August 2001 in Review
Data Flash (New Zealand) NZ: August 2001 in Review
KEY GLOBAL DEVELOPMENTS AND FINANCIAL MARKETS
This has been a month in which global sentiment has taken another turn for the worse. In looking for a "summary statistic" of this new found global despair, perhaps the Nikkei falling to its lowest level for 17 years will suffice. Of course, weakness in Japan is something we've had to live with for much of the past decade. Another indicator may be the fact the Dow has fallen back below 10,000. The best, surely though, is the record low in yield set by the 2Y UST note. It is almost as if the US market has "given up" on the prospects for a recovery. Given that this is the first truly synchronised G3 downturn for 20 years perhaps this should not come as a surprise. Yet, arguably the fact the downturn has been so synchronised points to significant risk of a synchronised upturn. Adding to this risk is the "coordinated" easing by all the G7 central banks (if more by accident than design).
This is presently not something that the market is prepared to consider, having prematurely bet on a V-shaped recovery a number of times this year already. It may be that current events have the whiff of "policy error" about them, but we can well imagine the outcry if central banks were not being aggressive in their approach. Witness the criticism of the ECB for much of this year. For now the downside developments clearly dominate central bank thinking and will likely do so for a while yet. Having said this, the sharp rise in the Chicago PMI on the last day of the month points to stabilisation in the US economy. If the NAPM also rises in the week ahead then our central call that the Fed has finished easing may come to pass. The risks of another Fed rate cut, however, increase with every fall in equity prices. In FX land, the focus was on the emerging weakness of the USD. Even the Yen made gains against the big dollar, despite the negative tone of the Japanese data.
KEY NEW ZEALAND DATA AND EVENTS
The key local event this month was the RBNZ's decision on 15 August to retain its official cash rate at 5.75%. The decision was expected by most analysts (at least on the day, if not a fortnight earlier), but the accompanying Monetary Policy Statement was more hawkish than many had expected. Local data released during August generally reiterate the outperformance of the NZ economy and the presence of upside risks to the RBNZ's inflation outlook. However, concerns about the global economy mean that there is some risk that this outperformance will not be sustained, especially if commodity prices weaken and the NZD strengthens. The key local data releases and events were:
ANZ Commodity Prices (Jun) - 2 Aug: For the second month in a row, the ANZ reported a decline in its world price index (-2.0% mom). The NZD index fell a lesser 0.5% mom, reflecting a weaker NZD.
Quarterly Employment Survey ?(Q2) - 3 Aug: Private wages rose 0.8% qoq and 3.6% yoy, broadly in line with expectations. However, the QES measures of both employment and hours paid rose strongly in Q2, foreshadowing a stronger than anticipated Household Labour Force Survey later in the month.
Motor Vehicle Registrations (July) - 7 Aug: Total registrations fell 1.6% mom following a 7% mom surge in June. However, registrations are still running 12.7% higher than a year earlier.
Retail Trade (June) - 8 Aug: Nominal sales rose 1.2% mom in June, easily surpassing the market's expectation of a 0.4% mom rise.
Retail Trade (Q2) - 8 Aug: The volume of sales rose 1.3% qoq driven by stronger sales of food, appliances, and motor vehicles. The market had expected an increase of 1.2% qoq. Sales rose 1.5% in Q1.
Overseas Merchandise Trade ?(Jun) - 9 Aug: The preliminary June trade surplus was revised up to NZD139m from NZD110m previously, reducing the annual deficit to just NZD22m.
Household Labour Force Survey ?(Q2) - 9 Aug: Employment rose 0.9% qoq compared with market expectations of a 0.3% qoq rise. As a result, the unemployment rate moved to a new 13-year low of 5.2%.
ANZ Job Ads (Jul) - 9 Aug: Jobs ads rose 2.2% mom following the 4.2% mom increase in June, taking the series to a new all-time record high.
Food Price Index (Jul) - 13 Aug: The FPI rose 0.3% mom to be 5.8% higher than a year earlier. This occurred despite a 2.1% fall in fruit and vegetable prices, due to higher prices for meat, groceries and restaurant meals.
RBNZ MPS and OCR Review - 15 Aug: As expected, the RBNZ retained its OCR at 5.75%. In an about-face from the easing bias expressed in its 4 July statement, the RBNZ this time focussed on the upside risks to inflation. As a result, markets moved to price out further easings from the NZ curve.
REINZ House Sales (Jul) - 17 Aug: The number of house sales fell 1.5% mom in July but was 17.0% higher than a year earlier. The level of sales remained a little stronger than its 10-year average level.
Colmar Brunton Consumer Confidence (Aug) - 20 Jul: Confidence fell to +14 in Aug from +22 in July. This decline may have reflected widespread media reporting of the drought-induced problems in the electricity sector.
Capital Goods Price Index (Q2) - 20 Aug: The CGPI rose 0.4% qoq to be 3.8% higher than a year earlier.
External Migration (Jul) - 21 Jul: A net inflow of 1140 migrants was recorded in July - the largest inflow since February 1997. Tourist arrivals fell 0.2% mom but were 10.5% higher than a year earlier.
House Prices (Q2) - 22 Aug: Despite improved turnover levels, the QVNZ house price index fell 0.6% qoq to be 0.1% lower than a year earlier.
Building consents (Jul) - 24 Aug: The number of dwellings consents fell 10.7%, fully reversing the strong rise recorded in June. However, the upward trend in non-residential consents remained in place.
Overseas Merchandise Trade ?(Jul) - 27 Aug: A preliminary deficit of NZD46m was reported for the month of July - a little weaker than the NZD26m surplus expected by the market. However, the annual balance still moved into surplus for the first time since 1995.
Producers Price Index (Q2) - 30 Aug: The PPI inputs index rose 1.4% qoq while the outputs index 1.3% qoq - both increases were marginally stronger than expected. Higher prices for agricultural commodities, oil and electricity made key contributions to the result.
NBNZ Business Survey (Jul) - 31 Aug: General business confidence has remained resilient with the net proportion of optimists rising from +17 to +23. Firms' assessment of their own trading prospects rose from +36 to +40. Year-ahead annual inflation expectations rose from 2.8% to 2.9% - the first rise since September 2000.
Building Work Put in Place (Q2) - 31 Aug: The volume of building work put in place rose 6.0% qoq in Q2, driven by stronger activity in non-residential construction, boding well for a 1.0% qoq outcome for overall GDP.
Wholesale Trade Survey (Q2) - 31 Aug: The value of wholesales rose 5.1% qoq. However, our estimates suggest that production was broadly flat in Q2, with strong sales due to destocking and higher prices.
The very short-end of the market ended the month close to its open levels, with the mid-month RBNZ-inspired sell-off retraced over the last week of the month as the local market rallied modestly in sympathy with a significant change in sentiment regarding the prospects of further monetary easing in Australia. The bond market was largely driven by events in the US - the rally there leading to a 21bp drop in yields on the 10Y NZGB with the 10Y UST/NZGB spread once again ending the month over 160bps (after reaching 176bps at one stage). The NZD was also a strong performer, ending the month above 0.4400 and looking capable of sustaining that level for the first time since early February. The NZSE40 ended the month down 10pts at 2059 - a good result in the context of the further substantial sell-off in the US equity market.
Opinion polls were mixed this month. The latest Colmar Brunton poll, perhaps the most widely followed, showed Labour down 5% to 43% support, National up 3% to 38%, Alliance unchanged at 3%, ACT unchanged at 5%, the Greens up 3% to 7% and NZ First unchanged at 2%.