Economic Weekly: A big week looms

It’s a packed calendar for events this week, with a number of key developments we’ll be watching out for.

First up, it’s a big week for dairy markets, with Tuesday night’s Global Dairy Trade auction set to be one of the most closely watched such events in a long time. At the last auction, prices lifted through the roof with whole milk powder up an astonishing 21% on the previous auction.  A bit of moderation might be on the cards at this auction, with Fonterra lifting the volumes on offer, but we expect dairy prices to remain supported, with growing Chinese demand continuing to outstrip supply. Keep an eye out for an update on our milk price outlook for the season post-auction.

Offshore, it’s a packed week in the world of Central Banking, with the Federal Reserve Open Markets Committee meeting on Thursday morning NZT. There is unlikely to be any changes to any of the Fed’s key policy settings but will still be an interesting watch given market developments over recent weeks. With the global economic outlook steadily improving, a further spending spree on the way in the US and commodity prices on the move, markets no longer view higher inflation as such a distant prospect and speculation has begun mounting around when policy makers will begin unwinding all that stimulus. To that end, wholesale interest rates have moved up sharply over the first quarter.

Policy makers are wary of the risks that premature tightening has for the recovery. In public comments by officials, the typical central bank line of late has been some variation of “yes, the economic outlook has improved of late,but with a heavy caveat along the lines of “we are still a long way from our maximum employment target and/or “there’s an awful lot of uncertainty out there and we are committed to a least regrets approach.” That’s usually accompanied by a judicious bit of finger wagging at financial markets for pricing in rate hikes earlier than policymakers think is desirable.

Conscious of the need to balance acknowledging reality with stemming the move up in yields, we expect the Fed to keep singing from that song sheet. Still, markets will be carefully watching for whether any committee members project a higher Federal Funds rate in the next two years.

But of course, the week’s marquee event will be NZ’s Q4 GDP release on Thursday at 10.45am. After Q3’s monster comeback, we expect the NZ economy took a pause for breath, declining by 0.1% qoq. The expected decline in some sectors appears to be due to production returning to business as usual after a glut of post-lockdown overtime. Still, NZ GDP is likely to remain above pre-pandemic levels – a creditable performance. You can read our full GDP preview here, and stay tuned for our review on Thursday.

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Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.