Here's our summary of key economic events overnight that affect New Zealand, with news equities and bonds rallied strongly after the tame headline US labour market data.
Apparently this bolsters the case for an end to the US Fed's inflation-fighting rate hike program.
The headline news is that total US nonfarm payroll employment increased by +150,000 in October, and the unemployment rate was little-changed at 3.9%. That was lower than the expected +180,000 gain for October. But as regular readers know, we look behind these seasonally adjusted numbers to the actual survey data. That shows that employer payrolls actually rose +1,066,000 in October from September to a record high 156 mln at the end of the month. And that was on top of the impressive +526,000 gain in September. But wait, there is more. Including the unincorporated self-employed, the employed workforce in the US is now 161.7 mln. But the self-employed portion of the workforce isn't growing much at all now. All the surge is on company payrolls. None of this indicates that the US labour market is 'cooling' as most headlines suggest.
The US needs payroll growth of +70,000/month to keep up with its working aged population, so by any interpretation, their labour markets are tightening. American inflation might well be easing and the Fed may well stand pat now, but it is unlikely to be because of its labour market track. More on tight global labour markets here.
(Interestingly, when we get New Zealand seasonally adjusted labour force data, the variances are usually small from the actual survey data. Why they should be so large in the US is a mystery to me.)
Meanwhile the widely-watched ISM services PMI reports an easing to its lowest level in five months. Still an expansion, but less so. However, new order levels rose much faster and suggests that future levels in the services PMI will rise. (New export orders were weak however.) The internationally-benchmarked Markit services PMI reported an expansion too, but that was even softer than the ISM one.
In Canada, their unemployment rate rose to 5.7% in October from 5.5% in the previous month, the highest since January 2022 and above market expectations of 5.6%. The result was in line with the Bank of Canada’s warning that its aggressive rate-hiking cycle has had a notable impact, slowing down the Canadian economy, prompting softer labour market conditions, although the unemployment rate remained below pre-pandemic averages. The number of jobless individuals rose by 40,300 to 1,229,400 in the period. Employment rose by +17,500 and well less than expected. And part-time employment rose by +20,800 while full-time jobs fell -3,300. So what payroll growth they did get was weak.
In China, their private services PMI expanded marginally in October, but little-changed from September. Business activity across their service sector is still subdued with a further slowdown in new order growth, which was the weakest in 2023 so far. The Caixin services PMI records an expansion score of 50.4. The official services PMI records a score of 50.6. Expansions yes, but very minor ones. (New Zealand's last services index was at 50.7. In Australia, a very weak 47.9, quite the contraction.)
And staying in China, they released their balance of payments data overnight. That showed outflows of foreign direct investment in the country have exceeded inflows for the first time since 1998. FDI came to -US$12 bln in the quarter, with more withdrawals and downsizing than new investments for factory construction and other purposes.
And the brutal price war going on in China for EV market share just went up a notch with BYD cutting already very low prices by another -10%. It is supposedly a 'temporary' cut. Major shareholder Warren Buffett is probably not happy with the management move.
Meanwhile, the CCP is embedding Xi Thought into the management of all their key financial regulators. Technocrats out, party officials in. What could possibly go wrong?
In Australia, retail sales rose a very minor +0.9% in September from August, up +2.0% from a year ago in value terms. But that belies a weak background. Retail sales volumes are down -1.7% compared to the September quarter last year. And volumes are lower despite a period of strong population growth. On a per capita basis, retail volumes are down -4.0% compared to this time last year, the largest 12-month fall in the history of their tracking, starting more than 40 years ago.
The iron ore price rose to its highest since march yesterday on the expectation that the recent Beijing financed stimulus will result in more traditional infrastructure projects there to combat the economic slowdown. (Coal prices keep falling however.)
Meanwhile, the Australian prime minister is due in Beijing today to meet President Xi. Interestingly, he holds important cards for China, so it is likely to be more a meeting of equals than is usual. Xi will also be testing reactions ahead of his expected meetings with US President Biden in the US in a little over a week.
In financial markets,traders are pricing a rising chance that the RBA will raise interest rates on Tuesday, a two-thirds chance. But they also see an almost 100% chance of a December 5 rate hike if it doesn't happen on Tuesday. This is all quite the reverse of how the rest of the world assesses the chance of rate hikes elsewhere.
The UST 10yr yield is down another sharpish -11 bps from this time yesterday, now at 4.56% as bond markets rally further. It has had a global flow-through. But their key 2-10 yield curve is slightly less inverted today, now by -28 bps. Their 1-5 curve is inverted by -80 bps and that is more inverted. Their 3 mth-10yr curve inversion is also more too, now by -85 bps. The Australian 10 year bond yield is now at 4.66% and down -7 bps from yesterday. The China 10 year bond rate is down -1 bp at 2.68%. The NZ Government 10 year bond rate is another very sharp -24 bps lower at 5.35%. A week ago this rate was 5.56%.
Wall Street is in its Friday trading with the S&P500 up +1.1% and a weekly gain of a massive +5.4%. That boosts the year-to-date gain to +14.5%. Overnight, European markets were mixed with London down -0.4% and Frankfurt up +0.3%. Yesterday Tokyo ended its Friday session up another +1.1% for a weekly rise of +4.0%. Hong Kong ended up +2.5% and up +2.6% for the week. But Shanghai rose only +0.7% which was also its weekly gain. The ASX200 ended its Friday session up another +1.1% to be +3.1% ahead for the week, up +0.5% for all of 2023 so far. The NZX50 ended up +0.7% and a rare +3.3% gain for the week. But for all of 2023 the NZX50 is still down -4.0%.
The Fear & Greed index we follow is still on the 'fear' side but only just, so less fearful than this time last week. Or the two weeks before.
The price of gold will start today at US$1991/oz and up +US$9/oz from this time yesterday. A week ago, this price was US$1986/oz.
Oil prices have fallen a sharpish -US$2 to just over US$80/bbl in the US. The international Brent price is down at just over US$84.50/bbl. A week ago these prices were US$84.50 and US$88.50/bbl respectively.
The Kiwi dollar starts today sharply higher at 59.9 USc and up more than +1c from yesterday. A week ago it was at 58.2 USc. Against the Aussie we are firmer at 92 AUc. Against the euro we are almost +½c firmer at 55.8 euro cents. That all means our TWI-5 starts today +60 bps higher than yesterday at just under at 69.3. That is +110 bps higher than a week ago.
The bitcoin price starts today at US$34,417 and -0.5% lower than this time yesterday. A week ago it was at US$33,654, so a +2.3% rise since then. Volatility over the past 24 hours has been low at just on +/- 0.5%.
In case you missed it yesterday, FTX founder Sam Bankman-Fried was found guilty yesterday (Friday NZT) of defrauding customers of his now-bankrupt cryptocurrency exchange in one of the biggest financial frauds on record. The jury came to a very quick decision. A sentence has yet to be handed down. SBF has been in jail since August after the judge revoked his bail, having concluded he likely tampered with witnesses.
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38 Comments
Construction slumps and housing crises throughout Europe. We are certainly far from alone. Good article:
https://www.japantimes.co.jp/business/2023/11/03/economy/europe-housing…
The stats do back that up but basically being retired or quitting work early requires a lot of self motivation. I find that now having the time its easier to stay fit and the biggest plus is getting enough sleep with no alarms in the morning not to mention there is now next to no stress in my life.
It is remarkable watching how determined central banks are across the world to destroy jobs in the mistaken belief that this is the way to slow price growth.
Look at the medieval monetarists at the Bank of Canada - warning that their 'aggressive rate-hiking cycle has had a notable impact, slowing down the Canadian economy' - great work guys!!! Now, why is your inflation subsiding at the same pace as the countries that are not killing jobs? In fact, why is inflation subsiding more quickly in countries that are actually reducing unemployment? Does that not give you pause for thought? What about you Adrian?
Talking of Orr-ful, I am proud to say that NZ, along with UK, Sweden and Canada, are the 'most dumbass' countries in the advanced economies. Our bloated housing markets and short-term fixed mortgages mean that our central banks can (unlike the US etc) destroy the economy with relative ease by slashing the disposable income of mortgagors and crushing the construction industry. See this neat graph for the data, which I checked of course because it was so stark.
You might have thought that the central bankers in these countries would ponder on why inflation is subsiding in other countires without heroic job killing, but, nope, on they go, spouting their nonsense, having their reckons, destroying lives.
I ran hospo businesses in the early 90s slump. When competitors went to the wall, we nudged our prices up because we could. Economists have many blind spots, but firms' price-setting behaviour is a big one. The RBNZ used to study such things and be interested in alternative views (see this report here for eg). More recent papers from ECB are also worth a read as is the short piece from the entertaining OddLots folk.
Yes, the difference between engineers and economists is that the former has to embrace and understand complexity (or things break), while the latter are positively encouraged to make sweeping assumptions (so long as the conclusion is that 'govt is spending / regulating too much, the free market is awesome, let capital run free etc).
Ones super micro, relying on precision, and the other macro.
I can't see how you'd be able to have it super precise, because it's only really trying to guide behaviour. Soft science vs hard.
Underneath it all, the entire structure is flawed because the underlying assumption is that increased materialism tracks alongside improved human well-being. Although this is deeply tied in to most people's personal assumptions also.
100% agree on the latter point.
On the models, I would settle for economists understanding / accepting that there are numerous feedback loops and causal mechanisms going on that are ignored by their models. For example, how higher interest rates put upwards pressure on measured inflation and demand through some channels.
Very early on at Uni I was extremely sceptical of Economics as a field, because the economics lecturers looked to be the most broke-arse looking of all the academic staff. Possibly because they're often analysing and interpreting charts and diagrams, instead of comprehending the basic mechanics of how businesses and commerce actually operate.
It takes a while for data to come through and be looked over, but it does appear that all the money printing over covid only attributed for about 30% of the inflationary pressure. Anyone on the ground could've told you that most of it was because it was just that much harder and more expensive to produce anything, due to the severe restrictions covid had on business operations.
Now production has largely normalised, but running head-first into the consequences of a tightening monetary policy. Although you've been saying something along those lines for a while now.
Long long ago that I had any involvement in the forex markets but I did not see the election outcome and resultant question mark over NZ’s governmental stability as a reason for the NZ$ to rally, and quite sharply at that. Could those on here up with it today offer some explanation?
Chinese policy-makers are trying to prevent property-sector contraction from forcing them to cut back on overall investment by shifting investment from the wrecked property sector towards manufacturing.
But manufacturing already accounts for an 27% of China's GDP, compared to 14% for the rest of the world, and absorbs a huge amount of low-cost investment. What's more, its biggest constraint is weak demand, not scarce capital.
Chinese officials cited in this article aren't arguing that policies to expand consumption are what will drive the expansion in manufacturing. They think more manufacturing will drive an increase in consumption.
https://www.scmp.com/economy/china-economy/article/3240117/china-hunts-…
A lesson for the Greens and Maori Party. Socialist central Washington State is implementing a 1% wealth tax on its residents. Immediately Jeff Bezos announces he is moving to Florida. It would cost him $1.6B to continue to live in the state. How much income tax does WA lose by driving its richest taxpayer away?
The price of gold will start today at US$1991/oz and up +US$9/oz from this time yesterday.
Usually when the gold price approaches USD2K, the likes of JPM start applying manipulation pressure on markets with all their paper gold.
But quite interesting to note that gold and silver miners exploded overnight (GDX and SILJ).
The focus is on Sam Bankman Fried for 5 secs, but more people should be in jail the way that our "trusted" markets work.
re ... "(Interestingly, when we get New Zealand seasonally adjusted labour force data, the variances are usually small from the actual survey data. Why they should be so large in the US is a mystery to me.)"
In a word - the cold. Much of the USA gets extremely cold during the winter and lots of activities simply shut down. And of course, the reverse happens once it warms up. Many businesses work 10-14 hour days, 6 and sometime 7 days a week during the warmer months.
NZ's climate is temperate and vey goldilocks. We forget the rest of the world often has very tough weather extremes to deal with.
[ Over-the-top conspiracy meme removed. Please try to keep comments halfway sensible. The basic fact was ok, just the silly extension to bribery-of-judges and the whole judicial system just isn't needed (or true). That was all out of the "stolen election" bin. Ed.]
The basic fact was ok, just the silly extension to bribery-of-judges and the whole judicial system just isn't needed (or true).
More than a few people around my digital cooler did speculate that SBF would potentially get better treatment / lighter sentence give his connections to the Democrats and his relationship with SEC Chair Gensler.
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