The first week back at work for many Kiwis is the last week before Donald Trump becomes President of the USA.
Plenty of potential for volatility in financial markets over the coming weeks.
NZ data and events could also play a part in financial market moves.
It is the first full week back at work for many New Zealanders and it is the last week before Donald Trump becomes the 45th President of the USA. This is very much the end of the world as we know it, with the new President likely to take the US in a different direction to what the rest of the world has been accustomed to. What exact changes will be made, and the impact on New Zealand (direct and indirect) is still difficult to ascertain at this point. What we do know is that change is coming.
This transition has the potential to generate considerable volatility in financial markets. Just last week Trump hosted his first press conference since July and the lack of any concrete economic policies saw financial markets turn away from US assets, on fears he won’t boost the US economy as much as he had suggested. Continued lack of solid direction could create opportunities for importers and exporters over the next few days and perhaps even in the first few weeks of Trump’s administration.
Borrowing costs are also likely to swirl around in the coming weeks. This is not just due to Trump uncertainty, but also the restoration of liquidity. The lack of interest on one side of the market created a lot of one-way upward flow, particularly in 2016’s close. As the weeks progress though, some sort of equilibrium should be restored, adding to the Trump-inspired volatility.
Dairy prices struggled into the end of 2016 and in the first auction of 2017, but this was partly due to a lack of buyers in the holiday season as well as increased volumes offered. Even so, with 2017 kicking into gear we still expect prices to firm enough over time to get the final 2016/17 milk price to $6.50/kg milk solids
The next two weeks should also provide enough data to give a bit of a steer to New Zealand economic developments heading into February’s RBNZ OCR decision. Next week is the release of Q4 inflation (delayed from this week as Stats NZ continues to get systems back in place following the earthquake). Initial estimates suggest inflation will step back inside the RBNZ’s target band, justifying the relatively neutral tone seen in November’s Monetary Policy Statement. Such a result would underline that neutral stance and perhaps encourage further crystal-ball gazing over when the RBNZ will start lifting rates in the distant future.
The other major release is on February 1, with Q4 employment data. While the recent changes to how the data are classified make prior comparisons difficult, the data should once again underline the strength of the domestic labour market, especially in terms of the number of those in employment. Key in the next release will be wage growth data. If it shows some increase in real wages it is yet another indicator that the labour market, and by extension the wider economy, is on the right track. Increased wages should also serve to support inflation in the coming quarters.
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