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11 June 2018
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Markets Outlook RESEARCH
Manufacturing Survives Slings and Arrows
Q1 manufacturing more resilient than we thought
Rounding our Q1 GDP growth estimate out to 0.5%
May’s ECT and PMI to test idea of faster Q2 GDP
May’s food prices fodder for Q2 CPI acceleration?
REINZ housing data eyed for its regional variation
Our worst fears around Q1 GDP look to have been allayed.
Still, it’s looking relatively slow.
In particular, manufacturing activity appears to have
dodged a number of bullets during the March quarter.
Not as well as the 1.4% increase reported for its sales
volumes this morning. Still, the industry’s output seems
to have expanded moderately, as best we can tell.
If we’re right, manufacturing output will have defied all
the smoke signals that were warning of a flat to negative
outcome for Q1 (such as falls in building activity, meat
and dairy processing, forestry, even some base-metal
industrials). Sales of the likes of transport equipment
and furniture helped save the day for the overall
manufacturing figures.
And this is all despite December quarter manufacturing
data having being revised to the higher side (meaning a
stronger base, in Q4, from which manufacturing had to
increase). Could this be cause for Q4 GDP growth to be
revised upward?
All things considered, this morning’s manufacturing data
proved a little better than we were braced for. But only so
much as to nudge our Q1 GDP growth estimate back up
to 0.5%, and with the help of rounding.
This is from the 0.4% our estimate had been whittled to
by the end of last week, after Friday’s Wholesale Trade
figures (which did not hang in there as well as we thought)
and soft forestry production statistics we got hold of for
Q1. Last week’s Building Work Put in Place figures
registered as much slippage as we thought, so that was
no real drama for us.
For the record, our expenditure GDP estimate is still
struggling with respect to Q1, languishing around +0.1%.
This is after having poked some of the stronger elements
of today’s manufacturing components through GDP-
defined investment.
In keeping with our nudge up on Q1 GDP growth, to 0.5%,
we have toned down our growth expectation for Q2, to
0.7%, from 0.8%.
Poised
Certainly, there are some identifiable areas of rebound
for the June quarter, notably agriculture processing.
However, we’ll still need to check on the likelihood of
consumer spending, and manufacturing, expanding solidly
in Q2. We’ll get insight into both areas this week, with
May’s electronic card transactions (ECT) and Performance
of Manufacturing Index (PMI).
After their recent ups and downs, we are pinning hopes
on electronic card transactions bouncing around 1% in
May, in figures due for release tomorrow. Recall that
April’s lot slumped all of 0.9% (and -2.2% in their retail
component), which looked suspiciously exaggerated.
We certainly need to see a rebound for May’s ECT, in
order to sustain our view of an expansion in Q2 retail
volumes, albeit a moderate one. The recent spike in local
fuel prices is relevant to all of this – aiding May’s nominal
ECT, but making for a strong deflator with respect to Q2
retail sales.
Broadly Better
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Quarterly% change
Quarter
Gross Domestic Product
Forecasts
Source: BNZ, Statistics New Zealand
Trend
35
40
45
50
55
60
65
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Diffusion Index, seas. adj.
Monthly
PMI Momentum
Source: BNZ/Business NZ
Breakeven
Degree of expansion
Degree of contraction
Three Month Average
Month
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Friday’s PMI might struggle to match its result from April –
but only because April printed such a very strong level, of
58.9, after 53.1 in March. Barring a big fall, it will paint a
picture of a manufacturing expanding at least as well in
the June quarter as compared to the March quarter.
Even if GDP growth looks a bit underwhelming over the
first half of 2018, CPI inflation looks set to rise. We get a
sound-check on this Wednesday, with May’s Food Price
Index. We expect this increased 0.7%, for an annual
increase of just 0.7%. This forms part of the 0.7%
increase we anticipate of the Q2 CPI, which would boost
its annual rate of inflation to 1.8%, from 1.1% in Q1.
We still reckon it will go well above 2.0% later this year
(even with the recent part-correction in local fuel prices).
We are also attuned for the Real Estate Institute
publishing its residential results for May sometime this
week. Granted, Auckland’s housing boom (bubble?) looks,
at long last, to be running out of helium. However, we still
need to keep tabs on the other two-thirds of the NZ
market, where things have been slower to come to heel,
and are still outright feisty in some parts. The point is that,
in spite of moderating turnover, house prices have probed
exceptionally high levels over recent years, and not just in
Auckland.
Not So Fast?
-4
-2
0
2
4
6
8
10
12
08 09 10 11 12 13 14 15 16 17 18
Annual % change
Monthly
Food Price Index
Source: BNZ, Statistics New Zealand
Total
Ex fruit and vegetables
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Global Watch
Fed expected to hike rates this week
Future intentions the focus at the ECB meeting
No change expected from the BoJ
RBA speeches topical
Brexit Bill amendments debated this week
US-North Korean summit scheduled Tuesday
Lots of data too: US CPI and retail sales, China
monthlies, Aussie jobs, UK jobs and CPI
Australia
The highlights for the upcoming week are two key
speeches from the RBA (Wednesday and Friday) and the
release of the NAB Monthly Business Survey (Tuesday)
and May Jobs data (Thursday). NAB is expecting the Jobs
data to show the unemployment rate remains at 5.6%,
with employment growth softening to 15k (mkt: +19k)
and the participation rate remaining at 65.6%. Also
released this week is home loans data (Tuesday) – NAB
expects the number of loans declined 1.5% m/m in April.
Chart 1: Unemployment Rate Has Stayed Around 5.5%
Chart 2: Underemployment Rate Is Relatively Elevated
Governor Philip Lowe’s Wednesday speech is titled
Productivity, Wages and Prosperity, a topic that has
clearly been front-of-mind for the Bank and market
watchers alike. We expect Lowe will highlight the
importance of productivity growth for the wages outlook
and long-term economic prosperity. We will be closely
listening in to further understand the nuances of the
Bank’s outlook on wages and, as always, pick-up any
clues on monetary policy from the Q & A.
Assistant Governor, Economic, Luci Ellis will be speaking
on Friday at an Infrastructure Partnerships Australia (IPA)
event. There is no title for this speech as yet, but the large
pipeline of infrastructure work could be a focus, drawing
out the implications for growth and productivity in the
medium-term.
On the data, Thursday’s Jobs data will be a focus for
markets. Last month saw stronger-than-expected
employment growth of 22.6k (mkt: 20k), but a tick up in
the unemployment rate to 5.6%. Despite a series of
upside surprises on employment growth, the
unemployment rate has tracked sideways over the past
year, still hugging 5.5%. Forecasts from the RBA, Treasury
(and NAB) look for a clear decline in unemployment over
the year ahead – a necessary pre-condition for stronger
wages growth.
It’s the sharp rise in the participation rate that has
surprised markets and the RBA. While the number of
people employed and the size of the labour force tend to
be highly correlated, both have grown sharply (nearly one-
for-one) over the past year. This month, NAB expects May
employment growth to soften to 15k, but the participation
rate to remain unchanged at 65.6%. Given these numbers,
the unemployment rate is expected to remain at 5.6%.
Chart 3: Record Employment Growth Has Been Matched
Also contained in the May Labour Force data is the
quarterly update on the underemployment rate, another
key measure of labour market slack. The
underemployment rate has declined slightly over the past
year to 8.4%, but remains around 1ppt higher than where
its historical relationship with unemployment would
suggest. Further, some models of wages growth suggest
that underemployment may be a more useful measure of
labour market slack – so markets will be watching how
this variable moves in the May data.
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On Home Loans, a debate has been growing on whether
housing credit conditions will tighten materially. As such,
credit-related data – particularly for housing – will receive
increased attention as markets assess any fallout on the
housing market. NAB expects home loans to have
declined, but moderately in April, by 1.5%m/m (mkt: -
1.9%m/m), a smaller decline than last month’s -2.2%
m/m.
Chart 4: Home Loan Approvals Have Dipped Recently
Lastly, the NAB Monthly Business Survey is out on
Tuesday. (There are no hints below!) After last month’s
record high print for business conditions, markets will be
interested in seeing if the record strength in business
conditions is sustained in the May data.
Chart 5: NAB Business Conditions Are At An All-Time High
Global
G7 leaders meet today (Friday) and Saturday with trade
high on the agenda following tariffs being placed on
Canada and the EU. On Tuesday the long-awaited Trump-
Kim Jong Un Summit in Singapore. Elsewhere, the World
Cup begins this Thursday, with the first match between
Russia and Saudi Arabia (1am, Friday AEST)! The likely
results of the Australia-France match will be covered in
next week’s WTW.
US
Wednesday’s FOMC meeting is the clear focal point,
when a 25bp rate hike is all but certain (announced
6.00am Thursday NZT). The rise would take the Fed Funds
Rate to 1.75-2%. Focus will also be on the Fed’s dot point
projections with debate and Powell press conference
questioning around whether the Fed projections now
factor in 4 hikes (in total) this year. Data-wise the key
pieces are CPI on Tuesday (core expected to be 2.2% y/y)
retail sales on Thursday and Uni. Of Michigan Consumer
Sentiment on Friday.
EC
Thursday’s ECB meeting is shaping up as a watershed
moment, with intensifying speculation that the Governing
Council will clarify whether the Asset Purchase Program
will be phased out after September. We expect so,
looking for a December expiry, but the meeting will fall
short of an official commitment, which may have to wait
until the July meeting. Also under focus will be the ECB’s
inflation forecasts given headline inflation is now running
well above forecast and is now close to target – headline
is 1.9% y/y versus 1.4% projected. Data-wise, of note are:
Industrial Production on Wednesday, and the Trade
Balance and Final-CPI on Friday.
China
The monthly Chinese activity figures are published on
Thursday, with year-ended growth in Industrial Production,
Retail Sales and Fixed Assets expected to stay broadly
steady, at 6.8%, 9.7% and 7%, respectively. Markets
expect some consolidation but with recent official PMI
data surprising on the upside it may underpin some
improvement in IP.
Japan
The BoJ meeting on Friday is firmly expected to result in
no change in policy. However, markets will be keenly
watching for any changes to the inflation forecast, given
recent reports that the BoJ may lower their inflation
outlook. Should this occur, it will cement the opinion of
markets that monetary policy normalisation in Japan is
unlikely to occur any time soon.
UK
A busy week where Brexit discussions will again be under
the spotlight. The House of Commons will debate the
amendments to the Brexit Bill on Tuesday and
Wednesday. Focus will be on any potential defeats the
government may have with the potential for enough Tory
MPs to cross the floor and vote with the opposition –
particularly in regards to the Parliament’s role and ability to
have a “meaningful vote” on the deal. The important data
prints are Employment on Tuesday and CPI on
Wednesday. Also out is the Trade Balance on Monday and
Retail Sales on Thursday.
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Fixed Interest Market
Reuters: BNZL, BNZM Bloomberg:BNZ
The NZ swap curve steepened last week, but rates remain
well within recent ranges. The steepening in the curve
was led by moves offshore, with Italian political risk
receding and the 10 year Treasury yield moving up close
to 3% again.
There isn’t much that’s likely to move the needle
domestically this week. The key focus for the local market
is Q1 GDP, released on 21st June. Our latest estimate is
0.5% for the quarter, which is quite a bit lower than the
RBNZ’s May MPS pick of 0.7%. While we expect GDP to
pick up over the remainder of the year (assisted by the
fiscal stimulus) business surveys suggest there is some
risk that growth is closer to 2% than 3% this year.
A much weaker than expected GDP release next week
would likely increase chatter about the possibility of RBNZ
rate cuts. Although we think the chance of actual rate
cuts is slim, we can envisage a scenario where the market
prices-in some probability into the OIS curve, especially if
the RBNZ OCR Review on the 28th June is dovish. We
favour receiving 2 year swap above 2.25%.
Offshore there is plenty to focus on. US CPI is released
tomorrow night with the market expecting core CPI to
increase from 2.1% to 2.2%. Numerous Fed officials have
said that they don’t see a problem with a modest
overshooting in inflation relative to target (inflation has
been under its target for the best part of 10 years after all),
so the market reaction should be reasonably contained
unless there is a significant surprise.
The focus then shifts to the FOMC meeting on Thursday
morning, with a 25bp rate hike a done deal. The focus will
be on the Fed’s rate hike forecasts over the rest of the
year and into 2019. As a reminder, at the March meeting,
the median forecast was for three rate hikes in 2018, but it
would only take one FOMC member to change their
forecast to increase the median to four hikes for this year.
Given the unemployment rate is already below their year-
end target and inflation is tracking in line with the last
projections, we expect some upward movement in the
Fed’s rate forecasts (including a shift to a four rate hike
median for 2018).
The market currently prices a 35% chance of a fourth hike
this year by the Fed, so to a certain extent the market has
already moved ahead of the Fed’s rate projections.
Nevertheless, we think the FOMC meeting will probably
be taken as hawkish by the market and there is scope for
US rates to move moderately upwards in response.
In Europe, there is speculation the ECB may this week
foreshadow the end of its QE programme. We wouldn’t
expect any more than a short-lived reaction to such an
announcement. The ECB has already ‘tapered’ its QE
purchases from €60b to €30b a month, and German yields
are barely changed since then. Plus, the market has been
discussing the end of the ECB’s QE programme for
months and the near universal expectation among
analysts is that QE will be finished by the end of the year;
in our view this is very much ‘in the price’ already.
More interesting for the local market will be the release of
the monthly Australian labour market report. The
unemployment rate in Australia has been ticking up over
the past six months, and at 5.6% is still some way above
NAIRU. In our view, the market would be more vulnerable
to a weaker than expected labour market report (albeit not
something we are forecasting).
The market fully prices the first RBNZ hike for Nov-19
The market prices a 35% chance of 4th Fed hike this year
0
10
20
30
40
50
60
70
80
90
100
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20
%
Source: BNZ, Bloomberg
Market expectations of OCR vs. RBNZ projections
RBNZ
Market pricing
bps
Gap between RBNZ and market, RHS
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
2018
2019
Dotted lines indicate Fed end of year rate projections - i.e. the 'dots'
Source: Federal Reserve, Bloomberg
Market expectations of rate hikes vs. the Fed's forecasts%
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Foreign Exchange Markets
Reuters pg BNZWFWDS Bloomberg pg BNZ9
Currency movements last week were modest. NZD/USD
rose early in the week and then spent the rest of the week
anchored around 0.7030. The NZD was up modestly on
the key crosses apart from a small fall against EUR as
focus moved away from Italy and towards the ECB
meeting later this week.
Thus, the NZD continues with its consolidation phase
after its plunge from mid-April to mid-May. Speculative
positioning remains close to neutral and the current spot
rate is close to fair value, which on our short-term model
has been anchored around the 0.71-0.72 mark over recent
months.
Our risk appetite index sits at 70%, which is still a healthy
level, with more downside than upside risk from here.
NZ commodity prices have been broadly flat in USD terms
over recent months which, given the recent strength in
the USD, means stronger pricing in a more neutral
currency metric like SDRs. Whole milk powder prices
have been slipping over recent weeks. The NZ-US short
term interest rate differential remains on a declining trend.
The bottom line is that over coming months there is
probably more downside pressure on our fair value NZD
model estimate than upside pressure.
After the uneventful week for currency markets last week,
on paper the week ahead looks much more exciting.
Domestically, there are only second-tier economic
releases so the focus will be on offshore developments.
Early in the week focus will turn to the historic US-North
Korea leaders’ meeting. The market has long ignored
US-North Korea developments over recent months.
Expectations are low going into the meeting for any
clear-cut agreements with immediate effect or implication
for the market, but there’s the chance for a “feel-good”
factor after the conclusion of the summit if things go well.
The key data release is the US CPI released Tuesday night,
where expectations are centred on more upward drift to
annual headline and core inflation measures. For core
CPI, 46 out of 49 economists predict an outcome of 0.2%
m/m, so expect a market reaction on any surprise above
or below that result.
The Fed, ECB and BoJ all meet later this week. Another
Fed rate hike is a done deal and the falling unemployment
rate should give the FOMC more confidence that further
rate hikes are required to keep inflation in check. There
will be some focus on whether the median FOMC
member shifts from projecting 3 rates to 4 hikes in total
this year, but the mean estimate is already closer to 4 and
market economists expect 4 hikes this year as well.
Meanwhile, the ECB is expected to take another inch
forward with its policy messaging, this time indicating
some next steps in considering the end of its quantitative
easing programme. Some Governing Council members
publicly suggested such last week, which helped support
EUR. Buying bonds every week makes little sense to us
and QE policy is well past its best-before date. We remain
positive on EUR over the medium term based on the
changing sands for ECB monetary policy.
The BoJ meeting should pass with little market reaction,
as the super-charged monetary stimulus is unlikely to
change course, with Japan’s CPI moving away, not
towards, the 2% target.
During the week there’ll be plenty of other market-moving
opportunities with the release of retail sales data in the
US, employment data in Australia, CPI and labour market
data in the UK and the usual monthly release of retail
sales, investment, and industrial production data in China.
NZ Commodity Price Index On the Up This Year
70
75
80
85
90
95
100
105
110
115
Jan-10 Jan-12 Jan-14 Jan-16 Jan-18
NZ Commodity Prices
Source: BNZ, Bloomberg
CBA Index in SDR terms
Cross Rates and Model Estimates
Current Last 3 -weeks range*
NZD/USD 0.7032 0.6880 - 0.7060
NZD/AUD 0.9253 0.9120 - 0.9280
NZD/GBP 0.5244 0.5140 - 0.5290
NZD/EUR 0.5972 0.5860 - 0.6020
NZD/JPY 76.90 74.60 - 77.70
*Indicative range over last 3 weeks, rounded figures
BNZ Short-term Fair Value Models
Model Est. Actual /FV
NZD/USD 0.7190 -2%
NZD/AUD 0.9180 1%
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Technicals
NZD/USD
Outlook: Trading range
ST Resistance: 0.7050 (ahead of 0.7160)
ST Support: 0.6850 (ahead of 0.6800)
The recent recovery following the plunge of mid-April
through to mid-May reduces the threat of the key support
zone of 0.68-0.69 being broken. Short-term resistance sits
near 0.7050.
NZD/AUD
Outlook: Trading range
ST Resistance: 0.9280 (ahead of 0.9400)
ST Support: 0.9120 (ahead of 0.9050)
A fairly messy short-term technical picture. Over the last
couple of weeks we’ve seen some resistance near 0.9280.
Initial support level is 0.9120.
NZ 5-year Swap Rate
Outlook: Neutral
ST Resistance: 2.80
ST Support: 2.60
Still in channel. Neutral
NZ 2-year - 5-year Swap Spread (yield curve)
Outlook: Neutral
ST Resistance: +60
ST Support: +40
New channel. Neutral. Old are no good as broken.
NZD/USD – Daily
Source: Bloomberg
NZD/AUD – Daily
Source: Bloomberg
NZ 5-yr Swap – Daily
Source: Bloomberg
NZ 2yr 5yrSwap Spread – Daily
Source: Bloomberg
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Quarterly Forecasts
Forecasts as at 11 June 2018
Key Economic Forecasts
Quarterly % change unless otherwise specified Forecasts
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19
GDP (production s.a.) 0.4 0.7 0.9 0.6 0.6 0.5 0.7 1.1 0.9 0.6
Retail trade (real s.a.) 1.4 1.5 1.8 0.3 1.4 0.1 0.5 1.3 1.3 0.7
Current account (ytd, % GDP) -2.2 -2.6 -2.6 -2.5 -2.7 -2.8 -3.1 -3.5 -3.6 -3.5
CPI (q/q) 0.4 1.0 0.0 0.5 0.1 0.5 0.7 0.8 0.4 0.8
Employment 0.9 1.1 -0.1 2.2 0.4 0.6 0.5 0.5 0.6 0.6
Unemployment rate % 5.3 4.9 4.8 4.6 4.5 4.4 4.4 4.4 4.3 4.2
Avg hourly earnings (ann %) 1.1 1.1 1.2 2.0 3.1 4.0 4.0 3.8 3.7 3.4
Trading partner GDP (ann %) 3.6 3.6 3.7 4.1 3.9 3.9 3.9 3.7 3.8 3.8
CPI (y/y) 1.3 2.2 1.7 1.9 1.6 1.1 1.8 2.1 2.4 2.7
GDP (production s.a., y/y)) 3.5 3.0 2.8 2.7 2.9 2.7 2.5 3.0 3.3 3.4
Interest Rates
Historical data - qtr average Government Stock Swaps US Rates Spread
Forecast data - end quarter Cash 90 Day 5 Year 10 Year 2 Year 5 Year 10 Year Libor US 10 yr NZ-US
Bank Bills 3 month Ten year
2017 Mar 1.75 2.00 2.70 3.25 2.35 3.00 3.50 1.15 2.50 0.80
Jun 1.75 1.95 2.45 2.95 2.25 2.80 3.25 1.25 2.20 0.75
Sep 1.75 1.95 2.45 2.95 2.20 2.70 3.20 1.30 2.20 0.75
Dec 1.75 1.90 2.35 2.90 2.20 2.65 3.15 1.60 2.40 0.40
2018 Mar 1.75 1.90 2.40 2.95 2.20 2.70 3.20 2.20 2.85 0.10
Forecasts
Jun 1.75 2.00 2.50 2.90 2.25 2.75 3.20 2.25 3.00 -0.10
Sep 1.75 2.00 2.65 3.10 2.25 2.90 3.40 2.45 3.25 -0.15
Dec 1.75 2.00 2.70 3.10 2.40 2.95 3.40 2.55 3.25 -0.15
2019 Mar 1.75 2.10 2.80 3.20 2.55 3.05 3.50 2.65 3.25 -0.05
Jun 2.00 2.35 3.10 3.45 2.85 3.05 3.50 2.75 3.50 -0.05
Sep 2.25 2.60 3.30 3.60 3.10 3.05 3.50 2.75 3.50 0.10
Dec 2.50 2.85 3.45 3.70 3.35 3.35 3.75 2.75 3.50 0.20
2020 Mar 2.75 3.10 3.55 3.80 3.50 3.35 3.75 2.75 3.50 0.30
Jun 3.00 3.25 3.70 3.80 3.50 3.35 3.75 2.75 3.50 0.40
Exchange Rates (End Period)
USD Forecasts NZD Forecasts
NZD/USD AUD/USD EUR/USD GBP/USD USD/JPY NZD/USD NZD/AUD NZD/EUR NZD/GBP NZD/JPY TWI-17
Current 0.70 0.76 1.18 1.34 109 0.70 0.93 0.60 0.52 76.9 73.9
Jun-18 0.71 0.75 1.20 1.38 111 0.71 0.93 0.59 0.51 78.3 73.3
Sep-18 0.71 0.77 1.23 1.42 110 0.71 0.92 0.58 0.50 78.1 72.9
Dec-18 0.70 0.75 1.25 1.45 108 0.70 0.93 0.56 0.48 75.6 71.8
Mar-19 0.70 0.75 1.26 1.50 106 0.70 0.93 0.56 0.47 74.2 71.6
Jun-19 0.71 0.76 1.27 1.52 104 0.71 0.94 0.56 0.47 73.8 72.4
Sep-19 0.71 0.75 1.28 1.53 102 0.71 0.95 0.56 0.46 72.4 72.4
Dec-19 0.70 0.75 1.30 1.55 100 0.70 0.93 0.54 0.45 70.0 71.2
Mar-20 0.70 0.75 1.32 1.55 99 0.70 0.93 0.53 0.45 69.3 71.1
Jun-20 0.69 0.74 1.34 1.57 98 0.69 0.93 0.52 0.44 67.6 70.2
Sep-20 0.69 0.74 1.36 1.60 98 0.69 0.93 0.51 0.43 67.6 70.0
TWI Weights
14.0% 20.7% 10.3% 4.8% 6.8%
Source for all tables: Statistics NZ, Bloomberg, Reuters, RBNZ, BNZ
Markets Outlook 11 June 2018
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Page 9
Annual Forecasts
Forecasts December Years
as at 11 June 20182016 2017 2018 2019 2020 2016 2017 2018 2019 2020
GDP - annual average % change
Private Consumption 3.9 5.4 4.0 3.3 2.2 5.0 4.5 3.5 2.5 1.4
Government Consumption 2.5 2.0 4.9 2.9 2.2 1.7 4.7 3.3 2.5 1.9
Total Investment 4.7 5.6 4.0 4.6 3.9 6.4 3.3 5.3 4.0 3.6
Stocks - ppts cont'n to growth -0.3 -0.1 -0.1 0.1 0.0 0.0 0.0 0.1 0.0 0.0
GNE 3.5 4.8 3.6 3.3 2.6 4.7 4.0 3.2 2.9 2.1
Exports 5.6 0.7 3.9 1.4 4.2 1.6 2.5 1.3 4.1 4.5
Imports 2.1 5.1 6.4 4.2 3.6 3.4 6.6 4.5 3.9 3.0
Real Expenditure GDP 4.4 3.6 3.2 2.5 2.7 4.1 3.0 2.5 2.9 2.4
GDP (production) 3.6 3.7 2.8 3.0 2.8 4.0 2.9 2.9 3.0 2.4
GDP - annual % change (q/q) 4.0 3.0 2.7 3.4 2.5 3.5 2.9 3.3 2.6 2.4
Output Gap (ann avg, % dev) 1.0 1.3 1.0 1.3 1.3 1.3 1.0 1.2 1.3 1.2
Household Savings (% disp. income) -1.3 -2.8 -2.5 -3.6 -3.4
Nominal Expenditure GDP - $bn 254.7 270.3 287.0 298.4 312.0 266.0 283.5 295.2 308.5 322.7
Prices and Employment -annual % change
CPI 0.4 2.2 1.1 2.7 2.0 1.3 1.6 2.4 2.1 2.0
Employment 2.0 5.7 3.1 2.2 1.6 5.8 3.7 2.2 1.9 1.2
Unemployment Rate % 5.2 4.9 4.4 4.2 4.3 5.3 4.5 4.3 4.3 4.5
Wages - ahote 2.5 1.1 4.0 3.4 3.3 1.1 3.1 3.7 3.4 3.0
Productivity (ann av %) 1.5 -1.9 -0.8 0.6 0.9 -0.8 -1.3 0.2 0.9 1.1
Unit Labour Costs (ann av %) 1.3 3.8 3.8 3.2 2.5 2.7 4.0 3.8 2.4 2.3
External Balance
Current Account - $bn -7.0 -7.2 -8.2 -10.3 -9.8 -6.0 -7.7 -10.6 -10.2 -9.4
Current Account - % of GDP -2.8 -2.6 -2.8 -3.5 -3.1 -2.2 -2.7 -3.6 -3.3 -2.9
Government Accounts - June Yr, % of GDP
OBEGAL (core operating balance) 0.7 1.5 1.0 0.9 1.6
Net Core Crown Debt (excl NZS Fund Assets) 24.0 21.7 20.8 20.7 19.7
Bond Programme - $bn 7.0 8.0 8.0 8.0 9.0
Bond Programme - % of GDP 2.7 3.0 2.8 2.7 2.9
Financial Variables (1)
NZD/USD 0.67 0.70 0.73 0.70 0.70 0.70 0.70 0.70 0.70 0.68
USD/JPY 113 113 106 106 99 116 113 108 100 97
EUR/USD 1.11 1.07 1.23 1.26 1.32 1.05 1.18 1.25 1.30 1.38
NZD/AUD 0.90 0.92 0.94 0.93 0.93 0.96 0.91 0.93 0.93 0.93
NZD/GBP 0.47 0.57 0.52 0.47 0.45 0.56 0.52 0.48 0.45 0.43
NZD/EUR 0.61 0.66 0.59 0.56 0.53 0.67 0.59 0.56 0.54 0.49
NZD/YEN 76.2 79.1 77.0 74.2 69.3 81.6 78.7 75.6 70.0 66.0
TWI 72.2 76.5 74.8 71.6 71.1 78.1 73.6 71.8 71.2 69.2
Overnight Cash Rate (end qtr) 2.25 1.75 1.75 1.75 2.75 1.75 1.75 1.75 2.50 3.00
90-day Bank Bill Rate 2.41 1.98 1.93 2.08 3.08 2.02 1.88 2.00 2.83 3.17
5-year Govt Bond 2.40 2.70 2.35 2.80 3.55 2.75 2.30 2.70 3.45 3.65
10-year Govt Bond 2.90 3.25 2.95 3.20 3.80 3.30 2.80 3.10 3.70 3.95
2-year Swap 2.30 2.30 2.25 2.55 3.50 2.40 2.20 2.40 3.35 3.50
5-year Swap 2.60 3.00 2.70 3.05 3.80 3.00 2.65 2.95 3.70 3.90
US 10-year Bonds 1.90 2.50 2.85 3.25 3.50 2.50 2.40 3.25 3.50 3.50
NZ-US 10-year Spread 1.00 0.75 0.10 -0.05 0.30 0.80 0.40 -0.15 0.20 0.45
(1) Average for the last month in the quarter
Source for all tables: Statistics NZ, EcoWin, Bloomberg, Reuters, RBNZ, NZ Treasury, BNZ
ForecastsActualsForecasts
March Years
Actuals
Markets Outlook 11 June 2018
bnz.co.nz/research
Page 10
Key Upcoming Events
Forecast Median Last Forecast Median Last
Monday 11 June
NZ, Manufacturing Sales, Q1 vol s.a. +1.0%
Aus, Holiday, Queen's Birthday
Jpn, Machinery Orders, April +2.4% -3.9%
UK, Industrial Production, May +0.1% +0.1%
UK, Trade Balance, May -£2.5b -£3.1b
Tuesday 12 June
NZ, Electronic Card Transactions, May +1.0% +1.2% -0.9%
Aus, Housing Finance, April -1.5% -1.8% -2.2%
Aus, NAB Business Survey, May +10
Jpn, BSI Business Survey, Q2 +3.3
Germ, ZEW Sentiment, June -14.0 -8.2
UK, Average Weekly Earnings, April y/y +2.5% +2.6%
UK, Unemployment Rate (ILO), April 4.2% 4.2%
US, NFIB Small Business Optimism, May 105.0 104.8
US, CPI ex food/energy, May y/y +2.2% +2.1%
Wednesday 13 June
NZ, Food Price Index, May +0.7% +0.1%
Aus, Consumer Sentiment - Wpac, June 101.8
Aus, Lowe Speaks, Productivity
Euro, Industrial Production, April -0.7% +0.5%
Euro, Eurozone Employment, Q1 y/y +1.6%
UK, CPI, May y/y +2.4% +2.4%
US, FOMC Policy Announcement 2.00% 2.00% 1.75%
US, PPI ex-food/energy, May y/y +2.3% +2.3%
Thursday 14 June
Aus, Unemployment Rate, May 5.6% 5.6% 5.6%
Aus, Employment, May +15k +19k +23k
China, Industrial Production, May y/y +7.0% +7.0%
China, Retail Sales, May y/y +9.6% +9.4%
Euro, ECB Policy Announcement, Refi 0.00% 0.00% 0.00%
Germ, CPI, May y/y 1st est +2.2% +2.2%P
UK, Retail Sales vol., May +0.5% +1.6%
US, Retail Sales, May +0.4% +0.3%
US, Business Inventories, April +0.3% flat
Friday 15 June
NZ, BNZ PMI (Manufacturing), May 58.9
Jpn, BOJ Policy Announcement, Policy Rate -0.1%
Euro, Labour Costs, Q1 y/y +1.5%
Euro, Trade Balance, April s.a. +€20.0b +€21.0b
Euro, CPI, May y/y 2nd est +1.9% +1.9%P
US, Empire Manufacturing, June +18.5 +20.1
US, Mich Cons Confidence, Jun 1st est 98.5 98.0
US, Industrial Production, May +0.2% +0.7%
Historical Data
Today Week Ago Month Ago Year Ago Today Week Ago Month Ago Year Ago
CASH & BANK BILLS
Call 1.75 1.75 1.75 1.75
1mth 1.89 1.89 1.89 1.86
2mth 1.95 1.95 1.95 1.89
3mth 2.02 2.01 2.04 1.97
6mth 2.07 2.06 2.08 1.99
GOVERNMENT STOCK
03/19 1.78 1.78 1.79 1.94
04/20 1.87 1.87 1.84 2.09
05/21 2.04 2.01 1.99 2.19
04/23 2.33 2.29 2.27 2.47
04/25 2.62 2.56 2.53 2.68
04/27 2.82 2.75 2.71 2.78
04/33 3.16 3.11 3.07 3.08
04/37 3.31 3.27 3.22 3.33
GLOBAL CREDIT INDICES (ITRXX)
Australia 5Y 72 69 65 85
Nth America 5Y 66 64 60 60
Europe 5Y 74 65 54 58
SWAP RATES
2 years 2.23 2.23 2.19 2.20
3 years 2.39 2.37 2.35 2.39
4 years 2.56 2.51 2.51 2.55
5 years 2.70 2.65 2.65 2.70
10 years 3.20 3.12 3.14 3.17
FOREIGN EXCHANGE
NZD/USD 0.7026 0.7029 0.6913 0.7198
NZD/AUD 0.9246 0.9191 0.9185 0.9545
NZD/JPY 76.85 77.19 75.80 79.15
NZD/EUR 0.5967 0.6008 0.5796 0.6426
NZD/GBP 0.5239 0.5280 0.5100 0.5687
NZD/CAD 0.9121 0.9090 0.8858 0.9592
TWI 73.8 73.9 72.7 77.7
Markets Outlook 11 June 2018
bnz.co.nz/research
Page 11
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