Below trend growth to continue
Credit growth to rise 0.4% in September, with the focus on investor housing. Q3 trade prices to show a further large fall in export prices..
Private sector credit for September (released on Friday) is expected to rise 0.4% for the third consecutive month, lifting the annual pace of growth to 5.2%yoy from 5.1%. But the focus within the release will remain on the investor housing component of housing credit. While total housing credit has been very steady at 0.5-0.6% per month for the past year, the investor component (at 0.8% per month) is growing twice as fast as recent owner-occupied lending (at 0.4%). The other sectors of credit growth remain weak. Personal credit was up just 0.2%/1.1% in August while business credit was a disappointing 0.0%/3.2%.
Thursday’s trade prices are expected to show a further deterioration in our terms of trade. Export prices are expected to decline 6%, driven by the fall in iron ore prices which (in spot terms) were down 13% in Q3 after the 14% fall in Q2. On the imports side, a flat outcome is expected for the quarter. Despite the AUD decline in the month of September, the quarterly average for the AUD is Q3 was 92.5 US cents, only slightly lower than the 93.3 average rate for Q2.
Also on Thursday, HIA new homes sales for September and the NAB’s Q3 SME Business Survey are released, while the Q3 PPI is out on Friday. The RBA’s Head of Financial Stability, Luci Ellis, is a panel participant at the Australian Housing and Urban Research Institute in Sydney on Monday night.
The focus this week will be Thursday’s RBNZ OCR announcement, especially following the latest low CPI print. No change in the OCR is as certain as it can be. Previously, the RBNZ was obviously unsure about when the next rate hike may be required. That degree of uncertainty will have risen as inflation is not behaving as the central bank thought it would. Indeed, all other things being equal, the low inflation out turn would suggest a further delay to the re-commencement of the tightening cycle compared to that which the Bank suggested in September. So the tone of the short OCR-review missive is expected to be more dovish than previous commentary as it acknowledges this.
Reiteration of the RBNZ’s angst with the strength of the NZD would not surprise. In contrast, we would be surprised if the FX Transactions data, released later on Thursday, did not reveal that the RBNZ was again a net seller of the NZD in the month of September. But, regarding rates, while we think the RBNZ will remain on hold, we do not think it will go as far as dropping the idea that rates will eventually need to be raised again at some (distant) point in the future. The Bank will be wary of encouraging market expectations that now price very little in the way of further rate hikes and re-heating a housing market that is already showing some signs of such, post-election (keep an eye out on Thursday for the latest weekly mortgage approval data that have perked up over the past two weeks).
Regarding the week’s data, the ANZ business survey on Wednesday will be the most closely watched. We will take it as it comes with focus on three key areas: inflation gauges (heightening importance post low CPI print); headline confidence (any bounce post-election?); activity outlook (still holding up indicative of solid to strong growth?). Friday brings September’s building consents which should remain solid at heart across the major components, although there is the possibility that the headline looks a bit softer on fewer apartment consents in the month. Friday afternoon’s credit data is expected to maintain recent trends.
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