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NEW ZEALAND ECONOMICS
MARKET FOCUS
ANZ RESEARCH
15 June 2015
INSIDE
Economic Overview 2
Data Preview 6
Interest Rate Strategy 7
Currency Strategy 9
Data Event Calendar 11
Local Data Watch 13
Key Forecasts 14
NZ ECONOMICS TEAM
Cameron Bagrie Chief Economist Telephone: +64 4 802 2212 E-mail: [email protected] Twitter @ANZ_cambagrie Philip Borkin Senior Economist Telephone: +64 9 357 4065 Email: [email protected]
David Croy Senior Rates Strategist Telephone: +64 4 576 1022 E-mail: [email protected] Peter Gardiner Economist Telephone: +64 4 802 2357 E-mail: [email protected] Mark Smith Senior Economist Telephone: +64 9 357 4096 E-mail: [email protected] Sam Tuck Senior FX Strategist Telephone: +64 9 357 4086 E-mail: [email protected] Con Williams Rural Economist Telephone: +64 4 802 2361 E-mail: [email protected] Sharon Zöllner Senior Economist Telephone: +64 9 357 4094 E-mail: [email protected]
THE FIRST CUT IS THE DEEPEST
ECONOMIC OVERVIEW
Given the shifting tone of the economic data, we expect a follow-up cut in July
and the risk is for more beyond that. This week, the main data reads are largely
backward-looking, with Q1 GDP growth expected to be below trend given the
impact of drought. The global dairy market is highly uncertain at present and
price movements are difficult to predict, but many indicators are pointing to a
modest bounce. We’ll take it, although the levels will tell the real story – they are
low.
DATA PREVIEW – Q1 GDP & BALANCE OF PAYMENTS
A positive goods and services balance is expected to temper the size of the
annual current account deficit, although the declining goods terms of trade will
help deliver circa 5% deficits by the end of the year. Q1 GDP is expected to show
a modest pace of growth, with lifting services sector activity offsetting drought-
related dips in primary and goods valued-added.
INTEREST RATE STRATEGY
Short-term rates have rallied considerably since last week’s MPS. The direction of
rates is wedded to the economic outlook and we expect pending data to support a
follow-up cut in July. The yield curve remains under pressure to steepen further.
Longer-term rates have edged higher, and while the published “dot plots” from
this week’s FOMC meeting suggest the market is underestimating the speed of
policy normalisation, we expect a gradual path of US policy normalisation and
abundant global liquidity will help cap rises in global yields. Local yields remain
high in relation to global peers, and with the policy outlooks pointing in differing
directions there is scope for local rates to narrow in relation to global peers.
CURRENCY STRATEGY
Despite breaking below 0.70, the NZD/USD still has a further adjustment to make
to match the recent declines in export prices. We are currently targeting 0.68, but
the risks are for lower still. JPY weakness may have run its course, capping
NZD/JPY, as official support for the JPY was noted last week. NZD/AUD has only a
small decline left before entering the technical buy zone.
THE ANZ HEATMAP
Variable View Comment Risk profile (change to view)
GDP
2.9% y/y
for 2016
Q2
Economic momentum is beginning to soften from an above-trend to a
below-trend pace as previous supports begin to wane.
Unemployment
rate
5.5% for
2016 Q2
Unemployment rate to gradually trend lower. Wage inflation
contained.
OCR 3.0% by
Jun 2016
The RBNZ is now responding to a weaker macro backdrop. We
expect a further 25bp cut in July, with risks skewed to more.
CPI
1.3% y/y
for 2016
Q2
Sub-1% annual inflation over 2015. Benign global backdrop;
domestic pricing pressures contained so far.
Positive Negative
Neutral
Positive Negative
Neutral
Up Down
Neutral
Positive Negative
Neutral
ANZ Market Focus / 15 June 2015 / 2 of 17
ECONOMIC OVERVIEW
SUMMARY Given the shifting tone of the economic data, we
expect a follow-up cut in July and the risk is for more
beyond that. This week, the main data reads are
largely backward-looking, with Q1 GDP growth
expected to be below trend given the impact of
drought. The global dairy market is highly uncertain
at present and price movements are difficult to
predict, but many indicators are pointing to a modest
bounce. We’ll take it, although the levels will tell the
real story – they are low.
FORTHCOMING EVENTS GlobalDairyTrade auction results (early am,
Wednesday, 17 June). We do believe we are close to
the trough in prices, although uncertainty is high.
Most indicators point to a modest bounce.
Balance of Payments – Q1 (10:45am, Wednesday,
17 June). In unadjusted terms, we expect a small
current account surplus ($100m), although base
effects should see the annual deficit widen to 3.9% of
GDP – the largest in 18 months.
GDP – Q1 (10:45am, Thursday, 18 June). We expect
modest quarterly growth of 0.5% (3.0% y/y). This is
led by services sector outperformance, and offsets
contractions from primary and goods sector value
added.
ANZ Job Ads – June (10:00am, Friday, 19 June).
ANZ Roy Morgan Consumer Confidence – June (1:00pm, Friday, 19 June).
WHAT’S THE VIEW? We’ll start by making a few observations following the RBNZ’s decision to cut the OCR last week:
The decision itself was clearly about responding to macro developments, and the weaker terms of trade in particular. The
RBNZ is assuming the terms of trade falls 7%
from here (13% peak-to-trough), which all else
being equal represents a 2% point headwind for
GDP growth [we assume each 1% change in the
terms of trade impacts GDP growth to the tune of
0.15%pt]. That is spread over a couple of years
but is still a massive headwind. Along with the
low inflation staring point and better supply-side
capacity, the reality is that the previous
combination of monetary conditions (a slowly
declining TWI and a flat-lined OCR) was
insufficient to get inflation back to 2%.
Whether or not price and wage setting outcomes “settle” at a low level (one of the
conditions from April) is still a question in the background and highly relevant for monetary policy going forward. If inflation
nuances remain weak, the RBNZ will cut more
than just an extra 25bps. But first and foremost,
the decision to cut last week was about a weaker
macro backdrop. Markets (NZD and interest
rates) will keep pushing for more than one more
cut as the “settle” scenario is additional to the
weaker macro one.
The RBNZ will welcome the market reaction. The NZD has a 6-handle against the USD for the
first time in five years. We expect it to fall further
over coming months. It is exactly what the
economy needs. That said, the NZD is still
elevated on a TWI basis and given the direction
that the terms of trade and New Zealand’s
external imbalances are heading (discussed
further below), further NZD weakness needs to
occur. These latest moves are welcomed, but let’s
not get too excited about the economic impact
just yet.
FIGURE 1. NEW ZEALAND DOLLAR
Source: ANZ, Bloomberg
If ever you wanted confirmation of New Zealand’s fixation with housing, you need only look at the media headlines in the immediate aftermath of the OCR decision. There was little comment on what the cut could
mean for exporters and the wider tradable sector
following the move lower in the NZD. Instead, it
was all about housing, mortgage rates and how
the RBNZ was possibly “pouring more fuel on the
Auckland fire”.
We believe the risks to the RBNZ’s macro projections are to the downside. Peak-to-
trough, we see the terms of trade falling by 16%
over a similar horizon to the RBNZ’s forecasts.
Rather than the RBNZ’s GDP growth forecasts of
0.8% per quarter between Q2 and Q4 this year,
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ANZ Market Focus / 15 June 2015 / 3 of 17
ECONOMIC OVERVIEW
we see below-trend outcomes as much more
likely, with Q2 activity certainly looking on the
weak side.
Outside of the RBNZ’s decision itself, it was also notable to us that: 1) our Truckometer is pointing
to a non-trivial possibility of negative Q2 activity
growth; 2) manufacturing sentiment fell further and
forward-looking gauges (new orders less inventories)
deteriorated; 3) consumer spending growth is cooling
after a strong Q1, with core ECT spending rising just
0.4% m/m in May after falling 0.9% m/m in April;
and 4) labour demand appears to be softening, with
the Q3 Manpower survey showing hiring intentions
falling to the lowest levels since the financial crisis.
We believe the economy is cooling more rapidly than widely appreciated, and because of that, we see the RBNZ following up last week’s move with another cut in July.
FIGURE 2. GDP & ANZ HEAVY TRAFFIC INDEX
Source: ANZ, NZ Transport Agency, Statistics NZ
Admittedly, it is not all bad news. House price
growth remains exceptional in Auckland (which of
course can be interpreted negatively as a risk as
well), the regions look to be firming housing-wise,
the services sector continues to perform well, and tax
revenue numbers continue to run ahead of Treasury
forecasts, highlighting that a return to OBEGAL
surplus is still actually possible by 2014/15. Even
anecdotes coming out of Fieldays do not appear to be
overly bearish. And of course we retain our positive view of the medium-term economic outlook, which is built around the microeconomic nuances in association with the macroeconomic ones.
The economy is not grinding to a halt; Chicken
Little can stay in the coop. But moderation to below-trend rates is looking more likely and that clearly has implications for the output gap and inflation pressures. Interestingly, we note that
while the RBNZ upgraded its forecasts for headline
inflation, this was entirely due to the impact of a
lower NZD and a bounce in petrol prices. Non-
tradable inflation forecasts were downgraded, and at
0.3% q/q and 0.2% q/q for Q2 and Q3 respectively,
are now much closer to the benign signal from our
Monthly Inflation Gauge. If evidence continues to mount of the economy becoming less lively, and the Q2 CPI report is benign as we expect, then it will be difficult for the RBNZ not to cut again in July.
Turning to the week ahead, the main domestic data due – GDP and Balance of Payments for Q1 – certainly feel historical now in light of recent developments. Nevertheless, they are still
important for assessing emerging economic risks and
vulnerabilities, and assessing economic momentum
and estimates of capacity pressures. Our full preview
of the data can be found on page 6.
We expect GDP growth of 0.5% q/q over the quarter, although the risks are skewed modestly to the downside. Part of the reason for
the modest outcome is that the impact of drought will
be evident within the primary and goods-producing
sectors. In fact, we expect activity growth to have
contracted in both sectors over the quarter. However,
more than offsetting this should be a strong
performance from the services sector, which –
outside of a pre-election pause in Q3 2014 – has
been growing around 1% per quarter since the start
of 2014. That pace of services sector growth is
expected to have continued into the March quarter,
but with mixed signs beyond that. Still-upbeat
readings for the May PSI are in contrast to
moderating signs from other indicators, including our
proprietary leading indicators. If we are right in our
expectations and Q2 activity is also relatively modest
(as the discussion above hints at), then that would be
two consecutive quarters of below-trend growth, in
contrast to the strong economic picture that was
evident not so long ago.
In terms of the Balance of Payments data, we expect it to show that a small unadjusted current account surplus was achieved in Q1. That would be the third year in a row of a March
surplus, although a seasonally adjusted deficit will
still be seen. The latter is expected to have narrowed
courtesy of a strong services export performance and
the impact of lower oil prices on the goods balance.
New Zealand’s current account deficit is not large by
its own historical standards. However, the trajectory
is a little more concerning, with it likely to approach
5% of GDP by the second half of this year. Ironically,
current account deficits are not usually a problem
until markets begin to worry about them. That
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ANZ Market Focus / 15 June 2015 / 4 of 17
ECONOMIC OVERVIEW
doesn’t appear likely any time soon, although a
widening trajectory certainly highlights that the
economy is still vulnerable to turns in global investor
sentiment. It is also a trajectory that reinforces that
the NZD has further to fall.
FIGURE 3. CURRENT ACCOUNT & NET INTERNATIONAL INVESTMENT POSITION
Source: ANZ, Statistics NZ
Many indicators point to the potential for an increase in prices at this week’s GlobalDairyTrade auction, but buyers’ near-term requirements remain an area of concern. It will be the seasonal low for milk powder supply, with
14,800 tonnes to be auctioned, and this is well back
on the first auction in June of 19,180 tonnes. All of
the reduction is in whole milk powder (WMP), and
New Zealand product remains the cheapest global
source by some margin (circa US$500/tonne). NZX
WMP futures have softened up in the last week, but
are still trading at a US$150-$250/t premium to the
results from the last auction. We believe supply
potential from New Zealand is lower in 2015/16, but
this is unlikely to influence buyer sentiment just yet.
Therefore price direction will continue to be
influenced by China’s immediate delivery
requirements. In-market supplies of WMP in China
appear to be starting to return to more manageable
levels, but anecdotal reports suggest there is little
demand for immediate deliveries.
It is likely that we will see the premium for WMP over skim milk powder open up in the coming months. The WMP market is expected to
rebalance well ahead of the SMP market. So long as
Northern Hemisphere milkfat markets remain strong
there will be an incentive for Europe and the US to
manufacture SMP rather than WMP. Availability of
SMP will therefore continue to grow, while WMP
stocks should seasonally start to be worked through.
While current SMP prices are close to the European
intervention price, which is expected to act as
somewhat of an international price floor, any
improvement will lag WMP movements. On the
milkfat front, New Zealand product (butter & AMF)
look very cheap compared with European and US
sources following the falls (7.5-10%) at the last
auction, and this is expected to provide price support.
Our own Job Ads and Consumer Confidence data are also due this week. The former fell in
April, and a flatter trend has been evident recently.
On a 3-month average basis, growth is running at
0.6% q/q (3.5% y/y), with Auckland the only main
centre experiencing higher job advertising numbers
than a year ago. This flatter trend is consistent with a
more modest pace of employment growth over 2015
than was seen in 2014, which is a natural response to
a maturing economic cycle and as skilled workers
become more difficult to find. The previous consumer
sentiment read also fell (-5 points to 123.9 in May),
although it remains at a decent level overall and
above its long-run average (117.9). But it will be
interesting to see whether with petrol prices rising,
rural incomes weakening and measures targeting the
Auckland housing market announced, consumers are
feeling quite as upbeat.
FIGURE 4. JOB ADS VS UNEMPLOYMENT RATE
Source: ANZ, Statistics NZ, Seek, Trade Me, Dominion Post,
Hawkes Bay Today, Manawatu Standard, NZ Herald, ODT, The
Press, Waikato Times.
Internationally this week, it is all about the US Federal Reserve. Given recent data wobbles, it is
unlikely that a policy change will be announced at
this meeting, and we do expect it will lower its 2015
full-year GDP forecast owing to Q1 weakness.
However, we believe its baseline view of above-trend
growth and gradually rising inflation over the next
couple of years should remain intact, and as such the
Fed remains on track to begin withdrawing policy
stimulus later this year. That said, the median Fed
“dot plot” for the Fed Funds rate for the end of 2015
will likely be lowered slightly and it is possible that its
view of tightening converges closer to the markets
(i.e. more dovish) into 2016 as well.
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ANZ Market Focus / 15 June 2015 / 5 of 17
ECONOMIC OVERVIEW
Why is this important for New Zealand? Well
clearly the direction of Fed policy and the
performance of the US economy more generally will
have a huge bearing on the NZD/USD. The RBNZ has
played its part (and is expected to continue doing
so), but if the Fed does begin “lift-off” then this
should reinforce a downward NZD/USD trend.
LOCAL DATA
ANZ Truckometer – May. The Heavy Traffic Index
fell 1.1% m/m – the fifth consecutive monthly
decline. The Light Traffic Index fell 0.6% m/m.
Government Financial Statements – Apr. The
OBEGAL was in surplus to the tune of $448m, over
$1bn better than forecast.
Economic Survey of Manufacturing – Q1. Total
manufacturing sales volumes fell 0.3% q/q, with
meat and dairy sales volumes down 1.5% q/q.
QV House Prices – May. Nationwide sales prices
rose 3.1% over the past three months, with annual
growth rising to 9.0% y/y.
ANZ Monthly Inflation Gauge – May. The Gauge
fell 0.1% m/m, the second consecutive fall after a
0.2% m/m fall in April.
Electronic Card Transactions – May. Total retail
spending rose 1.2% m/m, led by fuel retailing. Core
retail spending rose a more modest 0.4% m/m.
RBNZ Monetary Policy Statement. The RBNZ cut
the OCR by 25bps to 3.25% and signalled the
possibility of additional easing this year.
REINZ Housing Market Statistics – May. Sales
volumes fell 1.4% sa, while the median sales price
rose 1.2% sa, with annual inflation rising to 7% y/y.
Auckland prices are running at 20% y/y.
BNZ-Business NZ PMI – May. The headline index
dipped 0.2 points to 51.5.
Food Price Index – May. Food prices rose 0.4%
m/m, although annual growth eased to 0.8% y/y.
BNZ-Business NZ PSI – May. The PSI rose 1.5
points to 58.0 – the highest reading since July 2014.
ANZ Market Focus / 15 June 2015 / 6 of 17
DATA PREVIEW
SUMMARY A positive goods and services balance is expected to
temper the size of the annual current account deficit,
although the declining goods terms of trade will help
deliver circa 5% deficits by the end of the year. Q1
GDP is expected to show a modest pace of growth,
with lifting services sector activity offsetting drought-
related dips in primary and goods valued-added.
CURRENT ACCOUNT – 2015Q1 (Wednesday 17 June, 10.45am)
Current Account ANZ Market Quarter (nsa) +$100m +$282m
Quarter (sa) -$2,240m --
Annual -$9.2bn -$9.1bn
% of GDP -3.9% -3.8%
We expect a small (unadjusted) current account surplus in Q1 ($100m), which would be the third
year in a row of such a Q1 outcome. However, due to
base effects (largely within the goods balance), the
annual current account deficit is expected to widen to
3.9% of GDP – the largest in 18 months.
Stronger services exports and lower goods import values are expected to deliver a larger seasonally adjusted goods and services surplus in Q1. Services exports are being boosted by a
strong performance from the tourism sector (both
arrivals and spending), while lower import values are
in part a result of weaker global oil prices. Over the
quarter, the goods terms of trade posted a modest
1.4% q/q lift. With the income deficit expected to
remain at $2.8bn, due to slightly lower debt servicing
costs offset by stronger profitability of foreign firms
operating in New Zealand, the broader seasonally adjusted current account deficit is expected to narrow from $2.6bn to $2.2bn.
However, base effects are still likely to see the annual current account widen towards at least 5% of GDP by 2015 H2. Moreover, we believe the
improvement in the seasonally adjusted deficit in Q1
could prove temporary. With the terms of trade
forecast to fall a further 8% over the remainder of
the year, the goods deficit is forecast to widen.
This widening in New Zealand’s external balances is a
reminder of what the economy still sorely needs – a
lower currency. That said, there are some offsetting
forces to take into account and it shouldn’t be
forgotten that structural progress has been made
over recent years. Net external debt sits at an 11-
year low (60.4% of GDP) and the maturity profile of
its gross liabilities continues to lengthen. The
economy is therefore less vulnerable to shocks than it
was in, say, 2008. But it is not bulletproof.
GROSS DOMESTIC PRODUCT – 2015Q1 (Thursday 18 June, 10.45am)
GDP ANZ RBNZ Market QoQ +0.5% +0.6% +0.6%
YoY +3.0% +3.1% +3.1%
Ann. Ave. +3.3% +3.3% +3.3%
We expect a 0.5% lift in production-based GDP (+3.0% y/y), slightly below the median market
expectation and the June MPS pick. Risks around our pick are slightly to the downside.
Rescuing the economy from a negative quarter is a resurgent services sector, with a close to 1%
q/q outturn expected. Retail trade growth was strong,
with surging visitor numbers lifting accommodation.
Paid hours from the services sector registered
another strong quarterly increase (+2.2%), with the
major beneficiaries being finance & insurance, and
real estate & business services. Higher paid hours
should also support activity in the government sector.
We expect a Cricket World Cup boost to be evident in
media & communications activity. Tempering the
result will be flat outturns for wholesale trade and
transport (consistent with the Truckometer).
Primary value added is expected to fall close to 2% q/q largely due to a drought impact on
agricultural production. A small fall is expected for goods sector value added, which is largely the
result of drought-related falls in food manufacturing.
Rising wholesale electricity prices suggest a further
fall in electricity value added. The remainder of the
manufacturing sector is expected to be flat, with
offsetting movements amongst the components. A
1.5% increase is expected for construction, with
increases for both residential and non-residential.
Expenditure GDP is still expected to convey a strong domestic demand backdrop. A circa 1%
consumption print is expected, with public
consumption also up in Q1. Circa 1% increases are
also expected for residential and other investment
activity despite expected falls for plant & machinery
and intangibles asset investment. A positive
contribution is expected from net trade, which should
be more than offset by a rundown in inventories.
MARKET IMPLICATIONS Market implications from the Q1 data are limited
given their historical nature and the swift change in
the risk profile that has eventuated. The short-term
outlook has softened and there is a strong likelihood
of another sub-trend GDP print in Q2. The lower NZD
is acting as a release valve for the economy, but the
worsening trajectory for the external accounts
suggests it has further to go.
ANZ Market Focus / 15 June 2015 / 7 of 17
INTEREST RATE STRATEGY
SUMMARY Short-term rates have rallied considerably since last
week’s MPS. The direction of rates is wedded to the
economic outlook and we expect pending data to
support a follow-up cut in July. The yield curve remains
under pressure to steepen further. Longer-term rates
have edged higher, and while the published “dot plots”
from this week’s FOMC meeting suggest the market is
underestimating the speed of policy normalisation, we
expect a gradual path of US policy normalisation and
abundant global liquidity will help cap rises in global
yields. Local yields remain high in relation to global
peers, and with the policy outlooks pointing in differing
directions there is scope for local rates to narrow in
relation to global peers.
THEMES The market has already responded to the RBNZ
message, but has further to go. This will be more
of a tweaking than a radical change in pricing. We
expect the 1yr-2yr curve to invert, but the 2yr-
10yr curve to steepen.
Short-term interest rates are inextricably linked to
the economic outlook, and we still expect a July
follow-up cut. But patience is required – we doubt
the market can move much beyond 60/40 odds of
a July hike ahead of Q2 CPI. Until then, it’s more
about July vs. September and December pricing.
With the RBNZ in easing mode and the FOMC to
set up a September lift-off, we expect local long-
end interest rates to compress on a spread to
global rates, further containing the lift in local
yields.
PREFERRED STRATEGIES – INVESTORS
KEY VIEWS – FOR INVESTORS GAUGE DIRECTION COMMENT
Duration Strategically
bullish
FOMC gradualism, low Europe
bond yields make NZ stand out.
2s10s Curve Neutral
Short end lower on RBNZ cuts,
with long end to consolidate
after sharp moves higher.
Geographic
10yr spread Narrower
Scope to narrow further against
the US and AU.
Swap
spreads
Neutral/
wider
Bond demand solid following
index extension.
MARKET REACTS TO RBNZ CUT The flurry of market reaction to last Thursday’s OCR cut was testament to the market being largely unprepared for the RBNZ acknowledgement that the outlook had changed. The market has subsequently taken the RBNZ’s
message and run with it, with some analysts who had
not expected a cut now calling for another in July and
the OIS market pricing in a further 35bps of cuts over
the next 12 months (i.e. pricing in a terminal OCR of
2.90%). Yields on the bellwether 2-year swap rate
have fallen close to 20bps over the past week and are
currently 3.19%, and we expect them to go further,
maintaining steepening pressure on the 2yr-10yr
curve. Technically, the market has already overshot
our forecasts, but that happens in most cycles (and is
currently happening in Australia). As such, broadly
speaking, we expect the short end to remain under
further downward pressure.
But there is also a twist to that expectation. At the
moment, the 1 year is the low point on the curve. This
is because the market is pricing in February as the date
at which the OCR bottoms out (i.e. only 8 months
away). We expect the OCR “bottom” to be pushed out
and markets to move to price an extended period of
stability after July’s cut, with a bias for more. This
should see the 1yr-2yr curve invert, and make the 2-3
year the low point on the swap curve.
FIGURE 1. NZ SWAP CURVE
Source: ANZ, Bloomberg
We’re also mindful of how quickly expectations can
change. Ultimately it’s the outlook for the economy
that drives short-term interest rates, and in that
regard, we expect data over the next few weeks to underpin near-term receiving side interest. However the big sea-change is now behind us (i.e. the
cut has now been delivered), and we expect the move
lower to be gradual from here, at least in the lead-up
to Q2 CPI data due on July 16th. We doubt, for
example, that the market has the grit to take odds for
a July cut much beyond 60/40 before then. However,
the risk profile beyond July will also be shaped by the
outlook for the terms of trade, with our expectation –
of a 16% peak to trough fall – being weaker than the
13% assumed in the June MPS. We note that the
weakening trajectory for the goods terms of trade was
a key consideration for the June MPS cut and shading
down of the published 90-day interest rate profile. NZD
prices from the GlobalDairyTrade auction have fallen
3.00
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1ySwap
2ySwap
3ySwap
4ySwap
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15 Jun 10-Jun
Perc
ent
ANZ Market Focus / 15 June 2015 / 8 of 17
INTEREST RATE STRATEGY
25% in NZD terms since early March, with few signals
of imminent recovery evident in whole milk powder
futures contracts.
GLOBAL YIELDS REMAIN VOLATILE Global bond yields have generally moved higher over
the past week and remain close to the top of recent
trading ranges. Investor expectations for higher
interest rates, thin liquidity, and elevated issuance of
corporate debt have been contributors. US 10-year
yields are around 50bp higher than in mid-April at
2.40%. The question that must be asked is, how high could yields go? Our expectation is that the rise in global yields will be gradual given that we
believe the global tightening cycle will be elongated,
gradual and cautious.
Thursday’s Fed meeting is effectively live and the US
activity data has been improving, but with the Fed
signalling to the market it will be taking its time, the
general consensus is for a September start to Fed fund
hikes. The tone of Thursday’s statement is expected to
be more upbeat relative to April but the published
growth and fed fund “dot plots” are likely to be shaded
down relative to March. The large gap between the Fed and market’s view argues for caution. While
we fully expect the Fed to hike in September, we
expect the cycle to be gradual, resulting in 10-year
yields remaining sub-3% until the end of 2017.
Policy support and a brittle global scene are also expected to cap rises in global yields. Yields for 10-
year German bunds at 0.83% were little changed over
the week, but are streets above the 0.08% April 20
low. Safe-haven demand, concerns over the Greek
situation, and signals that the ECB is unlikely to soon
withdraw QE have prevented a break higher. Yields for
the Eurozone periphery have blown out of late, but
remain low. This week’s BOJ meeting is expected to
see it maintain its commitment to increase the
monetary base by 80 trillion yen per annum. Activity
data has disappointed in China, with ANZ expecting a
further rate cut this month and a 100bp relaxation in
the RRR over the remainder of the year.
The increasingly stark divergence with local rates is
likely to result in a steeper local yield curve and tighter
spreads to other markets, particularly the US. New Zealand yields remain head and shoulders above those of comparable OECD economies and have the added advantage of being underpinned by a sound fiscal position. Last week’s $300m tender for
the April 2017 bond was well subscribed with a high bid
to cover ratio (3.74). The average yield at 3.87%
remained streets above rates on offer offshore, with
the weaker NZD making NZ assets cheaper. Hence, our
bias is for local rates to converge to (lower) global
yields.
PREFERRED STRATEGIES – BORROWERS Our preference is to watch and wait. Short-end rates
are biased lower given the strong likelihood of a follow-
up cut in the next few months. Long-end yields are still
comparatively low but the recent steepening in the
curve makes hedging a progressively less attractive
proposition for the majority of borrowers. Given that
we expect subsequent rises in global rates to be
gradual, borrowers have the luxury of waiting and
could benefit from a potential snap lower in yields if
that occurs. With the RBNZ in easing mode, we expect
local long-end interest rates to compress on a spread
to global rates, further containing the lift in local yields.
KEY VIEWS – FOR BORROWERS
GAUGE VIEW COMMENT
Hedge ratio Majority
hedged
Historic hedges more than
adequate. No immediate
reason to add to them now.
Value Cheap Longer-term rates are still low
despite recent climb.
Uncertainty Elevated
Global markets volatile and
policy outlook unclear, but rate
cuts here suggest caution.
MARKET EXPECTATIONS
Current market pricing now has 14bps of cuts priced in
for June, 23bps by September, and a terminal rate of
around 2.90%. But beyond Q1 next year, the market
expects cuts to be taken back. We doubt the market
has the capacity to price greater than 60% odds of a
July cut for now, but we do expect it to price in some
risk that we may see more than one more cut. As such,
current pricing seems reasonable, even if we do see
scope for the bottoming out of the OCR to be pushed
out well into 2016 (at the moment the market is pricing
in a February bottoming out, as discussed earlier).
FIGURE 2. ANZ OCR FORECAST AGAINST MARKET-IMPLIED FORWARD 3MTH BILL RATES AND RBNZ 90 DAY BILL PROJECTIONS
Source: ANZ, Bloomberg
2.75
3.00
3.25
3.50
3.75
Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18
Rate
(%
)
ANZ's OCR Forecasts
Market implied forward 3mth bill rates
RBNZ 90 day bill projections (June 2015 MPS)
ANZ Market Focus / 15 June 2015 / 9 of 17
CURRENCY STRATEGY
SUMMARY Despite breaking below 0.70, the NZD/USD still has a
further adjustment to make to match the recent
declines in export prices. We are currently targeting
0.68, but the risks are for lower still. JPY weakness
may have run its course, capping NZD/JPY, as official
support for the JPY was noted last week. NZD/AUD has
only a small decline left before entering the technical
buy zone.
TABLE 1: KEY VIEWS CROSS WEEK MONTH YEAR
NZD/USD ↓ NZD downside
risks remain USD to strengthen
NZD/AUD ↔ Getting closer to
fair value Topside capped
NZD/EUR ↔/↑ EUR remains
weak EUR remains weak
NZD/GBP ↔/↓ GBP in demand GBP resurgence
NZD/JPY ↔/↓ Official support
for JPY. Yen weakness
THEMES AND RISKS ANZ expects the FOMC to present a more upbeat
assessment than they did in the April meeting.
This should be USD supportive.
Individual GDT auctions are less important for the
currency at present as the damage to dairy cash-
flow is largely locked in for the next six months. A
further decline this week would be noted by
markets.
Greece remains a challenge for EUR bulls, with
volatility likely to grow as deadlines near.
GBP remains strong as NZD/GBP challenges 2011
lows; we expect GBP to continue to strengthen.
The BoJ this week will be pivotal for JPY after
Governor Kuroda ‘called time’ on JPY declines.
TABLE 2: KEY UPCOMING EVENT RISK
EVENT WHEN (NZDT)
LIKELY IMPACT
AUD RBA Kent Mon 19:30 NZD/AUD ↑
USD June Empire Survey Tue 00:30 NZD/USD ↓
EUR ECB Draghi Tue 01:00 NZD/EUR ↑
AUD RBA Debelle Tue 09:55 NZD/AUD ↔ AUD RBA Minutes Tue 13:30 NZD/AUD ↓
EUR OMT court ruling Tue 19:30 NZD/EUR ↔/↓
GBP CPI, RPI, PPI Tue 20:30 NZD/GBP ↓
NZD GDT auction Wed am NZD ↔
NZD Q1 C/A Wed 10:45 NZD ↓
GBP May employment Wed 20:30 NZD/GBP ↓
USD FOMC Thu 06:00 NZD/USD ↓
NZD Q1 GDP Thu 10:45 NZD ↓
GBP May retail sales Thu 20:30 NZD/GBP ↓
USD Q1 C/A, May CPI Fri 00:30 NZD/USD ↓
USD Philadelphia Fed Fri 02:00 NZD/USD ↓
NZD ANZ Job Ads Fri 10:00 NZD ↑
NZD ANZ Consumer Conf. Fri 13:00 NZD ↓
JPY BoJ Fri PM NZD/JPY ↑
EXPORTERS’ STRATEGY
NZD/USD exporters should target close to 0.68.
NZD/AUD exporters should begin to think about
hedging at current levels.
IMPORTERS’ STRATEGY NZD/AUD importers should be able to sit back with
higher hedges in place; any bounce in NZD/USD will be
an opportunity for importers to hedge again.
DATA PULSE
The RBNZ cut the OCR and has an active easing bias.
The currency was front and centre of their thinking and
they saw a need for a “further significant downward adjustment” – we concur. NZ data is
backing up the case for a currency decline with the
ANZ Truckometer declining for a fifth month, and the
ANZ monthly inflation gauge recording its second
consecutive decline. It is too early for QV and REINZ
data to show the impact of RBNZ and Government
measures, but the Auckland vs NZ divide is growing.
Chinese data remains a downside risk for the NZD,
as weak imports and sluggish activity data suggest
China may miss its 7% Q2 GDP target. Chinese
inflation remains absent, although there are some
signs of improvement, with aggregate financing
increasing. The Bank of Korea cut rates again, as
economic weakness remains an Asian theme.
RBA Governor Stevens expressed concern over the
efficacy of further policy actions, while things were
looking up with NAB Business confidence and May employment both supporting AUD.
British data continues to support the GBP, while EUR
data remains mixed and Greece is a concern.
US retail sales showed a solid (late) spring bounce and
Michigan Confidence improved supporting USD.
TABLE 3: NZD VS AUD: MONTHLY GAUGES GAUGE GUIDE COMMENT
Fair value ↔ Still above fair value.
Yield ↔/↓ Yield outlook reversing.
Commodities ↔/↓ Iron ore stabilising.
Data ↓ AU data somewhat stabilised.
Techs ↔ Sitting on support.
Sentiment ↔/↓ NZD sentiment more negative.
Other ↓ Strong momentum lower.
On balance ↔/↓ Downside risks are easing. TABLE 4: NZD VS USD: MONTHLY GAUGES
GAUGE GUIDE COMMENT Fair value ↔ Closer to fair value.
Yield ↔ Yield advantage being cut.
Commodities ↓ Dairy still concerning.
Risk aversion ↓ Chinese and global growth fears.
Data ↓ NZ data rolling over.
Techs ↓ Breakdown not yet over. Other ↓ USD picking up momentum.
On balance ↔/↓ NZD still has downside.
ANZ Market Focus / 15 June 2015 / 10 of 17
CURRENCY STRATEGY
TECHNICAL OUTLOOK FIGURE 1. NZD/USD DAILY CANDLES WITH RSI & MA
NZD technical indications remain weak. NZD has hit the latest target around 0.6950 but real support isn’t evident until 0.68. The weekly close
below the 0.70 level returns that level to relative
unimportance. Topside resistance starts at 0.7020,
then 0.7080, before peaking at 0.7180-0.7230.
FIGURE 2. NZD/AUD DAILY CANDLES WITH RSI & MA
This cross has broken perfectly through the pivot zone below 0.91. This implies a test below 0.90 is likely. However, this move looks close to
exhaustion and technically speaking the buy zone
starts at 0.89.
TABLE 5: KEY TECHNICAL ZONES CROSS SUPPORT RESISTANCE
NZD/USD 0.6940 – 0.6980
0.6800 – 0.6840
0.7200 – 0.7260
0.7560 – 0.7580
NZD/AUD 0.8980 – 0.9020 0.8850 – 0.8890
0.9420 – 0.9450 0.9530 – 0.9550
NZD/EUR 0.6150 – 0.6280 0.6350 – 0.6400
NZD/GBP 0.4425 – 0.4450 0.4800 – 0.4850
NZD/JPY 83.50 – 84.00 87.00 – 87.50
POSITIONING NZD net shorts rose a modest amount to -11.7k, but
subsequent RBNZ action seems sure to have increased
this. AUD shorts were unchanged, while EUR shorts
were reduced and JPY shorts were markedly increased
– something BoJ commentary is sure to reverse.
GLOBAL VIEWS We expect the FOMC to be more upbeat on the
economy compared to the tone it struck on 29 April.
Specifically, recent data on housing, investment and
exports have been more favourable. We don’t expect
there will be much of a shift in the central bank’s
characterisation of inflation and we see no change in
the FOMC’s guidance on either rates or its balance
sheet. In terms of the FOMC’s forecasts, we expect
2015 GDP to be lowered, largely owing to the
disappointing Q1 outcome. Finally we expect the
median “dot plot” projection for the FFR to come down
a touch. In March 2015, a number of key FOMC officials
suggested that ‘lift-off’ could start around mid-year,
they now expect ‘later in 2015’. If there is little change
to the FOMC’s overall baseline view, as we suspect,
then this would be a cue that the Fed remains on track
to start normalising in H2 2015. This will support the USD and continue to place downward pressure on NZD/USD.
FORWARDS: CARRY AND BASIS FIGURE 4. NZD/USD SHORT BASIS CURVE
Basis remains wide post the cut in the OCR. The recent
fall in spot NZD has seen short balances reduced, with
structural short accounts rolling LHS forward on the
June/Sep IMM dates. We expect an abatement of basis
tightness post the 17 June IMM date. We favour
sell/buying out to 6 months on both an outright rates
view and that basis should contract.
FIGURE 5. RELATIVE ATTRACTION OF THE FWD CURVE
Source: ANZ, Bloomberg, Reuters
0
5
10
15
20
25
O/N 2m 4m 6m 8m 10m 12m
Basis
MonthsBasis Last Week
1.00
1.05
1.10
O/N 1m 2m 3m 4m 5m 6m 7m 8m 9m 10m 11m 12m
Rela
tive V
alu
e
MonthsRelative Value Last Week
ANZ Market Focus / 15 June 2015 / 11 of 17
DATA EVENT CALENDAR
DATE COUNTRY DATA/EVENT MKT. LAST NZ TIME
15-Jun NZ Performance Services Index - May -- 58.0(a) 10:30
UK Rightmove House Prices MoM - Jun -- 3.0%(a) 11:01
UK Rightmove House Prices YoY - Jun -- 4.5%(a) 11:01
EC Trade Balance SA - Apr €19.0B €19.7B 21:00
EC Trade Balance NSA - Apr €22.5B €23.4B 21:00
16-Jun US Empire Manufacturing - Jun 6.00 3.09 00:30
US Industrial Production MoM - May 0.2% -0.3% 01:15
US Capacity Utilization - May 78.3% 78.2% 01:15
US NAHB Housing Market Index - Jun 56 54 02:00
US Net Long-term TIC Flows - Apr -- $17.6B 08:00
US Total Net TIC Flows - Apr -- -$100.9B 08:00
AU ANZ-RM Consumer Confidence Index - 14-Jun -- 112.1 11:30
AU RBA June Meeting Minutes -- -- 13:30
AU New Motor Vehicle Sales MoM - May -- -1.5% 13:30
AU New Motor Vehicle Sales YoY - May -- 2.8% 13:30
GE CPI MoM - May F 0.1% 0.1% 18:00
GE CPI YoY - May F 0.7% 0.7% 18:00
GE CPI EU Harmonized MoM - May F 0.1% 0.1% 18:00
GE CPI EU Harmonized YoY - May F 0.7% 0.7% 18:00
UK CPI MoM - May 0.2% 0.2% 20:30
UK CPI YoY - May 0.1% -0.1% 20:30
UK CPI Core YoY - May 1.0% 0.8% 20:30
UK Retail Price Index MoM - May 0.3% 0.4% 20:30
UK Retail Price Index YoY - May 1.1% 0.9% 20:30
UK PPI Input NSA MoM - May 0.6% 0.4% 20:30
UK PPI Input NSA YoY - May -11.3% -11.7% 20:30
UK PPI Output NSA MoM - May 0.1% 0.1% 20:30
UK PPI Output NSA YoY - May -1.6% -1.7% 20:30
UK PPI Output Core NSA MoM - May 0.0% 0.0% 20:30
UK PPI Output Core NSA YoY - May 0.1% 0.1% 20:30
UK ONS House Price YoY - Apr -- 9.6% 20:30
EC Employment QoQ - Q1 -- 0.7% 21:00
EC Employment YoY - Q1 -- 0.9% 21:00
GE ZEW Survey Current Situation - Jun 63.0 65.7 21:00
GE ZEW Survey Expectations - Jun 37.3 41.9 21:00
EC ZEW Survey Expectations - Jun -- 61.2 21:00
17-Jun US Housing Starts - May 1097K 1135K 00:30
US Housing Starts MoM - May -3.3% 20.2% 00:30
US Building Permits - May 1100K 1140K 00:30
US Building Permits MoM - May -3.5% 9.8% 00:30
NZ BoP Current Account Balance - Q1 0.282B -3.194B 10:45
NZ Current Account GDP Ratio YTD - Q1 -3.8% -3.3% 10:45
AU Westpac Leading Index MoM - May -- 0.1% 12:30
UK Claimant Count Rate - May 2.2% -- 20:30
UK Jobless Claims Change - May -13.8K -6.5K 20:30
UK Average Weekly Earnings 3M/YoY - Apr 2.1% 1.9% 20:30
UK Weekly Earnings ex Bonus 3M/YoY - Apr 2.5% 2.2% 20:30
UK ILO Unemployment Rate 3Mths - Apr 5.5% 5.5% 20:30
Continued on following page
ANZ Market Focus / 15 June 2015 / 12 of 17
DATA EVENT CALENDAR
Key: AU: Australia, EC: Eurozone, GE: Germany, JN: Japan, NZ: New Zealand, UK: United Kingdom, US: United States, CH: China. Source: Dow Jones, Reuters, Bloomberg, ANZ Bank New Zealand Limited. All $ values in local currency. Note: All surveys are preliminary and subject to change
DATE COUNTRY DATA/EVENT MKT. LAST NZ TIME
17-Jun UK Employment Change 3M/3M - Apr 190K 202K 20:30
UK Bank of England Minutes -- -- 20:30
EC Construction Output MoM - Apr -- 0.8% 21:00
EC Construction Output YoY - Apr -- -2.7% 21:00
EC CPI MoM - May 0.2% 0.2% 21:00
EC CPI YoY - May F 0.3% 0.3% 21:00
EC CPI Core YoY - May F 0.9% 0.9% 21:00
US MBA Mortgage Applications - 12-Jun -- 8.4% 23:00
18-Jun US FOMC Rate Decision - Jun 0.3% 0.3% 06:00
NZ GDP SA QoQ - Q1 0.6% 0.8% 10:45
NZ GDP YoY - Q1 3.1% 3.5% 10:45
AU RBA FX Transactions Market - May -- 274M 13:30
EC ECB Publishes Economic Bulletin - 15.0K -2.9K 20:00
UK Retail Sales Ex Auto Fuel MoM - May 6.2% 6.2% 20:30
UK Retail Sales Ex Auto Fuel YoY - May -- -21.9K 20:30
UK Retail Sales Inc Auto Fuel MoM - May -- 19.0K 20:30
UK Retail Sales Inc Auto Fuel YoY - May 64.8% 64.8% 20:30
EC Labour Costs YoY - Q1 10.1% 10.0% 21:00
19-Jun US Current Account Balance - Q1 10.4% 10.4% 00:30
US CPI MoM - May 6.0% -- 00:30
US CPI YoY - May 6.2% 6.2% 00:30
US CPI Ex Food and Energy MoM - May 11.9% 12.0% 00:30
US CPI Ex Food and Energy YoY - May 1.2% 0.0% 00:30
US Initial Jobless Claims - 13-Jun 0.8% 0.1% 00:30
US Continuing Claims - 6-Jun 0.5% 0.2% 00:30
US Real Avg Weekly Earnings YoY - May 0.9% -0.3% 00:30
US Philadelphia Fed Business Outlook - Jun 277K 276K 02:00
US Leading Index - May -10.0% -10.7% 02:00
NZ ANZ Job Advertisements MoM - May 2180K 2196K 10:00
NZ ANZ Consumer Confidence Index - Jun 0.2% 0.1% 13:00
NZ ANZ Consumer Confidence MoM - Jun -- $1517B 13:00
GE PPI MoM - May -- 51.8 18:00
GE PPI YoY - May -- -0.3% 18:00
EC ECB Current Account SA - Apr -- $A25.6B 20:00
EC Current Account NSA - Apr -- $A51.5B 20:00
UK Public Finances (PSNCR) - May 0.4% -0.3% 20:30
UK Central Government NCR - May 1.1% 1.8% 20:30
UK Public Sector Net Borrowing - May 0.4% -0.4% 20:30
UK PSNB ex Banking Groups - May -1.1% -1.3% 20:30
JN BOJ Annual Rise in Monetary Base - 43617 0.1% -0.2% UNSPECIFIED
JN Bank of Japan Monetary Policy Statement - Jun 0.7% 0.8% UNSPECIFIED
ANZ Market Focus / 15 June 2015 / 13 of 17
LOCAL DATA WATCH
Economic momentum is slowing and downside risks are apparent. At a time of subdued core inflation, the RBNZ is
taking action by cutting the OCR. We expect a further 25bp cut in July, and risks are skewed to more easing beyond
that.
DATE DATA/EVENT ECONOMIC SIGNAL COMMENT
Wed 17 Jun
(early am) GlobalDairyTrade auction Modest bounce?
We believe we are closer to the trough in prices, although
uncertainty over the outlook is high and sentiment is weak.
Wed 17 Jun
(10:45am)
Balance of Payments –
Q1 Wider
Despite an unadjusted surplus for the quarter, the annual
current account deficit is expected to widen to 3.9% of GDP.
Thu 18 Jun
(10:45am) GDP – Q1
+0.5% q/q – with
downside risk
Another quarter of solid services sector activity growth is
expected to be partially offset by weaker activity from primary
and goods-producing sectors.
Fri 19 Jun
(10:00am) ANZ Job Ads – May -- --
Fri 19 Jun
(1:00pm)
ANZ-Roy Morgan
Consumer Confidence –
Jun
-- --
Mon 22 Jun
(10:45am)
International Travel &
Migration – May Topping out
An average monthly net inflow of around 4.8K has been seen
over the past six months. A similar number is expected, which
should see the annual total post another record.
Fri 26 Jun
(10:45am)
Overseas Merchandise
Trade – May Wider annual deficit
A monthly surplus is typically experienced in May, although it
will only be small. The annual deficit should continue to widen.
Tue 30 Jun
(10:45am)
Building Consent
Issuance – May Capped
Dwelling consent issuance has shown a softer trend of late. We
suspect capacity constraints are capping the upside.
Tue 30 Jun
(1:00pm)
ANZ Business Outlook –
Jun -- --
Thu 2 Jul
(early am) GlobalDairyTrade auction Flat
We believe we are closer to the trough in prices, although
uncertainty over the outlook is high and sentiment is weak.
Thu 2 Jul
(12:00pm) QV House Prices – Jun Auckland strength
This data typically lags its REINZ equivalent. It should continue
to show Auckland house price outperformance.
Thu 2 Jul
(1:00pm)
ANZ Commodity Price
Index – Jun -- --
Tue 7 Jul
(10:00am)
NZIER Quarterly Survey
of Business Opinion – Q3 Turning
As seen in the timelier Business Outlook survey, confidence and
activity measures may ease off highs. Pricing gauges should
remain benign.
Thu 9 Jul
(10:00am) ANZ Truckometer – Jun -- --
Thu 9 Jul
(10:45am)
Electronic Card
Transactions – Jun Moderating
The underlying pace of retail spending growth is expected to
continue slowing as previous supports begin to fade.
10-17 Jul REINZ Housing Market
Statistics – Jun Watching
It is probably still too soon to assess the impact of recent RBNZ
and Government policy announcements, but we’ll be watching
closely.
Mon 13 Jul
(10:45am) Food Price Index – Jun Seasonal increase
Food prices typically lift in June due to seasonally higher fruit
and vegetable prices.
Thu 16 Jul
(early am) GlobalDairyTrade auction Flat
We believe we are closer to the trough in prices, although
uncertainty over the outlook is high and sentiment is weak.
Thu 16 Jul
(10:30am)
Business NZ
Manufacturing PMI – Jun A further fall? Momentum in the manufacturing sector is beginning to soften.
Thu 16 Jul
(10:45am) CPI – Q2 Benign
Headline inflation is forecast at +0.3% q/q (+0.2% y/y), with a
bounce in petrol prices contributing. But outside of this, inflation
should remain benign.
Thu 16 Jul
(1:00pm)
ANZ Roy Morgan
Consumer Confidence –
Jul
-- --
Fri 17 Jul
(10:00am) ANZ Job Ads – Jun -- --
On balance Data watch Growth performance reasonable but easing, and risks are skewed to the downside. Inflation is subdued.
ANZ Market Focus / 15 June 2015 / 14 of 17
KEY FORECASTS AND RATES
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
GDP (% qoq) 0.5 0.4 0.8 0.7 0.7 0.6 0.6 0.6 0.6 0.6
GDP (% yoy) 3.0 2.7 2.6 2.5 2.7 2.9 2.7 2.6 2.6 2.6
CPI (% qoq) -0.3 0.3 0.4 0.1 0.4 0.4 0.6 0.2 0.2 0.2
CPI (% yoy) 0.1 0.2 0.3 0.5 1.3 1.3 1.5 1.6 1.6 1.6
Employment
(% qoq) 0.7 0.6 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.3
Employment
(% yoy) 3.2 3.5 3.0 2.2 1.8 1.6 1.4 1.3 1.3 1.3
Unemployment Rate
(% sa) 5.8 5.8 5.7 5.6 5.6 5.5 5.5 5.5 5.5 5.5
Current Account
(% GDP) -3.9 -4.4 -4.8 -5.3 -5.8 -6.0 -6.0 -5.8 -5.8 -5.8
Terms of Trade
(% qoq) 1.5 -4.8 -5.1 -2.4 0.8 0.8 0.6 0.3 0.3 0.3
Terms of Trade
(% yoy) -5.3 -10.0 -10.5 -10.5 -11.1 -5.9 -0.2 2.5 2.5 2.5
Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15
Retail ECT (% mom) 0.5 0.1 1.0 0.1 0.0 0.0 1.1 0.7 -0.7 1.2
Retail ECT (% yoy) 3.6 4.7 5.2 3.2 3.7 4.5 4.0 3.7 3.9 3.2
Credit Card Billings
(% mom) 1.0 0.2 1.3 0.4 -0.6 1.9 -0.1 0.5 -0.6 --
Credit Card Billings
(% yoy) 4.3 4.5 6.8 5.2 4.6 6.2 5.8 5.2 7.1 --
Car Registrations
(% mom) -1.4 2.9 -1.4 0.1 2.1 -0.7 -0.3 2.4 -1.6 -0.4
Car Registrations
(% yoy) 18.7 31.1 21.3 16.5 21.0 17.1 12.1 11.8 11.2 6.8
Building Consents
(% mom) 0.8 -15.1 13.4 11.4 -5.9 -2.8 -5.8 10.3 -1.7 --
Building Consents
(% yoy) 22.7 -0.2 13.1 16.0 2.6 7.7 -0.3 7.3 3.0 --
REINZ House Price
Index (% yoy) 3.6 3.3 2.6 4.7 5.7 8.5 7.1 8.5 9.3 11.8
Household Lending
Growth (% mom) 0.4 0.3 0.4 0.4 0.5 0.5 0.5 0.5 0.5 --
Household Lending
Growth (% yoy) 5.0 4.8 4.8 4.6 4.7 4.8 4.9 5.0 5.2 --
ANZ Roy Morgan
Consumer Conf. 125.5 127.7 123.4 121.8 126.5 128.9 124.0 124.6 128.8 123.9
ANZ Business
Confidence 24.4 13.4 26.5 31.5 30.4 .. 34.4 35.8 30.2 15.7
ANZ Own Activity
Outlook 36.6 37.0 37.8 41.7 37.3 .. 40.9 42.2 41.3 32.6
Trade Balance ($m) -465 -1359 -892 -283 -200 52 83 754 123 --
Trade Bal ($m ann) 1805 667 -56 -492 -1183 -1416 -2130 -2280 -2624 --
ANZ World Commodity
Price Index (% mom) -3.5 -1.3 -0.9 -1.4 -4.4 -0.3 4.2 4.6 -7.4 -4.7
ANZ World Comm.
Price Index (% yoy) -7.3 -9.5 -11.5 -12.5 -17.2 -18.4 -15.8 -11.9 -15.3 -17.8
Net Migration (sa) 4710 4690 5210 4980 4080 5460 4810 4980 4740 --
Net Migration (ann) 43483 45414 47684 49836 50922 53797 55121 56275 56813 --
ANZ Heavy Traffic
Index (% mom) -1.6 2.8 0.8 -2.9 3.4 0.0 -0.5 -0.3 -0.5 -1.1
ANZ Light Traffic
Index (% mom) 0.8 0.9 0.3 -1.6 2.1 -1.1 0.7 -0.2 0.1 -0.6
Figures in bold are forecasts. mom: Month-on-Month qoq: Quarter-on-Quarter yoy: Year-on-Year
ANZ Market Focus / 15 June 2015 / 15 of 17
KEY FORECASTS AND RATES
ACTUAL FORECAST (END MONTH)
FX RATES Apr-15 May-15 Today Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
NZD/USD 0.762 0.711 0.698 0.72 0.69 0.68 0.67 0.67 0.66 0.66
NZD/AUD 0.962 0.930 0.904 0.95 0.93 0.93 0.93 0.94 0.94 0.94
NZD/EUR 0.681 0.647 0.622 0.67 0.67 0.69 0.67 0.64 0.60 0.60
NZD/JPY 90.62 88.23 86.16 86.4 83.5 83.0 82.4 83.1 82.5 82.5
NZD/GBP 0.494 0.465 0.449 0.47 0.45 0.45 0.44 0.43 0.43 0.43
NZ$ TWI 79.6 75.7 73.0 76.8 75.1 75.4 74.2 73.3 71.6 71.6
INTEREST RATES Apr-15 May-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
NZ OCR 3.50 3.50 3.25 3.25 3.00 3.00 3.00 3.00 3.00 3.25
NZ 90 day bill 3.64 3.47 3.31 3.20 3.10 3.10 3.10 3.10 3.20 3.60
NZ 10-yr bond 3.37 3.51 3.83 3.30 3.50 3.50 3.60 3.70 3.70 3.80
US Fed funds 0.25 0.25 0.25 0.25 0.50 0.75 0.75 1.00 1.25 1.50
US 3-mth 0.28 0.28 0.29 0.70 0.70 0.95 1.20 1.45 1.70 1.80
AU Cash Rate 2.25 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
AU 3-mth 2.25 2.15 2.16 2.20 2.30 2.30 2.30 2.30 2.30 2.30
12 May 8 Jun 9 Jun 10 Jun 11 Jun 12 Jun
Official Cash Rate 3.50 3.50 3.50 3.50 3.50 3.25
90 day bank bill 3.54 3.46 3.46 3.46 3.29 3.30
NZGB 12/17 3.06 3.16 3.12 3.13 3.03 2.96
NZGB 03/19 3.08 3.24 3.20 3.22 3.13 3.06
NZGB 04/23 3.33 3.63 3.59 3.61 3.61 3.51
NZGB 04/27 3.54 3.91 3.87 3.91 3.95 3.85
2 year swap 3.41 3.32 3.31 3.30 3.18 3.17
5 year swap 3.51 3.60 3.57 3.57 3.50 3.43
RBNZ TWI 76.5 74.15 74.45 74.75 73.19 73.11
NZD/USD 0.7385 0.70 0.71 0.72 0.70 0.70
NZD/AUD 0.9365 0.93 0.93 0.93 0.90 0.91
NZD/JPY 88.51 88.41 88.60 88.11 86.48 86.55
NZD/GBP 0.4790 0.46 0.46 0.46 0.45 0.45
NZD/EUR 0.6627 0.63 0.63 0.63 0.62 0.62
AUD/USD 0.7886 0.76 0.77 0.77 0.78 0.77
EUR/USD 1.1144 1.11 1.13 1.13 1.13 1.13
USD/JPY 119.85 125.49 124.56 123.23 123.03 123.50
GBP/USD 1.5417 1.53 1.54 1.54 1.55 1.55
Oil (US$/bbl) 59.41 59.11 58.15 60.15 61.36 60.74
Gold (US$/oz) 1188.07 1171.40 1178.35 1180.75 1186.90 1183.12
Electricity (Haywards) 5.82 3.64 3.61 3.44 3.63 4.40
Baltic Dry Freight Index 589 610 612 618 629 642
Milk futures (USD) 104 97 97 96 96 96
ANZ Market Focus / 15 June 2015 / 16 of 17
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ANZ Market Focus / 15 June 2015 / 17 of 17
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