Here's our summary of key economic events overnight that affect New Zealand, with news from China to Canada to Australia, more analysts are downgrading their views about avoiding recession.
Canada's jobless rate rose to 5.2% in May from 5% for the five previous months. It is the first increase in their unemployment rate in nine months. Their labour market is clearly cooling. -17,300 jobs were lost, largely by younger workers, the first decline in nine months, and this was a big surprise because analysts had expected a rise of +23,200.
Good rains in the US mean that they will have a substantial surplus this year in their wheat crop, with output rising to over 800 mln tonnes. But Russia, India, the EU and Ukraine are also all expected to have bumper wheat harvests. American corn and soybean exports are expected to be smaller however. All this comes from the latest USDA WASDE June update. They signaled no significant changes in beef and milk.
As we have noted elsewhere, China has no consumer inflation. This was confirmed Friday in their official data for May which reported their annual inflation rate edged up to +0.2% in May 2023 from April's 26-month low of +0.1%, but less than market estimates of +0.3%. Between April and May, prices slipped slightly. None of this paints a picture of substantial demand. Milk, beef and sheepmeat prices all fell faster than the overall level.
However, China does have deflation in its industrial sector. Producer prices fell -4.6% year-on-year in May, faster than a -3.6% drop in April and worse than market forecasts of a -4.3% drop. It was the eighth straight month of producer deflation and the steepest fall since February 2016. It comes amid weakening demand and moderating commodity prices.
China is losing investor favour faster now too and in a wider set of sectors. Foreign investors pulled a net -US$7.2 bln worth of funds from Chinese bonds in May, according to the Institute of International Finance Capital Flow Tracker. That marked the fifth consecutive month of outflows. In April, a total of -US$10 billion was withdrawn from Chinese debt. But Chinese equities posted +US$126 mln worth of inflows from overseas funds in May, compared with April’s outflow of -US$808 mln. This all adds to considerable fund-outflow pressure in China’s capital markets, particularly in bonds, over the past few months, amid a weaker yuan. The Chinese currency has lost -3% against the US dollar since the start of the year.
Beijing officials are clearly worried but not unnerved yet. Their central bank governor appealed for confidence and patience after the weak price data triggered concerns over deflation that is hampering their post-pandemic recovery.
We should note that Turkish President Erdogan is reversing course and giving up on his disastrous rate-cut experiment that brought extreme inflation and a savage devaluation of its currency. He has sacked the central bank boss he installed to carry out this policy, and hired an American executive to get things back on track. The new central banker was the CEO of First Republic Bank in California - yes, the one that just collapsed! The currency market voted by marking the Turkish lira down to a fresh record low. You gotta love the 'special' know-all attitude of autocratic leaders - in this case, unless you are Turkish of course.
Things are not great for the Argentinian currency either. It has devalued even more than the Turkish one. Since the start of 2020 it has devalued more than -76% (the Turkish lira is down -74%.) Now an Argentinian presidential hopeful is proposing to end the misery by ditching the currency altogether and just using the US dollar
In Australia, more economists are now warning growth is evaporating there and the chances of a recession in the lucky country are now 50:50. The latest to come to this view are CBA and HSBC.
The UST 10yr yield will start today at 3.74% and up +2 bps from yesterday and up +5 bps from a week ago. Their key 2-10 yield curve is more inverted at -86 bps. Their 1-5 curve is unchanged at a -128 bps. Their 3 mth-10yr curve is also more inverted at -145 bps. But these inversions are a lot less than a week ago. The Australian 10 year bond yield is now at 3.95%, unchanged and holding Thursday's sharp move higher. It's +22 bps higher in a week. The China 10 year bond rate is down -2 bps at 2.70%. And the NZ Government 10 year bond rate is at 4.58% and down -3 bps from this time yesterday but up +20 bps in a week.
Wall Street is in its Friday session and up just +0.1% on the S&P500 and a +0.4% weekly rise. Overnight, European markets were lower with London down -0.5% and Paris down -0.1% and the others in between. Yesterday, Tokyo rose a strong +2.0%% on the day to end the week up +1.3%. Hong Kong rose +0.5% to be up +2.0% for the week. Shanghai was up +0.6% which allowed it to end the week unchanged. The ASX200 ended its Friday session up +0.3% for a weekly change of down -0.3%.
The NZX50 had a tough week. It ended its Friday session down -0.2% to be -1.9% lower for the week. The energy sector was one key drag with Mercury's capitalisation falling -6.5% and Meridian's falling -3.8%. Overall that sector fell -2.7%. Outside that sector there were other notable falls. Oceania fell -2.5%. EBOS fell a sharp -13.5% on the loss of their Chemist Warehouse contract. But the biggest fall was from Pacific Edge which slumped -80% after losing its US Medicare certification. That will obviously drop it out of the NZX50 when it is reset. The biggest weekly gainer was Serko, up +13%.
The price of gold will start today at US$1961/oz and down -US$2 from yesterday. But that is up +US$10/oz from a week ago.
And oil prices have fallen another -US$1.50 today from yesterday at just on US$70/bbl in the US. The international Brent price is now just under US$75/bbl. A week ago these prices were +US$1.50/bbl higher.
The Kiwi dollar starts today firmer at 61.2 USc. But it is down -¼c from a week ago. Against the Aussie we are little-changed from yestreday at 90.9 AUc. Against the euro we are up at 57 euro cents. That means the TWI-5 is up to 69.4 with another +30 bps daily rise but little-changed from the week-ago 60.5 level.
The bitcoin price is again virtually unchanged since this time yesterday at US$26,446. But that is down -2.2% in a week. Volatility over the past 24 hours has been low at just on +/- 0.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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20 Comments
Wages in China's manufacturing sector no longer support mass production of cheap goods. The state has had to artificially lower these costs for their industrial complex to remain competitive through generous debt-fueled subsidies.
A painful debt restructure in China, as many experts foresee coming, could mean the much of the world facing a prolonged period of high inflation.
And whatever happens, the answer isn't going to be to revisit the past of artificially low interset rates. Because the second that appears likely, then prices will roar. We all saw what happened last time; so recently. And which of us is going to stand back and not buy anything and everything not nailed down for fear that price will rocket again? None of us.
This time, as it was last time but was ignored, more and cheaper Debt isn't the answer. Letting nature take its course, is.
Fingers crossed this inflation has provided central bankers with a scare - meaning that they will be less likely to repeat their actions from 2020.
That being said, the US is going to be stuck in a rock hard place situation going forward. They may have no option but to revert to QE again or risk defaulting - how this is going to play out, I’m not certain.
Maybe that's what the answer shouldn't be, but the likelihood of the same (or very similar) behaviour from central authorities is pretty strong.
Governments don't want large amounts of unemployment, and propping up the employment market with cheap money is the most palatable mechanism to do that with. It's just that the employment will likely continue to pay increasingly lower dividends for workers.
Hunker down, buy silver, sell sell sell
Yip! In my "hood" 5 properties have , just this week, dropped their asking price by an average of 208k from a 1 millionish asking prices.
One brand new property sold instantly.
One agent, who previously said it's bottoming out, now has seen a change in sentiment as mortgages start to bight, but! Many of his listings are retirees down sizing early to get money know rather than miss out.
And oil prices have fallen another -US$1.50 today from yesterday at just on US$70/bbl in the US. The international Brent price is now just under US$75/bbl. A week ago these prices were +US$1.50/bbl higher.
Those Saudi production cuts had almost no impact, no one else within OPEC appears eager to support oil prices.
Luxon didn't come away from Jack Tame interview looking like a potential PM for anyone other than landlords and big business.
Ordinarily politicians would be relishing airtime to get their message across, but I doubt National will be looking forward to his next encounter with Jack.
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