New Zealand gets an early start to the trading week on Sunday evening with the release of some key consumer sentiment data that can move the markets.
Electronic Card Retail Sales is the stand-in for a monthly measure of consumer sentiment. It gives us some important insights into potential future inflation changes.
This time around, the data is especially interesting because next week we have the last meeting of the RBNZ for the year. There isn’t a clear consensus on whether the central bank will cut rates or not, with the latest survey showing a 50/50 change of action.
So any data that might give some insights or incline the bank in either direction in the lead up to the meeting could have an exaggerated effect.
What We Are Looking For
For market reaction, we generally want to focus on the monthly figure. The consensus is for Electronic Card Retail Sales for October to remain flat compared to the prior month, where they rose 0.4%.
This is not exactly a good sign, even though it’s within the range for the last several months. While consumer spending isn’t terribly seasonal, October is moving into the more active part of the year. It usually boasts around a 1% growth in retail spending.
The annualized figure is better, with a projection to grow by 2.2% over the last twelve months. This is compared to just 0.3% reported previously. A result like this would be one of the smallest increments for October since at least 2017.
Low Rates, but No Spending
One of the primary reasons that the RBNZ is cutting the cash rate is to spur the economy with increased spending, both among businesses and consumers.
Consumers have to be buying in order for businesses to be able to sell. With lower reference rates, it should be cheaper and easier for New Zealanders to borrow money on their credit cards and increase spending.
But consumer confidence has been shaky so far this year. And the projections don’t show much room for improvement. Does that mean the RBNZ should double down on its rate slashing policy and cut more?
Some members of the bank have mentioned in passing concerns about cutting too far. They’ve said that negative rates aren’t desirable. However, the collective view seems to hold that more policy easing is the solution to poor economic numbers.
The Kiwi Dollar
Last week’s poor performance in the employment numbers didn’t really dent the recent strength in the NZD.
Some analysts argue that the results could have been worse if it weren’t for the drop in participation, as many older workers opted to retire early. Usually, this is a sign of a weakening economy. And it’s not all that auspicious of a sign for currency strength!
Perhaps ironically, the better performance in the NZD has likely been driven by external factors.
With the increased positivity about a potential reduction in tariffs between the US and China, risk appetite has returned and supported commodity currencies.
More action by the RBNZ to stimulate the economy would push the currency in the other direction, however. So, kiwi bulls will be hoping for a better than expected print with electronic card retail sales to help convince the central bank to hold off on pulling the trigger.