January 2002 in Review
Data Flash (New Zealand) January 2002 in Review
KEY GLOBAL DEVELOPMENTS AND FINANCIAL MARKETS
US data shifted to a more positive tone in January. Weekly jobless claims dipped below 400K and the ISM (NAPM) rose to 48.2. Nearly every component of the ISM was up, with large gains in new orders and employment especially noteworthy. Confirming the improvement in manufacturing, the subsequent jump in the Philly Fed index points to an ISM reading in excess of 50.
Not surprisingly in light of the improvement and the continued robustness of the consumer (consumption spending grew 5.5% in the Q4 GDP data), the Fed decided to keep the Funds rate at 1.75%. In an address on 11 January, Chairman Greenspan appeared to give the green light to another rate cut by emphasising downside risks. Subsequently a number of commentators indicated this was not his intention and in his appearance before Congress he was less negative. This saw the market back off completely from expecting a rate cut, with this confirmed by the following FOMC decision.
While the Fed maintains an easing bias, it may well be that the January rate cut by the Bank of Canada represents the last move by a $-bloc central bank. The data tone in Japan is not yet showing the cyclical improvement evident in the US. This has seen the Yen fell to three year lows, with USD/JPY coming under renewed pressure at the end of the month. European data has been more mixed. For instance, German orders rose 0.9% mom in November with strength in foreign orders, but production was weak over the same month (down 1.8% mom) and confirmed that Germany is in a mild recession. However, a better-than-expected IFO survey was interpreted as evidence that Germany is going to recover over the first half of 2002. Similar signs of a turnaround in sentiment were also evident in French data (INSEE survey). Notwithstanding these positive data, the Euro continued its downward slide.
KEY NEW ZEALAND DATA AND EVENTS
The key local data releases and events were:
ANZ Commodity Prices (Dec) - 4 Jan: The foreign currency price of New Zealand's commodity exports fell 2.2% mom in December to be 11.2% weaker than the peak recorded in May. Of the 17 commodities surveyed, 9 recorded price decreases, 5 were unchanged and just 3 (aluminium, wool and lamb) recorded price increases. Reflecting the stable NZD, the NZD price index also fell 2.2% mom in December. This index is now 1.0% lower than a year earlier, but still over 40% higher than its cyclical low point in mid 1999.
Building Consents (Nov) - 7 Jan: The number of new dwelling consents issued increased 4.8% mom in November following a 12.2% rise in October. The outcome was influenced by a sharp rise in consents for apartment units in Auckland City. Non-residential building consents with a value of $211m were issued in November, with the three-month running total 5.8% higher than a year earlier. Motor Vehicle Registrations (Dec) - 8 Jan: New car sales surged 17.3% mom in December, which followed a 10% rise in the previous month. Used car sales rose just 0.9% mom (but grew strongly in first half of the year) to be 32% higher than a year earlier. Overall sales rose 3% mom to be 29.1% higher than a year earlier.
ANZ Job Ads (Dec) - 16 Jan: The number of newspaper job advertisements rose 0.7% mom in December - the first rise in five months - but was 6.6% lower than a year earlier and 14.4% below the historic high recorded in July. The number of internet job ads was 17.9% lower than a year earlier.
Consumer Price Index (Dec Q) - 17 Jan: The CPI increased by 0.6% qoq in Q4. That reduced the annual rate of inflation from 3.2% to 1.8%. Tradeables inflation was +0.3% qoq (+0.7% in Q3), lowering the annual rate from 3.8% to 2.5%. Non-tradeables inflation was +0.7% (+0.5% last quarter), with the annual rate unchanged at 0.9%. The weighted median of quarterly price changes was 0.7% qoq (up from 0.3% in Q3);
Food Price Index (Dec) - 17 Jan: The FPI fell by 0.2% mom in December, thereby lowering the annual rate of increase from 6.7% to 5.8%.
Retail Trade (Nov) - 18 Jan: Total nominal retail sales surged 1.7% mom in November to be 7.8% higher than a year earlier. Strength was fairly broad-based, with twelve of the thirteen non-automotive store-types recording higher nominal sales. Motor vehicle sales posted a 5.2% mom rise.
International Consensus Forecasts -(Jan) - 21 Jan: The average growth forecasts for 2002 for New Zealand's 14 largest trading partners were unchanged at 1.9% in January. 2003 was surveyed for the first time, with an average forecast of 3.4%.
REINZ House Sales (Dec) - 22 Jan: The number of house sales rose a further 2.4% mom in Dec to be 34% higher than a year earlier. The median house price is also edging up - a rise of 3.6% yoy on a three-month moving average basis.
RBNZ review of OCR - 23 Jan: The RBNZ left the OCR unchanged at 4.75% and confirmed a neutral bias, with a buoyant domestic economy offsetting continued downside risks from the global economy.
QSBO Business Survey (Dec/Jan) - 24 Jan: Business confidence rose from -44% to -10% (net respondents). Firms continue to be more upbeat about prospects for their own trading activity. A net 16% expect an improvement in trading prospects this quarter, up from 11%. Moreover, a net 20% experienced increased trading activity in Q4. At this stage respondents appear to have no plans to increase capital spending or employment levels. Adjusting for seasonal effects, capacity utilisation fell from 90.6% to 90.0%, while the proportion of respondents experiencing and expecting increasing costs and selling prices also eased a little. A net 25% of respondents reported that it was more difficult to find skilled labour, down sharply from 39%.
Building Consents (Dec) - 28 Jan: Following a rise of 4.3% in November, the number of dwelling permits fell by 7.7% in December. However, the value of permits remained unchanged between November and December, suggesting a over-proportionate number of high-value consents in the latest month. Permits were 19.8% higher than 12 months ago. The value of consents for non-residential construction was $201 million in December, confirming continued high activity levels.
Overseas Merchandise Trade ?(Dec) - 29 Jan: A provisional merchandise trade surplus of $26m was recorded for the December month. The trade surplus for the calendar year 2001 was $995m, compared with a deficit of $1,535m in 2000.
External Migration (Dec) - 31 Jan: A net inflow of 2,460 migrants was recorded in December, slightly down on the previous month. Tourist arrivals rebounded by 13.3% mom in December, reversing about half of the cumulative decline recorded for the previous three months.
The RBNZ left the cash rate unchanged on 23 January, which was widely expected. As expectations of a further easing reduced, the March futures contract lost further ground and yields rose at the front part of the curve. 10 year bonds rallied and outperformed the US as the NZ market is seen as a good defensive trade during a global bear market. The 10 year US/NZ spread reduced from 170 bps to 162 bps.
The NZD rallied over most of the month, touching USD 0.43, but finished January close to its starting level of 0.4150. Global USD strength, a weak AUD, as well as further soft NZ commodity price data were the key drivers of weakness during the latter part of January. In contrast to global trends, the local equity market had a good month, with the NZSE40 finishing 3.5% above its opening level.
Ulf Schoefisch, Chief Economist