Latest / Best of Business / Brendan Larsen: Milford Asset Management expert on the possibility of more OCR changes

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Brendan Larsen: Milford Asset Management expert on the possibility of more OCR changes · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk ZB follow
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  Speaker 2: It's right Brendan Larson, Milford Assett Management, High.
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  Speaker 3: Brandan Evening Heather Brendan.
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  Speaker 2: So it's been a little while since, of course, the
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  Speaker 2: Reserve Bank had indicated to us that's the end of
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  Speaker 2: the easing cycle. How do you reckon the economies transpired
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  Speaker 2: since then?
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  Speaker 3: Yeah, that's right. The other n Z sort of ended
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  Speaker 3: the year pretty happy with where they've got cash rates
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  Speaker 3: to what we've sort of seen so far this year
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  Speaker 3: has been reasonably encouraging. So on the growth front, we've
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  Speaker 3: had a number of positive data points. The manufacturing PMI,
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  Speaker 3: which is a measure of activity across manufacturing sectors, jump
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  Speaker 3: to the highest level in four years. New orders component
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  Speaker 3: part of that was generally a leading indicator that was
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  Speaker 3: one of the strongest in a number of years and
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  Speaker 3: a good signal for future output. The services PMI also
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  Speaker 3: increased into expansiony Church Territory for the first time in
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  Speaker 3: nearly two years. Finally, on the growth front, we also
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  Speaker 3: had the Survey of Business Opinion which showed a really
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  Speaker 3: notable improvement with decline and spare capacity and an increase
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  Speaker 3: in realized and expected business activity. I think importantly, the
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  Speaker 3: employment indicators are also recovering off very low levels.
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  Speaker 2: Right, So obviously the growth story is a good one,
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  Speaker 2: But what about the inflation story?
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  Speaker 3: Yeah, so this is where the news I guess is
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  Speaker 3: a little bit more mixed. So last week we got
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  Speaker 3: Q four CPI where headline inflation actually accelerated ten basis
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  Speaker 3: points to three point one percent, meaning it did breach
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  Speaker 3: the top of the ibn z's one to three percent banned.
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  Speaker 3: So within that domestic inflation was flat on the quarter,
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  Speaker 3: but ahead of the ibnzv's forecast or most of the
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  Speaker 3: upside surprise came from non tradable inflation, which is influenced
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  Speaker 3: more by offshore prices and clearly that weekly Zealand dollar
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  Speaker 3: weighing on it as well. On the core measure side,
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  Speaker 3: it wasn't quite as bad as the headline figure, but regardless,
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  Speaker 3: the o Z would be a little bit worried about this,
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  Speaker 3: particularly given that growth trajectory I just talked about.
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  Speaker 2: Now, over across the Tasman we just got the inflation
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  Speaker 2: number for the fourth quarter. How are the two economies?
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  Speaker 2: Do you do you think comparing at the moment.
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  Speaker 3: Yeah, Look, the Ausio economy really has been quite a standout.
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  Speaker 3: If you look at household spending data that has been
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  Speaker 3: really solid, house prices have continued to stay to strong recovery.
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  Speaker 3: All of that has meant that inflation is inflicting higher.
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  Speaker 3: So today's fourth quarter core measure rose to three point
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  Speaker 3: four percent from three percent. So their economy really didn't
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  Speaker 3: experience the same level of weakness that as did, as
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  Speaker 3: they've benefited from far larger levels of immigration as well
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  Speaker 3: as a less aggressive hiking cycle.
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  Speaker 2: Do you think that both in Australia and New Zealand
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  Speaker 2: we are now talking about rate hikes.
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  Speaker 3: Look, domestically, there is the potential for rate hikes in
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  Speaker 3: New Zealand later this year, but it is going to
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  Speaker 3: be very dependent on the duration of this recovery and data.
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  Speaker 3: I think we need to keep in mind also that
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  Speaker 3: we have an election looming later this year, which may
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  Speaker 3: cause household and business investment decisions to slow. We've also
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  Speaker 3: already had to move higher and wholesale rates in New
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  Speaker 3: Zealand and that does influence the degree to which the
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  Speaker 3: RBNZ actually need to increase the cash over in Australia.
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  Speaker 3: I think the risk is far more pronounced. Today's inflation
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  Speaker 3: data marks a third consecutive upside surprise, so coupling this
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  Speaker 3: with stronger employment data last week and better growth data,
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  Speaker 3: it really does increase the risk of more inflation upside
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  Speaker 3: in the future. We're seeing that reflected in market pricing,
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  Speaker 3: which is a seventy five percent chance at the ABBA
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  Speaker 3: hike next week, so that's going to be a really
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  Speaker 3: interesting one.
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  Speaker 2: Brendan's good to talk to you, Thanks mate, Brendan Larson,
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  Speaker 2: Milford Asset Management.
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