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Brendan Larsen: Milford Asset Management expert on the possibility of more OCR changes · The SME Stream

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  Speaker 1: That's right.
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  Speaker 2: Brendan Larson, Milford Asset Management, High Brandon.
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  Speaker 1: 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 1: Yeah, that's right. The othern Z sort of ended the
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  Speaker 1: year pretty happy with where they've got cash rates. To
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  Speaker 1: what we've sort of seen so far this year has
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  Speaker 1: been reasonably encouraging. So on the growth front, we've had
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  Speaker 1: a number of positive data points. The manufacturing PMI, which
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  Speaker 1: is a measure of activity across manufacturing sectors, jumped to
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  Speaker 1: the highest level in four years. New orders component part
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  Speaker 1: of that was generally a leading indicator that was one
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  Speaker 1: of the strongest in a number of years and a
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  Speaker 1: good signal for future output. The services PMI also increased
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  Speaker 1: into expansiony Church territory for the first time in nearly
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  Speaker 1: two years. Finally, on the growth front, we also had
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  Speaker 1: the Survey of Business Opinion which showed a really notable
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  Speaker 1: improvement with decline and spare capacity and an increase in
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  Speaker 1: realized and expected business activity. I think important. The employment
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  Speaker 1: indicators 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 1: Yeah, so this is where the news I guess is
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  Speaker 1: a little bit more mixed. So last week we got
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  Speaker 1: Q four CPI where headline inflation actually accelerated ten basis
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  Speaker 1: points to three point one percent, meaning it did breach
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  Speaker 1: the top of the ibn z's one to three percent banned.
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  Speaker 1: So within that domestic inflation was flat on the quarter,
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  Speaker 1: but ahead of the ibn zv's forecast or most of
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  Speaker 1: the upside surprise came from non tradable inflation, which is
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  Speaker 1: influenced more by offshore prices and clearly that weakly Zealand
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  Speaker 1: dollar weighing on it as well. On the core measure side,
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  Speaker 1: it wasn't quite as bad as the headline figure, but regardless,
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  Speaker 1: the Avian z would be a little bit worried about this,
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  Speaker 1: 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 think comparing at the moment.
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  Speaker 1: Yeah, Look, the Aussi economy really has been quite a standout.
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  Speaker 1: If you look at houseld spending data that has been
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  Speaker 1: really solid. House prices have continued to stay a strong recovery.
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  Speaker 1: All of that has meant that inflation is inflicting higher.
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  Speaker 1: So today's fourth quarter core measure rose to three point
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  Speaker 1: four percent from three percent. So their economy really didn't
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  Speaker 1: experience the same level of weakness that as did, as
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  Speaker 1: they've benefited from far larger levels of immigration as well
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  Speaker 1: 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 1: Look domestically, there is the potential for rate hikes in
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  Speaker 1: New Zealand later this year, but it is going to
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  Speaker 1: be very dependent on the duration of this recovery and data.
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  Speaker 1: I think we need to keep in mind also that
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  Speaker 1: we have an election looming later this year, which may
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  Speaker 1: cause household and business investment decisions to slow. We've also
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  Speaker 1: already had to move higher and wholesale rates in New
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  Speaker 1: Zealand and that does influence the degree to which the
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  Speaker 1: RBNZ actually need to increase the cash rate. Over in Australia,
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  Speaker 1: I think the risk is far more pronounced. Today's inflation
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  Speaker 1: data marks a third consecutive upside surprise. So coupling this
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  Speaker 1: with strong employment data last week and bitter growth data,
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  Speaker 1: it really does increase the risk of more inflation upside
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  Speaker 1: in the future. We're seeing that reflected in market pricing,
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  Speaker 1: which is a seventy five percent chance at the RBA
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  Speaker 1: high next week, so that's going to be a really
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  Speaker 1: 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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