The latest ANZ Roy-Morgan consumer confidence survey for April fell 4 points to 82.1, close to the lows during the 2008-09 global financial crisis, but still slightly above the more recent pandemic lows.
By comparison, just two months ago the survey recorded a reading of 94.5 as consumers began the year feeling upbeat, encouraged by the prospect of multiple interest rate cuts; an outcome that is now looking increasingly unlikely as inflation levels remain stubbornly elevated.
ANZ Bank senior economist Miles Workman said Wellington led the monthly deterioration in confidence and was the most downbeat region overall.
“With the public sector shrinking it’s perhaps not too surprising to see weaker signals out of Wellington, given its exposure to central government,” Workman said.
Perceptions regarding the economic outlook in 12 months’ time fell a further 6 points to –40 percent, and only a net 5 percent of those surveyed expect to be better off this time next year, down 14 points from March.
Consumer confidence has been on the downward slide in recent months with April’s survey now fully reflecting the negative Q4 GDP result and the recession headlines that followed.
And in a sign of ongoing weakness for the retail sector, consumers continue to report extreme wariness about purchasing major household items, with this indicator falling further from -24 percent to -28 percent.
Workman noted the continued deterioration has been evident as CPI inflation has been slowing sending a particularly weak signal for retailers, given they have already felt the brunt of the economic slowdown to date.
On the plus side, household inflation expectations eased slightly to 4.4 percent from 4.5 percent. However, “they still remain much higher than pre-Covid levels and at 4.4 percent are hardly screaming ‘job done’”, said Workman.
“Household inflation expectations are of secondary importance insofar as households don’t set prices, but they can impact wage demands and the ease with which businesses can pass on cost increases into their prices.”
Favourable trade data provides welcome news
Trade data out last week was positive showing NZ recorded its first trade surplus in almost a year.
A 12 percent lift in exports resulted in a surplus of $588 million. Compared with March last year, imports were 25 percent lower (down $1.9 billion) though exports were almost 4 percent higher (up $240m).
Fruit exports rose by 74 percent to $399m compared with March 2023, led by a 125 percent lift in kiwifruit’s exports worth $253m.
Dairy exports also rose with milk powder, butter, and cheese exports lifting 3.6 percent to $1.7b compared with March 2023, although cheese exports fell 22 percent during the period.
In the year to March the trade deficit stands at $9.9b – a significant 18 percent fall compared with the year to February and a 41 percent reduction compared with the year to March last year.
Equity markets on a rollercoaster as mixed economic data clouds outlook
The NZ sharemarket experienced a volatile shortened trading week.
Shares powered higher last Wednesday with the local market recording its best day of the year lifting 1.2 percent, only to have all of those gains completely wiped out on Friday after local investors were spooked by hotter-than-expected inflation data in the US which resulted in bond yields pushing higher.
Both the NZX50 and Australia’s ASX200 ended the week barely changed in contrast to US markets which surged on Friday following better than expected results from tech giants Alphabet and Microsoft in which their combined market cap increased by more than US$250b.
The benchmark S&P500 gained 2.7 percent for the week with the tech-heavy Nasdaq index gaining 4.2 percent to record its best week of the year as investors jumped back on the AI wave which had begun to show signs of waning in recent weeks.
Microsoft and Alphabet quashed investor scepticism about the vast sums spent on developing artificial intelligence, after being boosted by rampant corporate demand for their cloud computing services. Both companies reported double-digit revenue growth in their first-quarter results to comfortably beat analysts’ expectations.
Shares in Amazon and Nvidia, two other beneficiaries of AI spending, also rose by 3 percent and 6 percent respectively.
The earnings reports from Microsoft and Alphabet have soothed market anxiety about the huge jumps in spending on the infrastructure needed to power AI chatbots such as OpenAI’s ChatGPT and Google’s Gemini, as well as several other companies experimenting with new AI models.
Analysts estimate that capital expenditures by Alphabet, Amazon, Microsoft and Meta this year will total US$188b, almost 40 percent more than in 2023. Electric-car maker Tesla said it had invested $1b in AI in the first quarter and would accelerate spending on chips and automated driving.
But on the flipside, markets were surprised to discover the US hasn’t actually been streaking ahead of the rest of the developed world as strongly as had previously been thought.
New data out last week revealed that GDP growth in the first quarter was running at an annualised pace of just 1.6 percent quarter – well below the 3.4 percent clip recorded in the fourth quarter of last year and a big miss from the 2.5 percent that economists had been expecting.
Further complicating the picture, on Friday, the Federal Reserve’s go-to measure of price fluctuations – personal consumption expenditures figures – showed a small increase to 2.7 percent in the year to March, a nose above forecasts and above the previous month’s reading.
For months, holdouts hoping that the Fed would cut interest rates aggressively, and soon, have derived comfort from relatively becalmed PCE inflation data, and sought to dismiss bracingly strong readings from other measures.
This new data underlines the fact that the direction of travel is not in fact pointing that way at all.
“Whichever way you crunch the numbers, this clearly isn’t the sort of inflation momentum where the Fed could be comfortable cutting rates,” Jim Reid at Deutsche Bank told the Financial Times.
The benchmark 10-year bond yield was right back up to where it was in November, at just under 4.7 percent, as the frenzy at the start of the year concerning multiple rate cuts is now increasingly being seen as some kind of aberration.
A move above 4.75 percent is likely to be seen as a potentially major inflection point for equity markets.
The combination of slowing economies but stubbornly high inflation presents a serious new dilemma for central banks to navigate.
Had Microsoft and Google not in fact ‘rescued’ the market on Friday with their better-than-expected result, it’s likely that US markets would have fallen sharply on the new data.
And though a rise in US interest rates this year remains a long shot, it remains a prospect that some investors are starting to take more seriously. Any hint of a further hike in rates would almost certainly send equity markets into a tailspin given that such a scenario has not been priced into current valuations.
Gold price surge attracts new investment into Otago mine
The former gold-mining region of Central Otago is back in the spotlight after Australian mining company Santana Minerals announced on Friday that it was seeking to raise more than $33m in new capital to “rapidly advance” a significant mining project near the settlement of Ophir.
Shares in the ASX-listed company entered a trading halt on Friday before it announced it had received commitments to issue about 27.1m shares in a private placement to institutional, professional and sophisticated investors. The issue price of A$1.15 per share represents a 6 percent discount to Thursday’s closing share price of A$1.22.
The funds raised will be used to “rapidly advance” its Bendigo-Ophir project, a 251-square-kilometre area in Central Otago it has been scoping for gold since 2020. Santana considers the area to be substantially under-explored by modern exploration techniques.
The capital raised would go towards “continued resource definition”, “aggressive extensional” drilling and a regional exploration programme, it said. It would also help cover feasibility costs, early capital development in land, water, power and roads, capital plant and equipment and working capital.
Santana chairman Peter Cook said the company was pleased with the support for the offer from existing shareholders and new institutional investors.
New York Stock Exchange mulls the possibility of 24 hour trading
In a nod to the reality that cryptocurrency trading platforms have created, allowing investors 24-hour trading access, the New York Stock Exchange is considering a similar possibility for US equity markets in the near future.
The NYSE is polling market participants on the merits of trading stocks around the clock as regulators scrutinise an application for the first 24/7 bourse. The survey by the NYSE highlights the growing interest in trading the likes of Nvidia or Apple overnight between 8pm and 4am Eastern time.
This has become a hot topic in recent years, prompted in part by the 24/7 operation of cryptocurrency trading and the rise in retail investor activity first spurred by coronavirus pandemic lockdowns.
Stock exchanges have become something of a laggard in a world where other big markets, including US Treasuries, major currencies and leading stock index futures, can be traded around the clock from Monday to Friday. Several retail brokers, including Robinhood and Interactive Brokers, now offer 24-hour weekday access to US stocks.
The survey comes as start-up 24 Exchange, backed by Steve Cohen’s Point72 Ventures fund, is seeking approval to launch the first round-the-clock exchange. The filing is the second attempt for 24X, which withdrew a proposal last year because of operational and technical problems.
