Economic Weekly: Watching the tallies

This week the NZ data calendar is a little light, with less likelihood of the recent string of market-jolting events that have made an imminent Official Cash Rate increase look almost certain.  Much of the week will be spent watching the Olympic medal tally – and the COVID case tally across the Tasman for signs the current Delta strain outbreak is coming under control.

That outbreak has put the trans-Tasman bubble on hold for at least 8 weeks.  NSW is grappling to get on top of its outbreak and is still experiencing large numbers of community cases.  The situation is more encouraging in other states that have recent experienced COVID cases, such as Victoria and Queensland, with the former set to ease some restrictions.

It is all a warning to NZ of the changed risk dynamics of the more infectious Delta variant.  With still-small percentages of the population fully vaccinated, both Australia and NZ are very vulnerable to outbreaks and need to rely on swift lockdowns to contain outbreaks.

Domestic events are relatively light this week, with just the ANZ business and consumer confidence surveys on Thursday and Friday, respectively.  The business confidence survey is the final read for July.  It will still get an eye cast over it, given the preliminary ANZ read and the NZIER survey showed added inflation pressures are coming through dramatically.  Still, any market implications will be dampened by the fact that expectations for future OCR increases have already been brought forward very sharply.

In Australia, their CPI will be dissected for signs of rising inflation pressures.  There are many similarities between Australia and NZ, with supply-chain cost pressures and growing labour shortages.  The immediate monetary policy implications aren’t so strong as in NZ, however, as the Reserve Bank of Australia will be a lot more cautious about the state of the Australian economy once the current outbreak is finally contained.

The US Federal Reserve is meeting later this week.  We don’t expect any shifts in interest rates or asset purchases at this point.  But it’ll be worth a watch in case there are some tweaks to the guidance around how long future asset purchases will continue: we think the Fed will start reducing the pace of asset purchases before the end of the year.

After last week’s soft dairy auction, we have tweaked our 2021/22 farmgate milk price forecast down a touch to $7.90/kg milk solids.  Of late GDT auction prices have pulled back slightly faster than we had anticipated.  Still, something near $8/kg would be a great outcome.  And meat prices have been surging as COVID restrictions have eased in the UK and EU.  Let’s hope that encouraging trend can continue.