Data goes against bank dovishness

WELLINGTON: Recent global data and figures due out this week are not exactly backing the suddenly dovish stance of a number of central banks, including the United States’ Federal Reserve and New Zealand’s own Reserve Bank.

For example, manufacturing indicators for both the US and China, US employment data and prices for New Zealand’s key commodity, dairy, have all been delivering positive news recently.

That is starting to cast doubt on whether the market has been right in pricing in up to two interest rate cuts before the end of this year, both in the US and New Zealand.

And although only 29 of the companies in the benchmark US S&P 500 Index have reported so far, the results have been positive, JP Morgan Chase in particular reporting record revenue and earnings and beating analysts’ expectations.

‘‘It’s hard to see a rate cut based on what we know today — we would have to see things worsen’’ before a rate cut could be justified, said Mark Lister, head of wealth research at Craigs Investment Partners.

‘‘For all the central bank dovishness, the data still looks pretty positive,’’ he said, adding that some commentators are now saying we have passed the worst and activity should pick up from here.

In New Zealand, interest rate markets have pulled back after pricing in two full rate cuts this year on the back of the Reserve Bank’s statement late in March that the next move in the official cash rate would most likely be down.

Investors are now pricing in 37 basis points of easing — usually, the Reserve Bank moves its OCR by 25 basis points every time it changes it.

Mr Lister said people are starting to question whether central banks around the world will remain dovish.

Key numbers, both due out tomorrow, will help provide a better steer as to whether New Zealand’s central bank cuts rates in May or decides to wait a little longer. They are the latest Global Dairy Trade auction and the March quarter consumers price index.

The CPI is expected to come in at 1.6%1.7% for the year ended March. The main GDT Index has risen in each of the past nine auctions and is now 22% higher than at the start of the year and at its highest since July 2017.

Also due tomorrow are the latest official figures on China’s March quarter GDP.

The market is expecting annual growth will have slowed a little further to 6.3% from 6.4% in the December quarter and 6.6% in calendar 2018. — BusinessDesk