After July’s central bank meeting, the RBNZ hinted at concerns about slowing growth. Even heading into July’s meeting the Bank of New Zealand head of research warned that the latest ANZ Bank survey of business opinion was ’littered with indicators that fit with our view that the economy is headed into recession. There are now more reasons for the RBNZ to take a dovish tilt next week on August 17.
Here is some of the recent data from New Zealand:
New Zealand business PMI
This missed expectations and fell into the contractionary territory of 49.7 down from the forecast reading of 54. This supported the negative outlook from BNZ’s head of research after the survey of business opinion.
New Zealand labour data
The unemployment rate was up to the highest estimate at 3.3%. The QoQ change was down to 0% from 0.4% expected and the participation rate fell too at 70.8% vs 71% expected.
New Zealand electronic card spending
The New Zealand consumer was spending less with retail card spending down y/y in July to -0.5% vs 0.8% expected and down from 2.9% prior.
Goldman Sachs sees recession risk for New Zealand
Goldman’s model sees a 30-35% chance of a New Zealand recession with a sharp US downturn increasing that to 50-60%. So, although the RBNZ is expected to hike by 50 bps on Wednesday, 17th August, the RBNZ seems likely to mention the slowing growth metrics. One ray of hope has come from the last ANZ business confidence print of -56.7, which was better than the -65 expected. However, the report by itself may not be enough to allow the RBNZ to ignore slowing growth data.
The best opportunities will likely come from this situation:
1. If the RBNZ only hikes by 25 bps and stresses slowing growth concerns then look for the following likely reactions:
2. If the RBNZ hikes by 50bps (as expected), but stresses slowing growth and rising recession risks then expect the following likely reactions:
The main risk to this outlook would be an unexpected reaction to the announcement. Also, be aware that sentiment can change very quickly, so always manage risk carefully.
Learn more about HYCM
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure. *Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.