On the data front, the Business NZ PSI has been the main release this week. The services sector expanded for a fourth straight month in September, with the index at 50.9, remaining largely unchanged from August. That is a notable run after two years of contraction, but growth remains modest and the recovery still looks narrow.New orders and inventories led the way, while employment and supplier deliveries both sat just below 50. Caution also remains firmly embedded across thesector. Respondent comments pointed to cost of living pressures, fuel prices, interest rates and election uncertainty as the main concerns, with roughly six in ten comments still negative.
With the NZ election approaching, businesses appear to be in wait and see mode,which is likely to cap any stronger lift in activity until there is more certainty. At the same time, services activity continues to lag manufacturing, where the PMI has held well above 50 for some time, again supporting our view that the activity measures continue to show mixed signals.Looking ahead, the focus turns to Q3 CPI, due out later this morning. We expect prices to have risen a little above 0.7%QoQ and 3.8% over the year.Markets (BBG consensus)expect a 0.8% quarterly rise,which is in line with the RBNZ’s forecast of 0.8% QoQ / 3.9%YoY.
Globally, this week data has been relatively limited, with the key focus on Chinese GDP data for Q3, which surprised to the upside. Quarterly growth picked up to 1.2% from 0.9%, lifting annual growth to 4.5% from 4.3%.The result kept Beijing on track to meet its 2026 target of 4.5% to 5% and buys policymakers some time to lift domestic demand into 2027. That support will be needed,as the boost from net exports is likely to fade with the trade surplus back at record highs and many Chinese firms increasingly building production offshore.Despite the relatively stronger growth for Q3, households continue to remain the weak link for the Chinese economy.Annual retail sales growth improved to 1.1% in September,but spending growth this year is running at only around a quarter of last year’s pace. The issue looks to be confidence rather than cash, with households wary of their job prospects and wealth as home prices keep falling five years into the property downturn. Adding to this, China’s property sector also remains incredibly weak, with property investment down more than 20% this year, largely as a result of weak demand. There are some positives for the Chinese economy, with industrial production growing at a solid pace, borrowing costs remaining quite low and authorities starting to free up bank lending capacity. Indeed, in our view, we think growth looks on track to hold around 4.5% this year.
In the US, data has been light, with housing and construction figures coming in softer than expected.Pending home sales fell 7.3% in September and are down 12.6% on a year ago, while housing starts dropped 5.2%after a 5.9% fall in August. Higher borrowing costs look tobe weighing on buyer demand, and markets have pared back pricing for an October Fed hike slightly in response. That said, last week’s CPI showed headline and core inflation remain elevated, and underlying growth is still solid, suggesting price pressures may persist. This supports our view that further tightening is likely before year end, with one more Fed hike expected at the December meeting.Turning to the oil market, prices remain elevated, with Brent crude hovering around $110/bbl as traders weighed renewed peace efforts in the Middle East and Ukraine.Prices eased briefly on reports that the US and Iran were nearing a deal, but resumed their climb after Iran denied them.President Zelensky also described talks with the US in Oslo as constructive, with a US envoy now set to travel to Russia. The Trump administration is keen to ease tensions ahead of the midterm elections, with energy prices a key issue for voters.
