Market participants in the week ahead will receive further insights into New Zealand’s economy, including updates on business and consumer confidence, as well as a rate decision from the country’s central bank.

The week gets underway Monday with a fresh gauge on the nation’s trade balance, amid ongoing friction between the U.S. and China. Indeed, trade-related disputes have generally posed a threat to some of New Zealand’s key trading partners, including Australia, Europe, and China.

The Reserve Bank of New Zealand (RBNZ) has warned that the country’s economic growth could decelerate over the next year if a global economic slowdown reduces overseas demand for its exports, which focuses mainly on dairy-related goods.

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In the face of slowing global growth, Moody’s analyst Matthew Circosta recently noted that New Zealand is “increasing its spending on well-being priorities while maintaining a fiscal surplus, denoting its high budgetary flexibility.”

While Moody’s expects this increased spending will contribute to smaller fiscal surpluses and a slower pace of debt reduction than previously expected, fiscal slippage, if any, will likely be small, and unlikely to significantly alter their paths.

Circosta said the country’s “robust fiscal position also provides it with greater fiscal room than many similarly rated high-income sovereigns to counter potential future shocks.”

Moody’s expects the country’s budget to remain in surplus over the next few years and, as a result, for general government debt to continue edging down as a share of GDP to around 28% by 2020 from 30.5% in 2018 – well below its pristine ‘Aaa’ credit rating median of 36%.

Monday, June 24

• Trade Balance (May)
• Imports / Exports (May)

Central Bank To Set OCR After Dovish Decision

Meanwhile, the RBNZ is slated Tuesday to unveil its Official Cash Rate (OCR) decision after the central bank cut its interest rate by 25 basis points to 1.5% at its prior monetary policy meeting in May.

The cut marked the first time the RBNZ lowered the OCR since November 2016, following easing signals from the bank in March, and as dovish policies from several global central banks become increasingly more common.

Tuesday, June 25

• RBNZ – OCR Decision & Monetary Policy Statement
• RBNZ – Press Conference

Officials at New Zealand’s central bank pointed to uncertainty over the global economic outlook, amid continued trade concerns.

The RBNZ partly attributed its rate cut decision in May to slowing domestic growth from the second half of 2018, as well as a reduced increase in population through lower net immigration, and continuing house price softness, which has tempered household spending.

New Zealand has also been suffering from ongoing low business sentiment, tighter profit margins, and competition for resources, which has restrained investment.

On the labor market front, the RBNZ said that while employment is near its maximum sustainable level, the outlook for growth is “more subdued and capacity pressure is expected to ease slightly in 2019.”As a result, it expects inflationary pressure to rise “only slowly.”

Overall, global economic growth has slowed since mid-2018, easing demand for New Zealand’s goods and services, and has prompted foreign central banks to ease their monetary policy stances, supporting growth prospects.

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Analysts at Econoday highlighted that the RBNZ had joined the Bank of India in 2019 “in an outright downshift to accommodation.”

Other global central banks have also maintained ultra-low, zero, and even negative interest rate policies at several central banks, including the European Central Bank (ECB), the Bank of Japan, the Swiss National Bank, Sweden’s Riksbank and the U.S. Federal Reserve.

While the global dovish monetary policy stances may aid New Zealand’s growth prospects, they have also helped place upward pressure on the country’s local currency.

In the Q1’19 RBNZ Survey of Expectations, businesses generally noted they anticipate the New Zealand dollar and U.S. dollar exchange to dip from 0.677 in late January to 0.67 at the end of June 2019, and 0.66 at the end of December 2019.

The Kiwi/U.S. dollar pair was last trading at around 0.662 intraday Monday, according to the IBKR Trader Workstation (TWS).

Business Outlook & Consumer Confidence

Against this backdrop, investors will also receive fresh business and consumer confidence figures in the mid- to latter part of the week, after levels in May appeared consistent with New Zealand’s cooling economy.

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Wednesday, June 26

• ANZ Business Confidence (June)

According to ANZ, the “main red flag” in the prior month’s business outlook survey concerned residential building intentions. ANZ observed a further sharp fall, down another 7 points, to a net 27% expecting lower activity, the weakest since 2009.

ANZ noted the “signal is no longer isolated to this one data series – employment intentions in the construction sector fell from flat to a net 22% of firms intending to cut jobs,” with the decline having occurred despite the ruling out of a capital gains tax.

ANZ added that New Zealand “needs more houses, but the construction sector is facing cash-flow and credit constraints.”

In the May ANZ Business Outlook Survey, headline business confidence lifted 6 points, with a net 32% of respondents reporting they anticipate general business conditions to deteriorate in the year ahead.

Thursday, June 27

• ANZ Roy Morgan Consumer Confidence (June)

Consumer confidence also fell in May, back to levels last seen in November 2018. At 119.3, the overall index sits just below its historical average of 120.

However, ANZ highlighted some optimism among consumers, as “confidence is holding up pretty well in the face of housing market softness in Auckland and Christchurch, and a cooling economy more broadly.”

ANZ noted the resilience was likely due to the country’s strong labor market – and “markedly lower mortgage rates.” They added that a “high proportion of people still think it’s a good time to buy a major household item, which history suggests will be supportive of spending in the near term.”

Stocks Remain At Highs

Elsewhere, with the RBNZ committed to a more dovish monetary policy, certain of the country’s equities – as evidenced by iShares MSCI New Zealand ETF (Nasdaq: ENZL), which has as its top holding a2 Milk Company (OTCMKTS: ACOPF) – have climbed roughly 32.5% from their most recent 52-week low set in mid-December 2018.

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Indeed, a2’s interim results for the half-year ended December 2018 shows a 41% year-on-year surge in total revenue to just north of NZ$613m, while EBITDA soared 52.7% and after-tax net profits jumped over 55%. The company earned 20.9 cents per share, a rise of nearly 53%.

A2 said that it “invested strongly” in the first half of the year in both internal and external capability “to better understand” its Chinese consumers, channel dynamics and ways of improving brand awareness.

However, the firm’s stock has fallen around 13.6% since late April and was last trading at around NZ$13.43 intraday Monday on the Australian Securities Exchange, according to TWS.

Market participants will likely be paying close attention to the RBNZ’s rate decision for any signs of a further dovish tilt, as well as the unfolding of U.S.-China trade talks, geopolitical developments in the Mid-East, and business and consumer confidence levels for additional insights into the country’s general economic and financial well-being.  

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.