The full pdf version of the Weekly Overview is contained here.
Global Risks Mean No Rate Rises Soon
Thursday September 15th 2011
Much as we have a positive view about NZ growth on the back of eventually rising farmer spending (of which there is evidence) and the rebuilding of Christchurch, one would be foolish to ignore the clear downside risks to growth posed by the deteriorating global outlook which we have been writing quite a bit about in recent weeks. Greece is continuing its march toward some sort of default, French and German governments are putting plans in place to shore up their banks for the losses they will suffer on Greek government bonds, the data out of the US remain poor, the OECD leading index has fallen at its fastest pace since early-2008, and in Australia business sentiment has fallen away anew as the unemployment rate rises.
The 2012 battle – domestic strength vs. offshore weakness
Thursday September 8th 2011
This week we have not learnt much fresh about the NZ economy beyond the second quarter in a row of 6.6% shrinkage in construction. Offshore the story has been one of rapidly falling markets in the first part of the week on deepening worries about the US economy (no jobs growth) and the European sovereign debt situation. Pessimism has eased off over the past two nights but it seems inevitable that it will return and generate continued volatility in the NZD whilst limiting the extent to which medium to long term NZ interest rates rise in the near future.
In this week’s Overview we introduce a new section looking only at the leading indicators of NZ growth. The data suggest strong growth next year, but there are two caveats. First, old relationships between high business sentiment and strong growth may not hold, Second, the world outlook is getting worse.
This week we have seen confirmation of a deteriorating trend in NZ net migration flows, some better than expected retail spending growth during the June quarter (though a lot of it could be discounting related), little overall movement in the exchange rate or interest rates, and continued volatility offshore though with a slightly less negative bias manifesting itself as a sharp pullback in gold prices.
The week has been a tumultuous one with the NZD falling at one point to 79.7 cents – making for a nine cent range over a ten day period – sharemarkets here and overseas tanking, and forecasts for growth being slashed while interest rate rise expectations have been pushed well out. In fact in the US no rate rises are now planned for at least two years according to the Federal Reserve and that factor will tend to keep NZ long term borrowing costs low thus removing a lot of the threat of sharply rising fixed interest rates here.
The Reserve Bank met market expectations this week by leaving the cash rate unchanged at its record low of 2.5%. But they warned of rate rises ahead and we think risk averse borrowers might want to consider placing up to 50% of their debt at a fixed rate probably for three years. But huge uncertainty continues to swirl around the world economy and whatever one forecasts today is sure to change in coming months.
The Kiwi dollar is rising and two months from now we expect the Reserve Bank’s official cash rate will be going in the same direction. That means time is now up for floating rate borrowers who have been biding their time before fixing.
The week has been very interesting with stronger than expected data for economic growth, sustained high business confidence, evidence of first home buyers entering the housing market, and strong growth in debit and credit card spending in June. It adds up to a strong currency and upward pressure coming for interest rates. July 14
Business Sentiment Strong – Now We Await The Action
Thursday July 7th 2011
This week we take a look at the longest running business confidence survey in New Zealand and see not just high confidence but strong employment and investment intentions. Now we wait for the data to show that businesses are in fact putting their money where their mouths are.