April saw a small rally in most equity markets. Hong Kong was up 12.7% and Japan up 9.9%. Most other markets were up around 6%. The number for the USA was 4.7%, it was 4.5% for Australia and New Zealand came in with the smallest rally of all at 4.4%. This is a direct reflection of the current economic environment here.
Oil continued its climb up another 11.8% in April (more on the oil prices later). Gold levelled off though the average price showed a small increase.
It doesn’t look like it in the short term. But, as you’ll see, the market environment is subject to rapid change. At a presentation last week the following bullet points were used as a summary of the New Zealand market:
- macro momentum continues to fade
- weakened exports and moderating imports
- continued weakening in the housing sector
- floating and fixed-rate mortgages continue to rise
- hiring intentions are negative
- consumers are under pressure
- net migration is weak
- inflation pressures continue to mount
This was not the most positive set of points but a week can make a huge difference sometimes. Let’s see where those predictions sit at present.
No sooner had that prediction been made than some mortgage rates actually fell by 0.3-0.4%. Exchange rates have seen more movement and may finally be getting to a level where they may give exporters some relief.
We are still getting hit with more negative news. Retail sales are weak and fell by 1.2% MoM in March, driven by weaker auto sales and the impact of the early Easter. In real terms, retail sales fell by 1.2% QoQ (down 1.3% YoY). These headline figures were much weaker than expected, driven by weaker auto sales and higher inflation than implied by re-weighting the CPI data.
Net migration figures continue to weaken and are now close to being a net loss as per the chart on the next page. The March statistics release showed a seasonally adjusted net gain of only 500.
Source: Statistics NZ
Data about the housing market showed a continuing weaker trend both on activity and pricing. In the three months ending February, the number of house sales fell by 32% YoY while the number of dwelling consents fell by 8.5% YoY. The REINZ median house price has fallen by 4.1% in the last three months (November through to February), although this is overstated to the extent that there was a slight shift in the composition of sales towards lower-valued houses.
As can be seen from the Reserve Bank chart in the next column the change in the REINZ median house price is coming back rapidly. This is having the knock-on effect of reducing household net worth as most New Zealanders’ asset base is housing.
Source: REINZ and RBNZ
According to the labour cost index, private sector ordinary time wages rose by 0.7% QoQ and 3.5% YoY, but a range of wage indicators shows annual wage inflation at about a 17-year high. The unadjusted index, which is closer in definition to real-world nominal wages, rose by 1.2% QoQ and 5.5% YoY.
The March CPI data release saw NZ’s CPI rise by 0.7% in the March quarter (up 3.4% YoY), in line with RBNZ forecasts. But possibly more important is that estimates of core inflation remain uncomfortably high. I think everybody knows that most of this is being driven by oil and food prices.
To conclude our commentary this month, we look at real oil prices. The chart below shows post World War II world oil prices have averaged $27.0 per barrel. Most of the time they were below that average excluding the large oil shock of the late 70s early 80s.
If we now adjust those prices by inflation, we arrive at the new real price of oil. This is the price 37 years ago plus inflation. By the end of 2007, the real price was $97 per barrel.
Source: OECD
Oil is at about the same price as it was 37 years ago when the price, back then, is adjusted for inflation. Makes you think, doesn’t it?
as at 30 April 2008
|
1 Year |
3 Years |
5 Years |
|
Avg % p.a. |
Avg % p.a. |
Avg % p.a. |
| Inflation (Mar 08) |
3.37 |
2.98 |
2.61 |
| GDP real (Dec 07) |
2.50 |
2.96 |
3.08 |
| Housing (Dec 07) |
8.0 |
12.2 |
18.3 |
|
|
|
|
|
| 6 month Deposit |
8.23 |
7.64 |
7.07 |
| 90 -day Bank Bill |
8.83 |
8.23 |
7.59 |
|
|
1 year ago
|
3 years ago
|
5 years ago
|
| NZD/AUD (rate x years ago) 0.8500 |
0.8880 |
0.9307 |
0.9053 |
| NZD/GBP (rate x years ago) 0.3989 |
0.3697 |
0.3794 |
0.3501 |
| NZD/USD (rate x years ago) 0.7900 |
0.7347 |
0.7185 |
0.5509 |
|
|
|
|
| NZD/AUD (% chg) |
4.5 |
9.5 |
6.5 |
| NZD/GBP (% chg) |
-7.3 |
-4.9 |
-12.2 |
| NZD/USD (% chg) |
-7.0 |
-9.1 |
-30.3 |
|
% return p.a.
|
% return p.a.
|
% return p.a.
|
| NZSX 50 Gross Index |
-13.6 |
7.2 |
n/a |
| ASX All Ords Gross Index NZ$ |
-8.2 |
14.5 |
18.1 |
Hang Seng (Hong Kong) |
26.8
|
28.4
|
39.1
|
|
Nikkei 225 (Japan) |
-20.9 |
8.4 |
15.2 |
| SSE Comp (China) |
-3.9 |
72.9 |
28.5 |
| S&P 500 (USA) |
-6.5 |
6.6 |
10.2 |
| FTSE 100 (UK) |
-5.6 |
8.9 |
11.0 |
| GDAX (Germany) |
-6.2 |
22.0 |
27.2 |
| CAC40 (France) |
-16.2 |
9.2 |
13.8 |
| MSCI World Index NZ$ |
-6.6 |
10.6 |
8.4 |
|
|
% change p.a.
|
% change p.a.
|
% change p.a.
|
| Gold |
39.9 |
40.6 |
38.0 |
| Oil |
75.5 |
44.4 |
74.1 |
Prepared by Peter Collerton, Capital Investment Planning Ltd, May 2008
Capital Investment Planning Ltd, P.O. Box 22238, Christchurch, New Zealand
Phone +64 3 379 1913 Fax +64 3 377 2330
Important Note. This publication may be copied in whole or part provided Capital Investment Planning Ltd is acknowledged as the source. Investment and mortgage rates are indicative only and, whilst correct at the time of publication, are subject to change without notice. Text may be opinion only and should not be seen as a substitute for personal professional advice relative to an individual's personal situation.
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