Data Flash (New Zealand) April 2002 In Review
KEY GLOBAL DEVELOPMENTS AND FINANCIAL MARKETS
April has seen a progressive winding back of expectations regarding Fed rate hikes. As well as reflecting the mixed nature of the data, it is also a consequence of the steady commentary from the Fed signaling little desire to hike rates in the near term. Published on 5 April, employment data set the tone for the month. While the number of jobs grew 58K in the month, the previously reported 66K increase in February payrolls was revised away to become a decline of 2K and the unemployment rate jumped to 5.7%. Durable goods orders were also disappointing and confidence measures have lost some ground. Coupled with the problems in equity markets (US equity markets experienced their worst month since September 2001, despite posting strong gains on the last day of the month), it generally proved to be a good month for the bond market. Longer dated securities did begin to run into supply issues at the end of the month as poor tax receipts lead to a massive revision by the Treasury in Q2 borrowing needs from a USD89bn paydown (the estimate in January) to net borrowing of USD1bn.
The other US development has been the emerging weakness of the USD. The peripheral $-bloc currencies have all performed well against the USD of late, with the NZD one of the star performers. Even the EUR has made gains as sentiment shifts against the USD, notwithstanding the surprise political success of the extreme right in France. While the demise of the USD has been forecast incorrectly at the start of each of the last few years by any number of commentators and press articles, there does seem to have been a shift in trend. While the EUR has been able to make gains against the USD, the news from the European economic data have been mixed rather than universally strong. The main problem is that Germany is lagging somewhat. For instance, the April Ifo fell to 90.5 from 91.8 in March. The fall was mainly led by the decline in the expectation component, perhaps as a consequence of higher oil prices. Despite this, the recovery in Germany is still intact with the April Ifo reading still more than 1 point above the Q1 average. In contrast, the French INSEE survey rose in April, though at 97 it is still below its long term average of 100 and is pointing to a gradual acceleration in the recovery rather than a surge. Japanese IP grew 0.8% in March. All the leading indicators are pointing to strong Japanese IP growth in Q2 and the BoJ continues to revise up its assessment of the Japanese economy. It does warn, however, that the recovery is not yet self-sustaining.
KEY NEW ZEALAND DATA AND EVENTS
Motor Vehicle Registrations (Mar) - 3 Apr: Registrations of new vehicles rose 5.9% mom to be 12.8% higher than a year earlier. Used vehicle registrations fell 0.6% mom but were 19% higher than a year earlier.
ANZ Commodity Prices (Mar) - 5 Apr: The average foreign currency price of New Zealand's commodity exports fell by 0.7% mom in March (led by a 7.9% mom decline in dairy prices) and was 8.4% lower than a year earlier. Reflecting the appreciation of the NZD, the NZD price index fell by a greater 3.7% mom/12% yoy.
Retail Trade (Feb) - 9 Apr: Retail sales surged 1.8% mom (1.2% mom ex-autos), easing beating market expectations of a 0.3% rise. Strong growth in sales of durable goods continued to be a dominating factor, with appliance sales rising 7.1% mom and motor vehicle sales rising 4.4% mom.
ANZ Job Ads (Mar) - 12 Apr: After rising 4.8% mom in February, the number of newspaper job advertisements fell 2.6% mom in March to be 9.7% lower than a year earlier. The timing of Easter may have had an impact.
International Consensus Forecasts (Apr) - 15 Apr: The trade-weighted 14 country index pointed to growth of 2.5% in 2002 (previously 2.3%) and 3.5% in 2003 (unchanged). An upward revision to US growth forecast was the key reason for the brighter near-term outlook now expected in 2002.
Consumers Price (Q1) - 16 Apr: The headline CPI rose by 0.6% qoq, compared with market expectations of a 0.7% qoq rise and the RBNZ's March MPS forecast of 0.9% qoq. The annual rate rose to 2.6% yoy. Outside of the housing market, there was little obvious signs of significant excess demand pressures. This reassured markets that a 50bp rise was out of the question for the OCR review due a day later.
RBNZ OCR Review - 17 Apr: As widely expected, the RBNZ raised the OCR by 25bps to 5.25%. In a short but informative statement, the Bank noted that "since the Bank's latest comprehensive review of the outlook for inflation last month, things have on balance evolved very much as expected at that time". This suggests that a further deterioration of the inflation outlook would be necessary if the pace of tightening were to be stepped up from the 25bp increments signaled clearly in the March Monetary Policy Statement. REINZ House Sales (Mar) - 19 Apr: The number of house sales rose a further 6.2% mom, to be 46% higher than a year earlier and 18% above its historic average but still 7% below the peak seen during the mid 1990s boom. The median sales price for the three months to Mar was 4.7% higher than a year earlier.
External Migration (Mar) - 19 Apr: A net 3,760 people migrated permanently to NZ in March, leaving the annual inflow on track to at meet, and possibly exceed, the RBNZ's assumption of a peak of 30,000 in 2002. Tourist arrivals rose 12.6% mom in March, but some of this growth is likely to have been due to the timing of Easter.
Consumer Confidence (Apr) - 22 Apr: The Colmar Brunton poll showed a decline in net consumer optimism to +25 from +27. However, adjusting for season effects, confidence probably rose during the month (precise seasonal adjustment is not possible).
RBNZ Governor Don Brash resigns - 26 Apr: RBNZ Governor Brash shocked markets with news of his immediate resignation. Dr Brash will stand as a National Party list candidate at this year's General Election.
Building Consents (Mar) - 26 Apr: The number of dwelling consents issued fell 5.1% mom in March but was still 18.5% higher than a year earlier.
Non-residential permits were weaker than expected for the second month in a row. Overseas Merchandise Trade (Mar) - 29 Apr: A provisional merchandise trade surplus of $451m was recorded in March, easily outstripping market expectations of a $33m surplus.
NBNZ Business Survey (Apr) - 30 Apr: Confidence fell to +14 (net respondents) from +20% while firms' assessment of their own activity outlook declined to +39% from +41%. Adjusting for seasonal effects (again imperfectly), confidence probably rose. Retailers' pricing intentions rose slightly to +32% from +30% but economy-wide pricing expectations declined to +23% from +25% as pricing expectations (and confidence) in the agriculture sector continues to decline in the wake of falling commodity prices.
The month ended with the market pricing a lesser chance of a 50bp rate hike at the 15 May MPS than when the month began. Key factors have been disappointing US data and signs that the Fed is unlikely to tighten in the near future, the hesitancy of the RBA to raise rates, a lower than expected domestic CPI, the increasing realisation of negative developments in the agriculture sector and a strengthening NZD. Following Dr Brash's resignation, the expectations of a 50bp move were further downgraded, with the `acting' Governor seen as less likely to step up the pace of tightening, especially if he has any aspiration to be appointed permanently to the position in coming months (the appointee will ultimately be selected by the Minister of Finance). With the bond market rallying as a result of developments in the US (albeit underperforming - the 10Y spread widened from 153bps to 163bps), the curve flattened between 90 days and 3Ys but was unchanged between 3Ys and 10Ys. The NZD performed strongly against the USD, rising 2.2%, but rose by a lesser 0.3% on a trade weighted basis. In line with global trends, the local equity market again struggled, with the NZSE40 finishing the month 1.6% below its opening level.
The Government maintained its big lead over the National Party, despite the latter releasing major aspects of its economic policy and revelations that the Prime Minister had misrepresented art work destined for charity has her own work. The latest Colmar-Brunton poll showed Labour up 1pp to 50% support, National down 1pp at 34%, the parliamentary Alliance Party (the junior coalition partner) unchanged at 2%, ACT unchanged at 4%, the Greens up 1pp at 6% and NZ First up 1pp at 3%.
Darren Gibbs, Senior Economist,