Data Flash (New Zealand)
November 2001 in Review
KEY GLOBAL DEVELOPMENTS AND FINANCIAL MARKETS
November began in a positive fashion for fixed income markets with the Fed's 50bp rate cut on 6 November, the third
since the terrorist attacks, boosting sentiment. The ECB also helped with its surprise 50bp rate cut a few days later.
However, sentiment went into sharp reverse over the next fortnight, as the collapse of the Taliban, a strong rebound in
US October retail sales, lower oil prices and long positioning triggered a dramatic rise in interest rates. The
Eurodollar strip moved to price in an early reversal in Fed policy - at one point, close to 200bps of tightening was
priced for 2002 - while 10Y USTs also gave up considerable ground, rising to more than 5% (or more than 80bps from their
yield low). In the final week, weaker than expected economic data (especially consumer confidence and jobless claims)
and dovish comments from Fed officials led to a rally that saw the 10Y yield fall back to 4.75%. Outside the US, data
has remained poor. Europe is still deteriorating - the Ifo fell again to an 8 year low and Germany was confirmed as
being in `mini recession'. Japanese IP has fallen for 13 months in a row and the unemployment rate has risen to 5.4%.
Meanwhile, in a number of Asian economies GDP is falling in nominal terms. And in recent days, the market has begun to
digest the implications of the collapse of Enron. At the very least, this does not appear to be an environment in which
central banks will want to take back rate cuts anytime soon.
Compared to the volatility of interest rate markets, currency movements were "relatively" subdued over the course of
November. The general theme continues to be one of USD strength - perhaps a surprising outcome given the tone of the
data. Yet the market seems to be firmly betting on a strong US recovery, while the growth outlook for Europe and Japan
in 2002 does not appear as favourable. Equity markets continued the recovery from the attacks in September that was
evident last month. US indices are above their pre-11 September levels, with the Dow almost 20% above its low point on
21 September and thus close to qualifying as a "bull" market.
KEY NEW ZEALAND DATA AND EVENTS
The key local data releases and events were:
ANZ Commodity Prices (Oct) - 2 Nov: ? The foreign currency price of New Zealand's commodity exports fell 2.4% mom to be
5% off their May high. An even sharper fall is expected over coming months.
Quarterly Employment Survey (Q3) - 5 Nov: ? Private sector ordinary time wage rates rose 0.8% qoq in Q3, below the
market's expectation of 1.0% qoq. Employment and hours paid data showed only modest growth. The market read this release
as being consistent with a 50bps rate cut by the RBNZ on 14 November.
Motor Vehicle Registrations (Oct) - 6 Nov: Total registrations rose 1.4% mom. New vehicle registrations rose 1.5% mom
but remained lower than a year earlier. Used car registrations rose 1.2% mom to be up 20% yoy.
Household Labour Force Survey (Q3) - 8 Nov: Despite a 0.3% qoq fall in full-time employment, overall employment rose
0.3% qoq while the number of hours worked rose by 0.1% qoq. The unemployment rate was unchanged at 5.2%. This result
confirmed suspicions that the economy had come off the boil after a strong H1.
ANZ Job Ads (Oct) - 9 Nov: ? The number of job advertisements decreased by 3.0% mom in October - the third consecutive
monthly decline. The number of advertisements in October was 4.4% lower than a year earlier and 7.9% below the record
high recorded in July.
Retail Trade ?(Sep and Q3) - 9 Nov: Total nominal retail sales rose 0.7% mom in September, helped by a large rise in
food prices. The volume of sales in Q3 rose 0.6% qoq - in line with market expectations. However, excluding motor
vehicle sales and services, growth was a more modest 0.2% qoq.
Colmar Brunton Consumer Confidence ?(Nov) - 9 Nov: Confidence improved from -10 to -4 in headline terms. However, after
adjusting for seasonal effects, confidence declined from 0 to -8.
Food Price Index (Oct) - 13 Nov: The FPI rose 0.2% mom to be 7.7% higher than a year earlier.
RBNZ Monetary Policy Statement and OCR Review - 14 Nov: As expected by market and analysts alike, the RBNZ cut its OCR
by 50bps to 4.75%. The RBNZ indicated that the policy decision encompassed a weaker scenario for output and inflation
than portrayed in the accompanying MPS, thus suggesting that the hurdle for a further rate is a little higher than would
usually be the case.
REINZ House Sales (Oct) - 15 Nov: The number of house sales rose 5% mom to be 36% higher than a year earlier (although
only 3% above its 10Y average). The median price rose to $179,000 - a rise of 2% yoy.
Capital Goods Price Index (Q3) - 20 Nov: Rose 0.3% qoq/3.0% yoy. This quarter there was only minimal inflation in the
construction sector while plant and machinery and transport prices recorded no price change at all.
External Migration (Oct) - 21 Oct: A net inflow of 2,860 migrants was recorded in October. This was the strongest inflow
since mid 1995 and moved the annual inflow into positive territory for the first time since 1998. Tourist arrivals
declined 8.0% mom following a 9.2% mom decline in September to be 3% lower than a year earlier - a sharp contrast with
the 10-15% yoy growth rates achieved prior to 11 September.
QVNZ House Price Index (Q3) - 26 Nov: House prices rose 0.3% qoq to be 0.7% higher than a year earlier. Building
Consents (Oct) - 27 Nov: Consents maintained their recent sawtooth pattern rising 11.7% mom following an 8.9% mom
decline in September. The solid trend in non-residential consents remained in place, helped by public sector works.
NBNZ Business Survey (Oct) - 27 Nov: The November survey, taken before the RBNZ's easing, suggested that business
confidence had broadly stabilised, rising to -18% from -19% last month. However, once seasonal factors are taken into
account, we estimate that confidence declined by 10pps. Firms remain much more upbeat about their own trading prospects.
Pricing intentions moderated to a level consistent with inflation of 2% yoy.
Overseas Merchandise Trade ?(Oct) - 28 Nov: A preliminary deficit of NZD267m was reported for the month of October - the
market had expected a zero balance. The surprise was due to weaker than expected exports and higher than expected
imports, the latter largely due to imported aircraft and a surge in motor vehicle imports.
Producers Price Index (Q3) - 30 Nov: The inputs index rose 2.0% qoq while the outputs index rose 1.4% qoq. Both indexes
were influenced by a strong rise in agricultural commodity prices and the impact of the mid-winter electricity crisis.
Wholesale Trade Survey (Q3) - 30 Nov: The volume of wholesale sales declined 0.6% qoq in Q3, continuing the run of data
suggesting that Q3 GDP will be much weaker than the 2.3% cumulative growth achieved during H1 2001.
Global influences were again the key drivers of the New Zealand market this month. In the debt market, the RBNZ
delivered the 50bps cut that was priced into the market. After initially pricing out any further easing following the
mid-month sell-off in the US, by the close of the month, the New Zealand market was again pricing around a 50% chance of
a further 25bps cut at the March 2002 MPS. At the long end, the sell-off in the US market led the 10Y NZGB to close the
month 28bps higher in yield - a relatively good performance, that saw the NZ/US spread contract by over 20bps. The New
Zealand curve steepened between 90 days and 3 years and flattened slightly between 3 years and 10 years. The NZD traded
in a tight range during the month, closing close to its opening level. Ground lost against the AUD was made back against
the Euro and Yen leaving the TWI little changed. In line with global trends, the local equity market had a good month,
ending up 5.5% on its opening level.
National, the major opposition party, gained a little ground on the Government this month. The latest Colmar-Brunton
poll, perhaps the most widely followed, showed Labour down 2pp to 44% support, National up 1pp to 40%, Alliance up 2pp
to 4%, ACT unchanged on 3%, the Greens unchanged on 5% and NZ First down 2pp to 2%.
Darren Gibbs, Senior Economist
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