NZ First Impressions: Retail Trade September Quarter 2023

Westpac

Central Bank

Economic

Summary:

Retail spending was stronger than expected in the September quarter. However, the longer-term trend remains soft.

Retail spending was stronger than expected in the September quarter. However, the longer-term trend remains soft.

September quarter real retail sales (volumes): Flat (Prev: -0.9%)

Westpac f/c: -2.0%, Market -0.7%

September quarter nominal sales level: 1.5% (Prev: -0.2%)

Annual changes (September 2023 vs September 2022)

Nominal sales: +1.1%

Volume of goods sold: -3.4%

Retail spending was stronger than we and other analysts expected in the September quarter. However, digging into the details, we're still seeing signs of softness, and we expect a further slowdown over the coming months.

Looking into the details of the September spending report, nominal spending levels were up 1.5% over the quarter. However, that rise was entirely due to price increases. The volume of goods sold was unchanged. That's despite strong population growth. In other words, individual households are actually taking home fewer goods even as they splash out more cash.

Looking at the breakdown of spending in the September quarter, we did see increases in spending in the hospitality sector, potentially reflecting the boost to demand from events such as the FIFA Women's World cup.

Spending in interest sensitive areas was mixed. Sales of items like hardware and recreational equipment did post solid gains. However, that was balanced against reduced spending on motor vehicles and items like electronics and clothing.

What does this tell as about the strength of spending?

The longer-term trend gives us a clearer picture of what's happening to spending appetites.

Over the past year, nominal spending levels have only risen by 1.1%. Over that same period, prices rose by 4.6%, and the population increased by more than 2%.

Putting that all together leaves us with a soft picture of underlying spending appetites. The volume of goods sold fell by more than 3% over the past year. And on a per capita basis, the fall in spending levels has been closer to 5%.

Looking ahead, we expect spending to continue cooling through the December shopping season and into the New Year. Many borrowers are continuing to roll onto higher mortgage rates, consumer price inflation remains strong, and economic growth and the labour market are softening. That combination points to significant pressure on household balance sheets. However, strong population growth will help to limit the downside for spending in the face of those headwinds.

Implications for GDP growth

Today's result was stronger than expected. We're currently forecasting a small 0.1% contraction in September quarter GDP. We'll review that number over the coming weeks as more data comes to hand.

To stay updated on all economic events of today, please check out our Economic calendar

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Titan FX

Forex

USD/JPY Technical Analysis

The US Dollar declined heavily from the 151.90 zone against the Japanese Yen. USD/JPY declined below 150.00 and 149.20 before the bulls took a stand.

USD/JPY Recovery Could Face Uphill Task – Here's Why_1

Looking at the 4-hour chart, the pair traded as low as 147.14 before it started a decent recovery wave. There was a move above the 148.40 and 148.50 resistance levels. The pair even tested the 50% Fib retracement level of the downward move from the 151.90 swing high to the 147.14 low.

However, the pair is still below the 150.00 barrier, the 100 simple moving average (red, 4 hours), and the 200 simple moving average (green, 4 hours).

There is also a connecting bearish trend line forming with resistance near 150.00 on the same chart. The next key resistance is near the 150.20 level. The main resistance is now near the 150.50 level. A close above the 150.50 zone could open the doors for more upsides. The next stop for the bulls might be 152.00.

If not, the pair might start a fresh decline below the 148.80 support. The first major support is now forming near the 148.50 level. The next key support sits at 148.00, below which the pair could test the 147.50 pivot level in the near term.

Looking at GBP/USD, the pair gained strength above the 1.2500 level and it could even climb toward the 1.2620 resistance.

Economic Releases

US Manufacturing PMI for Nov 2023 (Preliminary) – Forecast 49.8, versus 50.0 previous.

US Services PMI for Nov 2023 (Preliminary) – Forecast 50.4, versus 50.6 previous.

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Stocks

Forex

Market Recap

While the US markets were off-trading overnight, European equities continue to edge higher amid lighter volume, with the Europe's benchmark STOXX 600 at a new two-month high. The attention was on a series of European purchasing managers index (PMI) releases on the calendar, which generally turned in higher than consensus, but a continued tread in contractionary territory may still point towards looming recessionary risks.

The US S&P Global PMI figures will be out today, with economic conditions expected to stay subdued as well. Its manufacturing PMI is expected to dip back into minor contraction at 49.8 versus previous 50, while services sector activities may soften to 50.4 from previous 50.6. Softer data may aid to validate current market views for the Federal Reserve (Fed) to keep rates on hold further, while markets continue to bask in the hopes that a recession can still be avoided.

Undoubtedly, markets will be watching on whether the prevailing risk-on environment can roll over into next week. The Russell 2000 index has been stepping up lately, outperforming the DJIA over the past month, but trailing behind the S&P 500 and Nasdaq. A recent break above an inverse head-and-shoulder formation may reflect greater control from buyers lately, but the index will have to overcome an immediate resistance ahead at its 200-day moving average (MA). That trendline marked a key previous support-turned-resistance, with any successful break potentially paving the way to retest the 1,874 level next.

Asia Open

Asian stocks look set for a broadly positive open, with Nikkei +1.05%, ASX +0.38% and KOSPI -0.12% at the time of writing. Yesterday, a late-afternoon rally in Chinese equities allowed the Hang Seng Index to reverse out of the red to close 1% higher, as hopes of more stimulus from Beijing brew once again. A more sustained improvement in economic conditions will remain on the radar, given the on-and-off recovery momentum that markets have witnessed from previous rounds of policy support.

The economic calendar this morning saw Japan's October headline inflation move higher to 3.3% from previous 3%, while the core aspect came in lower than expected at 2.9% versus the 3% forecast. With headline inflation hovering around the 3-3.5% range for the nine straight months, market participants will be watching for any guidance from policymakers on whether they feel more certainty on achieving its pre-condition of sustainable inflation for a policy pivot.

After a breakdown of a near-term double-top neckline at the 149.20 level last week, interaction with the lower edge of the daily Ichimoku cloud support has brought a bounce in the USD/JPY, as dip buyers attempt to keep the broader trend intact. This also marked a bounce off its 100-day MA. Ahead, the Ichimoku cloud support zone has proved to be a crucial support to hold, with greater indications of a broader reversal potentially having to come from a breakdown of the 145.80 level, where the rising channel support since February this year will be invalidated. Asia Day Ahead: USD/JPY Firms on Japan's Inflation, Silver Prices Hovering at Ten-Week High_2

Asia Day Ahead: USD/JPY Firms on Japan's Inflation, Silver Prices Hovering at Ten-Week High_2

On the watchlist: Silver prices consolidating at ten-week high

Weakness in the US dollar and lower US Treasury yields have paved the way for silver prices to touch its ten-week high lately, as its daily moving average convergence/divergence (MACD) bounced off its zero level as a sign of building upward momentum. Arguably, recent upside may also mark an upward break of an inverse head-and-shoulder pattern. Ahead, buyers will seek to defend its 200-day MA at the US$23.40 level after reclaiming it successfully last week. Immediate resistance may stand at the US$24.50 level, with any move above it potentially leaving the US$26.00 level on watch next. Asia Day Ahead: USD/JPY Firms on Japan's Inflation, Silver Prices Hovering at Ten-Week High_3

Asia Day Ahead: USD/JPY Firms on Japan's Inflation, Silver Prices Hovering at Ten-Week High_3

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Damon

Forex

The dollar was restrained on Friday by uncertainty over the path of U.S. interest rates, while the euro held overnight gains as data hinted that the downturn in the euro zone may be easing.

With U.S. markets closed on Thursday and due for a shorter trading session on Friday for Thanksgiving, currencies are likely to trade narrowly but with some volatility as liquidity is expected to remain thin.

The dollar index, which measures the U.S. currency with six peers, eased 0.029 per cent to 103.73, staying close to the two-and-a-half month low of 103.17 it touched earlier this week.

The index is down 2.8 per cent for the month, on course for its weakest monthly performance in a year on rising expectations that the Federal Reserve is done raising interest rates and could start cutting rates next year.

Markets have dialled back expectations of Fed rate cuts in 2024, with futures now showing a 26 per cent chance that the Fed cuts its target rate at the March 2024 policy meeting, according to CME Group's FedWatch tool. That compares with a 33 per cent chance last week.

The euro stood at $1.0904, having risen 0.16 per cent overnight after a series of preliminary surveys showed recession in Germany may be shallower than expected, which offset a downbeat reading of French business activity.

Meanwhile, Japan's core consumer price growth picked up slightly in October, after easing the previous month, reinforcing investors' views that stubborn inflation may push the Bank of Japan (BOJ) to roll back monetary stimulus before long.

ING economists said they expect the BOJ to move away from its super-accommodative stance next year.

"We believe that the BOJ may scrap the yield curve programme as early as the first quarter of next, as Japanese government bonds appear to have stabilised ... then begin its first rate hike in Q2 2024 if wage growth continues to accelerate next year."

The Japanese yen strengthened 0.04 per cent to 149.49 per dollar. The Asian currency has slowly crawled away from the near 33-year low of 151.92 it touched at the start of last week and is up 1.5 per cent for the month.

Japan's factory activity shrank for a sixth straight month in November, while modest growth in the service sector was little changed, a business survey showed on Friday, highlighting the fragility of the economy amid soft demand and inflation

Sterling was last at $1.2539, up 0.05 per cent on the day. The Australian dollar rose 0.14 per cent to $0.657, while the kiwi rose 0.07 per cent to $0.605.

Cash Treasuries resumed trading in Asia after Japan's holiday on Thursday, with the yield on 10-year Treasury notes up 2.9 basis points at 4.445 per cent.

The yield on the 30-year Treasury bond rose 2.8 basis points to 4.576 per cent.

Source: Reuters

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FastBull Featured

Daily News

[Quick Facts]

1. Villeroy says the ECB won't raise rates again, excluding surprises.

2. Turkey's central bank hikes interest rate by 500 basis points to 40%.

3. Japan cut its economic outlook for the first time in 10 months.

4. OPEC+ is moving closer to a compromise with African oil producers on production levels for 2024.

5. Minutes show the ECB is open to another rate hike.

[News Details]

Villeroy says the ECB won't raise rates again, excluding surprises

"Excluding surprises, I don't think the ECB will raise rates again," said François Villeroy de Galhau, Governor of the Bank of France and a member of the European Central Bank (ECB) Governing Council, in a speech on Nov. 23. "A gradual reduction in rates will come one day, but we're not there yet," he said. He added that the ECB is committed to bringing inflation toward its 2% target by 2025.

Turkey's central bank hikes interest rate by 500 basis points to 40%

To fight inflation, Turkey's central bank raised its benchmark one-week repo rate by another 500 basis points to 40% on Thursday, a hike that was twice as high as the market expected. Turkey's central bank expects inflation to reach 65% by the end of this year and fall to 36% by the end of 2024.

This latest move marks that Turkey's central bank, led by Governor Hafize Gaye Erkan, has raised borrowing costs by 30 percentage points since Turkish President Recep Tayyip Erdogan was re-elected in May. With headline interest rates finally above the level of one-year inflation expectations, the Monetary Policy Committee said it would slow the pace of tightening from now on.

Turkey is struggling to reverse several years of soaring inflation and sharp currency depreciation - caused in large part by the Ankara government's stubbornly loose monetary policy.

Japan cut its economic outlook for the first time in 10 months

The Japanese government cut its economic outlook for the first time in 10 months on Nov. 22, local time, as weak domestic demand weighed on the economy.

In its latest monthly report, the Japanese government said that the economy "recently appears to be pausing in part" despite recovery at a moderate pace. The government also lowered its expectations for capital investment, noting in the report that "business investment seems to be pausing in its recovery," citing flat machinery orders and slowing global economic growth.

Meanwhile, real wages in Japan continued to fall year-on-year. Japan's Ministry of Health, Labor, and Welfare released preliminary statistics showing that after deducting price increases, Japan's real wage income in September fell 2.4% year-on-year for the 18th consecutive month.

Although Japan's nominal wages are currently showing growth momentum, it is weaker than price increases. Continued decline in real wages will inhibit household purchasing power, affecting consumption and slowing Japan's economic recovery.

OPEC+ is moving closer to a compromise with African oil producers on production levels for 2024

The OPEC+ meeting to be held on Nov. 30 has been changed to an online meeting. Nigerian delegates said they were unaware of divisions within OPEC+ and were satisfied with the results of an investigation into the country's production plans, while Angola said it did not intend to withdraw from OPEC+. In addition, sources said that OPEC+ is close to a compromise with African oil producers on production levels for 2024.

Minutes show the ECB is open to another rate hike

The European Central Bank released minutes of its meeting on Thursday, Nov. 23, local time. The minutes showed that policymakers agreed that they should raise interest rates again if necessary.

Participants noted that the Governing Council must be persistent and vigilant. Perseverance is key to bringing inflation down to 2% in the medium term, while vigilance means that the Governing Council must avoid overconfidence and complacency given that inflation may face new challenges before returning to the target level, despite it must assert the effectiveness of its measures and recognize the progress that has been made.

Despite weaker-than-expected economic growth, partly because downside risks had materialized, headline inflation has developed as expected. Most participants felt that they had taken sufficient measures to contain inflation in the coming years. However, some policymakers noted that inflation remained high and that longer-term inflation projections appeared to remain above the ECB Governing Council's target.

Turning to the assessment of monetary policy transmission, policymakers generally agreed that transmission had been stronger than expected in September. They emphasized that a large part of interest rate transmission remains unfinished and could dampen economic activity and inflation over the forecast period.

[Focus of the Day]

UTC+8 18:00 ECB President Lagarde Speaks

UTC+8 21:00 ECB Vice President Guindos Speaks

UTC+8 21:30 Canada Retail Sales MoM (SA) (Sept)

UTC+8 21:30 ECB Governing Council Member Pablo Hernández de Cos Speaks

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Devin

Central Bank

Economic

Turkey's central bank delivered another huge interest rate hike on Thursday as it tries to curb double-digit inflation that has left households struggling to afford food and other basic goods.

The bank pushed its policy rate up 5 percentage points to 40%, marking its sixth big interest rate hike in a row focused on beating down inflation that hit an eye-watering 61.36% last month.

However, the bank said its rate hikes would soon end.

"The current level of monetary tightness is significantly close to the level required to establish the disinflation course," the bank said. "Accordingly, the pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time."

President Recep Tayyip Erdogan has long been a proponent of an unorthodox policy of cutting interest rates to fight inflation and has fired central bank governors who resisted his rate-slashing policies.

That runs counter to traditional economic thinking, and many blamed Erdogan's unusual methods for economic turmoil that has included a currency crisis and an increasingly high cost of living.

Other central banks around the world have raised interest rates rapidly to target spikes in consumer prices tied to the rebound from the COVID-19 pandemic and then Russia's war in Ukraine.

Following Erdogan's reelection in May, he appointed a new economic team, which has quickly moved toward reversing his previous policy of keeping interest rates low.

The team includes former Merrill Lynch banker Mehmet Simsek, who returned as finance minister, a post he held until 2018, and Hafize Gaye Erkan, a former U.S.-based bank executive, who took over as central bank governor in June.

Under Erkan's tenure, the central bank has hiked its main interest rate from 8.5% to 40%.

Source: Nikkei Asia

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

Economic

Central Bank

China will likely wait until early next year to cut policy rates to support the economy, though other forms of easing before the end of 2023 via trims to shorter-term rates or reserve ratios are still in the cards.

That's according to the latest Bloomberg survey of economists, in which respondents said they see the rate on China's one-year medium-term lending facility staying put at 2.5% by the end of the year, compared with the previous median estimate of a five basis point trim. Any reductions are instead likely to happen in the first quarter: 12 of 20 economists surveyed see the People's Bank of China cutting the rate on its one-year policy loans then by five basis points or more.

"Monetary policy is playing second fiddle to fiscal policy in supporting the recovery," wrote Duncan Wrigley and Kelvin Lam, China economists at Pantheon Macroeconomics Ltd, in a research note this week.

The survey results suggest Chinese policymakers may be done cutting that key rate this year. While recent data has still shown some trouble spots for the world's second-largest economy, overall it's on track to achieve or surpass the government's official annual growth goal of around 5%. Respondents to the latest survey expect the economy to grow 5.2% this year and then moderate to an expansion of 4.5% in 2024, unchanged from last month's poll.

The PBOC earlier lowered the MLF rate twice, in June and August, to help a recovery that had lost steam. Room to maneuver on rates remains somewhat constrained, given narrowing profit margins for banks before their savings rate drops again. A rise in time deposits has also pushed up costs for lenders.

Economists are still betting the government will consider adding liquidity to the financial system through other means, particularly to ensure the issuance of sovereign debt for infrastructure projects that is supposed to help growth.

"An RRR cut is quite likely, on top of additional MLF funding," wrote the Pantheon economists, citing the need to facilitate that government bond issuance.

The government is also focusing on measures to help the beleaguered real estate sector, a major challenge for the economy. China may allow banks to offer unsecured short-term loans to qualified developers for the first time in a major push to ease the property crisis, Bloomberg News reported earlier.

Those polled by Bloomberg see the reserve requirement ratio for major banks being cut by 25 basis points this quarter, unchanged from last month's survey. They also projected a five-basis point trim to the central bank's seven-day reverse repurchase rate, a short term policy rate. Respondents to last month's survey expected a 10 basis-point cut.

An RRR cut before the end of the year was also floated in a front page report in the Shanghai Securities News this week, which cited analysts.

"The post-reopening bounce that China's economy saw this year is fading," said Erica Tay, economist at Maybank Investment Banking Group. "What's left of underlying demand is less than robust, and fiscal support will need to be more forthcoming to boost GDP growth next year."

Tay added that the "zeal to invest" among businesses will be worth watching in 2024.

"Whether entrepreneurial confidence comes back in a big way will have a lasting impact on job creation, wages and private consumption," she added.

Other key highlights of the survey:

Economists also delayed projections for cuts to China's one-year loan prime rate. They now see that rate holding firm at 3.45% until the second quarter of 2024, when the median expectation for a cut is five basis points.

The five-year loan prime rate, a reference for mortgages, is likely to hold at 4.2% until next year.

The consumer price index is expected to rise 0.3% in the last quarter of 2023, slowly lower than an earlier forecast of 0.5%.

Producer prices are seen falling 2.3% in the fourth quarter, slightly worse than an earlier estimate of a 2.1% decline.

Exports are likely to drop 2.5% in the fourth quarter, far worse than an earlier expectation of a 0.1% increase.

Imports are expected to decline 0.4% in the period, improving from the previous projection of a 3% decrease.