coming up trumps? · as oil prices recover to ~$50us/bbl. leads to more production ~ 6 months. and...
TRANSCRIPT
![Page 1: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/1.jpg)
Coming up Trumps? Nick Tuffley – ASB Chief Economist
November 2016
![Page 2: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/2.jpg)
2
Disclaimer
This document is a private communication and is not intended for
public circulation or for the use of any third party, without the
approval of ASB. The information contained in this document is
given with an express disclaimer of responsibility. No right of
action shall arise against ASB or its employees either directly or
indirectly as a result of this information. Those acting upon this
information do so entirely at their own risk. This information
does not purport to make any recommendation upon which you
may reasonably rely without taking further and more specific
advice.
![Page 3: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/3.jpg)
3
Topics
• Global outlook
• Housing, construction
• NZ overview
• Inflation, interest rates, NZD
![Page 4: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/4.jpg)
4
Brexit: opted out
![Page 5: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/5.jpg)
5
Brexit impacts on NZ
• 5% of NZ s total trade exports. • Meat, tourism and wine the
main export exposures.
• Lost competiveness on
exchange rate.
• Slower UK growth as Brexit
decision starts to impact
investment and employment
decisions. 2%
4%
6%
8%
10%
12%
14%
15%
20%
25%
30%
35%
40%
45%
Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14
SHARE OF NZ GOODS EXPORTS
Europe (rhs)
Asia ex-Japan (lhs)
UK rhs)
![Page 7: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/7.jpg)
Broad global outlook
-6
-4
-2
0
2
4
6
8
10
Dec-00 Dec-04 Dec-08 Dec-12 Dec-16
NZ TRADING PARTNER GDP GROWTH
Source: Consensus Inc, Stats NZ, ASB
Asia ex-Japan
US
Australia
aapc
Euro area
-2
0
2
4
6
8
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
NZ TRADING PARTNER ANNUAL GDP GROWTH
Source: Consensus Inc, Stats NZ, ASB
aapc
Av erage
2016 & 2017: Forecasts
![Page 8: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/8.jpg)
8
Oil down (and up)
• Oil prices remain subdued:
– Concerns over global/
Chinese economic growth
– Supply still strong
– Storage levels high
• US the swing producer:
exploration lifts as oil
approaches $US 50/barrel.
• In time, lower prices will
support global growth.
0
20
40
60
80
100
120
140
160
0
20
40
60
80
100
120
140
160
Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15
USDDUBAI OIL PRICE
Source: Bloomberg
USD
![Page 9: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/9.jpg)
9
Widespread oil production lifts
• OPEC accounts for around 1/3
of global production.
• Removal of sanctions on Iran,
disagreement among
members have seen
production continue to lift.
• US produces around 10% of
global oil.
• US production has fallen
recently in response to low oil
prices.
• But remains in the wings.
25000
26000
27000
28000
29000
30000
31000
32000
33000
34000
35000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
OIL PRODUCTION(000's barrels a day)
Source: Bloomberg
US Oil Production (LHS)
OPEC Oil Production
![Page 10: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/10.jpg)
10
Oil price lifts limited
• US drilling exploration lifting
as oil prices recover to
~$50US/bbl.
• Leads to more production ~ 6
months.
• And constrains prices.
• Makes a dramatic recovery in
oil prices difficult.
0
500
1000
1500
2000
2500
0
20
40
60
80
100
120
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
$US/bblOIL PRICE AND US DRILLING
RIG COUNT
Source: Bloomberg
# rigs
Rig Count
Oil Price
![Page 11: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/11.jpg)
11
Milk price forecast
• Current season approx. $6/kg
– NZD rate better.
– But contingent also on
sharply firmer USD prices
over NZ spring.
• Fonterra revised up its
forecast to $5.25/kg from the
initial $4.25/kg.
0
1
2
3
4
5
6
7
8
9
10
05 06 07 08 09 10 11 12 13 14 15 16 17 Long Run
MILK PRICE AND DIVIDENDS(per kg milksolid)
Source: Fonterra, ASB
$
ASB Milk Price forecasts
Milk Price
Dividend
Fonterraforecast
![Page 12: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/12.jpg)
12
Tourism booming • 2015 spend yoy$2.3bn, 31%
– Visitors 14%
– Spend per visitor 19%
• Short-term drivers
– Lower NZD, fuel prices
– US growth recovery
– Airline capacity
– Hobbiton
• Long-run drivers
– Chinese middle-class growth
– Tech e.g. Dreamliners &
internet innovation
170
190
210
230
250
270
290
05 06 07 08 09 10 11 12 13 14 15 16
NZ SHORT TERM ARRIVALS(monthly, seasonally adjusted)
Source: Stats NZ
'000
Lions tour
RWC
CWC
![Page 13: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/13.jpg)
13
Strong population growth through migration
• Net migration at record highs.
• Fall in permanent departures
while Australian job
opportunities were muted.
• Increased permanent arrivals,
returning NZer s from
Australia and skill shortages
attracting foreign labour.
• Students (Indian and Chinese).
• Moderation expected, as Aust
vs. NZ prospects eventually
shift, student flows become
more two-way.
-20
-10
0
10
20
30
40
50
60
70
80
Mar-95 Mar-99 Mar-03 Mar-07 Mar-11 Mar-15 Mar-19
000s NET MIGRATION
Source:Stats NZ, ASB
Net migration (annual)
![Page 14: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/14.jpg)
14
Housing, construction
![Page 15: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/15.jpg)
15
LVRs: Auckland house prices stretched
20
40
60
80
Jun-98 Jun-03 Jun-08 Jun-13 Jun-18
MORTGAGE REPAYMENTSOF A FIRST HOME BUYER
% H/H INCOME(25 year, 20% deposit)
Source: RBNZ, REINZ, ASB estimates
NZ
Auckland
4
6
8
10
4
6
8
10
Jan 00 Jan 05 Jan 10 Jan 15
TotalAucklandCanterburyWellington
HOUSE PRICE TO INCOME
Source:StatsNZ, REINZ
![Page 16: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/16.jpg)
16
New housing restrictions
• 3rd round of LVR restrictions
started on 1 Oct.
• 40% LVR for investors.
• 20% LVR for owner-occupiers
(for all but 10% such loans).
• But some exemptions:
– New builds purchased from
developer (<6 months old).
– Remediation or to comply
with new rental property
standards.
– O-Os using HNZ Welcome
Home Loan Scheme.
![Page 17: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/17.jpg)
17
Regional house listings, sales
-1000
1000
3000
5000
7000
9000
0
1000
2000
3000
4000
5000
Jan-07 Jan-12
MONTHLY DWELLING SALES(seasonally adjusted)
Source: REINZ, ASB
No.
Canterbury
NZ (RHS)
Auckland
Wellington
No.
0
10,000
20,000
30,000
40,000
0
5,000
10,000
15,000
20,000
Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
Source: realestate.co.nz
Auckland (LHS)
TOTAL INVENTORY
NZ excluding main cities (RHS)
Canterbury (LHS)
Wellington (LHS)
![Page 18: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/18.jpg)
18
Housing market
• Impact from Govt and RBNZ
investor restrictions wore off
in Auckland by March 2016.
• Auckland halo effect impacting rest of NZ.
• House price growth picking up
in many regions.
• Wellington very strong.
• New restrictions: flat/falling
prices in late 2016, bounce in
2017H1.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
REGIONAL HOUSE PRICE FORECASTS (annual growth)
AKL
CHCH
WGTN
Other
Nationwide
Source: QV, ASB(f)
ASB f /c
![Page 19: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/19.jpg)
19
Building outlook
0.2
0.6
1.0
1.4
1.8
2.2
Jun-88Jun-92Jun-96Jun-00Jun-04Jun-08 Jun-12Jun-16
NON-RESIDENTIAL BUILDING(quarterly)
Source: Stats NZ, ASB est
09/10 $ b
(f)
0.7
1.2
1.7
2.2
2.7
3.2
3.7
4.2
4.7
Jun-88 Jun-92 Jun-96 Jun-00 Jun-04 Jun-08 Jun-12 Jun-16
RESIDENTIAL INVESTMENT(quarterly)
Source: Stats NZ, ASB est
95/96$ b
(f)
![Page 20: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/20.jpg)
20
NZ snapshot
![Page 21: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/21.jpg)
21
Consumer spending reasonable
• Consumer spending growth
supporting overall growth.
• Low inflation relative to wages
boosting disposable income.
• Strong population growth
adds to momentum still in
near term.
• Dairy income constraint over
the next year in provinces.
-4
-2
0
2
4
6
8
-4
-2
0
2
4
6
8
Sep-90 Sep-95 Sep-00 Sep-05 Sep-10 Sep-15
CONSUMPTION & QES REALGROSS EARNINGS
Real gross earnings
Consumption
apc apc
(f )
Source: StatsNZ
![Page 22: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/22.jpg)
22
Growth moderated in 2015, back up in 2016-17
• Growth slowed in 2015.
Weaker dairy incomes and
production and flattening in
construction.
• Low interest rates and past fall
in NZD will support recovery in
growth over 2016.
• Beyond dairy, export outlook
is promising.
• Population and income
growth to remain key supports
of NZ economy.
-3
-1
1
3
5
7
-3
-1
1
3
5
7
Mar-89 Mar-94 Mar-99 Mar-04 Mar-09 Mar-14 Mar-19
NZ GDP GROWTH
Source: Stats NZ, ASB
%
(f)
%
Annual av erage %
Per quarter
![Page 23: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/23.jpg)
23
Inflation, financial markets
![Page 24: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/24.jpg)
24
Inflation low for an uncomfortably long time?
-1
0
1
2
3
4
5
6
Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15 Jun-18
NZ CPI INFLATION
Source: Stats NZ, ASB
%
(f)
Annual %
quarterly change0
1
2
3
4
Mar-93 Mar-98 Mar-03 Mar-08 Mar-13 Mar-18
NZ CPI ANNUAL INFLATION3-year average
Source: Stats NZ, ASB
%
(f)
CPI Annual %
CPI Inflation Target Band
![Page 25: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/25.jpg)
25
Interest rates low for a long time
• One more cut in November to
1.75%.
• Inflation outlook suggests
OCR risks skewed to an even
lower outcome.
• Funding costs, deposit
challenges:
– Behavioural changes
– Deposit growth slowing
– Added pressure on cost of
funds
1.5
2.0
2.5
3.0
3.5
4.0
1.5
2.0
2.5
3.0
3.5
4.0
Sep-13 Aug-14 Jul-15 Jun-16 May-17 Apr-18 Mar-19
Source: ASB
% OCR FORECASTS
(ASB vs pricing of overnight index swaps) %
Current market pricing
ASB Economics Forecast (peak of 3.5% in 2022)
![Page 26: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/26.jpg)
26
NZD forecasts
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Mar-93 Mar-98 Mar-03 Mar-08 Mar-13 Mar-18
NZD/USD and NZD/AUDUSD AUD
(f)NZD/USD (LHS)
NZD/AUD (RHS)
40
60
80
100
120
0.40
0.50
0.60
0.70
Mar-93 Mar-98 Mar-03 Mar-08 Mar-13 Mar-18
NZD/EUR and NZD/JPYEUR JPY
(f)
NZD/EUR (lhs)
NZD/JPY (rhs)
![Page 27: Coming up Trumps? · as oil prices recover to ~$50US/bbl. Leads to more production ~ 6 months. And constrains prices. Makes a dramatic recovery in oil prices difficult. 0 500 1000](https://reader035.vdocument.in/reader035/viewer/2022071013/5fcbdb9808e4ed18892f07f7/html5/thumbnails/27.jpg)
27
Summary
• Trading partner growth OK – but a diverse range of
uncertainties.
• NZ economy set to pick up to 3+% growth over next 2 years.
• Growth will be supported by migration flows, tourism,
construction, low interest rates and NZD, real wage growth.
Dairy cashflows under pressure until 2017H2.
• Housing: lending restriction impacts, some bounce next year,
then settling to a moderate pace.
• Inflation pressures are low, and we expect the RBNZ to cut the
OCR to 1.75% in November. Risk is an additional cut in 2017.