Growth slows on lack of communication
Economic Weekly 12 September 2011
Eurozone anxiety will be too much for Bollard
RBNZ to weigh strong domestic growth against growing global risks at September MPS. Growing anxiety over Eurozone debt crisis and slowing US economic growth continues to cloud outlook. Rising global risks sees hurdle too high for an OCR increase this week.
Recent economic data have been very encouraging, prompting the RBNZ to signal it would reverse the 50 basis point ‘insurance’ cut very soon providing the economy continues to recover and global risks recede. Since this assessment, economic data have continued to highlight NZ’s robust recovery over 2011. The strength in growth has been particularly impressive given the challenges Canterbury has faced over this year. However, while growth is resilient in NZ, the global situation is deteriorating. The risks to global outlook have increased, and in light of this the RBNZ needs to take more time before it lifts the OCR. It needs time to assess the impact of weaker US and European growth and a possible Greek default on NZ and our key trading partners Australia and China. For now, activity in China remains buoyant and NZ export commodity prices remain firm, but it could just be a matter of time. Meanwhile, momentum may be fading in Australia’s multi‐speed economy, as jobs growth slows and unemployment increases. Even so, Q2 GDP exceeded expectations. The Eurozone sovereign debt crisis continues to be the centre of anxiety. The Greek economy is struggling, and speculation of a default is growing exponentially by the day. Investors continue to doubt the Greek Government’s ability to meet the terms of its aid package. Even if it did, there are also concerns that Germany may lack the political support to continue to fund the bailouts. Eurozone leaders lack consensus on the best approach to deal with the crisis. Indeed, views of senior members from official agencies are so fractured it led to the shock resignation of ECB board member Stark over the weekend. Germany and France are starting to concentrate on how to shore up their own banks in the event Greece defaults. Developments in the US are equally uninspiring. Economic data continue to confirm the US economy is sluggish. There is a growing expectation that the Fed will provide further stimulus at the upcoming meeting (September 22nd). Markets are expecting the Fed will adopt the ‘twist’ – shifting asset purchases into longer‐dated securities and selling its shorter dated holdings of US Treasuries (which should remain anchored by the Fed’s pledge to hold rates low until mid‐2013). President Obama is looking to do his bit as well, announcing a $447 billion package to stimulate jobs growth. The package involves a mixture of tax cuts and increased infrastructure spending. The question will be if these measures are enough to reinvigorate the US recovery. The RBNZ is navigating a particularly uncertain global economic environment. While NZ economic data have been encouraging, lessons from 2010 highlight the fragility that may remain despite the robust exterior. Give the risks to the global environment, holding off on rate hikes for now would be a prudent approach.
Click here for: Foreign Exchange Interest Rates Week Ahead Week in Review Global Calendars
NZD eases on heightened volatility in markets. Domestic interest rates also fall, largely following Australian developments. RBNZ’s September MPS will be the key focus for domestic markets. Construction activity and card spending in NZ. RBA rate announcement, AU GDP and employment data. Industrial production and CPI data in the US and Eurozone.
Chart of the Week AUSTRALIAN EMPLOYMENT (annual increase) 450 400 350
Australian employment over August contracted by 9,700, in contrast to expectations of growth of 10,000. Jobs momentum has been slowing this year from peak annual growth of 400k. The Australian economy has been a multi‐speed economy: mining activity is strong, consumers are cautious, Queensland is still recovering from floods, and the high AUD is affecting non‐mining export competitiveness. Nevertheless, the latest employment figures were not as grim as the headlines suggest. Hours worked rose 0.3%; if they had held constant and the extra activity met through hiring the demand for labour would have created around 33k new jobs.
300 250 200 150
The uncertainty that crept into global markets in August may have steered employers to work existing employees for longer hours rather than continue hiring, continuing a recent trend for a longer working week but slow jobs growth.
100 50 0 Sep-00
Sep-03
Sep-06
Sep-09
ASB Economics – 649 301 5659 – [email protected] Please refer to the important disclosures at the end of this document
ASB Economic Weekly 12 September 2011
Foreign Exchange Market FX Rates
Current*
Week ago
Month ago
6 mths ago
Year ago
ST Bias
Support^
Resistance^
NZD/USD
0.8196
0.8439
0.8215
0.7392
0.7247
DOWN
0.8000
0.8400
NZD/AUD
0.7855
0.7956
0.7986
0.7334
0.7855
FLAT
0.7800
0.7950
NZD/JPY
63.50
64.76
63.04
60.67
60.84
DOWN
62.00
64.50
NZD/EUR
0.6029
0.5953
0.5787
0.5307
0.5713
UP
0.5950
0.6100
NZD/GBP
0.5170
0.5213
0.5070
0.4604
0.4702
FLAT
0.5125
0.5225
71.8
72.7
71.2
65.3
67.4
DOWN
71.00
73.00
TWI
^Weekly support and resistance levels * Current is as at 11.00 am Monday; week ago as at Monday 5pm.
The NZD eased over the past week, as the continued volatility reduced risk appetite in financial markets. In particular, escalating fears of a debt default by Greece towards the end of last week weighed on the Antipodean currencies. However, the NZ dollar was higher against the euro, reflecting the fact that the fears are centred in the Eurozone. Focus turns to the RBNZ this Thursday, for which there is much interest in whether the RBNZ will give any further indication as to when it would look to lift the OCR. With safe‐haven demand for the Swiss franc high, the Swiss National Bank has resorted to dramatic measures to stem the rise in the currency. The SNB announced last Tuesday a 1.20 floor for EUR/CHF, and it has been intervening in the currency markets to drive EUR/CHF up. The SNB is aiming for a substantial and sustained weakening of the franc and said it is prepared to buy foreign currency in unlimited quantities. The US dollar appreciated over the past week, as focus largely returned to the European Sovereign debt crisis.
Short‐term outlook: NZ DOLLAR
US cents
Index
(past 3 months)
89
77
N Z D / US D
86
74 T WI
83
71
80
68
Key data
Date
Time (NZT)
Market
Manufacturing Survey – Q2 sales volumes Eurozone Industrial Production RBNZ September Monetary Policy Statement US CPI – year to August US Industrial Production
13/9 14/9 15/9 16/9 16/9
10.45am 9.00pm 9.00am 0.30am 1.15am
+1.0% +1.5% 2.50% ‐ ‐
Key events in markets this week: AU trade balance , BoJ meeting minutes (12th); US business confidence, UK CPI, UK trade balance (13th); AU consumer confidence, UK earnings, UK unemployment, EC industrial production, US producer prices (14th); RBNZ Rate Announcement, UK retail sales, EC CPI, US CPI, US Empire manufacturing, US industrial production (15th); US consumer confidence, EC meeting of finance ministers and central bankers (16th‐17th).
Source: ASB
77 20-Jun
65 11-Jul
1-A ug
Medium‐term outlook:
22-A ug
12-Sep
Speakers: ECB’s Trichet, Stark (15th); Fed’s Fisher (12th), Bernanke, Tarullo (15th). Last Quarterly Economic Forecasts
We revised our USD forecasts lower in August. The slowing US economy has led the Fed to provide specific guidance that the effective Fed funds rate is likely to remain between zero and 0.25% “at least until mid‐2013”. This implies an extended period of negative real interest rates in the US, which is set to maintain downward pressure on the USD for an extended period of time. We have modified our exchange rate forecasts to reflect the revised Fed outlook and, more specifically, the extended period of negative real interest rates in the US economy. The USD is heavily influenced by real interest rates and the US two‐year swap yield relative to the US’s weighted G7 trading partners. The Fed's indication to keep the Fed Funds rate exceptionally low “at least until mid‐2013”, coupled with the downside fiscal and economic risks, suggest that government two‐year bond yields could remain close to or below 0.25% for at least the next 12 months. Higher G7 bond and swap rates relative to US swap rates, should guide the USD lower over 2012. While downside risks to the global economic outlook have significantly increased, our central scenario is for the global economy to still record above‐trend growth over the remainder of 2011 and in 2012. Asia, the region responsible for the bulk of global growth, continues to record above‐trend growth. This will be very supportive for the NZD and AUD. As soon as the recent heightened US and Eurozone financial concerns subside, the NZD and AUD are likely to resume their appreciation, supported by a weakening USD and GDP growth at or above‐trend in the respective economies. We expect the NZD/USD to appreciate over the coming year, to once again reach 88 cents in mid 2012. Beyond that, we expect the NZ dollar to remain elevated. Earlier this year we revised up our near‐term currency forecasts for the EUR, GBP and CHF. Once the EU debt crisis is contained, the euro’s direction should return to being driven by traditional interest rate, growth and inflation differentials. GBP is forecast to out‐perform EUR, reflecting a healthier banking system than in continental Europe. 2
ASB Economic Weekly 12 September 2011
Interest Rate Market Wholesale interest rates
Current 2.50
Cash rate
Week ago 2.50
Month ago 2.50
6 mths ago 2.50
Year ago 3.00
ST Bias FLAT
90‐day bank bill
2.96
2.93
2.94
2.65
3.19
FLAT
2‐year swap
3.27
3.35
3.38
3.26
3.92
DOWN
5‐year swap
4.04
4.07
4.22
4.35
4.53
DOWN
5‐year benchmark gov’t stock
3.58
3.55
3.56
4.31
4.72
DOWN
NZSX 50
3291
3292
3217
3361
3161
DOWN
* Current is as at 11.00am Monday; week ago is as at Monday at 5pm. Please note there are currently no NZ govt bonds on issue that are close to a 5‐year maturity. As a result, we are currently using an April 2015 maturity, which is technically a 4‐year maturity. Please be very careful with comparisons of govt bond yields and swap rates.
Domestic interest rates fell last week. This largely followed developments in the Australian markets. Interest rates increased on Wednesday following the stronger than expected Australian GDP data which suggested the effects of the Queensland floods earlier this year on H1 growth was not as severe as first feared. However, the release of Australian employment data on Thursday, showing a surprise decline saw a retracement in interest rates. Offshore, sentiment in markets remains subdued in the wake of the weaker than expected US Non‐farm Payrolls result released the previous week. Added to that are continued uncertainty in regards to the European Sovereign debt crisis. There are escalating fears of a debt default by Greece, and the surprise resignation from ECB board member Stark over the weekend added to the jitteriness in markets.
Short‐term outlook: NZ INTEREST RATES (past 3 months)
% p.a. 6
6 Source: ASB
5
5 5 - ye a r go v e rnm e nt bo nd
4
4
9 0 - da y ba nk bill 3
Date
Time (NZT)
Market
Manufacturing Survey – Q2 sales volumes Eurozone Industrial Production RBNZ September Monetary Policy Statement US CPI – year to August US Industrial Production
13/9 14/9 15/9 16/9 16/9
10.45am 9.00pm 9.00am 0.30am 1.15am
+1.0% +1.5% 2.50% ‐ ‐
Comment: The RBNZ September Monetary Policy Statement this Thursday will be the key focus for markets. While markets are widely expecting the RBNZ will leave the OCR on hold at 2.50%, there is much interest in whether there will be further signal as to when it will lift the OCR.
3
O f f ic ia l C a s h R a t e 2 20-Jun
Key data
2 11-Jul
1-A ug
Medium‐term outlook:
22-A ug
12-Sep
Back in July, the RBNZ had indicated it would like to take back the 50bp ‘insurance’ cut, provided the NZ recovery continued and global risks receded. Global risks have escalated since then, and a key issue for the RBNZ will be when the global volatility settles down. Last Quarterly Economic Forecasts
The RBNZ left the OCR on hold at 2.5% at the July OCR Announcement, as widely expected. However, the accompanying statement suggests the RBNZ would like to remove the 50 basis point ‘insurance’ cut soon, provided it saw an easing in global risks. Recent domestic developments have been encouraging, and the RBNZ is now more confident that the recovery is back on track. The RBNZ has noted the key role the high Terms of Trade is playing in supporting the recovery. Given this, the outlook for trading partner growth will be closely watched. However, financial market risks have grown substantially since the end of July. Not only have Italy and Spain come under pressure, but France – Europe’s second‐biggest economy – got the spotlight turned on it. European banks, large holders of European government debt, are now getting caught up in the crisis. On top of the market crisis itself, growth prospects in the US and Europe were starting to look a bit shakier. The implications for NZ of the Standard and Poors downgrade are the likelihood of the NZD/USD being even higher in the medium term, reducing the amount of work NZ interest rates need to do to contain future inflation. As such, we expect the RBNZ will now hold off raising the OCR by 50bp until December. Beyond that, we expect the RBNZ will leave the OCR on hold at 3.0% until April, with 25bp increases until the OCR reaches 4.0%. The current environment is fluid, and developments (for better or worse) over the coming weeks could bring about a quite different picture for the OCR outlook.
3
ASB Economic Weekly 12 September 2011
Data Preview: a look at the week ahead Data
Date
Time (NZT)
Previous
Market expects
ASB expects
+2.5% +2.0% 2.50% ‐1.9%
+1.0% ‐ 2.50% ‐
+2.0% ‐ 2.50% ‐
Manufacturing Survey – Q2 sales volumes, qoq 13/9 10.45am Food Price Index – August, mom 13/9 10.45am RBNZ September Monetary Policy Statement 15/9 9.00am Sometime this week: REINZ house sales – August housing turnover, mom s.a.
New Zealand Data Previews Tuesday 13 September Economic Survey of Manufacturing – Q2
diff GDP index
Previous: Sales Volumes +2.5% qoq ASB(f) +2.0%
EX-FOOD MANUFACTURING % & CONFIDENCE 6
65
Manufacturing volumes increased strongly over Q1. Sales volumes increased 2.5%, excluding dairy and meat and StatsNZ reported that the increase was relatively broad‐based across industries. Meanwhile, non‐food related manufacturing production within GDP recorded a 4.4% increase over Q1. The increase was impressive given the disruption to many Canterbury‐based manufacturers from the February earthquake. We expect further growth in manufacturing production over Q2. Manufacturing confidence remained upbeat, partly supported by the competitive exchange rate for exporters focussed on Australia. Meanwhile, the recovery in domestic activity points to improved demand for non‐export manufacturers as well. Thursday 15 September
4 2
55
0 -2
45
GDP Ex-Food Manufacturing Production (rhs) Source: St at s NZ
-10
M ar-03
% p.a .
M ar-07
M ar-09
M ar-11
% p.a .
OCR FORECASTS
(vs. pricing of overnight index sw aps)
At the July OCR Review, the RBNZ indicated it would like to take back the 50 basis point ‘insurance’ cut soon, provided “global financial risks recede and the economy continues to recover”.
7.0
8.0 Source: ASB
7.0
6.0
6.0 A S B E c o no m ic s F o re c a s t
5.0
5.0
4.0
4.0
3.0
3.0
2.0
C urre nt m a rk e t pric ing
1.0
2.0 1.0
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sometime this week
NZ DWELLING SALES
REINZ house sales ‐ August
Nonetheless, median days to sell continued to edge lower, indicating some tightening in the housing market. We expect housing turnover remained around current levels in August.
M ar-05
8.0
The underlying picture of the market remains of a very gradual pick‐up in housing market activity. Nationwide housing turnover edged slightly lower in July on a seasonally‐adjusted basis. As expected, there was a recovery in turnover in Canterbury over July from the sharp drop in the wake of the earthquakes in the previous month. Outside of Canterbury, there are some signs of softening in housing turnover, although poor weather over the month may have contributed to this.
-8
25
Previous:2.50 ASB(f): 2.50%
Previous housing turnover: ‐1.9% mom, s.a.
-6
35
RBNZ September Monetary Policy Statement
While domestic data continue to point to a gradual underlying recovery taking shape, there has been an escalation in global financial risks in recent weeks. The European debt crisis is far from resolved, and there are growing fears of contagion to the major European economies. Risks have also intensified in the US, with the downgrade by ratings agency Standard and Poors of the US’s AAA sovereign credit rating at the beginning of August. The downgrade added to concerns about the sustainability of the US fiscal deficit, and triggered another wave of volatility in the financial markets. Uncertainty in global markets remains the dominant theme for now, and we expect this will keep the RBNZ on hold at the September meeting.
-4
Manufacturing PMI Survey
(seasonally adjusted) 10000
1800 R E IN Z C a nt e rbury s a le s
8000
1400
6000
1000
4000
600 R E IN Z N a t io na l S a le s e x C a nt e rbury ( LH S )
2000
200
Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10
4
ASB Economic Weekly 12 September 2011
Data Recap: weekly recap RBA Rate Announcement The RBA left the cash rate unchanged at 4.75% at its September Board meeting. The uncertainty around financial market volatility and concerns about downside risks to global growth was apparent in the decision. While the RBA remained concerned about the medium‐term outlook for inflation, this concern was softened with a caveat. “A key question will be the extent to which softer global and domestic growth will work, in due course, to contain inflation.” A speech by RBA Governor Stevens indicated the RBA remains optimistic on the medium‐term outlook for growth in the Australian economy. He noted that policy makers are “well positioned” to deal with whatever may come along.
AUSTRALIAN CASH RATE
% 8
6
4
Source: Bloomberg
2 Jan-00
Jan-02
Jan-04
Australian GDP – Q2 Growth was stronger than expected in Q2, with the economy growing by 1.2%. The large fall in Q1 was revised up, with economy contracting by 0.9%, compared to the initial estimate of a 1.2% fall. Stronger growth and upward revisions saw the pace of annual growth lift to 1.4%. Coal exports look set to recover from the disruptions caused by the Queensland floods. A return to end‐2010 export levels will add 0.75ppts to GDP growth in H2 2011. This boost will be a significant offset to whatever drag may eventuate from current uncertainties and risks. The result shows an economy where the rebalancing from public spending to private spending continues, where income growth remains strong and where inflation pressures are lifting. NZ Building Work Put in Place – Q2 Total construction activity fell 6.6% over Q2. The decline was due to the sharp 12% drop in residential construction. A decline of this extent is surprising. Construction activity was already very weak, and we had expected construction activity to remain broadly stable given building consents had started to stabilise over the first half of 2011. Residential construction activity is at the lowest level since March 1993. However, going forward the outlook for residential construction is positive. There have been early signs of recovery in building consents. In addition, from 2012 onwards reconstruction activity in Canterbury is expected to see residential construction increase around 50% from current lows. Non‐residential construction activity fell 1.4% in Q2, and private non‐ residential activity was weak over the year to June. Stats NZ notes that non‐ residential building work in Canterbury rose over the quarter, suggesting post‐ earthquake rebuilding work has begun. Nonetheless, the Q2 result points to nationwide non‐residential investment remaining subdued.
Jan-06
Jan-08
Jan-10
GDP GROWTH % 6
(% change)
% 6
Annual 4
4
2
2
0
0 Quarterly
-2
-2
Sep-98
$ bn
Sep-01
Sep-04
Sep-07
Sep-10
NZ BUILDING PUT IN PLACE (Quarterly, real, s.a.) 2.8
2.8 T o tal 2.4
2.4
2.0
2.0 R e s ide nt ia l
1.6
1.6
1.2
1.2
0.8
0.8 N o n- re s ide nt ia l
0.4
0.4
0.0 Jan-92
0.0 Jan-96
Jan-00
Jan-04
Jan-08
5
ASB Economic Weekly 12 September 2011
Australian Employment – July
LABOUR MARKET '000 90
% 6.0
Australian employment fell 9,700 in August. The data indicate that jobs growth has ground to a halt. Only 600 net new jobs were created over the past three months and unemployment has edged higher. These are weak outcomes but, as always, reality is more complicated.
Unemployment rate (lhs)
5.5
60
5.0
Flat jobs growth has coincided with a lift in average hours worked. Hours worked have risen by 1.1% over the past three months. If average hours worked had remained constant in August, then employers would have required an additional 33,000 employees to deliver the same productive effort.
30
4.5
0 Employment growth (3mnth average, rhs)
4.0
It appears market volatility and economic uncertainty has encouraged employers to delay or defer labour hiring.
-30
3.5
-60
Jan-08
Bank of England Rate Announcement European Central Bank Rate Announcement
Nov-08
Sep-09
Jul-10
May-11
EUROZONE INFLATION
% 5.0
% 5.0
ECB 2.0% Inflation Target
The BoE left its policy rate unchanged, as widely expected. With no statement released, markets will have to wait for the release of the meeting minutes for further insight into the Committee’s discussions. The September ECB meeting also contained few surprises. There was no change to monetary policy, with the refinancing rate unchanged at 1.5%. There were also no other policy measures announced. Nevertheless, ECB President Trichet confirmed in the post‐meeting press conference that the ECB has now moved to a neutral stance. The ECB Governing Council is no longer concerned about upside risks to price stability, rather downside ones to a more modest growth outlook.
4.0
4.0 Headline Inflation
3.0
3.0
2.0
2.0
1.0
1.0
Core Inflation
0.0
0.0 Headline Inflation (MoM%)
-1.0
-1.0
Jan-97
Jan-00
Jan-03
Jan-06
Jan-09
Jan-12
NZ Electronic Card Spending ‐ August Retail card spending was slightly softer than expected, with a 0.7% decline in August. This follows some strong results in recent months, and it is important not to read too much into the volatility in the monthly data. The August result was driven by declines in spending on durables and apparel. These areas had shown encouraging signs of recovery in recent months. Meanwhile, spending on fuel increased 1.6% in August. This was despite the decline in petrol prices over the month, and suggests increased use of fuel. Spending on vehicles ticked up slightly, increasing 0.1% in August. The natural disasters in Japan earlier this year disrupted the import of cars, and there are signs the recovery in vehicle sales is now plateauing. Since the beginning of 2011, retail spending has shown signs of recovery on the back of an improvement in household sector conditions. Nonetheless, with household debt levels still at high levels, we expect the recovery in retail spending will be very gradual over the coming year.
APC
RETAIL ELECTRONIC CARD TRANSACTIONS
12
Total 10
8
6
4
Ex-auto 2 Source: St at s NZ
0 Jan-04 M ar-05 M ay-06 Jul-07 Sep-08 No v-09 Jan-11
6
ASB Economic Weekly 12 September 2011
China Industrial Production, Retail Sales, CPI, Investment, Trade Balance China industrial production continued to show some decent momentum, rising 1% over August and up 13.5% over the year, suggesting the current slowdown in Eurozone and US economic activity has had a limited impact on China so far. Weak production of cars has been dragging on industrial output over recent months. However, there are signs the auto sector may be stabilising. Meanwhile, China's trade surplus narrowed to US$17.8bn with imports up 30.2% on a year earlier with exports up 24.5%. China retail sales also remained robust, growing 1.36% mom seasonally‐adjusted over August, and up 10.8% yoy. China’s annual rate of inflation moderated over August, falling to 6.2% from 6.5%. Much of the decline was due to lower food prices, particularly pork. Annual non‐food inflation recorded a modest increase to 3%, from 2.9%.
%
CHINA ANNUAL INFLATION
25 So urce: B lo o mberg 20 Food 15
10
5
0 H e a dline -5 Jan-00
Jan-03
Jan-06
Jan-09
7
ASB Economic Weekly
12 September 2011
Global Data Calendars Calendar ‐ Australasia, Japan and China Date
Time (NZT)
Eco
Event
Period
Unit
Last
Forecast Market ASB
Mon 12 Sep
11:50
JP
BOJ to publish minutes of August. 4‐5 board
13:30
AU
Trade balance
Jul
AUD
2.1
~
2.0
Tue 13 Sep
10:45
NZ
Food prices
Aug
m%ch
2.0
~
~
10:45
NZ
Manufacturing activity
QII
q%ch
2.9
~
10:45
NZ
Manufacturing activity volume s.a.
QII
q%ch
1.9
1.0
~
12:00
NZ
QV house prices
Aug
y%ch
‐0.4
~
~
13:30
AU
NAB business confidence
Aug
Index
2.0
~
~
13:30
AU
NAB business conditions
Aug
Index
‐1.0
~
~
~
AU
CBA releases Viewpoint report on natural disasters
~
~
~
~
~
Wed 14 Sep
12:30
AU
MI/WBC consumer confidence
Sep
m%ch
‐3.5
~
~
13.30
AU
Dwelling commencements
QII
q%ch
2.7
~
‐2.0
16:30
JP
Industrial production
Jul F
m%ch
0.6
~
~
16:30
JP
Capacity utilization
Jul
m%ch
5.2
~
~
Thu 15 Sep
09:00
NZ
RBNZ official cash rate
Sep
%
2.5
2.5
2.5
09:00
NZ
RBNZ monetary policy statement
Sep
~
~
~
~
10:30
NZ
Business NZ PMI
Aug
Index
53.2
~
~
Fri 16 Aug
12:01
CH
China manpower survey
4Q
%
19.0
~
~
13:00
NZ
ANZ consumer confidence index
Sep
Index
113.3
~
~
13:00
NZ
ANZ consumer confidence
Sep
m%ch
3.6
~
~
13:30
AU
Trade balance
Jul
AUD
2.1
~
2.0
13:00
NZ
ANZ consumer confidence
Sep
m%ch
3.6
~
~
8
ASB Economic Weekly
12 September 2011
Calendar ‐ North America & Europe Please note all days and times are UK time. Add 11 hours for NZ times. Date
Time (UK)
Eco
Event
Period
Unit
Last
Forecast Market ASB
Aug
%
‐22.0
~
~
Mon 12 Sep
16:30
EC
ECB announces bond purchases
23:00
US
Fed's Fisher speaks on monetary policy in Dallas
Tue 13 Sep
02:01
UK
RICS house price balance
11:30
UK
Visible trade balance
Jul
£mn
‐8,873
‐8,700
~
11:30
UK
CPI
Aug
y%ch
4.4
4.5
~
11:30
UK
Core CPI
Aug
y%ch
3.1
2.9
~
11:30
UK
RPI
Aug
m%ch
‐0.2
0.6
~
15:30
US
Import price index
Aug
m%ch
0.3
‐0.7
~
Wed 14 Sep
10:15
SZ
Producer and import prices
Aug
m%ch
‐0.7
‐0.4
~
11:30
UK
Claimant count rate
Aug
%
4.9
5.0
~
11:30
UK
Jobless claims change
Aug
‘000
37.1
35.0
~
12:00
EC
Industrial production
Jul
m%ch
‐0.8
1.6
~
15:30
CA
Capacity utilization rate
QII
%
79.0
~
~
15:30
US
Producer price index
Aug
y%ch
7.2
6.4
~
15:30
US
PPI ex food & energy
Aug
y%ch
2.5
2.6
~
15:30
US
Advance retail sales
Aug
%
0.5
0.2
~
15:30
US
Retail sales less autos
Aug
%
0.5
0.2
~
17:00
US
Business inventories
Jul
%
0.3
0.5
~
Thu 15 Sep
10:00
EC
ECB's Bini Smaghi speaks in Rome
10:15
SZ
Industrial Production
QII
q%ch
‐9.2
2.3
~
Jul
m%ch
‐0.8
1.6
~
0.0
0.0
12:00
EC
Industrial production
10:30
SZ
Swiss Central Bank holds monetary policy
10:30
SZ
SNB 3‐month LIBOR target rate
Sep
%
0.0
11:30
UK
Retail sales ex auto fuel
Aug
m%ch
0.2
~
~
11:30
UK
Retail sales w/auto fuel
Aug
m%ch
0.2
‐0.3
~
12:00
EC
CPI ‐ core
Aug
y%ch
1.2
1.2
~
12:00
EC
CPI
Aug
y%ch
2.5
2.5
~
12:00
EC
Employment
QII
q%ch
0.1
~
~
15:30
CA
Manufacturing sales
Jul
m%ch
‐1.5
1.2
~
15:30
US
CPI
Aug
y%ch
3.6
3.6
~
15:30
US
CPI ex food & energy
Aug
y%ch
1.8
1.9
~
15:30
US
Empire manufacturing
Sep
Index
‐7.72
‐2.95
~
15:30
US
Initial jobless and continuing claims
Sep
‘000
~
~
~
15.45
US
Fed’s Bernanke gives brief remarks at risk conf
Aug
m%ch
0.9
0.1
~
Jul
€bn
‐1.6
~
~
16:15
US
Industrial production
Fri 16 Sep
11:00
EC
ECB's Gonzalez‐Paramo Speaks in Sofia
12:00
EC
Trade balance s.a.
13:30
EC
EU Finance Ministers, Central Bankers meet in Wroclaw, Poland
16:00
US
Net long‐term TIC flows
16:55
US
University of Michigan consumer confidence
19:00
US
Jul
USD
3.7
~
~
Sep P
Index
55.7
56.3
~
Flow of funds
~
~
~
~
~
9
ASB Economic Weekly 12 September 2011
ASB Economics & Research Economics Chief Economist Economist Economist
Phone Nick Tuffley Jane Turner Christina Leung
[email protected] [email protected] [email protected]
(649) 301 5659 (649) 301 5660 (649) 301 5661
Fax
(649) 302 0992
https://reports.asb.co.nz/index.html
ASB Economics Level 9, 135 Albert Street, Auckland Disclaimer This document is published solely for informational purposes. It has been prepared without taking account of your objectives, financial situation, or needs. Before acting on the information in this document, you should consider the appropriateness and suitability of the information, having regard to your objectives, financial situation and needs, and, if necessary seek appropriate professional or financial advice. We believe that the information in this document is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this document. Any opinions, conclusions or recommendations set forth in this document are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed elsewhere by ASB Bank Limited. We are under no obligation to, and do not, update or keep current the information contained in this document. Neither ASB nor any person involved in the preparation of this document accepts any liability for any loss or damage arising out of the use of all or any part of this document. Any valuations, projections and forecasts contained in this document are based on a number of assumptions and estimates and are subject to contingencies and uncertainties. Different assumptions and estimates could result in materially different results. ASB does not represent or warrant that any of these valuations, projections or forecasts, or any of the underlying assumptions or estimates, will be met.
10
Eurozone anxiety will be too much for Bollard
RBNZ to weigh strong domestic growth against growing global risks at September MPS. Growing anxiety over Eurozone debt crisis and slowing US economic growth continues to cloud outlook. Rising global risks sees hurdle too high for an OCR increase this week.
Recent economic data have been very encouraging, prompting the RBNZ to signal it would reverse the 50 basis point ‘insurance’ cut very soon providing the economy continues to recover and global risks recede. Since this assessment, economic data have continued to highlight NZ’s robust recovery over 2011. The strength in growth has been particularly impressive given the challenges Canterbury has faced over this year. However, while growth is resilient in NZ, the global situation is deteriorating. The risks to global outlook have increased, and in light of this the RBNZ needs to take more time before it lifts the OCR. It needs time to assess the impact of weaker US and European growth and a possible Greek default on NZ and our key trading partners Australia and China. For now, activity in China remains buoyant and NZ export commodity prices remain firm, but it could just be a matter of time. Meanwhile, momentum may be fading in Australia’s multi‐speed economy, as jobs growth slows and unemployment increases. Even so, Q2 GDP exceeded expectations. The Eurozone sovereign debt crisis continues to be the centre of anxiety. The Greek economy is struggling, and speculation of a default is growing exponentially by the day. Investors continue to doubt the Greek Government’s ability to meet the terms of its aid package. Even if it did, there are also concerns that Germany may lack the political support to continue to fund the bailouts. Eurozone leaders lack consensus on the best approach to deal with the crisis. Indeed, views of senior members from official agencies are so fractured it led to the shock resignation of ECB board member Stark over the weekend. Germany and France are starting to concentrate on how to shore up their own banks in the event Greece defaults. Developments in the US are equally uninspiring. Economic data continue to confirm the US economy is sluggish. There is a growing expectation that the Fed will provide further stimulus at the upcoming meeting (September 22nd). Markets are expecting the Fed will adopt the ‘twist’ – shifting asset purchases into longer‐dated securities and selling its shorter dated holdings of US Treasuries (which should remain anchored by the Fed’s pledge to hold rates low until mid‐2013). President Obama is looking to do his bit as well, announcing a $447 billion package to stimulate jobs growth. The package involves a mixture of tax cuts and increased infrastructure spending. The question will be if these measures are enough to reinvigorate the US recovery. The RBNZ is navigating a particularly uncertain global economic environment. While NZ economic data have been encouraging, lessons from 2010 highlight the fragility that may remain despite the robust exterior. Give the risks to the global environment, holding off on rate hikes for now would be a prudent approach.
Click here for: Foreign Exchange Interest Rates Week Ahead Week in Review Global Calendars
NZD eases on heightened volatility in markets. Domestic interest rates also fall, largely following Australian developments. RBNZ’s September MPS will be the key focus for domestic markets. Construction activity and card spending in NZ. RBA rate announcement, AU GDP and employment data. Industrial production and CPI data in the US and Eurozone.
Chart of the Week AUSTRALIAN EMPLOYMENT (annual increase) 450 400 350
Australian employment over August contracted by 9,700, in contrast to expectations of growth of 10,000. Jobs momentum has been slowing this year from peak annual growth of 400k. The Australian economy has been a multi‐speed economy: mining activity is strong, consumers are cautious, Queensland is still recovering from floods, and the high AUD is affecting non‐mining export competitiveness. Nevertheless, the latest employment figures were not as grim as the headlines suggest. Hours worked rose 0.3%; if they had held constant and the extra activity met through hiring the demand for labour would have created around 33k new jobs.
300 250 200 150
The uncertainty that crept into global markets in August may have steered employers to work existing employees for longer hours rather than continue hiring, continuing a recent trend for a longer working week but slow jobs growth.
100 50 0 Sep-00
Sep-03
Sep-06
Sep-09
ASB Economics – 649 301 5659 – [email protected] Please refer to the important disclosures at the end of this document
ASB Economic Weekly 12 September 2011
Foreign Exchange Market FX Rates
Current*
Week ago
Month ago
6 mths ago
Year ago
ST Bias
Support^
Resistance^
NZD/USD
0.8196
0.8439
0.8215
0.7392
0.7247
DOWN
0.8000
0.8400
NZD/AUD
0.7855
0.7956
0.7986
0.7334
0.7855
FLAT
0.7800
0.7950
NZD/JPY
63.50
64.76
63.04
60.67
60.84
DOWN
62.00
64.50
NZD/EUR
0.6029
0.5953
0.5787
0.5307
0.5713
UP
0.5950
0.6100
NZD/GBP
0.5170
0.5213
0.5070
0.4604
0.4702
FLAT
0.5125
0.5225
71.8
72.7
71.2
65.3
67.4
DOWN
71.00
73.00
TWI
^Weekly support and resistance levels * Current is as at 11.00 am Monday; week ago as at Monday 5pm.
The NZD eased over the past week, as the continued volatility reduced risk appetite in financial markets. In particular, escalating fears of a debt default by Greece towards the end of last week weighed on the Antipodean currencies. However, the NZ dollar was higher against the euro, reflecting the fact that the fears are centred in the Eurozone. Focus turns to the RBNZ this Thursday, for which there is much interest in whether the RBNZ will give any further indication as to when it would look to lift the OCR. With safe‐haven demand for the Swiss franc high, the Swiss National Bank has resorted to dramatic measures to stem the rise in the currency. The SNB announced last Tuesday a 1.20 floor for EUR/CHF, and it has been intervening in the currency markets to drive EUR/CHF up. The SNB is aiming for a substantial and sustained weakening of the franc and said it is prepared to buy foreign currency in unlimited quantities. The US dollar appreciated over the past week, as focus largely returned to the European Sovereign debt crisis.
Short‐term outlook: NZ DOLLAR
US cents
Index
(past 3 months)
89
77
N Z D / US D
86
74 T WI
83
71
80
68
Key data
Date
Time (NZT)
Market
Manufacturing Survey – Q2 sales volumes Eurozone Industrial Production RBNZ September Monetary Policy Statement US CPI – year to August US Industrial Production
13/9 14/9 15/9 16/9 16/9
10.45am 9.00pm 9.00am 0.30am 1.15am
+1.0% +1.5% 2.50% ‐ ‐
Key events in markets this week: AU trade balance , BoJ meeting minutes (12th); US business confidence, UK CPI, UK trade balance (13th); AU consumer confidence, UK earnings, UK unemployment, EC industrial production, US producer prices (14th); RBNZ Rate Announcement, UK retail sales, EC CPI, US CPI, US Empire manufacturing, US industrial production (15th); US consumer confidence, EC meeting of finance ministers and central bankers (16th‐17th).
Source: ASB
77 20-Jun
65 11-Jul
1-A ug
Medium‐term outlook:
22-A ug
12-Sep
Speakers: ECB’s Trichet, Stark (15th); Fed’s Fisher (12th), Bernanke, Tarullo (15th). Last Quarterly Economic Forecasts
We revised our USD forecasts lower in August. The slowing US economy has led the Fed to provide specific guidance that the effective Fed funds rate is likely to remain between zero and 0.25% “at least until mid‐2013”. This implies an extended period of negative real interest rates in the US, which is set to maintain downward pressure on the USD for an extended period of time. We have modified our exchange rate forecasts to reflect the revised Fed outlook and, more specifically, the extended period of negative real interest rates in the US economy. The USD is heavily influenced by real interest rates and the US two‐year swap yield relative to the US’s weighted G7 trading partners. The Fed's indication to keep the Fed Funds rate exceptionally low “at least until mid‐2013”, coupled with the downside fiscal and economic risks, suggest that government two‐year bond yields could remain close to or below 0.25% for at least the next 12 months. Higher G7 bond and swap rates relative to US swap rates, should guide the USD lower over 2012. While downside risks to the global economic outlook have significantly increased, our central scenario is for the global economy to still record above‐trend growth over the remainder of 2011 and in 2012. Asia, the region responsible for the bulk of global growth, continues to record above‐trend growth. This will be very supportive for the NZD and AUD. As soon as the recent heightened US and Eurozone financial concerns subside, the NZD and AUD are likely to resume their appreciation, supported by a weakening USD and GDP growth at or above‐trend in the respective economies. We expect the NZD/USD to appreciate over the coming year, to once again reach 88 cents in mid 2012. Beyond that, we expect the NZ dollar to remain elevated. Earlier this year we revised up our near‐term currency forecasts for the EUR, GBP and CHF. Once the EU debt crisis is contained, the euro’s direction should return to being driven by traditional interest rate, growth and inflation differentials. GBP is forecast to out‐perform EUR, reflecting a healthier banking system than in continental Europe. 2
ASB Economic Weekly 12 September 2011
Interest Rate Market Wholesale interest rates
Current 2.50
Cash rate
Week ago 2.50
Month ago 2.50
6 mths ago 2.50
Year ago 3.00
ST Bias FLAT
90‐day bank bill
2.96
2.93
2.94
2.65
3.19
FLAT
2‐year swap
3.27
3.35
3.38
3.26
3.92
DOWN
5‐year swap
4.04
4.07
4.22
4.35
4.53
DOWN
5‐year benchmark gov’t stock
3.58
3.55
3.56
4.31
4.72
DOWN
NZSX 50
3291
3292
3217
3361
3161
DOWN
* Current is as at 11.00am Monday; week ago is as at Monday at 5pm. Please note there are currently no NZ govt bonds on issue that are close to a 5‐year maturity. As a result, we are currently using an April 2015 maturity, which is technically a 4‐year maturity. Please be very careful with comparisons of govt bond yields and swap rates.
Domestic interest rates fell last week. This largely followed developments in the Australian markets. Interest rates increased on Wednesday following the stronger than expected Australian GDP data which suggested the effects of the Queensland floods earlier this year on H1 growth was not as severe as first feared. However, the release of Australian employment data on Thursday, showing a surprise decline saw a retracement in interest rates. Offshore, sentiment in markets remains subdued in the wake of the weaker than expected US Non‐farm Payrolls result released the previous week. Added to that are continued uncertainty in regards to the European Sovereign debt crisis. There are escalating fears of a debt default by Greece, and the surprise resignation from ECB board member Stark over the weekend added to the jitteriness in markets.
Short‐term outlook: NZ INTEREST RATES (past 3 months)
% p.a. 6
6 Source: ASB
5
5 5 - ye a r go v e rnm e nt bo nd
4
4
9 0 - da y ba nk bill 3
Date
Time (NZT)
Market
Manufacturing Survey – Q2 sales volumes Eurozone Industrial Production RBNZ September Monetary Policy Statement US CPI – year to August US Industrial Production
13/9 14/9 15/9 16/9 16/9
10.45am 9.00pm 9.00am 0.30am 1.15am
+1.0% +1.5% 2.50% ‐ ‐
Comment: The RBNZ September Monetary Policy Statement this Thursday will be the key focus for markets. While markets are widely expecting the RBNZ will leave the OCR on hold at 2.50%, there is much interest in whether there will be further signal as to when it will lift the OCR.
3
O f f ic ia l C a s h R a t e 2 20-Jun
Key data
2 11-Jul
1-A ug
Medium‐term outlook:
22-A ug
12-Sep
Back in July, the RBNZ had indicated it would like to take back the 50bp ‘insurance’ cut, provided the NZ recovery continued and global risks receded. Global risks have escalated since then, and a key issue for the RBNZ will be when the global volatility settles down. Last Quarterly Economic Forecasts
The RBNZ left the OCR on hold at 2.5% at the July OCR Announcement, as widely expected. However, the accompanying statement suggests the RBNZ would like to remove the 50 basis point ‘insurance’ cut soon, provided it saw an easing in global risks. Recent domestic developments have been encouraging, and the RBNZ is now more confident that the recovery is back on track. The RBNZ has noted the key role the high Terms of Trade is playing in supporting the recovery. Given this, the outlook for trading partner growth will be closely watched. However, financial market risks have grown substantially since the end of July. Not only have Italy and Spain come under pressure, but France – Europe’s second‐biggest economy – got the spotlight turned on it. European banks, large holders of European government debt, are now getting caught up in the crisis. On top of the market crisis itself, growth prospects in the US and Europe were starting to look a bit shakier. The implications for NZ of the Standard and Poors downgrade are the likelihood of the NZD/USD being even higher in the medium term, reducing the amount of work NZ interest rates need to do to contain future inflation. As such, we expect the RBNZ will now hold off raising the OCR by 50bp until December. Beyond that, we expect the RBNZ will leave the OCR on hold at 3.0% until April, with 25bp increases until the OCR reaches 4.0%. The current environment is fluid, and developments (for better or worse) over the coming weeks could bring about a quite different picture for the OCR outlook.
3
ASB Economic Weekly 12 September 2011
Data Preview: a look at the week ahead Data
Date
Time (NZT)
Previous
Market expects
ASB expects
+2.5% +2.0% 2.50% ‐1.9%
+1.0% ‐ 2.50% ‐
+2.0% ‐ 2.50% ‐
Manufacturing Survey – Q2 sales volumes, qoq 13/9 10.45am Food Price Index – August, mom 13/9 10.45am RBNZ September Monetary Policy Statement 15/9 9.00am Sometime this week: REINZ house sales – August housing turnover, mom s.a.
New Zealand Data Previews Tuesday 13 September Economic Survey of Manufacturing – Q2
diff GDP index
Previous: Sales Volumes +2.5% qoq ASB(f) +2.0%
EX-FOOD MANUFACTURING % & CONFIDENCE 6
65
Manufacturing volumes increased strongly over Q1. Sales volumes increased 2.5%, excluding dairy and meat and StatsNZ reported that the increase was relatively broad‐based across industries. Meanwhile, non‐food related manufacturing production within GDP recorded a 4.4% increase over Q1. The increase was impressive given the disruption to many Canterbury‐based manufacturers from the February earthquake. We expect further growth in manufacturing production over Q2. Manufacturing confidence remained upbeat, partly supported by the competitive exchange rate for exporters focussed on Australia. Meanwhile, the recovery in domestic activity points to improved demand for non‐export manufacturers as well. Thursday 15 September
4 2
55
0 -2
45
GDP Ex-Food Manufacturing Production (rhs) Source: St at s NZ
-10
M ar-03
% p.a .
M ar-07
M ar-09
M ar-11
% p.a .
OCR FORECASTS
(vs. pricing of overnight index sw aps)
At the July OCR Review, the RBNZ indicated it would like to take back the 50 basis point ‘insurance’ cut soon, provided “global financial risks recede and the economy continues to recover”.
7.0
8.0 Source: ASB
7.0
6.0
6.0 A S B E c o no m ic s F o re c a s t
5.0
5.0
4.0
4.0
3.0
3.0
2.0
C urre nt m a rk e t pric ing
1.0
2.0 1.0
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sometime this week
NZ DWELLING SALES
REINZ house sales ‐ August
Nonetheless, median days to sell continued to edge lower, indicating some tightening in the housing market. We expect housing turnover remained around current levels in August.
M ar-05
8.0
The underlying picture of the market remains of a very gradual pick‐up in housing market activity. Nationwide housing turnover edged slightly lower in July on a seasonally‐adjusted basis. As expected, there was a recovery in turnover in Canterbury over July from the sharp drop in the wake of the earthquakes in the previous month. Outside of Canterbury, there are some signs of softening in housing turnover, although poor weather over the month may have contributed to this.
-8
25
Previous:2.50 ASB(f): 2.50%
Previous housing turnover: ‐1.9% mom, s.a.
-6
35
RBNZ September Monetary Policy Statement
While domestic data continue to point to a gradual underlying recovery taking shape, there has been an escalation in global financial risks in recent weeks. The European debt crisis is far from resolved, and there are growing fears of contagion to the major European economies. Risks have also intensified in the US, with the downgrade by ratings agency Standard and Poors of the US’s AAA sovereign credit rating at the beginning of August. The downgrade added to concerns about the sustainability of the US fiscal deficit, and triggered another wave of volatility in the financial markets. Uncertainty in global markets remains the dominant theme for now, and we expect this will keep the RBNZ on hold at the September meeting.
-4
Manufacturing PMI Survey
(seasonally adjusted) 10000
1800 R E IN Z C a nt e rbury s a le s
8000
1400
6000
1000
4000
600 R E IN Z N a t io na l S a le s e x C a nt e rbury ( LH S )
2000
200
Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10
4
ASB Economic Weekly 12 September 2011
Data Recap: weekly recap RBA Rate Announcement The RBA left the cash rate unchanged at 4.75% at its September Board meeting. The uncertainty around financial market volatility and concerns about downside risks to global growth was apparent in the decision. While the RBA remained concerned about the medium‐term outlook for inflation, this concern was softened with a caveat. “A key question will be the extent to which softer global and domestic growth will work, in due course, to contain inflation.” A speech by RBA Governor Stevens indicated the RBA remains optimistic on the medium‐term outlook for growth in the Australian economy. He noted that policy makers are “well positioned” to deal with whatever may come along.
AUSTRALIAN CASH RATE
% 8
6
4
Source: Bloomberg
2 Jan-00
Jan-02
Jan-04
Australian GDP – Q2 Growth was stronger than expected in Q2, with the economy growing by 1.2%. The large fall in Q1 was revised up, with economy contracting by 0.9%, compared to the initial estimate of a 1.2% fall. Stronger growth and upward revisions saw the pace of annual growth lift to 1.4%. Coal exports look set to recover from the disruptions caused by the Queensland floods. A return to end‐2010 export levels will add 0.75ppts to GDP growth in H2 2011. This boost will be a significant offset to whatever drag may eventuate from current uncertainties and risks. The result shows an economy where the rebalancing from public spending to private spending continues, where income growth remains strong and where inflation pressures are lifting. NZ Building Work Put in Place – Q2 Total construction activity fell 6.6% over Q2. The decline was due to the sharp 12% drop in residential construction. A decline of this extent is surprising. Construction activity was already very weak, and we had expected construction activity to remain broadly stable given building consents had started to stabilise over the first half of 2011. Residential construction activity is at the lowest level since March 1993. However, going forward the outlook for residential construction is positive. There have been early signs of recovery in building consents. In addition, from 2012 onwards reconstruction activity in Canterbury is expected to see residential construction increase around 50% from current lows. Non‐residential construction activity fell 1.4% in Q2, and private non‐ residential activity was weak over the year to June. Stats NZ notes that non‐ residential building work in Canterbury rose over the quarter, suggesting post‐ earthquake rebuilding work has begun. Nonetheless, the Q2 result points to nationwide non‐residential investment remaining subdued.
Jan-06
Jan-08
Jan-10
GDP GROWTH % 6
(% change)
% 6
Annual 4
4
2
2
0
0 Quarterly
-2
-2
Sep-98
$ bn
Sep-01
Sep-04
Sep-07
Sep-10
NZ BUILDING PUT IN PLACE (Quarterly, real, s.a.) 2.8
2.8 T o tal 2.4
2.4
2.0
2.0 R e s ide nt ia l
1.6
1.6
1.2
1.2
0.8
0.8 N o n- re s ide nt ia l
0.4
0.4
0.0 Jan-92
0.0 Jan-96
Jan-00
Jan-04
Jan-08
5
ASB Economic Weekly 12 September 2011
Australian Employment – July
LABOUR MARKET '000 90
% 6.0
Australian employment fell 9,700 in August. The data indicate that jobs growth has ground to a halt. Only 600 net new jobs were created over the past three months and unemployment has edged higher. These are weak outcomes but, as always, reality is more complicated.
Unemployment rate (lhs)
5.5
60
5.0
Flat jobs growth has coincided with a lift in average hours worked. Hours worked have risen by 1.1% over the past three months. If average hours worked had remained constant in August, then employers would have required an additional 33,000 employees to deliver the same productive effort.
30
4.5
0 Employment growth (3mnth average, rhs)
4.0
It appears market volatility and economic uncertainty has encouraged employers to delay or defer labour hiring.
-30
3.5
-60
Jan-08
Bank of England Rate Announcement European Central Bank Rate Announcement
Nov-08
Sep-09
Jul-10
May-11
EUROZONE INFLATION
% 5.0
% 5.0
ECB 2.0% Inflation Target
The BoE left its policy rate unchanged, as widely expected. With no statement released, markets will have to wait for the release of the meeting minutes for further insight into the Committee’s discussions. The September ECB meeting also contained few surprises. There was no change to monetary policy, with the refinancing rate unchanged at 1.5%. There were also no other policy measures announced. Nevertheless, ECB President Trichet confirmed in the post‐meeting press conference that the ECB has now moved to a neutral stance. The ECB Governing Council is no longer concerned about upside risks to price stability, rather downside ones to a more modest growth outlook.
4.0
4.0 Headline Inflation
3.0
3.0
2.0
2.0
1.0
1.0
Core Inflation
0.0
0.0 Headline Inflation (MoM%)
-1.0
-1.0
Jan-97
Jan-00
Jan-03
Jan-06
Jan-09
Jan-12
NZ Electronic Card Spending ‐ August Retail card spending was slightly softer than expected, with a 0.7% decline in August. This follows some strong results in recent months, and it is important not to read too much into the volatility in the monthly data. The August result was driven by declines in spending on durables and apparel. These areas had shown encouraging signs of recovery in recent months. Meanwhile, spending on fuel increased 1.6% in August. This was despite the decline in petrol prices over the month, and suggests increased use of fuel. Spending on vehicles ticked up slightly, increasing 0.1% in August. The natural disasters in Japan earlier this year disrupted the import of cars, and there are signs the recovery in vehicle sales is now plateauing. Since the beginning of 2011, retail spending has shown signs of recovery on the back of an improvement in household sector conditions. Nonetheless, with household debt levels still at high levels, we expect the recovery in retail spending will be very gradual over the coming year.
APC
RETAIL ELECTRONIC CARD TRANSACTIONS
12
Total 10
8
6
4
Ex-auto 2 Source: St at s NZ
0 Jan-04 M ar-05 M ay-06 Jul-07 Sep-08 No v-09 Jan-11
6
ASB Economic Weekly 12 September 2011
China Industrial Production, Retail Sales, CPI, Investment, Trade Balance China industrial production continued to show some decent momentum, rising 1% over August and up 13.5% over the year, suggesting the current slowdown in Eurozone and US economic activity has had a limited impact on China so far. Weak production of cars has been dragging on industrial output over recent months. However, there are signs the auto sector may be stabilising. Meanwhile, China's trade surplus narrowed to US$17.8bn with imports up 30.2% on a year earlier with exports up 24.5%. China retail sales also remained robust, growing 1.36% mom seasonally‐adjusted over August, and up 10.8% yoy. China’s annual rate of inflation moderated over August, falling to 6.2% from 6.5%. Much of the decline was due to lower food prices, particularly pork. Annual non‐food inflation recorded a modest increase to 3%, from 2.9%.
%
CHINA ANNUAL INFLATION
25 So urce: B lo o mberg 20 Food 15
10
5
0 H e a dline -5 Jan-00
Jan-03
Jan-06
Jan-09
7
ASB Economic Weekly
12 September 2011
Global Data Calendars Calendar ‐ Australasia, Japan and China Date
Time (NZT)
Eco
Event
Period
Unit
Last
Forecast Market ASB
Mon 12 Sep
11:50
JP
BOJ to publish minutes of August. 4‐5 board
13:30
AU
Trade balance
Jul
AUD
2.1
~
2.0
Tue 13 Sep
10:45
NZ
Food prices
Aug
m%ch
2.0
~
~
10:45
NZ
Manufacturing activity
QII
q%ch
2.9
~
10:45
NZ
Manufacturing activity volume s.a.
QII
q%ch
1.9
1.0
~
12:00
NZ
QV house prices
Aug
y%ch
‐0.4
~
~
13:30
AU
NAB business confidence
Aug
Index
2.0
~
~
13:30
AU
NAB business conditions
Aug
Index
‐1.0
~
~
~
AU
CBA releases Viewpoint report on natural disasters
~
~
~
~
~
Wed 14 Sep
12:30
AU
MI/WBC consumer confidence
Sep
m%ch
‐3.5
~
~
13.30
AU
Dwelling commencements
QII
q%ch
2.7
~
‐2.0
16:30
JP
Industrial production
Jul F
m%ch
0.6
~
~
16:30
JP
Capacity utilization
Jul
m%ch
5.2
~
~
Thu 15 Sep
09:00
NZ
RBNZ official cash rate
Sep
%
2.5
2.5
2.5
09:00
NZ
RBNZ monetary policy statement
Sep
~
~
~
~
10:30
NZ
Business NZ PMI
Aug
Index
53.2
~
~
Fri 16 Aug
12:01
CH
China manpower survey
4Q
%
19.0
~
~
13:00
NZ
ANZ consumer confidence index
Sep
Index
113.3
~
~
13:00
NZ
ANZ consumer confidence
Sep
m%ch
3.6
~
~
13:30
AU
Trade balance
Jul
AUD
2.1
~
2.0
13:00
NZ
ANZ consumer confidence
Sep
m%ch
3.6
~
~
8
ASB Economic Weekly
12 September 2011
Calendar ‐ North America & Europe Please note all days and times are UK time. Add 11 hours for NZ times. Date
Time (UK)
Eco
Event
Period
Unit
Last
Forecast Market ASB
Aug
%
‐22.0
~
~
Mon 12 Sep
16:30
EC
ECB announces bond purchases
23:00
US
Fed's Fisher speaks on monetary policy in Dallas
Tue 13 Sep
02:01
UK
RICS house price balance
11:30
UK
Visible trade balance
Jul
£mn
‐8,873
‐8,700
~
11:30
UK
CPI
Aug
y%ch
4.4
4.5
~
11:30
UK
Core CPI
Aug
y%ch
3.1
2.9
~
11:30
UK
RPI
Aug
m%ch
‐0.2
0.6
~
15:30
US
Import price index
Aug
m%ch
0.3
‐0.7
~
Wed 14 Sep
10:15
SZ
Producer and import prices
Aug
m%ch
‐0.7
‐0.4
~
11:30
UK
Claimant count rate
Aug
%
4.9
5.0
~
11:30
UK
Jobless claims change
Aug
‘000
37.1
35.0
~
12:00
EC
Industrial production
Jul
m%ch
‐0.8
1.6
~
15:30
CA
Capacity utilization rate
QII
%
79.0
~
~
15:30
US
Producer price index
Aug
y%ch
7.2
6.4
~
15:30
US
PPI ex food & energy
Aug
y%ch
2.5
2.6
~
15:30
US
Advance retail sales
Aug
%
0.5
0.2
~
15:30
US
Retail sales less autos
Aug
%
0.5
0.2
~
17:00
US
Business inventories
Jul
%
0.3
0.5
~
Thu 15 Sep
10:00
EC
ECB's Bini Smaghi speaks in Rome
10:15
SZ
Industrial Production
QII
q%ch
‐9.2
2.3
~
Jul
m%ch
‐0.8
1.6
~
0.0
0.0
12:00
EC
Industrial production
10:30
SZ
Swiss Central Bank holds monetary policy
10:30
SZ
SNB 3‐month LIBOR target rate
Sep
%
0.0
11:30
UK
Retail sales ex auto fuel
Aug
m%ch
0.2
~
~
11:30
UK
Retail sales w/auto fuel
Aug
m%ch
0.2
‐0.3
~
12:00
EC
CPI ‐ core
Aug
y%ch
1.2
1.2
~
12:00
EC
CPI
Aug
y%ch
2.5
2.5
~
12:00
EC
Employment
QII
q%ch
0.1
~
~
15:30
CA
Manufacturing sales
Jul
m%ch
‐1.5
1.2
~
15:30
US
CPI
Aug
y%ch
3.6
3.6
~
15:30
US
CPI ex food & energy
Aug
y%ch
1.8
1.9
~
15:30
US
Empire manufacturing
Sep
Index
‐7.72
‐2.95
~
15:30
US
Initial jobless and continuing claims
Sep
‘000
~
~
~
15.45
US
Fed’s Bernanke gives brief remarks at risk conf
Aug
m%ch
0.9
0.1
~
Jul
€bn
‐1.6
~
~
16:15
US
Industrial production
Fri 16 Sep
11:00
EC
ECB's Gonzalez‐Paramo Speaks in Sofia
12:00
EC
Trade balance s.a.
13:30
EC
EU Finance Ministers, Central Bankers meet in Wroclaw, Poland
16:00
US
Net long‐term TIC flows
16:55
US
University of Michigan consumer confidence
19:00
US
Jul
USD
3.7
~
~
Sep P
Index
55.7
56.3
~
Flow of funds
~
~
~
~
~
9
ASB Economic Weekly 12 September 2011
ASB Economics & Research Economics Chief Economist Economist Economist
Phone Nick Tuffley Jane Turner Christina Leung
[email protected] [email protected] [email protected]
(649) 301 5659 (649) 301 5660 (649) 301 5661
Fax
(649) 302 0992
https://reports.asb.co.nz/index.html
ASB Economics Level 9, 135 Albert Street, Auckland Disclaimer This document is published solely for informational purposes. It has been prepared without taking account of your objectives, financial situation, or needs. Before acting on the information in this document, you should consider the appropriateness and suitability of the information, having regard to your objectives, financial situation and needs, and, if necessary seek appropriate professional or financial advice. We believe that the information in this document is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this document. Any opinions, conclusions or recommendations set forth in this document are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed elsewhere by ASB Bank Limited. We are under no obligation to, and do not, update or keep current the information contained in this document. Neither ASB nor any person involved in the preparation of this document accepts any liability for any loss or damage arising out of the use of all or any part of this document. Any valuations, projections and forecasts contained in this document are based on a number of assumptions and estimates and are subject to contingencies and uncertainties. Different assumptions and estimates could result in materially different results. ASB does not represent or warrant that any of these valuations, projections or forecasts, or any of the underlying assumptions or estimates, will be met.
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