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Data flow lightens up after an action-packed week
Monday, 21 December 2015

Key highlights

The Federal Funds rate got hiked last week, as expected. It’s been seven years since it was last adjusted.
NZ Q3 GDP growth was slightly stronger than expected. The quarter’s 0.9% growth is partly payback for a weak start to 2015.
We expect the New Zealand economy will continue a modest path of expansion over 2016.
 

Report prepared by:

Chris Tennent-Brown, ASB Economist
Phone: +64 9 301 5660
Email: chris.tennent-brown@asb.co.nz


December has been action-packed for economists, and last week was a cracker, with two big central bank announcements offshore, and locally, a solid GDP data release and the Government’s half-year update to analyse.

First and foremost, the FOMC hiked the Federal Funds Rate, as expected. It’s been exactly seven years to the day since the FOMC last adjusted the Fed Funds Rate, when it cut it to near zero. Markets saw no surprises in Fed projections for the economy, the Fed funds rate or Fed Chair Yellen’s considered and detailed answers to media questions. Chair Yellen emphasised that the path of upcoming rate rises would be gradual and data-dependent. We expect three more rate rises over 2016, with bond yields and the USD forecast to rise and the NZD to weaken. The Bank of Japan surprised markets on Friday by announcing some tweaks to its monetary policy. However, rather than additional easing, the tweaks are better described as a re-calibration of existing measures.

Last week’s NZ Q3 GDP data was slightly stronger than expected. The strong 0.9% growth in Q3 is a bit of payback from a soft first half of the year. Nonetheless, there were some encouraging details, such as the ongoing strength in services and investment demand, which hints at more resilience in the economy than we had expected. Of particular note was robust growth in plant and machinery investment, suggesting underlying investment demand remains robust. And exports of services continue to grow at an astounding pace, on the back of strong tourism activity.

Last week’s “HYEFU” provided an update on the Government’s books, and an outlook for the coming years. The NZ Government books look healthy. However, the combination of low inflation and less tax revenue mean the improvement is slower than previously forecast. For markets this means increased bond issuance, as the Government makes up the shortfall via increased borrowing.

The dataflow slows to a trickle over the remainder of the year. In New Zealand we have trade and credit data due on Wednesday, then nothing until building data on 11 January. The US has a relatively light data calendar over the next few weeks. Non-farm payrolls on 9 January is the next big release, and before then there will be the usual interest in the strength of holiday sales, and how Star Wars goes at the Box office. Australian markets also have a relatively light data calendar in coming weeks. The RBA credit data is out in late December and, in the first week of January, there are updates on retail trade, building approvals and international trade.

This is the final weekly report for 2015. The next version will be out on Monday 11 January. We wish our readers a safe and pleasant festive season, and hope for a prosperous New Year for all.
 

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