1
00:00:00,000 --> 00:00:00,320
Speaker 1: That's right.

2
00:00:00,360 --> 00:00:02,840
Speaker 2: Brendan Larson, Milford Asset Management, High Brandon.

3
00:00:03,160 --> 00:00:04,480
Speaker 1: Evening, Heather Brendan.

4
00:00:04,600 --> 00:00:06,320
Speaker 2: So it's been a little while since, of course, the

5
00:00:06,360 --> 00:00:08,360
Speaker 2: Reserve Bank had indicated to us that's the end of

6
00:00:08,360 --> 00:00:11,080
Speaker 2: the easing cycle. How do you reckon the economies transpired

7
00:00:11,119 --> 00:00:11,559
Speaker 2: since then?

8
00:00:12,640 --> 00:00:14,720
Speaker 1: Yeah, that's right. The othern Z sort of ended the

9
00:00:14,800 --> 00:00:17,079
Speaker 1: year pretty happy with where they've got cash rates. To

10
00:00:18,040 --> 00:00:20,240
Speaker 1: what we've sort of seen so far this year has

11
00:00:20,280 --> 00:00:23,200
Speaker 1: been reasonably encouraging. So on the growth front, we've had

12
00:00:23,200 --> 00:00:27,080
Speaker 1: a number of positive data points. The manufacturing PMI, which

13
00:00:27,080 --> 00:00:30,240
Speaker 1: is a measure of activity across manufacturing sectors, jumped to

14
00:00:30,280 --> 00:00:33,880
Speaker 1: the highest level in four years. New orders component part

15
00:00:33,880 --> 00:00:37,040
Speaker 1: of that was generally a leading indicator that was one

16
00:00:37,080 --> 00:00:39,400
Speaker 1: of the strongest in a number of years and a

17
00:00:39,400 --> 00:00:43,360
Speaker 1: good signal for future output. The services PMI also increased

18
00:00:43,360 --> 00:00:46,360
Speaker 1: into expansiony Church territory for the first time in nearly

19
00:00:46,360 --> 00:00:49,480
Speaker 1: two years. Finally, on the growth front, we also had

20
00:00:49,560 --> 00:00:52,680
Speaker 1: the Survey of Business Opinion which showed a really notable

21
00:00:52,720 --> 00:00:56,760
Speaker 1: improvement with decline and spare capacity and an increase in

22
00:00:56,800 --> 00:01:00,840
Speaker 1: realized and expected business activity. I think important. The employment

23
00:01:00,840 --> 00:01:03,480
Speaker 1: indicators also recovering off very low levels.

24
00:01:03,760 --> 00:01:05,920
Speaker 2: Right, So obviously the growth story is a good one,

25
00:01:05,920 --> 00:01:07,360
Speaker 2: but what about the inflation story.

26
00:01:08,319 --> 00:01:09,880
Speaker 1: Yeah, so this is where the news I guess is

27
00:01:09,880 --> 00:01:12,199
Speaker 1: a little bit more mixed. So last week we got

28
00:01:12,319 --> 00:01:16,360
Speaker 1: Q four CPI where headline inflation actually accelerated ten basis

29
00:01:16,400 --> 00:01:19,479
Speaker 1: points to three point one percent, meaning it did breach

30
00:01:19,560 --> 00:01:22,040
Speaker 1: the top of the ibn z's one to three percent banned.

31
00:01:22,800 --> 00:01:25,639
Speaker 1: So within that domestic inflation was flat on the quarter,

32
00:01:25,800 --> 00:01:28,600
Speaker 1: but ahead of the ibn zv's forecast or most of

33
00:01:28,640 --> 00:01:31,840
Speaker 1: the upside surprise came from non tradable inflation, which is

34
00:01:31,880 --> 00:01:35,440
Speaker 1: influenced more by offshore prices and clearly that weakly Zealand

35
00:01:35,480 --> 00:01:38,679
Speaker 1: dollar weighing on it as well. On the core measure side,

36
00:01:38,720 --> 00:01:41,600
Speaker 1: it wasn't quite as bad as the headline figure, but regardless,

37
00:01:41,640 --> 00:01:43,640
Speaker 1: the Avian z would be a little bit worried about this,

38
00:01:44,040 --> 00:01:46,520
Speaker 1: particularly given that growth trajectory I just talked about.

39
00:01:47,319 --> 00:01:49,320
Speaker 2: Now, over across the Tasman we just got the inflation

40
00:01:49,440 --> 00:01:51,560
Speaker 2: number for the fourth quarter. How are the two economies

41
00:01:51,600 --> 00:01:52,840
Speaker 2: do you think comparing at the moment.

42
00:01:53,800 --> 00:01:56,440
Speaker 1: Yeah, Look, the Aussi economy really has been quite a standout.

43
00:01:56,800 --> 00:01:58,760
Speaker 1: If you look at houseld spending data that has been

44
00:01:58,800 --> 00:02:02,600
Speaker 1: really solid. House prices have continued to stay a strong recovery.

45
00:02:02,960 --> 00:02:05,640
Speaker 1: All of that has meant that inflation is inflicting higher.

46
00:02:05,680 --> 00:02:08,880
Speaker 1: So today's fourth quarter core measure rose to three point

47
00:02:08,919 --> 00:02:12,160
Speaker 1: four percent from three percent. So their economy really didn't

48
00:02:12,200 --> 00:02:15,320
Speaker 1: experience the same level of weakness that as did, as

49
00:02:15,320 --> 00:02:18,359
Speaker 1: they've benefited from far larger levels of immigration as well

50
00:02:18,400 --> 00:02:20,200
Speaker 1: as a less aggressive hiking cycle.

51
00:02:20,840 --> 00:02:24,640
Speaker 2: Do you think that both in Australia and New Zealand

52
00:02:24,639 --> 00:02:26,360
Speaker 2: we are now talking about rate hikes.

53
00:02:27,639 --> 00:02:31,040
Speaker 1: Look domestically, there is the potential for rate hikes in

54
00:02:31,040 --> 00:02:33,080
Speaker 1: New Zealand later this year, but it is going to

55
00:02:33,080 --> 00:02:36,120
Speaker 1: be very dependent on the duration of this recovery and data.

56
00:02:36,639 --> 00:02:38,280
Speaker 1: I think we need to keep in mind also that

57
00:02:38,320 --> 00:02:41,040
Speaker 1: we have an election looming later this year, which may

58
00:02:41,120 --> 00:02:45,000
Speaker 1: cause household and business investment decisions to slow. We've also

59
00:02:45,040 --> 00:02:47,080
Speaker 1: already had to move higher and wholesale rates in New

60
00:02:47,160 --> 00:02:49,440
Speaker 1: Zealand and that does influence the degree to which the

61
00:02:49,520 --> 00:02:53,239
Speaker 1: RBNZ actually need to increase the cash rate. Over in Australia,

62
00:02:53,280 --> 00:02:55,920
Speaker 1: I think the risk is far more pronounced. Today's inflation

63
00:02:56,040 --> 00:02:59,440
Speaker 1: data marks a third consecutive upside surprise. So coupling this

64
00:02:59,520 --> 00:03:02,840
Speaker 1: with strong employment data last week and bitter growth data,

65
00:03:02,919 --> 00:03:06,239
Speaker 1: it really does increase the risk of more inflation upside

66
00:03:06,240 --> 00:03:09,280
Speaker 1: in the future. We're seeing that reflected in market pricing,

67
00:03:09,320 --> 00:03:11,480
Speaker 1: which is a seventy five percent chance at the RBA

68
00:03:11,600 --> 00:03:13,120
Speaker 1: high next week, so that's going to be a really

69
00:03:13,120 --> 00:03:13,920
Speaker 1: interesting one.

70
00:03:14,280 --> 00:03:16,519
Speaker 2: Brendan's good to talk to you, Thanks mate, Brendan Larson,

71
00:03:16,680 --> 00:03:17,880
Speaker 2: Milford Asset Management.

72
00:03:18,400 --> 00:03:21,600
Speaker 1: For more from Heather Duplessy Allen Drive, listen live to

73
00:03:21,680 --> 00:03:24,680
Speaker 1: news Talks. It'd be from four pm weekdays, or follow

74
00:03:24,720 --> 00:03:26,520
Speaker 1: the podcast on iHeartRadio