The Pre-Christmas Blockbuster
It is the usual massive pre-Christmas rush of economic information this week. Q3 GDP is expected to show a decent lift but is likely to overstate trend improvement. PMI/PSI reveal still challenging conditions for many. The Government’s HYEFU to show a long road back to surplus. Annual current account deficit still seen narrowing, for now. Selected Prices to inform our thoughts for Q4 CPI.
Welcome Dr Anna Breman!
Dr Anna Breman, the new RBNZ Governor, made an impressive debut before the Finance and Expenditure Committee last week. Governor Breman has hit the ground running. Falling dairy prices need to be watched closely, as downside risk accumulates. GDP partials this week expected to support forecast Q3 bounce. PMI, migration, and tourism data are also due.
More Signs of Economic Recovery
Some MPC members have noted they are not surprised at the market reaction to last week’s MPS. That is important because it suggests the Bank is comfortable with the market direction. New RBNZ Governor Dr Anna Breman starts today. There are more signs of economic recovery. We nudge our Q3 GDP pick up to 0.6% q/q awaiting more ‘partials’ over this week and next. Dairy prices are under downward pressure.
RBNZ to lop another 25 points off its cash rate
Local market attention will this week be centred on Wednesday’s RBNZ Monetary Policy Statement. In short, we see the RBNZ cutting its cash rate a further 25 basis points to 2.25% and leaving the door open to a further reduction in February next year. Q3 retail sales, updates on business and consumer confidence, and October filled jobs are the key data releases but are all scheduled post the RBNZ meeting.
RBNZ November MPS Preview
Our central view is the Reserve Bank cuts the cash rate a further 25 basis points to 2.25% when it presents its November 26 Monetary Policy Statement (MPS). Moreover, we expect the Bank to leave the door open to a further reduction in February next year.
Monitoring progress
Forward looking indicators have been promising some improvement in activity. We will be monitoring the coming week’s data for more signs of the promise translating into actual activity. The NZD has pushed further below RBNZ assumptions raising questions around how fast and far inflation will ease ahead. Inflation expectations data is due for release tomorrow.
Labour market soft, but more signs of life appearing
Wednesday’s Q3 labour market data are expected to show a soft labour market, but with some signs of stabilisation. More monthly economic indicators are showing signs of life supporting our expectation of economic recovery. The RBNZ releases its Financial Stability Report on Wednesday, and the latest Crown accounts are due Thursday.
Q3 Labour Market Preview
We expect next Wednesday’s Q3 labour market data to show a soft labour market, but with some signs of stabilisation. We anticipate minimal employment growth, a nudge higher in the unemployment rate, and easing annual wage inflation. Business and consumer confidence updates are due this week and a few RBNZ speakers are on the circuit.
Inflation at top of the band
Today’s Q3 CPI data came in very close to expectations. It is unlikely to change any views on the outlook for monetary policy. Annual inflation rose to 3.0% from 2.7%, matching market, our, and the RBNZ forecasts. The quarterly details were marginally firmer than expected, but no major surprise. Core inflation is contained, although indicators remain in the top half of the RBNZ’s target band.
Trade tension, growth struggles, and CPI preview
Trade tensions between the US and China have flared again. Locally, the PMI and PSI warn that economic growth is struggling to gain traction. Population growth is slow, reflecting low net inward migration. The 2024/25 fiscal deficit came in narrower than Budget forecasts and Government net debt stabilised as a share of the economy. Q3 CPI seen lifting to 3.0%, subject to this week’s Selected Price Indexes for September. RBNZ’s Conway speaks on Wednesday.
RBNZ to cut
The RBNZ seems certain to cut the OCR at its Monetary Policy Review (MPR) on Wednesday. The question is how much? We see a 25bp cut, although a 50bp move is a clear risk. Economist polls and market pricing also favour a 25bp reduction, with some chance of a 50bp move. Tomorrow’s business survey has the potential to alter thoughts on the economy and outlook for interest rates. The Government Financial Statements for 2024/25 are to be published Thursday. The Minister of Finance speaks Friday.