September 2001 in Review - Deutsche Bank
Data Flash (New Zealand) NZ: September 2001 in Review
KEY GLOBAL DEVELOPMENTS AND FINANCIAL MARKETS
What can we say, other than to note that near term global outlook has been turned on its head by the tragic events in the US. Even before the attacks on the WTC and Washington, our US economists were revising down their target for Fed Funds to 2.75%. With a full-blown US recession now appearing almost inevitable and the Fed expected to be aggressive in its actions, their year-end target for the Fed Funds rate is now 2%. Where interest rates head in 2002 is complete conjecture. We would like to think that the significant monetary and fiscal stimulus in the US and elsewhere will work its magic and economies will come roaring back, but who knows what shocks the world will be subject to in the next few months?
After the relative calm of mid-year September was a turbulent month for currencies. Early on, profit-taking from August's decisive moves was the order of the day, with the USD strengthening, and the EUR, JPY, AUD and NZD weakening. 11 September, however, sparked a dramatic shift in the price action. Risk aversion increased dramatically and, as a broad generalisation, current account deficit currencies weakened, while current account surplus currencies strengthened. The CHF was the strongest performer, while the NZD weakened to the most substantial degree. While the yen should also have strengthened over the month, courtesy of its capital exporter status, aggressive intervention from the Japanese authorities neutralised the yen's safe haven status.
KEY NEW ZEALAND DATA AND EVENTS
The key local data releases and events were:
ANZ Commodity Prices (Aug) - 4 Sep: The ANZ reported a 0.6% mom rise in its world price index in September, following two months of decline. The NZD index fell 4.0% mom reflecting a stronger NZD, but remained 50% higher than the cyclical low seen in mid 1999. Motor Vehicle Registrations (Aug) - 4 Sep: Total registrations fell 1.3% mom led by a 4.2% decline in new vehicle registrations (to a level 1.6% lower than a year earlier). However, registrations are still running 14.0% higher than a year earlier, as a result of a consumer-led 20% yoy rise in registrations of used vehicles.
Retail Trade (July) - 6 Sep: Nominal sales rose 0.6% mom in July, once again surpassing the market's expectation of a 0.3% mom rise. The strongest growth was recorded in the recreation (+3.7% mom), furniture (+3.3% mom) and chemist (+2.9% mom) store-types.
Overseas Merchandise Trade (July) - 10 Sep: The preliminary July trade surplus was revised down slightly to NZD42m from NZD46m previously.
ANZ Job Ads (Aug) - 11 Sep: Following three consecutive months of strong increases, jobs ads fell 2.4% mom in August. The series remains close to its all-time record high and is consistent with employment growth of around 0.5% qoq in Q3.
Overseas Trade Indexes (Q2) - 12 Sep: Export prices rose 1.9% qoq in Q2 while import prices rose 2.2% qoq, with around 1.5pps of these increases a reflection of a weaker NZD. The terms of trade fell 0.3% qoq but remained a huge 9.8% higher than a year earlier, providing a substantial impetus to domestic demand.
Food Price Index (Aug) - 13 Sep: The FPI rose 0.5% mom to be 6.3% higher than a year earlier - the highest rate of food price inflation since June 1990. Meat prices rose 2.2% mom.
Manufacturing Survey (Q2) - 13 Sep: Sales in the manufacturing sector rose a much stronger than expected 5.1% qoq in Q2, foreshadowing a very strong rebound in overall GDP growth in Q2.
Colmar-Brunton Consumer Confidence (Aug) - 16 Sep: Confidence fell to -1 in September from +14 in August, likely reflecting uncertainty due to the terrorist attacks in the US and the near-collapse of Air New Zealand.
REINZ House Sales (Aug) - 18 Sep: The number of house sales rose 4.7% mom in August to be 24.0% higher than a year earlier. The level of sales is now running 6% stronger than its 10-year average level. The average median house price over the three months to August was 2.5% higher than a year earlier.
Unscheduled RBNZ OCR Review - 19 Sep: The RBNZ surprised the market by joining the global easing bandwagon, cutting its OCR by 50bps to 5.25%. The Bank described the move as `precautionary' in light of the uncertainty surrounding the consequences for the global economy of the terrorist attacks in the US. The market had expected the RBNZ to ease by a more cautious 25bps at its scheduled 3 October review.
External Migration (Aug) - 21 Sep: A net inflow of 1840 migrants was recorded in August - the largest inflow since January 1997 - and driven by both increasing arrivals and, to a lesser extent, declining departures. Tourist arrivals rose 4.5% mom and were 16.7% higher than a year earlier. WestpacTrust Consumer Confidence (Q3) - 25 Sep: Although 30% of responses to this survey were filed after the terrorist attacks in the US, confidence fell just 1 point to 116 (a level greater than 100 indicates that optimism outweighs pessimism). Post-attack responses averaged 112 - a much more robust result than suggested by the earlier monthly Colmar-Brunton survey.
Building consents (Aug) - 26 Sep: The number of dwellings consents issued rose 14.2% mom to the highest level since May 2000, no doubt helped by low interest rates, strong income growth and, increasingly, the renewed net inflow of migrants. The upward trend in non-residential consents also remained in place. Overseas Merchandise Trade ?(Aug) - 27 Sep: A preliminary deficit of NZD97m was reported for the month of August - a better result than the NZD250m deficit expected by the market. The positive surprise was partly due to very low oil imports during the month. A strong rebound in oil imports is likely to be recorded next month.
Balance of Payments (Q2) - 27 Sep: A current account deficit of NZD297m was recorded in Q2, much better than the NZD690m deficit expected by the market. Stronger than expected credits from overseas investments was the key source of surprise. The annual deficit now stands at 4% of GDP, down from 7.1% a year earlier. NBNZ Business Survey (Sep) - 28 Sep: The September survey, compiled from responses filed before the terrorist attacks in the US, showed that general business confidence had declined from +23 to +13. However, allowing for seasonal factors, this equates to a broadly flat result. That said, a small sample of post-attack responses suggests that a 10-15pp fall in confidence may be in the offing when the October survey is released.
GDP (Q2) - 28 Sep: GDP grew 2% qoq in Q2, much stronger than the 1.4% qoq growth expected by the market and the 0.9% qoq forecast implicit in the RBNZ's August Monetary Policy Statement. Growth in Q1 was also revised up to 0.3% qoq (previously flat). Growth was recorded across a broad section of the economy.
The terrorist attacks in the US have dominated the month. The market moved quickly to price in lower official interest rates, which the RBNZ delivered with unexpected, and uncharacteristic, size and haste on 19 September when the OCR was lowered by 50bps. As a result, the curve steepening markedly, although the 10Y NZGB yield ended the month little changed from where it began. While local data continued to be positive for the NZD and negative for debt markets, post-attack data had comparatively little impact on the market, with the market drawing a sharp dichotomy between the pre- and post-attack economic outlook. The NZD was a poor performer, ending the month 9% weaker, on the back of the risk aversion trade discussed earlier. For now, it seems, the correction of the NZD's undervaluation has been put on ice. The equity market had a similarly gloomy month, with the NZSE40 falling 10% as world equity markets reacted to the terrorist attack. Air New Zealand's woes, which saw its `A' shares fall from 90 cents at the beginning of the month to a low of 16 cents at one point, added to the dismal performance.
Opinion polls were mixed this month. The latest Colmar-Brunton poll, perhaps the most widely followed, showed Labour up 1pp to 44% support, National up 2pp to 40%, Alliance down 1pp to 2%, ACT down 2pp to 3%, the Greens down 1pp to 6% and NZ First up 1pp to 3%. However, the NBR poll continue to show much lower support for National (just 31%) and higher support for most of the minor parties.
Darren Gibbs, Senior Economist
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