Here's our summary of key economic events overnight that affect New Zealand, with news the US Fed is telling markets rate cuts from them are not coming soon.
First up today, the overnight dairy auction confirmed the recent rises, but didn't add to them in a subdued event. In USD terms overall prices were up +0.1% and in NZD terms up +1.5%. Volumes were seasonally small however. Perhaps of some concern in this data was that foodservice components like butter, cheddar, and mozzarella all fell, by -1.4%, -8.5%, and -3.8% respectively. However, given the overall 'hold', it is unlikely any farmgate payout forecasts will be changed by today's outcomes.
US housing starts and new building consents are in the doldrums as this sector continues to fade. March brought steep drops, almost -15% below February levels for new housing starts, -4.3% lower than year-ago levels. The situation isn't going to get much better because residential building consents also fell, down -4.3% from February although marginally up on March a year ago.
US retail sales rose +4.9% last week in their Redbook tracker, the tenth week in the past 13 that the rise has bested inflation. The retail expansion is embedded now.
US industrial production rose +0.4% from the previous month in March, in line with expectations and following an upwardly revised +0.4% increase in February. A rise in vehicle production was a notable component of the recent up-trend.
Meanwhile, Fed boss Powell was out speaking indicating their policy rate will stay elevated for some time yet. They see no pressing need to cut, or in fact make any changes. “The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence,” Powell said. “Given the strength of the labour market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.” This indicates that Fed officials don't feel a pressing need to lower rates and implies that any rate cuts in 2024 may occur toward the end of the year, if they happen at all.
Meanwhile there was some important Canadian data released overnight. They said consumer inflation rose 2.9% in the year to March with their core rate rising just 2.0%
And Canadian housing starts eased slightly in March from February although they were +13.5% higher than year-ago levels.
In China, electricity production rose just +2.8% on March from a year ago, a huge retreat from the +8.0% rise in December. This is an important background data that should be reflected in China's economic activity (GDP). But Beijing reported Q1-2024 GDP rose +5.3% (up from 5.2% in Q4-2023) and this was despite retail sales only rising +3.1% and national real estate investment falling -9.5% in official data. They say industry expanded +4.5% (and down from the +6.8% rate in December). While we have raised our eyebrows at how they can deliver a credible GDP result just 16 days after the quarter end (no-one else can), few of the major components show expansions at the level of the claimed overall growth, and readers can draw their own judgements on the credibility of the rising 5.3% growth in Q1. Certainly ex-Premier Li Keqiang did.
Meanwhile, China's new home prices dropped by -2.2% in the year to March, faster than the -1.4% fall in February. It was the ninth straight month of decline and the steepest pace since August 2015, despite multiple support measures. For second-hand dwellings none of the 70 largest cities reported any rises, and the average fall over this set is now -5.9% year-on-year.
China continues to struggle with youth unemployment. You will recall they withdrew data that reflected badly on them last year and replaced it with 'better data'. But now an official confirms that even this data, the next update yet to be released, shows a situation that "requires a high degree of attention".
And we should note that China is clamping closed real-time stock exchange data, in the name of 'national security'. It applies to Shanghai and Shenzhen at first, not Hong Kong, yet. For most of us it won't have a significant impact, but it is just another shift away from market transparency.
In Europe, the ECB boss said that they will likely cut rates soon. She was speaking at the IMF's release of their 2024 growth forecast update, and those revealed that despite gloomy predictions, "the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose". They say: "growth this year and next will hold steady at 3.2%, with median headline inflation declining from 2.8% at the end of 2024 to 2.4% at the end of 2025. Most indicators continue to point to a soft landing."
Join us at 10:30am this morning to find out what New Zealand's CPI inflation level came in at in Q1-2024..
Ratings agency Moody's said overnight that New Zealand's sovereign credit rating stays at its current maximum Aaa grade. The outlook is Stable. They are the only ratings agency to assign a triple A to New Zealand. They say this level is "supported by ongoing economic and institutional strengths that will continue to allow its wealthy and competitive economy to effectively weather shocks as it did in previous decades, including in recent years".
The UST 10yr yield is now at 4.66% and up +3 bps from yesterday. The key 2-10 yield curve inversion is up a bit and back to -34 bps. But their 1-5 curve inversion is less at -51 bps. Their 3 mth-10yr curve inversion unchanged at -75 bps and holding its recent substantial flattening. The Australian 10 year bond yield is now at 4.40% and up another +4 bps. The China 10 year bond rate is down -1 bp at 2.28% but we make that its lowest level since at least 2002. The NZ Government 10 year bond rate is now at 4.96% and up +8 bps from yesterday.
Wall Street is little-changed on the S&P500 in their Tuesday trade (up +0.1%). Overnight European markets were down -1.4% except London which fell -1.8%. Yesterday Tokyo ended down -1.9%. The mood was mirrored by Hong Kong, down -2.1%. And Shanghai fell -1.7%. This is an interesting fall given the official GDP data beat everyone's estimates. Singapore fell -1.2%. The ASX200 ended its Tuesday session down -1.8% while the NZX50 actually got off lightly, down by "just" -0.9%.
The price of gold will start today higher by +US$31 from this time yesterday at US$2394/oz.
Despite continuing Middle East tensions and uncertainties, oil prices have changed little at just under US$85/bbl in the US while the international Brent price is also unchanged at US$89.50/bbl.
The Kiwi dollar starts today at just over 58.8 USc and down -30 bps from yesterday and a new five month low. Against the Aussie we are firmish at 91.8 AUc. Against the euro we are down another -20 bps to 55.4 euro cents. That all means our TWI-5 starts today just over 68.8 and down -20 bps and a ten day low.
The bitcoin price starts today lower at US$62,368 and down -2.6% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.9%.
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73 Comments
This guys empathy for others is noteable https://youtu.be/rMePrwQfT5I?si=note able https
Fire and Emergency costs blowout
"The merger was meant to see operating costs decline by over 10%. Instead they have increased by 40%."
https://www.kiwiblog.co.nz/2024/04/fire_and_emergency_costs_blowout.html
(download report at link)
"This is typical organisational & managerial incompetence, not your dogma."
I think that statement reveals your personal dogma, always good to approach things with an open mind. I know a bit about FENZ and there are structural issues driving quite a lot of the problems they are facing (increasing workload, wages not keeping pace, plant not fit for purpose).
Given you're such a managerial genius I'm surprised you haven't jumped in and sorted it out for them ...
They're not a competitive business though are they. They don't get to cherry pick which crashes to go to and which ones to leave, which medical emergencies to just ignore and which ones to go to based on profitability. What a f****ng pig ignorant comment, it demonstrates a widespread misunderstanding of why public services are fundamentally different to private enterprise.
As a bit of history, one of the first if not very first fire service was private, it made it's owner massively rich, you may have heard of the roman Crassus one of the richest Roman people to ever live.
He used to send his fire fighters to the fire and then demand payment to put the fire out, if the owner couldn't pay he'd let it burn to the ground and go to their neighbour, whose house was either on fire also or about to and say how about you, are you going to pay up or what.
That's what a private fire service looks like.
Keep your hair on... I did not suggest they become a competitive service at all. I am making the point that if FENZ management were in a competitive industry they would not survive. You say you know a bit about FENZ, you should know what I am talking about then. Some good managers there who positively impact on operations in a cost effective way, but way too many people that don't and just see a trough.
St John is being impacted by exactly the same entropy
So a merger would be of no use.
We have never had so much infrastructure, nor as many decaying human bodies, to protect. They have never been further away, or more decrepit.
Competitive has nothing to do with it.,...
It can't be long before central and local government starts making some hard calls on what infrastructure to abandon. Well if they don't, it'll be forced on them.
Insurers are leading here with further developing risk based house insurance. (and I guess with local council insurance of assets too).
Drives me crazy ( yes - seriously - annoying to see the waste) to drive past our local fire station and the St Johns base next door to each other. And then they often attend the same events together.
We need a single "Emergency Services" organisation, with capacity to deal with a range of different things, and a combined generalist capacity.
Two conflations there. And a partial truth.
That was Labour, this lot are in the same trouble infrastructure-wise. Perhaps even further from the truth.
But yes, they diverted into Wokeism. Fear drove that diversion, I think. Perhaps subliminal fear, but fear nonetheless.
Don't diss the message by dissing a partial messenger.
Personally I think the wokeism was based on the principle that a strong society is one where people band together to solve their problems. It was an attempt to bring those parts of society that felt excluded from the mainstream.
In principle it is the correct solution to the problem at hand, in practice the execution was not good. And it also didn't account for how threatened the older white male demographic would feel.
agnostium got it back to front when saying. "...the principle that a strong society is one where people band together to solve their problems...."
Labour did exactly the opposite and destroyed that fine principle. They set out to solve everything by limply throwing taxed money and civil servants at it.
No banding together, no group problem solving at all. Where such things existed, Labour's actions undermined them.
agnostium got it back to front when saying. "...the principle that a strong society is one where people band together to solve their problems...."
Labour did exactly the opposite and destroyed that fine principle. They set out to solve everything by limply throwing taxed money and civil servants at it.
No banding together, no group problem solving at all. Where such things existed, Labour's actions undermined them.
They say this level is "supported by ongoing economic and institutional strengths that will continue to allow its wealthy and competitive economy to effectively weather shocks as it did in previous decades, including in recent years".
What is Moody's seeing that everyone else in NZ is not?
It's assessment is in relation to other countries. If it were an absolute measure we would be tanking for the same reason the rest of world is tanking due to the structural causes PDK constantly tries to get across, limits to growth, energy depletion, biodiversity collapse, etc...
The baseline of what a healthy and competitive economy is will be sinking fast.
2nd wave of Inflation well and truly entrenched globally as the USD shows no mercy. NZD well and truly below .60c with oil prices potentially about to spike with the middle east powder keg. The deflationary bust at the end of the cycle with currently 1.5 quadrillion in credit derivatives will be remembered for centuries.
Oil prices face double whammy - Ukraine is hitting russian oil production facilities, and the middle east is getting less stable. Combined with potential for a shut down of shipping via the mid east route... its heading for a perfect storm .
If one was strategic then one might suspect that Russia/China/Iran were in it together to force inflation up and economic issues for the West.
If one of the participants was strategic he wouldnt have invaded Ukraine - easier and cheaper to take over by stealth as per the China model
it is surprising that oil prices are holding given the turmoil in the oil market - maybe signals that underlying demand is actually weak
MARCH 11, 2024
United States produces more crude oil than any country, ever
It looks like we might be in for another wet summer ( in the north and east at least)
https://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/figure07.gif
ANZ predicting no NZ OCR reduction until 2025 & aligned indications as above ex the USA would back that up obviously. Notice though that NZ main banks are starting to shuffle their term deposit rates downwards especially the longer terms. Is this justified by anticipation of that eventual cut or more that they are awash with TDs already?
Meanwhile, Fed boss Powell was out speaking indicating their policy rate will stay elevated for some time yet. They see no pressing need to cut, or in fact make any changes.
What If The Fed's Hikes Are Actually Sparking US Economic Boom?
I don't know why people can't understand that lower / higher rates have a range of positive and negative economic effects - depending on size of Govt deficit, rate of spending, interest rate channels, term structure of commercial debt, propensity to spend, mortgage market norms etc. The idea that you pull the interest rate lever down for growth and up to put the brakes on is simply ridiculous.
Also, from the article Audaxes linked, I thought this distinction was interesting: " ‘bank credit for the real economy’, as identified by Werner (1997, 2005, 2012) who defines credit for GDP transactions (i.e. credit for the real economy) vs. credit for non-GDP (i.e. asset) transactions"
So, maybe it's about what lending is 'for', as much as it is about any particular interest rate.
"The idea that you pull the interest rate lever down for growth and up to put the brakes on is simply ridiculous."
I'd agree that to use any lever in total isolation of whatever the current situation may be is unlikely to have the desired results. (One of the reasons why I harp on about our our awful tax system. And why OCR cuts without tax reform will just inflate asset prices while resulting in little growth. And why I'm not a fan of monetarism.)
But back to hiking interest rates and putting the brakes on ... Surely you're not suggesting that growth could be anything but sub-par with interests rates above their long term real averages? And higher real rates than overseas economies? I expect not. But others may read it that way.
Whilst interest rates ARE a bunt tool. the importance is that they are the 'expected' response. it means businesses, governments and individuals can plan for both boom and bust cycles, knowing that interest rates will rise and fall with inflation - and adjust their business plans, mortgages, loans.. and employee contracts etc etc to respond to potential changes in rates and whatever level of risk they are confortable with,
IF reserve banks started to react in novel and unexpected ways.... then that would threaten the stability of the system far more - as nobody would be know what to expect.
The beauty of the system is that its predictable and risk is manageable... the only unknown is the size, timings and durations of the peaks and troughs.
Personally i prefer a cruisey life with little or no debt, access to sufficient emergency savings, a relatively recession proof business and dont tend to get caught up in buying new stuff all the time or investing in fads (read EVs or AI..). whilst i am unlikely to join the elite (or the poor) anytime soon .life is fun, low anxiety levels and i get to drink coffee and surf most days!
In Europe, the ECB boss said that they will likely cut rates soon. She was speaking at the IMF's release of their 2024 growth forecast update, and those revealed that despite gloomy predictions, "the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose"
Quite a sensationalist headline when what they mean is a forecasted growth of 2.7% for the US vs 1.2% for the rest of the G7... Hardly breakneck speed. And let's bear in mind that 2.7% GDP growth is an additional $750 billion in GDP whilst the US government is predicting an additional $1.6 trillion deficit in 2024. Even if all this additional GDP were somehow taxed at 100%, it wouldn't even cover half the additional budget deficit.
Quote Financial Times @FT 7h
Breaking news: The US is on track to grow at double the rate of any other G7 country this year, according to IMF forecasts. https://on.ft.com/49GI3x8 Link
Scholz has one trump card in talks with China, but he’ll never use it
The German chancellor has a weak hand to play with Beijing, and he won’t dare do the only thing that could give him leverage
"China, the world’s largest importer of crude oil, imported a record 11.3 million barrels per day (b/d) of crude oil in 2023, 10% more than in 2022, according to China customs data.
Customs data indicate that China imported 54% more crude oil (1.1 million b/d) from Malaysia in 2023 than in 2022. However, crude oil imports from Malaysia exceeded Malaysia’s total crude oil production."
With their personal portfolios, you might expect them to be more invested in giving yet more taxpayer and policy support to property rather than concentrating on blame. They'll order a side of blame with their main, obviously, but the main course seems so far to have been supporting their property portfolios.
National will need to man the pumps trying to get this cycle re inflated. Maybe open the taps for the under 35s Kiwisaver (100)% to be used on buying homes? Super wont be touched when they hit 65 so no issues there.
At least we are now in good hands...some very smart people at the wheel (and not a EV in sight)
".........Could National/Act have a property market crash on their hands?..." Well they could celebrate. Invite a few planeloads of FHBs to Wellington for a shindig and do high fives all around.
The house price explosion of recent years has been New Zealand's greatest social disaster.
The EU - a wealthy bloc of some 450 million inhabitants - has been seeking to reduce irregular immigration since more than a million people, mostly Syrian refugees, arrived across the Mediterranean in 2015.
Fewer than 48,000 [irregular migrant] people got in so far this year, according to U.N. data.
This is astounding. I'd be happy with limiting our net regular immigration to 48,000. As I've pointed out before, the EU panicked about 1 million irregular migrants in a year, and the drastic effects it would have on social cohesion, services and demographic makeup of recipient countries. At that time we were getting 80-100k migrants per year. Sure they weren't irregular migrants, but we were getting much higher numbers proportionately, which affected social cohesion, government services and demographic makeup.
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