BNZ Research

Our research team offers expert commentary on economics, foreign exchange, fixed interest and credit, to help inform your organisation’s risk analysis and decision making. 

Publications available

Financial Markets Wrap

Mixed NZD Fortunes in November

Jason Wong -
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Bond market sell-off continues on rising inflation risk...Surprise Trump victory helps support US equities and USD...NZD/USD a touch weaker, but stronger on most of the crosses

NZD TWI flat in October

Jason Wong -
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NZ bonds and equities underperform as global bond yields rise significantly...USD shows a broadly based recovery...NZD/USD lower but NZD TWI flat

NZD: Upward Trend Arrested

Jason Wong -
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NZD relatively flat over September...Central bank policy remained a key focus of market attention...Bond market sell-off not sustained

Markets Today

BNZ Markets Today

Doug Steel -
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It’s been quite a week for the NZ dollar, briefly below 0.7080 on Monday as news of Key’s resignation broke to yesterday’s flirt with 0.7220 influenced by commentary from Governor Wheeler and Treasury updates.

BNZ Markets Today

Jason Wong -
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The USD is slightly weaker across the board on a fairly quiet news day. GBP is the worst performer, retreating after its strong run of late. GBP is down 0.6% to around 1.26. UK industrial production fell by 1.3% mom, much weaker than the 0.2% increase expected.

BNZ Markets Today

Kymberly Martin -
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Most currencies have traded reasonably tight ranges over the past 24-hours. After a burst of volatility yesterday afternoon, the NZD/USD now trades at 0.7120.

BNZ Markets Today

Kymberly Martin -
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The USD opened higher on the week, but has subsequently declined. European currencies have outperformed. The JPY has been the weakest performer.

BNZ Markets Today

Jason Wong -
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The key focus on Friday was the US employment report, which made for a quiet trading period ahead of its release. It ended up being a mixed report, with employment growth in line with expectations, but the unemployment rate dropped by a chunky 0.3% to a 9-year low of 4.6%. Just as surprising was much weaker wage inflation, with average hourly earnings down 0.1% m/m.

BNZ Markets Today

Kymberly Martin -
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The USD ran out of steam overnight. The ‘oil-linked’ CAD and NOK have continued their outperformance. The NZD has been amongst the weaker performers over the past 24-hours.

BNZ Markets Today

Kymberly Martin -
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The USD strengthened against all its peers, with the JPY the greatest casualty. The NZD/USD has declined to 0.7070 over the early hours of this morning.

BNZ Markets Today

Kymberly Martin -
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Over the past 24-hours the USD has traded sideways. The GBP/USD and NZD/USD have been the strongest performers while the JPY has declined.

BNZ Markets Today

Kymberly Martin -
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Most currencies pushed higher against the USD last evening, before succumbing to a rebound in the USD in the early hours of this morning. Overall, the CAD and JPY have been the strongest currencies since the start of the week while the GBP has been the weakest.

BNZ Markets Today

Kymberly Martin -
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The NZD and AUD were the strongest performers on Friday, while the CAD was the weakest. European currencies generally made modest gains against the USD.

BNZ Markets Today

Jason Wong -
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With the US holiday, markets were quieter than usual and currency movements were modest. The USD is fairly flat, after its further push higher the previous day.

BNZ Markets Today

Jason Wong -
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After a breather earlier this week, the USD has pushed up again rising by 0.5% on the various indices we monitor. While you'll see reports of the USD reaching decade-plus highs, those indices reflect a high weighting given to the euro. Our real-time major currency TWI is still trading below the mid-January high, but it is now less than 1% below that peak.

BNZ Markets Today

Jason Wong -
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With little newsflow, currency movements have been modest, with the USD fairly flat following yesterday's modest fall.

BNZ Markets Today

Jason Wong -
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Amidst a quiet news day, the USD has lost some lustre after its strong run and is down against most of the majors, falling by 0.3% on a TWI basis. Commodity currencies and GBP are the best performers.

BNZ Markets Today

Jason Wong -
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Currency movements have been modest with all the majors +/- 0.3% from the previous NY close versus the USD, which itself is fairly flat for the day on various weighted indices.

Rural Wrap

More Or Less Meat

Doug Steel -
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There has been much going on in the sheep and beef markets that will continue to have influence through the 2016/17 season and beyond. We take a brief look at some influences on these key markets and consider what it might mean for volumes and prices for the season as a whole. Meanwhile, further gains in international dairy prices keep upward pressure on milk price forecasts. Among many developments internationally, keep watching the US Fed (that is set to lift interest rates this month), rising long term interest rates (as markets reassess the medium term inflation outlook), a jump in oil prices (as OPEC makes a deal), China, European politics, and the implications of Trump as US President.

World Food Prices Turning Up

Doug Steel -
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World food prices have bounced a bit from the start of 2016, following a prolonged slump from their peak way back in 2011. For NZ, as a food producer, this is encouraging. Here we have a brief look at recent food price trends, both globally and locally, and consider the implications for the NZ economy, currency, inflation and the central bank.

Currency Research

NZD vs. Long-Term Fair Value Estimated

Jason Wong -
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In this report we provide updated long-term fair value estimates for the NZD based on our purchasing power parity (PPP) model. Our PPP estimates are based on CPI ex GST indices and we run a 15-year moving average filter.

How Much Higher For The USD?

Jason Wong -
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A strong USD theme has pervaded our FX projections all year, largely based on our outlook for US monetary policy. That view hasn’t always been comfortable as the Fed has consistently back-tracked from “promised” rate hikes, as the US economy chugged along and the inflation target remained elusive.

NZD Corporate FX Update

Jason Wong -
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For some time we’ve highlighted the opposing forces on the NZD – stronger domestic conditions applying upward pressure and global conditions applying downward pressure. The shock election of Trump as the next US President increases our confidence in the stronger USD story that has underlined our forecasts all year, but we find ourselves in no urgent need of revising NZD/USD forecasts.

NZD: Trump Win USD-Supportive

Jason Wong -
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After much anticipation by the market over recent weeks and months one of the big risk events of the year – the US election – is now out of the way. That said, the election hasn’t really reduced the level of uncertainty about the outlook. The Trump victory was very much unexpected by the market and our central forecasts have long assumed a Clinton victory. Where to now?

NZD/AUD: Parity Party Prognosis

Jason Wong -
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Talk of NZD/AUD parity is often the death-knell for the cross. Murphy’s Law determines that as soon as analysts talk of parity, the peak is soon reached, the currency never gets there, and a tumble all the way back below AUD0.90 ensues. That was the case in 2008, 2014 and 2015. In April 2015 we nearly got to parity, with an intraday peak of 0.9979, but once again the big figure remained elusive. RBNZ data suggest that one has to go back to October 1973 to see the cross above 1.00.

NZD: Asian Correlation

Jason Wong -
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One of our favourite currency charts shows NZD/USD against the ADXY Index. The latter is an Asian currency basket (against the USD) calculated by Bloomberg-JP Morgan with weights determined by trade and liquidity. The ten Asian currencies that make up the currency basket and their current weights are provided in the table below.

NZD Corporate FX Update

Jason Wong -
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The USD is on a firmer footing, reflecting the reduced chance of a Trump Presidential victory and a run of reasonable data that pave the way for the US Fed to hike rates in December. Our core view remains that the market is complacent about the outlook for US monetary policy, with only circa 40bps of hikes priced in through to the end of next year, compared to our expectation of 75bps of hikes. This sets the scene for a stronger USD profile through the next year, which is negative for risk appetite and the NZD.

NZD: Down, But Not Out

Jason Wong -
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The NZD/USD peaked this year in early September at around 0.7485. That seems a long time ago now. At that point the USD was under pressure following a couple of soft US ISM indicators, investors were still tossing up whether the Fed would deliver a rate hike this year, a surge in dairy prices had just ensued and Mr Trump’s probability of winning the US Presidential election was gaining by the day.

NZD/EUR– Strong Cross to be Sustained

Jason Wong -
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NZD/EUR has spent the best part of the last five years in a trading range of EUR0.59-0.66. About 90% of the time since the beginning of 2012, NZD/EUR has traded within that range, with an average of EUR0.6250. Both ends of that range were tested last year, the top side in the first half of the year and the bottom side during the second half. Apart from those periods, it’s been a pretty unexciting cross rate.

NZD Corporate FX Update

Jason Wong -
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NZ-specific factors are highly supportive for the NZD. NZ’s economy is running above trend, with GDP growth of 3.6% in the year to the June quarter. A repeat performance is expected over the coming 12 months, reflecting a broadly-based economic expansion.

Is The NZD Over-Valued?

Jason Wong -
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Last week the NZD TWI reached its highest level since April 2015, peaking at 79.2. However, we’ve seen a nearly 2% tumble since, driven by a plunge in risk appetite.

Interest Rate Strategy

Mid-Curve Hedging: Time To Re-Look

Kymberly Martin -
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For a while, from a rates perspective, we have been reticent to talk of inflation risk. In this cycle global inflation has proved sufficiently elusive, that like many participants we now almost need to see the hard evidence before contemplating the risk.

Three Key Trade Views-An Update

Kymberly Martin -
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We continue to expect the RBNZ to cut the OCR at its November meeting. The market has moved toward this view. It now prices this outcome as an 85% possibility. In its published speech this week the Bank restated its key line “that further policy easing will be required to ensure future inflation settles near the middle of the target range”. Despite a recent show of strong domestic activity data the Bank has made clear inflation, and inflation expectations remain its focus.

Widening Bills-OIS Spreads: Should We Care?

Kymberly Martin -
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In recent months, the widening of NZ bank bill spreads to OIS rates (Bills-OIS) has captured our attention. What is driving the move? Will it be sustained? What, if any, are the implications for NZ borrowers?

Q4 Kauri Outlook

Kymberly Martin -
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We revisit supply-demand drivers for NZ Kauri SSA bonds.

Outlook for Borrowers: Post September OCR Review

Kymberly Martin -
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The RBNZ left its Official Cash Rate (OCR) at the historic low of 2.0% this week, but confirmed its easing bias by leaving its final statement unchanged; “Our current projections and assumptions indicate that further policy easing will be required”.

LGFA-NZGB Spreads Looking Vulnerable

Kymberly Martin -
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Having narrowly missed our target entry level (103bps) to position for compression on LGFA-NZGB 2027s, we have watched spreads compress sharply over the past few weeks. Spreads are now marked just above 80bps.

Getting Ready To Receive

Kymberly Martin -
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We had suggested holding off entering a NZ short-end receive position until after the release of NZ Q2 GDP. We anticipated a hearty number would see NZ short-end yields extend their recent rise. In the event, the GDP number was certainly healthy. However, the headline print was not as compelling as we had expected, due to upward revisions to Q1 (GDP Most Interesting in its Domestic Demand Drivers). The market’s response was muted. It continues to price around a 60% chance of an RBNZ cut in November and a trough OCR at 1.66% within the year ahead. NZ 2-year swap

Economy Watch

Boringly Brilliant

Stephen Toplis -
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Today’s Half Year Economic and Fiscal Update (HYEFU) yet again showcased the enviable fiscal position that New Zealand has attained. Few governments in the world will be spending their time losing sleep over what to do with burgeoning surpluses. Yet this is where New Zealand’s Minister of Finance (soon to be Prime Minister), Bill English, finds himself. Much of this is due to astute fiscal management, the rest to an economy whose population-driven strength continues to surprise.

Onwards and Upwards for Milk

Doug Steel -
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Dairy prices continue to push higher, on tightening global milk supply. We lift our 2016/17 milk price forecast to $6.40 per kilogram of milksolids. There remains a wide error bound around milk price forecasts. Our forecast includes a view of ongoing firm pricing near term, with some retreat into season end as the current intense global milk supply squeeze starts to abate.

Terms Turning On Trade

Doug Steel -
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For all the talk of inflation turning the corner in NZ there was absolutely no sign of it in today’s terms of trade statistics. The terms of trade itself fell 1.8% which was lower than both our and market expectations. But a lot of this we put down to timing. We expect the terms of trade to lift strongly over coming quarters to be nudging record levels during 2017. Today’s trade volumes, on balance, do not alter our +0.8% Q3 GDP estimate or the downside risks around it.

NZ Business Still Going Four It

Craig Ebert -
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Net confidence might have dipped to +20.5 in November, from +24.5 the month before. But all the real-activity indicators in today’s ANZ business survey were about as strong as they’ve been. Own-activity-expectations, for example, held at +37.6, from +38.4. This level tends to suggest annual GDP growth with a three in front of it, as well, while itching for a four.

Fit For Consumption

Craig Ebert -
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The speech delivered by RBNZ Deputy Governor, Geoff Bascand, earlier this week proved very interesting. Not in respect to near-term monetary policy, so much. But the address did make it clear that the consumer sector is very much on the RBNZ radar from a big-picture perspective.

Big Plane, Smaller Deficit

Doug Steel -
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NZ’s October trade deficit of $846m was a bit smaller than expectations, despite big aircraft imports. This means the underlying deficit narrowed than much more than the headline figures indicate. The annual deficit increasingly looks like it has passed its peak. Export values rose 2% y/y and stronger growth looks likely in 2017. We remain a bit puzzled by the lack of material expansion in core capital goods imports, while further acceleration in consumer goods imports is consistent with many indicators pointing to stronger household spending.

Earthquake Horrors Again!

Stephen Toplis -
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The market reaction to the earthquake(s) has been minimal. The NZD sold off initially but has largely now reversed that sell-off. Fixed interest markets barely budged. We think the response is appropriate.

Onwards and Upwards

BNZ - BusinessNZ -
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New Zealand’s services sector experienced a pick-up in expansion during October, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

Outlook for Borrowers: Post November MPS

Kymberly Martin -
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The RBNZ cut the OCR to an historic low of 1.75% this week. Its accompanying statement implied a fairly neutral bias; “Our current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range.”

In The Zone

BNZ - BusinessNZ -
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New Zealand’s manufacturing sector experienced almost identical levels of expansion as August, according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI) for October.

RBNZ Refuses to be Trumped

Stephen Toplis -
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The RBNZ has delivered a hawkish cut. As anticipated, the cash rate was lowered to 1.75% from 2.00% but this was accompanied by a strong acknowledgement that further cuts are unlikely to be necessary. That said, the door has still been left ajar to further reduction with the Bank intimating a 20 to 25% potential for a further move lower.

Boom!!

Stephen Toplis -
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Even the most pessimistic folk at the RBNZ must now realise that this country simply does not need lower interest rates – at least not now. If today’s combination of soaring dairy prices and record breaking employment growth aren’t evidence enough – what is?

Moooving Higher

Doug Steel -
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Dairy prices have rocketed higher, as milk supply declines in many key areas around the world and recent poor spring weather has dented the NZ production outlook. We lift our milk price forecast to $6 for this season and next.

More Growth Less Inflation

Stephen Toplis -
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All in all, yet another suite of data suggesting that New Zealand is currently in the midst of a sweet spot that is unlikely to be undone, in the near future at least, by pre-emptive central bank tightening.

New Zealand At A Glance

Craig Ebert -
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The New Zealand economy has regathered hearty momentum and looks set to keep expanding at an above-trend rate for a while longer. This is bringing into play capacity constraints, reinforcing a robust cycle in investment and employment. Business and consumer confidence is strong and the fiscal position and outlook positive. However, all of this positivity is making it hard for the currency to roll over, which, in turn, is frustrating a pick-up in inflation, which is currently low. At some stage something has to give – perhaps related to the over-inflated local housing market or any number of global threats – but this may still be some time away.

Trade Deficit Deterioration Inconsequential

Stephen Toplis -
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Despite strong domestic demand and a poor performance from our primary exporters, New Zealand’s external accounts remain in a healthy state. Provided they stay that way they will provide further support for the NZD.

As Low As It Goes

Doug Steel -
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Consumer price inflation is low. On an annual basis, inflation edged down to 0.2% in Q3 from 0.4% in Q2. This was a tick higher than market expectations, but matched RBNZ priors. Nothing obvious there to divert the Bank from cutting the OCR in November, given previous guidance.

Softening in September

BNZ - BusinessNZ -
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New Zealand’s services sector experienced a softening in expansion across all main indicators, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

A Super Set of Fiscal Accounts

Craig Ebert -
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As we worry about central banks running out of ammunition, the New Zealand government has slowly but surely been recharging its arsenal. Through refrain of greater stimulus, and a recovering economy, the government is now experiencing more obvious operating surpluses. And it can reasonably forecast even bigger surpluses ahead. From this it has “real choices” to stimulate the economy, such as through tax cuts and extra spending. If it so chooses. In addition, it has the option of continuing to pay down debt, which has arisen as a priority – even at a faster rate than the Budget committed to.

Blooming Good

BNZ - BusinessNZ -
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Activity in New Zealand’s manufacturing sector picked up in September, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

Q3 QSBO: When Hurry Met Sully

Craig Ebert -
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This morning’s NZIER Quarterly Survey of Business Opinion (QSBO) carried on with the recent theme – of strengthening economic momentum but with still-slow price inflation. We can believe the growth messages. However, we wonder for how much longer the QSBO’s inflation signals can stay so muted, especially with capacity constraints becoming so clear now. To the extent the markets think the RBNZ is at risk of getting behind the curve, we warn that a bid is likely to come back into NZD.

There Comes a Point

Craig Ebert -
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New Zealand’s business outlook is getting too strong for the Reserve Bank to credibly downplay. This afternoon’s ANZ survey is the latest case in point.

The “Affordability” of Unaffordable Homes

Craig Ebert -
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We all seem to agree. New Zealand home prices look extremely high. But if they are so grossly unaffordable then how come so many people are willing and able to buy them? Very low interest rates help square the circle. This is not to say that such things as record immigration, land supply, lagged construction response and high and rising building costs are not important factors for the eye-watering prices people are paying for property. They clearly are. However, to help explain the heights that house prices are now probing, nationally, the inflammatory role of very low interest rates needs to be appreciated as well.

RBNZ: Same Old, Same Old

Stephen Toplis -
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The market now prices in a 70% chance of a rate cut in November. We think that’s about fair given that there remains the possibility of data showing heightened inflationary pressure between now and then. Nonetheless, we reiterate that it will now be a high hurdle for the RBNZ to back off cutting further given the way a rate reduction has been set up with today’s and August’s statements and given the speed that the RBNZ appears to be willing to dismiss data suggestive of no move.

Smooth Operator

BNZ - BusinessNZ -
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New Zealand’s services sector experienced an increase in expansion across all main indicators, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

GDP Most Interesting in its Domestic Demand Drivers

Craig Ebert -
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The 0.9% expansion in New Zealand’s June quarter GDP was hardly disappointing. While it did fall short of the 1.1% anticipated by the market, this was wholly offset by Q1 growth being revised up to 0.9%, from 0.7%. This set annual growth at 3.6% in Q2, bang in line with expectations. But it was the details of the Q2 GDP report where the real stories resided. What jumped out at us, in this regard, was the sheer strength in private consumption.

Steady State

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New Zealand’s manufacturing sector remained in a steady state of expansion, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

External Accounts Infer Higher Saving

Doug Steel -
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The New Zealand economy continues to generate macroeconomic figures that are difficult to fault. Growth is strong, with tomorrow’s numbers highly likely to confirm it has pushed further above trend. This has flowed through to employment expansion and the unemployment rate has fallen to below average. Real wages are rising. The fiscal accounts are in balance. Inflation is low (although some see that as a problem). And, as today’s numbers confirm, even the nation’s usual Achilles Heel – the annual external deficit – has become somewhat less of a burden. NZ’s current account deficit narrowed to 2.9% of GDP in the year ended June 2016 from the 3.1% (revised from 3.0%) a quarter earlier. Yes, a bit more productivity growth would be good, but, then again, wouldn’t it always?!

Strategist

BNZ Strategist

BNZ Research -
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Economic Outlook - Today’s Half Year Economic and Fiscal Update yet again showcased the enviable fiscal position that New Zealand has attained – on the back of astute fiscal management and a swiftly growing economy.

BNZ Strategist

BNZ Research -
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Economic Outlook - We remain upbeat about the NZ economy. The impacts of the recent earthquakes are becoming better known (including for Wellington buildings). There will be transportation issues in the South Island’s north-east and tourism numbers will bear watching. However, we still see little cause to alter our macro-economic forecasts. And so they remain relatively stout – entailing real GDP growth of 3.4% for calendar 2016 and 3.2% with respect to 2017. Implicit to this are private consumption forecasts of 3.5% and 2.6% respectively. It’s an area to watch, in the context of household savings behaviour, if the recent speech by RBNZ Deputy Governor, Geoff Bascand, is any guide. Seismic disruption to Statistics NZ has cast doubt on getting its data on time and in full. However, the next heavyweight local report is Q3 GDP, not scheduled until 15 December. Ahead of this note the 30 November RBNZ FSR and ANZ business survey as well as the government’s HYEFU due 8 December (possibly later).

BNZ Strategist

BNZ Research -
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Economic Outlook - The New Zealand economy is booming and yet there is no consumer price inflation. This remains the clear message from recent economic data. The ongoing lack of inflation and influence on inflation expectations has seen the RBNZ progressively lower the OCR including, as expected, another 25 basis point cut today, to a record low of 1.75%.

BNZ Strategist

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Economic Outlook - The New Zealand economy has regathered hearty momentum and looks set to keep expanding at an above-trend rate for a while longer. We forecast GDP growth of 3.6% for calendar 2016, a solid 3.0% for 2017 and 1.9% for 2018. This is bringing into play capacity constraints, up front, reinforcing a robust cycle in investment and employment. Business and consumer confidence is strong and the fiscal path positive. However, all of this positivity is making it hard for the currency to roll over, which, in turn, is frustrating a pick-up in inflation, which is currently low. At some stage something has to give – perhaps related to the over-inflated local housing market or any number of global threats – but this may still be some time away. For immediate direction, we look to Monday’s ANZ business survey, while the Q3 2016 labour market reports and latest RBNZ quarterly survey of (inflation) expectations are due 2 November.

BNZ Strategist

BNZ Research -
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Economic Outlook - Today’s much-better-than-Budget Crown accounts underscore the buoyancy in the New Zealand economy over recent times. With confidence brimming and growth charging above previous Treasury forecasts, fiscal surpluses seem bound to get bigger yet. From this the government has choices around tax cuts, extra spending and reducing debt faster. Until decisions are made on such things, we can’t really add them to our forecasts – but their potential is certainly worth bearing in mind. At this point, such choices, and buffers, are nice to have given the risks still swirling globally. In this regard, keep an eye out for the 8 December Half Year Economic and Fiscal Update. Next week’s Q3 CPI looms large for markets – although should simply confirm very low inflation at present – and the next dairy auction will be closely followed as always in what is an otherwise relatively light data calendar over the coming fortnight.

BNZ Strategist

BNZ Research -
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Economic Outlook - If NZ home prices are so grossly unaffordable then how come so many people are willing and able to buy them? Very low interest rates help square the circle. This is not to say record immigration, land supply, lagged construction response and high and rising building costs are not important factors for the rich prices people are paying for property. They clearly are. However, to help explain the heights that house prices are now probing, nationally, the inflammatory role of very low interest rates needs to be appreciated as well. For the coming fortnight’s local economic news, following Friday’s ANZ Business Outlook we get the NZIER Quarterly Survey of Business Opinion next Tuesday (4 October). We suspect both surveys will look better with respect to growth, inferring capacity constraints are arising. But will their respective inflation gauges be showing any signs of life? We should also put in a word for the 2015/16 Crown accounts, due 13 October.

BNZ Strategist

BNZ Research -
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Economic Outlook - The 0.9% expansion in New Zealand’s June quarter GDP set annual growth at 3.6%, in line with market expectations. This is surely near the very top of the OECD leader board. But what really jumped out at us was the strength in private consumption. This expanded a whopping 1.9% in Q2, lifting its annual growth to 4.0% - the swiftest in over four years. This looks to be prima facie evidence of the consumption reaction that the RBNZ has long been wondering about, on potential leverage to the housing market. However, it also seems fair to say that the Bank sees its headline CPI inflation forecasts, and public expectations thereof, as the ultimate determinant of its OCR settings. The currency remains important in this, and it’s riding higher than the Bank assumed, partly on the back of the improved domestic news we’ve been witnessing. The Bank has strongly indicated it will leave its policy rate at 2.00% at its 22 September OCR review. However, we wonder if the Bank might say something to stop market pricing drifting too far off the idea of a cut in November, the way it is currently swaying (on global tides). As for the NZ data there is nothing major to speak of over the coming fortnight.

Markets Outlook

Let's Get Fiscal, Physical

BNZ Research -
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As we go to print, we've just learned from the RBNZ about an on-the-record speech Governor Wheeler will deliver this Thursday, 10:00am. Entitled "Some Thoughts on New Zealand's Economic Expansion" it seems more than coincidence that it's scheduled just hours before a government Half-Year Economic and Fiscal Update (HYEFU) that will outline scope for fiscal stimulus. It wasn't so long ago that the RBNZ seemed happy with the idea of fiscal expansion, in order to take pressure off the central bank to do all the work (with OCR easing). But now the tables would appear to be turning.

Big Wednesday Then Some Q3 GDP Indicators

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The first NZ report of the week is one from the Reserve Bank, namely its six-monthly Financial Stability Report (FSR). This is due Wednesday morning (9:00am). This will no doubt devote a fair bit of discussion to the very latest LVR changes, in the context of housing market performance. In this regard it’s worth recalling the November Monetary Policy Statement assumed inflation in the housing market would stay high for a wee while yet, before dissipating further out. Yet there is anecdote it could be slowing already, at least in Auckland.

Economic Momentum Strong, Pre-Quake

BNZ Research -
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One week on from the M7.8 Kaikoura earthquake (and hundreds of aftershocks later) and our initial broad economic assessment still holds. That is, in the first instance, there is likely to be some small near term hit to GDP, and significantly less than that following the Christchurch quakes in 2010 and 2011. Meanwhile, recent economic momentum has been very strong, reinforced by last Friday’s data. There is limited data due this week. Keep an eye out for migration, tourism and trade data, just in case Statistics NZ do release them at some point in what is an earthquake disrupted data calendar.

RBNZ to Cut and Maintain Easing Bias

BNZ Research -
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The only reason we are still expecting the Reserve Bank to cut a further 25 basis points, to 1.75%, at Thursday’s Monetary Policy Statement (MPS) is that the Bank has strongly indicated it is going to do so. The economic case for such a low cash rate was always difficult to justify, in our view. And even more so now, after the recent run of strong economic news. However, the RBNZ seems committed to easing further, and inclined to downplay the positive elements of the data – which was the essence of September’s OCR commentary, as you’ll recall. And we suspect the Bank will carry this approach into Thursday’s MPS by maintaining some sort of easing bias to boot. This, in the belief it will be crucial in containing the currency and boosting inflation expectations.

The Labour Party

BNZ Research -
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There is a lot to suggest New Zealand’s labour market is pumping. However, Wednesday’s Household Labour Force Survey (HLFS) faces some technical headwinds. These relate to the fact that its employment and participation measures in the June quarter blew everyone out of the water. Recall that jobs jumped a staggering 2.4% (+4.5% y/y) and participation spiked to 69.7%, from 68.8%. These might be tough acts to follow.

OCR Clarity

Kymberly Martin -
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This morning the Reserve Bank injected a modicum of interest into what is a very quiet local data week. Perhaps it is because there is little data scheduled for the week that a minor change from the RBNZ generates some interest. The Bank notified the market that it intends to publish projections of the Official Cash Rate (OCR) in its Monetary Policy Statements, on a smoothed quarterly average basis, starting with the 10 November Statement. Previously the central bank published forecasts of the 90-day bank bill rate.

Marking Low Tide on CPI Inflation

BNZ Research -
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Everyone appears braced for next to no inflation in tomorrow’s Q3 CPI report. But this doesn’t mean inflation is non-existent. Indeed, the CPI will likely highlight the ongoing stark range of pricing trends in the economy – from the heat of housing and construction, robust service sector inflation, to the cap from recent commodity price weakness through to the inherent declines in the price of many technological products. It’s the CPI average of these that just happens to be about flat, for the meantime.

New Zealand’s Room for (Quality) Fiscal Stimulus

BNZ Research -
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With the 2015/16 Crown financial accounts due out on Thursday it’s a good time to talk about things fiscal. And it’s a good news story in these parts. After a period of measured government spending – helping get the public debt trajectory under control – and on the back of a fundamentally improving economy, New Zealand has real options on the fiscal stimulus front. And with a general election due in around a year’s time (if not sooner) we can imagine there will be a big bun fight over this.

Pressing On

Craig Ebert -
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Tomorrow’s NZIER Quarterly Survey of Business Opinion (QSBO) will like carry on where last week’s ANZ business survey left off. That is, very much on the up. Indeed, to the point now of indicating genuine stretch is emerging in the economy, to be highlighted in the NZIER survey’s wealth of capacity constraint variables. However, whether this is enough to be lifting the general cost and pricing variables in the QSBO remains to be seen. Recall that these remained quite mixed in Q2.

The Twists in the Merchandise Trade Tale

BNZ Research -
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As for what today’s trade figures means for recent economic momentum they seem no clear cause for us to alter our view (namely 0.8% growth in Q3 GDP). While there were warnings about how much meat and dairy export volumes were abating, there was more than we counted on from the imports side. This infers a twist towards domestic demand that will be worth keeping an eye on (which first caught our eye in the jump in Q2 private consumption in the GDP accounts).

No Change Wanted

BNZ Research -
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“What can we say that will leave market pricing unchanged?” That will be the question on the lips of those at the RBNZ as they mull over the final wording of this week’s OCR review.