Key Global Developments And Financial Markets
Data Flash (New Zealand)
February 2002 in Review
The global economy appears to have turned the corner, with the lift in the German Ifo confirming that the Europe's biggest economy is on the recovery path. Other economies are also showing signs of a rebound. For instance, Q4 Canadian GDP came in well above expectations. The US data continued to point to recovery, with the 4-week moving average for jobless claims falling below 375,000 by the end of the month. Our US economists believe that this points to a positive non-farm payrolls number for February. Q4 GDP was revised higher and the jump in the Chicago PMI points to the ISM (previously the NAPM) rising well above 50.
Despite this, Fed Chairman Greenspan's address to Congress painted a bullish outlook for interest rates - certainly relative to what is already priced in. Greenspan indicated that, while the economy is recovering, he believed that the pace of the recovery would be modest. Almost as if to underline this view, consumer confidence has eased back a bit in recent weeks. He also expressed no concern whatsoever about inflation. His focus is very much on the PCE deflator rather than the CPI.
Meanwhile, most investors and analysts are still writing off Japan. The anti-deflationary package did not seem to contain any exciting new initiatives, though it has prompted the BoJ to step up its Rinban purchases. Japanese IP for January was disappointing in recording a fall of 1% against market expectations of a small gain. Still, most of the leading indicators of Japanese IP have turned - some quite sharply. The Nikkei has also bounced some 10% from its low in early February. The stock market has typically been a good indicator for the economy.
KEY NEW ZEALAND DATA AND EVENTS
ANZ Commodity Prices (Jan) - 5 Feb: The average foreign currency price of New Zealand's commodity exports rose by 0.2% mom in January, following a cumulative 8.7% decline over the preceding three months. The average price was 3.4% below last year's level. Reflecting the appreciation of the NZD during January, the NZD price index fell by 1.9% mom. This index is now at the same level as a year ago.
Quarterly Employment Survey (Dec Q) - 5 Feb: Private sector average hourly earnings (ordinary time) increased by 0.3% qoq (0.7% qoq seas. adj.). Private sector average hourly earnings were 3.3% above last year's level. The survey recorded a 1.6% qoq increase in full-time jobs and a 1.8% qoq increase in part-time employment (seas. adj.). Paid hours worked rose by 1.2% qoq (seas. adj.).
Labour Cost Index (Dec Q) - 5 Feb: Private sector wage rates rose by 0.5% qoq and were 2.0% higher than last year. The LCI adjusts for the changing composition of the labour market and for productivity growth, and thus is best interpreted as a measure of unit labour costs.
Household Labour Force Survey (Dec Q) - 8 Feb: Employment rose 0.9% qoq in Q4, following an increase of 0.3% qoq in Q3. The level of employment was 2.3% higher than a year earlier. The number of total hours worked rose 0.3% qoq in Q4 to be 1.0% higher than a year earlier. The labour force participation rate rose sharply to 66.4% from 65.9% in Q3. As a result, despite robust growth in employment, the unemployment rate rose to 5.4% from 5.2% in Q3.
Motor Vehicle Registrations (Jan) - 8 Feb: Registration of new vehicles fell by 13.6% mom (sa), following 17.1% rise last month (+17% yoy). Used vehicle registrations s rose 1.0% mom to be 25% ahead of last year.
Retail Trade (Dec and Dec Q) - 12 Feb: The value of retail sales rose 0.8% mom in December. Excluding motor vehicles sales and services, sales also rose 0.8% mom. Over Q4 as a whole, the value of total retail sales increased 2.0% qoq. The retail trade deflator fell 0.1% qoq. As a result, the volume of retail sales rose 2.1% qoq to be 5.4% higher than a year earlier.
ANZ Job Ads (Jan) - 13 Feb: The number of newspaper job advertisements fell 2.3% mom in January - the fifth decline in six months - and was 9.6% lower than a year earlier. This stands in contrast with the most recent HLFS data, which pointed to employment growth of 0.9% qoq in Q4 alone.
Food Price Index (Jan) - 14 Feb: The FPI rose by 1.5% mom, mainly driven by a sharp increase in fruit and vegetable prices. Nonetheless, the yoy rate of food price inflation declined from 5.8% to 5.6%.
Consumer Confidence (Feb) - 18 Feb: The Colmar Brunton poll showed a rise in net optimism to +21% from +9% in December.
International Consensus Forecasts (Feb) - 18 Feb: The trade-weighted 14 country index points to growth of 2% in 2002 (previously 1.9%) and 3.4% in 2003 (unchanged). An upward revision to US growth prospects in 2002 is the key factor explaining the modestly brighter near-term outlook for 2002.
REINZ House Sales (Jan) - 19 Feb: The number of house sales rose a further 3.5% mom, to be 43% higher than a year earlier. The average median sales price over the last three months was just 2.7% higher than last year.
Capital Goods Prices (Dec Q) - 20 Feb: Capital goods prices rose 0.5% qoq in Q4, with the annual change falling from 3.0% to 1.2%. Building sector prices rose by 0.7%, while plant and transport equipment prices increased by 0.25%.
House Price Index (Dec Q) - 21 Feb: House prices rose 1.2% in Q4 according to the Valuation NZ index, following a revised 1.0% increase in Q3. House prices were 2.5% higher than a year earlier.
Building Consents (Jan) - 26 Feb: The number of dwelling consents fell 0.9% mom, following a 7.5% decline in December. The number of consents was 12.6% higher than a year earlier. Non-residential building consents with a value of $223m were issued in January. The three-month running total was 6.0% lower than a year earlier.
NBNZ Business Survey (Feb) - 28 Feb: Confidence rose from -2% (net respondents) to +16%, while firms' assessment of their own activity outlook improved from +28% to +39%. Improved sentiment is also reflected in a further rise in investment and employment intentions, as well as profit expectations. However, expectations regarding exports and residential construction have fallen back to more realistic levels following significant increases in both series in the previous survey. In line with improved sentiment and activity expectations, retailers' pricing intentions showed a further rise from +29% to +33%.
Overseas Merchandise Trade (Jan) - 28 Feb: A provisional merchandise trade deficit of $245m was recorded in January. The annual trade surplus was $651m, compared with a deficit of $1,443m a year earlier.
Producer Prices (Dec Q) - 28 Feb: Output prices remained unchanged in Q4 (2.6% yoy), while input prices fell by 0.5% (1.8% yoy). Weaker commodity prices, including crude oil, made a significant downward contribution to both series.
A run of data confirming significant momentum in the domestic economy has brought forward expectations of the first RBNZ tightening step. The market is now pricing close to 50 bps tightening by mid-May, while the economist camp is divided between a first move in May or August. Given the expectation that the RBNZ will move ahead of the Fed, the bond market has underperformed the US market, with the 10 year spread rising from +164 bps to +170 bps during February.
The NZD traded a narrow range during February, starting from a low of 0.4140 against the USD in late January and reaching a mid-month top of 0.4225, before falling back to around 0.4200. Global USD strength during the second half of February was again the key reason for the Kiwi's failure to rise further. In contrast to global trends, the local equity market struggled, with the NZSE40 finishing the month 2% below the late January level.
The National Party continued to lose ground against the Labour Government, reflecting increasing disappointment by the public with the lack of performance by Opposition leader Bill English. The latest Colmar-Brunton poll showed Labour up 6pp to 51% support, National down 4pp to 35%, Alliance (the junior coalition partner) down 2pp to 1%, ACT up 1pp to 4%, the Greens down 1pp to 5% and NZ First down 1pp to 2%.
Ulf Schoefisch, Chief Economist, (649) 351-1375