Standard services resumes
New Zealand’s services sector returned to expansion levels experienced in recent months, according to the BNZ - BusinessNZ Performance of Services Index (PSI).
RBNZ Not a RBA Disciple
As the market becomes increasingly dovish about Australia, investors seem very keen to assume that wherever Australia goes New Zealand will follow. While it is true there are close links between the two countries, monetary policy will only be replicated when economic conditions demand. Right here and now that is not the case.
Business Confidence Survey Unequivocally Soft
Over the last few months there have been numerous data releases that have delivered bob-each-way results for both doves and hawks alike. The same cannot be said of today’s data. While we are skeptical that the report accurately reflects the momentum and inflationary pressure in the economy, we have to concede that there’s a lot in it for those of a dovish disposition and very little for those of an opposite standing.
New Zealand’s manufacturing sector experienced a lower level of expansion for the first month of 2019, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).
RBNZ Holds Fast
The reaction to today’s Monetary Policy Statement indicates that financial markets saw the missive as being more hawkish than anticipated. The NZD is up over 1.0% and the chance of a near term cut in interest rates has been significantly reduced. From our perspective, we simply could not understand why the Reserve Bank would adopt a dovish bias when inflation was broadly at target, employment was at or above its maximum sustainable level and the outlook was for growth to continue at near- trend. And so it came to be. It is only when forecasts can reveal both inflation and employment deviating from target (in the same direction) that one can be confident that interest rates are about to move. In our forecasts there is no sign of this happening, in a sustainable fashion, any time soon.
RBNZ Fully Employed
Financial markets clearly want to price in a cut in New Zealand’s cash rate. Today’s labour market data unequivocally came in weaker than market expectations but participants seem to have completely overlooked the fact that the overall picture remains relatively indifferent to what the RBNZ had assumed when it put together its November 2018 Monetary Policy Statement (MPS).
Inflation Grinding Higher, At Heart
Imaginings that New Zealand’s inflation was losing its way were put to bed by this morning’s December quarter CPI report. Sure, it registered an increase of just 0.1%. But that was suppressed by seasonality. More instructively, the annual rate of CPI inflation stayed at 1.9% in Q4. And the core measures that Statistics NZ published were running at least as strongly as this.
BNZ PSI - Holiday Mode
New Zealand’s services sector experienced a further dip in expansion levels
during December, according to the BNZ - BusinessNZ Performance of Services
BNZ PMI - Stocked Up
New Zealand’s manufacturing sector experienced a positive end to 2018,
according to the latest BNZ - BusinessNZ Performance of Manufacturing Index
QSBO Highlights Cyclical Stretch
Just how hot is the NZ economy? Judging by pricing intentions in this morning’s Quarterly Survey of Business Opinion (QSBO), not very. But look at the survey’s capacity constraint variables and it’s clear the economy is relatively heated. And that this is likely to remain the case for a while yet, with the QSBO’s improved growth measures more consistent with annual GDP running around trend (2.5-3.0%).