Here's our summary of key economic events overnight that affect New Zealand with news there are increasing signs the recent US boom is coming to an end, not necessarily with a recession, but with less expansionary conditions. This is flow through to the global economy quite quickly.
First, US factories are expanding less quickly. And their services sector's expansion is slowing too. However, both are still expanding at quite good levels.
That slowdown is also noticeable in the latest Richmond Fed factory survey for May. That same survey showed cost pressures hit a record high.
New home sales in the US actually slumped in April. This was quite a big miss, the level of retreat quite unexpected.
The good year-on-year gains in retail sales also look like they are coming to an end.
There was another very well supported US Treasury auction for their 2 year bond. But investors are now prepared to offer lower yields as the general theme of risk aversion grows. This time the median yield was 2.45%, down from the 2.53% yield achieved a month ago at the prior equivalent event.
Japan's May PMIs are suggesting that their services sector is expanding faster while their factory sector is expanding slower, a net 'win' for their overall economy.
So far, despite war to the east of them, economic activity in the EU is holding up, described as being at 'robust levels', bolstered by their expansion in services. Their factory expansion is tamer. That is also the story for Germany, the largest economy in the EU.
Perhaps we should also note that Hungary has amended its constitution giving Viktor Orban power to rule by decree - and he immediately imposed it. The EU and NATO now have a pro-Russia dictator in their midst.
At Davos, the OECD chief said the work to iron out the details on their BEPS (base erosion and profit shifting) tax deal is slow going and he doesn't see it starting until 2024.
The UST 10yr yield will start today at 2.76% and down -12 bps. The UST 2-10 rate curve has steepened to +27 bps and their 1-5 curve is flatter at +75 bps. Their 30 day-10yr curve is also flatter at +222 bps. The Australian ten year bond is now at 3.24% and down -8 bps. The China Govt ten year bond is marginally softer at 2.81%. And the New Zealand Govt ten year is down +3 bps at 3.49%.
Wall Street has resumed its repricing lower and the S&P500 is down -1.4% in late Tuesday trade today. Tech stocks are taking a battering with the NASDAQ down -2.8%. Overnight, European markets were all down about -1.7% except London which fell only -0.4%. Yesterday, Tokyo was down -0.9%, but Hong Kong fell -1.8%. Shanghai closed down -2.4% with a late fade. The ASX200 ended its Tuesday session down -0.3%, while the NZX50 fell -0.6% on the day.
The price of gold is quite a bit firmer today, up +US$13 since this time yesterday at US$1865/oz.
And oil prices are virtually unchanged today and now just under US$109.50/bbl in the US, while the international Brent price is up about +US$1 at just under US$111.50/bbl.
The Kiwi dollar will open today little-changed against the US dollar, now at 64.5 USc. Against the Australian dollar we are also little-changed at 91 AUc. Against the euro we are soft at 60.1 euro cents. That all means our TWI-5 starts today at 71.3 which is down -20 bps from this time yesterday.
The bitcoin price has fallen -2.8% from this time yesterday and is now at US$29,301. Volatility over the past 24 hours has been moderate at +/- 2.6%.
Join us at 2pm today for an update of the RBNZ Monetary Policy positions. Almost certainly the OCR will rise, probably by another +50 bps to 2.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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79 Comments
The markets already know its shit meets fan. The RBNZ are trying to wriggle their way out of the problem they created and make it not look like it was not their fault. Expect a big overshoot in the OCR to try and rein in the mess. You are right when you say rates will peak and go down again, its just they will probably not go back to as low as they are now.
And oil prices are virtually unchanged today and now just under US$109.50/bbl in the US, while the international Brent price is up about +US$1 at just under US$111.50/bbl.
WSJ prices Brent ~ $113.69
Moreover,
June Nymex natural gas (NGM22) on Tuesday closed up +0.052 (+0.59%).
Nat-gas prices Tuesday extended Monday's rally and posted a fresh 2-week high on the outlook for hot U.S. temperatures that will boost nat-gas demand from electricity providers to power increased air-conditioner usage. The Commodity Weather Group said Tuesday that above-normal temperatures are expected for the Northeast from May 29-June 2.
it sat by and did nothing when Marsden Point was closed this year. So now we are totally reliant on foreign refineries, long lines of logistics and an increasingly unstable world. Worse, the oil companies are in denial by telling the Government that we are more secure than ever with our fuel supplies. Our government is in effect doing not one jot towards national resilience or building our economy in a way that supports the people. what they are doing is having a panel to review our electoral system that will include amongst its recommendations and increase in the electoral term. So while they do nothing or worse than nothing, they are working to entrench their power and privilege and reduce their accountability to the people.
It's common the world over. We have an opportunity for a peaceful revolution - tell the Government NO! but also F**K NO! when they want to change the electoral term and make them less accountable. If we don't then they will continue to run rough shod over us with no recourse and we revert to little more than slaves it time.
So when it becomes four years and they tell you they don't have enough time to implement some policies would you give them five? No hold them to three. they are salesmen, go at telling you what they will do, but less so on delivery. Even at three years they should be able to show progress to convince you they need more time. If as an employer you told a new employee that they have 90 days to prove their worth, and they told you they would need 100 or 180, what would you do? The slope is very slippery.
Unless all they do is sit around for 2 1/2 years when in opposition before electioneering, they've actually got quite a bit of time to flesh out and work on policy and how and why they'd implement it. So yes, 3 years is plenty to get started on anything and show us some results.
it sat by and did nothing when Marsden Point was closed this year
That was a private shareholder decision. I didn't realize our government was meant to have a say in privately owned entities.
So now we are totally reliant on foreign refineries, long lines of logistics and an increasingly unstable world
We were importing the crude oil for it anyway so I don't see how that's too different. Marsden point refined heavier grades than Taranaki produced. Our light oil is all exported to be refined elsewhere.
If you want to build resilience, electrify as much transport as possible, and move freight by rail or coastal shipping.
There is always an opportunity for Government's to step in and recognise the strategic importance of some commercial assets. yes we did import some fuel, but not all, and with one refinery operating we would have had the expertise to build new ones and staff them. Now we will lose those skills and knowledge. And your suggestions are good ones but only a small part of any solution.
I can absolutely see the need for some interventions here but unfortunately I don't share your view the government are able to do the job. So who else can solve these issues? In Texas they have devolved planning authorities to the 254 Counties and they work closely with private industry groups to collaborate and make locally relevant decisions. I think they might have a few misses at State level but they get stuff done.
Cold weather in Texas is a very rare event. If electricity supplies were designed to operate in all weathers at all times you could not afford it. So they did the best they could. The government involvement in that would have been to add a costly working party and that sounds unhelpful.
Prime Minister Orbán likely realises that President Putin is in the twilight of his reign being more advanced in years. He won't want to tie himself to that sinking ship given, by design, he has no obvious successors. After all his power pre-dates Vladimir Putin and appears to have every intention of post-dating him as well.
When our so called leaders make the wrong call you can end up like this story in only 20 years.
https://www.stuff.co.nz/motoring/300594582/on-venezuelan-roads-old-cars…
The global south are feeling the effects first, but all will follow. Don't blame leaders - we consumed too much, too fast, from a finite set of stocks. And don't confuse artificial drivers (money, societal norms) with the underlying physics.
https://surplusenergyeconomics.wordpress.com/2022/05/21/229-in-the-eye-…
https://www.resilience.org/stories/2022-05-24/the-failed-ideology-of-da…
http://iflas.blogspot.com/2022/05/people-will-suffer-more-if.html
Non-renewable resource constraints and unraveling of globalisation are certainly important reasons why we need leaders with more foresight than just imagining personal car ownership and "moar roads" are the future. Failing to recognise the need to plan for more localisation and shared transport options is failing to have one's eyes open to reality.
You're fiddling on the periphery using some flawed assumptions. Take roads for instance. You suggest we shouldn't be building more roads, but if we are to move away from fossil fuelled vehicles, be they private or commercial electric (or other) vehicles are always more efficient on high quality roads which NZ is sadly lacking. If we are to encourage cycling we need better roads, and the list goes on. Or are you advocating we dis-invent the wheel?
But you are very correct in stating we need more foresight, but it must be in depth too. We can't just ban fossil fuels, or make them unaffordable unless there is an affordable alternative for everyone, not just the rich, and public transport simply would not cut it as an answer. But the transition to an ecologically responsible economy will take much more thought and action, and politically we are no where close to where we need to be, but neither is the rest of the world either. The end result should not be about imposing costs like the ETS is designed to do, but to provide a means to transition that benefits the poorest as well as everyone else. A very big part of the problem is population size. There are already too many people in NZ and our government is talking about bringing more in. You never even mentioned it. Where will that take us?
> vehicles are always more efficient on high quality roads which NZ is sadly lacking.
congestion is more of an issue than road quality. If we build more roads, more people drive, and congestion gets worse.
> If we are to encourage cycling we need better roads
To encourage cycling we need better cycleways. 4 laneing a highway isn't going to encourage cycling.
Congestion is only a factor in the major cities and is the consequence of poor urban planning and design.
So you advocate discouraging travel between cities? Going back a few hundred years to the city state concept?
Again you are diving too much at superficial detail and making flawed assumptions without thinking in depth.
I would not discourage travel between our cities, existing inter city roads are totally adequate, they are not congested as you say.
Congestion in our major cities is because we have tried to solve congestion by encouraging more people to drive.
What we need is to get more people to use alternatives to the car and building more roads is not how you achieve that. Electric cars are not going to save the day.
And flash new roads don't always mean more efficient travel, just look at all the people complaining about their fuel bills since transmission gulley opened
Regarding roads, we are building roads for individuals in cars and trucks, whereas implicit in your comments is that the use of roads in future is likely to be in larger vehicles that carry more people per vehicle. The present "moar roads" focus doesn't seem to be done with that in mind.
Re populations, many are highlighting the need to enable more to live closer to arterial routes, i.e. liberalising the authoritarian NIMBY zoning that prevents intensification near to public transport. Which reduces the reliance on sprawl and ever more roads that we cannot afford to maintain in future.
Moreover, you've largely argued against points I have not made.
Reducing the maximum truck size would make our road maintenance dollar go further. The relative damage to roads is calculated by tonnes per axle to the power of four. An 8 axle 40 ton truck driving causes about 2500x more damage than an average sedan. The government increased the maximum truck weight from 44 to 53 tonnes in 2010. All else being equal, that is a doubling of the damage done to our roads by those largest trucks.
PDK I think your aim might be off here. This story is about Venezuela, one of the most oil rich countries on the planet, finite stocks are not debateable but this story is one of corruption, of poor social infrastructure not over consumption.
If anything an intervention to "insert some democracy" (calm down Audaxes ;)) and perhaps allow them to access (and as importantly gain revenue from) those massive resources is the way forward.
They were being resource-raped.
By us (the global north). Same as Nigeria (search: Ken Sarowiwa). Same with Iran (read: Adventure in Oil).
Don't confuse who is being displaced first, with the fact that displacement has to happen when you are an overshot global population.
We did it to Cuba too.... But they were intelligently led, and are a good blueprint for where we will end up going ourselves.
Resource raped. Reminded me of very good book -
Confessions of an Economic Hit Man - Wikipedia
The book provides Perkins' account of his career with engineering consulting firm Chas. T. Main in Boston. According to Perkins, his job at the firm was to convince leaders of underdeveloped countries to accept substantial development loans for large construction and engineering projects. Ensuring that these projects were contracted to U.S. companies, such loans provided political influence for the US and access to natural resources for American companies
There's some good stuff in that book, but mostly it greatly disappointed me - and I've worked in developing countries. He came across as if he'd not been as deep in as he purported to be, to me, and his weird descriptions of developing countries (and their women in particular) were part of this.
But obviously the model of development finance is a well known one. He's right about it.
Rastus and Rick these are good questions and pertinent to Jane Kelsey's article on the IPEF, and how we as a country look at it. US politics are a bit too predatory when treating other countries. I suggest we need to find ways to build alliances with them without having to cede our sovereignty.
No they weren't.
Are you saying that these countries had all the oil technology they needed for extraction, piping and shipping but the US came in and just took over? No of course you are not because that would be wrong.
Are you saying that they did not get paid for the oil? No of course you are not because that would be wrong.
So what are you saying?
Also Cuba as an example? For the love of all that is good tell me that was a joke.
The UST 2-10 rate curve has steepened to +27 bps
Chances of a stream of 50bps Fed Funds rate hikes in the minds of those bidding at today's 2 yr UST auction are fading.
RRP (use) Hits $2T, SOFR Like T-bills Below RRP (rate), What Is (really) Going On?
Perhaps we should also note that Hungary has amended its constitution giving Viktor Orban power to rule by decree - and he immediately imposed it. The EU and NATO now have a pro-Russia dictator in their midst.
Always happy to see my country make the world news...
There aren't a lot of people who I want to see die. Orbán is #1. He built a Russian-type autocratic system which will only end with his death. He and his party of criminals is impossible to remove by democratic means.
Always happy to see my country make the world news...
New Zealand to train Ukrainian troops
Another slip of the tongue and we could be at war - Biden Veers Off Script on Taiwan. It’s Not the First Time.
Rhetoric coming out of Washington is that having run the Ukraine war effort at arms length, they are looking to distance themselves from that reality and let Kiev handle and own the fallout of the ongoing war as Donbass reaches a critical juncture.
Austin says end of Russia's war in Ukraine will be defined by Ukrainians
Jets Scrambled In Response To Rare Joint Russian-Chinese Patrol Over Pacific As Biden Visits Tokyo
US lacks financial capability to go to World War III with China & Russia & risk colossal damages to itself & to allies - & sink world economy. Biden’s medical condition is now a factor in international security. ASEAN countries will be even more wary. Link
So much for the accusations of a 'proxy war' by the pro Putin apologists. Having said that, I hope the west keeps feeding weapons into Ukraine, so they can grind the core out of the Russian military and force them out of Ukraine altogether.
I currently see three scenario possibilities; 1. The current scenario, with weapons fed into Ukraine by the EU and West to grind down Russia and force out through raw attrition, but Russia does not escalate to nuclear. 2. Scenario 1 with Russia escalating to nuclear when it realises it is losing and tries a "Hail Mary" effort to win. They will initially try a tactical nuke, and if the west does not retaliate in kind, Russia will continue to use them to get it's way whenever it needs them. 3. The West jumps in all out to finish this. It may come after Scenario 2. At the moment they are trying not to, but I think they have realised the risk if they finally throw Ukraine under the bus, Putin will have other targets in his sights and he will push 'repeat play'. Right now Russia has made itself the pariah state, no one will trust them for a very long time, no one will deal with them. If they win in Ukraine the consequences may well mean they will still lash out at the world. I doubt even China would trust them. Scenario 1 is preferable at the moment, but I think 2 and 3 are becoming more likely every day.
Right now Russia has made itself the pariah state, no one will trust them for a very long time, no one will deal with them
Who will ever trust the collective West with their US trade surplus $funds etc lodged in foreign banks which could be frozen at a moment's notice?
Not the collective Global South.
Not sure i understand your comment Audaxes?
While some things might be possible ( I assume you talk about the US freezing US$ funds held by foreign countries?) it doesn't mean they will do so. Besides the US has long touted itself as the bastion of freedom, the protector of the free world. If they suddenly started acting like that the the tide would turn against them, and for all their might, I doubt politically they would like that.
You may have missed the news broadcasts? Russia invaded Ukraine on a BS pretext and is committing war crimes there.
The Taliban provided a training platform for Al Qaeda to attack the world based ion their twisted view of the world and desire to destroy all the infidels, and now they are back in power and breaking every promise they said they would do once in power.
Not sure which denial rabbit hole you're going down, but do try to keep up with the news.
It is doubtful whether the West can maintain a united front in pursuit of such far-reaching war aims with absolutist aims. Mr Cantor said it would require secondary sanctions against other countries, putting the West in a head on clash with China, India, and almost 60 states that refused to back a UN resolution denouncing Russia’s invasion.
Mr Cantor said the US was in danger of overplaying its hand. “We have got to have multilateral support. We are already being accused of weaponising the world’s reserve currency. Even allies and friends are starting to ask, if you are using it in this way, we too could one day be subject to these sanctions,” he said. Link
Comedy gold this week came from everyone's best mate here, Volodymyr who fronted up straight faced and asked the west for 5 Billion dollars a month to rebuild. Just a couple of outstanding problems, firstly the Russians are still bombing the crap out of you because not only couldn't you negotiate to prevent the war in the first place you cannot organise a cease fire either and secondly while the USA likes to portray itself as the world police and loves to throw weapons about they are not going to pay for the rebuild when they seriously have China to worry about. Would love to know who is paying for those weapons by the way, your running up quite a tab mate.
Hmmm....
The Herald reports:
Former Prime Minister Helen Clark has angrily denied a claim in a United States diplomatic cable that the previous Labour-led Government sent New Zealand non-combat engineers to Iraq so that dairy company Fonterra could secure a United Nations contract.
She described the claim as preposterous. Link
Just an observation based on how I always seem to read David's commentary above on crude oil pricing. US$109.50 is not the price of crude oil in the US versus US$111.50 as the international price. US$109.50 is simply the price per barrel of West Texas Intermediate (WTI) crude which is a heavier, lower quality crude which originally came out of the US and was named from it's initial Texas production area. Brent crude, which is quoted here as US$111.50, is a lighter and more easily refined crude which consequently commands a higher price per barrel because of it's superior properties. It was named from it's initial production site at the North Sea Brent Field. There are a whole raft of crudes quoted on the exchanges based on their various properties but these two are the ones most often quoted as general indicators of heavy versus lighter crude prices. Various refineries with different end product needs will contract in different grades of crude, the source of which can be from anywhere in the world so prices are truly international not US versus international.
Plant out some more farms in pines chaps.
"China’s plans for 169 new and expanded coal projects could boost global methane emissions from mines that produce the dirtiest fossil fuel by 10%. ...The estimated 559 million tons of annual new capacity in development could emit an additional 6 million tons of methane a year"
https://www.bloomberg.com/news/articles/2022-05-23/china-coal-could-boo…
"Jamwal said work was proceeding on infrastructure for Siarmal, an open cast mine built in a partly forested area.
"No Indian mine has produced more than 50 million tonnes of coal in a year. The Gevra coal mine, India's largest, aims to produce 52 million tonnes this year.
Coal India, which accounts for 80% of India's domestic output, plans to produce 700 million tonnes of coal in 2022 and aims to hit annual output of 1 billion tonnes by 2025."
https://www.reuters.com/markets/commodities/coal-india-open-big-new-min…
Passports gets all their funding from purchasers - zero tax money pays for it - it's a private good so the costs are privatised. When the passports went from 5 to 10 years a lot of jobs in the passport offices disappeared. Fun fact, adult passports subsidise child passports - they cost the same to make and process but are cheaper for stupid reasons. Adult passports also subsidise refugee travel documents, which cost about $1000 to process but by treaty only cost the same as the cheapest travel document.
It always cracks me up when people who spend thousands of dollars travelling overseas complain about an $8 increase to their passport. 80c a year, 84c if you count the last 6 months where you often can't travel on it. Suck it up. If you want to complain, complain about how children get cheaper passports and how refugees are freeloading on adult NZ citizens. Those are the only 2 valid complaints.
In most countries showing an NZ passport gets a smile of appreciation. When my family show their PNG passports they get "stand in the longer line" and "where is that Africa or South America". The only negative would be foreigners telling me how lucky I am to have such a fabulous Prime Minister; at least I don't have to listen to opinions about Boris, Biden, Putin and Xi.
No. This is so wrong it's painful to read. Full disclosure - I worked at the DIA and helped put in the previous passport system.
The whole of the DIA is paid by our taxes. It is a government department.
In 2021 the DIA financial accounts show
- Receipts from the Crown $418,884,000 (Our taxes)
- Receipts from third parties $122,189,000 (Passport taxes)
The cost of providing passports is sunk apart from the staff - who are paid by the government. In total, 73% of all first-time adult passport applications were done online so it is even less costly to provide one.
I am glad you enjoy paying a tax for something you have already paid for but not me.
The DIA does allot more than issue passports. How is that government funding apportioned across its functions?
If that $122m in passport fees was not available, wouldn't the taxpayer have to fork up an extra $122m to fund the department, ergo the taxpayer is not currently funding passports?
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