# NZ economy, dollars and currency



## anski

Liam Dann: If it's boom why are so many feeling bust - Business - NZ Herald News


Wow, how is everybody enjoying the economic boom?

Gross Domestic Product in the March quarter was up 0.8 per cent - that annualises to 3.2 per cent growth, quake and all.

The dollar on Thursday topped US85c, so in the eyes of the world New Zealand has never been a better place to put some money.

No wonder Roll-Royce is setting up its first local dealership. Clearly we've never had it so good,

What's that you say? Redundancies, pay freezes, rising food costs? Well obviously if you make a living anywhere near the retail sector things are still pretty tough.

Oh and public servants - well with the Government needing to cut spending to pay off debt times won't be great for you. But exporters are going great guns.

Okay, yes if your primary market is the US or you trade in US currency then the high dollar will be hurting and you'll need to be keep budgets tight.


At least farmers have never had it better.

Sorry say that again?

Yes, of course if you purchased your farm anytime in the last decade the value will have fallen dramatically and you'll need to put those extra earnings straight into your whopping mortgage, fair enough.

Manufacturers are booming that's for sure, 3.6 per cent for the growth in the March quarter. Nearly 15 per cent growth if you annualise that one - wow! Oh, really ... so that only lifts manufacturing output back to levels we had in 2005 - that global financial crisis really pummelled the sector didn't it. Hmmm ... so manufacturing activity declined 7.2 per cent in the March 2009 quarter alone.

Hey but good times though, the recovery is in full swing ... on paper anyway ...

The gaping disconnect between Thursday's figures and what the economy actually feels like out there is so wide that it has some people questioning the validity of the statistics.

Even Statistics New Zealand was surprised by the result. It delayed releasing the data while it was double checked. The final figures may still be subject to revision but that can go either way.

The numbers for the previous two quarters were also revised upwards on Thursday, indicating a trend.

So no, it is unlikely that the statistics are materially incorrect.

The reality is that this is the economy rebalancing. This is the economy doing what Reserve Bank Governor Alan Bollard and all those economists hoped would happen. It has happened before but perhaps never from such a position of such great imbalance.

It was never going to feel good.

Money is flowing in to the economy, but that money is not yet flowing through to the pockets of the average New Zealander. GDP is coming off a low base and the domestic growth that is under way is being given a helping hand by interest rates that remain at historically low levels.

The flip side of this balancing act is that many New Zealanders were bemused by the negativity in the business press at the time of the global financial crisis.

At that point the domestic economy was still humming despite the obvious macro-economic crisis playing out on the global stage.

Concentrating solely on the GDP figure doesn't give us an accurate picture of the financial situation of a nation's citizens.

Bollard knows that and while it is likely Thursdays' data does increase the likelihood of an earlier rate rise, he and his colleagues at the Reserve Bank will continue to monitor a range of figures in the lead-up to any move.

Prime Minister John Key and Finance Minister Bill English should also be wary of trumpeting the economic good times as they head into the election. Voters are unlikely to be feeling as buoyant as these statistics.

Consider the extent to which people regularly continue to talk about the "recession" or "downturn" as if it was still with us.

Technically New Zealand hasn't been in a recession for two years. - the most recent pair of consecutive shrinking quarters were December 2008 and March 2009.

A better measure of the domestic economy's performance for the first six months of this year might be the company results which are due to be reported next month. Many of the nation's big employers are about to report earnings for the six months to June 30.

It will be interesting to see whether corporate revenues marry better than GDP figures with anecdotal evidence that the domestic economy did take a hit in the wake of the Christchurch quake.

Liam Dann (liamdann) on Twitter

By Liam Dann | Email Liam


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## anski

*Free-floating kiwi remains our best bet*

Brian Fallow: Free-floating kiwi remains our best bet - Business - NZ Herald News

A dollar above US80c, if it persists, threatens to retard what is still a tentative export-led recovery.

And it is certainly no help when it comes to the structural challenge of rebalancing the economy by redirecting its resources away from consumption and towards earning the country's living as a trading nation.

Inevitably, then, eyes swivel towards the Reserve Bank and its mandate to intervene in the foreign exchange market.

It is a tool it has rarely employed, in mid-2007 and again early the following year.

Rarely and secretly. Its reporting cycle means it can be up to two months before it is clear whether it has intervened.

Currency strategists doubt whether the bank will think the criteria it has set for intervention are met right now.

The first question is whether the exchange rate is exceptionally high (or low).


The kiwi is certainly exceptionally high against the United States dollar, but the US dollar makes up only 30 per cent of the trade-weighted index or TWI.

The TWI is designed to reflect the overall strength of the New Zealand dollar against a basket of currencies, weighted by their respective countries' importance to us as trading partners and the relative size of their economies.

The TWI is high too, having topped 70.

But it is not at unprecedented levels. It spent a full year from April 2007 to April 2008 around the same levels it is now.

The TWI is still below the levels at which the bank intervened in July 2007 (77) and March 2008 (74).

On balance, though, it would probably tick the exceptionally high box.

Whether it is unjustifiably high, the second test, is more debatable.

Estimating fair value, in the sense of some long-run equilibrium level of the exchange rate, is an arcane business. ANZ's economists put it at US67c.

But cyclical factors can push and pull fair value around.

Right now New Zealand is enjoying record prices for its commodity exports. The terms of trade - export prices relative to import prices - are the most favourable for 37 years.

They have risen 11 per cent in the past year, boosting national income, and are 9 per cent above where they were when the Reserve Bank intervened in 2007.

So no tick in that box.

The bank's third test is whether intervention would be likely to be effective.

It accepts that the best it can hope for is to moderate the exchange rate cycle a little - shaving a bit off the peaks or the troughs.

Think of it as a tug boat with a limited fuel supply, trying to haul a laden supertanker around.

It would need to be pretty confident that a peak in the exchange rate was near.

So the question is whether the high exchange rate reflects US dollar weakness or the kiwi dollar's strength.

It seems to be both.

Evidence of the latter is that the kiwi appreciated 4 per cent or nearly 3c against the Australian dollar over the course of May.

So it can't all be put down to investors being out of love with the United States.

But a lot of it can. Right now when investors look at the US they see uncertainty about monetary policy (what happens after the imminent end of the Federal Reserve's quantitative easing?) and fiscal policy (that huge deficit and political wrangling over a looming breach of the debt ceiling).

The euro remains overshadowed by sovereign debt issues in some of its weaker members, Greece especially.

And while investors would no doubt love to be long renminbi, China is a long way from acceding to calls to allow its currency to float.

No wonder the commodity currencies, including ours, look relatively good to institutions searching for somewhere to park their money. These are powerful forces about which nobody in New Zealand can do anything.

Another box unticked.

The fourth test is whether intervening to lower the value of the kiwi dollar would be consistent with what the Reserve Bank is trying to do with monetary policy.

Its most recent move, of course, was to ease, when it cut the official cash rate by 50 basis points to bolster confidence in the aftermath of the February earthquake, and perhaps correct a premature tightening in the middle of last year.

But the bank made it fairly clear that this was a temporary measure and that it expected the next move in interest rates to be up, though not until it sees the whites of the recovery's eyes.

Since then the exchange rate has risen 9 per cent on a trade-weighted basis, which represents a significant tightening of monetary conditions.

It ought to reduce inflationary pressure, by making imported goods, including oil, cheaper.

How much good it does on that front will depend on how much the distributors and retailers of imported goods use the exchange rate relief to rebuild margins. But with consumer spending subdued competitive pressure ought to encourage a high degree of pass-through to consumers.

We will discover next week when it delivers its June monetary policy statement whether the Reserve Bank is taking a less sanguine view of the inflation outlook than it did in March.

If so, it will reinforce the markets' increasing tendency to expect the next OCR rise to occur before the end of the year.

That is one of the factors which has propelled the dollar higher lately.

If the bank's serenity levels about inflation have not changed, there are a few market economists around who think they should have.

The irony is that the more that hawkish view is reflected in an inflow of money, which pushes the exchange rate up, the more it does the bank's tightening work for it, allowing it to leave the OCR at its all-time low for longer.

Jury out, then, on the last box.

So where does this leave us?

We cannot take too much comfort from the fact that April saw a record monthly trade surplus.

Finance Minister Bill English pointed to it as as evidence that "our export sector has got used to a dollar over [US]70c and is performing pretty well".

It takes time for spot exchange rates to flow through to the prices of goods crossing the wharves and a dollar over US80c would be a lot harder to live with.

The ANZ commodity price index shows the exchange rate starting to weigh more heavily on export returns.

While world prices for a basket of New Zealand's export commodities hit a record high last month in the 25-year history of the index, they have risen only half as much in New Zealand dollar terms over the past year as they have in world price terms.

But that works in both directions.

A floating exchange rate softened the blow of the collapse in commodity prices in the wake of the global financial crisis, absorbing a third of the decline.

You don't hear calls these days to adopt the aussie dollar. Manufacturing exporters are currently enjoying a 24 per cent discount to the aussie, the best for many years.

And a dollar that was 25c higher against the US dollar would be pretty hard for New Zealand exporters to live with.

That would be serious pain.

So a freely floating exchange rate still looks like what Winston Churchill said about democracy - the worst system apart from all the others.


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## anski

*New Zealand dollar - currency exchange news*

The New Zealand dollar could potentially hit US90c against the greenback over the next few weeks, a currency strategist says.

The kiwi hit another post-float high of US86.40 overnight, but has since slipped back and was trading at US86.17 at 11.15am.

"As the [New Zealand dollar] continues to appreciate, it [a cross-rate of US90c] does begin to look quite likely," said BNZ currency strategist Mike Burrowes.

He said there would be more focus on the United States debt ceiling debate overnight. The US Government is considering increasing the amount of money it is allowed to borrow, to avoid a default.

"That's causing some US dollar weakness, which is helping to keep the New Zealand dollar up [against the greenback]," Burrowes said.

But he said it paid to keep an eye on the "fundamentals", such as commodity prices.

Prices on Fonterra's online auction fell this week, confirming market opinion that dairy prices are on a downward trajectory.

"Terms of trade are showing signs of falling - those sorts of things suggest that there's no reason the [New Zealand] currency can't pull back a little bit over the next couple of weeks."

The kiwi hit A80c against the Aussie currency yesterday.

Burrowes said interest rate and growth differentials between Australia and New Zealand would favour an appreciation in the kiwi's value against the aussie dollar over the next 12 months.

Prime Minister John Key says the rising New Zealand dollar will dampen economic growth if the currency cannot be brought under control.

Answering questions following a speech to the US Chamber of Commerce, Key acknowledged the high NZ dollar, which hit a 26-year high of 86.4 US cents overnight, was hurting the economic recovery, Reuters reported.

The New Zealand dollar rose to a new post-float high against the greenback, after European leaders agreed to a fresh bailout package for Greece.

Under the deal, all three countries with bail-out programmes, Greece, Ireland and Portugal, will have interest on their debt lowered by between 100 to 200 basis points to 3.5 per cent, and have their repayment schedules extended from seven years to a minimum of 15 years.

"There's no getting away from the fact (that the current high exchange rate) is very difficult for our non-commodity-linked exporters," Reuters reported Key saying.

"We haven't seen these levels since the 70s ... and it is going to dampen our economic growth if we can't get it under control," Key said.

The Greek deal saw the European single currency surge over a cent to US$1.43.77 from US$1.42.40 yesterday, dragging growth-linked currencies such as the New Zealand and Australian dollar with it.

Global markets were also buoyed by the deal, with the Standard & Poor's 500 Index closing 1.4 per cent higher to 1343.80, while Europe's Stoxx 600 closed 1 per cent up at 270.48.

Key told Chamber members the US Federal Reserve's quantitative easing policies had the effect of devaluing the US dollar, which was pushing New Zealand's currency up. 
"That obviously has concerns from an exchange rate point of view from our perspective," Key said.

However US policy makers had to make their own judgements about what was best for the US economy, Reuters reported him saying.

Tim Kelleher, head of FX sales New Zealand at ASB Institutional said: "It's hard to stand in the way of momentum, and unless anything untoward happens I expect the kiwi to keep grinding higher."

The kiwi recently traded at 86.21 US cents, up from 85.87 cents yesterday, and rose to 73.82 on the trade-weighted index of major trading partners' currencies from 73.71.

It fell to 79.52 Australian cents from 79.83 cents yesterday, and gained to 67.67 yen from 67.40 yen. It dropped to 59.95 euro cents from 60.06 cents yesterday, and slipped to 52.87 pence from 52.93 pence previously.

The US dollar came under pressure after the latest Philadelphia Federal Reserve Survey doing little to allay fears that the US economy is slowing.

Activity in the Mid-Atlantic manufacturing sector rose 3.2 points in July, short of the 5.5 points expected, but an improvement on the 7.7 point decline seen in the previous month. The Dollar Index, a measure of the greenback against six major currencies, fell to 74.14 from 74.73 yesterday.

The kiwi may trade between a range of 86 US cents and 86.50 cents, Kelleher said.

By Christopher Adams

Dollar could hit US90c - strategist - Business - NZ Herald News


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## Song_Si

28 July rates:
1 NZD = 0.8731 USD

I don't pay attention to these rate changes particularly, but now have a family interest, brother has US $ and hoping NZ rate drops before his trip to NZ for the rugby world cup, I on the other hand have my $ in NZ and want it to stay high as the exchange with the Thai baht lately has been in my favour, from a low of 22b per $1, now 26b if I needed to bring money over. 
Right now, as they say -_ his loss is my gain_ (on paper anyway)


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## anski

Song_Si said:


> 28 July rates:
> 1 NZD = 0.8731 USD
> 
> I don't pay attention to these rate changes particularly, but now have a family interest, brother has US $ and hoping NZ rate drops before his trip to NZ for the rugby world cup, I on the other hand have my $ in NZ and want it to stay high as the exchange with the Thai baht lately has been in my favour, from a low of 22b per $1, now 26b if I needed to bring money over.
> Right now, as they say -_ his loss is my gain_ (on paper anyway)


Yes good for me too, heading to USA in September & would be great if the NZ $ is still so strong.

Years ago (1998 I think ) we were there when the Au $ was worth 50c US ouch that hurt now the Aussie dollar is worth US$1.11 find it hard to believe, I can never remember it happening before.


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## anski

*Kiwis making the most of strong dollar*

Kiwis are making the most of the high New Zealand dollar.

House of Travel retail director Brent Thomas says people are travelling further afield for their winter breaks, to places such as Asia, the US and Europe.

He says people are also holidaying for longer.

Mr Thomas expects there'll also be good deals for kiwis who don't want to stay in the country for the Rugby World Cup.

He says thousands of people will be coming to New Zealand, but the planes will have to be filled when they return.

Brent Thomas says the only difficulty will be getting back into New Zealand when the quarters, semis and final matches are on.

Kiwis making the most of strong dollar - Yahoo! New Zealand News


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## anski

*NZ has first move on US debt crisis*

Markets in New Zealand and Australia will be in the spotlight today to see how they react to last-minute attempts to resolve the United States debt crisis.

Sharemarkets in the Asia-Pacific region will be the first to interpret developments in America and will help set the tone for the rest of the world.

US Senate leader 'cautiously optimistic'

After a weekend of further stalemate, US Senate Majority Leader Harry Reid said he is "cautiously optimistic" that the White House and its Republican foes will reach a deal to avert a ruinous debt default.

With time ticking down to a Wednesday deadline to reach an agreement to raise the amount of money it can borrow to avoid defaulting on its debts, the Democratic leader warned the polarised US Congress needed a solution "in the next few hours" and said "all sides are aware of this urgency."

Reid said a tentative framework for an agreement would lift the US$14.3 trillion US debt limit beyond the November 2012 elections in which President Barack Obama seeks a second term, a key White House demand.


Uncertainty for markets

New Zealand's high-flying currency will also be closely watched, as any further stumbles in reaching a deal between US lawmakers are likely to drive the Kiwi higher still.

Market commentator Arthur Lim said the New Zealand sharemarket was likely to have a "down day" if there was no progress on a compromise.

"It's almost inevitable given we're close to a deadline. Markets never like uncertainty."

But, given that there was a global recovery under way, he did not expect the events in the US to spark the sort of meltdown that occurred in 2008.

"I don't think it will be precipitously bad like it was with Lehman Brothers."

If a deal was reached, it would be greeted positively by the market and the New Zealand dollar was likely to lose some momentum as investors regained faith in the greenback.

"There is so much talk about the New Zealand dollar being very strong, the reality is the US dollar has been very weak," Lim said.

The kiwi closed at US86.49c in weekend trading, having soared past US87c last week.

The tentative outlines of last night's accord include spending cuts of US$1 trillion ($1.14 trillion) and creation of a special committee to recommend additional savings of up to US$1.8 trillion.

The new panel would have to act before the Thanksgiving congressional recess in late November or government programmes including defence and Medicare would face automatic, across-the-board cuts, a source said.

The prospective agreement would not include increased net revenue, a sticking point for Republicans who have been adamant that any deal with tax increases could not pass the Republican-run House.

Democrats, including those who run the Senate, have been insistent that any deal must be a "balanced approach" that includes revenue, raising questions about whether President Barack Obama would find the support of his party for the plan.

Obama has been demanding an increase in the US$14.3 trillion debt limit that lasts through the 2012 election, when he is seeking another term.

Senate Majority Leader Harry Reid last night said he was "confident that reasonable people from both parties should be able to reach an agreement".

He cautioned that "there are many elements to be finalised".

To give the negotiations more breathing room, Reid pushed forward by 12 hours the test vote on measures to raise the trillion debt ceiling and cut government spending. The planned vote was rescheduled for 1pm on Sunday at the Capitol (5am today NZ time).

Earlier Mitch McConnell, the Senate Minority Leader, said he was "more optimistic" and that negotiators have "got a chance of getting there."

John Boehner of Ohio, the House Speaker, also voiced confidence an agreement could be reached.

US stocks fell at the weekend as the debt impasse continued.

The Standard & Poor's 500 Index slipped 0.7 per cent and tumbled 3.9 per cent for the week, its worst slide in a year.

ON THE TABLE

Tentative agreement reached last night between White House and congressional Republicans

* $1.1 trillion: in spending cuts

* $2 trillion: in additional savings

* $0: increase in tax revenues

- NZ HERALD, BLOOMBERG, AAP

By NZ Herald staff


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## Song_Si

but on the other hand . . . the strong dollar having an impact on tourism to NZ

*HIGH DOLLAR KEEPS THEM AWAY*

*It's not all good news for the travel industry - the high dollar is having the opposite effect on inbound tourism. An industry leader says numbers of overseas tourists coming to the country are lower than post 9/11.*

The president of the Inbound Tour Operators Council, Brian Henderson, says the Christchurch earthquake, the Chilean ash cloud, Japanese tsunami and closure of the road to Milford have hit the industry hard.

The high dollar was putting off American visitors and Australians were travelling further afield. Poor snowfall early in the season here and good snowfall across the Tasman also made matters worse.

The general manager of Rotorua adventure company Agroventures, Melissa Mills, said numbers of tourists from the UK had dropped by 20 per cent and the US by 21 per cent.

The number of international visitors had dropped by 10 per cent overall.


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## anski

*Reserve Bank unlikely to intervene Kiwi dollar*

It's unlikely the Reserve Bank will intervene anytime soon to bring down the Kiwi.

The New Zealand dollar is above the level at which the Reserve Bank first attempted to bring the currency down in 2007.

Westpac Market Strategist Imrie Speizer says the key issue on whether to intervene is whether it's opportune and has a reasonable chance of success.

He says at the moment the Kiwi dollar is high simply because the US dollar is weak.

"That is probably not a good place to come in and sell Kiwi dollars and buy US dollars," he told Newstalk ZB. "You're going against the world trend of weakening the US dollar."

Mr Speizer says a better time to intervene would be if there was a turnaround in the US dollar.

The Kiwi dollar is sitting at US87.48c this morning.


Juliette Sivertsen, On Tuesday 2 August 2011, 5:56


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## Song_Si

*NZ dollar takes a dive*

Saturday Aug 6, 2011
*The New Zealand dollar plummeted yesterday after five months of unrelenting growth as a global market rout spooked traders into selling the kiwi.*

The dollar fell from Monday's high of US88.42c to a low of US82.75c after world markets experienced their biggest one-day drop since March 2009, with stocks tumbling from Hong Kong to London to Sao Paulo.

The NZX was also stung and investors stood back and watched more than a billion dollars of value wiped from the New Zealand sharemarket.

Concern over the economic stability of Italy and Spain and fears of another US recession saw traders scramble to ditch the kiwi and buy the greenback, the default "safe haven" currency in financial turmoil.


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## anski

*Back in black - NZX now in positive territory*

After a rough start following from slumping European and US markets, the New Zealand stock exchange has recovered lost ground and is now back in black.

The benchmark NZX-50, which opened down 1.8 per cent is now down up 6 points to 3190 per cent - a 0.2 per cent gain for the day

Among the market heavyweights, Fletcher Building shares are up 5c at $7.35, Contact Energy is up 2c at $5.02 and Telecom shares are up 8c to $2.48.

Speculation about the health of France's banks and credit rating sent global equity markets lower overnight.

On Wall Street, the Dow Jones Industrial Average tumbled 4.6 per cent and in Europe, France's CAC 40 declined 5.5 per cent, led by a 15 per cent drop in Societe Generale.

The S&P 500 fell 52, or 4.4 per cent, to 1,120, and the Nasdaq fell 101 points, or 4.1 per cent, to 2,381.

On Tuesday, the Dow gained 429 points after the Fed said it planned to keep interest rates extremely low at least through the middle of 2013.


Equities on Europe swooned amid rumours that a downgrade of France's AAA credit rating was imminent and concern persisted that the debt crisis had yet to run its course.

While Standard & Poor's, Moody's Investors Service and Fitch Ratings all affirmed France's top credit rating, banks tumbled on both sides of the Atlantic. Societe Generale dropped 15 per cent, even as France's No. 2 lender denied speculation of trouble.

The Stoxx Europe 600 Index closed with a 3.8 per cent drop for the day.

Financial stocks on Wall Street suffered along with their European counterparts, with the KBW bank index shedding 6 per cent.

"You've already had situations in Greece, Spain has been in there, Portugal, and now if you are talking about France, which because it's a bigger economy, it probably generates more concern on a comparison basis," Gordon Charlop, managing director of Rosenblatt Securities in New York, told Reuters.

"So there are investors who are a little bit more cautious about European financials and that translates into financials here."

Wall Street's so-called fear gauge, the CBOE Volatility Index, was last up 8.5 per cent at 38.04, after climbing as high as 44.41 earlier in the session.

Economic fears are weighing heavily on Americans, with a large majority saying the United States is on the wrong track and nearly half believing the worst is yet to come, a Reuters/Ipsos poll said on Wednesday.

The poll reflected growing anxiety about the economy and frustration with Washington after a narrowly averted government default last week, a credit rating downgrade by Standard & Poor's, a stock market dive and a stubbornly high 9.1 per cent jobless rate, according to Reuters.

A worsening economic outlook is considered bad news for companies that depend on discretionary spending. Entertainment company Walt Disney shed more than 9 per cent.

Even companies whose fortunes aren't necessarily tied to the economy are suffering. EON AG plunged after Germany's biggest utility announced plans to cut more than 10 per cent of its workforce.

In this climate it is easy for gold to sustain its rapid ascent to fresh records.

"Gold will continue to appreciate until there is a fundamental shift in the government policies." James Dailey, who manages US$185 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania told Bloomberg News.

Gold futures for December delivery were 2.5 per cent higher at US$1,786.80 at 12.34pm on the Comex in New York, after hitting a record US$1,801 earlier today.

Bank of America Merrill Lynch, in a report dated yesterday, raised its 12-month gold-price forecast to US$2,000 on the increased chance for another round of US asset purchases, known as quantitative easing, Bloomberg reported.

Back in black - NZX now in positive territory - Business - NZ Herald News


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## anski

*NZ consumer confidence at 7-month high*

NZ consumer confidence at 7-month high - Business - NZ Herald News

New Zealand consumer confidence rose to a seven-month high in August, even in the face of volatile global financial markets, suggesting the jobs market may be picking up enough to lift Kiwis' appetite to spend.

The ANZ-Roy Morgan Consumer Confidence measure rose 3.9 points to 113.3 in August, the highest since January when it reached 117.1.

The survey showed a net 33 per cent of respondents deemed it a good time to buy a major household item, more than double last month's reading of 14 per cent.

The consumer survey comes after last month's National Bank Business Outlook showed business confidence rose for a fourth straight month in July, with better times seen ahead as Christchurch begins reconstruction after the earthquakes.

The economy grew at twice the expected pace in the first quarter and Reserve Bank Governor Alan Bollard may not rush to raise interest rates in the face of global turmoil.

"Such resilience in (consumer) confidence suggests that labour market conditions are improving sufficiently for consumers to start feeling more upbeat, or less downbeat, about prospects," said Khoon Goh, head of market economics and strategy at ANZ Bank.


The future conditions index rose to 118.1 in August from 115.6 in July. The current conditions index rose to 106.1 from 100.1.

Of the 1,048 people surveyed, a net 21 per cent said they were worse off than a year ago, a deterioration from last month's 14 per cent who felt worse off. Still, a net 27 per cent expect to be better off in a year's time, compared to 24 per cent seeing better times ahead in last month's survey.

A net 2 per cent of respondents said they think economic conditions will deteriorate over the coming 12 months, an improvement from a net 8 per cent who were gloomy on the general outlook in July.

A net 30 per cent expect the economy to improve over the coming five years, down a net 31 per cent a month ago.


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## anski

*New Zealand Economy*

NZ shares ride out wave of global fear

Fear returned to global equity markets yesterday, as fresh anxiety about the United States economy and the financial health of European banks sparked another round of panic selling from London to Tokyo.

But despite the turbulence, the New Zealand exchange largely shrugged off the volatility, outperforming most other markets.

The NZX-50 index closed down 0.56 per cent, or 18.38 points, at 3267.84.

In comparison, New York's Dow Jones industrial average finished yesterday down 3.68 per cent, while the Nasdaq dropped 5.22 per cent.

London's FTSE 100 index closed down 4.49 per cent yesterday - its biggest single-day loss since early 2009. In Paris, the CAC 40 tumbled 5.48 per cent.

Kevin O'Sullivan, head of financial markets at Auckland's OMFinancial, said it had been a "stellar performance" by New Zealand's benchmark index, considering the steep drops on other exchanges around the world.

Positive financial results from Telecom and Michael Hill International would have helped buoy the NZX-50, he said.

The listed jewellery retailer reported a 32.6 per cent rise in full-year net profit to $34.4 million, while the telco posted adjusted annual earnings of $388 million, a 1.6 per cent increase on the prior year.


Telecom closed up 11.5c at $2.72 last night, and Michael Hill gained 3c to finish at 91c.

Markets across Asia also took a hammering yesterday, with Australia's S&P/ASX200 index finishing the day down 149.3 points, or 3.51 per cent, at 4101.9. Hong Kong's Hang Seng was down 2.38 per cent by mid-trading, while Japan's Nikkei stock average fell 2.51 per cent.

O'Sullivan described the market gains seen this week, prior to yesterday's return to turmoil, as "the eye of the storm".

"It was pretty much the market taking a breather," he said. "And then some new data triggered it off again."

O'Sullivan said data out of Europe on Thursday night were particularly negative, with eurozone construction output down 11.3 per cent in June, year-on-year.

"That was quite shocking," he said. Factory activity in the US Mid-Atlantic region as surveyed by the Philadelphia Federal Reserve Bank plummeted in August, falling to the lowest level since March 2009.

Traders also reacted to a report in the Wall Street Journal that the US Federal Reserve was concerned European banks might be forced to repatriate funds from US subsidiaries in the event of a liquidity shortage.

Westpac senior markets strategist Imre Speizer said markets were concerned that bank funding could become dysfunctional. "Without funding things can't happen and you get chaos ... markets just stop."

The New Zealand dollar fell prey to panic selling yesterday, falling from above US83.26c at 11pm Thursday night to US81.78 at midday yesterday, before recovering ground to reach US82.17 by 5pm.

Speizer said he expected the kiwi to fall to US80c, or possibly even US78c, over the next week.

The kiwi dollar was also likely to drop against the Australian currency, he said, and could fall as low as A78c over the next seven days. The kiwi closed at A79.22c at 5pm yesterday.

Down again

* NZX-50-0.56pc

* ASX200-3.51pc

* Nikkei-2.51pc

* Dow Jones-3.68pc

* FTSE 100-4.49pc

NZ shares ride out wave of global fear - Business - NZ Herald News


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## anski

*Brian Gaynor: Earnings up for 'big six' but caution prevails*

The first few June-year results from our major companies have given investors plenty to cheer about.

All six companies announced an increase in earnings compared with the June 2010 year and four of the six (Fletcher Building, Freightways, Port of Tauranga, Steel and Tube) have raised their annual dividend. The only exceptions were Telecom, which cut its dividend from 24 cents to 20 cents, and SkyCity, which reduced its annual distribution from 17.25 cents to 16 cents (see table).

Broker analysts are optimistic about the year ahead, even though chief executives believe economic conditions remain uncertain and are unwilling to give earnings guidance for the June 2012 year.

Analysts expect the six companies to report higher earnings this year and raise their dividends. They're especially optimistic about Fletcher Building even though the Christchurch rebuild will be delayed because of insurance and building code consents.

The Crane acquisition in Australia and its success with the Waterview contract is expected to boost Fletcher Building's earnings and compensate for the deferred Christchurch reconstruction, which may not be in full swing until the June 2014 year.


The one disturbing feature is that all six companies have focused on "normalised or adjusted" earnings instead of audited figures. This worrying trend began a few years ago and has accelerated in 2010 and 2011.

Auditors are signing off IFRS (International Financial Reporting Standards) compliant profit figures yet directors are claiming another, usually higher, figure as normalised earnings. Five of the six companies reviewed reported normalised earnings in excess of audited profits, Port of Tauranga the notable exception.

The highly successful port company announced a normalised profit of $57.9 million compared with an audited figure of $58.4 million. The difference is due to deduction of a deferred tax adjustment of $0.5 million relating to properties.

Many of these adjustments, from audited to normalised earnings, are justified but they've created dangerous precedents. Companies seem to be able to make any adjustments they wish and these adjustments are not subject to auditors' scrutiny. The potential problem is that less scrupulous directors will follow the example of our largest companies and produce their own "creative normalised" earnings.

Creative accounting and poor standards were major contributors to the 1980s sharemarket boom and bust. This encouraged a substantial number of New Zealanders to invest in residential property instead of the sharemarket.

Ironically the NZX, which announced its interim profit for the six months to June 30 this week, has one of the largest gaps between audited and normalised profits. The NZX had an audited profit of $4.51 million for the interim period to the end of June but reported normalised earnings of $6.62 million.

These adjustments from audited to the higher normalised profits raise the question of whether staff bonuses and incentives are based on the lower audited figure or the higher normalised number.

Fletcher Building announced normalised earnings of $359 million for the twelve months ended June compared with an audited profit of $283 billion. The higher normalised figure was due to a number of items including the exclusion of asset and stock write-downs as well as costs following the Crane deal.

The group's annual dividend was increased to 33 cents but it's still well below the 48.5 cents paid in the June 2008 year.

Australian activity slowed towards the end of the financial year although chief executive Jonathan Ling noted this was due to a loss of confidence, instead of economic fundamentals, and this confidence could turn around quickly.

Ling said the current environment was extremely uncertain and it was unlikely the Christchurch rebuild would be in full swing until the June 2013 year at the earliest. Nevertheless analysts are forecasting net earnings in the $410 million to $460 million range for the current year compared with $359 million for the recently completed year.

Freightways is an excellent barometer of domestic economic activity and its recent results have reflected this. Earnings have been relatively flat but managing director Dean Bracewell said this week he believed the outlook was more stable than it had been for some time. Analysts' forecasts reflect this, most expecting the company to achieve earnings in excess of $34 million this year compared with $31 million in 2010/11.

Port of Tauranga has been the outstanding performer over the past four years, in terms of both earnings and dividends, and clearly demonstrates that public/private partnerships can work.

The port is 55 per cent owned by the Bay of Plenty Regional Council and the controlling shareholder has given full support to the company's excellent management team.

Port of Tauranga has benefited from buoyant log trade and its ability to gain container trade market share in recent years.

The company faces a number of challenges in the year ahead because of uncertainties over log and kiwifruit volumes, but broker analysts are forecasting net earnings of around $64 million compared with $57.9 million for the June 2011 year.

SkyCity, operator of casinos in Auckland, Hamilton, Queenstown, Adelaide and Darwin, had an audited profit of $123 million but normalised earnings of $130.9 million.

The improved result was due to a number of factors including better trading in the Auckland and Adelaide casinos as well as higher VIP earnings.

The company has a large number of initiatives in Auckland that should boost earnings during the Rugby World Cup and beyond.

Analysts are forecasting net earnings between $148 million and $160 million for the current year compared with $130.9 million last year. However, that's forecast to flatten out in the 2013 year unless there's substantial improvement in performance of the other casinos, particularly Adelaide and Darwin.

Steel & Tube announced normalised profits of $17.3 million compared with audited earnings of $17.0 million, a vast improvement on its June 2010 year.

However, the company reported the 2011 financial year finished weakly "as several key sectors continued to deteriorate thereby offsetting those sectors showing signs of improvement".

Chief Executive Dave Taylor noted the residential and non-residential construction sectors continued to deteriorate and farmers seemed to put a high priority on reduction of debt.

Broker analysts have fairly cautious earnings forecasts for the June 2012 year, although they expect a better 2013 year as Steel & Tube benefits from Christchurch's rebuild.

Telecom announced normalised earnings of $388 million for the June year compared with audited net earnings of $166 million, the adjustments due to several pluses and minuses including the write-back of an asset impairment charge of $257 million.

Most of the normalised earnings improvement was due to cost reductions as the company continues to face pricing pressures on its products and services.

The telco did not give any guidance because of regulatory issues associated with the demerger of Chorus, its network division. This is expected to happen before the end of the current calendar year.

Market sentiment towards Telecom has changed and the stock has outperformed the New Zealand sharemarket over the past few months. However the company's break-up presents considerable challenges ahead as does the continuing pressure on product prices.

Though all six companies produced positive results, there's no hint of complacency in corporate New Zealand. The year ahead presents enormous challenges, as well as opportunities, and we can expect a number of adjustments to analysts' June 2012 year earnings forecasts before these results are announced.

Disclosure of interest; Brian Gaynor is an Executive Director of Milford Asset Management, which holds investments in all six companies mentioned in this [email protected]

Brian Gaynor: Earnings up for 'big six' but caution prevails - Business - NZ Herald News


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