1 00:00:00,200 --> 00:00:00,320 Speaker 1: Right. 2 00:00:00,320 --> 00:00:02,440 Speaker 2: Brendan Larseners with molvered acidt management high. 3 00:00:02,440 --> 00:00:05,000 Speaker 1: Brandon Good Evening, Brendan Listener, just. 4 00:00:04,960 --> 00:00:07,360 Speaker 2: Tell us how you think the economy has been unfolding 5 00:00:07,360 --> 00:00:07,720 Speaker 2: of late? 6 00:00:09,000 --> 00:00:12,600 Speaker 1: Yes, sure, so I guess clearly. Up until the October 7 00:00:12,640 --> 00:00:15,960 Speaker 1: ibien Z meeting, the flow of data really was quite poor. 8 00:00:16,440 --> 00:00:20,000 Speaker 1: So GDP posted a very week second quarter, and although 9 00:00:20,040 --> 00:00:23,280 Speaker 1: the detail around private consumption perhaps wasn't as bad as feared, 10 00:00:23,680 --> 00:00:27,200 Speaker 1: the report overall did spook the ibn Z. The week 11 00:00:27,280 --> 00:00:30,720 Speaker 1: GDP also came alongside a further slowing in the labor market, 12 00:00:30,920 --> 00:00:32,880 Speaker 1: which meant that there was more spec capacity in the 13 00:00:32,920 --> 00:00:36,959 Speaker 1: economy than the ivn Z had expected. Alongside this, we've 14 00:00:36,960 --> 00:00:39,680 Speaker 1: also seen a trend in mortgage holders keeping their refixing 15 00:00:39,840 --> 00:00:43,080 Speaker 1: very short between six months in one year, and so 16 00:00:43,120 --> 00:00:45,040 Speaker 1: that means that the easing that the ovan Z has 17 00:00:45,120 --> 00:00:47,640 Speaker 1: done to date hasn't really been flowing through via the 18 00:00:47,640 --> 00:00:50,960 Speaker 1: mortgage channel like it usually does, given those shorter rates 19 00:00:50,960 --> 00:00:52,720 Speaker 1: are often much higher than the two and three year 20 00:00:52,840 --> 00:00:56,200 Speaker 1: rates where people usually fix, and so this speck capacity 21 00:00:56,240 --> 00:00:58,720 Speaker 1: in the economy as well as a desire to keep 22 00:00:58,760 --> 00:01:01,600 Speaker 1: wholesale and therefore mortgage rates lower to get the intended 23 00:01:01,680 --> 00:01:04,440 Speaker 1: easing and debt costs was really the reason the IBNZ 24 00:01:04,600 --> 00:01:07,000 Speaker 1: delivered that fifty base point rate cut in October. 25 00:01:07,400 --> 00:01:09,600 Speaker 2: Okay, So I mean, obviously some weak conditions, but the 26 00:01:09,640 --> 00:01:12,360 Speaker 2: Reserve Bank has a single inflation mandates. What's the latest there. 27 00:01:13,480 --> 00:01:15,039 Speaker 1: Yeah, Look, it's a good point, and I think it 28 00:01:15,080 --> 00:01:17,640 Speaker 1: really comes back to the spare capacity argument I made 29 00:01:17,680 --> 00:01:20,919 Speaker 1: just a moment ago. So consumer prices rose three percent 30 00:01:21,000 --> 00:01:23,320 Speaker 1: in the third quarter, and so that's the top of 31 00:01:23,360 --> 00:01:26,800 Speaker 1: the ibnz's one to three percent band and an acceleration 32 00:01:26,880 --> 00:01:29,600 Speaker 1: on the second quarter. So at face value, people may 33 00:01:29,640 --> 00:01:32,559 Speaker 1: wonder how a central bank focus solely on inflation could 34 00:01:32,680 --> 00:01:35,920 Speaker 1: justify cutting by fifty basis points, and as I say, 35 00:01:35,959 --> 00:01:38,280 Speaker 1: really it comes down to their view that there is 36 00:01:38,319 --> 00:01:40,839 Speaker 1: a lot of spare capacity and that should put downward 37 00:01:40,880 --> 00:01:44,440 Speaker 1: pressure on inflation over the medium term. Within that Q 38 00:01:44,520 --> 00:01:46,920 Speaker 1: three CPR report, we also can see that a lot 39 00:01:46,920 --> 00:01:49,800 Speaker 1: of the upside came from food and more volatile items, 40 00:01:50,160 --> 00:01:53,400 Speaker 1: whereas cyclical categories like housing were actually weaker. And so 41 00:01:53,480 --> 00:01:56,040 Speaker 1: that does show that domestic conditions are still really tough. 42 00:01:56,280 --> 00:01:58,800 Speaker 2: Okay, So since we had that fifty basis point cut 43 00:01:58,840 --> 00:02:01,480 Speaker 2: in October, have we seen any notable changes in the economy. 44 00:02:02,520 --> 00:02:05,240 Speaker 1: Look, I think there are tentative signs of improvement, but 45 00:02:05,320 --> 00:02:07,920 Speaker 1: we want to see more conclusive data before we're really 46 00:02:07,960 --> 00:02:10,720 Speaker 1: shouting from the rooftops. We need to remember that we've 47 00:02:10,720 --> 00:02:13,519 Speaker 1: had three hundred basis points of rate cuts with a 48 00:02:13,600 --> 00:02:16,280 Speaker 1: high chance of another twenty five basis points next week, 49 00:02:16,520 --> 00:02:18,720 Speaker 1: and so that is a substantial amount of easing that 50 00:02:18,840 --> 00:02:22,440 Speaker 1: should start showing up more clearly. So, as I mentioned earlier, 51 00:02:22,480 --> 00:02:24,200 Speaker 1: one of the reasons we think that the reaction in 52 00:02:24,240 --> 00:02:27,079 Speaker 1: the economy to rate cuts this time is slower is 53 00:02:27,160 --> 00:02:29,440 Speaker 1: due to almost all of the mortgage that we're rolling 54 00:02:29,480 --> 00:02:33,160 Speaker 1: over this year being refixed at very short tenors, and 55 00:02:33,240 --> 00:02:35,440 Speaker 1: so once people start turning out their debt there is 56 00:02:35,480 --> 00:02:38,480 Speaker 1: still easy to flow through. On the data front. To 57 00:02:38,520 --> 00:02:41,080 Speaker 1: your point, I think since October we have seen a 58 00:02:41,080 --> 00:02:44,280 Speaker 1: few things that show some signs of improvement. One of 59 00:02:44,280 --> 00:02:48,440 Speaker 1: them is the Manufacturing PMI showing four of five categories 60 00:02:48,440 --> 00:02:51,320 Speaker 1: and expansion during the month, led by new orders, which 61 00:02:51,400 --> 00:02:54,720 Speaker 1: is a really positive signal for future growth. We've also 62 00:02:54,800 --> 00:02:58,320 Speaker 1: had the Services index show a second consecutive month of improvement, 63 00:02:58,400 --> 00:03:01,720 Speaker 1: and so that remains in contraction, but directionally that's better. 64 00:03:02,400 --> 00:03:04,760 Speaker 1: We've also had two months of improving job add data, 65 00:03:05,200 --> 00:03:07,720 Speaker 1: and the housing market is finally showing some signs of life, 66 00:03:07,800 --> 00:03:10,560 Speaker 1: with sales up fifteen percent in October and prices up 67 00:03:10,600 --> 00:03:13,280 Speaker 1: one point seven percent over the last three months, and 68 00:03:13,320 --> 00:03:15,000 Speaker 1: so we're optimistic that the bottom is in. 69 00:03:15,680 --> 00:03:17,600 Speaker 2: Oh how good, Brendan, I'm so pleased with that news. 70 00:03:17,600 --> 00:03:19,640 Speaker 2: Thank you, Bring the Last and Milfit Asset Management. 71 00:03:20,240 --> 00:03:23,400 Speaker 1: For more from Hither Duplessy Allen Drive, listen live to 72 00:03:23,520 --> 00:03:26,560 Speaker 1: news talks it'd be from four pm weekdays, or follow 73 00:03:26,600 --> 00:03:28,360 Speaker 1: the podcast on iHeartRadio.