Latest / Best of Business / Brendan Larsen: Milford Asset Management expert on whether the economy's improved following recent OCR update

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Brendan Larsen: Milford Asset Management expert on whether the economy's improved following recent OCR update · Best of Business

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  Speaker 1: You're listening to a podcast from news Talk zed B.
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  Speaker 2: It's right Brendan larsteners with molverd ASEIDT Management High Brendon.
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  Speaker 3: Good evening, Brenda, listen to just tell us.
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  Speaker 2: How you think the economy has been unfolding of late.
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  Speaker 4: Yes, sure so, I guess clearly, up until the October
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  Speaker 4: ibien Z meeting, the flow of data really was quite poor.
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  Speaker 4: So GDP posted a very week second quarter, and although
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  Speaker 4: the detail around private consumption perhaps wasn't as bad as feared,
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  Speaker 4: the report overall did spook the ibn Z. The week
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  Speaker 4: GDP also came alongside a further slowing in the labor market,
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  Speaker 4: which meant that there was more spec capacity in the
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  Speaker 4: economy than the ibn Z had expected. Alongside this, we've
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  Speaker 4: also seen a trend in mortgage holders keeping their refixing
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  Speaker 4: very short between six months and one year, and so
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  Speaker 4: that means that the easing that the avian Z has
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  Speaker 4: done to date hasn't really been flowing through via the
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  Speaker 4: mortgage channel like it usually does, given those shorter raids
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  Speaker 4: are often much highigher than the two and.
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  Speaker 3: Three year rates.
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  Speaker 4: Where people usually fix and so this spare capacity in
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  Speaker 4: the economy, as well as a desire to keep wholesale
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  Speaker 4: and therefore mortgage rates lower to get the intended easing
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  Speaker 4: and debt costs was really the reason the IBNZ delivered
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  Speaker 4: that fifty base point rate cut in October.
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  Speaker 2: Okay, so I mean, obviously some weak conditions, but the
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  Speaker 2: Reserve Bank has a single inflation mandate's what's the latest there.
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  Speaker 4: Yeah, Look, it's a good point, and I think it
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  Speaker 4: really comes back to the spare capacity argument I made
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  Speaker 4: just a moment ago. So consumer prices rose three percent
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  Speaker 4: in the third quarter, and so that's the top of
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  Speaker 4: the ibnz's one to three percent band and an acceleration
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  Speaker 4: on the second quarter. So at face value, people may
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  Speaker 4: wonder how a central bank focus solely on inflation could
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  Speaker 4: justify cutting by fifty bases points, and as I say,
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  Speaker 4: really it comes down to their view that there is
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  Speaker 4: a lot of spare capacity and that should put downward
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  Speaker 4: pressure on inflation over the medium term. Within that Q
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  Speaker 4: three CPR report, we also can see that a lot
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  Speaker 4: of the upside came from food and more volatile items,
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  Speaker 4: whereas cyclical categories housing we're actually weaker, and so that
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  Speaker 4: does show that domestic additions are still really tough.
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  Speaker 2: Okay, So since we had that fifty basis point cut
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  Speaker 2: in October, have we seen any notable changes in the economy.
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  Speaker 3: Look, I think there are tentative signs of improvement, but
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  Speaker 3: we want to see more conclusive data before we're really
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  Speaker 3: shouting from the rooftops. We need to remember that we've
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  Speaker 3: had three hundred basis points of rate cuts with a
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  Speaker 3: high chance of another twenty five basis points next week,
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  Speaker 3: and so that is a substantial amount of easing that
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  Speaker 3: should start showing up more clearly. So, as I mentioned earlier,
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  Speaker 3: one of the reasons we think that the reaction in
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  Speaker 3: the economy to rate cuts this time is slower is
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  Speaker 3: due to almost all of the mortgage that we're rolling
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  Speaker 3: over this year being refixed at very short tenors, and
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  Speaker 3: so once people start turning out their debt there is
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  Speaker 3: still easy to flow through. On the data front.
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  Speaker 4: To your point, I think since October we have seen
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  Speaker 4: a few things that show some signs of improvement. One
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  Speaker 4: of them is the manufacturing PMI showing four of five
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  Speaker 4: categories and expansion during the month, led by new orders,
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  Speaker 4: which is a really positive signal for future growth. We've
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  Speaker 4: also had the services index show a second consecutive month
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  Speaker 4: of improvement, and so that remains in contraction, but directionally
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  Speaker 4: that's better. We've also had two months of improving job
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  Speaker 4: add data, and the housing market is finally showing some
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  Speaker 4: signs of life, with sales up fifteen percent in October
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  Speaker 4: and prices up one point seven percent over the last
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  Speaker 4: three months, and so we're optimistic that the bottom is in.
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  Speaker 2: Oh how good, Brendan, I'm so pleased with that news.
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  Speaker 2: Thank you, Brendan Last and Lil Fit Asset Management.
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