Australia and New Zealand - Weekly Prospects

Australia and New Zealand - Weekly Prospects

JPMorgan Australia Ltd.,
Sydney www.morganmarkets.com

Summary

• In Australia this week, the highlight is the capex survey (Thursday), which will show the first spending intentions for 2009-10. We expect a near-20% drop, admittedly from elevated levels, but a plunge nonetheless. Also this week, we expect the pool of credit in the economy to have contracted for the second straight month. Economic events last week were dominated by RBA communications. The RBA acknowledged the magnitude of the rate cuts thus far, and confirmed that they were triggered mainly by anxiety about conditions in the global economy. The comparative health of the Australian economy will allow the RBA to slow the pace of easing from here, leaving ammunition for any future adverse developments. RBA Governor Glenn Stevens made clear that the RBA stands ready to cut the cash rate again, but only if the trajectory for global growth is softer than the bank’s already gloomy outlook.

• The data flow from New Zealand has been light in recent weeks. This week, though, features important survey data and trade results. The most important of these is the NBNZ business confidence survey on Thursday. The reading of firms’ own activity expectations collapsed to a new record low in December, pointing to sharply weaker economic growth in coming quarters. Employment intentions, profit expectations, and investment intentions probably remained near record lows in February.

• The global economy now looks to have contracted in excess of 6% annualized in 4Q08. Another deep decline is in store in the current quarter. Following the swoon in consumer spending and the intensification of the credit crunch in the latter half of last year, a powerful corporate adjustment is now in train across the globe. The latest round of IP reports and business surveys confirm that manufacturing remains in deep contraction as companies strive to cut inventory. In the same vein, US homebuilders further slashed housing starts in January. The continued nosedive in G3 capital goods orders points to additional declines in global capital spending. And the labour market adjustment is gaining steam outside the US, as more and more countries report rising unemployment.

• The recent news on global consumer demand, though, has been encouraging. Our index of global retail sales is on track for a solid gain in January, its second increase in the past three months. The improvement was led by back to back gains in motor vehicle sales in December and January. Most likely, this improvement resulted from the purchasing power lift from lower energy and food prices. That said, the US CPI report is a reminder that this lift is coming to an end. US consumer prices rose in January for the first time since July, led by firmer energy and overall core prices. As the windfall from lower commodity prices fades, consumers will be increasingly reliant on support from policy and financial markets in the next few months.

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ENDS

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