Here's our summary of key economic events overnight that affect New Zealand, with news that the ECB has turned hawkish and is now focused on fighting inflation rather than propping up some of their large slow growing economies.
But first, new American jobless claims rose to +185,000 last week, a very minor rise. There are now 1.255 mln people on these benefits, still an all-time record low even if little-changed from the prior week.
Tomorrow, all eyes will be on the American CPI inflation rate. It is expected to come in at +8.3%, for May, the same as for April. But there will be special interest on the food component which could well come in higher than overall prices. Other countries are about to release monthly CPI data too. But New Zealand only releases this data quarterly and we will have to wait until July 18 to get our June data. Our weekly grocery price monitor suggests our prices are now starting to rise very fast, up +13% in a year.
There was a US Treasury 30yr bond auction a few hours ago, well supported, but the median yield rose to 3.11%, up from 2.91% at the prior equivalent event a month ago. That a +20 bps rise and above today's secondary market level, an unusual outcome.
In China, exports were expected to recover somewhat in May after a tepid change in April. But in fact they jumped by much more than expected, up almost +17% to US$308 bln. That is their highest increase in shipment in four months and easily beat market forecasts.
Chinese imports were little-changed, so their trade surplus jumped to almost +US$80 bln, well above the expected US$58 bln, and far above the April US$43 bln. Their concentration on shifting high-value exports as a priority after the lockdowns in Shanghai, and using alternative ports, appears to have been a positive initiative.
This may be positive for their exporters, but their general population is feeling very glum. China’s consumer confidence index slumped to 86.7 in April from 113.2 in March, hitting the weakest level since the data was first available in 1991. Their core problem isn't inflation, it is income reductions. This is yet another indication as to why Premier Li appears so worried about their economic situation.
Japanese machine tool orders rose strongly again in May, up almost +24% above the same month a year ago and essentially maintaining their fast paced rise.
The ECB said during its June meeting that it will end net asset purchases under its Asset Purchase Program in July and it intends to raise the key ECB interest rates by 25 basis points next month. It will be the first increase in borrowing costs in more than ten years, as inflation in the Euro Area shows no signs of easing. It said it is likely to raise them the same amount in September.
European bond yields rose and equity prices fell on the ECB announcement that the easy money of their QE is ending. But they are not emptying the reservoir, only not adding to it from here on.
But there are doubts the ECB can remain hawkish if economic expansion turns to contraction there.
An odd and stressful situation is developing with zinc, a key element required to transition away from fossil fuels. A set of key smelters have had to shut down in Europe due to electricity cost spikes. That is an added problem because zinc is integral to solar and wind generators because of its anti-corrosion properties. The demand from alternative suppliers far outweighs their capacity and zinc prices, already very high, are likely to take off again soon especially as inventories are declining fast.
On the agricultural front, we should also keep an eye on the soybean price, about to also shift into record-high territory. This is a key animal feed, and high prices will harm meat and dairy production that is not grass-fed.
Container shipping rates eased a tiny amount again last week, but nothing meaningful. Bulk cargo rates eased as well.
The UST 10yr yield will start today up +2 bps at 3.04%. The UST 2-10 rate curve is flatter at +22 bps but their 1-5 curve is unchanged at +76 bps. Their 30 day-10yr curve is marginally flatter at +213 bps. The Australian ten year bond has raced higher, now at 3.70% and up +14 bps. The China Govt ten year bond is little-changed at 2.82%. And the New Zealand Govt ten year will start today up +9 bps at 3.87%.
On Wall Street, the S&P500 has started their Thursday session down -0.6%. Overnight, European markets were all down another -1.5%. Yesterday Tokyo closed flat with a late retreat, Hong Kong fell -0.7%, and Shanghai was down -0.8%. The ASX200 ended down a sharpish -1.4%, and the NZX50 fell a lesser -0.5%.
The price of gold is down -US$5 today from this time yesterday, now at US$1849/oz.
And oil prices are down -US$1/bbl from this time yesterday, now just under US$120/bbl in the US, while the international Brent price is now just under US$122.50/bbl.
The Kiwi dollar will open today sharply lower at just under 64 USc. The daily retreat is the most since the pandemic shock on March 19, 2020. Against the Australian dollar we are marginally firmer at 89.9 AUc. Against the euro we are just under 60.2 euro cents. That all means our TWI-5 starts today at just over 71.2 and down -100 bps in a week mostly due to the rising greenback.
The bitcoin price has slipped by a tiny -0.2% from this time yesterday and is now at US$30,293. Volatility over the past 24 hours has been modest at +/- 1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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111 Comments
"Tomorrow, all eyes will be on the American CPI inflation rate. It is expected to come in at +8.3%..."
Who sets these "expectations" and "projections"? Because they have a lot of power - basically the markets tend to react strongly depending on whether the actual figure is above or below the projection.
"Expectations" are built from panels of professional analysts. The major business news services collate the results of research notes issues by these analysts, and represent the results as a 'consensus' forecast. Depending on the news service, there are between 50 and 250 analysts covered for each data item. Groups other than the news services do similar surveys "of economists", and they include the Fed and other central banks.
We tend to use the Reuters results, although it could be argued that the Bloomberg surveys cover a larger group of analysts. Locally, all the main bank and large non-bank economists (brokers, consultancies) are included.
The resulting expectations usually have a range associated with them, although we only focus on the mid-point.
Financial markets key off the variations for these expectations. If actual results vary from what a broad range of analysts have assessed a likely outcome from their modeling, they take notice. There are hundreds, maybe thousands of models tracking all sorts of aspects of the global economy, and in very granular detail. 'Surprises' from what those models expect are powerful signals to traders.
I was curious about:
But first, new American jobless claims rose to +185,000 last week, a very minor rise.
That sort of sounded like a large rise considering only 1.255 mln people are on these benefits.
However the link says:
The advance number of actual initial claims under state programs, unadjusted, totaled 184,604 in the week ending June 4, an increase of 1,008 (or 0.5 percent) from the previous week.
That makes it a bit clearer. It is indeed a tiny rise
I’ll tell what it’s good not seeing in the daily briefing and that’s any Covid BS! Where the rest of the world has moved on here we are still having daily updates of case numbers. A friend of mine works in media and I was talking to him about it and he agreed it’s ridiculous but said it’s still front page news because that’s what get the most clicks by far.
I don’t know why people think whether they are ‘over it’ is relevant to whether a problem requires a response. There are still many case, hundreds of people in hospital and large numbers of people dying every day. The issue still exists and there is significant risk to the health system from COVID-19 and seasonal illness. Wearing a mask is just sensible public health in this environment which is why you see people from Asian countries doing it.
Yes, large numbers of people die every day, mainly heart disease, cancer, diabetes. The mild cold does not kill you. Wearing a mask is not sensible public health. Diet, exercise and sunlight is health. Taking an experimental gene therapy and covering your face with a mask makes you 'unhealthier'. That is the problem with the medical industrial complex, they are confused to what health really is and are indoctrinated into their 'science', drugs cure everything.
Your immune system must be in bad shape if you are going to be sick in bed for a week. Get over the fear. What proof do you have that mask wearing cuts down on Covid? Nobody wears them correctly, are constantly touching them and the virus travels through the fabric. Hospitals are overflowing with obese diabetics that have trouble breathing when they contact a mild cold.
EU, UK, Canada, USA Aussie -- all moved on -- China - isolated in its approach -- and most Asian countires - Japan Hong Kong Singapore etc were all heavy mask users and wearers prior to Covid -
Almost everyone except China -- and of course NZ -- no longer has gathering restrictions indoor or out --
The world has indeed moved on -- with a few isolated exceptions - NZ beign one of them -- Ask us Healthcare providers or Corrections for example - what the response is from overseas -- nobody wants to come to a place where vaccinations are still mandated - despite the massively high rates -- and staff have to weare masks for 8 hours a day in an already stressful overworked environment!
Indeed, in NZ the "with" death rate is only 0.1%, the "from" rate even lower, both heavily skewed to the elderly and those with other serious health issues. Winter hasn't generated the surge they were trying to make us afraid of either.
It's well and truly time to move on, people are over the bs, the govt would be well advised to move to the green setting asap.
Winter hasn't generated the surge they were trying to make us afraid of either.
Could it be possible that all of the preventative health measures may have contributed to this!? The whole point of all of these measures has been to draw out the peak in order to prevent a sudden spike and overload of the health system.
The health system is overloaded, and was just holding on before Covid. As more staff retire or exit faster than they are being replaced it, is heading fast for collapse.
Non critical operations and investigations were cancelled left and right. Several friends in health are openly talking about the future death rate from cancers that would normally have been detected and removed/treated will be far greater than Covid has ever been. Then add in the Govt's economic mismanagement which has unleashed the wage and price spiral...$21 blocks of cheese etc, and supporting increase housing speculation driving rents further skywards. All this while fighting the health sector to deny its workers a decent financial return for their long hours and difficult work dealing an aging, and increasingly meth riddled population.
Beam me up Scotty. Right to Aussie. More money, cheaper houses, and far less pressured working conditions.
In my highly trained specialty we have lost about 10% of the workforce to Australia and the UK in the last year. We've been striking for months and the best we've been offered is zero for one year then 2x 2.5% for the next two years. Something like a 10% pay cut in real terms, at best.
The government has money to throw everywhere but at the healthcare workers who turned up and worked right through the pandemic.
spot on -- i run an NGO -- high end Mental Health serious injury etc -- and we have had nothing -- nothing to compensate for all the extra costs of PPE -- nothing for having to put extra staff on to manage during lockdown - nothing for all the massive amount of backfill staff we have had to cover staff isolation periods - and the $600 LSS -- does not cover the multiple weeks that staff have been stood down for - nothing for the extra recruitment to replace the highly trained skilled staff whose health choice was not to vaccinate -- no increase in mileage rates from ACC or MOH -- when fuel has risen almost a dollar a litre -- and CPI rises of 1.8 %and 2.3% when we no inflation is running at 7%
The Pay Equity settlement is likely to offer our hard working support workers the grand total of $0.70 cents an hour as a reward for putting their families and their lives ont eh line for the last two years - yes $0.70 cents!!! 2.5% -
All the virtue signaling in the world - about how wonderful our nurses doctors allied health workers -- is not stopping them leaving in droves - both overseas and to other professions -- and who really wants to move careers to healthcare - mandatory vaccinations, huge workloads , 8 hours masks a day ...
mfd& kpn thankful for your posts over the last two years or so. two different areas at the coalface of course but both illustrating an absolute dereliction of duty in prioritising essential services, and worse, bureaucratic squandering of the public purse elsewhere. It is appalling administration and unaccountability for it.
as a Mental Health service provider -- we are all disgusted taht this money went to here family -- who have no expertise , knowledge or skills in this area -- instead of any one of the hundreds of providers including a large number of Kaupapa Maori providers who have the expertise and knowledge to make good use of this funding!
Another "sign of our success". Housing and living costs are so out of whack with wages that NZ is an unattractive proposition for these important workers. We've spent so long living beyond our means by foisting ever larger debts upon younger generations that now living conditions are becoming untenable for them, and we're moaning about how someone else has broken things.
Across the board the Government has neglected front and second line government employees, while management are paid over $100 k. Most of those front and second line jobs are stressful, dealing with difficult people with little satisfaction or thanks. But managers and the Government all just say if you don't like it get another job. and currently for many of those organisations, many have just done that, leaving those that are left having to work harder and longer. In the regions where opportunity is limited people are just getting taken for granted.
An assessment of the health reforms doesn't give me much hope:
https://www.downtoearth.kiwi/post/an-explanation-why-the-kiwi-health-ca…
It could be, but there's plenty of evidence to suggest masks are largely theatre.
https://www.ndlegis.gov/assembly/67-2021/testimony/HPOLSUB-1323-2021020…
https://centerforneurologyandspine.com/do-masks-work-see-the-review-of-…
https://www.rnz.co.nz/news/national/408255/wuhan-coronavirus-face-masks…
Masks have some benefits but I'm well aware of the limitations if you're sharing unventilated space. The week stand-down if sick and the social distancing has played a large part in reducing viral illnesses and the speed of transmission. It sounded like you were arguing against these restrictions too, however they've been very important for extending and lowering the peak of covid.
Yes of course the measures were successful - in preventing deaths from Covid -- well Delta anyway -- Omicron is not any more fatal than influenza - similar mortality rates and similar demographics - but as ever the argument is not simply restricted to deaths from Covid --
The 500-1500 likely deaths where Omicron is the actual cause -- is in line with historical Flu numbers - a little higher but not much once you strip out the gunshot, car crash and those who were not even aware they were positive and had no symptoms -- and where Co id was only detected afterwards and had no impact.
WHat about the 50,000 people waiting for cancer / heart and other serious operations and scans -- the real killers -- 8000+ heart and 9000+ cancer deaths annually -- a huge number that are preventable through early detection from MRI scans / x ray imaging etc ???
The continued focus and massive investments on Omicron -- at the expense of the major killers in this country and the quality of live impacts of 50,000 people waiting over five months for a consultation and treatment - is a very very poor health choice
It is also extremely negative for our Health sector -- we are loosign staff hand over fist - and its impossible to replace them -- with mandates and mask wearing as core job requirements -- TRY wearimg a mask for 9 hours -- which is what our staff are doign every day - Horrible work environment!
Could it be natural infection has contributed to this!? The mRNA gene therapy experiment never worked. Proof; you can still contact the virus and spread it, if you took the gene therapy. Overload the health system! Stop the fear. The health system is overloaded with patients that make poor lifestyle choices.
Low earners have to negotiate 8+% pay rise with their employer to afford the same set of goods and services they bought last year, after the taxman has claimed his pound of flesh.
These folks are facing off against the RBNZ whose job is to prevent this wage-price spiral, giving rise to a reverse Cantillon effect that will, as always, hit the lowest earners the hardest.
So nothing new!
There was a US Treasury 30yr bond auction a few hours ago, well supported, but the median yield rose to 3.11%, up from 2.91% at the prior equivalent event a month ago. That a +20 bps rise and above today's secondary market level, an unusual outcome.
Pricing at a high yield of 3.185%, today's sale of $19 billion in ultra long dated paper, came in well above last month's 2.997% and was the first 3%+ yielding auction since March 2019. Yet despite the 3.185% yield, the coupon on the auction was below 3%, and was still 2.875%, same as the recent past. One final note on the pricing: the high yield stopped through the When Issued 3.200% by 1.5bps, the biggest stop through since March. Link
...there are doubts the ECB can remain hawkish...
There has been a new Euro Zone crisis coming for a long time. Countries like Greece, Italy, Spain, Portugal etc. have continued to add debt despite favourable economic conditions. They can't really sustain a return to pre-easing interest rates over any horizon or they'd default.
Well, probably not Greece, they'll default in 2042 when the ESM finishes.
Keep wearing the masks when near strangers I reckon. If you go to the ED in NZ these days and you could be forgiven for thinking you had stumbled into a reenactment of field hospital conditions during the last days of the battle of Stalingrad. Or the hospital scene in Threads.
Get some sun exposure, good sleep, eat plenty of animal fat and protein and hardly any cabs and exercise daily away from other people. Walking, running and hiking is best. Working for me so far.
Exactly, I suspect these comments from probable arts majors stating let’s just get over mask wearing etc are the same people that haven’t been to an emergency department in NZ recently. Third world environment would be a generous statement and we are just at the start of winter.
I know.
I'm still reeling at the person who argues to remove all restrictions as there's been 'no winter surge', while oblivious that these measures are largely responsible for preventing winter surge to-date in the first place... It's peak smooth-brain.
Next we should remove seatbelts from cars because there hasn't been many drivers ejected from the vehicle when crashing recently, so they're clearly not needed!
The big takeaway from the whole pandemic saga is the importance of metabolic health. Every effort needs to be made to improve one's own metabolic markers and keep in the best health possible. There are few valid excuses for not making the effort to reduce the possibility of developing easily preventable illnesses.
'Few valid excuses' other than the astronomical cost of healthy food in this country, or the time in which you can be required to make free to cook it, or the space/storage for bulk-purchasing/retaining left-overs at scale? Yea man, other than those minor things, it's a piece of piss.
The big takeaway is that people have no qualms about projecting their own situation over the entire population as a means to look down their noses at them.
In my "humble" opinion most so called "healthy foods" are anything but healthy. It's very easy and cheap to eat healthy. Start first by eating a lot less, a whole lot less, and eliminate all processed and packaged foods. No eating out. No takeaways. Big savings straight away.
None of those things have stopped our grocery bill going up by about 60% in the last two years. Nor does it free me up any extra time in the evenings after commuting/dealing with kids etc. This is a reality for many people - there's a desire to eat better, but the time, cost and ability to do it at scale (e.g. keep and reheating leftovers) is limited due to space.
It was more to convey that it's not really humble, rather radical and needn't be taken too seriously. Although I am serious about my diet for myself but appreciate we are all different and react differently to different foods. I would have thought consuming 90% of one's energy from animal products would appeal to many men.
So far remaining healthy. Things of note have been lower body odour, teeth seem to stay cleaner, no flatulence, regular like clockwork, skin tags have shriveled and dropped off, reduced hunger, good energy levels, good sleep, upbeat mood especially when being particularly strict with the carbs. May not work for everyone.
Correct, 90% of 'commodities' in the grocery store are unhealthy, loaded with sugar, preservatives and toxic 'vegetable' oils. Ever thought about planting a vegetable garden? If it comes in a packet and doesn't rot, don't eat it. This western world 'scamdemic' could perhaps be summarized with one word. Diet.
My entire house just had it, came in from college aged kids, it's a tricky virus, lingers for ages and impacts people differently. It attacks your weaknesses. For us it was a lingering flu, but I would not wish this on the elderly.
Labour has no intention of fixing the health system as it cant afford the pay rise cycle across health, teachers police etc..... somehow along the way 50bil got spent.... for very little .This simple fact will loose Labour the next election.
.. we're still in Covid recovery mode , a month later ...
But , I disagree that " Labour has no intention of fixing the health system " .. ... I reckon they do ... except , their remedies are faulty , so much so , they'll make the NZHS many times worse than it currently is , and at a vastly increased price ...
One issue that they are not talking about, is that due to lockdown measures the overall death rate dropped by about 2,000 people per annum.
That is, there were 2,000 people out there given a life extension pass, that now those measures have been removed, and with the pass having a time limit on it regardless, then that marker has come due, and we would expect hospital admissions and death rates to increase.
This is then on top of all the revert to normal death rates for everyone else.
Then the final cherry on the cake is all the missed screenings that happened over Covid that now mean a lot more deaths in the system that would have been prevented had they been picked up earlier.
And our hospital system has gotten worse over this time regardless.
I think it's about time the PM and MoH started standing up at 1 pm every day to read the numbers.
Less deaths in a pandemic and the virus has spread throughout NZ? Hospital admissions and death rates will increase not from a lack of screening, but a lack of immunity, bought about by Big Pharma's gene therapy experiment. Cancer's, heart problems and infections will increase as a result of Pfizer's grand experiment.
At the risk of David taking out his horse whip & thrashing me within an inch of my life , I'll do a little cross promotion...
... over at " Down to Earth Kiwi " they have reproduced comments by Uwe Reinhardt ( ex Princeton Uni ) saying that the Labour governments reforms of the NZ Health Service will lead to a Soviet style catastrophe .... and , he offers up some better ways of running our hospitals ...
If you're sitting in Australia, why would you come to NZ when you've got to muck around with Covid testing (at your own expense) and risk your holiday not going ahead - for a family looking to do a skiing holiday, the cost of getting everybody tested will probably be greater than any currency conversion savings.
and to top it off - rellies have just returned from Australia, where they were stuck for 3 years, and need to see a doctor - only to be told the medical services here are not taking any new patients - so you are now really screwed if you have a medical issue
As a result off to A&E for a 13 hour wait - the joys of being just another pacific island country
Because she's great at empathy, Christchurch Call and firearms reform internationally but not selling the cost of living side of things domestically/ "the sleeves rolled up" prosaic PM.
If interest rates and grocery bills keep rising faster than wages, there will soon be a poll with Labour in the 20s, putting Ardern in Judith Collins, Little, Cunliffe or English 1.0 territory.
Hooten thinks Grant Robertson is better equipped to sell things, having gone through a Bill English type experience in the past and having learned from it.
It's not a bad argument but it's also not clearly argued.
Herald is $5 a week. My wife thinks the Herald Premium email summary is worth that, whereas I rate Coughlan's economic and political pieces, which are usually premium.
"Our weekly grocery price monitor suggests our prices are now starting to rise very fast, up +13% in a year."
Indeed they are - yet despite these huge increase in prices, spending on consumables is actually trending downwards as people divert money into higher mortage payments, more costly non-substitutables like energy and fuel, and, for the wealthy, holidays abroad. Obviously we will all wait patiently for noticeable reductions in demand to translate into lower prices at the checkout - confident as we are in the wisdom of reckonomists.
What portion of supermarket goods are made overseas?
Because if they come from a country that also has inflation then their input costs go up so our buy price goes up. But as our dollar goes down then the cost to supermarket also gets ratcheted up again for each purchase.
How does putting up interest rates in NZ help bring those prices down?
The theory is that increasing interest rates to reduce consumers' disposable income will lead to reducing consumer demand for food. This will then lead to prices reducing because (a) supermarkets will reduce prices and profit margins to try and attract customers; (b) demand for supermarket staff will reduce so supermarket workers will accept lower wages (or at least not ask for pay rises) and this will be reflected in prices; and (c) demand through the supply chain will reduce (e.g. demand for shipping space) and this will lead to lower prices (same rationale as for supermarkets).
It all sounds reasonable in a classroom where you can assume high levels of competition, perfectly informed rational consumers, instantaneous responses, and a tendency towards equilibrium etc etc. In the real world, in NZ, where input costs are driven by overseas factors, and our firms have little effective competition, the theory doesn't work at all. Interest hikes simply make sure that it is workers that pay for inflation and capital is protected.
Hi Jfoe,
Yeah I forgot to write "in practice" to qualify how does it bring costs down.
It's a bit like what is happening with buying Japanese EV imports. Their prices are up in Japan as more people are buying to import to their countries, as well as our dollar being weaker = higher cost to customer in NZ. Theory says reduce demand and it will reduce prices..
What is missing is if it is a global market then unless all markets reduce then we are are just a rounding error for demand. (5m out of 8b people)
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