Australia and New Zealand - Weekly Prospects

Australia and New Zealand - Weekly Prospects

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• The week ahead in Australia is quiet for economic data, but includes two important events for the policy outlook. First, on Tuesday, the RBA releases minutes from the April 6 Board meeting. Key areas of interest will be any discussion of “buoyant” conditions in housing and the soaring terms of trade. References to both were prominent in the policy announcement two weeks ago, when the RBA hiked a further 25bp. Second, RBA Governor Glenn Stevens speaks in Queensland on Friday; Mr. Stevens will speak on Economic Conditions, so his comments will attract the market’s undivided attention. The 1Q terms of trade data is released Friday; it should show a healthy rise as export prices bounce and import prices fall. The rising terms of trade will be a recurring theme in policy-making decisions in coming quarters. The March car sales data is released Thursday, and should show a big rise.

• The data in New Zealand recently has been few and far between, but what has been released suggests the recovery underway has shed momentum. Last week’s retail sales numbers, for example, showed an unexpected slump in spending in February. In fact, the core sales trend measure fell for the first time since 1995. We maintain, therefore, that the RBNZ will delay the start of the next tightening cycle until July. This week’s CPI numbers are key to upcoming policy decisions, however. Headline CPI should print at 2.2%oya in 1Q, above the midpoint of the RBNZ’s target range, an uncomfortably high starting point given the recovery underway should strengthen this year. It would, though, take a much lower print on headline CPI for us to consider pushing out our call for the first OCR more to be delivered in July.

• Our central macroeconomic view is that the global upturn now completing its first full year has “legs” and that synchronized above-trend growth can be sustained for at least another year. Recent news has been supportive as significant upward surprises to Asian 1Q10 GDP readings and solid activity reports for March continue to push our 2010 global growth estimates higher. The latest forecasts place 1H10 GDP gains at an annualized 3.7% (4.6% using PPP weights)—a pace in line with global growth during its robust phase of expansion over 2005-7. Last week brought another round of upward forecast revisions in Asia. China’s economy expanded at a 13.1%q/q saar pace in 1Q, powered by solid domestic private-sector demand and a significant upturn in exports. Even more impressive than China’s performance was Singapore’s explosive 32% annualized gain, driven by a strong tech sector and a surge in pharmaceuticals output

• The agreement last weekend of some key details of the Greek support mechanism has failed to calm market sentiment in the way that many politicians and policymakers had hoped. The key reason why sentiment toward Greece has continued to deteriorate is that investors’ concerns have quickly moved on from the issue of near-term liquidity to the issue of medium-term solvency. The Euro area agreement reached last weekend was a significant step to ease liquidity stress, but it does little to resolve the medium-term issue of whether Greece can achieve debt sustainability without a debt restructuring.

ENDS

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