Here's our summary of key economic events over the weekend that affect New Zealand, with news economic activity is expanding at a lackluster pace in the world's largest economies but so far their labour markets are still expanding at a robust pace.
But first, in the week ahead it will be headlined by the RBA Monetary Policy report tomorrow (Tuesday) and possibly by the high level meetings in Beijing. In the US, speeches by several Fed officials, more sentiment surveys and foreign trade data are due. Also, the Wall Street earnings season will rolls on, featuring reports from large companies such as Gilead Sciences, Uber, and Walt Disney. Across the Pacific, China will focus on inflation rates, new yuan loans, and foreign trade data. Countries like England, the Philippines, and Indonesia will release their Q3 GDP growth rates. Germany will update factory order and industrial production performance.
Late Friday, data from China showed 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 which was slightly duller than the official services PMI 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 Friday too. 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.
In the US, the main weekend headline news was that total 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 in 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.
Meanwhile the widely-watched American 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 low quality.
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 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. China reinforced its desire to join the CP-TPP, but Australia was non-committal. Japan has already said it opposes China's entry and membership requires unanimous agreement. To back off its trade pressure, China will require Australia's support. 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 sharply from Friday, but up +2 bps from Saturday in a small recovery to 4.58%. There is still a bond markets rally underway. But their key 2-10 yield curve is still inverted by -27 bps. Their 1-5 curve is inverted by -79 bps and that is also little-changed. Their 3 mth-10yr curve inversion is now -82 bps and slightly less than Saturday. The Australian 10 year bond yield is now at 4.68% and up +2 bps from Saturday. The China 10 year bond rate is unchanged at 2.68%. The NZ Government 10 year bond rate is also unchanged at 5.35%.
We should note that Berkshire Hathaway reported a loss in Q3-2023 to trim its year-to-date profit to US$58 mln. But Buffett & Munger have been selling down some of their investments and sit on a US$174 bln in cash at present in a balance sheet that now tope US$1 tln. That is as much cash as 9 months of New Zealand's economic activity as measured by GDP.
The price of gold will start the week at US$1992/oz and up +US$1/oz from this time Saturday.
Oil prices have stabilised lower, up +50 USc from Saturday to just over US$80.50/bbl in the US. The international Brent price is now just on US$85/bbl.
The Kiwi dollar starts today at 60 USc and up more than +1c from Friday on a slumping greenback, and a little more from Saturday. A week ago it was at 58.2 USc. Against the Aussie we are firmer at 92.2 AUc. Against the euro we are also firmer at 55.9 euro cents. That all means our TWI-5 starts today at just on at 69.4. That is +110 bps higher than a week ago and a three week high.
The bitcoin price starts today at US$34,983 and 1.6% higher than this time Saturday. Volatility over the past 24 hours has been low at just on +/- 0.9%.
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38 Comments
Talking to a retired couple in our neighbourhood they live between NZ & Canada, residency in both by marriage, whereby they avoid winters. Now in Canada if they leave their home vacant for six months they will pay a 2.5% tax calculated on capital value. Trying to get tenants, but that’s not easy for a specific short term. I thought all credit to TPM and their call for a similar tax on vacant property, it proves it can be done.
The playing field is changing on them, and us all:
https://twitter.com/KimDotcom/status/1720804956708671495
Wait for the shoot-the-messenger comments, but he's on the money. Your friends represent a privileged echelon; privileged by being part of the post-WW2 hegemony, privileged by being part of the carbon pulse. That era is leaving us - in their case I'd be selling in Canada...
Makes the incoming Government look silly, too. We voted for an era which is leaving us, rather than for leadership which understand the future.
Then keep thinking.
:)
Maybe the flaw so far, is in your 'rant' giveaway (as I anticipated, above...). His is a Systems comment; your topic is sequentially subservient to that. I'm guessing you haven't bothered with reading Donella Meadows' primer? If the US$ goes banana, do you think they'll still be commuting? Do you think pensions, investments etc will remain, relative to each other and to where they are collectively? His comment likely ends in at least small-scale nuclear war :
'But the most likely outcome is that the evil empire of lies will not leave the stage quietly. The US Govt will smash the geopolitical chess board against the wall and go out in a tantrum of nuclear war that will end civilization as we know it.'
You're one of the better-read history folk on the site - but I'm guessing you didn't actually read the Dotcom piece, did you? Glossed over it after a para or two, because you knew better? Apols if I got that wrong, but that's what I'm guessing. But if he's right? Makes your people's little 'tax' problem somewhat inconsequential - their best move is to vacate the Northern Hemisphere...
Usually read all your attachments but perhaps not so much now. Prefer to rely on Chambers in that I am not partial to any identity proclaiming bombastically about anything. Here again a comment intended simply to background and endorse a tax policy announced by TPM can hardly provide a portal for Mr Dotcom’s chosen subject here.
You miss the point. And it's important to understand why/how you do.
The diffo is between fact(s) and opinions. You must identify the first, using among other things, a sifting of the latter. Sort of mental Boolean algebra.
Donella Meadow's Thinking in Systems: a Primer - is worth you taking a day or two, doing nothing else. It'll teach you how to - with respect - think.
Do you really think Zelensky was ready to sign a peace deal with Russia last year?
Did you listen to anything at all that Zelensky and Russia (Putin) were saying? Putin's only demand was total and unconditional surrender, and Zelensky was never ever going to accept any on going Russian presence in any of Ukraine, including Crimea.
I get that there are some politics happening in the back ground to monopolise on what is happening, but that fundamental premise on what it is based is just wrong.
Good news for an aging population. Keep exercising people.
"Despite the widely held belief that dementia is destined to rise exponentially as global populations age, experts believe that, in the developed world at least, the prospects of avoiding dementia are stronger than they were a generation ago. A study published in 2020, which drew together multiple pieces of research to track the health of almost 50,000 over-65s, showed the incidence rate of new cases of dementia in Europe and North America had dropped 13 per cent per decade over the past 25 years — a decline that was consistent across all the studies.
For Albert Hofman, who chairs the department of epidemiology at the Harvard TH Chan School of Public Health, the research points to one conclusion: “The absolute risk [of developing dementia] is lower now” than it was 30 years ago."
https://www.ft.com/content/184f6e81-d9ce-4a14-84f0-5190ea36e798
That's Canada firmly into the four dumbest countries in the developed world - with the UK, New Zealand, and Sweden. All four have strong pass through from interest rates to consumer demand to unemployment because of their over-inflated housing markets and huge amounts of short-term fixed household mortgage debt.
Meanwhile in the US, American inflation is 'easing... but it is unlikely to be because of its labour market track'. No sh*t Sherlock! That's because it is now abundantly clear that inflation can fall without people having to be thrown on the dole. In fact, the countries that appear to be doing the best at reducing inflation are seeing reducing unemployment, while those that are hiking interest rates to levels last seen in 2008 are struggling to tame inflation. Apparently adding billions of dollars of interest cost to businesses in 2023 doesn't lead to cooler prices. Fancy that.
It also depends on the source of inflation, in our case there was a big labour component to it, businesses were really really struggling to find anyone and had to raise wages significantly which is obviously inflationary. Remember a year ago, often businesses were closed simply because they couldn't find someone to work. The US don't have anywhere near the participation rate we do so they wouldn't have to raise wages much to encourage people into work.
But I don't agree with the RBNZ that we need unemployment to be 5% plus, we just needed it to be closer to 4% than 3%, no need for it to go up from here.
The pass through from higher wages to prices was limited to a few sectors (most notably hospo). The prices that have driven our CPI up are food, rent, petrol, diesel, building houses - and if you look at the cost base for all of these, the impact of an 8% increase in labour costs has been minimal. For many sectors, the cost of credit has been the dominant driver of increased costs over the last year.
Real wages (adjusted for inflation) have fallen in the last couple of years (for the first time since the GFC!)
Energy is the underwrite of every business - labour is mere noise.
Sigh.
And 'fuel prices' are being paid for by keystroke-issued debt; each issuing bank - and nation - playing poker as to validity. As a society, we can no longer afford ourselves - this is being obfuscated by focusing on single-competition aspects, which are out of context.
Mostly purchases of stuff - remember that we import $90 billion of goods that is then sold from business to business etc. Total private sector wages are around $120 billion
The data is here: https://www.stats.govt.nz/information-releases/business-financial-data-…
re ... "Labour is the biggest cost to almost every business. "
Really? Are you sure about that? Can you prove it?
Edited: Well done Jfoe. (I couldn't be bothered as it is nothing more than NACT driven neo-liberal pub economics to reinforce the nonsense spouted by the already gullible and foolish. Yes, in case it doesn't show, such statements make me very angry.)
Yes.
- Canada (and US) just over 5% interest rate, CPI inflation just below 4% (it got near 3% a few months ago)
- UK interest rate 5.25%, CPI inflation 6.7%
- Sweden interest rate 4% compared to 6.5% CPI inflation
- NZ 5.25% and CPI inflation at 5.6%.
Sweden, NZ, and the UK are making relatively slow progress reducing inflation despite increasing rates aggressively compared to their baseline. What all three (and Canada) are managing to do very successfully though is increase unemployment.
"relatively slow progress" is much better than no progress. All that really matters is that the CPI is heading down and not up into hyperinflation.
The UK had double digit inflation a year ago. Its quite possible that their OCR hikes had nothing to do with it, but whatever they have done it has worked.
NZ's unemployment rate is still very low by historical standards, so they haven't been that successful in increasing unemployment. 3.2% was not a sustainable unemployment rate.
What all three (and Canada) are managing to do very successfully though is increase unemployment
These countries also have another thing in common - high migration rates often of the lower skilled category. Policymakers in all these countries peddling such open-door policies as the only solution to high inflation caused by the much-dreaded "wage-price" spiral.
It is particularly hard to tackle infrastructure/talent shortages with a skill-agnostic approach to migration.
Yes. Suppose that the Govt announced that they were going to increase taxes on businesses by $8 billion per year and load landlords with $3 billion of extra costs per year. That's about 7% of total consumer spending. Would you expect this cost shock to lead to higher or lower price increases?
Now imagine that the cost of imported goods, which correlates 80%+ with our CPI, is subsiding quickly. Would you expect this to lead to higher or lower price increases?
If you accept that higher credit costs are pushing up on prices and softening import prices are offering relief, then is it not reasonable to assume that a lower OCR would mean less price increases?
It is possible that a tight labour market would lead to higher wages in some sectors where labour costs are significant, but real wages have been falling for a year and opening the borders has put pay to any serious growth anyway.
Yes higher taxes would lead to a one off increase, and yes a higher OCR could too. But the goal is to stop hyperinflation where price increases become entrenched, I think we were pretty close to a genuine hyperinflation situation like Turkey, but I don't think we are now. Whether interest rates fixed it or made it worse I doubt we will know, but we do know that we used our standard prescribed mechanism and the problem is starting to go away, and we also know that inflation has been much more consistent since inflation targeting than beforehand. In the old days 7% inflation was a common occurrence, now its a big deal.
I don't agree that our inflation issue was 80% due to imported goods. It did start off that way, the RBNZ chose to look through that for a period, but then it became about a labour shortage and too much money sloshing around. There was low supply and excessive demand, both of which were in hindsight an obvious result of Covid.
Two universal engines of inflation. Cost of food and cost of shelter. Humans cannot do without either.
Food was massively impacted by disruption to transport costs and storm damage. Neither of these issues are resolved. The cost to shelter is an ongoing topic on this website. Money creation at touch of a keystroke being dumped into tax free speculation continues to effect everyone in this country. This is transpiring into people wanting more money. and in the sectors where they can bend employers over a barrel thru lack of staff, they are getting it, or exporting themselves to places they can (Aussie being the most common). Increasing older population on govt handouts, greater energy costs effecting everything that moves, and greater housing costs. Not a great outlook.
Summary, how do you stop rampant inflation without crashing the ponzi...?
"A new law is about to kill free speech and democracy in Australia"
https://www.rt.com/news/586569-free-speech-democracy-australia/
"It is noteworthy that the Australian Government is exempted from the proposed legislation. Hence, the content issued by the government is never to be considered ‘misinformation’ but criticisms of the government by ordinary citizens can. "
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