The full pdf version of the Weekly Overview is contained here.
Still Awaiting Offshore Developments
Thursday September 6th 2012
This is the first Thursday of the month so we are running our confidence survey. If you have a minute feel free to click on the link here and let me know whether you reckon the NZ economy will be in better or worse shape in a year’s time. Many thanks.
Internationally the week has been all about waiting to see what the Federal Reserve Board Chairman will say this Friday night in the United States, then after that the outcome of numerous meetings in Europe during September. So FX rates have barely changed in the past week and interest rates have stayed well within their recent ranges.
There have been few new developments locally or offshore this week but with politicians in Europe returning from holidays we could easily see again very soon some market fluctuations as hopes about Europe wax and wane.
This week offshore apart from some better than expected data on retail sales in the United Stats fresh developments have been few and far between with many people on holiday. So exchange rates are little changed from where they were last week. Wholesale interest rates have however crept up a tad in response to the US data along with our own better than expected retailing numbers.
This week the Kiwi dollar has risen to near US 81 cents in response to hopes that strong words from the European Central Bank President regarding saving the Euro will be backed up by action. But given the increasingly bad economic data coming out of Europe some sort of break-up of the Euro looks probable so the wave of happiness which swept the world’s financial markets this week could easily prove temporary. On the domestic front no data have been released to alter our view of some strength to the NZ economy but little chance of very rapid growth with restraint from the high NZ dollar plus worsening world growth.
Tomorrow evening I shall be at the eastern end of the Heaphy Track so I’m sending this week’s Overview out a day early. Next week’s should be on Thursday all going well. If you are pressed for time then there probably is no need to open the pdf this week as it is only eight pages with the only interesting bit being the Europe section where as the media are well reporting conditions are spiralling downward – hence some weakness in the NZ dollar this week and declines in wholesale interest rates.
This week I start by taking a five page look at the way central banks and governments in most Western countries are now in the unfortunate position where traditional economic stabilisation via fiscal and monetary policies is no longer an option. This is bad news for global growth in the next few years in an environment where there is no solid sign that the deleveraging process initiated first by falling US house prices in 2006 and then the global financial crisis is easing.
This week we have seen worries about Europe grow again and that has meant falls in NZ wholesale borrowing costs and some mild weakness in the NZD – except against the increasingly beleaguered Euro. On the data front our BNZ Confidence Survey recorded a small rise in sentiment, our BNZ-REINZ Residential Market Survey found a decline in people potentially wanting to sell their property and further increases in buyer interest, while the NZIER’s quarterly survey showed quite a decline in inflationary pressures.
This past week has been one of a small wave of relief washing around global financial markets following some positive movement at the European leaders’ summit toward a European-wide banking regulator. But apart from allowing the bailout fund to recapitalise banks directly rather than through governments, and announcing a small stimulus package, the meeting did nothing to change the risk of Greece leaving the Euro. Thus in coming weeks we could easily see worries about a Euro break-up return.