NZ braces for inflation spike; investor nerves settle

Local markets start the week with Statistics New Zealand’s September quarter consumers price index due on Monday and expected to show a spike in inflation as the cost of food, energy and local body rates squeeze household budgets further, although not enough to stay the Reserve Bank from cutting its key rate in November.

That follows a calmer Wall Street on Friday as fears about regional banks were soothed from solid earnings results from the likes of US Bancorp and Fifth Third Bancorp, while American Express surged 7.3% on strong quarterly growth.

Corporate earnings season continues in the US with the likes of Tesla, Intel, Netflix, Ford and Coca-Cola among those reporting this week, while FactSet analysis shows 86% of firms have outperformed expectations so far, but with smaller happy surprises than in recent years.

And US President Donald Trump’s cooler rhetoric on China helped quell earlier nervousness, while Australian prime minister Anthony Albanese’s upcoming meeting in the Oval Office moves the spotlight on Sino relations to this part of the world.

Squeeze continues

Stats NZ’s September quarter CPI figures out today are expected to show the annual pace of inflation accelerated to 3% from a 2.7% rate in June, on the rising cost of food, housing and council rates. Still, economists expect the effect to be temporary, giving the Reserve Bank scope to look through the reading and press ahead with a cut to the official cash rate when it next meets in November.

“A surge in local authority rates will be one key contributor to the poor outturn, and this will be reflected in an expected jump in non-tradeables inflation to 1.1% quarter on quarter,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “The lift in inflation has been well anticipated but is not expected to be sustained.”

The kiwi dollar traded at 57.21 US cents at 7am in Auckland from 57.30 cents yesterday, with the yield on New Zealand’s 10-year government bonds at 3.96%, below the 4.01% yield on US equivalents.

Meanwhile, a slew of Chinese economic data are due today as tensions between the US and China subsided over the weekend with President Donald Trump optimistic his meeting with Xi Jinping will go ahead later this month.

China’s relations with Australia will come under the microscope this week as Australian prime minister Anthony Albanese travels to Washington for a bilateral meeting with Trump, where he’s expected to press the case to supply critical minerals to the world’s biggest economy which is trying to wean itself off its Chinese suppliers.

Steady nerves

Australian futures are pointing to a 0.1% decline for the S&P/ASX 200 index when trading opens across the Tasman after Wall Street shed some of its recent nervousness on Friday as the CBOE’s Volatility index dropped 18% to 20.78.

All three of the major US indices were up 0.5% on Friday, with American Express surging 7.3% and leading the Dow Jones Industrial Average higher after reporting a jump in third-quarter revenue. Visa International joined its fellow credit card firm higher.

Strong results from regional US lenders Fifth Third Bancorp and US Bancorp helped ease credit concerns about smaller American banks, with some facing exposure to loans subject to litigation.

Corporate earnings season continues in the US this week, with results due from Coca-Cola and Netflix on Wednesday, Tesla and IBM on Thursday, and Ford and Intel on Friday.

About 12% of S&P 500 companies have reported after the first week of the season, of which 86% beat earnings expectations, according to FactSet data. Still, the average positive surprise of earnings beating estimates by 5.9% is short of the five- and 10-year average.

Locally, Investore Property holds a virtual special meeting today for shareholders to vote on whether to approve the planned acquisition of the Silverdale shopping centre and convertible note issue.

Reporting by Paul McBeth. Image from Shutter Speed on Unsplash.