Data Flash (New Zealand) NZ: June 2001 in Review
As we started to put this note together at the beginning of last week, we were thinking of highlighting as the key
development during June the broadening in the global slowdown. Both the Japanese and European activity data have become
increasingly negative. For instance, the German IFO fell to 90.9 in May and looks likely to fall further during Q3. More
recently, Japanese IP fell 1.2% in May to be down 3.9% yoy. With Latin America also experiencing difficulties
(particularly Argentina), there seems little doubt the slowdown has become a global affair.
For markets, however, these developments have been superceded by the Fed's decision to ease by only 25 bp and the
publication of the minutes for the May FOMC meeting that reveal the decision to ease 50 bp at that time was not
unanimous. As well, some of the more recent US data have begun to stabilise. For instance, though the 4 weekly average
for jobless claims is still above 400,000 it has started falling. And, to finish the month, both the Chicago PMI and
Michigan consumer confidence survey came in above expectations. This has led the markets to believe the Fed is very
close to the end of its easing cycle. Certainly, the US data are going to have to take another turn for the worse to
convince the market that the Fed will keep easing. Since the lagged effect of the rate cuts to date will begin to hit
the numbers over the next few months this looks unlikely in the near term.
For much of June bond markets had a positive month as fears about inflation receded somewhat and the growth data
continued to pain a weak picture. After peaking above 5.5% in May, 10Y UST yields had rallied some 40 bp by the week
preceding the FOMC meeting. Since then, however, sentiment has turned increasingly bearish and 10Y UST bond yields have
finished the month slightly higher than where they started.
In FX markets, the USD finishes yet another month as the one and only show in town. The EUR tried to make some modest
gains but finished sitting on its lows, as the relative growth differential began to turn in favour of the USD. If the
EUR couldn't rally in the first half of the year when the US was slowing quickly and interest rate differentials were
moving in its favour, how is it going to manage the second half of the year when Europe is continuing to slow as the US
begins to recover? Yet again, those who bought the AUD were disappointed with all its gains being lost as June came to
an end. Despite this, the Australian equity market finished at a record high.
NZ MARKETS
It was a roller coaster ride for the New Zealand market. Taking the lead from a strong US bond market, driven by weak US
data, bonds rallied over most of the month. However, the gains were reversed in late June after a week of surprisingly
positive US data and a relatively hawkish Fed statement. While 10 year yields ended up roughly where they started the
month, the front part of the curve sold off over the month, causing the curve to flatten - consistent with reduced
expectation regarding further monetary policy easings. The NZD, after spending most of June in a 0.4100/0.4200 range,
weakened at the end of the month to 0.4050.
KEY NZ DATA
Building Work Put in Place (March Q) - 1 June: Real construction activity fell 6.8% qoq.
Motor Vehicle Registrations (May) - 6 June: Total registrations fell by 1.1% mom, following cumulative growth of 16%
over the previous 5 months.
Retail Trade (April) - 7 June: Nominal retail sales rose by 0.9% mom, with six of the thirteen non-automotive storetypes
recorded increased sales. Appliance and furniture sales increased, consistent with a sharp pick-up in housing activity
during the month.
Overseas Trade Indexes (March Q) - 12 June: Export prices fell by 2.8% qoq in Q1 but were still 20.0% higher than a year
earlier. Import prices fell by 7.1% qoq in Q1 but were still 7.9% higher than a year earlier. As a result, the terms of
trade increased by a further 4.7% inQ1.
ANZ Job Ads (May) - 12 June: Job ads rose by 0.8%, following a 4.1% decline in April. The level of ads was consistent
with 3% employment growth over the year to June.
Food Price Index (May) - 14 June: The food price index rose by 0.3%mom, lifting the annual rate of food price inflation
to 6.2%. General grocery prices, up by 1.6% mom were a key driver of the result. Economic Survey of Manufacturing (March
Q) - 14 June: Nominal sales rose by 0.5% during the quarter, which implied real growth of only 0.2%.
REINZ House Sales ?(May) - 15 June: The number of house sales fell by 4.9%, following a 16% rise during the previous
month. Sales were 20% higher than in May 2000.
Colmar Brunton Consumer Confidence (June) - 18 June: Confidence rose to +20 (net respondents), up from +11 in the
previous survey.
External Migration (May) - 21 June: There was a small net outflow of migrants (270 people). Over the last three months,
net flows have been in approximate balance, which compares with net monthly outflows of 1000 people during the preceding
12 months.
Balance of Payments (March Q) - 26 June: A current account surplus of $95m was recorded in Q1 2001 - the first quarterly
surplus since 1994. On an annual basis, the current account deficit was $5.3bn - around 4.8% of GDP. Westpac Consumer
Confidence (June) - 27 June: Consumer confidence fell to 117.0 in Q2 2001, from 121.6 in Q1. The result was consistent
with the monthly Colmar Brunton surveys.
Building consents (May) - 27 June: The number of new dwelling consents issued decreased 4.3% mom in May following a 3.7%
rise in April and was 13.9% lower than a year earlier. However, non-residential building consents with a value of $256m
were issued in May, taking the three-month running total to 40.6% higher than a year earlier.
Overseas Merchandise Trade ?(May) - 28 June: A provisional merchandise trade surplus of $652m was recorded for the month
of May, much higher than median market expectations of $318m. The much better than expected surplus was due solely to
stronger than expected export values.
NBNZ Business Survey (June) - 29 June: Business confidence remained stable at +3, while firms' assessment of their own
trading prospect improved marginally to +32 (net respondents). Pricing intentions were down 2 to +23.
GDP (March Q) - 29 June: Growth in Q1 was zero, which compared to expectations of +0.7% qoq and led to renewed
speculation that the NZ easing cycle may not be finished. A key contributor to the weak result was a strong decline in
both construction activity and plant and machinery investment.
Ulf Schoefisch, Chief Economist