NEW ZEALAND: VIEW: Westpac Sees Jobs Growth Exceeding Population At End-2025
Q4 data showed that the labour market continued to ease with the unemployment rate rising 0.3pp to 5.1%, its highest since 2016 excluding the pandemic, and employment down 1.1% y/y. Wages growth moderated further as a result. Westpac notes that the outcomes were “broadly in line” with the RBNZ’s projections and while “some of the details were marginally stronger than the RBNZ had assumed, none of this is likely to be persuasive; the RBNZ has already stated that the base case for its policy review later this month will be a 50bp OCR cut, unless there was conclusive evidence otherwise”.
- Westpac observes that “the fall in employment was partially offset by a slight drop in the participation rate to 71.0% (from a downwardly revised 71.1% in the September quarter). As we’ve noted previously, youth participation in particular has dropped off markedly in the last year or so, having risen sharply during the period of labour shortages in 2021-22”.
- “Even with the economy expected to pick up over 2025, we think it will be towards the end of this year before we see jobs growth outstripping population growth.”
- “The Labour Cost Index (LCI) rose by 0.6% for the private sector, in line with our forecast. The public sector was more subdued than in previous quarters with a 0.5% increase. (There was a 3.9% pay increase for schoolteachers in December, but as we noted, the timing of the LCI survey meant that it may not be recorded until next quarter.)”
- “The unadjusted analytical LCI, which strips out pay increases that are related to higher productivity,” rose 4.2% y/y down from 4.9%, “its lowest since December 2021. Fewer roles have seen pay increases over the last year, and the average size of those increases has moderated.”
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GLOBAL MACRO: Global IP/Trade Outlook Subdued
The JP Morgan global manufacturing PMI moderated to 49.6 in December from 50.0. While the Q4 average remained below the 50-breakeven level at 49.7, signalling a slight contraction in global manufacturing activity, it was 0.4pp higher than the Q3 average. Global IP and trade growth was fairly steady over 2024 and that trend continued in October and the PMI is signalling that that remained the case going into year end.
- The CPB’s measure of global IP rose 0.3% m/m to be up 1.8% y/y in October, close to the 2024 and Q3 averages. 3-month momentum is positive at a steady rate. IP growth looks likely to continue but at lacklustre rates. Business sentiment in the PMI fell to a 3-month low, signalling a weak outlook.
- Global trade was flat in October with annual growth moderating to 1.7% from 2.5%, but still above the 2024 average but lower than Q3’s 2.3% y/y. 3-month momentum is picking up though. However, exports orders contracted at a faster pace in December with only 8 of the 30 countries surveyed recording a rise, according to the PMI.
- Apart from November, the manufacturing PMI has been in contractionary territory since July. The drop in December was driven by weaker orders and output with some regions particularly concerned about the impact of possible US tariffs (only 13 of 30 countries recorded a rise in production). Employment also fell but at a slower pace.
- Intermediate and capex sectors posted contractions in output, while consumer goods continued to grow (17th consecutive month).
- Cost pressures picked up to 54.4 from 53.9, 4-month high, but selling price inflation eased to a 9-month low.
Global growth
CNH: USD/CNY Fixing Holds Sub 7.1900, USD/CNH Dips
The USD/CNY fixing printed at 7.1876, versus a Bloomberg consensus of 7.3057.
- The fixing was basically unchanged versus Friday's 7.1878 outcome. The fixing error narrowed to -1181pips, largely due to the lower fixing consensus from the market.
- The upside ceiling on USD/CNY spot today is 7.33135.
- Earlier comments from onshore media (backed by the PBoC) highlighted the central bank's ability to keep the yuan basically stable and that it has tools to deal with depreciation.
- USD/CNH is back sub 7.3500 post the fixing outcome. Earlier highs in the pair rest at 7.3647.
FOREX: USD/JPY Higher With US Yields, CNY Fixing & Caixin Services PMI Due Soon
Early yen weakness is a feature of G10 markets. Yen is off around 0.30% against the USD in the first part of trade. Trends are mixed elsewhere with EUR weaker and back sub 1.0300, while AUD and NZD are up a touch. the BBDXY index is slightly higher, up above 1313. Recent highs in the index rest above 1316.
- USD/JPY is near session highs, last close to 157.70/75. Recent highs in the pair rest at 158.08 (Dec 26), which is likely to be an upside focus point.
- US yields have opened higher, up 1.5-3bps across the curve, led by the back end. Positive US data surprises from late last week and Fed caution around inflation are likely supporting yields. This will be pressuring yen to a degree and is offsetting the rise in JGB yields (with cash bonds open for the first time since early last week).
- AUD and NZD are up a little over 0.15% at this stage, leaving markets with a slight risk on feel. AUD/USD was last 0.6225/30, NZD/USD is above 0.5620.
- On the data front, the Dec services PMI for Japan was revised lower to 50.9 from 51.4. In Australia the services PMI was revised up to 50.8 from 50.4.
- Later we get the Caixin services PMI in China.
- Also note there will be some focus on the CNY fixing, given spot's break above 7.3000 in Friday trade. USD/CNH is relatively steady so far today, holding sub 7.36000 in latest dealings.
