RESEARCH Markets Outlook - BNZ · Markets Outlook 3 September 2018 bnz.co.nz/research Page 2 Easing...

3 September 2018

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Markets Outlook RESEARCH

Upside Risks To GDP

We expect Q2 GDP to exceed RBNZ expectations

Partial indicators this week will solidify our view

We’re looking for a 0.8% quarter, RBNZ at 0.5%

Long term prognosis is still worrisome

But pricing a near term easing looks premature

The investor market is very heavily focused on the prognosis

for New Zealand’s GDP. This is not surprising as the RBNZ

published an alternative scenario in its August MPS which

shows a lower-than-forecast GDP outturn could see the cash

rate cut by 100 basis points. Markets have taken this to heart

by pricing in a 50% chance of rate cut in the next twelve

months. But what will the RBNZ do and say if GDP surprises

to the upside. This is, in fact, what we expect to happen – at

least in the short term.

On September 20 Statistics New Zealand publishes Q2

GDP. The RBNZ has a 0.5% pick for the quarter. We, in

contrast, are looking for a 0.8% outturn. And this week we

get to see a number of partial indicators that will go into

our final estimate for the quarter.

Already we have seen the retail sales figures for Q2. And they

rose a healthy (and above expected) 1.1%. Importantly, these

data show spending prior to the July 1 increase in incomes

emanating from Government policy changes, and spending

was adversely impacted by rising oil prices.

First up this week was this morning’s trade data. These

came in slightly weaker than we had anticipated. Export

volumes rose 1.1% and import volumes were up 0.9%.

This is sufficient to contribute positively to Q2 GDP but

does indicate some downside risk to our expectations.

Similarly, there was slightly less national income

generated from the terms of trade than we had expected

with the terms of trade rising 0.6% against our

expectation of 1.2%. Import prices were as anticipated

but export returns were modestly lower. Incidentally, the

trend in the import price data supports our view that the

deflationary pressure on the domestic CPI from imported

goods is now a thing of the past.

We get an update on export prices on Wednesday with the

latest installment of the ANZ’s commodity price index. We

are looking for a small increase in NZD terms as a weakening

in world prices is offset by the recent softening in the NZD.

Earlier Wednesday morning we expect the GDT auction to

reveal a 2.0% increase in dairy prices.

Imported Deflation Dead

The next piece in the GDP puzzle is the Q2 Value of Building

Work Put in Place also due on Wednesday. We have penciled

in a 1.2% increase for the quarter with residential and non-

residential construction contributing equally.

On Friday, we get the Wholesale Trade number. We see

this as being a major contributor to the quarterly GDP

outturn in rising 3.0% for the quarter in value terms. This

would be consistent with the 2.0% real increase we have

for the Wholesale component of GDP. It is, however, a

notoriously difficult indicator to forecast and provides

some downside risk to our expectations.

Filling out the GDP partials will be next Monday’s

manufacturing data. We had been looking for a relatively

significant contribution from the sector but there was

weakness in today’s manufacturing exports that surprised

us. Accordingly, we have lowered our expectation for

manufacturing growth to 0.7%. The strength in the sector

is being driving by meat and dairy production but should

also be abetted by the demands coming from the

construction and retail sectors.

We are quick to point out that we too see significant

downside risks to the medium term growth profile largely

stemming from declining population growth and the current

slump in business confidence, which threatens to impact

both investment and hiring adversely. However, we caution

that it looks like it will be some time before this will be

confirmed in the data. In the immediate future not only is

growth likely to come out at least as strong as the RBNZ has

assumed but inflation, similarly, bears upside risk. This being

the case, the market’s attempts to bring forward any easing

into late this year/early next look misplaced.

Markets Outlook 3 September 2018

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Easing Talks Premature? Moreover, the labour market will also have to soften up if the

RBNZ is to be encouraged to ease and we are seeing little

sign of that in the data despite intentions to hire coming

under pressure. ANZ job ads for August (released

Wednesday) will thus be watched with interest. It is notable

that recent job ads figures have been relatively robust.

Rounding out the week’s data is Wednesday’s QVNZ

housing data. Given the information already available this

will not be of great interest. One assumes that it will

simply confirm that the housing market, in aggregate, is

flat but that outside of Auckland and Christchurch prices

continue to forge higher.

[email protected]


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Global Watch

Will US impose tariffs on another $200bn of Chinese

goods this week?

NAFTA negotiations close to concluding

Lower US unemployment rate expected; ISMs, Fed

speakers due

China PMI and trade data to show any tariff impact?

AU Q2 GDP expected to grow 0.7%

AU retail sales, home loans, trade to monitor

Bank of Canada to sit pat, for now

BoE’s top brass to testify at Select Committee

Australia

Q2 GDP on Wednesday is the data focus for a huge week

of data releases. Leading up to Wednesday, markets will

use a number of partials, to firm up their forecasts. These

include: Company Profits and Inventories (Monday) and

Net Exports and Government Finances (Tuesday). NAB’s

forecast is for Q2 GDP growth of 0.7% q/q (2.8% y/y; mkt:

0.7% q/q), with inventories detracting 0.2 ppt (mkt: +0.2

ppt) and net exports contributing nothing to growth (mkt:

0.1ppt). On the nominal side of the National Accounts,

NAB expects a 2% rise in company profits (mkt: 1.0% q/q)

and a widening of the current account deficit to $12 billion

(mkt: -$11 b)

Other data of note in the week ahead are July prints for

Retail Sales (Monday), Trade (Thursday) and Home Loans

(Friday). NAB expects retail sales declined in the month

(-0.1% m/m, mkt: +0.3% m/m), the trade surplus shrank

slightly to $1.5 billion (mkt: $1.45 b) and home loans

approvals ticked down 0.2% m/m (mkt:-0.1% m/m).

On the RBA, the markets prices absolutely no chance of a

change in policy at the Board Meeting on Tuesday.

Further, only 1 basis point is priced in by the end of 2018.

Nevertheless, RBA watchers will dissect the post-meeting

Media Release and Governor Lowe’s remarks on Wednesday

night for any clues for the policy outlook. The Bank has done

a lot of work to clearly communicate that the next move in

rates is more likely to be up than down, progress in reducing

unemployment and returning inflation to target is expected to

be gradual and so it is happy to stay on hold for ‘a while’. We

expect no change to its core message. Markets will look out

for any remarks related to the recent increase in home loan

rates by Westpac.

On a similar vein, home loans data later this week will be

of interest. We expect an ongoing moderation in owner

occupier approvals (-0.2% m/m). This is a trend likely to

continue over the medium-term, particularly if further price

declines and rate rises by lenders occur.

GDP partials – Company Profits, Inventories, Balance of

Payments and Government Finances – will help market

watchers finalise expectations for Q2 GDP. We expect a

small detraction from growth by Inventories, and no

contribution to growth from Net Exports. Particular

interest will be placed on Government spending – given

the ramp up in public projects such as the NDIS and a

number of infrastructure pieces, these are expected to

remain strong.

Chart 1: Mining profits to rise with higher export prices

Chart 2: Watch the composition of growth

Retail Sales has recorded moderate growth over the past

few months – but this month, we expect a slight decline in

sales of 0.1% m/m. Declines in food retailing (-0.1% m/m),

clothing & footwear (-0.4% m/m) and cafes & restaurants

(-0.9% m/m) are expected to drive a weaker overall retail

print this month. In particular, Food retailing is expected to

have been dented by the plastic bag ban, although plastic

“Little Shop” collectables at Coles have partly offset this.

Chart 3: NAB expects a small decline in retail sales


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Trade balance this month is expected to show offsetting

impacts from higher oil prices (trade balance positive) and

coal exports, but lower iron ore and rural exports. Net-net,

we see the trade surplus a touch smaller.

Chart 4: Modest narrowing of trade surplus

UK

Brexit negotiations continue to be the focus with recent

remarks by EU Brexit Chief Negotiator Michel Barnier –

that the UK will be offered a deal like no other to a ‘third’

country – boosting confidence that the EU will be more

flexible. We have our doubts on how far any EU flexibility

goes with respect to its rules-based red lines.

The UK Parliament returns from its summer break on

Tuesday, when BoE’s Carney, Haldane, Tenreyro and

Saunders all testify before Parliament’s Treasury Select

Committee on the recent inflation report. Datawise, watch

the PMIs on Monday and Wednesday. Both

Manufacturing and Services readings have been softish at

circa 53-54.

US

It’s a Public Holiday Monday. Data-wise, the ISMs on

Tuesday/Thursday and Payrolls on Friday take top billing.

Payrolls are expected to be solid again with +192k jobs,

Unemployment to tick down to 3.8% from 3.9%, and

Average Hourly Earnings to continue its 2.7% y/y pace – all

reinforcing the Fed’s current rate hike path. There are also

many Fed speakers with the most important being the NY

Fed’s Williams (voter, vice-chair, hawkish) on Thursday.

Japan

A fairly quiet week. BoJ’s Kataoka will speak on Thursday

– a known dovish dissenter.

Eurozone

Italy worth watching with the potential for a ratings update

by Moody’s and Fitch. Retail sales for Jul and final Q2

GDP data are released Friday, where the consensus looks

for a reasonably solid +0.4% q/q and 2.2% y/y.

Canada

The Bank of Canada meets on Wednesday and, while they

are expected to be on hold, a hike is expected at the

following meeting (markets pricing around an 80% chance

of an October hike). Markets will watch out for NAFTA

negotiations with the likelihood of a knee-jerk spike in the

CAD if an agreement is reached. Datawise,

Unemployment and Earnings data on Friday will be closely

watched and will likely reinforce expectations of an

October rate hike.

China

US-China trade will be the focus for the week ahead,

particularly if US tariffs on $200bn of Chinese imports

goes ahead. On the data, Caixin PMIs on Monday and

Wednesday and Trade on Friday are highlights – markets

will watch to gauge any trade war impacts on the Chinese

economy. After the recent official Manufacturing PMI was

stronger than expected, markets will be watching the

Caixin figure (which has less weight on SOEs) to see if this

improvement is replicated.

[email protected]

mailto:[email protected]


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Fixed Interest Market

Reuters: BNZL, BNZM Bloomberg:BNZ

Another weaker than expected ANZ business survey set

the scene for a further decline in NZ rates last week.

Swap rates fell by 4-5bps across the curve, leaving the 2

year rate, at 1.97%, within touching distance of its all-time

low (1.94%, in mid-2016).

The market further increased the probability of an RBNZ

rate cut – see chart. The implied probability of a rate cut

by February is around one-third while the cumulative

probability of a rate cut by mid-2019 is close to 50%

(based on a single 25bp cut). Of course, if the RBNZ were

to cut rates, it would probably do some more than once,

so the 12bps of cuts priced in by mid-2019 could be seen,

for instance, as reflecting a ~25% probability of two cuts.

Given the downside growth risks signalled by business

confidence readings and the RBNZ’s stated reluctance to

hike until core inflation is at least at 2%, we think the

market pricing is broadly fair at this stage.

The next major piece of domestic data is GDP on the 20th,

and this week we receive some of the partial indicators

that will help us firm up our estimate (we wouldn’t expect

much market reaction to the partials this week though).

As things stand, we are looking for a 0.8% increase in

GDP in Q2 vs. the RBNZ’s MPS forecast of 0.5%. Our

base case remains that the RBNZ won’t cut rates,

although we think it will require domestic data to improve

significantly (and more than just a stronger Q2 GDP

release) for the market to price-out that risk.

On a separate note, there was significant Kauri SSA

issuance last week, with $1b issued across three different

lines (IFC, KBN and KFW). Last week’s heavy issuance

follows an extended lull (the last fixed rate Kauri SSA was

in March) and brings year-to-date issuance to around

$4.5b (see chart). Net issuance year-to-date is much

lower, at $750m. There was a slight decline in NZD cross-

currency basis swap levels last week in response, but they

remain near multi-year highs.

The US 10 year Treasury yield remains range-bound; it

increased modestly from the range lows last week. There

is plenty to focus on this week with the ISM surveys and

payrolls and the potential for Trump to impose additional

tariffs on Chinese imports from Friday. The latter presents

a risk to equity markets, which could in turn spill-over into

lower bond yields both in the US and elsewhere (including

NZ). Our central expectation though is that 10 year

Treasury yields remain contained within the existing

2.80% – 3% range for some time.

In Australia, 10 year yields are at their lowest levels in

over 12 months ahead of GDP and retail sales releases

this week. Westpac’s announcement last week that it

would increase variable mortgage rates has seen the

market push back RBA rate hike expectations even

further. The broader backdrop remains one of

monetary policy desynchronization, where the US and

Canada (and to a lesser extent, the UK) are raising rates

and the rest of the developed world is not.

Consequently, US and Canadian bond yields are

significantly higher than a year ago, whereas there has

been little to no increases seen elsewhere.

Market now prices a near 50% chance of cut by mid-2019

Kauri SSA issuance picked up last week

[email protected]

-80

-60

-40

-20

0

20

40

60

80

-30

-20

-10

0

10

20

30

Sep

-18

No

v-1

8

Fe

b-1

9

Ma

r-19

Ma

y-1

9

Ju

n-1

9

Aug

-19

Sep

-19

No

v-1

9

Fe

b-2

0

Mar-

20

Ma

y-2

0

Ju

n-2

0

Aug

-20

Sep

-20

prob, %

Source: BNZ, Bloomberg

Implied probability of OCR move - meeting by meeting

Individualmeeting

probability

Cumulative probability, RHS

prob, %

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

SSAs - Kauri issuance by year

2017

Source: Thomson Reuters, BNZ, Bloomberg

NZ$m

2018 YTD

2013

2016

20142015

Current Rates/Spreads and Recent Ranges

Current Last 3 -weeks range*

NZ 90d bank bills (%) 1.91 1.90 - 1.92

NZ 2yr swap (%) 1.97 1.97 - 2.06

NZ 5yr swap (%) 2.31 2.31 - 2.40

NZ 10yr swap (%) 2.82 2.82 - 2.91

2s10s swap curve (bps) 85 83 - 85

NZ 10yr swap-govt (bps) 30 28 - 32

NZ 10yr govt (%) 2.52 2.52 - 2.61

US 10yr govt (%) 2.86 2.81 - 2.90

NZ-US 10yr (bps) -35 -35 - -23

NZ-AU 2yr swap (bps) -1 -3 - 2

NZ-AU 10yr govt (bps) 0 -2 - 6

*Indicative range over last 3 weeks


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Foreign Exchange Markets

Reuters pg BNZWFWDS Bloomberg pg BNZ9

The NZ dollar was under pressure towards the end of last

week following another weak ANZ business outlook

survey and emerging market currencies under attack

again. For the week, the NZD fell by 0.7-0.9% against

USD, EUR and JPY, and was down almost 2% against

GBP as the market took a more optimistic view on Brexit

negotiations. The AUD performed even worse, with its

closer link to EM currencies and some banks raising

mortgage rates in the face of higher funding costs.

NZD/AUD rose by 0.8% for the week to over 0.92.

As we saw last week, the NZD is sensitive to negative

domestic economic releases since the RBNZ made it clear

that it is paying more attention to growth than inflation

dynamics, given CPI inflation is still in the bottom half of

the target range and some activity indicators have sent a

warning message about near-term growth risks. The OIS

market now prices a near-50% chance of a 25bps cut to

the OCR within the next year. Given the fiscal stimulus

that the economy will enjoy in 2H18, the weaker NZD, and

recent cuts to mortgage rates, we find it difficult to buy

into the argument that the economy is about to lurch

down. In time, we would expect the policy easing to be

priced out of the curve and the run of data to turn more

supportive for the NZD, but not yet.

The near term threat for the NZD remains a break of the

mid-August low of 0.6545. Trump’s decision on whether

to impose further tariffs on another $200b of Chinese

imports could come as soon as later this week. The period

of public consultation for a further round of tariffs ends 6

September and after that Trump will be free to make his

decision. So it could come as early as Friday NZ time or a

decision might not come for another week or two. It is

difficult to see the NZD recover to any meaningful extent

ahead of any decision.

While many in the market, including ourselves, seem to be

resigned to the fact that Trump will go ahead with

proposed tariffs on another $200b of Chinese imports,

market reaction might well be determined by the detail –

whether the tariff rate to apply will be 10% or 25%, the

phasing of the tariffs, and the language about the

prospect of future tariffs on the full $500+bn of Chinese

imports. We see the NZD vulnerable to any renewed

weakness for CNY and spill-over for other Asia-Pacific

currencies.

An aggressive stance by Trump could easily see the mid-

August low broken, and there is little technical support in

the way to reach as low as 0.64. The more positive

scenario would be a delayed phasing to further possible

tariffs and this would set the scene for a wee rally in the

NZD. As we’ve mentioned in previous reports, it’s a pretty

binary outcome, at the whim of Trump’s decision.

While the market will remain on tenterhooks awaiting any

fresh tariff announcement, the economic data calendar is

full in Australia and the US, with only second-tier releases

in NZ. The most anticipated release will be US non-farm

payrolls at the end of the week. Employment growth

should remain strong, the unemployment rate is expected

to tick down to 3.8% but the focus will be on wage data,

where average hourly earnings are expected to be steady

at 2.7% y/y. Earlier in the week, the ISM indicators will be

watched and a number of Fed speakers are on the circuit.

Australian Q2 GDP data on Wednesday is expected to

show trend-like growth of 0.7% qoq. Ahead of that,

Tuesday’s RBA policy announcement is likely to maintain a

decisively neutral tone, but the market will be interested if

there is any response to the recent nudge up in mortgage

rates from a number of banks.

The Bank of Canada meets this week but isn’t expected to

hike rates again until the October meeting.

NZD Trend Not Great

[email protected]

0.62

0.64

0.66

0.68

0.70

0.72

0.74

0.76

2016 2017 2018

Source: BNZ, Bloomberg

Cross Rates and Model Estimates

Current Last 3 -weeks range*

NZD/USD 0.6614 0.6550 - 0.6730

NZD/AUD 0.9200 0.9040 - 0.9210

NZD/GBP 0.5119 0.5100 - 0.5220

NZD/EUR 0.5703 0.5680 - 0.5810

NZD/JPY 73.48 72.40 - 75.10

*Indicative range over last 3 weeks, rounded figures

BNZ Short-term Fair Value Models

Model Est. Actual /FV

NZD/USD 0.6970 -5%

NZD/AUD 0.9090 1%


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Technicals

NZD/USD

Outlook: Downside risk

ST Resistance: 0.6720 (ahead of 0.6850)

ST Support: 0.6545 (ahead of 0.6410)

The mid-August low of 0.6545 is back into focus now. A

break of that opens up the 0.64 area.

NZD/AUD

Outlook: Trading range

ST Resistance: 0.9230 (ahead of 0.9400)

ST Support: 0.9050 (ahead of 0.8950)

A decent rally over the past couple of weeks sees

resistance just over 0.92 come into play. Beyond that

level, there is little resistance ahead of 0.94.

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NZ 5-year Swap Rate

Outlook: Lower

ST Resistance: 2.41

ST Support: 2.275

Getting closer to our 2.275 target lower stop to 2.41

NZ 2-year - 5-year Swap Spread (yield curve)

Outlook: Flatter

ST Resistance: +37.5

ST Support: +20

Expect move to +20 target, stop on a move back through

+37.5.

[email protected]

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 3 September 2018

Key Economic Forecasts

Quarterly % change unless otherwise specified Forecasts

Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

GDP (production s.a.) 0.8 0.9 0.6 0.6 0.5 0.8 0.7 0.9 0.5 0.7

Retail trade (real s.a.) 1.6 1.6 0.3 1.3 0.3 1.1 1.2 1.2 0.7 0.6

Current account (ytd, % GDP) -2.6 -2.6 -2.5 -2.7 -2.8 -3.1 -3.5 -3.7 -3.7 -3.9

CPI (q/q) 1.0 0.0 0.5 0.1 0.5 0.4 0.8 0.5 0.6 0.5

Employment 1.1 -0.1 2.2 0.4 0.6 0.5 0.5 0.5 0.6 0.5

Unemployment rate % 4.9 4.8 4.6 4.5 4.4 4.5 4.4 4.3 4.2 4.2

Avg hourly earnings (ann %) 1.1 1.2 2.0 3.1 4.0 3.3 3.4 3.5 3.3 4.0

Trading partner GDP (ann %) 3.5 3.7 4.0 3.9 4.0 3.8 3.7 3.8 3.7 3.7

CPI (y/y) 2.2 1.7 1.9 1.6 1.1 1.5 1.8 2.2 2.3 2.4

GDP (production s.a., y/y)) 3.0 2.8 2.6 2.9 2.7 2.6 2.7 3.0 3.0 2.9

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 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

Jun 1.75 2.00 2.35 2.90 2.25 2.70 3.15 2.35 2.90 -0.06

Forecasts

Sep 1.75 1.95 2.15 2.75 2.00 2.45 3.05 2.40 3.10 -0.35

Dec 1.75 1.95 2.25 2.90 2.00 2.55 3.20 2.65 3.25 -0.35

2019 Mar 1.75 1.95 2.40 2.95 2.20 2.70 3.25 2.85 3.25 -0.30

Jun 1.75 2.05 2.60 3.20 2.40 2.70 3.25 3.20 3.50 -0.30

Sep 2.00 2.30 2.85 3.35 2.70 2.70 3.25 3.45 3.50 -0.15

Dec 2.25 2.55 3.05 3.50 3.00 2.90 3.50 3.45 3.50 0.00

2020 Mar 2.50 2.80 3.20 3.60 3.20 2.90 3.50 3.20 3.50 0.10

Jun 2.75 2.95 3.35 3.60 3.20 2.90 3.50 3.20 3.50 0.20

Sep 2.75 2.95 3.40 3.60 3.20 3.15 3.65 3.20 3.50 0.25

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 0.66 0.72 1.16 1.29 111 0.66 0.92 0.57 0.51 73.5 72.0

Sep-18 0.67 0.73 1.15 1.25 109 0.67 0.92 0.58 0.54 73.0 72.6

Dec-18 0.68 0.75 1.18 1.26 110 0.68 0.91 0.58 0.54 74.8 72.9

Mar-19 0.68 0.75 1.22 1.28 108 0.68 0.91 0.56 0.53 73.4 72.1

Jun-19 0.69 0.75 1.22 1.30 106 0.69 0.92 0.57 0.53 73.1 72.6

Sep-19 0.69 0.75 1.25 1.34 104 0.69 0.92 0.55 0.52 71.8 71.9

Dec-19 0.69 0.75 1.30 1.40 102 0.69 0.92 0.53 0.49 70.4 71.3

Mar-20 0.70 0.75 1.32 1.43 100 0.70 0.93 0.53 0.49 70.0 71.9

Jun-20 0.69 0.74 1.34 1.46 99 0.69 0.93 0.52 0.47 68.3 70.9

Sep-20 0.68 0.74 1.36 1.49 98 0.68 0.92 0.50 0.46 66.6 69.6

Dec-20 0.67 0.73 1.38 1.52 98 0.67 0.92 0.49 0.44 65.7 68.7

TWI Weights

14.0% 20.7% 10.3% 4.8% 6.8%

Source for all tables: Statistics NZ, Bloomberg, Reuters, RBNZ, BNZ


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Annual Forecasts

Forecasts December Years

as at 3 September 20182017 2018 2019 2020 2021 2016 2017 2018 2019 2020

GDP - annual average % change

Private Consumption 5.5 3.8 2.9 2.4 1.7 5.1 4.4 2.8 2.6 1.8

Government Consumption 1.9 4.9 2.1 1.8 1.7 1.6 4.6 2.7 1.8 1.7

Total Investment 5.6 3.9 4.7 3.7 3.8 6.4 3.5 4.8 4.1 3.6

Stocks - ppts cont'n to growth -0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.3 -0.1 0.0

GNE 4.8 4.0 3.4 2.6 2.2 4.7 4.2 3.7 2.7 2.2

Exports 0.7 3.9 3.7 4.4 3.8 1.6 2.3 3.4 4.8 3.9

Imports 5.1 7.0 5.5 3.2 2.5 3.4 6.7 6.5 3.6 2.4

Real Expenditure GDP 3.6 3.1 2.8 2.9 2.6 4.1 3.0 2.7 3.0 2.7

GDP (production) 3.7 2.7 2.8 2.8 2.6 4.0 2.8 2.7 2.9 2.7

GDP - annual % change (q/q) 3.0 2.7 3.0 2.8 2.4 3.4 2.9 3.0 2.8 2.5

Output Gap (ann avg, % dev) 1.4 0.9 0.9 0.7 0.4 1.4 1.0 0.9 0.8 0.5

Household Savings (% disp. income) -2.8 -1.8 -3.4 -3.5 -2.6

Nominal Expenditure GDP - $bn 270.3 286.4 299.0 315.4 327.9 266.1 283.4 294.9 311.6 325.1

Prices and Employment -annual % change

CPI 2.2 1.1 2.3 2.2 2.1 1.3 1.6 2.2 2.1 2.1

Employment 5.7 3.1 2.1 1.6 1.6 5.8 3.7 2.1 1.9 1.6

Unemployment Rate % 4.9 4.4 4.2 4.3 4.2 5.3 4.5 4.3 4.2 4.2

Wages - ahote 1.1 4.0 3.3 3.4 2.8 1.1 3.1 3.5 3.5 3.0

Productivity (ann av %) -1.9 -0.8 -0.2 1.0 1.0 -0.8 -1.4 -0.5 0.7 1.1

Unit Labour Costs (ann av %) 3.8 3.9 3.7 2.7 2.4 2.7 4.0 4.2 2.8 2.4

External Balance

Current Account - $bn -7.2 -7.9 -11.0 -12.1 -13.5 -6.0 -7.7 -11.0 -12.7 -12.7

Current Account - % of GDP -2.6 -2.8 -3.7 -3.8 -4.1 -2.2 -2.7 -3.7 -4.1 -3.9

Government Accounts - June Yr, % of GDP

OBEGAL (core operating balance) 1.5 1.2 1.0 1.5 1.5

Net Core Crown Debt (excl NZS Fund Assets) 21.7 20.8 20.6 19.7 18.3

Bond Programme - $bn 8.0 8.0 8.0 9.0 9.0

Bond Programme - % of GDP 3.0 2.8 2.7 2.9 2.7

Financial Variables (1)

NZD/USD 0.70 0.73 0.68 0.70 0.68 0.70 0.70 0.68 0.69 0.67

USD/JPY 113 106 108 100 98 116 113 110 102 98

EUR/USD 1.07 1.23 1.22 1.32 1.38 1.05 1.18 1.18 1.30 1.38

NZD/AUD 0.92 0.94 0.91 0.93 0.92 0.96 0.91 0.91 0.92 0.92

NZD/GBP 0.57 0.52 0.53 0.49 0.44 0.56 0.52 0.54 0.49 0.44

NZD/EUR 0.66 0.59 0.56 0.53 0.49 0.67 0.59 0.58 0.53 0.49

NZD/YEN 79.1 77.0 73.4 70.0 65.7 81.6 78.7 74.8 70.4 65.7

TWI 76.5 74.8 72.1 71.9 69.4 78.1 73.6 72.9 71.3 68.7

Overnight Cash Rate (end qtr) 1.75 1.75 1.75 2.50 2.75 1.75 1.75 1.75 2.25 2.75

90-day Bank Bill Rate 1.98 1.93 1.95 2.78 2.87 2.02 1.88 1.95 2.53 2.95

5-year Govt Bond 2.70 2.35 2.40 3.20 3.45 2.75 2.30 2.25 3.05 3.40

10-year Govt Bond 3.25 2.95 2.95 3.60 3.85 3.30 2.80 2.90 3.50 3.80

2-year Swap 2.30 2.25 2.20 3.20 3.40 2.40 2.20 2.00 3.00 3.40

5-year Swap 3.00 2.70 2.70 3.50 3.75 3.00 2.65 2.55 3.35 3.70

US 10-year Bonds 2.50 2.85 3.25 3.50 3.50 2.50 2.40 3.25 3.50 3.50

NZ-US 10-year Spread 0.75 0.10 -0.30 0.10 0.35 0.80 0.40 -0.35 0.00 0.30

(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


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Key Upcoming Events

Forecast Median Last Forecast Median Last

Monday 3 September

NZ, Terms of Trade, Q2 +1.2% +1.0% -1.9%

Aus, ANZ Job Ads, August +1.5%

Aus, Company Profits, Q2 +1.3% +5.9%

Aus, Manufacturing PMI (AiG), August 52.0

Aus, CoreLogic HPI, August -0.6%

Aus, Inflation Gauge (Melb. Inst.),August y/y +2.0%

Aus, Retail Trade, July -0.1% +0.3% +0.4%

Aus, Business Inventories, Q2 +0.2% +0.7%

China, PMI (Caixin), August 50.7 50.8

Jpn, Capital Spending, Q2 y/y +6.5% +3.4%

Euro, PMI Manufacturing, Aug 2nd est 54.6 54.6P

UK, Markit/CIPS Manuf Survey, August 53.9 54.0

US, Holiday, Labor Day

Tuesday 4 September

Aus, Current Account, Q2 -$11.0b -$10.5b

Aus, BOP Goods and Services, Q2 prelim +0.3ppts

Aus, RBA Policy Announcement 1.50% 1.50% 1.50%

Euro, PPI, July y/y +3.9% +3.6%

US, ISM Manufacturing, August 57.6 58.1

US, Markit PMI, August 2nd est 54.5 54.5P

US, Construction Spending, July +0.4% -1.1%

Wednesday 5 September

NZ, Building Work Put In Place, Q2 vol s.a.+1.0% +2.9% -0.9%

NZ, QVNZ House Prices, August y/y +5.1%

NZ, ANZ Comdty Prices (world), August -3.2%

NZ, ANZ Job Ads, August +3.1%

NZ, Dairy Auction, GDT Price Index -3.6%

Aus, Services PMI (AiG), August 53.6

Aus, GDP, Q2 +0.7% +0.7% +1.0%

Wednesday 5 September cont.

China, Services PMI (Caixin), August 52.6 52.8

Euro, Retail Sales, July +0.4 +0.3%

Euro, PMI Services, August 2nd est 54.4 54.4P

UK, Markit/CIPS Services, August 53.9 53.5

US, International Trade, July -$50.0b -$46.3b

Can, BOC Policy Announcement 1.50% 1.50%

Thursday 6 September

NZ, Local Authority Statistics, Q2

Aus, International Trade, July +$1.50b +$1.45b +$1.87b

Germ, Factory Orders, July +1.8% -4.0%

US, Productivity (non-farm), Q2 saar 2nd est +2.9% +2.9%P

US, Factory Orders, July -0.6% +0.7%

US, ISM Non-Manuf, August 56.6 55.7

US, Jobless Claims, week ended 24/08 213k 213k

US, Markit PSI, August 2nd est 55.2 55.2P

US, Durables Orders, July 2nd est -1.7%P

US, ADP Employment, August +190k +219k

Friday 7 September

NZ, Wholesale Trade, Q2 ($) s.a. +0.1%

Aus, Housing Finance, July -0.2% -0.1% -1.1%

Aus, Construction PMI (AiG), August 52.0

Jpn, Household Spending, July y/y (real) -0.8% -1.2%

Euro, GDP, Q2 3rd estimate +0.4% +0.4%P

Germ, Industrial Production, July +0.2% -0.9%

Germ, Trade Balance, July +€19.5b +€21.8b

US, Unemployment Rate, August 3.8% 3.9%

US, Non-Farm Payrolls, August +193k +157k

Saturday 8 September

China, Trade Balance, August +¥177b

Historical Data

Today Week ago Month Ago Year Ago Today Week ago Month Ago Year Ago

CASH & BANK BILLS SWAP RATES

Call 1.75 1.75 1.75 1.75 2 years 1.97 2.04 2.11 2.16

1mth 1.83 1.81 1.81 1.85 3 years 2.06 2.13 2.24 2.33

2mth 1.87 1.86 1.85 1.90 4 years 2.18 2.25 2.39 2.48

3mth 1.93 1.93 1.90 1.96 5 years 2.31 2.37 2.52 2.61

6mth 1.95 1.96 1.96 2.02 10 years 2.82 2.87 3.02 3.10

GOVERNMENT STOCK FOREIGN EXCHANGE

03/19 1.72 1.72 1.76 1.84 NZD/USD 0.6621 0.6695 0.6733 0.7162

04/20 1.64 1.69 1.79 1.99 NZD/AUD 0.9206 0.9114 0.9114 0.9015

05/21 1.68 1.74 1.89 2.13 NZD/JPY 73.56 74.36 75.00 78.58

04/23 1.91 1.97 2.13 2.42 NZD/EUR 0.5709 0.5734 0.5827 0.6021

04/25 2.18 2.24 2.44 2.67 NZD/GBP 0.5124 0.5195 0.5202 0.5538

04/27 2.37 2.42 2.61 2.83 NZD/CAD 0.8652 0.8683 0.8755 0.8892

04/29 2.53 2.58 2.77

04/33 2.70 2.75 2.95 3.21 TWI 72.1 72.4 72.9 75.2

04/37 2.86 2.90 3.09 3.45

GLOBAL CREDIT INDICES (ITRXX)

Australia 5Y 72 74 74

Nth America 5Y 60 58 59 57

Europe 5Y 69 66 65 55


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