downside, in the risk basket
08 Nov 2018
- The RBNZ kept the OCR on hold at 1.75%, and reiterated its expectation to keep the OCR at this level into 2020.
- The RBNZ noted both upside (inflation) and downside risks (growth).
- Although an OCR cut is still a risk, the risks have not increased relative to the August/September assessments.
Q3 2018 Labour Market Review: Strong labour market figures but contained wage growth
07 Nov 2018
- HLFS employment surged 1.1% qoq in Q3 (+2.8% yoy), considerably above market expectations. Measures of labour market utilisation either hit or equalled record levels, with the unemployment rate falling to a 10-year low of 3.9% (4.4% exp). Statistics NZ is “confident” as to the veracity of the HLFS figures.
- Pay equity settlements helped deliver a solid 0.5% qoq increase in private sector LCI wages, but annual LCI inflation eased to 1.9%. Distributional measures showed limited evidence that wage inflation is becoming more widespread.
- The labour market is very tight and the hurdle to an OCR cut has risen. However, the lack of an inflationary smoking gun maintains the need for supportive OCR settings. The next move in the OCR looks to be up, but not until 2020.
GlobalDairyTrade Auction: Production building up a head of steam
07 Nov 2018
- Dairy prices were weak overnight.
- As strong NZ milk production continues to weigh on prices.
- In the short term, we anticipate further production strength and accompanying price weakness.
Markets Monthly for October 2018: Sharemarkets slide over October
06 Nov 2018
- Having taken almost everything in their stride over mid-2018, investors worried about a lot in October.
- Sharemarkets around the world dipped significantly, but US bond yields still ended October higher.
- US political developments and President Trump remain at the heart of a lot of the themes.
Economic Weekly: Sticking to the script?
05 Nov 2018
- An element of calm has returned to markets, with global equities staging a modest rally following their earlier October rout.
- No changes to policy settings are expected from the RBA, RBNZ and US Federal Reserve, but the tone of policy assessments will have a bearing on market direction.
- On the local data calendar, Q3 labour market data is due out this week.
Commodities Weekly: Kiwifruit and horticulture - the fourth engine
02 Nov 2018
- Annual kiwifruit export values have cracked $2 billion for the first time.
- We now view the kiwifruit and broader horticulture sector as New Zealand’s fourth export engine.
- Meanwhile, the ASB Commodity Price Index fell in USD terms in the week ending 26 October.
Preview of RBNZ Nov OCR Review: Roll with the (growth) changes
02 Nov 2018
- The RBNZ is likely to be very focused on activity measures given the downside risks to the growth outlook and implications for capacity pressures.
- Further, we expect the RBNZ to note the lift in global risks since September.
- The RBNZ is likely to remain cautious and to reiterate its neutral bias: the next OCR move may be up or down.
Labour Market Preview Q3 2018: Solid, not spectacular
01 Nov 2018
- The Q3 labour market prints are expected to show elevated labour market utilisation, a broadly stable unemployment rate and moderate quarterly increases for employment. Risks to employment growth are tilted to the downside.
- Pay equity settlements for the health care sector should contribute towards a 0.5% qoq increase in the Private Sector Labour Cost Index (LCI), with annual LCI wage inflation easing to 1.9%. Risks are broadly balanced.
- With a still-contained wage inflation backdrop and some uncertainty over the medium-term growth outlook, a prolonged period of stability on OCR settings is expected.
Farmshed Economics: Trick or treat?
01 Nov 2018
- Strong dairy production is more of a trick than a treat for farmers.
- Although, lamb prices are still in treat territory.
- Meanwhile, the NZ dollar has not been spooked by the recent global sharemarket plunge.
Economic Weekly: The squeeze is on
29 Oct 2018
- The domestic spotlight of late has been on higher fuel prices, and on page 2 we discuss their impacts on household budgets.
- October business confidence from the ANZ Business Outlook will be the key local focus this week.
- Offshore key events impacting global markets include US and Australian inflation data and central bank announcements from the Bank of Japan, Bank of England and European Central Bank.
Commodities Weekly: Dairy production set for new record high
26 Oct 2018
- The 2018/19 dairy production season has started with a hiss and a roar.
- Production is on track to set a new record high; we have doubled our 2018/19 production growth forecast from 2% to 4%.
- Meanwhile, the ASBCommodity Price Index lifted 1.3% in USD terms in the week ending 19thOctober.
Household expenditure and income outlook: Under the pump
26 Oct 2018
- The household sector has been subjected to a number of large and offsetting shocks over recent years.
- Higher fuel prices are hogging the headlines and are adding to pressures on household budgets.
- We expect a reasonable outlook for the household sector, although economy-wide annual growth in nominal household spending and incomes look set to slow towards 4% per annum over the next few years.
Economic Weekly: Dairy production bonanza likely to erode prices
23 Oct 2018
- The fine weather enjoyed by most over the long weekend has also supported a strong start to the dairy season, with this season’s milk production likely to break previous records.
- On Page 2 we discuss the implications of bumper milk production on dairy prices.
- Locally, we have trade data due out in NZ while key events offshore include the Bank of Canada and European Central Bank monetary policy announcements.
International Agri Insights: If at first you don't succeed, tri, tri again
23 Oct 2018
- US, Canada and Mexico have surprisingly reached agreement on tri-lateral trade talks.
- The agreement is similar to what Mexico and Canada accepted in the new Trans Pacific Partnership and puts a potential brake on increased trade with China for US, Mexico and Canada exporters.
- The agreement will have very limited impact in New Zealand agricultural exports.
GlobalDairyTrade Auction: Production giveth, production taketh away
17 Oct 2018
- We trim our 2018/19 milk price forecast by 25 cents to $6.25/kg.
- The revision stems from stronger than expected NZ production this season.
- Indeed, 2018/19 production is on track for a new record high.
Q3 CPI Preview: Headline CPI jumps, core inflation still lagging
16 Oct 2018
- The Q3 CPI rose by 0.9% in Q3, higher than expected. The annual rate of inflation rebounded to 1.9%.
- Much of the surprise was on the tradable side of the equation, reflecting higher transport costs.
- With core measures still relatively subdued, we expect the RBNZ to remain patient, even if headline CPI rises above 2% in the near term. We continue to expect the RBNZ to leave the OCR on hold until early 2020.
Economic Weekly: Keeping a wary eye
15 Oct 2018
- Markets are increasingly wary of rising US interest rates and US-China trade tensions.
- This week’s local data highlight is Q3 CPI and we discuss inflation in more detail on Page 2.
- While that release will be a driver for the direction of NZ interest rates in the short term, we will keep one eye firmly on global sharemarkets through the week.
Q3 CPI Preview: Costs pushing prices up in Q3
12 Oct 2018
- We expect the CPI to lift 0.7% qoq in Q3, to be 1.7% higher on an annual basis.
- Fuel and housing-related costs are expected to continue driving much of the increase in inflation.
- However, over the medium term, the risks remain skewed to the downside. As a result, we expect the RBNZ to largely look through the Q3 lift. We expect the OCR to remain on hold until early 2020.
Fonterra Milk Price Revision: Fonterra reduces 2018/19 milk price forecast
10 Oct 2018
- Fonterra shifts its 2018/19 milk price forecast to a $6.25-6.50/kg range from $6.75/kg.
- Strong global (and NZ) production cited as a reason for the forecast drop.
- Our 2018/19 milk price forecast of $6.50/kg continues to carry some downside risk.
Economic Weekly: Watching and waiting
08 Oct 2018
- Last week’s domestic data continue to point to a loss of economic momentum, with the NZIER Quarterly Survey of Business Opinion suggesting that economic growth likely decelerated.
- If these results are matched by the official data in the coming months, the RBNZ will be facing an economic reality closer to its rate cut scenario presented at the August MPS.
- On Page 2, we discuss what would need to happen to trigger a rate cut from the RBNZ.
Commodities Weekly: Forestry still sitting pretty
05 Oct 2018
- Forestry prices are still sitting pretty in NZD terms.
- And we expect prices will remain firm over the remainder of the year.
- Meanwhile, the ASB Commodity Price Index dipped in USD terms last week.
Farmshed Economics: Spring is in the air
04 Oct 2018
- With weather favourable, agricultural production has started the new season strongly.
- But additional production could put downward pressure on our milk price forecast.
- Meanwhile, current financial market conditions are supportive for the rural sector.
Markets Monthly for September 2018: Sharemarkets march on, despite the news headlines
03 Oct 2018
- The Fed hikes and the RBNZ remained on hold in September, with no surprises from either meeting.
- The gap between US and NZ interest rates continued to widen in September, weighing on the NZD.
- Sharemarkets continue to perform well both here and abroad, despite the global trade threats and other news.
Economic Note: RBNZ Timetable
03 Oct 2018
- The RBNZ has pledged to leave the OCR on hold until 2020, but left the door open to an OCR cut.
- Given the deterioration in the NZ growth outlook an OCR cut is certainly possible, but this hinges on weak sentiment persisting and translating into increasing spare capacity within the economy.
- Given data publication lags and RBNZ policy announcement dates, it may not be until 2019 that the OCR is lowered. At this stage, meetings from the February 2019 MPS look to be ‘live’.
ASB Rural Economic Note: NZ production hits the ground running
03 Oct 2018
- Dairy prices posted a broad-based fall overnight.
- With recent price weakness reflecting strong NZ production.
- For now, we maintain our 2018/19 milk price forecast of $6.50/kg, but continue to note downside risks.
Economic Weekly: Piecing the growth puzzle together
02 Oct 2018
- Last week the RBNZ left the OCR firmly on hold and maintained its neutral bias.
- This week provides an important piece of the NZ growth outlook puzzle in the form of the NZIER Quarterly Survey of Business Opinion.
- Offshore, the Reserve Bank of Australia’s rate announcement (no change expected) and Friday’s US Non-farm Payrolls release will be the key events.
Quarterly Survey of Business Opinion: Risks to the outlook now close to becoming reality
02 Oct 2018
- NZIER QSBO survey details were softer than we expected and point to a deceleration in GDP growth over H2 2018.
- However, forward-looking indicators remained relatively upbeat. As such we will look to see how key data evolve over the coming months.
- If the growth and employment figures released over the rest of the year are consistent with soggy business confidence, we see it becoming increasingly likely that the RBNZ will pull the trigger and possibly cut the Official Cash Rate (OCR) early next year.
Commodities Weekly: Reserve Bank cautiously on hold
28 Sep 2018
- The Reserve Bank kept the OCR on hold this week.
- Current risks are skewed to an OCR cut.
- Meanwhile, the ASB Commodity Price Index fell in NZD terms last week
RBNZ September OCR Review: Looking the gift horse in the mouth
27 Sep 2018
- The RBNZ left the OCR at 1.75%, and retained its OCR outlook and neutral bias – all as expected.
- The RBNZ remains cautious about the domestic growth outlook, noted risks from trade tensions.
- We still expect eventual OCR increases from early 2020; near-term risks skewed to a cut.
Economic Weekly: The ball is in RBNZ's court now
24 Sep 2018
- Last week’s Q2 GDP release showed broad-based economic strength despite weak business confidence prevailing since late 2017.
- The market will closely watch this week’s OCR Review to see how the RBNZ balances the stronger starting point vs. growing downside risks to the outlook.
- Offshore, the US Federal Reserve’s rate announcement on Thursday morning will be the key event.
Commodities Weekly: US-China trade frictions ratchet up another notch
21 Sep 2018
- Trade frictions between the US and China have ratcheted up another notch.
- Although at this juncture, the repercussions for NZ commodity export prices are limited.
- Meanhwile, NZ commodities prices were largely unchanged last week.
Preview of RBNZ September OCR Review: Dangling the (rate cut) carrot
21 Sep 2018
- The RBNZ is expected to stick to the script, signal the OCR is expected to remain on hold for a considerable period, but reaffirm that the next move could be either up or down.
- Despite a considerably stronger starting point for domestic economic activity, the outlook remains uncertain, with risks still skewed to the downside. The RBNZ will want to keep the market guessing over whether it will cut the OCR if H2 2018 growth disappoints.
- We still see a high hurdle to OCR moves, but respect the risk profile and would not rule out OCR cuts.
Q2 GDP Review: Cracker Q2 performance
20 Sep 2018
- Q2 GDP grew 1.0% qoq, slightly stronger than our own forecast of 0.9% and market expectations of 0.8%, and well above the RBNZ August MPS forecast of 0.5%.
- Q2 growth was reasonably broad-based and would have been even stronger if not for a large decline in gas production due to an unplanned outage.
- Focus will now shift to how fast the economy grew over Q3, with concerns that weak business sentiment points to a slowdown in the underlying trend pace of economic growth over the second half of 2018.
Q2 Balance of Payments: Sitting relatively pretty
19 Sep 2018
- Taking into account data revisions, NZ’s current account deficit remains modest.
- From here, we expect the annual current account deficit to widen further over the rest of 2018.
- That said, the continued ratcheting up of US-China tariff measures poses risk to this otherwise relatively healthy outlook.
GlobalDairyTrade Auction: NZD cushioning dairy drop
19 Sep 2018
- Dairy prices posted a broad-based fall overnight.
- Although, the fall was less than expected.
- All up, we maintain our 2018/19 milk price forecast of $6.50/kg, but note downside risks.
Regional Economic Scoreboard: June 2018 quarter
18 Sep 2018
- Otago is top dog this quarter, climbing three places to take out the top spot.
- Hawke’s Bay and Manawatu/Whanganui regions were big movers, both jumping 10 places.
- Horticulture continues to shine through, boosting Bay of Plenty, Hawke’s Bay and Gisborne.
Economic Weekly: Solid Q2 growth expected
17 Sep 2018
- We are expecting growth to have held up in Q2, with 0.9% qoq expected.
- Our Chart of the Week shows that accommodative monetary conditions are likely to continue to support NZ GDP growth over the remainder of 2018.
- Offshore, the data calendar is relatively light with the Bank of Japan’s interest rate announcement on Wednesday the key release.
Commodities Weekly: One final cut
14 Sep 2018
- Fonterra trims 17/18 milk price one final time;
- And also announced its first ever annual loss.
- Meanwhile, the ASB Commodity Price Index fell in USD terms last week.
GDP Preview Q2 2018: Sparkle and fade
13 Sep 2018
- We expect Q2 2018 GDP grew 0.9%, with activity bouncing back somewhat from a soft start to the year.
- Nonetheless, the underlying pace of growth has slowed since 2016.
- The continued slide in business sentiment suggests the trend pace of growth could slow further over H2 2018.
Fonterra Annual Results 2017/18: Milk price, but still no cream
13 Sep 2018
- Fonterra has posted its first ever annual loss.
- While the Danone and Beingmate writedowns were large and grabbed headlines, the underlying business performance also deteriorated.
- Meanwhile, Fonterra reaffirmed its 2018/19 farmgate milk price forecast at $6.75/kg.
Economic Weekly: Neutral rate drifting lower
10 Sep 2018
- This week we explore the recent path of the neutral real interest rate.
- In the week ahead, electronic card transactions are the key local release.
- Meanwhile offshore, interest rate announcements by the European Central Bank and Bank of England will be closely watched, as will Australian employment data on Thursday.
Farmshed Economics: Financial leg up
07 Sep 2018
- The weak NZ dollar is supporting rural sector incomes.
- Meanwhile, very low interest rates are helping keep a lid on costs.
- Turning to commodity markets, lamb prices continue to head for the sky, whereas August was not a month to remember for dairy farmers.
Commodities Weekly: Rising feed prices driving farm expense inflation
06 Sep 2018
- Rising feed prices are driving farm expense inflation.
- Looking over the year ahead, we expect input prices to continue rising at a similar pace.
- Meanwhile, the ASB Commodity Price Index fell 0.4% in USD terms in the week ending 31st August.
Markets Monthly for August 2018: NZ shares press higher as NZD and interest rates dip
05 Sep 2018
- The NZD weakened across the board during August, easing 2% on a trade weighted basis. The RBNZ held the OCR at 1.75%, and expects to keep it around this level for longer than earlier project.
- Local bond yields and other interest rates fell over the month, while the NZ sharemarket roared higher.
- Global shares were mixed, with strong gains in the US partly offset by weakness in Europe. The NZ sharemarket set a fresh high, and the Australian market posted gains despite political upheavals.
GlobalDairyTrade Auction: Seasonal drift
05 Sep 2018
- Dairy prices drifted lower overnight as NZ production nears its seasonal peak.
- Overall prices are at their lowest since October 2016.
- All up, we maintain our 2018/19 milk price forecast of $6.50/kg, but note downside risks.
Economic Note: Reassessing "neutral"
04 Sep 2018
- Our estimates suggest the neutral OCR is currently in a 2½% to 3½% range, with a midpoint of just below 3%. This is lower than current RBNZ estimates (around 3½%).
- The neutral rate looks to have displayed a downward trend, which could well continue.
- A lower neutral OCR will have important implications for savers, borrowers, investors and policymakers.
Economic Weekly: Mixed signals from the business community
03 Sep 2018
- Negative business sentiment was in the spotlight this past week.
- The widespread negativity of the business confidence survey remains surprising to us, given the relativity supportive economic fundamentals and a strong NZ equity market.
- Meanwhile offshore, emerging market concerns may dominate financial market sentiment.
Economic Note: Elevated Terms of Trade a major NZ support
03 Sep 2018
- Modest rebound of the Terms of Trade, which are just 1.4% shy of record highs.
- The trade volume split suggests a mildly positive net trade contribution for Q2 GDP. Capital goods imports volumes have remained resilient thus far despite weakening business sentiment.
- We expect the Terms of Trade to remain at historically-high levels, supporting the NZ economy and NZD.
Commodities Weekly: Kiwifruit sector humming
31 Aug 2018
- The kiwifruit sector continues to hum, with Kiwifruit export prices particularly strong over July.
- Indeed, export receipts could crack $2 billion for the first time this season.
- Meanwhile, falling dairy prices led the ASB Commodity Price Index down last week.
Home Loan Rate Report: Holding steady
30 Aug 2018
- We expect floating and short-term fixed mortgage interest rates to remain around current levels well into 2019.
- The tick-shaped curve and our expectations of a mild RBNZ tightening cycle suggest shorter-term fixed rates should continue to offer good value.
- There is the risk that mortgage interest rates increase faster and more significantly than what our forecasts currently assume. Borrowers should think about their appetite for risk and ability to absorb higher interest rate costs should this occur.
Economic Weekly: Shifting our OCR call to 2020
27 Aug 2018
- We’ve shifted our OCR call out to 2020 and we discuss that move and our economic forecasts more generally on Page 2.
- However, we haven’t changed our OCR view as some other commentators and we have a more positive growth view than the RBNZ.
- The key piece of data this week is the August ANZ Business Outlook Survey - while markets are ready to pounce should the data weaken further on Thursday, we anticipate that in time, the more positive reality will prevail.
Quarterly Economic Forecast: Don't worry, be happy (please)
27 Aug 2018
- NZ growth should still benefit from a variety of drivers to keep growth around 3%.
- Healthy export earnings and resurgent house-building will offset softer business investment.
- But trade tensions and the risk of talking ourselves into a downturn are threats to that performance.
Commodities Weekly: Beef prices - looks can be deceiving
22 Aug 2018
- On the surface, beefs price are healthy.
- However, by the end of the year, we anticipate that beef prices will feel the pressure of increased global supply.
- Meanwhile, the ASB Commodity Price Index rose 0.9% in USD terms in the week ending 17th August.
Q2 Retail Trade: Resilient retail maintains high hurdle to OCR cut
22 Aug 2018
- Retail sector resilient in Q2 despite weakening consumer sentiment and soft Q2 card spending.
- Nevertheless, annual retail volume growth falls to a 6-year low. Momentum for core retail remains reasonable.
- Q2 retail should underpin a solid Q2 GDP result that should surpass the RBNZ’s +0.5% qoq pick. The hurdle to an OCR cut remains high.
GlobalDairyTrade Auction: Dairy auction fall trumps recent currency gains
22 Aug 2018
- Milk fat prices lead dairy prices lower overnight.
- Moreover, the overnight fall trumps the recent gains from the fall in the NZ dollar.
- All up, we maintain our 2018/19 milk price forecast of $6.50/kg, but note downside risks.
Economic Weekly: Policy mix weighing on housing
20 Aug 2018
- Last week was quiet locally data-wise, with local markets consolidating following big local moves for the NZD and NZD rates after the dovish RBNZ announcement the week prior.
- On page 2 we take stock of recent developments in the NZ housing market.
- The offshore focus is on the US Fed, with meeting minutes (due Thursday 6am NZT) and the annual Jackson Hole Symposium this week.
Commodities Weekly: NZD comes to the aid of the party
17 Aug 2018
- The weaker NZD is boosting NZ commodity prices in local terms
- For us, the fall in the NZD means we can now re‑confirm our 2018/19 milk price forecast at $6.50/kg.
- Meanwhile, the ASB Commodity Price Index rose 1.3% in NZD terms in the week ending 10th August.
Housing Confidence Survey: Moving on...slowly
16 Aug 2018
- House price expectations continue to recover, with overall expectations at more than one-year highs.
- Respondents’ interest rate expectations are largely unchanged with the majority still expecting higher interest rates in the year ahead.
- The balance of respondents still think it’s a bad time to buy, but views were the least negative in over two years.
International Agri Insights: US fluid milk sales running dry
15 Aug 2018
- With the US dairy market often leading industry trends, there are lessons for the global dairy sector from steadily declining US fluid milk consumption.
- Without change, declining US demand for fluid milk may increase industry efforts to grow US exports of dairy products at the expense of other exporting countries and/or induce US farmers to reduce dairy production.
- However, new supply chain technology such as blockchain could help industry address consumer concerns and give US fluid milk a new lease on life.
Rural Loan Report: August 2018
14 Aug 2018
- Benchmark interest rates have declined to near record lows over recent months.
- The Reserve Bank is on hold, but indicating that the Official Cash Rate needs to stay lower for longer.
- All up, we expect benchmark interest rates to stay low this year, with some chance they may go lower.
Economic Weekly: Dovish RBNZ takes market by surprise
13 Aug 2018
- In last week’s August Monetary Policy Statement (MPS), the RBNZ surprised ourselves and the market by delaying its forecast rate hikes by 12 months to late 2020/early 2021.
- We discuss the August MPS in more detail on Page 2.
- Offshore, contagion concerns stemming from the recent sharp fall in the value of the Turkish Lira and heightened trade tensions between the US, China and Eurozone will be front of mind this week.
Commodities Weekly: Fonterra - cut 1 of a 2 cut story
10 Aug 2018
- Fonterra has cut its 17/18 milk price forecast by 5 cents to $6.70/kg.
- We also expect Fonterra to cut its 18/19 forecast of $7.00/kg to near our $6.50/kg forecast later this month.
- Meanwhile, the ASB Commodity Price Index rose in NZD terms last week.
RBNZ August 2018 OCR and MPS Review: Holding out until 2020?
09 Aug 2018
- The RBNZ’s tilt to a more ‘dovish’ view was bigger than we expected.
- But we do see inflation pressures building more quickly than in the RBNZ’s new view, particularly via wages.
- Consequently, we still see late 2019 as the likely timing for OCR increases.
Farmshed Economics: Eight ways to Sunday
09 Aug 2018
- In this month’s edition of Farmshed Economics, we celebrate lamb prices cracking the $8.00/kg mark for the first time on record.
- Meanwhile, dairy auction prices have headed in the other direction and a Fonterra milk price forecast cut is on the cards.
- Looking at currency markets, the key move for farmers has been the NZD gaining ground against the Chinese yuan, given that China is our largest food export market.
GlobalDairyTrade Auction: New, lower, stake in the ground
08 Aug 2018
- The overnight dairy auction result was unremarkable, with overall prices unchanged.
- However, the result confirmed that key Chinese demand has shifted lower and taken prices with it.
- On the back of this price shift lower, we place our 2018/19 milk price forecast of $6.50/kg under review.
Economic Weekly: RBNZ Monetary Policy Statement in the spotlight
06 Aug 2018
- This week’s RBNZ Official Cash Rate review and accompanying Monetary Policy Statement will be the highlight locally.
- Page 2 this week takes a closer look at what we expect from the RBNZ on Thursday.
- Offshore, the RBA is expected to leave rates unchanged on Tuesday.
Commodities Weekly: Lamb prices crack $8/kg
03 Aug 2018
- Lamb prices crack $8.00/kg
- In fact, our data suggest that lamb prices now sit at their highest ever levels, eclipsing 2011 record highs.
- Meanwhile, the ASB Commodity Price Index lifted in the week ending 27th July.
Markets Monthly for July 2018: Sharemarkets perform well over July
02 Aug 2018
- Solid corporate earnings support a lift in major global sharemarket indices over July.
- However, there were some large share price falls for companies that didn’t expectations, including Facebook.
- US bond yields rose, while NZ bond yields declined over the month.
RBNZ OCR and MPS Preview August 2018: Higher and lower
02 Aug 2018
- Near-term inflation looks to be firmer, but medium-term inflation pressures appear lower, with more negative risks on the horizon.
- Watch for RBNZ comfort about the near term but caution about the longer-term inflation outlook.
- Expect the RBNZ to indicate it is clearly on hold, with OCR hikes remaining just as distant.
Q2 2018 Labour Market Review: Labour market solid but contained wage inflation keeps RBNZ on the side-lines
01 Aug 2018
- HLFS employment was in line with expectations (+0.5% qoq versus +0.4% qoq). Measures of labour utilisation remained at historically-high levels, with rising labour force participation pushing up the unemployment rate to 4.5%.
- As expected, increases in the minimum wage triggered a 0.6% qoq increase in private sector LCI wages, with annual inflation (2.1% yoy) the highest in six years. However, distributional measures showed limited evidence that wage inflation is becoming more widespread.
- The labour market is tight, but a moderate outlook for consumer price and wage inflation maintains the need for supportive OCR settings. The next move on the OCR is probably up, but not until late 2019.
Economic Weekly: Take II for the RBNZ this week
30 Jul 2018
- This week’s Q2 labour market update will be closely watched.
- Offshore, there are a number of major data releases in the US.
- Central bank rate announcements are also due in Japan on Tuesday and the Bank of England on Thursday.
Commodities Weekly: Distortions on top of distortions
27 Jul 2018
- In a further muddying of the US-China trade waters, President Trump has pledged this week to provide a $12bn aid package to US farmers impacted by Chinese tariffs.
- From an NZ point of view, we anticipate that the package will have a small-to-negligible negative impact on NZ beef and dairy exports.
- Meanwhile, the ASB Commodity Price Index fell in all denominations in the week ending 20th July.
Inflation Watch: Pipeline price pressures will test RBNZ's mettle
26 Jul 2018
- Reflecting a combination of the inflationary and waning deflationary impacts, annual CPI inflation is likely to move towards 2% by the end of the year.
- There is the risk that the spill-overs from the spike in inflation into broader prices and wages could be more significant than we have allowed for.
- The challenge for the RBNZ will be in keeping expectations for wage and price setters consistent with the 1-3% medium-term inflation target. We expect a stepping up in RBNZ communications to that effect.
Q2 Labour Market Preview
26 Jul 2018
- The higher minimum wage is expected to deliver a 0.6% qoq increase in the Labour Cost Index (LCI), with annual LCI wage inflation for the private sector rising to a six-year high. Risks to this pick are tilted to the downside and we expect the broader wage inflation backdrop to remain contained for now.
- Measures of labour market utilisation should remain elevated, with a moderate quarterly increase expected for employment and with the unemployment rate hovering around 9-year lows.
- A firming trajectory for wage increases and the still-tight labour market should keep the bias tilted towards a higher OCR. But the RBNZ has considerable flexibility at its disposal and a low inflation starting point – we don’t expect the RBNZ to raise the OCR until the end of next year.
Economic Weekly: NZ inflation up on fuel and housing costs
23 Jul 2018
- It is a relatively quiet week ahead for domestic markets, with just the NZ trade balance due out this week.
- Offshore, the first estimate of US Q2 GDP growth will be keenly awaited.
- And closer to home, Australia receives its Q2 inflation figures this week.
Commodities Weekly: 2018 grape harvest jumps on 2017
20 Jul 2018
- The 2018 grape harvest has jumped on the 2017 level.
- The larger harvest will support export volume and value growth this year but could put some downward pressure on prices.
- Meanwhile, the ASB Commodity Price Index rose 0.4% in NZD terms in the week ending 13th July.
GlobalDairyTrade Auction: It could be worse
18 Jul 2018
- Overall dairy auction prices dipped modestly overnight.
- As dairy markets remain nervous around the US-China trade tensions.
- However, when you factor in currency movements the recent price moves could have been worse.
Q2 2018 CPI Review: No rush for the RBNZ
17 Jul 2018
- The CPI rose by 0.4% in Q2, marginally lower than ourselves and the market were expecting. The annual rate of inflation rebounded to 1.5%.
- Housing and fuel costs were the key drivers of the lift, with cost pressures remaining soft outside of these sectors.
- Q2’s result reiterates our view that the RBNZ will leave the OCR on hold well into 2019.
Economic Weekly: Oil prices boosting near-term inflation outlook
16 Jul 2018
- In NZ this week attention will be on Tuesday’s Q2 CPI print.
- In our key insights this week we explore the likely impacts of the lifts to the minimum wage and the Fair Pay Agreements.
- Offshore, Australian labour market data and the release of the US Fed Beige Book are the key international events.
Q2 CPI Preview: Up, up but not away
13 Jul 2018
- We expect the CPI to rebound to 1.6% yoy (+0.5% qoq) in Q2 with higher oil price increases and the lower NZD bolstering the near-term inflation outlook.
- Other increases will remain constrained to sectors with capacity pressures: housing and tourism.
- While there has been an about-face in headline inflation pressures recently, core pressures remain subdued and downside risks have grown. As a result, we expect the RBNZ to leave the OCR on hold for some time yet.
Minimum wage and Fair Pay Agreements: Primed for an increase
12 Jul 2018
- Increases in the NZ minimum wage to $20 per hour by 2021 could be the catalyst for a turnaround in wage inflation in New Zealand. The proposed imposition of Industry-Wide Fair Pay Agreements by the Government and move towards collective bargaining is likely to add to wage and consumer price inflation at the margin.
- Our estimates are tentative but suggest that the minimum wage increases and the fair pay agreements could add up to 0.5 to 1.0 percentage points per annum to wage inflation and between 0.3 to 0.7 percentage points to annual consumer price inflation through to mid-2022.
- We caution that employees will need to be realistic with their wage demands, or the consequence could be higher interest rates.
Commodities Weekly: Tariffs may be a small positive for NZ beef prices
11 Jul 2018
- For now, NZ could gain modestly from the recent lift in Chinese tariffs on US beef imports.
- Indeed, the tariffs could have a small positive impact on NZ beef export prices.
- Meanwhile, the ASB Commodity Price Index fell in all denominations in the week ending 6th July.
Economic Weekly: Outlook fragile as businesses lose confidence
09 Jul 2018
- The week ahead should be relatively quiet on the domestic economic front.
- Market focus will likely return offshore this week, with trade tensions heating up as the US and China imposed additional import tariffs on each other.
- A key uncertainty this week is the Bank of Canada policy announcement; markets anticipate a rate hike but we see risks that the Bank will leave rates unchanged in light of heightened global uncertainty and weaker-than-expected Canadian GDP growth.
Commodities Weekly: Lamb prices in rude health
06 Jul 2018
- For the fourth month in a row, lamb prices were the highest on record during a June month.
- Healthy lamb prices see the sector in a good position to weather potential storms.
- Meanwhile, the ASB Commodity Price Index rose 1.5% in NZD terms in the week ending 29th June.
Markets Monthly for June 2018: Trade concerns rumble on
05 Jul 2018
- US President Trump continues to make tariff threats, which are being met with politically-targeted retaliation.
- The US FOMC lifted the Federal Funds rate, but long term US rates remain below recent highs.
- Global sharemarket performance was mixed in June. However, NZ and Australian equities posted solid gains.
Home Loan Rate Report: Low and steady for now
05 Jul 2018
- We expect floating and short-term fixed mortgage interest rates to remain around current levels into 2019.
- The tick-shaped curve and our expectations of a mild RBNZ tightening cycle suggest shorter-term fixed rates should continue to offer good value.
- There is the risk that mortgage interest rates increase faster and more significantly than what our forecasts currently assume. Borrowers should think about their appetite for risk and ability to absorb higher interest rate costs should this occur.
Farmshed Economics: Trade Tensions temperature rising
04 Jul 2018
- Global trade tensions have escalated further over June.
- For rural NZ, the escalation is becoming more real as China and the US have included agricultural products in their protectionist measures.
- The weaker NZD is providing some offset, however, there is an increasing risk that for some sectors that offset might not be enough.
GlobalDairyTrade Auction: Trade nerves
04 Jul 2018
- Dairy auction prices dipped to a six-month low overnight.
- The fall likely reflects nervousness around the potential for dairy market fallout from the US-China trade tensions.
- We stick to our positive dairy market view, but note the increasing potential for further dairy market fallout.
Quarterly Survey of Business Opinion: Business confidence falls as economic momentum slows
03 Jul 2018
- NZIER QSBO business confidence fell in line with the monthly ANZ survey, with indicators confirming a slowdown in underlying economic growth.
- Business intentions were mixed, with investment intentions plunging but employment intentions holding firm.
- From here, we will be watching closely to see how well economic activity holds up, given the continued tension between supportive economic fundamentals but low business confidence.
Economic Weekly: RBNZ on hold for longer, again
02 Jul 2018
- Business confidence is quickly becoming a key domestic risk to NZ’s growth outlook.
- This week, we will be watching to see whether NZIER’s Quarterly Survey of Business Opinion (QSBO) shadows recent dips in the ANZ business confidence survey.
- Overseas, ongoing trade tensions will also remain front of mind as the US and China ready to impose tariffs later this week.
Commodities Weekly: Short-term gain, but long-term pain
28 Jun 2018
- Global trade tensions have risen further over the past few weeks.
- The escalation in trade tensions could lead to some short-term gain, but at the expense of long-term pain for NZ commodity prices.
- Meanwhile, the ASB Commodity Price Index dipped 0.6% in USD terms in the week ending 22nd June
RBNZ June OCR Review: On hold "for now"
28 Jun 2018
- The RBNZ kept the OCR on hold at 1.75% with a neutral bias.
- However, the RBNZ gave itself more wriggle room around how long the OCR would remain at 1.75%.
- We now expect the first OCR increase in November 2019, and the risk of a cut has grown recently.
Property Transfer Statistics: Overseas influences on the NZ property market
26 Jun 2018
- Most recent figures suggest that around 3% of home transfers were to non-resident New Zealanders.
- However, a further 8% of transfers were attributable to NZ resident visa holders, with a further 10% attributable to corporate entities. There were regional contrasts, with Auckland having around twice the proportion of purchasers who were non-NZ citizens.
- For policymakers a balance needs to be struck between promoting measures to facilitate dwelling construction and yet ensuring that NZ citizens do not get priced out of their domestic housing market.
Economic Weekly: Will trade tensions add to the mid-winter blues?
25 Jun 2018
- The RBNZ OCR review is unlikely to generate any ripples on Thursday morning, with just a one-page statement delivered and the Bank likely to repeat its neutral policy assessment from May.
- Ongoing trade tensions will continue to make market participants nervous, setting a cautious tone in financial markets which is likely to weigh on both the NZD and NZ interest rates.
- We also take a closer look at NZ’s productivity performance on Page 2, and from a broader policy perspective, our findings highlight the importance to put in place policies to deepen New Zealand’s capital base and employ capital more effectively.
Commodities Weekly: Triple down
22 Jun 2018
- 2017/18 dairy production has ended down on the 2016/17 level and by our records, this is the first time that that has occurred.
- Looking at 2018/19, we have pencilled in a 2% increase in dairy production compared to the previous season.
- Meanwhile, the ASB Commodity Price Index dipped 1.3% in USD terms in the week ending 15th June.
RBNZ OCR Preview June 2018: Watching and waiting
22 Jun 2018
- We expect a neutral assessment from the RBNZ over the outlook for the Official Cash Rate (OCR).
- But the risks are slightly more skewed to interest rates remaining on hold for longer.
- That aside, we see very little need for the RBNZ to substantively tweak its outlook for interest rates.
Q1 GDP Review: Down but not out (yet)
21 Jun 2018
- Q1 GDP grew 0.5% qoq, in line with market expectations, which was slightly stronger than our own forecast, but weaker than the RBNZ May MPS forecast.
- We expect stronger growth in Q2 as forward-looking indicators suggest some of the weakness in Q1 growth was temporary.
- Going forward, our key concern for growth is whether weak business confidence spills over into business investment and hiring decisions.
International Agri Insights: Trade war games
21 Jun 2018
- China imposes 25% tariffs on US agricultural imports, including dairy and beef.
- US beef exports are not particularly exposed to this move, but US dairy exports are.
- It follows that New Zealand and the EU stand to gain at the US’s expense.
GlobalDairyTrade Auction: Late season production rally
20 Jun 2018
- NZ 2017/18 production ends marginally down on 2016/17, helped by a late-season rally.
- The late-season rally and recent US dollar strength have taken some of heat out of dairy prices in USD terms.
- In particular, very supply-constrained global butter markets have welcomed the additional production.
Economic Weekly: Football, football, football... and Q1 GDP
18 Jun 2018
We expect markets to remain jittery this week on risks of a full-blown trade war unfolding between the US and China.
Q1 GDP, due Thursday, is the local highlight while overseas, we expect the Bank of England to leave its interest rate and asset purchases unchanged at 0.50% and £435bn, respectively.
Otherwise, it’s wall-to-wall football, but watch for trade and geopolitical risks.
Dip into the danger zone
15 Jun 2018
- We expect Q1 2018 GDP grew 0.4%, with soft activity likely to be seen across a number of industries.
- But a strong bounce-back is possible in Q2, which would mean underlying growth is merely average rather than mediocre.
- Weak post-election business confidence threatens to derail growth outlook, despite firm fundamentals.
Commodities Weekly: Bumper 2018 kiwifruit crop
12 Jun 2018
The 2018 kiwifruit crop looks like it’s going to be a bumper one.
On the back of higher total production and a firm overall price, we anticipate record-high industry revenues for the 2018 season.
Meanwhile, the ASB Commodity Price Index lifted in USD terms in the week ending 8th June.
International Agri Insights: What if US-China trade turns bad?
12 Jun 2018
- The US is China’s leading export destination, while China ranks third as a destination for US exports.
- Both countries have proposed tariffs on imported products and discussions continue, both in public and in private, to address the existing trade conflicts.
- Although there is no clear indication of a peaceful resolution of the conflict, it appears the impact on New Zealand agriculture would be limited.
Economic Weekly: US Fed and Trump to dominate
11 Jun 2018
- The manufacturing survey released earlier this morning suggests NZ Q1 GDP will be in the vicinity of 0.4% qoq growth.
- Electronic card transactions (Tuesday) and the BusinessNZ PMI survey will give insights into how NZ is faring in Q2.
- Meanwhile, the key global events are Thursday’s monetary policy decisions from the US FOMC and ECB and anything Donald Trump tweets on trade and North Korea.
Farmshed Economics: Spanner in the works
08 Jun 2018
- Mycoplasma Bovis is proving a real spanner in the works for parts of the rural sector.
- However, with the phased eradication plan in place, farmers can turn their attention to how they adapt.
- Also putting Mycoplasma Bovis to one side, the rural outlook is strong.
Regional Economic Scoreboard: March 2018 quarter
07 Jun 2018
- Northland takes top spot on the ASB Regional Economic Scorecard.
- The Bay of Plenty was the big mover this quarter, up nine spots to third place.
- Meanwhile, drought dragged down the Taranaki and Manawatu-Whanganui regions this quarter.
Markets Monthly for May: Markets wax and wane over May
06 Jun 2018
- Italian politics weighed on the EUR and caused significant volatility in Italian bond yields during May.
- Long-term government bond yields fell over the month, with US 10-year Treasury yields dipping below 3% again.
- The RBNZ’s new Governor Adrian Orr made his first OCR announcement on May 10, and held the OCR at 1.75%.
Commodities Weekly: The path of least regret
06 Jun 2018
- Last week, the Government announced that it will continue with plans to eradicate Mycoplasma bovis.
- In the first instance, the decision gives some clarity to the agricultural sector.
- We expect beef prices to be largely unaffected by the decision, however it is likely to add to upward pressure to dairy prices over the next year.
GlobalDairyTrade Auction: Taking stock
06 Jun 2018
- Dairy prices were soft in the auction overnight.
- This price softness may reflect firm NZ production over April.
- However, we suspect the global butter shortage remains acute and that this price weakness will be short‑lived.
Economic Weekly: European Politics - one up, one down
05 Jun 2018
- Australian data kick off the short week with Q1 Balance of Payments due early this afternoon and then the RBA makes its policy decision later in the day.
- We expect no change from the RBA and a neutral policy message. Overnight, we expect a modest price increase at the GlobalDairyTrade auction. Q1 Australian GDP then highlights Wednesday.
- However, financial markets are likely to remain focused on European political developments following the last-minute deal to form an Italian government and the ousting of Spanish Prime Minister Mariano Rajoy.
Q1 Terms of Trade: Favourable terms
01 Jun 2018
- Q1 Terms of Trade fall, but remain near record highs.
- Indeed, the Q1 dip is likely to prove temporary.
- Meanwhile, we anticipate that the very high Terms of Trade will be one factor underpinning the NZ dollar over 2018.
Commodities Weekly: Kiwifruit export season off to a flying start
30 May 2018
- Kiwifruit exports for April hit a record monthly high.
- The strong start bodes well for the rest of the season.
- Indeed, we anticipate that kiwifruit export values are likely to crack $2 billion for the first time this season.
RBNZ Financial Stability Review May 2018: Ongoing vigilance
30 May 2018
- Financial system sound, with financial system vulnerabilities much the same as discussed in the previous Financial Stability Report.
- No changes signalled for loan-to-value restrictions on housing lending, with the RBNZ signalling they are likely to be eased if subdued housing lending continues.
- No fresh implications to our view on the economy, with the OCR on hold until August 2019.
Economic Weekly: Watching the financial risks
28 May 2018
- The most anticipated domestic event this week will be the RBNZ’s Financial Stability Report.
- The business confidence read on Thursday will also be important.
- And Friday night brings the monthly US Payrolls health check of the US economy.
Mycoplasma Bovis eradication - initial thoughts
28 May 2018
The NZ Government’s big decision around Mycoplasma Bovis was either to continue attempting to eradicate or move to managing the presence of the bacterium. The Government has chosen to continue to attempt to eradicate, noting that the current estimates of eradication costs are smaller than the estimated costs of managing the bacterium. No country has yet successfully eradicated the disease, but the Government doesn’t want to regret not trying. There is still the risk that a greater spread of the bacterium than assumed will switch the sums more in favour of managing the bacterium’s presence. Spring testing (results in December) will give further information on which to assess the probability of success of eradication.
The revenue impact on the dairy industry as a whole is not clear cut. The potential loss in dairy production could be partly or completely offset by higher dairy prices. For beef prices, the size of the cull needs to be put in context with the usual (high) cattle slaughter figure.
Commodities Weekly: EU free trade deal a step closer
24 May 2018
- A free trade deal between NZ and the EU is a step closer.
- From a NZ perspective, the announcement provides a modest counter to the rise in global protectionist rhetoric in recent years.
- Meanwhile, the ASB Commodity Price Index hit a seven-year high in NZD terms last week.
Home Loan Rate Report: A higher road ahead
24 May 2018
- We expect floating and short-term fixed mortgage interest rates to remain around current levels into 2019.
- The tick-shaped curve and our expectations of a mild RBNZ tightening cycle suggests shorter-term fixed rates should continue to offer good value.
- There is the risk that mortgage interest rates increase faster and more significantly than what our forecasts currently assume. Borrowers should think about their appetite for risk and ability to absorb higher interest rate costs should this occur.
Fonterra 2018/19 Opening Season Farmgate Milk Price Forecast: Fonterra opens with bullish salvo
23 May 2018
- Fonterra has set its opening 2018/19 milk price forecast at a bullish $7.00/kg.
- This is higher than our forecast of $6.50/kg and an informal market expectation of $6.60/kg.
- Meanwhile, Fonterra’s 2017/18 milk price forecast has lifted 20 cents to $6.75/kg, but the dividend range has been cut 10 cents to 15-20 cents per share.
Housing Confidence Survey: Post-election rebound
22 May 2018
- House price expectations rebound from post-election lows, with improvement evident for all regions.
- On balance, respondents still expect interest rates to rise over the next year.
- The balance of respondents still think it’s a bad time to buy, but views were the least negative in two years.
Economic Weekly: Budget spreads the butter prudently
21 May 2018
- The new Government’s Budget announced last week focussed on maintaining a sound fiscal position.
- Butter prices are on a charge; it's quite likely Fonterra will nudge up its milk price forecast for the current season this Thursday.
- The US Fed’s meeting minutes and Chairman’s speech will be the week’s main highlights.
Economic Note: Retail Trade Review Q1 2018
21 May 2018
- Soft start to 2018 for the retail sector, with annual growth in retail volumes at a 4-year low.
- Moderate increases for core volumes, with few signs of inflation at the retail level.
- Going forward, we expect moderate rates of retail volume growth over the remainder of the year. We expect the OCR to move up from August 2019.
Economic Note: Steady as she goes
20 May 2018
- Temporary factors aside, NZ's external accounts remain largely steady.
- Moreover, our central view is that the current account deficit narrows over coming quarters.
- However, the risk of a full-blown US-china trade war poses risk to this otherwise relatively healthy picture.
Budget 2018: Granting with prudence
17 May 2018
- Budget 2018 shows a healthy set of Government books, with the Government on target to keep to its fiscal responsibility rules.
- However, we anticipate less tax revenue than Treasury and a marginally less rosy fiscal picture over the 5‑year forecast period.
- All things considered though, this Budget is a solid effort and should boost the Government’s fiscal credibility.
Rural Loan Report: May 2018
17 May 2018
- The new Reserve Bank Governor has clearly stated that the next move in the OCR could be “up or down”.
- Despite this message, credit market pressures have lifted short-term interest rates over recent months.
- All up, the outlook is for interest rates to remain low, although longer-term rates are likely to creep higher.
Quarterly Economic Forecasts: Proceed with less caution
16 May 2018
- Trade tensions have escalated; local businesses need more convincing that the Government has "got this".
- The growth outlook remains reasonable beyond some near-term slowing, but some risks loom larger.
- The ingredients for growth remain widespread, apart from construction’s ability to keep up.
GlobalDairyTrade Auction: Double happy
16 May 2018
- Butter prices are spiking higher as the global butter shortage becomes acute.
- Meanwhile, the falling NZD/USD is giving dairy prices an additional boost in NZD terms.
- As a result, we see upside to both our 2017/18 and 2018/19 milk price forecasts.
Commodities Weekly: Mycoplasma bovis more likely to be "managed"
15 May 2018
- Yesterday MPI confirmed that a farm in Cambridge has tested positive for Mycoplasma bovis, the first confirmed case in the Waikato.
- Mycoplasma bovis is now more likely to become a “managed disease”, like it is in other major dairy exporters.
- Longer term, the disease has the potential to reduce NZ industry productivity via increased animal health costs and lower production of infected animals.
Economic Weekly: Balancing act
14 May 2018
- With Adrian Orr’s first Monetary Policy Statement done and dusted, focus now shifts to another first – the first Budget from the Labour - NZ First coalition Government.
- With the Government signalling its commitment to hitting its fiscal targets, we expect a prudent first-up effort from new Minister of Finance, Grant Robertson (see our full preview on page 2).
- Offshore, the economic calendar is relatively light – with market sentiment likely to remain headline driven.
Economic Note: Earning their fiscal stripes
11 May 2018
- As has been signalled, we expect the Budget to show the new Government is on track to hit its fiscal targets.
- Although to do so, the new Government has had to scale back some of its spending plans.
- Meanwhile, Budget 2018 will be the first to report using the Treasury’s Living Standards Framework.
RBNZ OCR & MPS Review May 2018: Orrsome start
10 May 2018
- OCR on hold at 1.75% as widely expected.
- The policy bias is very explicit: “The direction of our next move is equally balanced, up or down. Only time and events will tell”. We see the intended message as very similar to the previous policy assessments.
- The RBNZ substantially changed the way in which it lays out the Monetary Policy Statement, as it flagged earlier in the week. The result: greater clarity and a swiftly digestible message.
Commodities Weekly: Lamb prices - no news is good news
09 May 2018
- Lamb prices are at record highs for this time of the year.
- And we expect prices to remain strong through the remainder of 2018.
- Meanwhile, the lower NZD is continuing to boost commodity prices in NZD terms.
Economic Weekly: Watching for the Orr-factor
07 May 2018
- We are not expecting any changes to policy settings or the tone of the Thursday's RBNZ Monetary Policy Statement.
- Other NZ data due out this week include the RBNZ survey of inflation expectations on Tuesday and card spending on Wednesday.
- Offshore, the Bank of England rate announcement is key; soft economic data have put BoE rate hike expectations on ice for now.
Markets Monthly: Sharemarkets, yields, and the USD lift over April
03 May 2018
- Global sharemarkets lifted in April, but the February and March declines kept indices negative for the quarter.
- Long term government bond yields moved higher over the month, with US 10-year Treasury yields breaching 3%.
- The RBNZ’s new Governor Adrian Orr makes his first OCR announcement on May 10. No change is expected.
RBNZ OCR & MPS Preview May 2018: Rowing with a new Orr
03 May 2018
- Economic data suggest little change to the RBNZ’s outlook, though the inflation outlook could be slightly lower.
- Decent employment conditions also suggest no need for the OCR to change for some time yet.
- We don’t expect the new PTA or new Governor to materially shift the RBNZ’s monetary policy outlook.
Farmshed Economics: Commonwealth Games Special
03 May 2018
- In this month’s edition of Farmshed Economics, we get into the spirit of the Commonwealth Games and hand out medals to the best performing sectors.
- In a dead-heat, lamb and forestry share the gold medal, while dairy grabs the silver.
- Beef picks up the bronze, and just out of the medals, but finishing fast, is the New Zealand dollar.
Commodities Weekly: NZD takes a tumble against the USD
02 May 2018
- The NZD has taken a tumble against the USD, reaching its lowest level this year.
- Notably, the drop owes more to USD strength than it does to NZD weakness.
- As a result, the lower NZD is boosting commodity prices in NZD terms.
Economic Note: Tight labour market, but wage inflation AWOL
02 May 2018
- HLFS employment rose 0.6%, in line with market expectations. Measures of labour utilisation were at historically-high levels, with the unemployment rate falling to a new 9-year low of 4.4%.
- The Q1 figures depicted a mild wage backdrop, with few signs of widespread wage pressure. This keeps notions of OCR hikes on the back-burner.
- The labour market is tight and in little need of policy stimulus. Still-low CPI inflation provides the RBNZ with breathing space and we do not expect the first OCR hike until August 2019.
GlobalDairyTrade Auction: It's all about the dollar
02 May 2018
- Headline dairy auction prices fell a touch overnight.
- However, the sharp move lower in the NZD has more than trumped the price fall.
- As a result, we continue to see upside to both our 2017/18 and 2018/19 milk price forecasts.
Economic Note: A look into NZ labour market capacity
01 May 2018
- We expect growth in the labour force to progressively slow over the next decade.
- This slowing has the potential to slow the ‘speed limit’ for New Zealand’s growth and will have widespread implications for the New Zealand economy.
- Changes to the monetary policy framework which give more prominence to the labour market, suggest that the analysis of the labour market will play a considerably more prominent role in interest rate deliberations in New Zealand.
Economic Weekly: NZ labour market conditions under scrutiny
30 Apr 2018
- The week ahead is action packed, full of key market-sensitive economic events.
- The key event from a domestic perspective is the Q1 employment report.
- Offshore, the FOMC rate decision and US employment report are the key events.
Economic Note: Q1 2018 Labour Market Preview
30 Apr 2018
- We expect to see a moderate 0.5% increase for HLFS employment (3.2% yoy), which should push the unemployment rate down to 4.4%, a fresh 9-year low. Measures of labour utilisation should remain elevated.
- Quarterly labour costs are expected to climb 0.4% qoq on the LCI measure, with private sector, public sector and total annual LCI inflation either at (or just below) 2%. Risks are tilted to the upside.
- The labour market is tight and looks to be in little need of policy stimulus to meet employment objectives in the new PTA. Still-low CPI inflation provides the RBNZ with breathing space and we do not expect the next OCR hike until August 2019.
Economic Note: Lifting the lid on low productivity
27 Apr 2018
- New Zealand has traditionally been a weak performer in the productivity stakes.
- There has been a notable slowing in labour productivity growth since the global financial crisis (GFC), which has been reasonably generalised across most industries.
- There are cyclical aspects which suggest that the current lull in labour productivity is likely to be fleeting but our analysis tentatively suggests that the trend growth in labour productivity over the next few years may be somewhat weaker than historical averages.
Commodities Weekly: Dairy production limping into season end
24 Apr 2018
- NZ dairy production is limping into season end.
- As a result, we have lowered our 2017/18 production growth forecast to -1%.
- With this in mind, we now expect higher dairy prices than we anticipated previously and have placed our milk price forecasts under review.
Economic Weekly: Exploring NZ labour productivity
23 Apr 2018
The NZ economic outlook is solid, supported by a number of tailwinds including population growth, income growth and low interest rates. However, risks to the outlook remain. One such risk is the potential for labour capacity constraints to slow GDP growth. This week on page 2 we use recently-published productivity data to explore this in more detail. Key local events for the week include Tuesday’s travel and migration data (see Chart of the Week) and Fridays’ trade balance data. Offshore, trade tensions and remain elevated and are likely to continue to drive market sentiment. Global data this week includes the ECB and BOJ rate announcements on Friday, Australian CPI on Tuesday and US Q1 GDP overnight Friday.
Q1 CPI Review: No signs of inflation running away yet
19 Apr 2018
- The Q1 CPI rose by 0.5% in Q1, marginally higher than ourselves and the market were expecting. The annual rate of inflation dipped to 1.1%, pretty much in line with market expectations.
- As expected education costs were a key drag on inflation in Q1, but overall tradable inflation also remained subdued.
- Today’s result reiterates our view that the RBNZ will leave the OCR on hold well into 2019.
GlobalDairyTrade Auction: Butter price squeeze back on
18 Apr 2018
- The squeeze is back on butter prices.
- Butter prices are already ahead of where they were this time last season and the seasonal lull in NZ production is still to come.
- As a result, we anticipate that butter prices will set fresh record highs over coming months.
Commodities Weekly: China's Xi offers trade olive branch
17 Apr 2018
- US-China trade tensions eased late last week, following an encouraging speech from Chinese President Xi Jinping.
- Despite the positive signs, an agreement between the US and China remains some way off.
- Nonetheless, this development lowers the risk of NZ’s trade interests being caught in the cross fire of a potential of US-China trade war.
Economic Weekly: The Mystery of the Missing Inflation
16 Apr 2018
- The ongoing riddle of low inflation in NZ continues to puzzle.
- We expect inflation to drop back to 1% at this Thursday's release.
- Other key local events for the week are the GlobalDairyTrade auction and REINZ house data.
Q1 CPI Preview: Government giveth and taketh in Q1
16 Apr 2018
- We expect the CPI to lift by 0.4%* qoq in Q1 (+1.0% yoy), slightly below the RBNZ’s forecast.
- Housing costs remain a key driver of inflation, while policy changes suggest education costs will be a drag on inflation pressures over Q1.
- With little evidence of core inflation lifting yet, we expect the RBNZ to leave the OCR on hold until August 2019.
RBNZ Assistant Governor McDermott speech: Viva la Evolution
12 Apr 2018
- The RBNZ speech gave an historical context for past and new frameworks set for monetary policy.
- Policy targets and decision structures have evolved as low inflation has been bedded in over time.
- The take-out is the RBNZ sees the latest changes as reinforcing the flexibility of inflation targeting.
Economic Note: QSBO Review - Businesses still nervous in Q1
10 Apr 2018
NZIER QSBO business confidence remains weak, but less pessimistic than the monthly ANZ Business Opinion Survey.
The NZIER survey points to a modest slowdown in growth, as the uncertainty associated with a change in Government continues to weigh on near-term activity.
For the most part, investment intentions and employment intentions have held up relatively well.
Commodities Weekly: Forestry – let the good times roll
10 Apr 2018
- Forestry prices have set fresh record highs in NZD terms.
- And, we expect the good times to roll on over at least the first half of 2018.
- Meanwhile, the ASB Commodity Price Index posted a 0.4% rise in USD terms in the week ending 6 April.
Economic Weekly: Tariff concerns remain front and centre
09 Apr 2018
- Trade tensions between the US and China continue to dominate market sentiment.
- We take a closer look at the impact of these trade tensions on equity markets of late.
- On the NZ data front, it's another reasonably light week with NZIER’s Quarterly Survey of Business Opinion the key release.
International Agri Insights: US-China trade tensions - The Art of the Deal
09 Apr 2018
- Looking through President Trump’s brinkmanship, I expect the most likely outcome of the US-China trade tensions is a negotiated settlement where both sides give a little and gain roughly the same in return.
- On this basis, the impact on both US and NZ agricultural trade, including with China, is likely to be small.
- However, until this settlement is reached there remains some limited potential for significant disruption to global agricultural trade.
Markets Monthly for March 2018: Sharemarket slide resumes in March
05 Apr 2018
- Global sharemarkets declined over March, sinking to fresh 2018 lows. Global trade and growth concerns emerge.
- In the US, the FOMC lifted the Fed Funds rate. But long-term yields declined over the month.
- The RBNZ got a new Governor and a new Policy Target Agreement in March. Neither changes our view the OCR is staying at 1.75% until the second half of 2019.
Commodities Weekly: Tit for tat - the Empire strikes back
04 Apr 2018
- In a tit-for-tat move, China has imposed tariffs on US imports.
- So far though, these measures are relatively minor and have little or no impact on NZ commodity export prices.
- Meanwhile, NZ commodity prices drifted lower in the week ending 30 March.
Economic Note: Should we be worried by the widening in Bank Bill-OIS spreads?
04 Apr 2018
- Bank Bill or Libor-OIS spreads are widely regarded as a measure of how expensive or cheap it will be for banks to borrow relative to a risk-free rate.
- NZD Bank Bill-OIS spreads have only lifted modestly thus far, but our reliance on offshore funding suggests there is a risk NZD spreads widen further.
- With global financial markets on edge, developments in credit markets will need to be closely monitored over the coming months.
GlobalDairyTrade Auction: Business as usual, for now
04 Apr 2018
- Dairy prices were a mixed bag overnight.
- Notably, there were no signs of dairy market panic from the US-China trade skirmish.
- For now, global dairy markets remain well-balanced with prices at a healthy level.
Economic Weekly: Trade tensions continue to trouble markets
03 Apr 2018
- Financial markets remained cautious over the past week on escalating trade tensions.
- We also look at factors contributing to the recent lift in short-term funding costs.
- It’s a fairly light week for NZ data, with just the fortnightly Global Dairy Trade auction to focus on.
Farmshed Economics: March madness
29 Mar 2018
- March has been a very busy month for agricultural and financial market developments.
- Lamb prices have been the star over the month, while in the opposite camp, we have had mycoplasma bovis and Donald Trump.
- Meanwhile, Fonterra lifted its 2017/18 milk price to $6.55/kg, but at the same time announced a half-year loss.
Rural Loan Report: March 2018
28 Mar 2018
- The Reserve Bank has a new Governor, Adrian Orr.
- Despite the change in Governor, we expect the Reserve Bank to keep the OCR unchanged until August 2019.
- However there is change afoot offshore, and as a result, long-term interest rates may drift higher over the year.
Commodities Weekly: Mycoplasma bovis update - MPI to cull 22,000 cattle
27 Mar 2018
- MPI has decided to cull all cattle on properties infected with Mycoplasma bovis.
- Importantly, the decision to cull now reflects MPI’s view that Mycoplasma bovis is not well-established in NZ.
- Meanwhile, the ASB Commodity Price Index was largely flat in the week ending 23 March.
Economic Weekly: OCR is Orr's, for now
26 Mar 2018
Last week’s central bank announcements played second-fiddle to Trump upping the trade war stakes, as Trump’s proposed tariffs on Chinese imports rattled financial markets. Meanwhile, the RBNZ Orr era begins on Tuesday 27th and we provide our first impressions on the new Policy Targets Agreement on page 2. It’s a short week for financial markets, but there will be plenty of second-tier NZ data and the Federal Reserve’s preferred inflation measure to cap-off the week.
RBNZ Policy Targets Agreement signing and Reserve Bank Act Review: Laying the platform but more work to be done
26 Mar 2018
- The new Policy Targets Agreement retained price stability objective as the sole mandate. The Bank’s annual consumer price inflation target was retained at 1% to 3%, with the ongoing focus on the 2% midpoint. An employment focus was added alongside price stability.
- Changes to the Act are pending, with legislation in the coming months set to formalise the adoption of a dual monetary policy mandate and monetary policy committee structure. Other changes are likely.
- For monetary policy, the announced changes are unlikely to significantly impact on the level of the OCR or its movements over the cycle. Price stability objectives remains in pole position, with, but with the review of the Reserve Bank Act underway substantive changes could emerge that will need to be closely watched.
RBNZ March OCR Review: Spencer glides over the finish line
22 Mar 2018
- The OCR remained on hold at 1.75%. As expected, the neutral stance remained in place: “Numerous uncertainties remain and policy may need to adjust accordingly.”
- The main changes to the assessment were acknowledgement of weak near-term inflation and of construction capacity constraints.
- Attention turns to the imminent release of the new Policy Targets Agreement and its implications for policy.
Rural Economic Note: Fonterra milk price forecast update and interim results
21 Mar 2018
- Fonterra has lifted its 2017/18 milk price forecast by 15 cents to $6.55/kg.
- Given that it is late in the season, we align our own forecast with Fonterra at $6.55/kg.
- However, Fonterra’s half-year profits have taken a hit and the value of its Beingmate investment has been cut by a whopping $405m.
Commodities Weekly: Baby steps
20 Mar 2018
- NZ dairy production remained weak last month.
- On this basis, we expect dairy prices to remain firm and we maintain our slightly bullish milk price view.
- Meanwhile, the ASB Commodity Price Index posted a 0.5% fall in USD terms in the week ending 16 March.
Economic Weekly: Watching LIBOR-OIS spreads
19 Mar 2018
- Financial market attention will likely stay focussed on the LIBOR this week.
- Interest rate announcements by the US Federal Reserve, the RBNZ and the BoE are also key.
- We take a look at last week’s slightly softer-than-expected Q4 GDP release.
March OCR Preview: End of an era
16 Mar 2018
- The RBNZ is widely expected to leave the OCR on hold at 1.75% at the March OCR review (Thursday 22nd March).
- The brief one-page statement is likely to be little changed from the February MPS, reiterating a balanced assessment and continuing to emphasise that interest rates are likely to remain low for a considerable period.
- Market focus skewed to Adrian Orr’s start on March 27th and pending changes to the Policy Targets Agreement.
Q4 GDP Review: Wild weather weighs on GDP
15 Mar 2018
- Q4 GDP grew 0.6% qoq, slightly weaker than our own forecast and the market expectation of 0.8% qoq, and the RBNZ February MPS forecast of 0.7%.
- The key drag on GDP growth was a fall in agricultural production, while services sector growth was strong.
- There are no implications for the RBNZ’s March 22nd OCR review, and we continue to expect the RBNZ to leave the OCR on hold until the second half of 2019.
Q4 Balance of Payments: NZ's external accounts stable, but trade war a risk
14 Mar 2018
- Despite a wider current account deficit, NZ’s external accounts are largely stable.
- Moreover, our central view is that the current account deficit narrows over 2018.
- However, the risk of a trade war threatens to change this relatively healthy picture.
Commodities Weekly: Lucky Seven
13 Mar 2018
- Lamb prices have set a record high for March, lifting above $7 per kg.
- Procurement pressures have driven the recent lamb price lift, while underlying demand is also strong.
- Meanwhile, the ASB Commodity Price Index rose a modest 0.3% in USD terms in the week ending 9 March.
Economic Weekly: Trump fires trade salvo
12 Mar 2018
- US President Trump potentially kicked off a trade war with China and Europe, imposing a tariff on steel and aluminium imports.
- In this week's report, we take a look at the past evolution of global trade and highlight recent tariff tensions.
- NZ GDP is released this week and is likely to be the main focus of local markets.
Economic Note: Trade tensions surface
12 Mar 2018
- The global economy is humming.
- But increasing trade protectionism is a key risk.
- We assume that calm heads will prevail but if not, the New Zealand economy should brace for repercussions.
Q4 GDP Preview: End of the golden weather?
09 Mar 2018
- We expect Q4 2017 GDP grew 0.8%, led by retail spending and business services.
- Expenditure GDP is likely to show strong business investment appetites and strong tourist spending.
- Post-election uncertainty may weigh on growth over H1 2018.
Regional Economic Scoreboard: December 2017 quarter
08 Mar 2018
- South Island regions have swept the medals in this quarter’s Scoreboard.
- In addition, we suspect that Auckland’s halo-effect is acting in reverse.
- Meanwhile, Wellington and Canterbury are poised to climb the Scoreboard over 2018.
Commodities Weekly: Trump fires trade salvo
07 Mar 2018
- Late last week, US President Donald Trump announced that he planned to impose tariffs on steel and aluminium.
- If this goes ahead, retaliatory measures by other steel and aluminium exporters are likely to ensue, prompting the fear of a trade war between the likes of the US, the EU and China.
- Meanwhile, the ASB Commodity Price Index fell 0.5% in USD terms in the week ending 2 March.
GlobalDairyTrade Auction: As one storm cloud passes, another one gathers
07 Mar 2018
- In a quiet auction overnight, dairy prices were down a touch as expected.
- And for once, all was quiet on the weather front.
- However, another storm cloud is gathering in the form of Donald Trump.
Economic Weekly: International events in the spotlight
05 Mar 2018
- This week, attention will largely be on international data with four central bank announcements.
- However, GDP partials and a GDT auction will garner some local attention over the week.
- This week we also take a close look into the NZ labour market in our key insights focus.
Markets Monthly for February 2018: Sharemarket volatility picks up in February
02 Mar 2018
- Sharemarkets around the world dropped in early February, but recovered steadily later in the month.
- US yields are higher, and the FOMC is expected to deliver more interest rate hikes this year.
- The RBNZ’s first meeting of 2018 went as expected, and the OCR looks set to stay at 1.75% until late 2019.
Farmshed Economics: Wet 'n' wild
02 Mar 2018
- February has been wet and wild for many parts of the country.
- We have revised down our 2017/18 dairy production forecast to equal to last season, from +1% previously.
- Meanwhile, there is plenty of love to go around in the meat sector with February prices the highest ever on record for the month for both lamb and beef.
Home Loan Rate Report: A balanced approach
01 Mar 2018
- We expect floating and short-term fixed mortgage interest rates to remain around current levels for the rest of 2018, with rates to drift up prior to RBNZ hikes from August 2019.
- The tick-shaped mortgage borrowing curve and our expectations of a mild RBNZ tightening cycle suggest that the 1 to 2-year part of the mortgage curve should continue to offer good value.
- There is the risk that mortgage interest rates move up more quickly and significantly than what our forecasts currently assume. Borrowers who place a high premium on certainty and stability may want to consider fixing a portion of their loan for longer terms.
Q4 Terms of Trade: Dictating terms
01 Mar 2018
- NZ records a fresh all-time record high Terms of Trade.
- Lifting lamb and butter export prices lead the way.
- Over 2018, we expect the Terms of Trade to remain at or near the record high.
Commodities Weekly: Milk production turning around... slowly
27 Feb 2018
- We have revised our 2017/18 production forecast to equal with last season, from +1% previously.
- The revision follows weaker-than-anticipated January dairy production.
- Meanwhile, the ASB Commodity Price Index posted a 1.0% gain in NZD terms in the week ending 23 February.
Economic Weekly: Fed rate hikes on the radar
26 Feb 2018
- The end of the month brings a flurry of domestic monthly data.
- The offshore focus will be with the US rate outlook.
- We also recap the strong lift in Q4 retail spending and what it means for our consumer spending outlook.
Q4 Retail Trade Survey: Boomer
23 Feb 2018
- Strong end to 2017, for the retail sector, with 1.5%+ qoq increases for both total and core volumes.
- Low inflation is making the consumer dollar go further and is helping to keep the OCR low.
- We expect annual retail volume growth to remain above 4% over 2018, underpinned by positive household income growth.
GlobalDairyTrade Auction: You can't keep a good cow down
21 Feb 2018
- Dairy prices were largely unchanged overnight as expected.
- The result follows better NZ weather and an improved production outlook.
- All up, the result is consistent with our 2017/18 milk price forecast of $6.50/kg.
Commodities Weekly: Farm expense inflation is back
20 Feb 2018
- After a lull, farm input prices are rising again.
- We expect input prices to generally rise further over 2018.
- Meanwhile, the ASB Commodity Price Index posted a 1.6% gain in USD terms in the week ending 16 February.
Housing Confidence Survey: Game of two halves
20 Feb 2018
- House price expectations at 6 ½ low, driven by falling expectations in the North Island.
- On balance, respondents expect interest rates to rise over the next year.
- The majority of respondents still think it’s a bad time to buy, but are the least negative in nearly two years.
Economic Weekly: Calm returns
19 Feb 2018
- Calm appears to have returned to financial markets after a rocky few weeks.
- And despite recent ructions in global financial markets, the global economy looks to be on a solid footing.
- The domestic focus this week is on the Q4 Retail Trade Survey, due out Friday.
Rural Loan Report: February 2018
15 Feb 2018
- Benchmark interest rates have mostly been steady over recent months, although 5-year rates have lifted a touch.
- Meanwhile, all rates remain low compared to their 10-year averages.
- From here, we expect more of the same: little change in short-term rates, but long-term rates may drift higher.
Quarterly Economic Forecasts: Keep on keeping on
14 Feb 2018
- New figures show NZ’s economy has performed stronger than previously thought; likely to continue doing so.
- NZ’s main theme for 2018 will be the settling in of the new Government and clarity of its key policies.
- Weather, confidence and housing are key local risks; geopolitics a continued threat to positive global backdrop.
Economic Weekly: Financial market volatility surges
12 Feb 2018
- Close attention will be paid to this week’s RBNZ Survey of Expectations.
- Elsewhere, financial market gyrations will continue to be front of mind.
- This week we take a closer look at what has caused the sudden fall in global equities.
Commodities Weekly: RBNZ on hold, but leaves door ajar to cuts
12 Feb 2018
- The RBNZ was on hold last week, but left the door ajar to rate cuts.
- As a result, the NZD fell against the USD following the RBNZ announcement.
- Meanwhile, dairy prices led the ASB Commodity Price Index higher in the week ending 9 February.
Financial Markets Comment: Financial market volatility picks up in February
09 Feb 2018
- US sharemarkets have been volatile over the course of the week, following the biggest one-day declines for US shares in more than 6 years during US trade on Monday.
- Similarly, the NZ sharemarket has weakened over February, and is back trading at levels that were all-time highs during the final quarter of 2017.
- The attached note comments on recent market developments, and ASB Economics thoughts on the outlook.
International Agri Insights: EU intervention stocks cast shadow over dairy prices
09 Feb 2018
After the removal of quotas, European dairy production has grown a modest 1%.
However despite modest growth, European skim milk powder intervention stocks have grown to be (very) large.
As a result, the large stocks are likely to hamstring global dairy prices over 2018.
Feb 2018 OCR and MPS Review: Recycling statements
08 Feb 2018
- OCR on hold at 1.75% in a statement of little change, including the policy assessment and OCR forecasts.
- The inflation outlook is lower over 2018, as we expected, and marginally lower over 2019. But medium-term inflation is tracking close to the mid-point of the target band from mid-2019.
- Our expectations are for a sustained period of subdued inflation – the risk is the OCR lifts later than our long-held view of February 2019.
Commodities Weekly: Rinse and repeat
07 Feb 2018
- We expect another strong year for beef prices over 2018.
- The main risk to beef prices is a stronger NZD/USD.
- Meanwhile, the ASB Commodity Price Index posted a 0.5% gain in USD terms in the week ending 2 February.
Q4 Labour Market Review: Contained wage backdrop despite tight labour market
07 Feb 2018
- Employment from the Household Labour Force survey (HLFS) rose in line with market expectations. Measures of labour utilisation were at historically-high levels, with the unemployment rate falling to 4.5% of the labour force, a new 9-year low.
- The Q4 figures depicted a contained wage backdrop, with few signs of widespread wage pressure. The tight labour market and pending increases in the minimum wage are expected to push up overall wages, but there are question marks as to how widespread the increases will be across the labour market.
- The tight labour market keeps the bias tilted towards a higher OCR, but the contained backdrop for wage inflation suggests no immediate need for the RBNZ to deviate from its on-hold stance. The RBNZ will be closely following developments in wage inflation for guidance on future OCR moves.
GloablDairyTrade Auction: Weather's wild ride
07 Feb 2018
- Dairy prices lifted overnight, supported by the recent stall in NZ dairy production.
- The price strength reaffirms our 2017/18 milk price forecast of $6.50/kg.
- However, on the back of recent rain we expect that some of the auction price strength will prove temporary.
Markets Monthly: Bond yields press higher and USD sinks in January
05 Feb 2018
- US long-term bond yields lifted over January, and the US 10-year yield is now at its highest level since 2014.
- Australian and New Zealand bond yields rose with the global move higher, which was driven from the US.
- The NZD continued to recover from its post-Election slide, and gained 4% against a softening USD.
Economic Weekly: RBNZ won't rock the boat
05 Feb 2018
- NZ economic developments will be front and centre this week.
- RBNZ OCR announcement on Thursday and Q4 employment figures on Wednesday.
- Offshore, the RBA and Bank of England also have policy announcements.
February 2018 OCR and MPS Preview: On message
02 Feb 2018
- The RBNZ is widely expected to leave the OCR on hold at 1.75%, depict a balanced assessment and continue to emphasise that interest rates are likely to remain low for a considerable period.
- With changes to the monetary policy framework pending and with Adrian Orr set to start as Governor in March, the RBNZ is expected to keep changes to a minimum.
- The published forecasts should depict a solid outlook for economic outlook. The low inflation starting point and higher than expected NZD could result in marginal downward tweaks in the published Official Cash Rate profile, but given pending changes in the monetary policy framework, financial markets should tread cautiously on drawing too much into any tweaks.
Q4 2017 Labour Market Preview: Still tight
02 Feb 2018
- We expect to see HLFS employment retrace some of its strong Q3 increase, with the Q4 unemployment rate expected to tick-up to 4.7% in Q4. The labour market is expected to remain tight, with elevated levels of labour utilisation.
- Quarterly labour costs are expected to climb just 0.4% qoq on the LCI measure, keeping private and public sector annual LCI inflation below the RBNZ inflation target midpoint.
- The tight labour market backdrop and pressures on capacity are likely to keep the bias tilted towards a higher OCR, but concerns over low inflation suggest a lower OCR should not be completely overlooked.
Farmshed Economics: 2018 - the year of the dog
01 Feb 2018
- Weather aside, 2018 has gotten underway with most rural sectors in good spirits.
- Beef and lamb prices have started 2018 where 2017 left off.
- Finally, the Kiwi dollar has made a flying start to 2018.
Commodities Weekly: 17/18 lamb season shaping up as one to remember
31 Jan 2018
- Lamb prices have remained very healthy so far in 2018.
- We expect lamb prices to remain over $6.00/kg for the remainder of the season.
- Meanwhile, the ASB Commodity Price Index lifted 0.6% in USD terms in the week ending 26 January.
Economic Weekly: US watch
30 Jan 2018
- Attention this week will largely be contained to the US.
- Locally, attention will be on how NZ’s net migration picture is changing.
- We also spend some time looking at what some of the wider influences are likely to be on the NZD over 2018.
Q4 CPI Review: Cheap imports keep inflation low
25 Jan 2018
- The Q4 CPI rose by just 0.1% in Q4, taking the annual rate of inflation down to 1.6%, lower than ourselves, the RBNZ and the market were expecting.
- The key surprise was on the tradable side of the equation. We suspect that the rebase of the CPI contributed to at least part of the downward inflation surprise but we will await further CPI readings for confirmation.
- With our forecasts for CPI inflation set to ease over 2018, this reinforces that the RBNZ will remain on the side-lines for some time yet.
Commodities Weekly: Kiwi dollar makes flying start in 2018 against USD
24 Jan 2018
- The NZ dollar has made a strong start to 2018 against the USD.
- We expect the NZD to remain firm over coming months and this may cap commodity price gains in NZD terms over the same period.
- Meanwhile, The ASB Commodity Price Index lifted in all denominations in the week ending 19 January.
Economic Weekly: Inflation for some, not all
22 Jan 2018
This week, Q4 CPI will be a key event in New Zealand.
Our forecast suggests that annual CPI will hit 2% in Q4, the midpoint of the RBNZ’s inflation target.
However, we continue to expect the RBNZ to hold off raising the OCR.
Q4 CPI Preview: Looking through the noise
19 Jan 2018
- We expect the CPI to lift by 0.5% qoq in Q4 (+2.0% yoy), slightly higher than the RBNZ’s forecast.
- Petrol, housing and tourism-related sectors are key drivers of inflation, with pressures remaining contained elsewhere.
- With few signs of core inflation lifting yet, we continue to expect the RBNZ to leave the OCR on hold until early 2019.
GlobalDairyTrade Auction: Mixed blessings
17 Jan 2018
- Dairy prices lifted overnight, supported by the impact of dry weather and production forecast downgrades.
- The price strength reaffirms our 2017/18 milk price forecast of $6.50/kg.
- However, with the weather since improving, we expect that some of this price strength will prove temporary.
Commodities Weekly: Wet, dry and wild
16 Jan 2018
- 2017/18’s wild weather is continuing to throw up surprises for NZ agriculture.
- As a result, we have cut our nationwide 2017/18 dairy production growth forecast to 1%, from 3% previously.
- Meanwhile, the ASB Commodity Price Index fell in NZD terms in the week ending 12 January.
Quarterly Survey of Business Opinion: Confidence falls on change of Government
16 Jan 2018
- NZIER QSBO business confidence fell in Q4, but the fall was less than that reported in the monthly ANZ survey.
- The NZIER survey points to a modest slowdown in growth, as the uncertainty associated with a change in Government weighs on near-term activity.
- The labour market continues to tighten, with capacity constraints particularly acute in the building sector.
Economic Weekly: Setting the scene
15 Jan 2018
- We are in the process of updating our forecasts.
- Historically, the number 8 has not been particularly kind to the NZ economy.
- Time will tell whether a similar fate beckons for 2018.
Home Loan Rate Report: Where to from here?
08 Jan 2018
- NZ interest rates largely unchanged from this time last year.
- However, we expect longer-term interest rates to move higher this year as US interest rates lift.
- Floating and short-term fixed rates may rise in late 2018 with expectations of an early 2019 RBNZ OCR hike.
Markets Monthly December 2017: Sharemarket rally continues during December
04 Jan 2018
US developments in December included an interest rate hike from the FOMC and the passage of tax legislation.
Sharemarkets were largely positive during the month, with US and NZ sharemarket indices setting fresh highs.
Long-term bond yields lifted over December, but remain down on year-ago levels both here and offshore.
The NZD lifted through the month, reversing a significant proportion of the post-Election slide.
Q3 GDP Review: Christmas miracle - revisions fill in growth's potholes
21 Dec 2017
- Historical revisions steal the show, with growth materially higher over the past three years.
- Q3 growth largely in line with market expectations, although a touch stronger than we expected.
- RBNZ has some time to consider the implications of today’s revisions, although we do expect the RBNZ will likely bring its view for OCR hikes closer to our own (early 2019).
Farmshed Economics: 2017: surprises and comebacks
21 Dec 2017
- 2017 was a year of surprises, consistency, comebacks and consolidation.
- Lamb prices surprised by surging over the year, while beef prices were consistently strong.
- Meanwhile butter made a stunning comeback over 2017, helping the dairy sector consolidate its position with another positive year.
Economic Note: Narrow and narrower
20 Dec 2017
- Q3 current account deficit narrows in line with our expectations.
- With a higher goods balance driving much of the narrower deficit.
- Also, NZ's net investment position as a % of GDP is at highest level since 2000.
GlobalDairyTrade Auction: Everything has its limit
20 Dec 2017
- Dairy prices ended 2017 on a weak note.
- With price resistance to record high butter (milk fat) prices a likely culprit.
- From here, we expect lower butter prices to start attracting consumers back, stabilising prices as a result.
Commodities Weekly: 2017 - Sharing the love
19 Dec 2017
- 2017 has been a solid all-round year for commodity prices.
- Beef prices have been the 2017 star, closely followed by forestry prices.
- Meanwhile, the ASB Commodity Price Index fell in NZD terms in the week ending 15 December.
Economic Weekly: Mid-year lull
18 Dec 2017
- Adrian Orr appointed as new RBNZ Governor, which is the logical choice (see our report here).
- Half-Year Fiscal Update depicts a strong fiscal position, but we are wary on whether this can be achieved (see our review here).
- GDP expected to confirm a Q3 lull. We expect this to prove short-lived, but will be closely watching forthcoming data for signs of confirmation.
International Agri Insights: US Farm Bill - Its bark is worse than its bite
18 Dec 2017
- The Trump administration is now turning its attention to US farm legislation.
- We anticipate only minor adjustments in commodity programs and some modification of nutrition programs.
- As a result, and unlike some previous versions, we expect the impact of the 2018 Farm Bill on NZ agriculture to be small.
Q3 GDP Preview: Another bump in a pothole-riddled road
15 Dec 2017
- We expect just 0.4% qoq GDP growth in Q3. Construction will be a bright spot for the quarter, but falls in dairy production and soft retail and housing-related activity will weigh.
- Revisions to the past few years are likely, as two years of annual benchmarking updates get included.
- Growth over the past year has been underwhelming, only matching the pace of population growth.
Economic Note: Pass mark
14 Dec 2017
- The Government's books remain healthy.
- With healthy surpluses and declining net debt forecast over the 5 years.
- However, we are wary about whether Treasury’s economic forecasts can be attained.
- As a result, we expect smaller operating surpluses and higher net debt over the forecast period.
Commodities Weekly: Fonterra removes cream from milk price forecast
12 Dec 2017
Last week, Fonterra trimmed its 2017/18 milk price forecast by 35 cents to $6.40/kg largely as expected.
For our part, we stick with our slightly more optimistic forecast of $6.50/kg.
Meanwhile, the ASB Commodity Price Index fell in all denominations for the week ending 8 December.
Economic Note: A new sheriff in town
12 Dec 2017
- Adrian Orr to be the next Governor of the Reserve Bank and will take up his role in March.
- Orr is the logical choice to the role given his widespread experience and skill set.
- The RBNZ requires strong leadership during a time of change. Orr will give them that.
Economic Weekly: A glass half full
11 Dec 2017
- A busy week ahead that could potentially shake markets out of their pre-holiday slumber.
- Half Year Fiscal Update is expected to reiterate a still-solid fiscal position, but tougher choices lie ahead.
- The US Federal Reserve is widely expected to hike, with the focus on the published forecasts.
Kiwi Dollar Barometer: A new dawn
11 Dec 2017
- Drop in NZD sentiment among businesses.
- Hedging intentions at highest level in history of the survey.
- NZD weakness expected to persist.
Economic Note: Half-Year Economic and Fiscal Update Preview
08 Dec 2017
- We expect the HYEFU to show healthy Government books.
- Although, the new Government is likely to sail closer to the fiscal wind.
- Meanwhile, we anticipate around $12bn of extra issuance under the bond tender programme
Rural Economic Note: Two cuts, a hint and an emerging dry
07 Dec 2017
- Fonterra has cut its 2017/18 milk forecast by 35 cents to $6.40/kg.
- Fonterra has also cut its 2017/18 production forecast to flat on 2016/17, from a 1% lift previously.
- Meanwhile, we stick with our slightly more optimistic forecast of $6.50/kg.
Commodities Weekly: From big wet to big dry
06 Dec 2017
NZ summer has started hot and dry.
And drought risk to NZ agricultural production is increasing.
Meanwhile, NZ commodity prices fell in all denominations last week.GlobalDairyTrade Auction: Trimming Fonterra's sails
06 Dec 2017
- Tomorrow, we expect Fonterra to revise down its 2017/18 milk price forecast from $6.75/kg.
- At this juncture, we expect a 2017/18 milk price of $6.50/kg, while the market consensus is around $6.30/kg.
- Meanwhile, dairy auction prices consolidated overnight.
Reserve Bank moves to ease LVRs
05 Dec 2017
- RBNZ kept the OCR on hold over the month as expected.
- But then surprised markets by announcing easier Loan-to-Value Ratio (LVR) restrictions from early 2018.
- Meanwhile, the NZD maintained its weaker post-election level.
RBNZ Governor Speech on low inflation: Flexibly Flexible
05 Dec 2017
The RBNZ discusses key uncertainties around drivers of inflation.
Risks to key assumptions are in offsetting directions.
The RBNZ is now putting a larger amount of weight on output and employment stability.
Economic Weekly: LVR restrictions to ease from start of 2018
04 Dec 2017
- RBNZ to start easing LVR restrictions sooner than expected, from the 1st of January 2018.
- Q3 Terms of Trade surpass 1973 record, in part reflecting NZ’s import-export mix.
- US Republicans get one step closer to tax reform after the Senate passes its version of the tax reform bill.
Q3 Terms of Trade: Records are meant to be broken
01 Dec 2017
- NZ records an all-time high Terms of Trade.
- Breaking the previous record that had stood since June 1973.
- From here, we expect the Terms of Trade to drift lower, but to remain at historically high levels
Farmshed Economics: Lamb's moment in the sun
01 Dec 2017
- Lamb prices are enjoying a moment in the sun.
- Meanwhile, we trimmed our 2017/18 milk price forecast by 25 cents to $6.50/kg.
- At the same time, the NZD remains weak and continues to lift all sector boats.
Regional Economic Scoreboard: September 2017 Quarter
30 Nov 2017
- Retail a big driver of regional economic activity.
- Post-Lions blues affect major centres.
- Bay of Plenty is the region to watch heading into 2018.
Commodities Weekly: Forestry prices set fresh record highs
30 Nov 2017
- The weaker NZD has lifted forestry prices to a fresh record high.
- However, we expect forestry prices to ease over 2018.
- Meanwhile, NZ commodity prices were mostly unchanged in USD terms last week.
Financial Stability Report Nov 2017: Easing restrictions
29 Nov 2017
- The RBNZ has started to ease the Loan-to-Value Ratio (LVR) restrictions, effective from 1st January.
- Further easing will depend on financial stability risks remaining contained.
- Dairy sector risks continue to recede; funding and commercial property risks noted.
Economic Weekly: RBNZ to outline its process to relax LVR lending restrictions
27 Nov 2017
- We revise our 2017/18 milk price forecasts lower in light of stronger NZ dairy production and weaker dairy prices.
- NZ retail data spending growth resilient in Q3, with tourism spending lower but NZ household spending decent.
- RBNZ’s FSR to bring housing market into the spot light with its loan-to-value lending restrictions under scrutiny.
GlobalDairyTrade Auction: Turning on a dime
22 Nov 2017
- We trim our 2017/18 milk price forecast by 25 cents to $6.50/kg.
- As the weak run of dairy auction results extends to a fourth auction.
- And as NZ production rebounds from wet weather sooner than expected.
Economic Weekly: Now the fight really begins
20 Nov 2017
- US House of Representatives pass USD1.5 trillion tax cut bill, but the higher hurdle will be getting tax reform past the Senate.
- NZ retail data are expected to show a flat quarter, with annual growth in retail volumes expected to slow over the remainder of the year. Net immigration and visitor arrivals are expected to remain strong, but look to have either peaked (net immigration), or will face capacity-related challenges to strengthen further (visitor arrivals).
- Prices are expected to track sideways at this week’s dairy auction. Our $6.75 milk price forecast for 2017/18 remains under review. The lower NZD and elevated commodity prices will help underpin producer incomes and the economic rebalancing, but spending restraint will be required to cap the current account deficit.
Commodities Weekly: Milk production rebounds following 'big wet'
20 Nov 2017
- NZ dairy production has rebounded over October.
- The improved production outlook is likely to cap any underlying improvement in dairy prices.
- Meanwhile, NZ commodity prices fell in USD terms last week
Quarterly Economic Forecasts: Opportunity and uncertainty
15 Nov 2017
- Election-related uncertainty to be short-term only.
- Rapid minimum wage increases to boost NZ wage growth.
- Housing market to remain cool with investors to stay cautious.
Commodities Weekly: Wool: past the bottom
15 Nov 2017
- The worst appears to be over for wool prices.
- Indeed, we expect prices to rise generally over the next six months or so.
- Meanwhile, NZ commodity prices dipped across the board last week.
Rural Loan Report: November 2017
14 Nov 2017
- Shorter-term benchmark interest rates have been steady over recent months, while longer-term rates have lifted a touch.
- All rates remain low compared to their 10-year averages.
- From here, we expect short-term rates to stay around current low levels, however longer-term interest rates are likely to drift higher.
Economic Weekly: RBNZ still in no hurry
13 Nov 2017
- The RBNZ left rates on hold and continue to view OCR hikes as a long way off.
- Despite the RBNZ including government policy changes that contribute to a slightly firmer OCR outlook than in August.
- This week attention is likely to remain on the perceived likelihood or not of US tax reforms.
Rural Economic Note: NZX WMP futures study
13 Nov 2017
- NZX's WMP futures market has continued to see growth in trading volumes.
- Trading volume in 2017 is due to double from 2015 levels.
- The WMP futures market is on course to becoming the benchmark derivative market for dairy in this region.
Housing Confidence Survey: Price expectations hit 6-year low
09 Nov 2017
- The soft housing market sees house price expectations sink to a 6-year low in the three months to October.
- While interest rate expectations ease after hitting a 3-year high earlier in 2017.
- On balance, respondents outside of Christchurch still think it’s a bad time to buy a house.
November OCR and MPS Review: Swings and roundabouts
09 Nov 2017
- OCR on hold at 1.75% as universally expected with the long-held neutral stance retained.
- Estimates of some key government policy changes have been factored into the forecasts.
- Despite adding in these changes, the RBNZ’s OCR forecasts changed only marginally.
GlobalDairyTrade Auction: Dairy prices fall more than expected
08 Nov 2017
- Dairy prices eased more than expected overnight, with the GDT index down 3.5%.
- Prices were down for four of the eight products on offer. Whole Milk Powder prices were down 5.5%.
- The weakness is at odds with weak NZ spring production, and poses a downside risk to our Fonterra Milk Price Forecast
Commodities Weekly: Let the good times roll
07 Nov 2017
- Beef prices have remained healthy over the year.
- And, we expect the beef sector’s good times to continue to roll on for the remainder of the 2017/18 season.
- Meanwhile, the ASB NZ Commodity Price Index was largely unchanged last week.
Economic Weekly: RBNZ - Call back in February
06 Nov 2017
The RBNZ are expected to hold the OCR at record lows this week and defer any decisions until further details arrive. The RBA is expected to hold the cash rate at 1.50% and it is in no hurry to raise interest rates.
No imminent changes to US monetary policy direction, with the nomination of Jerome Powell for next Fed chair. The proposed USD 1.5 trillion US tax package has a few hurdles to jump through.
Prices are expected to nudge higher at this week’s dairy auction. We are sticking with our $6.75 milk price forecast for 2017/18.
Markets Monthly for October 2017: Shares rise and NZD falls in the wake of the election
03 Nov 2017
- The main local focus during October was on the formation of the new Government.
- The NZD has weakened over October, and is down between 3% and 5% on the major currencies we monitor.
- Meanwhile, sharemarkets both here and abroad pressed higher, with the NZ market up 3%.
November OCR and MPS Preview: Call back in February
03 Nov 2017
- The RBNZ is widely expected to leave the OCR on hold at 1.75% and continue to emphasise that interest rates are likely to remain low for a prolonged period.
- Economic developments suggest little change in the policy outlook is required.
- It is too soon, and details too light, to incorporate policy changes from the incoming Government.
International Agri Insights: South American dairy: Is the threat real?
02 Nov 2017
- South American dairy production will likely grow over time.
- However, South American consumer demand is likely to absorb most of the production increase.
- As a result, South American dairy exports are unlikely to pose a serious threat to NZ dairy’s export fortunes.
Q3 2017 Labour Market Review: Labour market tight but only moderate wage increases
01 Nov 2017
- The Household Labour Force Survey (HLFS) confirmed a surge in Q3 employment, with the unemployment rate falling to a 9-year low. Measures of labour utilisation at historically-high levels, with both the employment (67.8% ) and labour force participation rate (71.1%) hitting record highs.
- Pay-equity settlements push up annual private sector Labour Cost Index (LCI) wage inflation to a 5-year high, but there were few signs of widespread wage pressures. Announced increases in the minimum wage are expected to herald the start of a period of rising wage inflation.
- A benign backdrop for core inflation and sub-trend short-term growth outlook suggest no immediate need for the RBNZ to deviate from its on-hold stance. However, like us, the RBNZ will be closely following developments in wage inflation for guidance on future OCR moves.
Farmshed Economics: Weak NZD lifting all boats
01 Nov 2017
- The materially weaker NZ dollar since the election is lifting all agri sector boats.
- Dairy production has stalled.
- Meanwhile, we expect lamb prices to remain elevated this season
Commodities Weekly: Dairy production stalls
31 Oct 2017
- Wet weather has officially stalled spring dairy production.
- The weak production numbers come at the start of the spring flush – the time of the season where production is highest.
- Meanwhile, the ASB New Zealand Commodity Price Index fell 0.6% in USD terms in the week ending 27 October
Gaining employment: RBNZ target change
31 Oct 2017
- The Labour-NZ First coalition agreement calls for “review and reform of the Reserve Bank Act”.
- The impacts on policy decision-making of an added employment goal will depend on how it is effected.
- In this note we provide some insights on how an employment goal might be included and the likely practical outcomes.
Economic Weekly: Labour market and monetary policy to share the spotlight
30 Oct 2017
- Employment is in the spotlight this week, with quarterly employment data released on Wednesday.
- The Labour-led Government is likely to add employment as a RBNZ target, throwing additional scrutiny on these figures.
- Policy changes are also a hot topic in the US, with Trump expected to announce a new Federal Reserve Chairperson this week
Q3 Labour Market Preview: Wages on the rise, OCR going nowhere for a while yet
27 Oct 2017
- We expect to see HLFS employment rebound from its Q2 dip, with the Q3 unemployment rate expected to ease to 4.7%, its lowest since 2008.
- Pay equity settlements are expected to push annual LCI wage inflation to 1.9%, a three-year high. The bias is for a modest strengthening in wage inflation despite slowing employment growth.
- Firming LCI wage inflation should dispel the notion of OCR cuts, whilst considerable uncertainties on the outlook and policy backdrop are expected to encourage continued inaction on OCR settings.
Lower NZD a silver lining amongst govt uncertainty
25 Oct 2017
- Markets have reacted to last week’s Labour-NZ First coalition agreement by pushing the NZD lower against all major currencies.
- The weak NZD is providing an election silver lining to NZ exporters and NZ commodity prices generally.
- Meanwhile, the ASB New Zealand Commodity Price Index fell in USD terms in the week ending 20 October.
Economic Weekly: There's a new kid in town
24 Oct 2017
NZ First has chosen to support Labour, resulting in a change of government for the first time in 9 years.
The Q3 CPI rose more than expected but, with underlying pressures remaining soft, the RBNZ has time on its side.
Immigration numbers appear to have peaked, ahead of any changes to immigration policy under the new government.
2017 NZ General Election: Winston has spoken - Let's do this
20 Oct 2017
- NZ now has had its own watershed moment.
- The next Government will be a Labour-NZ First coalition with support from the Green Party.
- Exact details on the key policy agreements are likely to emerge in the next week or so.
GlobalDairyTrade Auction: Red Herring
18 Oct 2017
- Dairy prices eased a touch overnight.
- With the fall coming despite materially weak NZ spring production.
- With that in mind, we downplay this auction result and maintain the view that prices rise by year end.
Q3 CPI Review: Still waiting on inflation pressures to broaden
17 Oct 2017
- The Q3 CPI rose by 0.5% qoq (+1.9% yoy), higher than ourselves, the market and the RBNZ expected.
- Inflation continues to be driven by non-tradable inflation, in particular, higher housing costs.
- Despite the lift in inflation in Q3, we continue to expect the RBNZ to leave the OCR on hold until 2019.
Winston Keeps Us Waiting
16 Oct 2017
This week’s CPI release is likely to be overshadowed by a coalition announcement.
Global growth revised up, IMF warns of asset price vulnerability on tighter financial conditions.
RBNZ finds further evidence of increased persistence in inflation.
Commodities Weekly: Smaller lamb crop to underpin lamb prices
16 Oct 2017
- This year's lamb crop is likely to be smaller than last year's.
- As a result, we expect lamb prices to remain healthy over 2017/18.
- Meanwhile, the ASB New Zealand Commodity Price Index rose in USD terms in the week ending 13 October.
Economic Note: Modest inflation print unlikely to concern RBNZ
13 Oct 2017
- We expect the CPI to lift by 0.4% qoq in Q3 (+1.8% yoy), a touch higher than the RBNZ’s forecast.
- Housing and food continue to be the key drivers of inflation, with pressures soft elsewhere.
- A low inflation backdrop will keep notions of OCR hikes on ice until early 2019, and possibly beyond that.
Commodities Weekly: NZ dollar trump card
10 Oct 2017
- The NZD/USD has hit a 5-month low this week.
- For now, this is good news for NZ commodity prices in NZD terms.
- Meanwhile, the ASB New Zealand Commodity Price Index fell in USD terms in the week ending 6 October.
Economic Weekly: All eyes on Winston and Thursday
09 Oct 2017
- The special votes saw Greens and Labour win a seat each at the expense of National, but the final coalition remains unclear.
- Market participants (and the rest of NZ) are eagerly awaiting Winston’s decision, which is expected on Thursday.
- ASB Economics has revamped its commodity index to highlight the growing importance of NZ’s fruit exports.
- The special votes saw Greens and Labour win a seat each at the expense of National, but the final coalition remains unclear.
Commodities Weekly: Ace of Rebase
06 Oct 2017
- Today we release a revamp of the ASB New Zealand Commodities Index.
- Notably we have added the growing presence of fruit exports to the Index.
- With this refresh and the weekly reporting basis, we believe that the updated Index provides New Zealand's most timely and relevant commodity price measure.
Home Loan Rate Report: Signs pointing to slightly higher interest rates ahead
04 Oct 2017
- NZ interest rates are down a touch from July, reflecting a period of tax reform uncertainty in the US.
- However, we expect this to be short-lived as US interest rates have begun to grind higher again.
- Locally, bank funding costs remain a constraining factor despite the RBNZ sitting on the sideline.
GlobalDairyTrade Auction: Prices ease off recent highs
04 Oct 2017
Dairy prices eased overnight, as very large volumes of product sold at the latest event.
Butter prices eased modestly off the record high set at the previous event.
We continue to see potential for a combination of recent wet NZ weather and surging global butter demand to support prices over coming months.
Markets Monthly for September 2017: Waiting for news
03 Oct 2017
- New Zealanders have voted, but uncertainty prevails late in the month and into October.
- US-North Korean tensions continue. Trump finally makes progress on tax reform, but fails again on health.
- Sharemarkets both here and abroad continue to post gains.
Economic Note: QSBO reveals building sector's constraints
03 Oct 2017
- General confidence fell, as expected, due to election uncertainty. Broader and more accurate measures of economic activity remained firm.
- Labour is now the key factor holding back the building sector's expansion. Meanwhile, there are some further indications that building sector demand may be peaking.
- The entire labour market continues to tighten, which points to stronger wage inflation over the coming year.
Economic Weekly: The waiting game continues
02 Oct 2017
- Whilst the NZD has coped relatively well thus far, the tight election race is likely to weigh on sentiment in this week’s QSBO.
- RBNZ on hold, with broadly neutral statement delivered.
- RBA cash rate decision and US Payrolls data highlight the overseas calendar.
Commodities Weekly: Forestry's banner 2017 year unlikely to repeat
29 Sep 2017
- 2017 has been a year out of the box for forestry.
- We expect forestry prices to ease over 2018, although prices are likely to remain high by historical standards.
- Meanwhile, NZ commodity prices rose last week in all denominations, led higher by rising dairy prices.
Farmshed Economics: What say you, Winston?
29 Sep 2017
- Fonterra made financial par over 2016/17.
- Meanwhile, the seasonal peak in lamb prices is nearing.
- And beef prices have been largely stable over September.
Economic Note: RBNZ Sep 2017 OCR Review
28 Sep 2017
- The RBNZ left the OCR on hold at 1.75%, as widely expected, with the same neutral stance.
- Statement suggests a more cautious growth outlook, though future fiscal stimulus could be greater.
- RBNZ still comfortable with its inflation view and balance of risks.
Economic Weekly: The waiting begins
25 Sep 2017
- NZ election result returns Winston Peters to powerful “king/queen maker” position.
- Coalition negotiations unlikely to start in earnest for two weeks, financial markets coping with uncertainty relatively well.
- NZ GDP growth moderate, reinforcing lack of urgency for rate hikes.
Economic Note: The Hunger Games
25 Sep 2017
The provisional election results mean it is possible for either National or Labour to form a governing coalition.
The NZ First party is the main power player.
Government formation will come down to which option will give NZ First the most influence.Economic Note: September OCR Preview
25 Sep 2017
The RBNZ is widely expected to leave the OCR on hold at 1.75%.
A short but balanced statement is expected, with only a few tweaks made to the August MPS message.
The benign inflation outlook provides the RBNZ with the luxury of waiting. We expect the OCR to remain on hold until early 2019 and for a gradual and shallow path of rate increases thereafter.Commodities Weekly: Rain, rain go away; come again another day
22 Sep 2017
- Wet weather is beginning to stall dairy production.
- If the weather doesn't improve soon, we will drop our production forecast and lift our milk price forecast.
- NZ commodity prices were largely unchanged last week in NZD terms.
Economic Note: Growth ok but room to improve
21 Sep 2017
Q2 GDP grew 0.8% in line with the market median expectation and just under the Reserve Bank of New Zealand's August forecast.
Q2 growth was supported by the Lions Tour and World Masters Games, while construction activity fell despite high demand.
We continue to expect the RBNZ to keep the OCR on hold at 1.75% until early 2019.
Economic Note: Steady as she goes
20 Sep 2017
- Q2 current account deficit narrows in line with our expectations.
- Also, NZ’s net liability position as a % of GDP falls to its lowest level since at least 2000.
- Meanwhile, the services balance sets a fresh record high.
GlobalDairyTrade Auction: Recipe brewing for higher dairy prices
20 Sep 2017
Overall dairy prices lifted a touch overnight.
Butter prices set a fresh record high - the eighth record high this year.
Meanwhile, we see potential for a combination of wet NZ weather and surging global butter demand to lift prices over coming months.
International Agri Insights: NAFTA - Every which way but loose
19 Sep 2017
NAFTA negotiations are underway, and anything is possible at this juncture.
Regardless of the outcome, NZ dairy is an interested party and potentially could stand to gain.
However, failed NAFTA negotiations could lead to a broader slowdown in global trade liberalisation.
Economic Weekly: Election 2017: anything's possible
18 Sep 2017
- The NZ election is on a knife edge.
- Moreover, with the result likely to be subject to coalition negotiations, the composition of government may not be known for some weeks.
- Meanwhile, we expect modest quarterly GDP growth over Q2.
Commodities Weekly: Wool’s long-overdue price rise
15 Sep 2017
- After a very weak run, coarse wool prices lifted over the past week.
- However, going forward, the outlook is for a modest recovery at best.
- NZ commodity prices fell in NZD terms last week on the back of a higher NZD
Economic Note: Q2 GDP Preview
15 Sep 2017
We expect Q2 GDP growth of just 0.6% qoq, which if correct, will mark the third consecutive outturn in which growth has been sub-trend and the third consecutive undershoot of the RBNZ forecasts.
Our Q2 pick is surprising given the Lions Tour boost and in light of robust levels of confidence, near-record highs for the Terms of Trade, low interest rates and strong population growth. However, capacity constraints and headwinds from the slowing housing market are proving to be influential.
A sluggish GDP growth backdrop and the potential for election-related volatility to impact forthcoming data readings suggest a prolonged period on the side lines for the OCR.
Economic Weekly: Safe-havens provide shelter from US hurricanes, North Korean tensions
11 Sep 2017
- Local data releases for Q2 fall short of expectations but sentiment gauges are expected to remain firm.
- US Hurricanes, and concerns over North Korea have dictated market direction, with the USD index approaching 3 year lows, gold prices hitting 12-month highs, global bond yields rallying and expectations for interest rate hikes by central banks being pared back.
- In a light week for data, the focus will be on the pending NZ general election, geopolitics, and global central banks.
Rural Loan Report: September 2017
11 Sep 2017
- Benchmark interest rates have fallen over recent months and remain low compared to average.
- From here, we expect short-term rates to stay around current low levels.
- However, longer-term interest rates may still drift higher.
Commodities Weekly: NZD relatively and helpfully low
08 Sep 2017
Commodity prices in NZD terms are nearing record highs.
The relatively low NZD explains a large chunk of the high Index level in NZD terms.
Meanwhile, NZ commodity prices rose in USD terms last week on the back of firmer dairy prices.
GlobalDairyTrade Auction: It's raining...again
06 Sep 2017
Overall dairy prices were largely unchanged overnight.
While whole milk powder (WMP) prices dipped unexpectedly, butter prices have neared a fresh record high.
Meanwhile, we see potential for a combination of wet NZ weather and surging global butter demand to lift prices over coming months.
Markets Monthly for August 2017: Politics, uncertainty and investments
05 Sep 2017
US-North Korean tensions returned to rattle confidence in August.
And here the General Election is a major focus, and it’s turning into a much tighter race than expected.
Despite the uncertainty, sharemarkets both here and abroad continue to be buoyant.
Kiwi Dollar Barometer: Turning of the tide
05 Sep 2017
Businesses sharply revise their outlook for the NZD/USD to 0.75c.
Looming election sees more businesses planning to hedge.
About 40% of businesses have already passed on the high NZD/AUD in their prices.
Economic Weekly: Falling short
04 Sep 2017
Key NZ and US data releases fell short of expectations last week.
North Korea is keeping financial markets on their toes with further nuclear testing.
This week attention will be on NZ GDP indicator data and central bank meetings in Australia, Canada and Europe.
Economic Note: Q2 Terms of Trade
01 Sep 2017
The Q2 Terms of Trade lifted to within a whisker of the all-time high.
Data revisions meant that the expected record high didn’t eventuate.
Nonetheless, we expect the Terms of Trade to set a record high later this year.
Commodities Weekly: Lucky Seven
31 Aug 2017
Lamb prices have cracked the $7.00/kg mark.
Meanwhile, NZ commodity prices fell last week as dairy prices cooled.
The NZD has been weak over the past couple of weeks.
Farmshed Economics: Farewelling a legend
30 Aug 2017
Butter prices took a breather over August, but the slowdown may be temporary.
Meanwhile, lamb prices have cracked the $7.00/kg mark.
Lastly, farm expenses remain in check, however, feed-related costs are set to rise.
Regional Scoreboard: June 2017 quarter
29 Aug 2017
Nelson makes it 3 quarters in a row atop the ASB/Main Report Regional Economic Scoreboard.
Neighbour, Tasman, has claimed 2nd place, climbing three spots.
Meanwhile, Otago was this quarter’s biggest mover, shooting up eight places to 4th.Economic Weekly: Records and legends
28 Aug 2017
The PREFU doesn’t open up quite as many policy possibilities as expected, but surpluses are still forecast.
Central bankers avoid policy discussions at Jackson Hole; markets anticipate central banks will tighten monetary policy soon.
NZ business confidence and Terms of Trade data due this week, but market attention will be on US releases.
Commodities Weekly: Picking up the slack
25 Aug 2017
In the wake of the Brexit vote, lamb export volumes to the UK as well as the EU have fallen.
Other markets, however, have picked up the export volume slack and prices have held up.
Meanwhile, NZ commodity prices rose last week on the back of a surge in butter prices.
Housing Confidence Survey: Housing slowdown reflected in price expectations
25 Aug 2017
Slower housing market activity and house price growth have weighed on expectations for higher house prices.
Interest rate expectations steadied, in line with the interest rate outlook.
Respondents still think it’s a bad time to buy a house, but less so than in the previous quarter.
Pre-election Economic and Fiscal Update 2017: Green light
23 Aug 2017
The Government’s books remain very healthy.
And, on balance, little changed from the Budget.
Heading into the election, there remains scope to cut taxes and or increase spending.
Economic Weekly: The 2017 election race is heating up
21 Aug 2017
Two weeks is a long time in politics, with two leadership changes marking a tight race.
This week’s PREFU will give parties a realistic base for assessing the financial viability of their policies.
Donald Trump continues to cause waves offshore.
Commodities Weekly: Farm input inflation low, but on the rise
18 Aug 2017
Latest farm expense data show farm input inflation remains low.
But while wages and salaries and repairs and maintenance continue to be relatively subdued, feed-related costs appear to be on the up.
Meanwhile, commodity prices slipped in USD terms last week.
GlobalDairyTrade Auction: Lack of direction may be deceiving
16 Aug 2017
Overall dairy prices were effectively unchanged overnight.
This result continues the recent holding pattern for WMP and overall prices.
However, we suspect milk fat prices may yet get a second wind and drag overall prices higher.
Q2 Retail Trade Survey: Retail sector the "real winner" after drawn Lions series
14 Aug 2017
The retail sector had a bumper June quarter.
With the Lions Tour and World Masters Games leading much of the surge.
Meanwhile, spending growth is continuing at a moderate pace in annual terms
Economic Weekly: Graeme Wheeler's final swing at the plate
14 Aug 2017
RBNZ leaves OCR outlook unchanged in August MPS vs our expectations of a flatter OCR track relative to May.
RBNZ’s frustration with the high NZD evident, encouraging further decline in the NZD (for now).
We expect the RBNZ to lift in early 2019, as stronger dairy prices and fiscal stimulus boosts NZ domestic demand.
Commodities Weekly: RBNZ unmoved, but NZD heads lower
11 Aug 2017
The Reserve Bank kept the Official Cash Rate at 1.75% as widely expected.
Following the announcement, the NZD dipped against most major currencies.
Meanwhile, commodity prices lost ground in USD terms last week.
International Agri Insights: India - the next frontier
11 Aug 2017
After China, India is the next frontier for agricultural trade.
While opening its markets will take many years, India is starting to discuss liberalising trade.
Indeed with its population growing and getting richer, food exporters such as NZ and the US stand ready to gain.
RBNZ August OCR Review: Living on a non-tradable prayer
10 Aug 2017
OCR on hold at 1.75% as expected, maintaining the neutral bias of recent statements.
RBNZ’s OCR outlook was identical to May’s, not as ‘dovish’ as expected.
We continue to expect a higher OCR from early 2019.
Quarterly Economic Forecasts: Big wheels keep on turning
09 Aug 2017
Economic fundamentals are the big wheels keeping the global economy turning.
In NZ growth has much ado about the people, with exports also faring well.
The housing market has cooled off, with a soft landing underway in Auckland.
Economic Weekly: Economy's strength in question ahead of RBNZ announcement
07 Aug 2017
Employment unexpectedly fell in the June quarter, adding to a weaker run of economic data.
The RBNZ is widely expected to leave the OCR unchanged but push out the timing of rate hikes.
We now expect the RBNZ to first lift the OCR in early 2019 (previously late 2018).
August OCR and MPS Preview: Take it easy
04 Aug 2017
The balance of recent events points to the RBNZ sounding more cautious – including deferring its forecast OCR hikes.
Inflation pressures are slow in appearing, and the higher NZD is another inflation headwind.
This week we shifted our OCR view to expecting the first hike to happen in early 2019, previously late 2018.
Commodities Weekly: Spanner in the beef works
04 Aug 2017
Japan has moved to increase tariffs on beef imports.
This will hurt overall beef export prices as, of our major beef markets, Japan is the highest paying.
Meanwhile, commodity prices lifted a touch in USD terms last week.
Farmshed Economics: Bringing back an old favourite
03 Aug 2017
Surging butter demand is good news for the NZ dairy sector.
Meanwhile, the picture is similarly rosy for lamb prices.
However, there is a spanner in the works for beef prices.
GlobalDairyTrade Auction: Pit stop
03 Aug 2017
Overall dairy prices dipped at the auction overnight.
In particular, butter prices took a breather following their recent record-setting run.
However, we anticipate that butter prices may surge again over coming months.
Markets Monthly: O Inflation, Inflation! Wherefore art thou Inflation?
02 Aug 2017
Inflation has fallen both here and abroad. Low energy prices are only part of the story: inflation seems like it’s not behaving like we used to expect. This is impacting central banks - and investment markets.
Most central banks remained on the interest rate side lines in July, with an exception being the Bank of Canada, which hiked for the first time in seven years. The Bank of England could be next to lift rates.
Meanwhile sharemarkets pressed higher, with the NZ market and others offshore reaching fresh highs in July.
Q2 Labour Market Review: Wage pressures not building, RBNZ on hold for longer
02 Aug 2017
Q2 employment growth was much weaker than expected.
Unemployment and wages as expected, with no wage acceleration apparent.
We now expect the RBNZ will first lift the OCR in February 2019
Economic Weekly: Why wage growth appears low
31 Jul 2017
Nominal wage growth has been low, though real wage growth has been healthy.
We expect reasonable employment growth, and steady wage growth and unemployment in Wednesday’s labour data.
RBNZ subtly tinkers with its view of the neutral Official Cash Rate.
Commodities Weekly: Fonterra ups the milk price ante
28 Jul 2017
Fonterra increased its 2017/18 milk price forecast to $6.75/kg of milk solids, in line with our long-held forecast.
The fact that Fonterra has lifted its forecast so early in the season suggests some further upside to this new milk price forecast.
Meanwhile, commodity prices continued to head up in USD terms.
Q2 Employment Preview: Unemployment rate to dip lower
28 Jul 2017
We expect the unemployment rate to tick down to 4.8% in Q2 2017 and employment to lift by 0.7% qoq.
In contrast, labour costs are likely to increase a soft 1.6% yoy, essentially flat in real terms.
However, we see wage pressures just around the corner as the labour market continues to strengthen.
International Agri Insights: US-China take two steps forward, Trump takes one step back
25 Jul 2017
Recent US-China trade agreements have the potential to significantly lift beef and dairy exports to China.
However despite the positive trade outcomes, President Trump is again criticizing Chinese foreign policy.
For NZ, this is likely to mean more competition from US dairy producers in the Chinese market, but the impact on beef exports may be blunted to a degree.
Economic Weekly: Inflation pressures largely contained to housing sector
24 Jul 2017
Inflation was flat over Q2, weaker than market participants had expected. Annual inflation dipped back to 1.7% yoy.
Domestically-generated inflation was largely absent, save price pressures in the housing sector (notably in Auckland).
As a result, the Government’s Auckland infrastructure announcement is a step in the right direction.
Commodities Weekly: Feed me
21 Jul 2017
Feed prices continue to march higher.
And look set to rise further.
Meanwhile last week, a lift in the NZD dragged down otherwise stronger commodity prices.
GlobalDairyTrade Auction: Butter butters better
19 Jul 2017
Overall dairy prices were largely unchanged overnight.
While WMP prices rose a touch, this was marginally less than expected.
Notably, butter prices set a fresh record high, surpassing US$6,000/MT for the first time.
Q2 CPI Review: All is quiet outside of construction, rents
18 Jul 2017
The Q2 CPI was flat over the quarter and rose 1.7% yoy, weaker than ourselves and the market were forecasting.
The outcome was also substantially weaker than the RBNZ's forecast.
We still expect the first OCR increase in late 2018, earlier than the RBNZ’s current view. But there is no rush.
Economic Weekly: Inflation spike begins to unwind
17 Jul 2017
June quarter CPI inflation is the key focus this week, we expect annual inflation to moderate to 1.9% from 2.2%.
Food and fuel price volatility are behind the current spike in CPI inflation, which will unwind over the next 12 months.
This week’s European Central Bank announcement is the key focus for global markets this week.
Commodities Weekly: Mid-year stocktake
13 Jul 2017
NZ commodity prices have fared reasonably well over the first half of 2017.
Moreover, the NZD has been largely supportive of commodity prices.
Meanwhile, NZ commodity prices rose 0.4% in NZD terms last week.
Q2 CPI Preview: Lettuce up, petrol down
13 Jul 2017
After spiking in Q1, we expect the CPI to rise a soft 0.1% over Q2.
As many of the temporary factors that pushed the CPI higher in Q1 reversed again in Q2.
We expect the RBNZ will remain comfortable leaving the OCR on hold until late 2018.
Economic Weekly: Auckland house prices shifting down a gear
10 Jul 2017
There was a lot of attention on Auckland house prices last week, notably the distinct change in the price trend.
Two data releases showed that Auckland house prices have essentially remained flat since December 2017.
Auckland house prices are coming in for a soft landing as buyer and seller behaviour adjusts.
Commodities Weekly: A season of many twists and turns
07 Jul 2017
2016/17 dairy production has ended down 0.6% on the 2015/16 season.
Moreover, the 2016/17 season has been unique for its twists and turns.
Meanwhile, NZ commodity prices fell in all denominations last week.
GlobalDairyTrade Auction: Holding Pattern
05 Jul 2017
Overall dairy prices dipped a touch overnight.
Although WMP prices rose, beating expectations.
All up, we expect prices to remain in a holding pattern until at least until the spring.
Markets Monthly for June 2017: Sharemarket highs, oil lows, and central bankers talking up rates
04 Jul 2017
Sharemarkets posted modest gains in June, with US and NZ indices setting all-time highs during the month.
The Fed hikes as expected, but long-term US rates remain low.
The start of a FOMC bond sell-down is in sight, though.
Economic Note: NZIER Quarterly Survey of Business Opinion
04 Jul 2017
Business confidence steady on Q1 levels while firms’ views of their own activity softened slightly.
This survey doesn’t directly capture the agriculture sector, which we expect to strengthen over the coming year.
Inflation indicators overall eased slightly: OCR increases still some distance off.
Farmshed Economics: Lions Tour Special
04 Jul 2017
In addition to our standard fare, this month we bring you a Lions Tour Special. We’ve linked each section to some of our favourite All Blacks. Our regular readers will notice that we’ve also included a Lions Tour Fact or Fiction, which actually calls on some of the author’s family trivia. Also, Farmshed Economics wouldn’t be complete without a prediction. We expect 27-20 victory for the ABs.
Economic Weekly: Agriculture sector is firing on (almost) all cylinders
03 Jul 2017
The agriculture sector is firing on (almost) all cylinders.
We expect the sector to contribute to a lift in broader economic growth this year and into next.
Meanwhile, history suggests the All Blacks will win this Saturday and take out the Lions series.
Home Loan Rate Report: Still waiting for US tax reforms
03 Jul 2017
Markets are in limbo waiting for Trump’s pro-growth tax policy reform.
In the meantime, the US Federal Reserve has raised interest rates twice in 2017.
Further, bank funding remains squeezed, keeping pressure on interest rates despite the OCR remaining on hold.
Commodities Weekly: Beef and lamb bonus
30 Jun 2017
Beef and lamb prices are very healthy.
And look set to remain so over the remainder of 2017 and into 2018.
Meanwhile, NZ commodity prices lifted across the board last week.
Economic Weekly: RBNZ's matter of fact comments hit the mark
26 Jun 2017
The RBNZ didn’t react to the higher NZD or weaker Q1 GDP result as some market participants had expected.
As NZD developments were largely due to improved economic fundamentals and the GDP outlook remains positive.
But international political developments, including Italy’s upcoming election, continue to cast a shadow over the outlook.
Commodities Weekly: RBNZ still in neutral, but NZD steps up a gear
23 Jun 2017
The RBNZ kept the OCR at 1.75% as widely expected.
But, the NZD lifted around 40 basis points against the USD following the announcement.
Meanwhile, NZ commodity prices were largely unchanged in USD terms last week.
RBNZ June 2017 OCR Review: RBNZ on hold and comfortable with the outlook
22 Jun 2017
The RBNZ left the OCR on hold at 1.75% as widely expected.
The RBNZ remains upbeat on growth outlook, despite the weaker Q1 GDP outcome.
Market reaction suggests some expected stronger language on the NZD.
GlobalDairyTrade Auction: A little bit of this and a little bit of that
21 Jun 2017
Overall dairy prices dipped a touch overnight.
With WMP prices weaker than expected.
Meanwhile, milk fat prices continue their charge, setting fresh record highs.
Economic Weekly: Weak NZ growth to keep RBNZ comfortably on hold
19 Jun 2017
NZ GDP growth sub-trend for two consecutive quarters and weaker than the RBNZ expected.
RBNZ to retain a neutral bias at this week’s OCR review, but tweak NZD language due to the higher TWI.
Federal Reserve hikes rates but weak wage growth is coming under closer scrutiny.
Commodities Weekly: UK shoots itself in the foot - Part II
16 Jun 2017
The UK has shot itself in the foot again.
We are likely to see another weak patch for UK lamb and wine demand.
Meanwhile, NZ commodity prices rose across the board last week.
June OCR Preview: Still firmly on hold
16 Jun 2017
We expect the RBNZ to leave the OCR unchanged at 1.75% and maintain a neutral tone in the statement.
On net, developments since May have been largely neutral for the inflation outlook.
However, the RBNZ may tweak its NZD language given that the Trade Weighted Index has lifted again.
Kiwi Dollar Barometer: Using external support to add value to FX activities
15 Jun 2017
Businesses use external assistance to varying degrees for FX hedging ideas, and writing and monitoring treasury policy.
The larger the business the more likely it is to use external support and engage specialists.
The NZD/USD is expected by businesses trading internationally to be around $0.65 in twelve months.
Q1 GDP Review: Sub-trend growth reinforces RBNZ lack of urgency to hike rates
15 Jun 2017
Q1 GDP grew 0.5%, weaker than market and RBNZ expectations, but in line with ASB’s forecasts.Two quarters of sub-trend growth is a concern but we remain upbeat about the medium-term growth outlook.GDP reinforces there is no hurry to lift the OCR: no hikes expected until late 2018.Q1 Balance of Payments: Current account pothole
14 Jun 2017
Q1 current account deficit widens by more than expected.
However, we expect this was largely due to temporary factors.
Indeed, we expect the current account deficit to narrow steadily over 2017.
Economic Weekly: Oops, the UK did it again
12 Jun 2017
A year after Brexit the UK springs yet another June surprise with its voting, resulting in a hung parliament.
NZ Q1 GDP is likely to print softer than the underlying momentum we believe is still there.
Comey and Trump aside, the main overseas event is the widely-anticipated US Federal Reserve rate hike.
Commodities Weekly: Lamb demand joins the party
09 Jun 2017
After notching up the $6.00/kg mark earlier last month, lamb prices have lifted further.
As demand comes to the party.
Meanwhile, NZ commodity prices climbed 0.6% in USD terms last week.
Q1 GDP Preview: Growth to be sub-trend again in Q1
09 Jun 2017
We expect Q1 GDP growth of 0.5% qoq, which follows Q4’s muted 0.4% growth.
Sub-trend growth is surprising given robust levels of confidence, low interest rates and strong population growth.
RBNZ in no hurry to hike rates, weaker growth would suggest case for lower interest rates for longer.
RBNZ February Monetary Policy Statement Preview: Hiking amidst the murkiness
09 Jun 2017
- We expect the RBNZ to hike by 50bp, with the urgency expressed late last year having eased
- The economy has been surprisingly resilient, but there are tentative signs that inflation pressures are turning
- We continue to expect the OCR to rise further, though the RBNZ is reaching the point of fine-tuning its actions
International Agri Insights: Trump cools his jets
09 Jun 2017
Trump moderates initial US protectionist trade positions.
However, an uneasy peace has emerged regarding the North American Free Trade Agreement.
Indeed, the recent US-Canada dairy and lumber trade spat highlighted that tensions remain.
Markets Monthly: Political ebbs and flows
07 Jun 2017
The French election supported market sentiment in May, as Macron took out the victory as expected.
US political scandals rocked markets during the month, but the impact on financial markets wasn’t long lasting.
The RBNZ left the OCR on hold, continuing to signal that the OCR would remain on hold until 2019.
GlobalDairyTrade Auction: Butter up
07 Jun 2017
Dairy prices lifted a touch overnight.
Although, whole milk powder prices fell as expected.
Meanwhile, butter prices set a fresh auction record high.
Economic Weekly: Financial Stability Report still eyeing up some distant dark clouds
06 Jun 2017
The RBNZ’s Financial Stability Report sees a reduction in risks to the NZ financial system.
But the RBNZ is still wary of housing and dairy risks, and progressing with creating a housing debt-to-income restriction.
In a busy week data-wise, the standout event is the UK election on Thursday.
Home Economics: Breaking infrastructure barriers
06 Jun 2017
Infrastructure provision is one of the biggest challenges councils face across the country.
But, current infrastructure funding models have contributed to under-investment in housing-related infrastructure.
As a result, Councils need to be open to a broader range of funding methods.
Farmshed Economics: Singing in the rain
02 Jun 2017
Dairy has its mojo back.
The sheep meat sector has a skip back in its step.
Beef prices are very healthy and remain on track to surpass $6.00/kg in the early spring.
Commodities Weekly: Beef markets abuzz on potential Indian slaughter ban
02 Jun 2017
World’s 2nd-largest beef exporter, India, may ban cattle slaughter
Other beef exporters, like NZ, stand to gain.
This development reinforces our expectation that NZ beef prices hit record highs in 2017.
Q1 Terms of Trade: Records are meant to be broken
01 Jun 2017
The Terms of Trade have hit their highest level since June 1973.
With the 5.1% jump over the quarter beating expectations.
We expect the Terms of Trade to set a record high sometime this year.
Financial Stability Review May 2017: Risks down but still up
31 May 2017
Financial system sound, with continued watch on housing and dairy.
Consultation on a Debt-to-Income macro-prudential measure forthcoming.
No fresh implications for the OCR or the housing market.
Economic Weekly: Financial Stability Review not expected to bring the fireworks
29 May 2017
The RBNZ’s Financial Stability Review is not expected to bring any new housing measures.
We expect the RBNZ to reiterate its desire for Debt-To-Income measures to be added to its tool kit.
The Government Budget did not spring any major surprises.
Regional Economic Scoreboard: Nelson still atop
29 May 2017
Nelson continues its reign atop ASB/Main Report Regional Economic Scoreboard.
Northland claimed 2nd place, jumping seven spots.
Meanwhile, Manawatu-Whanganui was this quarter’s biggest mover, shooting up nine places to 4th.
Commodities Weekly: Fonterra bullish on season ahead
26 May 2017
Fonterra announced a bullish first cut at next season’s milk price of $6.50/kg milk solids
Beyond the opening forecast, we expect the milk price to end the season at $6.75/kg.
Meanwhile, NZ commodity prices rose across the board last week.
Budget 2017 Review: A Family Focus
25 May 2017
As expected, Budget 2017 shows the Government’s books are very healthy.
Also as expected, the Government has chosen to lift the income tax thresholds.
However, there remains a streak of conservatism, particularly in the focus on long-term debt reduction.
Rural Economic Note: Fonterra 2017/18 opening milk price forecast
24 May 2017
Fonterra has set its opening 2017/18 milk price forecast at $6.50/kg, close to our own $6.75/kg.
At this level, a clear majority of farmers are on track for a season in the black.
Meanwhile, Fonterra’s 2016/17 milk price forecast has also lifted 15 cents to $6.15/kg.
Economic Weekly: Budget week
22 May 2017
Focus will be on Fonterra’s opening season forecast and the Government’s 2017 Budget.
We expect Fonterra to start the season with a cautious milk price forecast of around $6/kg of milk solids.
The Government Budget is expected to remain in surplus over the forecast period, but may include tax tweaks.
Rural Economic Note: Dairy's getting its mojo back
22 May 2017
We expect Fonterra to open the 2017/18 season next week with a milk price forecast of $6.00/kg or above.
By season-end, however, we expect the milk price to lift to $6.75/kg.
We also expect Fonterra to lift its 2016/17 forecast to $6.20/kg from $6.00/kg.
Economic Note: All Black
19 May 2017
With the economy firing, we expect the Budget to show a very healthy set of Government books.
Indeed with the election looming, there is room for tax cuts or increases in spending.
Also despite a new Finance Minister, the Budget is likely to retain Bill English’s conservative touch.
Commodities Weekly: Farm input cost inflation is climbing off lows
19 May 2017
Farm input cost inflation is climbing off lows.
As demand picks up from the dairy and meat sectors.
Meanwhile, NZ commodity prices dipped a touch in USD terms last week.
Prices lift at final auction of 16/17, eyes turn to the outlook for 17/18
17 May 2017
Dairy prices lifted at the latest GlobalDairyTrade Event overnight, with AMF and butter lifting the most.
The Whole Milk Powder lift contrasts with futures pricing, and provides a chance of a lift for this season’s $6 milk price.
Fonterra’s opening milk price forecast for the 2017/18 season is made next week, bringing a focus on the year ahead.
RBNZ emphasises OCR hikes a long way off
15 May 2017
RBNZ kept the OCR unchanged, but surprised slightly with its view that recent events have a neutral impact on the outlook.
We continue to expect the OCR to lift in late 2018, which is still a ‘considerable’ time away.
The RBNZ shows an interesting illustration of the nature of uncertainties influencing the US at present.
Price expectations continue to cool
15 May 2017
Slower housing market activity and house price growth have weighed on expectations for higher house prices.
Interest rate expectations continue to climb higher.
Respondents still think it’s a bad time to buy a house, with pessimism growing in all regions but Auckland.
Q1 Retail Trade Survey: Retail sales move on up in March quarter
15 May 2017
Spending growth was quicker than the market consensus.
Inflation pressures in retail spending show some tentative signs of life.
We continue to expect the RBNZ to hold the OCR steady at 1.75% until late 2018.
RBNZ happily on hold; NZD drops
12 May 2017
The Reserve Bank surprised financial markets in its Official Cash Rate announcement.
The surprise led to a one cent fall in the NZD against the USD.
Meanwhile, NZ commodity prices rose in USD terms last week.
Economic Note: RBNZ May 2017 OCR and MPS
11 May 2017
The OCR remained on hold at 1.75% as widely expected. What surprised, though, was that recent events have had a neutral impact on the RBNZ’s OCR outlook. To underscore that message, the RBNZ explicitly said the impact of recent events was “neutral”. In addition, the RBNZ’s published forecast of the OCR was the same as that published in February, showing a late 2019 start to the tightening cycle. We had expected the RBNZ would bring forward the implied tightening cycle at least 6 months into the first half of 2019. The RBNZ’s key message remains that there is absolutely no hurry, particularly compared to market pricing, to lift the OCR.
We still expect, though, that the RBNZ will eventually start lifting the OCR at the end of 2018. We expect inflation pressures will firm earlier than the RBNZ expects, and that inflation’s temporary dip in 2018 won’t be as far as the RBNZ currently forecasts. But the end of 2018 is still a “considerable” time away, and later than market pricing. The RBNZ’s unchanged stance should help anchor NZ short-term interest rates at a low level, though term rates will still be heavily influenced by global ebbs and flows.
Lessons from the dairy downturn - Part II
11 May 2017
In contrast to the widely-held belief, NZ can do something about farmgate milk price volatility.
Indeed, how the NZ dairy sector adapts to price shocks is largely within its control.
With that in mind, we believe a shorter duration milk price system can make NZ supply more adaptive to market shocks, and in turn reduce price volatility.
Economic Weekly: 2 elections down, 3 to go
08 May 2017
The French election resulted in defeat for the Euro-sceptic Le Pen, mirroring the Dutch result from March.
Next up is the UK, on June 8, which is likely to result in a greater majority for PM May’s Conservative Party.
Further out, the NZ and German elections both carry a degree of uncertainty.
Quarterly Economic Forecasts: May 2017 Tempest in a teacup
08 May 2017
Despite the potential for stormy conditions offshore, the global outlook is in reasonable shape.
We expect NZ growth to hit 3.5% next year, though tourism and construction won’t sustain their recent growth pace.
The RBNZ will remain firmly on hold until late next year, even though headline inflation has hit 2% again.
May OCR Preview 2017: On hold again but the outlook could see some action
05 May 2017
We expect the RBNZ to hold the OCR at 1.75% at the May Monetary Policy Statement.
The RBNZ’s inflation estimate is likely to lift again, with greater comfort over the outlook.
The OCR track will be widely watched for a likely bringing forward of OCR hikes.
Updated NZD forecasts
04 May 2017
Beef, lamb and dairy prices are all on a reasonable footing.
But there is a risk that recent gains could get slightly eroded given our revised NZD forecasts.
Meanwhile, NZ commodity prices fell in USD terms last week.
Q1 Labour Market Review: Employment continues to rise but wage growth muted
03 May 2017
Unemployment rate moves back down to 4.9%, despite the 0.1%pt increase in the participation rate to 70.6%.
Employment grew 1.2% qoq, much stronger than expected.
Wage inflation remains muted.
Farmshed Economics: Six dollar trifecta
03 May 2017
Beef, lamb and dairy prices all look healthy.
It isn’t often that all three sector are healthy at the same time.
But there is a risk that a stronger NZD could erode price gains.
Overcooked
03 May 2017
Dairy prices lifted by more than expected overnight.
As dairy markets react further to the potential for recent wet weather to disrupt NZ supply.
However, we think this price lift has been overdone, and prices may give back some of these recent gains
Markets Monthly for April 2017
02 May 2017
Once again, global political issues dominated the news in April, with President Trump holding centre stage.
US shares lifted over the month, with share prices supported by positive company earnings results.
Bond yields dipped both here and abroad, with geopolitical concerns driving sentiment
Economic Weekly: NZ economy briefly back in spotlight during busy week
01 May 2017
NZ Q1 employment data likely to show strong labour market in the face of record migration.
US economic data likely to confirm solid growth, with a hawkish Fed preparing for another hike in June.
French election second-round voting this weekend, polls show centrist Macron in the lead.
Commodities Weekly: Forestry on a roll
28 Apr 2017
Forestry prices remain on a roll.
With prices in NZD terms, still near record highs.
Meanwhile, NZ commodity prices lifted in all denominations last week.
Economic Note: Tourism's rise to the top
28 Apr 2017
New Zealand has been enjoying a tourism boom, with several years of sharp growth in international visitors. Not only has this made tourism a key industry for New Zealand, but it has now surpassed dairy as the nation’s chief export earner.
For the year ending December 2016, total exports of dairy and related products were $12.05bn, accounting for 17.2% of all exports. Over the same period, tourism (including air travel) was worth $12.17bn, or 17.4% of exports. These compare to 18.2% and 16.9% (respectively) for 2015, showing the increasing importance of tourism to the NZ economy. After these two industries, the next largest export is meat, all the way back on 8.4% of total exports, leaving tourism and dairy well out in front.
Employment Preview Q1 2017: Jobless rate to trend lower
27 Apr 2017
We expect the unemployment rate to tick down to 5.0% in Q1 2017.
Wage inflation pressures are relatively static and are expected to only tick up to 1.7% yoy on a labour cost basis.
Wage inflation is expected to gradually pick up in the coming quarters as the labour market tightens.
Economic Weekly: RBNZ sitting pretty
24 Apr 2017
Inflation is back above the mid-point of the RBNZ’s target.
Indeed, the RBNZ will be doubly pleased with the headline print and lifting inflation expectations.
From here, we expect the RBNZ to remain on hold, before commencing an OCR tightening cycle in late 2018.
Commodities Weekly: Triple Six
21 Apr 2017
Magical $6/kg price mark on the cards across beef, lamb and dairy.
Dairy prices are already there.
While, we expect both meat sectors to at least touch the $6/kg mark over 2017.
CPI Review: Inflation surges through the inflation target mid-point
20 Apr 2017
The Q1 CPI increased more than expected with annual inflation now at 2.2%, stronger than ourselves, the market and the RBNZ expected. Core measures of inflation (including the trimmed mean and weighted median) also reported annual rates of 2.2%, highlighting that the overall lift in inflation is relatively broad-based. The recent sharp recovery in inflation will come as a significant relief to the RBNZ. The lift has taken inflation expectations back to the middle of the target band with it, removing one of the RBNZ’s key concerns of recent years.
We expect the current lift in headline inflation will be temporary, as does the RBNZ, given there were several ‘one-offs’ in Q1. Nonetheless, we expect annual inflation to hover around 1.5% and 2% over the next few years. As such, downside risks to inflation, especially those stemming from weaker inflation expectations, have significantly reduced over the past six months. We continue to expect the RBNZ will lift the OCR in late 2018, around a year earlier than the RBNZ’s February view.
Rural Economic Note: Wet Wet Wet
19 Apr 2017
Dairy prices have lifted in the wake of Cyclones Cook and Debbie.
The severe weather has stymied a strong end to the NZ production season and may lead to a slow start to next season.
As a result, we now see some upside to our 2016/17 milk price forecast of $6.00/kg.
Economic Weekly: Inflation quintuples within 6 months
18 Apr 2017
Inflation figures later this week will show a pace close to the mid-point of the RBNZ’s target.
But the RBNZ will still keep a close eye out, as inflation pressures have yet to show signs of becoming widespread.
Dairy prices are set to have a stronger auction result.
Commodities Weekly: Wet, wild and windy
13 Apr 2017
Cyclone Cook, the second major cyclone to hit NZ this year, has made landfall today .
Cyclone Cook follows soon after Cyclone Debbie, which was destructive in its own right.
While the weather impact on agricultural (dairy) production has been small to date, Cyclone Cook risks leading to larger impact.
CPI Preview Q1 2017: One-hit wonder
13 Apr 2017
We expect the CPI to print at 0.9% qoq in Q1, substantially stronger than the RBNZ’s 0.3% qoq forecast in February’s Monetary Policy Statement (MPS). Q1’s lift in prices largely reflects a continuation of Q4’s key trends, exacerbated by a number of temporary price increases. Tight capacity pressures in the construction and services (tourism) sectors, combined with a further lift in petrol prices, remain key drivers of inflation over Q1. In addition, a 10% tobacco tax increase and a lift in food prices will combine to push annual inflation above 2% for the first time in over 5 years.
Despite annual inflation returning to the RBNZ’s 2% target, we caution that part of this lift in inflation is temporary. Higher petrol, food (largely fruit and vegetables) and tobacco prices are transitory and, as a result, we expect inflation to dip again before grinding back up to the midpoint of the inflation target over the medium term. The RBNZ itself noted in March’s OCR statement that inflation is likely to be volatile over the near term. With broader inflation pressures still muted, we expect the RBNZ to leave OCR unchanged until late 2018.
Economic Weekly: Offshore developments take centre stage
10 Apr 2017
Since Q4 GDP there has been a dearth of major NZ data and as a result, offshore developments have taken centre stage.
Developments in Australian lending standards could open the door to further rate cuts in Australia.
In the US, the Fed’s discussion of tapering Quantitative Easing has markets bracing for higher interest rates.
Commodities Weekly: Lamb's Indian summer
07 Apr 2017
Lamb prices have continued to lift over March.
A lift in demand could support higher lamb prices for longer.
Meanwhile, NZ commodity prices were unchanged in USD terms last week.
GlobalDairyTrade Auction: Sideways
05 Apr 2017
Dairy prices lifted a touch overnight, largely as expected.
The better-than-expected NZ summer and autumn production is now largely priced in.
From here, we expect prices to largely track sideways, before drifting higher later in 2017.
Economic Note: NZIER Quarterly Survey of Business Opinion
04 Apr 2017
Headline business confidence fell in Q1, likely reflecting geo-political concerns.
Firms remain upbeat on the domestic outlook and indicators remain consistent with strong NZ economic growth.
Inflation indicators continue to lift off lows, in line with RBNZ expectations.
Markets Monthly: US political concerns weigh on markets during March
03 Apr 2017
Markets continue to wait for US fiscal stimulus plans, and get nervous after the US political failure for healthcare reform.
RBNZ held the Official Cash Rate at a record low 1.75%, cash returns remain low.
Bond markets were mixed during March, but yields both here and abroad have risen significantly over the full quarter.
Economic Weekly: NZ business confidence wavers under the threat of Brexit and Trump
03 Apr 2017
UK formally begins Brexit, commencing a prolonged and costly negotiation process of exiting the EU.
Offshore political risks, including Brexit and Trump, appear to be undermining NZ business confidence.
Building consents are under close scrutiny to confirm housing construction outlook for 2017.
Commodities Weekly: Wool prices down, but not out
31 Mar 2017
- Wool prices have lifted off recent lows.
- From here, we expect wool prices to drift higher over 2017.
- Meanwhile, NZ commodity prices rose across the board last week.
Farmshed Economics: Shot in the arm
31 Mar 2017
On the back of a Brazilian meat scandal, we expect NZ beef prices to remain high over 2017.
In addition, lamb prices have kicked on following last month’s gains.
Meanwhile, we have revised down our 16/17 milk price forecast to $6.00/kg, but have retained our $6.75/kg forecast for 17/18.
Economic Weekly: Offshore events rising to the fore
27 Mar 2017
Donald Trump fails to pass healthcare reform legalisation, raises questions over his ability to pass tax reform.
Brexit set to formally get underway, but the to-do list is immense.
The French election daws closer.
Kiwi Dollar Barometer: Chinese currency popular, Trump a source of volatility
27 Mar 2017
The NZD/USD is expected by businesses trading internationally to be around $0.70 in twelve months.
Donald Trump’s presidency is expected to be the main driver of FX volatility over the next 12 months.
Federal Reserve rate hike odds lift heading into month-end.
Commodities Weekly: Operation weak flesh
24 Mar 2017
In the short-term, we expect beef prices to spike higher.
This comes in the wake of a Brazilian meat scandal.
Meanwhile, the ASB Commodity Price Index rose 0.9% in USD terms last week.
RBNZ March OCR Review 2017: RBNZ keeps the neutral tone
23 Mar 2017
OCR is unchanged at 1.75% with neutral stance remaining.
Slight changes in views on global and domestic growth, NZD decline “encouraging”.
We continue to expect the RBNZ to keep the OCR on hold until late 2018.
Rural Economic Note: Life is like a box of chocolates
22 Mar 2017
Dairy prices firmed at the auction overnight, beating expectations.
Meanwhile, Fonterra’s half-year profit results were a touch softer than expectations.
On balance, the combined results see us retain our positive dairy sector outlook.
Economic Weekly: RBNZ to remain on hold while risks are balanced
20 Mar 2017
Q4 GDP was weaker than expected, but underlying demand remains firm.
Coupled with an improved near-term inflation outlook, the RBNZ likely to be less concerned about GDP result than otherwise.
Still-balanced risks to the inflation outlook will see the RBNZ leave rates on hold this week.
Commodities Weekly: Happy beef days
17 Mar 2017
It’s still happy days for beef prices.
US demand for imported beef remains firm.
Meanwhile, the ASB Commodity Price Index fell across all denominations last week.
March 2017 OCR Preview - Risks evenly balanced
17 Mar 2017
We expect the RBNZ to hold the OCR at 1.75% at the March OCR Review, and to maintain a neutral bias.
Inflation risks remain balanced, with the declining NZD and drop in dairy prices roughly cancelling each other out.
The RBNZ is expected to reiterate the uncertain global situation.
Q4 GDP Review: Economy stumbles in Q4, but should recover
16 Mar 2017
Q4 GDP softer than expected at 0.4%, Q3 also revised down.
Weakness is in the more volatile components, underlying demand seems firm.
GDP reinforces there is no hurry to lift the OCR: no hikes expected until late 2018.
Economic Note: NZ steady as she goes
15 Mar 2017
Q4 current account deficit narrows in line with market expectations.
Also, NZ’s net liability position as a % of GDP at lowest recorded level.
We expect the current account balance to narrow further over 2017.
Economic Weekly: Government signals intention to change NZ Superannuation
13 Mar 2017
Prime Minister Bill English confirmed plans to change the eligibility criteria and start age for NZ Superannuation.
Dairy prices fell at the latest GlobalDairyTrade event, and we revised down our 2016/17 Milk Price forecast to $6/kgms.
Next week’s focus is on the US Federal Reserve, and the overwhelming majority of analysts expect a rate increase.
Regional Economic Scoreboard: Nelson claims top spot
13 Mar 2017
Nelson has moved one step higher to grab gold as NZ’s best-performing region.
Across the country, construction continues to be one of the biggest drivers of economic activity.
The Kaikoura earthquake has had an impact on Wellington and Marlborough.Commodities Weekly: Milk price forecast gets a trim
10 Mar 2017
We have revised our 2016/17 milk price forecast down by 50 cents to $6.00/kg.
We retain our positive outlook for the milk price over the medium term.
Meanwhile, the ASB Commodity Price Index fell 1.1% in USD terms last week.
Economic Note: Q4 2016 GDP Preview
09 Mar 2017
We expect Q4 GDP growth of 0.9% qoq, yet another quarter of steady, solid growth.
The net impact of the Kaikoura earthquake on economic growth is the key uncertainty for the quarter.
We expect growth will be close to the RBNZ’s 1% forecast at the February Monetary Policy Statement.
Rural Economic Note: Dairy detour
08 Mar 2017
We revise our 2016/17 milk price forecast down by 50 cents to $6.00/kg.
The revision comes on the back of sliding dairy prices at the auction overnight.
However, while this puts a damper on this season’s milk price, our healthy outlook for 2017/18 remains in place.
Markets Monthly: RBNZ gets the message across
06 Mar 2017
Markets wait for US fiscal stimulus plans.
RBNZ holds rates and contains market rate-hike expectations.
Federal Reserve rate hike odds lift heading into month-end
Economic Weekly: Green light for the Fed
06 Mar 2017
We now expect a US Federal Reserve hike this month.
Trump’s speech to Congress last week was light on detail but effectively gave no reason for the Fed to delay.
From the NZ perspective, this adds some modest downward pressure to NZD/USD.
Commodities Weekly: Forestry's banner year
03 Mar 2017
The forestry sector is in a sweet spot.
The local construction boom and strong export demand are driving prices to record highs.
Meanwhile, the ASB NZ Commodity Price Index slipped across all denominations last week.
Risks to the OCR outlook are 'equally weighted'
02 Mar 2017
The RBNZ Governor delivered a speech discussing the key risks to the economic outlook.
Overall risks to the OCR outlook are balanced, with downside risks from the global outlook.
The RBNZ notes the uncertainty around the US outlook and the risks to global growth from protectionist policies.
Economic Note: A picture paints a thousand words
01 Mar 2017
The Terms of Trade jumped over Q4 as expected.
With the jump reflecting the earlier dairy price surge.
In Q1, we expect a further Terms of Trade lift as the remainder of the dairy price surge flows through.Farmshed Economics: Bucking the trend
28 Feb 2017
It’s happy days for lamb and beef prices.
Dairy production has seen a partial recovery while the forestry sector is in a sweet spot.
Meanwhile, currency markets continue to hold their collective breath
Summer sun (and rain) provides a boost to dairy production
27 Feb 2017
Fonterra reaffirms 6.00/kg milk price for the current season and lifts advance payments.
Dairy production stages a summer recovery on favourable weather conditions.
Trump speech is the key focus for the week ahead as markets remain jittery on fiscal policy uncertainties.Commodities Weekly: A dairy season of two halves
24 Feb 2017
The outlook for NZ dairy production has improved.
And this season’s weather risks have largely receded.
Meanwhile, the ASB NZ Commodity Price Index lifted in USD terms last week.
Rural Economic Note: Singing in the rain
22 Feb 2017
Dairy prices fell overnight in line with expectations.
With better than expected NZ summer production driving the fall.
This result and the better production outlook adds downside risk to our 2016/17 milk price forecast of $6.50/kg.
Kiwi consumers to keep on quietly smiling
20 Feb 2017
Retail sales and consumer confidence both point to a continuation of recent robust trends.
Support is coming from historically-low interest rates, the dairy recovery, tourism and the labour market.
A potential cloud could be the impact of US protectionist trade policies.
Housing Confidence: Price expectations cool in line with a slowing housing market
20 Feb 2017
A cooling housing market appears to have cooled expectations for higher house prices.
But interest rate expectations continue to climb higher, reflecting recent lifts in mortgage rates.
Overall, respondents still think it’s a bad time to buy a house, but are less pessimistic than 3 months ago.
Economic Note: Retail sales hold steady in December quarter
17 Feb 2017
Spending growth was slower than the market consensus, but in line with ASB's outlook.
Inflation pressures in retail spending remain subdued.
We continue to expect the RBNZ to hold the OCR steady at 1.75% until late 2018.
Commodities Weekly: Lamb prices buck usual February trend
17 Feb 2017
Lamb prices have bucked their usual February trend.
It’s a similarly improving story for mutton.
Meanwhile, the ASB NZ Commodity Price Index softened in USD terms last week.
Home Loan Rate Report: The Trump effect
15 Feb 2017
Trump’s proposed policies have seen US interest rates lift sharply since his election as US President.
Combined with bank funding pressures, mortgage rates have lifted across the curve.
We expect interest rates to continue to creep higher, despite the RBNZ remaining on hold until late 2018.
ASB Rural Loan Report February 2017
15 Feb 2017
All rates remain very low compared to average.
From here, we expect rates to largely track sideways over the next six months or so.
We see the greatest risk of rising rates at the longer end, with that risk later in the year rather than sooner.
Three months is a long time in markets
13 Feb 2017
In the final MPS of 2016, the RBNZ cut the OCR while flagging that further cuts could be likely.
However, the inflation outlook shifted significantly over the past three months.
As a result, the first MPS of 2017 saw the RBNZ shift to a neutral easing bias and signal distant rate hikes.
Commodities Weekly: RBNZ on hold, NZD slides
10 Feb 2017
On Thursday, the Reserve Bank of New Zealand kept the OCR on hold at 1.75%.
The NZD slid on the central bank’s signal that rates would be on hold for the foreseeable future.
Meanwhile, the ASB NZ Commodity Price Index rose in USD terms last week.
Economic Note: Neutral but wary
09 Feb 2017
The OCR is on hold at 1.75% as widely expected. The policy bias is the same as in November: "Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly." The RBNZ sees the global environment as a key downside risk.
The RBNZ’s own OCR projections show the OCR remaining at 1.8% well into 2019, effectively a neutral stance. The RBNZ’s outlook has a 25bp hike built in by early 2020. The flagging of a distant tightening is more realistic. But it should not be taken as a sign of an imminent tightening, given the RBNZ remains concerned about the high NZ dollar and sees the lift in long-term interest rates as an effective tightening.
We continue to view OCR increases as a long way off, towards the end of 2018. The RBNZ also noted premature tightening could undermine growth and stall the expected increase in inflation. In contrast, market pricing implies an early 2018 start, though has taken some heed of the RBNZ's caution.
Markets Monthly: Tide turning against Trump?
08 Feb 2017
After a busy end to 2016, the first month of 2017 got underway with a general consolidation of the closing trends from the year before, i.e. yields, stocks and the US Dollar moving higher, powered by the promise of increased fiscal stimulus from the new US President. However, as the month progressed there was a notable absence of firm announcements over the pledged fiscal stimulus. Instead, the new administration focused its early efforts on building a wall along the Mexican border, withdrawing from the TPP trade agreement (which New Zealand is part of) and banning immigration from select countries.
Rural Economic Note: No news is good news
08 Feb 2017
Looking over recent months, dairy market fundamentals have not changed much. Supply remains tight, although NZ summer production so far has fared better than the very weak spring. Meanwhile, demand is firm, although risks remain in play. Dairy, like other markets, will continue to fret over the ‘Trump factor’ and the potential for protectionism impacting on dairy trade.
However at this juncture, no news is good news. For dairy markets ‘no news’ is likely to translate into one of those rare periods where prices hold steady at or near current levels. Of course given that this level is a relatively healthy one by historical standards, this is ‘good news’ for this year’s milk price.
As a result, we reconfirm our 2016/17 milk price forecast of $6.50/kg. Also, the current market dynamics bode well for a relatively strong start to the 2017/18 season. With that in mind, we note our 2017/18 forecast remains $6.75/kg.
Economic Weekly: RBNZ needs to cool market’s rate expectations
07 Feb 2017
The RBNZ is centre stage this week, with its first OCR announcement in 3 months as the new schedule allows the RBNZ an extended summer break. The RBNZ is widely expected to leave the OCR unchanged at 1.75%, after cutting three times over 2016. With recent inflation data lifting strongly and other economic data generally encouraging, it’s widely agreed among economists and market participants that further rate cuts are very unlikely. Instead, the focus has shifted (perhaps prematurely) to when the RBNZ will lift rates. In our weekly last week, we detailed our reasoning for why we believe the RBNZ will leave the OCR on hold until late 2018. Indeed, that generally appears to be the consensus among NZ economists.
Quarterly Economic Forecasts: Feb 2017
03 Feb 2017
We remain pretty optomistic about growth prospects for NZ over 2017.
But there are a few clouds hanging offshore, and they appear to be the main threats to a stronger economic performance.
We expect the RBNZ to keep the Official Cash Rate (OCR) on hold for a considerable period.
Commodities Weekly: For now the Trump effect sees a weaker USD
03 Feb 2017
For now the 'Trump effect' sees a weaker USD.
The Trump presidency is likely to have a mixed impact on NZ’s agricultural trade prospects.
Meanwhile, the ASB NZ Commodity Price Index rose in USD terms last week.International Agri Insights: The Trump factor
03 Feb 2017
The Trump Presidency will have an impact on NZ’s trade prospects in a variety of ways, both good and bad.
Broad US agricultural policy is not expected to change, but the TPP will not become law.
Meanwhile, Trump’s immigration policies could hurt US dairy production and competitiveness versus NZ.
Economic Note: RBNZ Feb OCR Preview 2017
02 Feb 2017
We expect the RBNZ to hold the OCR at 1.75% at the February Monetary Policy Statement, a widely-anticipated outcome. The inflation outlook has firmed since the November MPS, particularly for 2017. This should offer a greater degree of comfort for the RBNZ, with a reduced risk of inflation remaining uncomfortably low in the near term. But there are still a number of risks to the downside for inflation, key among which is the impact of new US President Donald Trump’s economic and trade policies on NZ.
There is scope for the RBNZ to be a little more neutral in its outlook at this meeting, compared to November. This follows the firmer-than-expected Q4 CPI result of 1.3% yoy, the first time inflation moved back inside the target band for over 2 years. Even with a more neutral outlook, we still expect the OCR to remain on-hold through to late 2018.
The tricky balancing-act for the RBNZ will be to express more comfort over the inflation outlook, yet still give a clear message that OCR increases are still a long way off. Failure to strike the right balance could prompt an unwanted reaction from financial markets.
Farmshed Economics: Crowing about 2017
02 Feb 2017
2017 is the year of the rooster, and figuratively speaking we expect that the rural sector will have its fair share to crow about this year. Indeed, we expect favourable NZ commodity prices over 2017 compared to 2016 and long-run averages. With that in mind, we expect dairy sector to lead from the front.
Economic Note: Jobless rate rises, but more people in work
01 Feb 2017
Q4 Employment growth remained healthy. Jobs growth was driven by full-time work, generally seen as a vote of confidence by employers. The key surprise was a further lift in labour force participation to a fresh record, which is the reason for the lift in the unemployment rate. The combination of strong migration inflows and a high willingness to work continues to strongly boost the supply of workers. Wage growth was fairly benign, with little sign of growing inflation pressure, and the surprising elasticity of labour supply will keep wage-driven inflation side-lined in the near term at least.
We continue to expect the RBNZ to hold the OCR at 1.75% at next week’s MPS, with the underlying data showing the labour market is still robust despite the uplift in the headline unemployment rate. But, just as there are no grounds to cut the OCR, equally there is no reason to expect hastened OCR increases. We expect the RBNZ to be on hold for an extended period, to late 2018.Economic Weekly: OCR hikes closer, but still distant
31 Jan 2017
Consumer price inflation is finally back in the 1-3% target band. The RBNZ is likely to be a lot more confident about the inflation outlook going into next week’s policy announcement. We now expect the OCR to start rising by late 2018, sooner than previously thought.
Commodities Weekly: Butter’s two steps forward two steps back
27 Jan 2017
Butter prices have received a boost from rising demand.
Going forward, we expect butter and milk fat prices to generally remain firm.
Meanwhile, the ASB NZ Commodity Price Index fell across the board last week.
Economic Note: Q4 CPI bounces back into target
26 Jan 2017
The Q4 CPI rose more than expected in Q4, rising 0.4% qoq and 1.3% yoy, higher than we and the RBNZ had forecast. While non-tradable inflation was largely in line with expectations, tradable inflation was less of a drag on inflation than expected. Excluding fuel, tradable inflation fell only -0.1 qoq in Q4, the smallest drag since 2011. Underlying inflation pressures appear to have lifted, something which the RBNZ will be relieved to see. The impact of the tourism boom is also increasingly evident. Lifts in both the trimmed 10% mean inflation measure (up to 1.7% yoy from 0.8%) and the weighted median (up to 2.0% yoy from 1.7%) will also be of comfort to the RBNZ.
This result confirms that further OCR cuts are well off the table, barring some major development. But, with inflation only just within the target band for the first time in over two years and the high NZD a key downside risk, we expect the RBNZ to leave the OCR on hold for the foreseeable future. As a result, OCR hikes this year, as priced into wholesale interest rates, still seem premature.
Economic Note: Another drop in the jobless rate expected in Q4
25 Jan 2017
Next week on 1 February (10.45am NZT), HLFS, QES and LCI Q3 labour market statistics are released. This will be the third release under the new labour definitions in the HLFS and the results should be more settled now. However, while comparisons with Q2 and Q3 2016 are possible, further prior period comparison is not straight forward, given the extensive changes made to the survey by Stats NZ. The QES and LCI data are unaffected by the changes.
Economic Weekly: Inflation momentum slowly starting to build
23 Jan 2017
This week brings the delayed release of Q4 CPI, one the first key pieces of NZ economic data in 2017. New Zealand’s inflation outlook has improved over recent months and we expect Thursday’s release to reflect this. We expect the CPI to register a 0.2% qoq increase, with annual inflation jumping to 1.1% (in line with the RBNZ’s forecast). While the quarterly lift remains soft, the sharp increase in the annual rate is driven in part by a particularly soft CPI result in Q4 2015 dropping out of the annual calculation.
Domestic capacity pressures will continue to be a key driver of price increases. Construction-related prices have risen sharply over the past two quarters due to capacity constraints and we expect this trend to continue. In addition, capacity constraints are also beginning to bite in the services sector (notably the tourism industry), as evidenced by the lift in pricing intentions and selling prices in the Q4 QSBO results. Higher petrol prices in Q4 will also provide a positive boost to inflation. Further, the lift in petrol prices in Q4 looks to be followed up by a similar gain in Q1 2017, which will help support the upward momentum in inflation going forward.
However, the high NZD remains a key drag on tradable inflation and on a trade-weighted basis the NZD remains higher than the RBNZ’s forecast. The sharp drop in the net percent of merchants increasing prices in the Q4 QSBO is further evidence of the high NZD weighing on import prices. Food prices are also forecast to be a drag on inflation in Q4. Q4 tends to be a seasonally weak quarter for food prices (particularly fruit and vegetables) and, as a result, the RBNZ will look through any weakness from this source.
The RBNZ will undoubtedly be relieved to see inflation back within the 1 – 3% target band. However, with inflation only just within the band and recent NZD strength suggesting further downward pressure on tradable inflation to come, we don’t think the RBNZ will be counting its chickens just yet. As a result, we continue to expect the RBNZ to leave the OCR on hold for the foreseeable future and think market pricing of an OCR hike by the end of 2017 is getting ahead of itself.
While the Q4 CPI will be a key event domestically, US developments will continue to drive markets. One such development; Donald Trump is now the President of the United States of America and the new regime has officially begun. While his inauguration on Saturday morning (NZT) had limited impact on markets, uncertainty will remain elevated as we wait to see what Trump’s first moves as President are.
Economic Note: Q4 2016 CPI Preview Building on Inflation
19 Jan 2017
We expect the CPI to print at 0.2% qoq in Q4, in line with the RBNZ’s forecast in the November MPS. Capacity pressures are expected to be a key driver of price increases this quarter, particularly in the construction and services (tourism) sectors. Higher petrol prices in Q4 will also provide a positive boost to inflation. While quarterly inflation remains soft, annual inflation is forecast to increase to 1.1% (back within the RBNZ’s target band for the first time in over two years). This sharp jump in annual inflation is driven in part by a particularly soft CPI result in Q4 2015 dropping out of the annual calculation.
Despite the lift in annual inflation, downside risks remain. The NZD remains high on a trade-weighted basis and this will continue to be a drag on tradable inflation, as indicated by the Q4 QSBO results. The RBNZ may be relieved to see inflation back within the target band but, in our opinion, enough downside risks remain for the RBNZ to keep the OCR on hold for the foreseeable future. In our view, market pricing of an OCR hike by year-end is getting ahead of itself.
Rural Economic Note: Backfire
18 Jan 2017
Production flexibility is a good thing. When used well production can be switched to higher-priced products from lower-priced ones. On this basis, the milk price can be maximised.
But it is not a one-way bet. In particular, Fonterra must tread lightly when it comes to whole milk powder (WMP) – because it has pricing power.
In our view, recent moves to take advantage of higher WMP prices have come at a cost. The extra WMP offered has depressed the price significantly compared to what we anticipated it would be. And despite a higher weighting for higher-priced WMP, the overall result is likely to be a lower overall milk price.
All up, the recent weak auction results have introduced some slight downside risk to our 2016/17 milk price forecast. But for now, we stick with $6.50/kg.
Commodities Weekly: Beating par over the Year of the Rooster
17 Jan 2017
We expect NZ commodity prices to be above their long-run averages over 2017.
Dairy price strength is expected to continue as production remains weak.
Meanwhile, the ASB NZ Commodity Price Index lifted across the board last week.
Economic Note: Confidence firm, inflation measures finally lift
17 Jan 2017
The NZIER Q4 Quarterly Survey of Business Opinion showed business confidence held up better than we had expected. Business confidence remained steady while own activity expectations eased slightly. In contrast, the ANZ monthly survey reported a more substantial fall in confidence and own-activity expectations over the quarter. Some moderation in confidence is not surprising, given the unexpected outcome of the US presidential election and the Kaikoura earthquakes.
Meanwhile, labour market indicators remain tight and inflation indicators moved in the right direction from the RBNZ’s perspective. There are no implications to our OCR view; we continue to expect the RBNZ will leave the OCR on hold at 1.75% for the foreseeable future.
Economic Weekly: It’s the end of the world as we know it, with a new era starting
16 Jan 2017
It is the first full week back at work for many New Zealanders and it is the last week before Donald Trump becomes the 45th President of the USA.
This is very much the end of the world as we know it, with the new President likely to take the US in a different direction to what the rest of the world has been accustomed to. What exact changes will be made, and the impact on New Zealand (direct and indirect) is still difficult to ascertain at this point. What we do know is that change is coming.
Economic Note: NZ a calm port in stormy seas
13 Jan 2017
The NZ domestic economic outlook for 2017 is encouraging. The economy is set to continue its upswing, recording solid growth between 3-4% over the coming year. We expect the housing market will continue to cool but we expect undersupply (particularly in Auckland) and low interest rates will provide a floor to house prices. With inflation set to improve from lows, we expect the RBNZ to leave the OCR at 1.75% for the foreseeable future. However, term interest rates are starting to rise, led by offshore moves.
The key domestic risk to 2017 is a credit squeeze as banks find funding conditions more challenging. However, political uncertainties are where the more worrisome threats to NZ’s prosperity lie. Trump’s protectionist policies and European political and banking instabilities are areas of particular concern. Fortunately, a strong NZ domestic backdrop and healthy Government fiscal position provides NZ some buffer if these political threats were to materialise into global economic turmoil.
Economic Note: Just how strong is the NZ labour market?
12 Jan 2017
The Q3 Household Labour Force Survey (HLFS) showed NZ unemployment stepping below 5.0% for the first time since Q4 2008, just when the Global Financial Crisis (GFC) was getting into full swing. However, recent revisions to the HLFS and the limited ability to compare data with past releases means a degree of caution needs to be exercised.
To evaluate the overall strength of the labour market, we have examined the other labour market metrics to see if they tell a similar story to the HLFS. Not only will this provide a useful overview of the market, it will also help to establish how reliable the new HLFS is going forward.
Economic Weekly: Looking to a prosperous 2017
09 Jan 2017
Happy New Year! 2017 is shaping up to be a year full of promise for the NZ economy. 2016 was marred by economic disappointment. Over the first half of 2016 growth proved to frustratingly slow, despite strong population growth. Much to the RBNZ’s frustration, inflation remained very weak and the RBNZ was forced to cut the OCR another 75 basis points – something it had not expected to do at the end of 2015.
But now the groundwork has been laid for the NZ economy to shift back into high gear. Strong population growth and low interest rates have fuelled construction demand. A tourism boom has the retail sector humming. The labour market has tightened and NZ households feel more confident. And dairy prices have finally turned around. Indeed, global dairy prices have outperformed our own upbeat expectations. So much so, we have revised our 2016/17 Fonterra milk price forecast even higher to $6.50 per kg of milk solids from $6.00.
2017 should be a good year for NZ. That is assuming the rest of the world also holds together. There are many uncertainties on the global outlook – and President-elect Trump is the biggest unknown. The key risk is if Trump’s administration follows through with anti-trade rhetoric from Trump’s election campaign and imposes stifling import tariffs on China.
The end of 2016 was a busy one for the NZ data calendar. Just a few days before Christmas, StatsNZ released Q3 GDP figures. Q3 growth proved stronger than expected, but this upside surprise is somewhat diminished by the fact growth over the first half of the year was revised lower to be less impressive than previously thought. While cumulative growth over the previous 12 months may not have been quite as spectacular as hoped, it was solid nonetheless. And more importantly, we expect growth to remain above 3% (and above trend) over 2017.
With NZ growth revving up, we expect inflation trends to also improve. This means the RBNZ is most likely done with cutting the OCR – again assuming (perhaps optimistically) no big global disruption hits in 2017. Combined with a sharp shift in the US growth/inflation outlook, NZ and international interest rates have lifted quite sharply in a short space of time. Nonetheless, NZ interest rates do remain relatively low for the time being, but borrowers must brace for higher interest rates in coming years. Meanwhile, savers can finally breathe a sigh of relief, as nominal yields continue to improve over the coming year. All going well, 2017 should be a prosperous year for NZ. But, as always, being a small open economy which is subjected to the whim of global sentiment, we need to also prepare for the unexpected.
November’s trends extended into year end
06 Jan 2017
The US Federal Reserve was fully expected to lift the Fed Funds rate 25 basis points on December 15 and it did not disappoint. The Fed did surprise though with an adjustment to the forward guidance, adding an additional rate hike for 2017, taking the outlook to three rate increases. Prior to the meeting, yields were already on the way up in the fallout from Donald Trump’s US Presidential election victory. The Fed’ surprise gave them another nudge higher, impacting right across the globe. The addition of thin markets going into year-end exacerbated the move.
It was also a busy month for New Zealand. Prime Minister John Key surprised with his resignation, but given the new PM is former Minister of Finance, Bill English, there was little impact on financial markets. Further out, it does make this year’s election slightly more uncertain, although given the muddle of other uncertainties 2017 holds, the impact in longer-dated securities was limited.
The Government’s Half Year Economic and Fiscal Update outlined how November’s earthquake is to be paid for. This will largely be comprised of existing surpluses and diverted spending, with total bond issuance from the Government unchanged, although $1bn of issuance has been moved forward.
The release of New Zealand’s Q3 GDP data was delayed due to the earthquake’s impact on Stats NZ’s ability to process information, although it was only a week late. The data showed Q3 growth was some way ahead of expectations, although downward revision to prior quarters meant the annual growth rate, of 3.5%, was around expectations. Australia’s Q3 GDP surprised to the downside, limiting the move higher for Australian yields and keeping the Australian dollar under pressure.
Almost all currencies suffered to some extent against the USD over the month, as the trend which began with Donald Trump’s victory in November continued through the end of the year. This pushed the US Dollar index to all-time highs, with the Japanese Yen, in particular, struggling. The New Zealand Dollar was no exception and also declined - a move that may have been cheered by the RBNZ, with NZD strength one of the key drivers behind ongoing soft inflation in NZ.Rural Economic Note: Lessons from the dairy downturn - Part I
01 Jan 2017
In this report, we reflect on the recent dairy downturn. For starters, our aim is to pull out some key lessons based on our observations during this latest dairy cycle. Later in the year, we would like to point out ways that the sector may adapt to or even influence the global dairy cycle. We suspect, for example, that NZ farmers aren't entirely hostage to the whims of global dairy markets. But that's for later, for now; here are the three key lessons we have learnt.
Farmshed Economics: Upsets, comebacks and lessons
23 Dec 2016
Looking at developments over December, we lifted our 2016/17 milk price forecast by 50 cents to $6.50/kg on 21 December. At the same time, we nudged our 2017/18 forecast higher by 25 cents to $6.75/kg. With that in mind, dairy farmers can take time out over Christmas and look forward to better times over 2017.
Turning to the meat sector, beef prices continue to hold at healthy levels. Looking at lamb markets, prices are taking baby steps towards improvement.
Also, we expect rural land prices to lift over 2017. Indeed, the recovering dairy sector is likely to see both a greater number of farm sales and lifting prices.
Lastly, interest rates are on the up, following US rates higher. All up though, interest rates are likely to remain low over 2017 and into 2018 compared to historical averages. Meanwhile, Donald Trump’s election victory has put a rocket under the US dollar. Since his election, the NZD has dived from around US$0.7380 to US$0.6920
2016: the year of comeback kids and underdogs
23 Dec 2016
For NZ commodities, 2016 has been the year of comebacks.
Accounting for much of the commodity price lift has been dairy or the ‘comeback kid’.
Meanwhile, the ASB NZ Commodity Price Index lifted 0.8% in NZD terms.
Economic Note: Trucking along
22 Dec 2016
Q3 GDP growth printed stronger than expected, lifting 1.1% vs market and our own expectations of a 0.8% lift. However, this 'positive surprise' was offset by downward revisions to history. This leaves annual growth at 3.5% - in line where we expected but slightly softer than market and RBNZ expectations.
In particular, the lift in growth over the first half of the year wasn’t nearly as impressive as previously thought. This has implications for the extent the RBNZ can hope for domestically-sourced inflation to lift over the coming year. It argues for the RBNZ to remain patient for inflation pressures to lift off lows. But does not change our OCR outlook, we continue to expect the RBNZ to leave the OCR on hold at 1.75% for the foreseeable future.
Rural Economic Note: Full circle
21 Dec 2016
We revise up our milk price forecasts for 2016/17 and 2017/18 to $6.50/kg and $6.75/kg, respectively.
In particular, we expect lingering global production weakness to support dairy prices well into 2017.
While the revisions are welcome fillip for dairy incomes, we remain wary of the “next” dairy cycle.
Economic Weekly: Going out with a bang
19 Dec 2016
The final working week of 2016 could be a big one, with a raft of New Zealand data on the slate, which could see a whippy week for the NZD. Some of the data were due to be released in the week just gone, but were delayed due to the recent earthquake, which impacted Stats NZ’s ability to collate and release the data.
The main event arrives on Thursday, with Q3 GDP data (delayed from the 15th). Our pick is for expansion of 0.8% qoq, in line with market expectations, pushing annual growth to a robust 3.5%. The service sector is expected to be responsible for much of the expansion, although retail spending and construction remain the backbone of domestic economic growth. There are risks on both sides of the outlook, but on balance, these lie largely to the upside.
Economic Note: GDP Preview - Supercharged Services Sector
16 Dec 2016
We expect Q3 GDP figures will confirm another solid quarter of growth (released Thursday 22nd December, 10.45am). We expect quarterly growth of 0.8% and annual growth of 3.5%. Annual average growth will continue to tick higher to 3.1%. Our forecast is very close to being rounded down to 0.7% qoq. There are a number of uncertainties which could easily bump it in either direction, but we felt the skew of risks were toward the upside and opted to round up to 0.8%.
The RBNZ expected 0.9% quarterly growth at the time of the November MPS. Economic growth figures are likely to have limited implications for the RBNZ – we continue to expect the RBNZ to keep the OCR on hold at 1.75% for the foreseeable future.
US Fed hikes; USD spikes
16 Dec 2016
The US Federal Reserve has hiked interest rates for only the second time in the last ten years.
In the wake of the hike, the US dollar has spiked.
Meanwhile, the ASB NZ Commodity Price Index gained in all denominations last week.
Economic Weekly: The year that keeps on giving
12 Dec 2016
John Key’s resignation is the latest in a string of political surprises over 2016.
Attention is turning to what a Bill English government might look like, but any changes are likely to be modest.
Internationally, markets are gearing up for the US Federal Reserve meeting on the 15th where a rate hike is likely.
Kiwi Dollar Barometer: Which lever to pull when FX doesn’t go your way?
12 Dec 2016
The NZD/USD is expected by businesses trading internationally to be just below $0.70 in twelve months.
All firms with sales turnover greater than $150m expect to see greater FX exposure in the next 12 months.
Exporters and importers have very different ideas for dealing with an adverse FX move.
Spinning a yarn
09 Dec 2016
Wool prices have sunk over spring.
However from here, we expect prices to stabilise, if not lift.
Meanwhile, the ASB NZ Commodity Price Index was largely flat in USD terms last week.
2016 Half-Year Update: New PM spoilt for choice
08 Dec 2016
Overall, Treasury paints a healthy picture of the NZ Government’s books.
The Government has taken the impact of the Kaikoura earthquake in its stride.
For now infrastructure spending takes priority, as the Government keeps its tax cut powder dry for election year.
Economic Note: RBNZ Speech on NZ’s Economic Expansion
08 Dec 2016
RBNZ Governor Wheeler has delivered a speech titled “Some Thoughts on NZ’s Economic Expansion”. There are no implications to our OCR view; we continue to expect the RBNZ will hold the OCR at 1.75% for the foreseeable future. The comments echoed those already delivered in the November Monetary Policy Statement and Financial Stability Report.
The speech outlines what the key drivers of the most recent expansion have been and offers some explanation as to why per-capita growth has been weaker than a typical expansion. The Governor concludes by discussing the key risks to the current outlook, which are largely international-sourced risks. However, the Governor remains wary of the domestic-sourced risk of a sharp fall in house prices.
Rural Economic Note: GlobalDairyTrade Auction
07 Dec 2016
Dairy prices further solidified their large gains overnight.
Weak NZ (and global) dairy production is pushing prices higher.
Meanwhile, we continue to see clear upside risk to our $6.00/kg milk price forecast.
Oil higher after historic agreement
05 Dec 2016
Oil marks a 15% increase in price following OPEC’s production cut.
Reserve Bank of New Zealand’s Financial Stability Review keeps debt-to-income loan measures on the table.
Government’s Half Year Economic Update could provide some clues on how to fund the earthquake rebuild.
Economic note: Economic implications of PM John Key's resignation
05 Dec 2016
John Key has announced that he is stepping down as Prime Minister and leader of the National Party.
The National Party will elect a new leader on December 12.
Limited implications near term, but scope for increased political uncertainty to disrupt business confidence next year.
A massive month for markets
05 Dec 2016
Donald Trump is the surprise new US President.
The RBNZ cut the OCR 25bp to 1.75% but signalled this is the end of the current easing cycle.
The North Canterbury economic impact is not expected to be the same scale as the 2010/11 quakes.
Regional Economic Scoreboard: Otago now the nation’s top dog
02 Dec 2016
Otago has risen from sixth place last quarter to the top of the Regional Economic Scoreboard.
Meanwhile, RBNZ investor restrictions have slowed house sales nationally, with a particular effect on Auckland.
Lastly, construction has been the star performer for most regions.Farmshed Economics: Trump, earthquakes and $6
02 Dec 2016
Donald Trump’s victory surprised financial markets.
Closer to home, and as we have long predicted it would, Fonterra lifted its 2016/17 milk price to $6.00/kg.
Meanwhile, there is some light at the end of the tunnel for lamb prices.
Light at the end of the lamb tunnel
02 Dec 2016
There is some light at the end of the tunnel for lamb prices.
With the Chinese market, in particular, showing signs of improving demand.
Meanwhile, the ASB NZ Commodity Price Index largely flat in USD terms last week.
Terms of Trade Q32016
01 Dec 2016
Import prices did not fall as expected.
Export prices fell as expected, including dairy.
Dairy prices, in particular, are set to lead the way higher over the next year.
RBNZ Financial Stability Report November 2016
30 Nov 2016
The RBNZ did not announce any new financial stability policy measures at the release of the November FSR.
However, the central bank sees risks to the financial system via housing and dairy.
We continue to expect the RBNZ to keep the OCR on hold at 1.75%.
Maintaining traction could present a new challenge for RBNZ
28 Nov 2016
NZ longer-term interest rates rise strongly over the past month, led by moves in the US.
NZ shorter-term mortgage rates also starting to lift as bank funding costs increase.
RBNZ Financial Stability Review is the key focus this week, housing and dairy risks stabilised.
NZ dairy production dives
25 Nov 2016
Very wet weather has led to a dive in NZ dairy production over October.
It’s not too surprising that dairy prices have lifted dramatically.
Meanwhile, the ASB NZ Commodity Price Index rose in all denominations last week.
Home Loan Rate Report: Mortgage rates lifting off lows
23 Nov 2016
Bank funding challenges have limited mortgage rate falls, despite the RBNZ cutting the OCR in August & November.
We are not expecting the RBNZ to cut the OCR beyond current levels.
Combined with higher offshore rates, mortgage rates look to have bottomed out.
Plenty of speculation central bank action
21 Nov 2016
Speculation over central bank moves remained key.
US election campaigning generates volatility.
The New Zealand Dollar was whippy but remains elevated.
A $6 bright spot in an otherwise hard week
21 Nov 2016
Last Monday’s earthquake caused extensive damage to infrastructure and buildings around the middle of NZ.
Disruption is ongoing in both the South Island and Wellington.
Fonterra’s milk price forecast revision to $6/kgMS gave a few something to smile about.
Commodities Weekly: NZ dairy - a few less rules; more transparency
18 Nov 2016
- Last week, the NZ Government announced changes to the Dairy Industry Restructuring Act (DIRA) – the Act that regulates Fonterra’s domestic dominance of the NZ dairy market.
- From our viewpoint, the regulatory changes are roughly in line with what we expected.
- Meanwhile, the ASB Commodity Price Index slid 2.1% in NZD terms last week, largely on the back of a less favourable NZD/USD.
Commodities Weekly: Wool wearing the brunt of trade war
18 Nov 2016
- In contrast to NZ food exports, wool prices have been impacted by the US-China trade war.
- With no clear prospect of a trade agreement in sight, we anticipate that fine and medium wool prices will remain under pressure over 2019.
- Meanwhile, the ASB NZ Commodity Price Index was mixed last week.
South Island earthquakes – a long day after
18 Nov 2016
Major cities returning to normal, but provincial South Island still disrupted.
Transport links directly north and south of Kaikoura in the South Island have been most heavily hit, and are a major hurdle.
At the margin, the quakes could increase the odds of another RBNZ rate cut next year.
IoD-ASB Sentiment Survey Report
18 Nov 2016
While business confidence has surged, labour market conditions are a challenge to business growth.
Regulatory red tape and time spent on compliance activities have increased for most directors.
Technological disruption is another key concern.
South Island earthquakes – a long day after
15 Nov 2016
Major cities returning to normal, but provincial South Island still disrupted.
Transport links directly north and south of Kaikoura in the South Island have been most heavily hit, and are a major hurdle
At the margin, the quakes could increase the odds of another RBNZ rate cut next year.
Trump surprises with victory, impact on NZ uncertain
14 Nov 2016
Major earthquake hits North Canterbury early on Monday morning.
Trump surprises with US Presidential election victory. Impact on NZ to be felt via direct trade and inflationary pressures.
RBNZ cuts OCR to 1.75%, signals that is the end of the line.
Severe quake likely to have modest economic impacts
14 Nov 2016
A severe earthquake struck North Canterbury overnight and was widely felt across NZ.
Short-term economic disruption likely to be offset by demand for replacement and repair.
Increased construction requirements will be inflationary - OCR on hold remains our base case.
Trump in charge
10 Nov 2016
Donald Trump wins the US Presidency and Republicans are set to retain control of both houses of Congress.
Market's short-term risk-off reaction will in time shift to a focus on stimulatory economic policies.
Longer-term impact on NZ a tug of war between US fiscal stimulus and any increased trade protectionism.
Housing Confidence: Are the good times over?
07 Nov 2016
More people than ever before think now is a bad time to buy a house.
Net expectations of house prices moderated but remain high, and fewer people are expecting interest rates to fall.
The latest LVR restrictions could be weighing on both buyer sentiment and house price expectations.
Time will tell
07 Nov 2016
A Trump victory this week will likely be associated with a short-term fall in the USD and equity markets.
In the longer term, Trump policies are likely to have the opposite impact through being inflationary.
The RBNZ is widely expected to cut the OCR on Thursday to a record low 1.75%.
Dairy butters up the NZ commodity price cycle
04 Nov 2016
We expect NZ commodity prices to rise above their long-run averages over the remainder of 2016 and 2017.
The surge at this week’s dairy auction cements dairy prices at a higher level.
Meanwhile, the ASB NZ Commodity slipped across all denominations this week.
Beware employment survey adjustments
03 Nov 2016
Unemployment rate drops below 5.0% for the first time in almost 8 years, labour participation marked a record high.
However, HLFS data still need to be treated with caution given the recent adjustments to the survey.
Wage inflation lifted on some measures, but was still in line with estimates.
Another OCR cut expected but probably the last
03 Nov 2016
We expect the RBNZ to cut the OCR to 1.75% at the November Monetary Policy Statement.
We expect a continued easing bias, but it will be toned down.
Inflation risks remain skewed to the downside, so a further cut can’t be ruled out.
Six dollars on track
02 Nov 2016
Dairy auction prices jumped overnight by more than expected.
With wet weather slamming the brakes on NZ dairy production.
This result reconfirms our $6.00/kg milk price forecast, and also adds some upside risk.
Quarterly Economic Forecasts: NZ economic momentum could get Trumpled on
31 Oct 2016
NZ economy growing strongly, with momentum set to continue.
NZ interest rates may be at lows as RBNZ OCR cuts draw to an end, and global bank risk premiums rise.
But geo-political risks continue to weigh; the outlook will become more uncertain if Trump is elected US President.
Wild card
31 Oct 2016
Our latest economic forecasts show that the economy is chugging along nicely.
However, complicating factors like low wage growth remain in play.
Also, Donald Trump is a real wild card for the US Presidential Election and for what that means for NZ’s trade outlook.
As one door closes, another opens
31 Oct 2016
US beef’s re-entry into China could put the squeeze on NZ beef exports.
At the same time, US consumers’ increasing shift to grass-fed beef presents an opportunity for NZ.
Whether NZ loses or gains from this could depend on traceability requirements at either end.
Farmshed Economics: Springs both ways
28 Oct 2016
Dairy sector production has been slammed by very wet weather.
Meat prices have been moving both ways, with beef prices firm and falling lamb prices.
Lastly, feed grain prices are starting to hint at a lift, going forward.
Beef's echo boom
28 Oct 2016
Beef prices haven’t moved much in recent months.
However, lack of supply both locally and from Australia is keeping NZ beef prices high.
Meanwhile, the ASB NZ Commodity Price Index edged up in USD terms last week.
Jobless rate expected to hold at 5.1 Percent in Q3
27 Oct 2016
We expect the unemployment rate to hold at 5.1%.
Wage inflation pressures are relatively static and expected to remain steady at 1.6% yoy on a labour cost basis.
Continued soft wage inflation will reinforce the need for another rate cut in November.
Inflation data key for next move in Australian interest rates
25 Oct 2016
Outlook for Australian interest rates faces key week ahead.
Q3 CPI from Australia on Wednesday could tip the balance back towards a rate cut this year.
Weaker employment data already pushing the case for more policy easing.
Big wet cements NZ dairy production fall
21 Oct 2016
Wet weather in the North Island has slowed NZ milk production.
This compounds an already weak production outlook.
Meanwhile, the ASB NZ Commodity Price Index slipped in USD terms last week.
The big wet
19 Oct 2016
Dairy auction prices lifted overnight, albeit by less than expected.
Indeed, it appears markets need more convincing that wet weather is weakening production.
From here, we expect choppy prices over coming auctions, before prices lift again over the rest of the season.
Hints of inflation in Q3
18 Oct 2016
The Q3 CPI was slightly stronger than expected, but inflation remains muted.
The reduction in ACC vehicle levies weighed on inflation over the quarter, but the RBNZ looks through such movements.
We continue to expect the RBNZ to cut the OCR in November, with risks of an additional cut early next year.
RBNZ on inflation watch
17 Oct 2016
Q3 CPI is the key focus this week; we expect annual inflation of just 0.1%.
The RBNZ is braced for a weak Q3 result and will be encouraged by stable long-term inflation expectations.
We continue to expect a 25bp OCR cut in November and continue to see a high risk of another cut next year.
Pound dives as Europe plays Brexit hardball
14 Oct 2016
The British Pound dived last week.
Putting lamb and wine exports at risk.
Lastly, the ASB NZ Commodity Price Index slipped in USD terms last week.
Annual inflation to bottom out in Q3
13 Oct 2016
We expect the CPI to be flat in Q3, lowering annual inflation to just 0.1%.
In addition to one-off deflationary impacts, underlying inflation pressures remain benign.
We continue to expect the RBNZ to cut the OCR in November, with risks of an additional cut in 2017.
Low inflation still causing RBNZ heartache
11 Oct 2016
ASB Cantometer Index lifts to 1.8 in May.
High levels of consumer confidence and population growth underpin the most recent lift in Canterbury activity.
Early signals that construction activity nearing a peak.
US, star of the show this week
10 Oct 2016
Focus on the US will continue this week.
Fed speakers and the second US Presidential debate will be key events.
ECB speakers will also garner some interest in a week relatively light in data.
Lamb prices make a late run
07 Oct 2016
Lamb prices have made a late September run.
However, this lift may be temporary and prices are likely to stay subdued compared to previous years.
Meanwhile, the ASB NZ Commodity Price Index rose last week.
Farmshed Economics: Springing back into action
05 Oct 2016
The dairy sector sprang back into action this month.
Meanwhile the meat sector was busy too, with the green light for Silver Fern Farms deal highlighting the month.
Lastly, we view the sheepmeat sector as most vulnerable to a high NZD.
Time to reflect
05 Oct 2016
Dairy auction prices fell overnight largely in line with expectations.
As dairy markets take a breather and reflect on August and September’s price surge.
From here, we expect prices to track sideways, before lifting again later in the season.
No change from central banks but perhaps soon
04 Oct 2016
Central bank inactivity in the limelight.
Speculation over rate cuts for New Zealand, Australia and Japan continues.
The New Zealand Dollar was whippy but remains elevated.
Confidence lifts but inflation measures remain weak
04 Oct 2016
Business confidence surged higher in Q3 as domestic trading conditions improved.
Business employment intentions continue to lift as labour shortages start to increase.
Direct measures of inflation remain weak and we continue to expect a 25bp OCR cut in November.
Confidence without inflation
03 Oct 2016
Business and consumer confidence both around recent highs.
Despite confidence in the economy, inflation remains almost absent.
The lack of inflation pressures could push the RBNZ into cutting in November, with a risk of more easing in 2017.
Oil price speculation rippling through markets
30 Sep 2016
Oil price speculation is rippling through commodity markets.
Meanwhile, Westland Milk Products confirmed its payout at $3.87/kg for 2015/16; expects $4.55-4.95/kg for 2016/17.
Lastly, the ASB NZ Commodity Price Index slipped a touch last week.
NZ dollar depreciation predicted, FX options usage evolving
29 Sep 2016
The NZD/USD is expected by businesses trading internationally to be just below $0.69 in twelve months.
Exporters expect to see a large drop in FX exposure over 12 months, but this is more than offset by importers.
FX options are attracting a greater percentage of FX transactions compared to two years ago.
RBNZ still on track for November OCR cut
26 Sep 2016
The RBNZ reaffirms its strong easing bias at the September OCR review.
We continue to expect a cut in November, focus is now on if further cuts will be required early next year.
Weak inflation measures, a higher TWI and increased funding costs are the main factors that could prompt a second cut.
Rural Economic Note: Making par
25 Sep 2016
- Fonterra delivered 2016/17 financial results towards the bottom of its guidance range.
- Indeed, the rising milk price over the season put the squeeze on its profits.
- Meanwhile, Fonterra reaffirmed its 2017/18 farmgate milk price forecast at $6.75/kg.
Fonterra surprises, RBNZ steady
23 Sep 2016
Fonterra surprises by lifting its milk price by 50 cents to $5.25/kg.
Meanwhile, the Reserve Bank held the OCR steady.
Lastly, the ASB NZ Commodity Price Index dipped in USD terms.
Turning around the milk tanker
22 Sep 2016
After a poor 2014/15, Fonterra has posted improved 2015/16 results.
And, signals further improvement over 2016/17.
For our part, we are cautiously optimistic on further financial improvements, while maintaining our confidence on a lifting milk price.
NZD: unjustifiably or understandably high?
22 Sep 2016
RBNZ leaves the Official Cash Rate (OCR) on hold at 2%, as widely expected.
A clear easing bias has been retained and we expect the RBNZ will cut the OCR in November to 1.75%.
Risks are still skewed to a further cut in 2017.
Welcome surprise
21 Sep 2016
Fonterra lifts its 2016/17 milk price forecast by 50 cents to $5.25/kg.
As dairy auction prices consolidated their recovery.
We expect prices to remain firm over the remainder of this season, leading to a final milk price of $6.00/kg.
Back to the future
20 Sep 2016
The US Department of Agriculture will buy cheese to support dairy prices using 80-year-old legislation.
This could indicate a return to more interventionist US agricultural policy.
Indeed, in a more protectionist world, NZ stands to lose.
Unjustifiably or understandably, it’s a matter of perspective
19 Sep 2016
The RBNZ’s concern about the level of the NZD has escalated to the point where a decline is “needed”.
However, the level of the NZD is understandable given the current fundamentals which are supporting it.
Nevertheless, the high NZD makes the RBNZ’s job harder. But we don’t expect an OCR cut just yet at this week’s OCR Review.
Moving on from Brexit, central banks back in focus
07 Sep 2016
Central bank activity back in the limelight following Brexit.
New Zealand, Australia and the UK all see rate cuts; rate hike speculation in the US warms up.
The New Zealand Dollar remained buoyant despite the rate cut.
Time to take a breath
07 Sep 2016
The first step in dairy’s price correction is complete.
As prices have now corrected higher on the back of a pullback in global supply.
From here we expect prices to consolidate, before prices lift again later in the season.
Farmshed Economics: Dairy back on track
31 Aug 2016
Dairy prices are back on track.
Meanwhile, meat prices are a mixed bag.
The Reserve Bank cut the Official Cash Rate as expected on 11 August.
Regional Economic Scoreboard: The Bay of Plenty’s hot streak continues
25 Aug 2016
The Bay of Plenty hot streak continues – five quarters in a row on top of the Scoreboard!
Booming house prices and record low interest rates are now translating into a construction boom across the country.
Nelson is the big mover this month, jumping 5 spots in the rankings to 4th.
Regional Economic Scoreboard: Two in a row for the Bay of Plenty
25 Aug 2016
The Bay of Plenty has retained its status as NZ's top-performing region in the latest ASB/Main Report Regional Economic Scoreboard.
Auckland sits in second place, where it has been for all but one quarter of 2015.
This quarter also highlight one of NZ's’s major economic driving forces: tourism, with Otago (Queenstown) performing very strongly.
Mixed pressures on mortgage rates muddy outlook
24 Aug 2016
Mortgage rates have remained largely steady since April’s Home Loan Rate Report.
Increases in funding costs have limited mortgage rate declines following the RBNZ cutting the OCR in August.
We are expecting another 25bp cut in November, which may put some downward pressure on mortgage rates.
Three months to July 2016
16 Aug 2016
Sentiment around whether or not it is a good time to buy a house has dropped sharply around the country.
At the same time, more people expect house prices to lift over the next 12-months.
Combined with expectations for interest rate rises, it’s not surprising to see buying sentiment shift lower.
Highly regulated and highly priced
12 Aug 2016
The Auckland housing market is highly regulated and highly priced.
Regulations reduce land development capacity and create inflexible planning processes.
The proposed Unitary Plan is unlikely to dramatically improve the housing supply response.
US food labelling - a sea change
12 Aug 2016
In a first, the US now requires food labelling to indicate presence of GM ingredients.
With 80% of US food containing GM ingredients, this provides a wake-up call to US food producers.
The new US legislation opens the door for GM-free NZ products.
Bouncing onwards and upwards
08 Aug 2016
NZ growth outlook remains respectable, boosted by migration, construction and kiwifruit.
Inflation remains weak, with inflation projected to remain below 1% for a 3rd year.
Rampant housing market of 2016 may come off the boil in 2017, but still simmer.
Coming to terms with a post-Brexit global economy
04 Aug 2016
A month on from the unexpected Brexit vote and a sense of calm has been restored into markets.
Sharemarkets have rebounded strongly after the Brexit shock, with some hitting all-time highs.
In New Zealand, expectations of an OCR cut in August weighed on interest rates and, to a lesser degree, the NZD.
Farmshed Economics: Rio Olympics Gold - Kiwi gold
29 Jul 2016
The Kiwifruit industry has struck gold both literally and metaphorically.
In the Olympic theme, beef prices claim the silver medal.
Meanwhile, the Reserve Bank has signalled that is prepared to cut interest rates below 2%.
UK opts for Brexit, markets in turmoil
06 Jul 2016
UK elects to exit the European Union; PM David Cameron sets out the timetable for his resignation the following day.
The Reserve Bank of New Zealand held the OCR steady at 2.25% but left the door open for more cuts.
The US Federal Reserve also held rates steady and there is now considerable debate over when hiking will resume.
Farmshed Economics: Brexit - cutting off your nose to spite your face
05 Jul 2016
The UK vote to leave the EU – Brexit – shocked bookmakers and financial markets alike.
Meanwhile, the agricultural market reaction so far has been modest.
In terms of direct impact on agriculture, Brexit is most likely to impact lamb, wine and to a lesser degree fruit exports.
Brexit: the long and short of it
30 Jun 2016
In the short term, Brexit’s impact on NZ agriculture is limited, but longer term, it sets a dangerous precedent.
In particular, Brexit may signal the start of a backlash against global integration and free trade agreements.
For example, the ongoing progress of the TPP could be one potential casualty.
NZ dollar expected to gently decline, hedging attitudes evolving
21 Jun 2016
The NZD/USD is expected by businesses trading internationally to be just above $0.65 in twelve months.
Only those which both import and export see a drop in FX turnover in the next 12 months and even then only 0.1%.
Firms with a turnover of $30-150m have seen a significant shift in FX hedging attitudes.
US rate hike rhetoric ramps higher
14 Jun 2016
RBA surprises with 25bp rate cut.
A number of US Fed speakers talked up the chances of a near-term rate hike.
The odds of a cut from the RBNZ faded through the month.
Farmshed Economics: Playing it safe
02 Jun 2016
Fonterra played it safe with its opening season milk price forecast of $4.25/kg on 26 May.
While we expect the Reserve Bank to cut the OCR on 9 June, there is a clear risk that they too may play it safe.
Meanwhile, meat prices have sprung back to life.
Regional Economic Scoreboard: The Bay of Plenty's still top dog
23 May 2016
For the fourth straight quarter, The Bay of Plenty continues its run as New Zealand’s top-performing region in the latest ASB/Main Report Regional Economic Scoreboard.
Auckland remains in second place, but is snapping at the Bay’s heels for top spot.
The Hawke’s Bay proved to be this quarter’s biggest mover on the Scoreboard, moving up a star rating to four stars.
Trans Pacific Partnership - A one-hit wonder?
20 May 2016
As in New Zealand, the TPP has seen growing US opposition over the past 10 months.
Indeed mirroring the US presidential elections, a Washington-agricultural heartland split is emerging. While I expect Congress to pass the TPP, a new US President may take US trade policy in a new direction.
As a consequence, for NZ over the coming years, these political developments have the potential to slow the progress of freeing up agricultural trade with the US and its neighbours.
Sharing Auckland's pain
19 May 2016
Auckland’s housing market problems are not unique.
Other high-priced cities have comparatively sluggish housing stock expansion.
Land use regulations are a likely influence on house price appreciation.
Rising with the tide
11 May 2016
Expectations of house price increases remain high.
On balance, lower interest rates are expected.
Outside of Auckland, it is seen as a good time to buy a house.
ASB Rural Loan Report - May 2016
09 May 2016
All rates remain very low, despite the unchanged Official Cash Rate last month.
However, we expect the Reserve Bank will be pressed to cut rates over coming months.
In turn, we expect floating and short-term interest rates to fall, while long-term rates will at least stay low, if not fall.
Otherwise Fine
03 May 2016
Annual growth is around its lows and set to head towards 4% over the next couple of years.
Consumption, construction and other investment growth all picking up while exports retain their new competitiveness.
Still-lower interest rates likely, but the re-igniting housing market raises the risk of further lending restrictions.
US Beef Market - All good things come to an end
20 Apr 2016
The US beef herd, after shrinking to near a record low size, has started to get bigger again.
As the US herd grows over the next five years, beef prices will decline, exports increase and imports drop.
Lower prices should lead to higher US per capita beef consumption, particularly for more expensive cuts.
March OCR cut sees mortgage rates move lower
08 Apr 2016
The RBNZ cut the OCR by 25bp in March and we expect two further 25bp OCR cuts this year.
Another OCR cut is likely to put further downward pressure on floating and short-term fixed mortgage rates.
There is a risk of long-term mortgage rates increasing if influential offshore rates increase this year.
NZ dollar evolving according to expectations but for how long
01 Apr 2016
The NZD/USD is expected by businesses trading internationally to be below $0.65 in twelve months.
More exporters are now forecasting their foreign exchange turnover to increase, as are most large firms.
Firms have reduced the length of time they hedge for in response to recent NZD trends.
Deja vu all over again
16 Feb 2016
Bumpy ride ahead for 2016 with Chinese growth concerns and market volatility back on centre stage.
NZ growth has slowed, but should pick up over 2016 and 2017 with support from lower interest rates and NZD.
Further reductions in interest rates in 2016 will reduce the risk of inflation remaining too muted.
Fewer expecting house price gains but see interest rates staying low
27 Jan 2016
Fewer people are expecting house price gains, with a net 44% of respondents expecting house prices will increase.
The majority of respondents expect interest rates to remain unchanged over the next 12 months.
Sentiment about buying a house varies from region to region. Nationwide a net 5% see now as a bad time to buy.
ASB Rural Loan Report - January 2016
14 Jan 2016
We expect floating and short-term rates to fall over 2016.
We base this expectation on our view that the Reserve Bank will cut the OCR by 50bp to 2% this year.
At this stage, we also expect medium and some longer-term rates to fall as well, but risks are that they don’t necessarily decline.
Mixed pressures on mortgage rates heading into 2016
08 Jan 2016
We expect the RBNZ to cut the OCR by an additional 50bp over the second half of 2016.
Further OCR cuts are likely to put downward pressure on floating and short-term fixed mortgage rates.
The risk is long-term mortgage rates increase if influential offshore rates increase over the course of the year.
NZD expected to ease, but some may struggle to pass on cost
16 Dec 2015
The NZD has been trading between 0.6400 and 0.6900 recently, and businesses expect this to continue.
In contrast, we expect the NZD can drop further over the year ahead, and re-test recent lows.
The NZD’s drop over the past year is not expected to flow through to higher prices for a high proportion of firms.
Auckland, it's not just prices getting squeezed
15 Dec 2015
Auckland’s housing stock has been used with a greater intensity than elsewhere in New Zealand.
And, this utilisation has been increasing over time.
Housing preferences and household circumstances within Auckland are significant contributors to differences in housing utilisation.
Regional Economic Scoreboard: Bay of Plenty top of the pops
25 Nov 2015
Bay of Plenty tops the scoreboard, knocking Auckland back into 2nd equal.
Northland gains a star to 4 stars, with the Auckland housing market “halo effect” in action.
Auckland and Canterbury retain 5 stars.
A cautionary tale
16 Nov 2015
The growth outlook has softened, as dairy production contracts and businesses become more cautious.
Strong net migration is likely to push the unemployment rate higher, keeping wage and domestic inflation pressures low.
The inflation outlook is mild and we believe the RBNZ has scope to cut the OCR below 2.5%.
Fewer expecting house price gains but still see interest rate falls
06 Nov 2015
Fewer people are expecting house price gains, with a net 52% of respondents expecting house prices will increase.
The majority of respondents expect interest rates to fall, second only to expectations during the Global Financial Crisis.
Sentiment about buying a house varies from region to region. Nationwide a net 8% see now as a bad time to buy.
More downward pressure on interest rates
24 Sep 2015
We expect the RBNZ to cut the OCR by an additional 25bp this year – taking the OCR to 2.5% by year-end.
Influential global interest rates have been choppy recently, but could come under upward pressure later this year.
Another OCR cut will put downward pressure on mortgage rates. Rising global rates could become an opposing force.
Dollar drop an opportunity and a threat
02 Sep 2015
NZD/USD exchange rate expected to trade near the US65c level.
Firms have budgeted for the NZD to be higher.
Lower NZD is impacting hedging decisions – more exporters plan to hedge, and for longer.
Q2 2015 Regional Economic Scoreboard
20 Aug 2015
Auckland remains New Zealand’s fastest-growing city in the Regional Economic Scoreboard.
Bay of Plenty was boosted to second place on the scoreboard with strong jobs growth and its strong housing market.
Waikato continues to beat the dairy blues with its move into third place on the scoreboard.
With a little help from my friends
18 Aug 2015
Economic momentum fading as construction activity peaks and dairy incomes decline - but support is on its way.
RBNZ has begun reducing the OCR – we expect the OCR to fall to 2.5% by the end of 2015, with room for further cuts.
NZD also lower, boosting export competiveness for the year ahead.
ASB Rural Loan Report – July 2015
10 Jul 2015
We expect the Reserve Bank to cut the OCR three times this year.
In this event, we expect floating and short-term rates to fall further.
At this stage, we also expect medium and some longer-term rates to fall as well, but risks are that they don’t necessarily decline.
ASB Rural Loan Report May 2015
29 May 2015
With inflation staying very low, we expect the Reserve Bank to cut the OCR later this year.
At this stage, we also expect longer-term rates to fall as well, but risks are that they don’t necessarily decline.
In general, we are in for lengthy period of low interest rates.
ASB Rural Loan Report February 2015
19 Feb 2015
We expect the Reserve Bank to be on hold for the foreseeable future.
Also at the moment, gaining some certainty by locking in a medium- or long-term rate is inexpensive. Meanwhile, rates could potentially head marginally lower this year before rising in 2016.
All up, we are in for lengthy period of low interest rates.
Report categories
Economists
Nick Tuffley
ASB Chief Economist
Since starting out in 1997 as an economist, it's fair to say Nick has seen a few hair-raising moments over the years, including the Asian Financial Crisis and the Global Financial Crisis.
One of Nick's strengths is his ability to communicate complex ideas in a readily understandable and entertaining way. He thrives on helping people understand the economic environment to help enrich the quality of their business or personal life. He’s proud to lead a team that has won two Forecast Accuracy Awards from Consensus Economics, and has a strong track record with their Official Cash Rate and dairy price forecasts.
Nick grew up in Christchurch and graduated with a Master of Commerce degree from the University of Canterbury. He learned his economic ropes at the Reserve Bank of New Zealand before a long stint as a Senior Economist at Westpac, and joined ASB as Chief Economist in 2007.
- Email: Nick
Mark Smith
Senior Economist
Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.
His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.
Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.
Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.
When not at work Mark likes to travel, keep fit and spend time with his friends and family.
- Email: Mark
Chris Tennent-Brown
ASB Wealth Senior Economist
Chris has worked as an economist for ASB and Commonwealth Bank of Australia in Sydney since 2005. His work has involved monitoring and forecasting trends in the New Zealand economy, with a focus on drawing implications for financial markets and investments. Chris is passionate about savings issues, and much of his current work is focussed on broadening peoples understanding of investments. Chris obtained a Bachelor of Commerce at Auckland University, majoring in Economics, and prior to joining ASB worked in the funds management industry for Bankers Trust and BT Funds Management. With over 20 years' experience in finance, Chris has also spent several years farming, and was a New Zealand representative cyclist. When not at work, Chris likes to travel, cycle, and spend time with his family and numerous pets.
- Email: Chris
Kim Mundy
Senior Economist
Kim joined ASB in 2015 and has worked for both ASB and the Commonwealth Bank of Australia in Sydney over the last 8 years. Kim enjoys all facets of working as a bank economist, including economic forecasting as well as more in-depth macro-economic analysis. She has a particular expertise in foreign exchange strategy and a keen interest in sustainable economics. She also enjoys getting out and about to help people better understand the economic environment they are operating in.
Kim grew up in Northland before heading to Auckland University where she graduated with a BA/BCom (1st class honours) in Economics, Statistics and Politics. She also interned with the New Zealand Treasury while completing her studies before starting her career as an economic consultant.
- Email: Kim
Yen Nguyen
Economist
Yen Nguyen joined ASB Bank in June 2024, bringing over 10 years of experience as a policy analyst in the Vietnamese government. Her expertise lies in macroeconomic and policy analysis, with a strong focus on economic strategy and regulatory frameworks.
Yen grew up in Hanoi, Vietnam and holds a Master’s Degree in International Studies from Korea University (Seoul) and a Ph.D. in Economics from the University of Auckland. Her current focus is on New Zealand’s housing market and regional development, delivering clear, practical insights to help New Zealanders understand market trends, and the economic factors influencing their communities.
Yen is passionate about applying her skills to address real-world economic challenges and supporting sustainable development.
- Email: Yen
Wesley Tanuvasa
Economist
Wesley Tanuvasa joined ASB in February 2025.
He was previously in the Reserve Bank of New Zealand's forecasting team as a sector analyst for GDP and the labour market. He also worked in the prudential policy team, focusing on improving capital and solvency requirements for New Zealand banks.
Beyond the Reserve Bank, Wesley's experience includes roles in wealth management research and corporate advisory at Jarden and Astris Advisory Tokyo, as well as trade policy implementation at the New Zealand Ministry of Foreign Affairs and Trade.
Wesley holds a Master of Commerce, majoring in Finance and International Business from the Victoria University of Wellington. He is a current CFA I candidate.
Wesley's current focuses include analysis on economic growth and opportunities to bolster New Zealand's productivity.
- Email: Wesley
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