Here's our summary of key economic events overnight that affect New Zealand, with news markets are choppy after the Fed decision.
As widely expected, the US Fed did hold its policy rates unchanged at today's meeting. But it added the phrase "in determining the extent of additional policy firming that may be appropriate ..." signaling the more hikes are probable. They reinforced the importance of getting to their 2% inflation target. Their own median forecasts suggest two more rate hikes this year, adding another +50 bps in 2023. So it's more of a 'skip' than a 'pause'. This caused the US dollar to slip, equity markets to retreat, and bond yield to rise.
American May producer prices rose only +1.1% from year-ago levels, up +2.8% without food and energy. They fell -0.3% in May from April, following a +0.2% rise in April. Markets had expected only a -0.1% month-on-month drop. Goods prices went down -1.6%, the largest decrease since July 2022, mainly due to a -14% drop in petrol prices and a -1.3% fall in food prices. Prices for services rose +0.2% in May. All this paints a picture of rapidly receding inflation.
American mortgage applications rose rather sharply last week, up +7.2% from week-ago levels but are still substantially below year-ago levels. However, it was their first rise in five weeks. Mortgage rates declined for the second straight week, with the 30-year fixed rate decreasing to 6.77% plus points but that is more than +100 bps higher than a year ago. Industry sources are noticing more first home buyers in their housing market.
In Beijing, officials are worried about their faltering economy. A wide range of emergency support measures are now being considered by their State Council and decisions could come late this week or early next. On the agenda are more and deeper rate cuts, direct support for their struggling real estate sector, and tax incentives and credit support for the car market, especially electric vehicles. Tax breaks are also under consideration for high-end manufacturing companies. But it seems not under consideration is a redux of the large-scale infrastructure spending. That was considered wasteful and inefficient the last few times it was used, and put added pressure on local governments who are now a key part of the current weakness.
'Hidden debt' - that is debt owned by Local Government Financing Vehicles - and ultimately the liability of China's local government has now swelled to more than NZ$13 tln. (At the end of 2022 it was ¥59 tln or 33 times New Zealand's economic activity.)
The situation is certainly unnerving wealthy Chinese. China’s millionaires keep leaving, but now outflows may be ‘more damaging than usual’, a new report says. China isn't the only country where the rich are escaping. Russia, the UK, and India also feature. Where are they going to? Australia, UAE and Switzerland are the top three. New Zealand makes it into the top ten list.
In South Korea, their jobless rate fell to 2.5% in May, falling for the third consecutive month to a record low, indicating that the country’s labour market remains resilient despite weakish manufacturing activity, tighter financial conditions and slowing economic growth. Regionally, Japan has an unemployment rate of 2.6%, in China it is 5.2%, in Taiwan it is 3.5% and in Singapore it is 1.8%. New Zealand is 3.4%. It is hard to have a recession when just about everyone is employed.
Australia will release its labour market data later today and a minor +15,000 additional jobs are expected with their jobless rate staying at 3.7%.
In the EU, they did get their expected bounce-back in industrial production in April from March, but it wasn't quite as strong as they hoped and doesn't change the lackluster track.
The UST 10yr yield will start today at 3.81% and down -4 bps after yesterday's large +10 bps jump. Rates are on the move following the Fed 'hold' decision. Their key 2-10 yield curve is more inverted at -98 bps. Their 1-5 curve is little-changed at -128 bps. But their 3 mth-10yr curve is less inverted at -126 bps. The Australian 10 year bond yield is now at 3.99% and up +3 bps. The China 10 year bond rate has stayed lower at 2.66%. But the NZ Government 10 year bond rate is up +5 bpsl at 4.60%.
Following the Fed announcement, a flat Wall Street shifted -0.5% lower on the S&P500 but quickly recovered that to be flat again. Overnight European markets were all up +0.5%, except London which rise +0.1%. Yesterday Tokyo closed up another strong +1.5%. But Hong Kong shed -0.6% and Shanghai dipped -0.1%. The ASX200 ended its Wednesday session up +0.3% and the NZX50 was up +0.2%.
The price of gold will start today little-changed, up just +US$2 at US$1944/oz.
But oil prices have slipped back today to now be just under US$69/bbl in the US. The international Brent price is now down -US$1 to just under US$73.50/bbl.
The Kiwi dollar starts today much firmer, up +¾c at 62.3 USc and a three week high. Against the Aussie we are +½c firmer at 91.3 AUc. Against the euro we are up as well at 57.4 euro cents and almost a +½c gain. That means the TWI-5 is now up +50 bps at over 70 which is now a three week high.
The bitcoin price is little-changed since this time yesterday at US$25,989 and up only +0.6% from yesterday at this time. Volatility over the past 24 hours has been low at just on +/- 0.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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32 Comments
It is hard to have a recession when just about everyone is employed
I think we are going to have a good go David!! Unemployment is a lagging indicator and if people are buying less across most of the North Island (bar Auckland), then job losses will follow, and the momentum will soon run away from RBNZ. I still think we will contract a tiny bit today - despite those huge inflows of migrants.
Mmmm, they will want a few months of carnage I imagine at first, and then I suspect at the same time, the global conditions will also be sicker.
I was expecting some boom, bang, pop from March 2020, instead so far it's like slowly pulling nails.
I hope all the kids have been getting well prepared for the past couple of years.
A nice little recession hardly the only problem National & Co will inherit if they succeed. Personally will be both relieved and pleased to see the end of this hapless & hopeless Labour lot but in saying that, on present form, it’s difficult to summon up a lot of confidence that National & Co have the capacity to put things right so to speak.
Buy your golf balls at the Fieldays right now to support driving out Labour. The bit of news on TV was hilarious, someone selling Golf balls at the show with pictures of Chippie on it. Probably the ideal ball to chip in onto the green tho. Shame all this Labour government is capable of is playing in a sand pit.
All the economists and forecasters are deluded and far from reality or just plain playing the mouth piece of rich and powerful who want their narrative to be told. There will be no recession with so much money pumped into the economy in last two years for what ever made up excuses of covid.
This flood of money is huge and it will keep the coffers wet for a long time and financial institutions have plenty to give away so the rich can make more money by lending at high interest rates. So stop this recession narrative, it's not happening.
The dumb will keep borrowing more and more at higher interest rates just to make their masters rich.
Our economy relies on a flow of newly created bank credit + net govt spending being greater than the net savings desires of kiwis + our trade deficit (aka overseas savings in NZD cash or govt bonds).
Currently the reverse is true. That is why a recession is locked in.
If that is the case... Then why are the numbers heading south!
Dream on buddy, GDP, Inflation, housing. Etc all going the wrong way in a post COVID spending spree that has just come to an end.
Spending will crash as will the market.
Watch the unemployment numbers bro!... Just wait.... I'll remind you in September.
It's into cycle 2 of the decline.
https://ourfuture.fishandgame.org.nz/
"Last year, the Government released the Natural and Built Environment Bill (NBEA) to replace the Resource Management Act (RMA).
The proposed Bill creates a new framework for how New Zealand manages its natural environment including freshwater, bio-diversity and resources.
Fish & Game is extremely concerned about this Bill and its implications for the sustainable management of our natural environment and the future of game bird hunting and freshwater fishing.
And it could herald a major threat to the future of all forms of fishing and hunting in this country including freshwater fishing, game bird hunting and big game hunting."
99% of all species that have ever existed are extinct, apparently. That's Nature's way. Humans are just another species fighting the others for a space on our planet. At present we are doing okay as a species. That could change any minute. As if nature could care less how well or badly us or any other species do.
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