Here's our summary of key economic events overnight that affect New Zealand with news it's all about inflation and policy interest rates today.
American CPI inflation was up +8.5% in March, driven by rising petrol prices. This was almost exactly as markets had expected, and is a rise from +7.9% in February. Their 'core inflation' (without food or energy costs) was up +6.5%, a similar rise to what was recorded in February, and also the rise markets had expected. The lack of any surprise in this data has induced something of a relief in financial markets. But we should note that at these levels, American consumer prices are rising faster than anywhere else in the G7 major advanced economies, even in the EU.
However, because American inflation didn't surprise on the upside, financial markets pulled back on their interest rate bidding, and the US dollar slipped slightly.
The US retail expansion rolls on, with a key survey showing it rising at its second highest rate in the past six months, and far more than can be accounted for by inflation.
The US Treasury offered another tranche of 10 year bonds at auction today, a smallish US$34 bln was offered and that attracted bids of US$83 bln. However, the median yield for the winning bids was 2.62%, up sharply from 1.84% at the prior event a month ago.
Even the American monthly budget statement didn't surprise, coming in with a modest (for them) March deficit of -US$193 bln, almost exactly the same as for February. At this level it is half what it was in March 2021, and on track for an annual deficit of -US$1.7 tln and almost US$1 tln lower than for the same period a year ago. That turnaround is essentially because tax receipts are running +10% higher than the prior year, and spending is running -10% lower. It is a remarkable untold achievement in just one year. They will end the year with a budget deficit of -7.1% of GDP, so still a lot of repair required yet.
Part of the improved American economic performance is because their industrial sector is humming. And one part of that is due to aircraft sales. Boeing said it had sold 145 planes in the first three months of the year, after accounting for canceled orders. Almost all of the orders were for the 737 Max. The company has now had 14 straight months of net new sales as the travel rebound accelerates.
Japanese machine tool orders have come in very strong indeed, up +30% in March from a year ago, up +20% from February. It is their second best month ever, only pipped by the spectacular March 2018 level. It is an impressive result, far greater than can be explained by producer cost rises. And those overall producer costs rose +9.5% in March from a year ago, pretty much as expected and a similar level they had had for five straight months.
But supply chain issues are hurting as well. Toyota has told its major suppliers that it intends to reduce global output to around 700,000 vehicles for next month, down a little more than -10% from original plans. The move comes amid supply chain instability fueled by Russia's invasion of Ukraine and in China where the pandemic battle rages. The new total would be just above the 670,000 vehicles Toyota manufactured last May.
The expected turn up in Indian industrial production hasn't happened yet and certainly did not happen in March where a tiny +1.7% annual gain was recorded. At the same time India reported CPI inflation running at just under 7% and faster than what was anticipated. Their central bank's recently announced pivot from supporting growth to fighting inflation becomes more understandable with today's data releases.
German CPI inflation also came in pretty much as expected in March as well, up +7.3% (+7.6% on a harmonised EU basis). But that was up from +5.1% in February, all induced by the cost of Russian energy supplies of course. That crisis has pushed economic sentiment sharply lower even if it isn't lower in March than from February.
It isn't much, but a fall in the lithium price is worth noting. Sagging Chinese demand as their economy stutters seems to be behind the small drop. It is the first retreat for this commodity since 2020 when it then took off.
In Australia, business conditions surged higher in March and confidence also strengthened. Trading conditions and profitability rose markedly, suggesting demand remains strong, and employment also rose. The improvement was largely driven by the retail sector. Overall business confidence rose, continuing the steady rise since December.
All eyes will be on today's RBNZ official cash rate review due out at 2 pm today. It seems to be a line-call whether the rise will be +25 bps or +50 bps with +25 bps marginally preferred by analysts. Later today the Canadian central bank is having a similar review and most observers there think +50 bps is likely for them.
The UST 10yr yield has given up all of yesterday's rise, today down -6 bps to 2.72%. (The long term average over the past 50 years has been 5%.) The UST 2-10 rate curve starts today steeper at +32 bps. Their 1-5 curve is flatter at +94 bps. Their 30 day-10yr curve is also flatter at +249 bps. The Australian ten year bond is now at 3.01% and little-changed. The China Govt ten year bond is up +1 bp at 2.83%. And the New Zealand Govt ten year starts today at just on 3.58%, up +5 bps and a new seven year high.
Wall Street has been higher for most of its Tuesday session but that has withered and they are now marginally lower in a declining trend. Overnight, European markets all fell about -0.5%. Yesterday, Tokyo ended down -1.8%, nut Hong Kong ended up +0.5% and Shanghai had a better day, up +1.4%. The ASX200 ended its Tuesday session down -0.4% and the NZX50 mirrored that.
The price of gold starts today at US$1971/oz and up +US$24 from this time yesterday.
And oil prices are up +US$6 at just under US$100/bbl in the US while the international Brent price is now just on US$104/bbl.
The Kiwi dollar will open today +½c firmer at 68.7 USc. Against the Australian dollar we are marginally softer at 91.9 AUc. Against the euro we are at 63.4 euro cents and firmer also. That all means our TWI-5 starts today at 74.6 and up +40 bps from this time yesterday.
The bitcoin price is down -0.8% from this time yesterday at US$39,994. Volatility over the past 24 hours has been modest at +/- 1.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
95 Comments
Sri Lanka about to default. https://www.bbc.com/news/business-61076481
funny how this doesn't make it on the morning brief...?
My Sri Lankan friend tells me it all started with a strange renal disease that a prominent doctor blamed on fertiliser which then got summarily banned
edit: this seems to back that up https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5102238/
Are this experts over reacting and wrong in their thinking of Inflation and OCR
or
Everyone is wrong and only our dear Mr Orr is correct
https://www.ft.com/content/145b6795-2d21-48c6-984b-4b05d121ba16
https://www.news.com.au/national/why-its-good-for-australia-if-interest…
It does appear ‘mean’ but the lesson of the 1970s is that high inflation leads to lower productivity and lower living standards
RBNZ doesn't think this applies in the NZ context. Orr's monetary stimulus has allowed properties to earn big bucks year-after-year without its owners having to lift a finger.
Economic gains made by swapping houses with zero productive hours of work = infinite productivity! [sarc]
Sad but true
Goes back to green pollies getting elected to councils in the 90s and since.
They pushed and voted for housing policies along the lines of their mantras that were anti progress. Now of course the new younger party members have realized their mistakes, too late of course, and are falling out with the old dinosaurs
Green Party rank and file criticise Wellington city councillor over her housing votes | Stuff.co.nz
https://i.stuff.co.nz/national/125579400/green-party-rank-and-file-crit…
Well, 'progress' is a silly word for 'exponential growth', and that is impossible indefinitely on a finite planet.
Which, if you had the right kind of eyes, you could see happening right now; we're up against the Limits.
So both the main narratives (walkable cities, sprawl) are wrong. We need to curb population, and get the populace out of cities, back to where food-production happens. Because that is where we are headed - less and less energy surplus (grain was the first surplus, the only reason social stratificaion began; the only reason it can continue.
Cities, in physics terms, are just giant heat-engines; all the Laws of Thermodynamics apply. Don't go blaming the Greens, or any other political hue. Blame flawed thinking. Pretty much endemic.
Proper solution suggestions please. Telling tradies to stop working and making it difficult to work their trades is not reasonableThe young greens have managed to suss that out themselves.
Here is an example of a green dichotomy. Reducing the number of capitive ruminant animals while at the same time promoting saving all of the wild ruminant animals
Eh, what? It was only just pointed out recently in Stuff that the downzoning of inner city suburbs occurred in the 1970s driven by NIMBYism.
What on earth are you referring to?
(Meanwhile, many Greens were looking at how they could expel Iona Pannet from the party.)
All eyes will be on today's RBNZ official cash rate review die out at 2 pm today. It seems to be a line-call whether the rise will be +25 bps or +50 bps with +25 bps marginally preferred by analysts.
But markets pricing in (most of) a 50bps rise, if I understand correctly.
It will be interesting to see whose tune the RBNZ decides to dance to.
....be a line-call......
Line-call is in the mind of experts but not with Mr Orr, who is and has been clear with 0.25%, who sitting in his plush office must be laughing with all the noise created by experts and media.
WHY their is a line-call ?
Line-call because based on fundamental all experts are screaming of minimum 0.5% but knowing Orr's it will be 0.25%.
Headline Today :
RBNZ RAISES 0.25% WITH WARNING THAT WILL BE WATCHING INFLATION
OR
RBNZ RAISES OCR BY 0.25 AND WILL BE MORE HAWKISH
OR
THEIR HAS BEEN DISCUSSION BETWEEN 0.25% OR 0.5% AND NARROWLY DECIDED TO KEEP 0.25% FOR NOW
OR
WARNING TO WATCH OUT FOR MORE
Ask Mr Orr, how come when their is a discussion, it is always ....
Ask Mr Orr, is this not what you also said/warn last time when you raised 0.25% and even before that.
How come in August last year when Omicron led lockdown were announced, you mention that was planing to do 0.5% but changed to 0.25% for lockdown ( can bet if no lockdown than also would have gone by 0.25% and do lie as know that need is of higher jump, which you are failing to do for ...)
Dr Brock, assuming you have done your own research?
While masks are in no way a total protection they are another barrier and if both parties are wearing them the effect is doubled.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7883189/
https://www.mayoclinic.org/diseases-conditions/coronavirus/in-depth/cor…
Technically that first article is a little out of date. The main transmission route is aerosol rather than droplet. Masks don't stop aerosol inhalation, so if you're in a poorly ventilated space with someone with Covid it is quite likely you'll catch it despite wearing a loose mask.
Where masks are helpful is that they slow the dispersion of the aerosols (and stop droplets), so if you have brief contact with someone, the area affected by the aerosols is smaller and therefore transmission risk is reduced. However, with enough time in the same space, unless it's a N95 mask you may still catch Covid.
So the current settings of wearing masks in shops etc, but not bothering when sitting down to a meal, are a reasonable compromise? Reasonable protection when wondering past someone in the supermarket but no difference when you're sat on the table next to someone infectious for two hours.
That's the bit that really annoys me. there is a portion of society which is still quite selfish and arrogant, who will still go out an socialise when they are unwell. Some are thinking it is just a cold or flu and think it is minor, others just don't care about others. They put everyone at risk. Societal thinking must change, else we are killing ourselves off.
In shops where you're in and out quick they're probably helpful. If you were sitting down for a few hours in a room with others (and someone had Covid), assuming limited air circulation then there's a good chance you'd catch it despite a standard mask (N95s being the exception if worn correctly).
It had it's ""biggest week" of the year". Beating orange in January might be significant, I guess.
Sorry I had to check. The stupidity of packing out a bar and relying on a vaccine only a few are still pretending stops spread is extreme virtue signalling. They managed to get some traction on social media to assist this which won't last.
Clever business from these guys. Stick your head above the parapet so you get shot at first (guaranteeing free media coverage from Stuff, NZ Herald, social media etc) get even more free media coverage when silly people decide to bomb you with one star reviews, and make yourself the "oasis" for those in your local area wanting to seek refuge from the unvaccinated. It was bound to work out for them in the short term, as there must still be a decent percentage of the population who only want to go wherever vax passes are enforced ... but first mover advantage was key here, as another bar choosing to do the same now won't be headline news.
I can't find anywhere in my local area that is still using them.
Hope so. It’s stopping tourism because of 1 - hassle of preflight tests for families and 2 - hazard of testing positive and having to delay return travel to NZ (when the risk of a trans Tasman flight spread, in masks, is zero). Plus a responsible traveller can RAT themselves preflight -doesn’t need Mother to check. The argument about ‘keeping new variants out’ isn’t good enough. Currently all the preflight test is doing is keeping a handful of omicron cases out. All new variants arrive.
-
Pre Departure PCR Saliva Tests:
Comfortable, easy to administer and non-invasive (nasal swab not required). Lab results are usually available within one day. (Price from $279.95)
-
Supervised RAT Test For Travel:
Rapid Antigen (RAT) Tests are becoming more widely accepted by international destinations. Less expensive and quick, with results available within 15-30 minutes. (Price from $119.95)
https://www.allclear.nz/pre-departure-covid-test-auckland-christchurch/
"driven by rising petrol prices. This was almost exactly as markets had expected, and is a rise from +7.9% in February. Their 'core inflation' (without food or energy costs) was up +6.5%"
There is no anything, without energy, David. It's "cost" is in everything.
Which tells us that Central Banks are now in trouble. Just as economics was never physics, money was never a lever.
Even without resource constraints, a financial system is capable of implosion due to fear replacing greed. The hardships as a result are very real and take some time to crawl out of.
Our problem now is that globally resource constraints are here (falling EROI, increasing pollution, falling fish stocks, etc.) and the false belief in the financial system to deliver "growth" is all we have.
There's a real resistance to living within our means. It's like we cannot bear the idea of living slightly more restrained and minimalist lifestyles so we might leave fish stocks, viable waterways, and cleaner air to younger generations, and instead we look to foist ever greater debts on to them so we can live it up now.
What will we reach for next, 40-year mortgage terms to push more costs onto them and let us live beyond our means?
We've been sold a debt model for the last 40 years. this model goes beyond the basic debts which were acceptable before that; mortgage and small loans that were payable within just a few years. But the free market needs people to spend up big, and to do that they need to mortgage their future earnings big time and the private banks are only to willing to facilitate that! To achieve this governments the world over had to abrogate their responsibilities to their constituents and cede a lot of economic power to private companies. Now the hole is so big everyone is afraid to try to start filling it in and pull us back from that catastrophe.
Unless something drastic happens to change it, the future within an unlivable climate will also be quite dystopian where we are owned heart and soul by corporations.
Watching Luxon on RNZ talk about how the National Party are not keen to support $29b in Light Rail because it's not going to stand on it's own two feet, made me wonder - does anyone know if Treasury or the parties release their plans for these projects to the public? Like, is there a place I could go and look at the assumptions and calculations behind the Light Rail project, for example?
Yea, I'm pretty sure the Light Rail case is now out on the open. The $29b is a wider confidence interval for all costs including infrastructure development, from memory. You generally have to take these things with a grain of salt because the business case studies tend to examine the option they want relative to completely unrealistic ones, while the most pragmatic and effective solution is often excluded or devalued altogether.
See the Harbour Bridge replacement cost as an example. The simple and straightforward option of a light rail bridge with walking and cycling is out, but a tunnel costing 5x - 10x as much is a preferred option because they've decided the alignment should be closer to Takapuna. Was there any discussion about said alignment? You bet their ass there wasn't, but it's suddenly a must-have.
There is NO - REPEAT NO - 'business-case' for where we have to go.
Population reduction required.Business case for same? Nil.
Energy reduction required. Business case for same? Nil.
Draw-down of finite resources needs to get to zero. Business case for same? Nil. (actually, some hoarders may benefit vs the bereft).
Draw-down of renewable reources needs to match renewable capability (rate). Business case for same? Nil.
Filling of sink-capacities needs to reduce to capacity-matching levels. Business case for same? Nil.
Sure, some may win and more will lose as any ceiling lowers, but adapting to the lowering won't happen smoothly by relying on scatter-gun forward betting, then waiting to see which bet 'makes money'. Belief is the obfuscating buffer there; the mass currently believe a false narrative - and the mass are laying the bets. Ever asked how much of our collective pension-bets is underwritten?
https://ourworldindata.org/food-supply
*Looks at reality, not deluded greeny (not communist, honest!) nonsense*
Oh yup.
Hmm. I looked out my own window at the devastation in my own paddocks after multiple significant rain events this season, which I have not seen before. I've also seen the paddocks around my own, and further South, struggling this season. I thought that was real enough.
Climate is changing, resources are diminishing, challenges lie ahead. I'm making significant changes to my processes to manage these kinds of events in future, in order to keep those graphs moving in the right direction, but there's only so much I can do.
Maybe one day I'll even vote to the left of the political spectrum for the first time, and pretend that will make a sod's lot of difference. The sky may not be falling as some declare, but it's getting closer.
Seems to me that it was light rail down dominion road which was required.
That is not marketable hence light rail to the airport was born.
We just finished a motorway to the airport, it is obvious that adding light rail now is not addressing the most urgent need.
The pre covid bus patronage tells the story. Dominion road at capacity. Airport cbd bus? I dont think so. Last time l looked there wasnt even an express service to the airpot which travelled on the new motorway. And they think we need a train?!
Yeah. Luxon's thinking seems a bit basic on some of this stuff, and he is yet to put in a really impressive performance. Public transport has multiple co-benefits which are always challenging to cost. Even more difficult when the starting point is that it's a bad option.
Exactly. It's all very well just asserting that public transport should stand on it's own two feet - but if you take more than a superficial look, it's not clear why it should (or what costs and benefits should be taken into account). If other people using public transport means that your commute is 5 minutes shorter than it otherwise would be, should you compensate the public transport provider for that benefit that they have provided you, for example? How about if it means you can pay lower wages because your employees transport costs are less to get to work?
Yes physics continues. Luxons decision making should be no surprise to anyone.
He is however correct, but I agree for the wrong reasons. A visionary leader he is not.
Ardern and co are incorrect. And of course they will reject the premise of that and make no apologies.
We don't seem to get realistic comparisons and discussion of BCR on these projects from the old-school ideologues, unfortunately. Roads with worse BCRs are celebrated over cycle ways or rail projects. We subsidise private cars and on-street parking, commercial trucking, yet apparently public transport should entirely pay its own way...
It sounds to me that Luxon has simply never engaged deeply with and thought much about transport issues.
Meanwhile, Warren Buffet sees upcoming non-renewable resource constraints and is betting on railways.
The main benefit of a BCR is not to judge whether something was worth it or not, but to see laid out the assumptions of the agency when it concluded it was a good idea.
I'd be interested to compare the assumptions in a cycle trail CBR and a road CBR. I'd hazard a bet that the main benefits for both are subjective and non-comparable with each other e.g. less travel time for 5 years versus health benefits or less pollution (and higher commute time), and accrue differently e.g. societal versus individual.
That turnaround is essentially because tax receipts are running +10% higher than the prior year
Same in NZ - in the 12 months to February 2022 aggregate tax take was $115 billion - 15% higher than in the 12 months prior. If you look at the Treasury forecasts through 2020 and 2021, there is a constant theme of tax revenue being loads higher than forecast . This is the key reason that the 'deficit' didn't increase anywhere near as much as predicted in early 2020. It is almost like Treasury didn't realise that if Govt spends more, they get more back in tax. Revenue comes from the French word for 'return' after all.
So, the big OCR call today. It's a tough one - I mean how much of the money being spent in the economy do we want to go to Aussie banks instead? How many additional people on the dole will be enough to persuade the Saudis to release more oil? How much do we care about whether the rich people holding Govt bonds have lost some of their financial wealth? It's a toughie.
that turnaround is essentially because tax receipts are running +10% higher than the prior year, and spending is running -10% lower. It is a remarkable untold achievement in just one year. They will end the year with a budget deficit of -7.1% of GDP, so still a lot of repair required yet.
Not a difficult achievement given the difference in stimulus checks handed out last year to every household in the Country-The federal government provided over $850 billion of direct payments to taxpayers
First Round
(CARES Act)
$1,200 per adult
$500 per child
Single: $99,000 cap
HOH: $136,500 cap (Head of Household)
Married: $198,000 cap
$292 billion
Second Round
(Consolidated Appropriations Act)$600 per adult
$600 per child
Single: $87,000 cap
HOH: $124,500 cap
Married: $174,000 cap
$164 billion
Third Round
(American Rescue Plan)
$1,400 per adult
$1,400 per child
Single: $80,000 cap
HOH: $120,000 cap
Married: $160,000 cap
$411 billion
SOURCE: Various cost estimates from the Congressional Budget Office. NOTES: HOH refers to the head-of-household tax filing status. The amount of each payment for married couples filing jointly was twice the size of the payment listed for singles above. For each round of payments, the amount started phasing out at an income level of $75,000 for singles, $112,500 for heads of households, and $150,000 for married couples.
Interesting just reading Nick Smyth's piece on this website this morning on currencies, 'shelter inflation' makes up about 40% of the CPI in the USA.
What is it here, I think it's much lower, like 25 or 30%? Made up of inflation in rent, and inflation in construction costs.
The cost of putting a roof over your head (unless you're homeless in LA) continues to soar...
- March Shelter inflation 5.0% Y/Y, up from 4.7% in Feb, and the highest since May 1991
- March Rent inflation 4.44% Y/Y, up from 4.17% in Feb, and the highest since May 2007
Ahh yes the CPI the Certainly Pretend Index is always a thorn. Every year there is more fiddling to be done while Rome burns, this years critical changes to this ever changing charade includes -
In the March 2022 quarter, we are implementing changes for the following CPI items:
- digital downloads (movies and music) – removed pricing the top 10 movies (subscription of movies is captured in subscriber TV services below), changed music from the top 10 to subscription services
- subscriber TV services – removed some older plans that weren’t being purchased much anymore and introduced more streaming services
- 10-pin bowling – moved from field to online collection.
We are currently working on the following items, and these will be implemented in future quarters:
- electronic video game downloads – moving from collecting the top 10 games from two platforms to a mixture of subscription-based downloads, AAA games, and top 50 games across three different platforms
- panel-beating services – increasing sample size
- driving tuition – moving from a survey to online collection.
Apart from Treasury pretending it is a real measure of anything it also serves as yet another smoke screen on the issues of the day.
https://www.stats.govt.nz/methods/impacts-of-covid-19-on-methodology-fo…
Are we about to see demand drop off a cliff? Noted on Sharon Zoller on the radio this morning about the amount of stock ordering and the potential for demand to drop due to increasing prices, and that cool inflation rises a little.
My spending during the lockdown-sugar rush days was limited, currently focusing on necessary stuff, but it seems like consumer spending is about to take a massive hit.
Great 5 min summary of the individual infaltion numbers:
https://pomp.substack.com/p/inflation-is-here-and-putin-didnt?r=svui&s=…
Food at home prices are up 10%!!
Trueflation tracker puts inflation at 13.5%
Shadowstats puts inflation at about 16% based on the 1980 basket.
I am wondering just how much damage this will do to the building industry. Inflation on prices making new builds very pricey, throw in overvalued land prices and interest rates in the 7-8% by year end, you have to be in a fairly secure job and environment to borrow, even with a 20-30% deposit.
Nope, pretty standard spec. Only a few weird things (fireplace etc), but it is on a slope with a large internal retaining wall needing to be built. But that was known in the first quote too...
Things are definitely getting worse and worse, escalating prices with people less able to afford to build because of escalating interest rates. A real squeeze is on at the moment, I can see it from lots of sections popping up with plans on the already, where the people can't build anymore.
We're seeing it already. With rising interest rates there is a real squeeze on the potential sale price, and there is no slowdown in build costs coming through. Fixed prices will be harder to meet and future contracts will need all sorts of out clauses to allow for price increases to be passed on as there is a limit to what developers can absorb. Projects that were feasible are now borderline at best.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.