Here's our summary of key events overnight that affect New Zealand, with news China's current account has slipped into deficit.
But first, the American non-farm payrolls report was a very mixed set of data. The headline jobless rate dipped to a very low 3.9%. That is the lowest rate in more than 17 years. But the number of new jobs created came in far lower than expected at +164,000 (although higher than March's +135,000). What is troubling is that their participation rate was unchanged at a low 62.8%. Average weekly earnings rose +2.9%. The American tax cuts came into effect in January, but this data shows they have had little impact on hiring or wages and certainly are not pulling more people back into their workforce.
Wall Street is shrugging off the weakness and is up by nearly +1.5% at the weekly close. That was essentially driven by the out-sized earnings results from Apple. (This is contrast to Asian and Australian markets which ended yesterday in the red.)
In Beijing, senior American officials ("the Avengers") have wrapped up talks with Chinese officials over trade issues and seem to have made little progress. Each side is dug in, demanding large concessions from the other, according to unofficial leaks. In fact, these talks may set the situation back and show the lack of diplomatic nous in sending hardliners into negotiations. It is more about who can shout loudest, rather than compromises seeking any win/win.
This comes as China posted its first current account deficit in years. It was a quarterly deficit of -US$28.2 bln, the first since the second quarter of 2001. Some analysts are saying this signals a long-term shift where current account deficits become the norm for China.
Yesterday we reported that there is an upcoming referendum in Switzerland on changing the way Swiss banks operate. Today, a poll shows that the idea has gained little support so far among Swiss voters.
Argentina surprised markets again with another sharp rise in their official interest rates. This time they hiked them by 6.25% to 40%. That is the third rise in a week taking the adjustment up +1275 bps from 27.25%. Inflation is high at +25% pa, but their currency was being hammered, exacerbating their inflation. This latest move returned some confidence to the struggling peso. And it was accompanied by some serious fiscal restraint, the first sign runaway government spending is being capped.
The UST 10yr yield is now at 2.95% and up +bp overnight (although the same as it was this time last week). The Chinese 10yr is up to 3.66% (+2 bps) while the New Zealand equivalent is at 2.91% (unchanged).
The VIX is basically unchanged from this time last week with the index is now just under 15, and still elevated. The average index level over the past year is 12. The Fear & Greed index is also unchanged and near neutral but just on the "fear" side.
Gold markets are now closed at US$1,314/oz in New York. That is unchanged since this time yesterday. Updated data from the World Gold Council shows weak demand in the first quarter of 2018 with demand weak across the board and supply slipping but not as fast. In fact, in the year to March, supply exceeded demand by the largest amount in 15 years. The overhang is killing any upside; all risks are to the downside.
Oil prices have jumped more than +US$1.50 in the US to just over US$69.50 and the Brent benchmark is now just under US$75/bbl. Recent rising prices has seen a jump in the number of oil rigs in operation, especially in the US.
The Kiwi dollar is ending the week down at 70.2 USc and another retreat over the week; it was 70.9 at this time last week, so another fall of more than -½c. On the cross rates we are at 93.1 AUc and 58.7 euro cents. That puts the TWI-5 at 72.7.
Bitcoin is however at US$9,625 and that is a net gain of +7.1% over the week.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
14 Comments
The jobless rate is the lowest in more than 17 years, but tax cuts did not work?
Yes, exactly. However, it reflects the depth of journalism in NZ...open political bias and no real analysis whatsoever. Based on the “tax cuts didn’t work” conclusion, the logical following article is that the labour govt is a total failure after 6mths.
That is right. If the tax cuts had worked, employment would have expanded faster since than prior (and it hasn't) and participation would have risen (but it hasn't) and average pay would have risen faster after than before (and it hasn't).
Their biggest issue is participation. Too many people have left the workforce. Tax cuts were supposed to draw them back in, and quite quickly, but there are no signs of that at all.
The unemployment rate is the percent of those in the labour force. It doesn't count those who are discouraged and have given up and are out of the labour force. That is why their employment ratio to the working age population is so low. Tax cuts were sold to fix that. It hasn't.
If you want to see a very healthy jobs market, you can't go past New Zealand. High participation, and low unemployment, and average wages growing 4%+. The US is nothing like NZ, relatively speaking (except those in work are paid a lot more, even if the averages aren't growing as fast).
AndrewJ, thanks for posting that. One of the finest blog posts i've read for a long time.
I keep an eye on him, his older posts are worth trolling though, like coyote money
I can’t remember my last 4% pay rise. I guess I must be due a big one this year then.
The unemployment rate is the percent of those in the labour force. It doesn't count those who are discouraged and have given up and are out of the labour force. That is why their employment ratio to the working age population is so low. Tax cuts were sold to fix that. It hasn't.
Exactly
If you want to see a very healthy jobs market, you can't go past New Zealand. High participation, and low unemployment, and average wages growing 4%+. The US is nothing like NZ, relatively speaking (except those in work are paid a lot more, even if the averages aren't growing as fast).
Really? According to MBIE, annual % change in wage growth has been running lower than 2% since 2010. Furthermore, arguably, we're coming off one almighty speculative boom, which should do very well for employment, particularly in the retail and hospitality sectors.
If you think about it, those LCI growth numbers just can't be right. The LCI is up only +1.5% pa or so since 2010.
But since then, average retail sales have grown at the rate of +5% pa. And sales by electronic cards by about the same.
The difference has not been accumulated in debt. The rise in personal debt explains only a small share of the difference.
I think the answer is the LCI just doesn't represent how wages have grown. Average weekly earnings do however. That has grown at about +3% pa since 2010, and is higher now, closer to +4% pa.
Averages are just averages however. Many will be getting smaller rises, many larger ones. You can always find anecdotes to bolster an argument one way or the other, but over the long run average retail sales growth and average pay rates will relate. And they do if you use the Stats NZ QES average weekly earnings data. If you include overtime, the current rises sustained are +4.8%.
Retail sales up ~5%, average pay up ~4%. Makes sense to me over the long term.
Retail sales up ~5%, pay rates up ~1.5%. Makes no sense to me over the long term. Couldn't have been sustained. Ergo, it is wrong to use LCI as the proxy for NZ pay changes.
David - I was about to comment as there does seem to be some discrepancy of what is the true rate of wage inflation. While I understand the Household Labour Force Survey reports take home pay as opposed to wage rate inflation. The LCI may report hourly pay rate changes whereas, the Household Labour Force Survey reports actual take home pay - in some ways they are not comparable.
The devil is in the detail and how much is averaging distorting / hiding what is really going on.
https://www.stats.govt.nz/information-releases/labour-market-statistics…
A major part of our labour force is engaged in low to medium skilled jobs, especially in the hospitality and agricultural sectors, where hourly rates are low but they end up working longer hours to maximise their income.
A lot of low waged workers in cities also capitalise on the gig economy and drive Uber or Lyft during days off work. This results in a higher take home pay and better purchasing power, but the LCI does not capture these trends adequately.
As much as I dislike deficit financing, I struggle with the conclusion that the tax cuts are not working bas ed on the curent data. It will take time for the effects of the cuts to filter through the system. For many, there will be little fiscal effect until next year when they do their taxes. The proclamation is seriously premature... despite my desire for the conclusion to be true. A tax cut without a corresponding reduction in expenditure is just as odious IMO as increasing spending without increasing revenue.
Wouldn't it be interesting to have a Fear/Greed index in New Zealand? Specifically for housing (which represents the greatest investment category). What would the indicators be? House flipping? Turnover? Number of Estate Agents owning BMW's?
NZ - OCR cut on Thursday to 1.5%?
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Given falling business confidence, housing market stalling, wage earners modest wage increases, high floating mortgage interest rates, etc.
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