This week started off with the world looking like a slightly less worrying place with the successful appointment of new leaders in Greece and Italy with strong mandates to implement deficit-busting and eventually productivity promoting economic reforms. But as we know in NZ the short term impact of such changes is invariably negative and the markets perhaps have started to factor that in because as the week has advanced worries have once again grown.
So, while early in the week the NZD recovered ground, it ended up being sold one cent lower than last week against the USD with the greenback rising against the Euro and Pound on renewed growth worries – while at the same time US economic data have surprised on the positive side.
On the local data front this week we learnt that retail spending surged much more than expected in the third quarter. But the 2.1% boom is so much at odds with other indicators that we can do nothing else than ascribe it to the effect of the Rugby World Cup and retain our warning that Christmas spending is likely to be disappointing for retailers as households focus on getting debt levels down.
In fact while we remain hopeful of reasonable NZ growth next year the risks lie on the downside and the markets have just about completely factored out any tightening in NZ monetary policy. That, coupled with rising world growth worries and strong interest in NZ fixed investments from offshore has produced some sizeable falls in wholesale interest rates this week.