Here's our summary of key economic events overnight that affect New Zealand with news the tussle between bull and bear forces is far from being resolved.
Analysts had expected American non-farm payrolls to rise +325,000 but the key reported rise was +390,000 and this is being considered a positive result. But that leaves them -822,000 jobs fewer that before the pandemic struck. Wall Street sees it as confirmation that the US Fed will hike aggressively at its next review on June 16, and is ending the week on a glum note.
But as regular readers will know, we like to look past the 'seasonally adjusted' numbers everyone else looks at, and drill into the actual shifts. And these explain why the giant American economy is actually more resilient than most are noticing. The actual May rise was +809,000 more people employed in May than April, on top of the actual +1.1 mln rise in April from March, and the +762,000 rise in March from February. These are huge gains, taking the actual paid workforce to 151.8 mln people. And even more revealing, that is more than +800,000 above the actual 151 mln employed before the pandemic struck. Yes, they have now recovered all the lost jobs on an actual basis, way better than the standard narratives.
They have a situation where average pay of workers not in management is rising +6.4% pa, and overall payrolls are expanding fast. The combination adds purchasing power to their economy very aggressively - probably too frothy for policy makers.
Most of these employees are in the service sector, and the latest evidence is that this is expanding solidly in the US too. The widely watched ISM survey has it expanding slightly slower than in the prior month, with the internationally benchmarked survey also recording a solid but slightly slower expansion. They may be at the limits of what is achievable with their workforce.
To do better than they currently are, the US will need to find a way to raise its labour force participation rate. It is running at 62.3% of the working aged population, and while it is creeping up it is still low by international standards and still -1% below pre-pandemic levels. But with immigration low and an ageing population, that would involve encouraging those who chose early retirement at the start of the pandemic to get back into the workforce, and that seems an unlikely change.
This week, the US Fed began the process of shrinking its almost US$9 tln asset portfolio (~35% of US GDP and probably much smaller than you may have assumed) by not reinvesting some of the maturities. This is a sure sign their economy is recovering fast, and builds on the fast-shrinking Federal Government deficit. Both are evidence of much more professional economic management in place there now.
But not everyone is upbeat about where their economy is headed. Both Elon Musk and Jamie Dimon have issued warnings about what their own companies face, although in Musk's case it might be a sign of stress from over-reach, especially in China and Europe, and in Dimon's case it could be that a leveling out might threaten his giant bonus. It's all about the future, so anything is possible.
In China, the gradual easing of pandemic restrictions in Shanghai will see their key Pudong and Hangzhou port centers reopen. And export volumes are predicted to jump in the immediate future. Demand for ocean freight services and container shipping costs are expected to tick up as firms rush to get goods out.
And officials are also claiming that activity is returning to their housing markets. But Chinese workers must now endure regular PCR testing to get back on the job.
Encouraging them are a rush of 'red envelopes', direct cash payments and coupon stimulus to residents to encourage them to get out and spend. An interesting twist is that authorities are rushing out some of this as digital money. Having stimulus bypass the banking system is an attraction to central bankers, and not only in China.
Yesterday, South Korea reported a CPI inflation rate of +5.4%, well above the +4.8% in April and the expected +5.1%.
Singapore reported retail sales up more than +12% in April from a year ago, but they might have been disappointed in the tepid rise from March.
The EU also reported April retail sales volume levels and they didn't bounce back as much as they had expected, and they would certainly have been disappointed in the monthly slip.
In Australia, there has been something of a crash in mortgage lending. Lending to owner-occupiers was down -7.3% in April from March and down a stunning -12.8% year-on-year. Even lending to investors fell -4.8% in April from March. There are getting more commentary there of "a great house price correction' being underway, targeting a -15% to -20% from peak to trough. Negative equity worries are rising.
And in Canberra, their new government is pushing for a +5.1% minimum pay increase for the "low paid". It will take their minimum wage to AU$812/week (NZ$22.50/hr NZ$900/week or NZ$46,800 pa). It will go to about 1.3 mln Australians. Australia's CPI is currently running at 5.1%.(New Zealand's adult minimum wage is currently NZ$21.20/hr. Given Australia's taxes are higher, it may surprise readers how low Australia's minimum wages are, compared to ours.)
The World Food Price Index slipped in May as prices for vegetable oils and dairy products retreated somewhat. But prices for cereals and meat rose again, both to record highs. And the overall index is more than +22% higher than a year ago. Food price stress remains extreme.
The UST 10yr yield will start today up +4 bps at 2.96%. A week ago it was at 2.74%. The UST 2-10 rate curve is marginally steeper at +29 bps and their 1-5 curve is a little steeper too at +79 bps. Their 30 day-10yr curve is flatter however at +209 bps. The Australian ten year bond is now at 3.53% and up another +2 bps. The China Govt ten year bond is little-changed at 2.82%. And the New Zealand Govt ten year will start today up +2 bps at 3.66%. A week ago it was at 3.52%, so a +14 bps rise in seven days.
Wall Street is lower today with the S&P500 down -1.6% at the end of Friday trade, but a weekly gain of +0.8%. Overnight European markets drifted slightly lower by about -0.3%. London remained closed. Yesterday Tokyo ended up a strong +1.3% on the day and up and even stronger +2.5% for the week. Both Kong Kong and Shanghai were closed for public holidays. The ASX200 ended its Friday session up +0.9% allowing it to post a weekly gain of +0.8%. The NZX50 closed Friday up +0.6% to book a stellar +3.2% weekly gain, or on a capitalisation basis, up +3.0%. Either way, it is impressive.
The price of gold is down -US$20 today from yesterday at US$1849/oz. It is back to week-ago levels again.
And oil prices are again firmer from this time yesterday, up +US$2 to just under US$117.50/bbl in the US, while the international Brent price is up at just over US$119/bbl. That international price was -US$3.50/bbl lower a week ago.
The Kiwi dollar will open today down -½c at 65.1 USc. Against the Australian dollar we are unchanged at 90.3 AUc. Against the euro we are a little softer at 60.7 euro cents. That all means our TWI-5 starts today at 71.9 and little-changed in a week.
The bitcoin price has retreated by -2.4% and is now at US$29,501. But it is up +3.5% from this time last week. Volatility over the past 24 hours has been moderate at +/- 2.4%. And in Japan, their parliament has passed important legal protections for stablecoins.
It is a public holiday in New Zealand on Monday.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
53 Comments
Wall Street is lower today with the S&P500 down -1.6% at the end of Friday trade, but a weekly gain of +0.8%.
Hmmm... not according to this data source.
JCPOA negotiations at Vienna meet sudden death. West uses IAEA to pressure Iran. With other US moves - courting Saudi Arabia, negotiating 'security strategic agreement' with UAE, etc. - Biden reverts to Trump's 'maximum pressure' track. Politically safer. Linker
Reports of OPEC+ death are greatly exaggerated
US congress investigates Saudi investment in Jared Kushner's firm
More importantly, what that will mean for Bitcoin, where else do you think students sudden windfall will go....
Good thought there. Younger demographics are more interested in digital assets than the Boomers who don't give a rats about how traditional markets have been captured in their favour. Millennials are far more comfortable with crypto, Web3, NFTs, etc while the Boomers don't really get it.
"Good thought there. Younger demographics are more interested in digital assets than the Boomers who don't give a rats about how traditional markets have been captured in their favour. Millennials are far more comfortable with crypto, Web3, NFTs, etc while the Boomers don't really get it. "
Or just older and wiser.
Or just older and wiser.
Not sure what that means. Are you suggesting that the boomers are more savvy than millennials and Gen Z because they were born earlier thereby being able to participate in the largest asset price growth in human history? Do you believe that the younger demogs should just do what the boomers do? How?
If people took the attitude that things never change, nobody every would have bought Amazon shares as Ecommerce would never have emerged. Sometimes thinking outside the box is where the big opportunities lie.
I guess as you age you become more adept at separating the wheat from the chaff. Every 5-10 years there's a new fad investment offering people the chance to get in on the ground floor.
In the 80s it was Amway
In the 90s it was farming Ostriches and .com stocks
In the 2010s and 2020s, it's "digital assets".
Amazon isn't a fad, it's the partially monopolistic conclusion of the move from physical to online retailing. Its an ongoing, evolving business employing swathes of people, developing IP and technology, with physical distribution centres and a transport network.
There's been a large rise in its share value, but also a very strong business case for it.
"Digital assets" is thousands of attempts at trying to luck out being money 2.0. About the only case you ever make for it seems to be "look how much the value went up". Which is a good case for someone wanting to get rich quick, but not a good case for anyone who tries to ascribe some sort of value to an investment.
Its like a kid thinking they'll become rich and famous being a youtuber. People do become rich and famous being youtubers, but 99.9% of people that try won't, because it's simply not possible.
Anything can be a fad. It's a subjective notion. People said that skateboarding was a fad. People said that the i Phone was a fad. Even apps were considered a fad.
As for "digital assets" being a fad, I have used BTC as an example because it's the most recognizable of what many refer to as cryptocurrency. Now, I'm not suggesting that people buy BTC. Let's have a look at a conservative approach to buying and owing it as a fad. Dollar cost averaging $100 per month over time.
Past 12 months: -5.9%
Past 2 Years: 70%
P3Y: +171%
P4Y: +305%
P5Y: +387%
P6Y: +1,180%
P7Y: +2,860%
P9Y: +5,950%
Few headlines and all suggesting doom... is it a reality or is it a myth as house prices never fall in NZ and here entire commentary is suggesting crash
https://fortune.com/2022/05/31/is-housing-market-bubble-which-markets-overvalued-home-prices/
https://www.macrobusiness.com.au/2022/06/end-game-arrives-for-new-zealands-deranged-housing-market/
Finally good news that housing market will not crash till end of this year as to be in crash territory should fall by 20% or more and below prediction is fall of only 18% by end of December.
On conclusion, any FHB having missed the bus earlier should not jump as limousine is coming, hopefully :)
... " doom " only for the few who bought in the past 2 years during a period of artificially low mortgage rates ...
Great joy for all those citizens locked out of affordable housing by insane prices ...
... shame upon successive governments , councils , & the RBNZ for allowing ... rejoicing even ... as house prices rocketed beyond affordability for regular Kiwi friends & families ...
... yes ... I am rejoicing , ecstatic when house prices fall ... I was a total gloomster when they kept going up , enriching a few wiseguys with tax free gains , but on the flip side pricing good regular Kiwi couples , friends & families out of owning their own home ...
Go go go .... down !!!!
Encouraging them are a rush of 'red envelopes', direct cash payments and coupon stimulus to residents to encourage them to get out and spend. An interesting twist is that authorities are rushing out some of this as digital money. Having stimulus bypass the banking system is an attraction to central bankers, and not only in China.
This really does seem the future.
David Chaston, it is too simple to state that"Given Australia's taxes are higher, it may surprise readers how low Australia's minimum wages are, compared to ours,"
As there is no Tax to pay on first $18000 of Australian income, The 46800 minimum Australian wage( in NZ dollars) attracts a total paye taxation of $6757, whereas if it was taxed in New Zealand, ( where tax starts on first dollar earned) it would be taxed $7210. That is More tax ,less net pay . Not the other way around, for the targeted minimum wage rate policy change.
So at the minimum wage level,which is the tax bracket Canberra is aiming at assisting ,their minimum wage level, the working poor,are Taxed Less.
It's true if you compare wages, anything between about 50k and 200k, wages are almost identical in Australia and NZ.... google aus tax calculator and nz pay calculators to compare.
Also although minimum wages in Australia are same as here, nobody expects to find employees for that price, you'd have to pay atleast $10+ an hour over minimum wage, in NZ it seems if you pay a few bucks over minimum wage you are a "living wage" excellent employer.
Indeed, I was just establishing the base line, and hoping other readers might contribute the other obvious points , one of which is ,job swap ,like for like, NZ to Australia,the Aussie job pays significantly higher. Throw in Lower rents,more value for money in housing ,in cities of same size that an émigré has moved from,here in NZ ,Lower grocery costs ,lower petrol costs ,wider consumer choices ,and the whole package becomes compelling. It is the whole package that a potential émigré will consider?
Well,that is a clear a case of a "straw man arguement", as one could get, comparing a dollar saving on a single 1 kg block of cheese as no reason to weigh up the benefit of a families emigration. Humorous ,weakly,but no refutation.
A family of 5 saving 5k on groceries 5k on fuel 10k on housing and getting net 30k more on household income ,annually $50000 better off, is perhaps a better weighting than 1 kg of cheese .
I don't know how good an example of a straw man argument that is, I just used cheese because that's the most common commodity people/press use to paint Australia as the land of affordable living.
If someone is struggling to keep their head above water and they have a 50 grand upside just by buying a plane ticket that's probably a good option. From anecdote though, most people I've seen struggle in NZ, end up struggling in Aussie. Something extra needs to change, be it job or general approach to living.
Germany has reported a trade surplus of only €1.3bn in the month of April, the lowest figure since 1992.
Today’s global fracture is dividing the world between two different economic philosophies: In the US/NATO West, finance capitalism is de-industrializing economies and has shifted manufacturing to Eurasian leadership, above all China, India and other Asian countries in conjunction with Russia providing basic raw materials and arms.
These countries are a basic extension of industrial capitalism evolving into socialism, that is, into a mixed economy with strong government infrastructure investment to provide education, health care, transportation and other basic needs by treating them as public utilities with subsidized or free services for these needs.
In the neoliberal US/NATO West, by contrast, this basic infrastructure is privatized as a rent-extracting natural monopoly.
The result is that the US/NATO West is left as a high-cost economy, with its housing, education and medical expenses increasingly debt financed, leaving less and less personal and business income to be invested in new means of production (capital formation). This poses an existential problem for Western finance capitalism: How can it maintain living standards in the face of de-industrialization, debt deflation and financialized rent-seeking impoverishing the 99% to enrich the One Percent?
The first U.S. aim is to deter Europe and Japan from seeking a more prosperous future to lie in closer trade and investment ties with Eurasia and the Shanghai Cooperation Organization (SCO, a more helpful way of thinking about the global fracture from the BRICS). To keep Europe and Japan as satellite economies, U.S. diplomats are insisting on a new economic Berlin Wall of sanctions to block trade between East and West. Link
That seems likely, but Europe and also Japan have similar economies to USA so are likely to have similar problems thus my prediction is that Europe will follow this to an extent but they will not be blind. I would not be surprised to see European nation rise to the occasion, thus limiting the necessary of a military support by USA to good effect.
After reading the link, further to this, no country will be able to challenge the USA, they have the best land, Russia's only hope is integration. At least they are not the ones imposing the sanction this time, that puts them on the front foot. USA will ride their double standards to persecute Russia for as long as they can (other countries get away with coups etc.) EU and Russia will be the losers from this.
About Japan and stablecoins, they will only be issued by licensed banks, registered money transfer agents and trust companies, but the Japan bill does not address existing asset-backed or algorithmic stablecoins.
However, important to note that crypto exchanges in Japan do not list stablecoins. My primary exchange is in Japan and the only way it can be funded is directly with JPY and / or other cryptos such as BTC.
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.