iPredict Update: Two Interest Rate Cuts Expected This Year

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iPredict Update: Two Interest Rate Cuts Expected This Year

NEW ZEALAND WEEKLY ECONOMIC & POLITICAL UPDATE

www.ipredict.co.nz

Two Interest Rate Cuts Expected This Year

The Official Cash Rate will be cut on 11 June and again by 10 December, according to the combined wisdom of the 8000+ registered traders on New Zealand’s predictions market, iPredict.  Despite this, annual inflation is not expected to reach 2% until the September 2016 quarter at the earliest.  The government’s new tax on capital gains appears to have reduced forecast house price inflation somewhat, but the average Auckland house price is still expected to increase from $809,200 in April to $814,337 in May, $818,475 in June and $829,560 in July.  Kevin Hague is expected to be the next male co-leader of the Greens and National is expected to lead the next government with the support of NZ First, although there is now only an 11% probability John Key will still be prime minister by the end of 2017, with Paula Bennett favoured to replace him as National Party leader.

New Zealand Politics:

·       John Key is expected to remain National leader until the end of 2016 (78% probability, down from 83% last week) but has just a 50% probability of being National leader on Nomination Day (steady compared with last week).  Mr Key has just an 11% probability of remaining National leader until the end of 2017 (down from 17% last week).

·       Paula Bennett remains the favourite to become National Party leader if a vacancy arises (39%, up from 37% last week), followed by Judith Collins on 18% (up from 17%).

·       Andrew Little is expected to remain Labour leader until at least the end of 2016 (80% probability, steady compared with last week) and has a 83% probability of being Labour leader on Nomination Day up from 75% last week).  Mr Little has a 66% probability of remaining Labour leader until the end of 2017 (steady compared with last week).

·       Kevin Hague has regained pole position to be the next male co-leader of the Green Party, with 60% probability (up from 39% last week), ahead of James Shaw on 40% probability (down from 62%)

·       Judith Collins has a 50% probability of being appointed to Cabinet this year (down from 55% last week) and a 64% probability of being appointed before the next election (down from 71%)

·       Tim Groser is expected to be New Zealand’s next Ambassador to the United States (93% probability, up from 90% last week) and Maureen Pugh is expected to become eligible to be a list MP before the next election (95% probability, steady)

·       Phil Goff is expected to stand for the Auckland mayoralty (86% probability, down from 93% last week) as is Maurice Williamson (71% probability, up from 53%)

·       Next election expected in 2017 (94% probability, steady compared with last week) with a turnout of 75% (steady)

·       Forecast party vote shares at next election:

o   National                             44.0% (steady compared with last week)

o   Labour                               33.5% (up from 33.1%)

o   Greens                               10.8% (steady)

o   NZ First                                7.6% (up from 7.5%)

o   Others                                  4.0% (down from 4.6%)

·       NZ First has an 84% probability of holding the balance of power after the next election (down from 86% last week).  If NZ First does hold the balance of power, there is a 60% probability it will back National on confidence and supply (up from 50% last week), a 37% probability it will back Labour on confidence and supply (down from 44%) and a 2% probability it would sit on the crossbenches (down from 6%)

·       National prime minister expected after 2017 General Election (57% probability, down from 59% last week)

·       David Carter is expected to be New Zealand’s next High Commissioner to the United Kingdom (82% probability, up from 79% last week) and Gerry Brownlee has an 85% probability of being the next New Zealand Speaker (up from 83%)

·       Almost no chance Wellington councils will be amalgamated by end of 2015 (only 4% probability they will be, steady compared with last week) 

New Zealand Business & Economics:

·       Average Auckland house price expected to rise from $809,200 in April to:

o   $814,337 in May (down from $816,302 last week)

o   $818,475 in June (down from $821,335)

o   $829,560 in July (new stocks)

·       The average Auckland house price is expected to remain below $1,000,000 through to the end of 2016 (only 17% probability of passing this point by January 2017)

·       Quarterly GDP growth expected to be:

o   0.80% in the March quarter (up from 0.74% last week)

o   0.69% in the June quarter (down from 0.70%)

o   0.91% in the September quarter (up from 0.86%)

o   0.98% in the December quarter (up from 0.88%) 

·       Annual growth expected to be 3.43% in the 2015 calendar year (up from 3.21% last week)

·       Unemployment expected to be:

o   5.46% in the June quarter (up from 5.41% last week)

o   5.30% in the September quarter (steady)

o   5.37% in the December quarter (steady)

o   5.44% in the March quarter (up from 5.43%)

·       New Zealand pay gaps in 2014/15 expected to be:

o   Gender                                9.95% (steady compared with last week)

o   Maori                                   12.28% (steady)

o   Pacific                                 23.12% (steady)

o   Asian                                   20.43% (steady)

·       Current account deficit expected to be:

o   3.61% of GDP in the March quarter (steady compared with last week)

o   3.57% in the June quarter (steady)

o   3.39% in the September quarter (steady)

o   3.49% in the December quarter (new stocks)

·       Annual inflation expected to be:

o   0.39% to end of June 2015 quarter (down from 0.41% last week)

o   0.55% to end of September 2015 quarter (steady)

o   0.80% to end of December 2015 quarter (steady)

o   1.56% to end of March 2016 quarter (up from 1.43%)

o   1.47% to end of June 2016 quarter (up from 1.45%)

·       Official Cash Rate priced to be:

o   3.372% on 11 June (down from 3.428% last week)

o   3.247% on 23 July (down from 3.321%)

o   3.174% on 10 September (down from 3.252%)

o   3.141% on 29 October (down from 3.221%)

o   3.096% on 10 December (down from 3.176%)

o   3.086% on 28 January 2016 (down from 3.166%)

o   3.065% on 10 March 2016 (down from 3.145%)

o   3.055% on 28 April 2016 (down from 3.135%)

o   3.043% on 9 June 2016 (down from 3.123%)

·       This implies the OCR is more likely than not to be cut on 11 June 2015 to 3.25% (compared with 23 July 2015 last week) and to be cut again on 10 December 2015 (compared with 9 June 2016 last week)

·       Stocks on Australian interest rates are now available for trading

·       3% probability of a fiscal surplus in 2014/15 (down from 5% last week)

·       Fiscal balance expected to be:

o   -0.32% of GDP in 2014/15 (down from -0.31% last week)

o   0.62% of GDP in 2015/16 (up from 0.61%)

o   1.31% of GDP in 2016/17 (up from 1.30%)

o   1.89% of GDP in 2017/18 (up from 1.83%)

·       Fonterra’s final payout (before retentions) expected to be:

o   $4.72 in 2014/15 (up from $4.65 last week)

o   $5.46 in 2015/16 (up from $5.43)

o   $6.18 in 2016/17 (up from $6.11)

·       Campbell Live not expected to be cancelled this year (48% probability it will be, up from 43% probability last week)

·       Fruit-fly outbreak expected to be contained with fewer than 20 Queensland fruit-flies expected to be found in New Zealand as part of current outbreak (94% probability, steady compared with last week)

·       New Zealand dollar not expected to reach parity with Australian dollar by the end of 2015 (only 13% probability it will achieve parity, up from 10% last week)

·       Stocks on tourism arrivals are now available for trading

Foreign Affairs/Constitution:

·       Andy Burnham is favourite to be the next leader of the UK Labour Party (40% probability, up from 16% last week), followed by Yvette Cooper (25%, up from 14%) and Liz Kendall (21% up from 14%)

·       Boris Johnson has a 37% probability of being prime minister before 2020 (up from 35% last week)

·       Socialist Workers’ Party expected to defeat People’s Party in next Spanish election (67% probability, steady compared with last week)

·       All Eurozone countries, including Greece, expected to remain in Euro in 2015 (18% probability of an announcement of a departure this year, steady compared with last week).  There is only a 40% probability of a departure by the end of 2017 (steady compared with last week)

·       Tony Abbott is expected to be leader of the Australian Liberal Party on nomination day (60% probability, up from 43% last week), followed by Malcolm Turnbull (32%, down from 38%) and Julie Bishop (10%, down from 12%)

·       Bill Shorten expected to be Labor leader at next Australian Federal election (89% probability, up from 86% last week)

·       Liberals marginally ahead of Labor for next Australian Federal election in 2016 (53% probability of Liberal win, steady compared with last week)

·       Hillary Clinton is favoured to be the Democratic Party’s nominee for US president in 2016 and to be elected to that office (50% probability, down from 51% last week).  Jeb Bush has a 37% probability of being the Republican nominee (down from 40% last week) followed by Marco Rubio (24%, up from 17%) and Scott Walker (20%, down from 21%)

·       There is only a 12% probability New Zealand will sign the Trans-Pacific Partnership this year (up from 6% last week), and the Trans-Pacific Partnership is not expected to be ratified by the US Congress before 1 July 2017 (only 38% probability it will be, steady)

·       Helen Clark’s prospects of being the next UN Secretary General are 29% (steady compared with last week)

·       There is a 10% probability New Zealand will become a republic by 2020 (steady compared with last week) 

Notes:

·       iPredict Ltd is owned by Victoria University of Wellington.  Details on the company and its stocks can be found at www.ipredict.co.nz.

·       The weekly economic and political update is prepared by Exceltium Ltd on a pro bono basis and is based on a snapshot taken at a random time each week.  This week’s was taken at 2.48 pm today. 

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Selwyn Manning, BCS (Hons.) MCS (Hons.) is an investigative political journalist with 23 years media experience. He specializes in reportage and analysis of socioeconomics, politics, foreign affairs, and security/intelligence issues. Selwyn has extensive experience as a commentator and has provided live political analysis to a wide range of television and radio organizations broadcasting in New Zealand, Australia and globally including the BBC (Five Live, London) and BBC (World Service). He is currently a correspondent to Australia's FiveAA radio, and is a regular live-on-air panelist on Radio New Zealand's The Panel with broadcaster Jim Mora.

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