GDP Preview and the Week Ahead
Thursday’s Q2 GDP report will hold most attention across the domestic data on show this week. Despite its usual historic date stamp, this week’s growth figures will be important to see how the economy has been performing in light of low business confidence and ahead of fiscal stimulus. We think the economy has held up reasonably well, and better than the RBNZ forecast, even with a dent from repairs and maintenance and some large operations.
Upside Risks To GDP
The investor market is very heavily focused on the prognosis for New Zealand’s GDP. This is not surprising as the RBNZ published an alternative scenario in its August MPS which shows a lower-than-forecast GDP outturn could see the cash rate cut by 100 basis points. Markets have taken this to heart by pricing in a 50% chance of rate cut in the next twelve months. But what will the RBNZ do and say if GDP surprises to the upside. This is, in fact, what we expect to happen – at least in the short term.
Business Profits/Investment in Focus
The news in Thursday’s business survey will likely revolve around respondents’ expectations of own-activity, employment and investment. All were positive back in July, but only by the skin of their teeth. So it wouldn’t take much for them to slip into negative territory for August – where the survey’s profit gauges have already sagged to.
BNZ Markets Today
A quiet start to a quiet week sees only modest changes in currencies, with the NZD flat around 0.6630. GBP has shown a rare outperformance, albeit up less than 0.3%. US equities are modestly higher, while UST rates have drifted lower.
Revving On the Spot
Wednesday’s Q2 retail trade report appears prone to feed fears of a stalling in consumer spending. Formally, we expect a 0.2% increase in the quarter (2.0% y/y), after the bare 0.1% gain reported for Q1 (3.6% y/y). However, this is based on the monthly electronic card transactions we have to key off these days, which have been a lousy indicator to the quarterly retail sales outcomes of late. There is still hope for Q2 retail trade to look OK…especially via upside potential in auto volumes.
Where Is The Fiscal Stimulus?
There is much to consider in the macroeconomic landscape at present. This follows from the surprisingly dovish RBNZ statement last Thursday, the lack of any visible boost from NZ’s fiscal stimulus and, looking internationally, intensifying concern around Turkey’s economy.
Wage Inflation To The Fore
When the week is all done and dusted we are expecting to report: rising inflationary pressure; a further tightening in the labour market; but signs that economic growth is losing its momentum. An interesting cocktail that will pose conflicting signals for market watchers.
We expect June’s merchandise trade figures to affirm the idea of a sizable bounce-back in net export volumes in the June quarter (good for GDP), but also a slight drag still coming through on the annual current account.
Shoe-Gazing on Inflation
With nervousness about tomorrow’s June quarter CPI inflation not proving robust, there is even more reason to consult the various core measures. Amongst these, the Reserve Bank’s sectoral-factor version for non-tradables will be worth checking out. It ticked up to 2.6 y/y in Q1.
There will be no prizes for guessing that tomorrow’s NZIER Quarterly Survey of Business Opinion (QSBO) will offer a shakier view on the economy than it did three months ago. The question is; how much worse? But also bear in mind that a good deal of the angst relates to policies, and capacity constraints, which are bound to inflate costs.
RBNZ OCR Preview: Where There’s A Will
“The Official Cash Rate will remain at 1.75 percent for some time to come”. That’s not our emphasis, but the opening policy line from May’s Monetary Policy Statement (MPS). Yes, it was followed by the Bank stating that the direction of its next move “is equally balanced, up or down.” But, practically, the “will” was strong, and indicates the way. It will take a lot to budge the Reserve Bank from its on-hold mentality.