Here's our summary of key economic events over the weekend that affect New Zealand, with news the timing of the next policy rate moves are top of mind in both the US, and New Zealand.
But first in the week ahead, the spotlight in the US will be on the debt ceiling negotiations, FMOC meeting minutes, and several Fed speeches. Additionally, investors will be closely monitoring data on personal income and spending, PCE prices, the second estimate of GDP growth, corporate profits, durable goods orders, services and manufacturing PMIs, as well as new and pending home sales.
More generally, fresh May PMIs are anticipated for the UK, Australia, the EU, Japan, France, and Germany. Finally, inflation rates for the UK and South Africa will be released, and monetary policy decisions are awaited for China, South Korea, Indonesia, Turkey, South Africa, and of course from the RBNZ on Wednesday.
There are now just 20 weeks until the October 14 election. There is an RBNZ MPS on Wednesday, and another on August 16 just 60 days ahead of the election. There are interim rate reviews on July 12 and October 4. Almost certainly the RBNZ would not move rates on October 4 because of the risk of being seen to influence the election. They might feel uncomfortable on August 16 for the same reason. Assuming those two dates are off the table and there is no big immediately pressing issue, the only opportunities to adjust rates until the post-election MPS on November 29, are on Wednesday and July 12. If their judgement is that Budget 2023 adds to inflationary pressures, the Wednesday MPS reassessment is the most likely time they will pull the trigger. A bit more than +35 bps is priced in, so the markets are unsure whether we are facing +25 bps or +50 bps on Wednesday. More here.
In China, their currency continues its devaluation, falling well past 7 to the US dollar, and now up to 4.43 to the NZD. From the start of April, the Chinese yuan has devalued -2.3%. Against the NZD the devaluation is -3.0%. It may have been more if it hadn't raced to put in place direct deals with many developing countries, oil exporters, and Russia. These effectively hide demand and supply transactions from the open market. That opacity is holding the yuan from falling further. At some point the non-Chinese traders will tire of having a discount imposed on them.
And it isn't helping that foreign buyers seem to be shunning the important Canton Trade Fair this year.
And as a marker for healthy economic activity, we should note that China's income tax take is declining in 2023.
Japanese inflation came in at 3.5% in April, well above the expected +2.5% and above March's 3.2%. Japanese inflation is settling in above the Bank of Japan's 2% target rate. That's twelve consecutive months higher than that target.
In the US, the debt level negotiations push on towards a critical point; the first or second week of June is when the taps run dry and a shutdown is most likely. After a theatrical pause, negotiations are underway again, and Biden and McCarthy will meet tomorrow.
Fed Chair Powell said that because of stress in the banking sector, it might be unnecessary to raise rates to curb inflation. Other Fed speakers chimed in with a pause view as well.
In Canada, data for March retail sales was weak coming in only +2.4% higher in value terms than year ago levels but falling from February levels. But in volume terms, retail sales were up 1.2% in Q1-2023, so the March result is a bit of an aberration. The same data shows that things will likely be back with a good +2.5% pa annualised rise in April from March. The falling petrol price is causing these signals to be a bit odd.
In Europe, they are assessing what lessons can be learned from the Credit Suisse meltdown and the recent American regional banking wobbles. The issue seems to be that large uninsured deposits flee at first signs of trouble, and the size of these shifts accentuates the problem. Having a limit on insured deposits 'causes' this problem. It's not protection of depositors that is now the issue, it is protection of overall financial stability.
German producer price inflation rose +4.1% in April from a year ago, the smallest increase since April 2021. The annualised rate between March and April was even lower.
Over the weekend there were elections in Greece, which is coming out of a twelve year crisis during which most Greeks endured substantial hardship. Perhaps surprisingly, the incumbent center-right government is emerging with a rising vote, sharing the spoils with the center-left party of the prior government who had to endure most of the restructuring. The genuine democratic stability in Greece contrasts with the dodgy 'stability' in the recent elections in Turkey.
In Australia, they are feeling left out of inbound travellers from China. There were 26,810 short-term visitors from China in March compared to 124,370 in March 2019. This semi-official snub has a flow-on impact on New Zealand where only 7119 short-term visitors from China arrived here compared to 41,063 in March 2019. China may be punishing Australia, but we get blowback too.
And Australia has decided how it will regulate Buy Now Pay Later schemes. They will be regulated under credit laws and companies in the sector will have to determine that products are suitable for their users under their responsible lending obligations. Those firms will be required to hold an Australian credit licence. These moves follow New Zealand's moves to regulate BNPL here.
The UST 10yr yield starts today at 3.69%, the same as where we were Saturday but up +25 bps for the week. Their key 2-10 yield curve is still inverted at -59 bps. Their 1-5 curve is still at -129 bps. And their 3 mth-10yr curve is also little-changed at -182 bps. The Australian 10 year bond yield is now at 3.62% and down -1 bp. But that is a +23 bps rise in a week. The China 10 year bond rate is unchanged at 2.73%. And the NZ Government 10 year bond rate is at 4.47% up another +1 bp from Saturday and up a massive +41 bps in a week.
The price of gold will start today at US$1978/oz and up +US$2 from Saturday, but down -US$33 for the week.
And oil prices are marginally firmer from where we left them Saturday to be just under US$72/bbl in the US. The international Brent price is still just over US$75.50/bbl. These levels are +$1.50/bbl higher than this time last week.
The Kiwi dollar is little-changed against the USD from Saturday and now just on 62.7 USc. But that is up +¾c in a week. Against the Aussie we are little-changed at just over 94.4 AUc. Against the euro we are unchanged at 58.1 euro cents. That means the TWI-5 is up to 71.3 and no change from Saturday.
The bitcoin price is unchanged today, now at US$26,885 and little changed from both Saturday and one week ago. Volatility over the past 24 hours has been low at just on +/- 0.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
68 Comments
25bps is surely on, with another 25 in July.. with warning to more to come.. with the longer end moving up too..
The housing market sure to feel the pressure of these moves
Hard to call, but I pick 50
Yep I concur. Going to be very interesting.
I'm picking no change.
Why
.25 & .5 has been taken. I doubt it would be 1.0 and I want all the glory of getting it right. Also this:
Fed Chair Powell said that because of stress in the banking sector, it might be unnecessary to raise rates to curb inflation. Other Fed speakers chimed in with a pause view as well.
I think it's a good gamble.
I agree ZS - I think the US can probably pause from here, but their CPI is a lot lower than ours and they have the benefit of being the global reserve currency.
We are in a different situation where we may need to raise higher to keep strength in the NZD to prevent importing even more inflation this year.
Will that happen - I don't know. But wholesale rates last week were indicating a 50bps or even 75bps raise are a real possiblity. My best guess would be 25 or 50bps...........but the 1 year swap is now 75bps above the OCR, so the RBNZ may feel some real pressure to lift by that amount.
40%
Going no change as well.
RBNZ will go for 50 so that it can pause and not raise rates closer to election.
We are running very hot in the economy when still the visitor numbers are so low.
There is just too much cash in he economy which is not adding any value but just causing people to spend on stupid things.
It sounds like the Auckland Boat Show was a roaring success. People out splashing big bucks on new boats will be keeping Orr awake at night!
They might find themselves up a creek without a orr soon....(going back to my day job now)
If those are powerboats - and even sailboats are dependent these days - they will become stranded assets, before their lifetime is through.
Accidental pun...
They are mainly powerboats, the bigger ones may have 5000l fuel tanks and 2x 500+ hp diesels
To help save fuel , in an Orwellian sort of way, Clarke Gayford, who goes 20 miles offshore with 2 large outboards to catch gurnard, might consider the below from Mercury
https://www.mercurymarine.com/en-gb/nz/engines/outboard/verado/verado-6…
Yep, need 4 of these V12s, saves 4x the fuel??
Just don't tell his consort who declared the Climate emergency
what sort of battery weight can a boat sustain? Electric outboards on the smaller powerboats were very popular when i was in Poland about 15 years ago, i would imagine the economics would be getting there for larger boats by now, but never seen one in NZ apart from the little donut toy boats on lake Taupo and a few subsidised passenger ferries.
I'm sure they are all productive investments and will be used to run charters for all those wealthy tourists/immigrants who are flooding into the country with huge piles of foreign $$$.
Its the young homebuyers and the indebted small business owners with mortgages, how is Orr going to stop people who arent affected by paying interest.
The fiscal stimulus and the interest earnings are keeping the economy humming.
by HW2 | 22nd May 23, 10:56am 1684709807
Its the young homebuyers and the indebted small business owners with mortgages, how is Orr going to stop people who arent affected by paying interest.
The fiscal stimulus and the interest earnings are keeping the economy humming.
He might need to reverse the policies of the last 20-30 years where the strategy was to benefit debt holders to keep them spending in the economy to prevent deflation (as globalisation and falling rates made everything cheaper).
Now he may need to punish debt holders to stop them spending in the economy to keep inflation under control.
Why? Because he doesn't have any other levers to pull.
But dont expect to reduce inflation though. The RBNZ has hardly made traction.
This is something you might know, why are the RV companies shareprices powering UP. Their fortunes and futures usually follow the residential market which still isn't hot
Do you have a specific example?
Example of what ... RV company shareprices rising UP over the recent short-term such as oceania? Is it cyclic?
maybe you can't explain it, sorry I asked
by HW2 | 22nd May 23, 12:52pm 1684716727
Example of what ... RV company shareprices rising UP over the recent short-term such as oceania? Is it cyclic?
maybe you can't explain it, sorry I asked
Oceania is down 50% from peak in response to higher interest rates. Have a look at its interest expense here in its income statement.
Its interest expense is now 5x what it was in 2019. That is going to be a serious drag on profitability going forward.
But perhaps now is a good time to buy shares now? But was it at the peak before interest rates went up?
Yes interesting. Rymans is up 18% YTD, although Summerset down 2%. But Rymans still well down over the past 12 months. Lifted from their reset this year?
Up 10 percent or more over the last month for all the retirement village operators
Within commercial property, kiwi property group earned about 14 percent more in net rents from march to march. Though their property values declined 4 percent. Apology if I have muddled anything, done on the run
"The growing debt is caused by a structural mismatch between spending and revenues. "
https://www.pgpf.org/blog/2023/02/debt-vs-deficits-whats-the-difference
No party wants to increase tax, and No party dares to cut expense.
One day it will blow up. The whole world has to bear the consequence.
Well put. The peril of populist centrism.
The resilience of human denial due to having life too easy for too long and a growing culture where often hard conversations are avoided due to fear of offending.
At least .5. Orr has bee warning financial reality was coming for some time. See what happens...?
.
The European Parliament wouldn't have been the first organisation to come to my mind as Covid conspiracy theorists...haven't seen any mainstream media reports on this shocking testimony yet.
Setting the scene in minutes 13 to 35.
Video has been taken down
That was fast work :)
Retired airline pilot friend sent me an article from the Washington Post (I think) which suggests that the evidence is growing that the source was a Wuhan lab leak. This theory was roundly debunked in the early days, but seems to be growing substance now.
I always thought it was a leak from pretty much the start. Within a week there was credible evidence it was a leak and my opinion has never changed. My only question is was it an accident or was it intentional.
Here is a working link: https://www.youtube.com/watch?v=bFLPWWCAHfQ
Was listening to D Martin way back at the start of the whole fiasco. Is one still a "conspiracy theorist" when they're able to provide facts and research?
This is how the mainstream media are reporting it so far -
https://www.nzherald.co.nz/world/chinas-wuhan-institute-of-virology-suf…
What's interesting to note from the Herald article - "Commenting on the report, Peter Daszak, the president of EcoHealth Alliance, which worked with WIV, said it was focused on a political chronology that “completely ignores the science." - this is the same person and organisation directly linked (allegedly) to the gain of function research and in regards to "the money will follow".
Man bluescope company that owns nz steel are totally exposed and humiliated by hosking
If you're interested listen at 7am
"Literally ... zero return" through a hypocritical company setting up coal plants in aus and elsewhere.
The "trigger for systemic risk" is being triggered as prices fall for first time in over a decade.
Everyone remotely familiar with banking over the last few years knows there's systemic risk and it starts with commercial real estate (CRE). The Fed's very own Financial Stability Report for May 2023 exposes the details behind the scenes. With CRE prices falling for the first time in over a decade, valuations will eventually have to be adjusted and then all bets are off. Literally.
Valuations remain high even as credit is denied and prices start to roll over, in hope of some optimism in the market, something magically turning around.
Not good news for CBMS in the US, sounds a lot like resi here.
It's all a bit pot kettle...
https://www.nzherald.co.nz/world/chinas-loans-pushing-worlds-poorest-co…
https://theconversation.com/the-manipulation-of-the-american-mind-edwar…
Who isn't "brainwashed"?
Saw another firm went bust, a civil construction company with 75 staff. The chain of payment defaults must be becoming acute. According to a liquidation lawyer interviewed, 75% of their work is now construction.
Who would have thought.
And Treasury forecasts residential investment increasing 3+% this year, and only falling about 4% next year.
Interesting isn’t it. Government dismissed my prediction of a construction collapse over a year ago, looks like they still think it’s only going to be a minor drop.
Posted this on the weekend thread but will post again since I thought it was pretty interesting:
Chuck in your income and spending to see where your taxes went.
Credit to Walter Lim who built it.
Impressive. Perhaps IR should buy it off him and use it to issue us all with receipts?
Pretty good, nice and simple.
Probably should be annual spend minus mortgage or rent for gst purposes.
Maybe national should buy it 😁
The GST part is definitely tricky, requires you to know what your spending is excluding expenditures that are GST-exempt (Financial Services, Rent, Second hand stuff, etc).
I'm not sure how National intends to do this in their "Tax Receipt" thing as it would be dishonest to show the receipt without taking into account GST which is actually a huge proportion of low-income earner's tax wedge as they have to spend more of their income on necessities rather than luxuries or savings.
I liked it better when I didn't know, I feel like I should atleast get free dental with that
What a thoroughly depressing website. The figures are all arse about face. I wouldnt mind being able to choose how my taxes were distributed.
Re deposit insurance
"The issue seems to be that large uninsured deposits flee at first signs of trouble, and the size of these shifts accentuates the problem"
(Sarc) Wow amazing,never would have occurred to me, or millions of others who thought that.
Can someone please explain how "deposits can flee at the first sign of trouble"? I thought a main feature of a deposit was that they are for a fixed term and can only be broken at the discretion of the bank (usually with a penalty / break fee imposed). Or are types of deposits the news usually talks about very short term and depositors are simply choosing not to roll them over?
If I thought my term deposit was at risk I would break it, receive no interest, and run. Any penalties are better than a change you get zero.
Yes but do all deposits come with the right to break them by notice (even if that comes with a 'penalty')?
ANZ : "You can request an early withdrawal from your term deposit but, unless you’re in the cooling-off period, we don’t have to agree to let you withdraw money early"
I would bet most are the same.
If Jeff Snider is anything to go by (see Audaxes video above), I don't believe deposit "runs" are the core issue. It's that some banks (particularly in the US which have unbalanced portfolios in the CBMS space) are finding it difficult to borrow money from elsewhere, such as money managers, as is normal in a functional market.
Not all deposits have terms, and there is no real limit to transferring money with a click of the mouse. I "ran" early last year, took longer to log in than to transfer.
You're thinking of term deposits, where your funds are committed for a fixed term. On-call deposits (savings accounts) can be withdrawn without any notice.
US and other MSM are over hyping the chances of a US Govt Debt Default in June. With Revenues of $5 Trillion a year and Debt Expense of $500 Billion it simply means that Biden's Administration will need to divert spending to prioritize Debt Payments at the expense of some of the new programs enacted by Congress last year. There is plenty of Revenue to pay the Debt--something else in the budget will need to be deferred until Congress acts. Good analysis here: https://thehill.com/opinion/white-house/4012134-congressional-democrats…
I suspect this will be a non event, so much hype around it in the media. Ceiling will be raised in my opinion - it's simply the trolley problem, where either path is not great but the FED have to seem as though they are doing something.
Sure they may lift the debt ceiling, but that is just another nail in the coffin for the US, the USD and the US economy.
Ultimately they need to reduce deficit spending, but if they do, who is going to receive less funding? Or who is going to be taxed more?
And how will the economy react when parts are receiving less and parts are having more taken from them in taxation?
I don't know the answers to these questions, but I do know that something is going to have to give - someone is going to have to become 'poorer' either by receiving less (government spending) and/or giving more (taxation).
I have always thought the diabolically expensive space program would be a place to start in terms of cost cutting. I doubt it will be adding much more to human knowledge from here. And there’s much more pressing things here on earth.
But it won’t happen. The space program is far too intwined with the USA’s pride and identity, not to mention it’s links with the ever powerful industrial military complex.
Yes per one of my recent posts - Ukraine would be a good start! Sending billions of dollars to the Ukraine while the US middleclass is being eroded into the dirt just seems crazy to me.
The US are going to have to stop (or seriously reduce) their role as world police as they simply cannot afford to continue to spend the way that they are.
Infographic: US military presence around the world | Infographic News | Al Jazeera
The US has around 750 military bases in 80 countries around the world.....this would be a great start to reduce their deficit spending. The cost of mantaining this global prescence must be extraordinary.
But if you read 'The Changing World Order' you also know that what is happening to the US is what plays out with all global empires. They over extend (as has been the case with the US in the period of end of WW2 to now), then realise they can't afford to maintain this presence, so they start printing money to monetise their debt/deficit spending, but this becomes uncontrollable until a point to where there is a run on that nations currency and they default/go bankrupt and it all collapses. My bet is that this is what the Chinese are expecting and they think they don't need to go to war with the US - because the US simply by doing what they are doing will cause their own demise (China have their own problems but don't want this post to get any longer)
Agreed, China is just waiting for the USA to implode. Not only is China getting stronger but it has control of its people. The USA on the other hand is getting weaker and has a 50/50 split with its people with one lot hating the other, throw in all those guns in civilian hands its a recipe for disaster.
Yes, this goes right back to the bible.
'If a kingdom is divided against itself, that kingdom cannot stand' - Mark 3-24
US is a classic example - until they can find bi-partison solutions to their debt problems and reduce their spending (or increase their taxation), they are in real trouble.
Yes the US has options. Everyone thinks the US is on its last legs because that's what the silly-billys want to believe however it's just because the US and the West by and large are transparent about these issues.
I find it interesting, that for the dutch for example, that tulip mania coincided with a build up to their peak point in global power. It was a symptom of what happens when being the global power goes to your head and you become euphoric about such things and lack rational thought.
https://www.chandlernguyen.com/wp-content/uploads/2020/04/rough-estimat…
Japan - although not the global world power nor reserve currency, was very strong in the 1980's and resulted in property/share bubbles.
Its possible that the same could be the case with the US and the anglosphere - asset bubbles at our peak power (think 2000, 2008 and possibly now) - before years of decline/malaise.
Why?
Asset bubbles are correlated with credit creation and confidence in the future. When that confidence is dissipates, so does out risk appetite for lending - especially at cheap interest rates - we require a higher risk premium if we have reduced confidence = higher interest rates = lower asset prices.
In Australia, they are feeling left out of inbound travellers from China. There were 26,810 short-term visitors from China in March compared to 124,370 in March 2019. This semi-official snub has a flow-on impact on New Zealand where only 7119 short-term visitors from China arrived here compared to 41,063 in March 2019. China may be punishing Australia, but we get blowback too.
Actually, the percentage drop is BIGGER for NZ.
Yes have been in Queenstown a few times recently and it was obvious that the Chinese hadn't return post COVID. Only a few very small groups - but there used to be bus loads of Chinese tourists everywhere.
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