Here's our summary of key economic events overnight that affect New Zealand, with news higher inflation ahead seems to be the prospect now for 2022.
The 'feared' surprise in American inflation has been recorded for May. Overall the headline rate came in at 8.6%, a new 40 year high. But worse, food price inflation came in at 10.1%, and also a 40 year high. Markets were expecting a headline rate of +8.3% and food prices up about 9%, so the actual results have shocked financial markets into some sizeable reactions. Equity prices fell, bond yields jumped, and the US Dollar gained sharply.
One likely reaction is that the Fed will raise its policy rate by +75 bps on Thursday, June 16 (NZT). Until now, the best estimate has been +50 bps.
With that as backdrop it is hardly surprising that consumer sentiment has dived. There was a survey out today and it recorded its lowest level on record. Sticker shock is pervasive, especially for petrol prices. And this survey suggests that the public is more sceptical the Fed's policy actions are likely to get inflation back down.
However, not all data released overnight was negative. The remarkable repair of the US Federal Government finances continues with a greatly improved May deficit. Analysts had expected a deficit of -US$120 bln for the month. But the actual result was just -US$66 bln. Over the past year, this deficit has shrunk more than half to just over -US$1.1 tln from -US$2.8 tln in the prior fiscal year. That is probably the fastest budget repair ever accomplished, all while their economy expands.
Canada released its May employment data and that was generally positive, coming in better than expected. There was a big shift toward full-time employment in May, and a smaller shift away from part-time work. Their jobless rate fell to 5.1%.
Chinese consumer prices were up just +2.1% in May from a year ago, but of concern will be that prices actually fell from April, a whiff of deflation there. Food prices fell, and as a part of that, prices for sheep meats actually fell rather a lot, down -1.4% in a month and taking the year-on-year retreat to more than -6%. Pork and vegetable prices fell much faster however, and it is clear that their livestock farmers will be in no position to pay sky-high animal feed prices on the international market.
Chinese producer prices were virtually unchanged in May from April, and that dragged the annual PPI increase down to +6.4% and its lowest in more than a year (February 2021). Raw material price rises are still very high there, but prices for consumer durables at the factory gate actually fell in May from a year ago. It's a squeeze that will hurt.
China may be struggling in the real economy, but they still know how to flood new loans on to companies. New yuan loans rose sharply in May, up by +11%, partly because they are switching out of foreign currency loans. Their banking system now has NZ$49 tln in lending on their books (¥210 tln). That is 183% of Chinese GDP. For perspective, New Zealand's total lending is 154% of our economic activity, and for the US, it is just 70% on the same basis.
India reported that its industrial production rose faster in April than was expected. It was up a creditable +7.1% from a year earlier when a +5.1% rise was expected.
Russia cut its policy rate by -1.5% to 9.5% overnight. Also falling and fast is the Russian population. Deaths exceeded births by 311,200 people in the first four months of this year, according to data published by their Federal Statistics Service.
In Argentina, there seems to be some sort of bank run underway. Savers fear the country will default and are pulling money out of inflation-linked savings accounts to protect themselves from the prospect these balances are growing so fast the Government can't possibly pay. On Thursday alone, almost -NZ$400 mln was withdrawn. They risk making it self-fulfilling.
In Australia, a key coal-fired power plant is out of action due to a technical failure, and it won't be restarted until late September. This will test an already-brittle eastern-seaboard power system. Certainly it will bump up power prices.
The UST 10yr yield will start today up +12 bps from this time yesterday at 3.16%, and that is a +20 bps rise for the week. Rate curves are flattening with shorter maturities rising faster than long. The UST 2-10 rate curve is flatter at +11 bps but their 1-5 curve is only little-changed at +74 bps. Their 30 day-10yr curve is also flatter at +205 bps. The Australian ten year bond is sharply higher again, now at 3.77% and up another +7 bps. The China Govt ten year bond is little-changed at 2.82%. But the New Zealand Govt ten year will start today up +4 bps at 3.91%.
On Wall Street, the S&P500 has ended their Friday session down -2.3% taking the weekly retreat to -5.1%. This is hardly surprising given the financial markets now know a major realignment in price/earnings ratios is underway and back to more traditional levels that we had prior to QE. There is probably some way to go in this readjustment. Overnight, European markets were all down more than -2%. Yesterday Tokyo closed down -1.5%, Hong Kong fell -0.3%, but Shanghai actually rose strongly and ended up +1.4% on the day for a weekly gain of +2.8%. The ASX200 ended Friday down -1.3% for a weekly fall of -4.2%, and the NZX50 fell a lesser -0.7% on the day for a weekly fall of -1.9%.
The price of gold is up +US$24 today from this time yesterday, now at US$1873/oz. A week ago it was at US$1849/oz.
And oil prices are down -US$1.50/bbl from this time yesterday, now just under US$118.50/bbl in the US, while the international Brent price is now just over US$120.50/bbl. Both levels represent about a +US$1 gain for the week.
The Kiwi dollar will open today -40 bps lower at just on 63.6 USc. For the week that is a -2.2% devaluation. Against the Australian dollar we are firmer at 90.2 AUc and little-changed for the week. Against the euro we are up +30 bps at 60.5 euro cents. That all means our TWI-5 starts today at just on 71.3, up slightly from yesterday but down -60 bps for the week as the greenback strengthens.
The bitcoin price has fallen by -4.3% from this time yesterday and is now at US$28,976. For the week it is down -2.4%. Volatility over the past 24 hours has been moderate at +/- 2.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
94 Comments
It wont be about the bubble anymore. Priority is that people need to be able to afford food and heating.
Isnt his theory - housing prices were inflated (via ocr) to get us through pandemic via wealth effect. Thats all done now. So that policy is no longer required.
Real impact of house price crash (negative wealth effect - well that doesnt matter as per policy and it only affects a small % people), impact on banks (they can withstand a substantial drop and their shareholders had a good innings). The positives of a decent and long overdue 30-40% drop are: affordable housing (we get better teachers, doctors, less child poverty, more money to spend per person in the real ecconomy, less bubble risk for future etc) and there will be less investment in property so more investment in the productive economy.
Also important to note is that economists understand that recessions play an important role in building a competitive and sustainable economy (as musk noted recently), they clear out the rubbish (stuff and businesses that shouldnt be anymore), bring asset prices back in line (people all get into FOMO stuff at the end of a boom) and make way for new innovative stuff. Its why they are cyclical.. darwinism at play. and this one is long overdue so the down part (and then the up) will just be more pronounced and longer than the usual 5-7 year cycle. So i would be surprised if Orr and the other reserve banks arent actually letting it go and just standing by to adjust the momentum in case it does a GFC. (Governments will fall as a result - as they rightly get blamed for their part in it all. and yhey will try to swim against the tide..but that always happens too).
If things get really bad the world bank steps in and makes a loan to ensure things stay just above the waterline (think ireland in the 2000s).. its what its there for.
Trick is to position yourself for the fall and later the upward swing.
Drop away we say. Lets get cracking on improving NZ.
House drop is vital for NZ medium to long term economic stability and some proper productive growth. Inflation was a foreseeable side effect of the low ocr and potential for a global event like ukraine -so people, governments and businesses should have taken it into account in making plans.
Many buy for pure practicality rather than green credentials - they're available now and plentiful, sweet to drive, need virtually no servicing, and of course petrol is now $3 per litre.
Bought mine about 4 months ago and it's the first vehicle I've ever had that's gone up in value, fortuitously. Downsides are they're still an expensive initial outlay and have poor range (unless you can afford to spend $60k plus). But for people who just use them for a daily commute, an older second-hand Leaf is perfect. And in the next 5-10 years solid-state batteries are likely to be a game-changer.
As I understand it, hydrogen is generally now considered to be the future for larger vehicles, trains, ferries, etc rather than passenger cars.
I just hope all the people that bought on running cost basis have factored in that running costs will be tripple in a few years.
Currently, approx $3 of electricity per 100km traveled.
Soon with 7.6 of RUCs, $10.6 per 100km travelled. And that's assuming the cost of electricity doesn't increase. I think it's gonna sky rocket as oil and gas prices continue rising.
Still better than my family wagon, at 6l/100km (that's real world... the official 'combined' figure is 5.3) @$3/l = $18 per 100km traveled
Electric is way better for numerous reasons, but anyone that did the maths on long term ownership assuming they would never have to pay for the roads will be in for a rude shock
Some conspiracy theorists say that it will allow Blackrock-style companies to buy NZ assets cheaply.
I don't know. I think we are all still in the dark and unaware of the grand plan (just as the Japanese population was during their bubble).
I'm no conspiracy theorist, but one thing I know for sure is that Adrian Orr has wrecked our economy. Was it deliberate, or was it stupidity? I'm leaning towards thinking that it was deliberate.
The seeds of damage have already been sown, and your average punter is only just beginning to feel the effects.
Hey. I was in agreement (blaming orr) But in retrospect he changed course in alignment with others and a pendemic was a pretty new risk to manage.
The damage was actually done by those that didnt think and just jumped in without thought for risk management. Tulipmania.
We complain when the state nannies us... and then when they dont and we stuff up.
I am pretty happy with our position.
... I'll disagree with your belief that Orr acted deliberately ... I reckon that he & Robbo are naive , incompetent ...
The thing is : how do we extricate ourselves from the mess they've created ?
... recession ! ... the " R " word ... we need a downturn to squeeze the excesses out of our financial cistern ... System ! ... ... sorry ...
Would I be right thinking that inflation will push up the prices for everything including rents ...this should therefore increase ebit earnings for business owners with low debt who are not affected by rising interest rates? Longer term this should be a positive for business owners as the cost of everything will stay at the new levels. Interest rates are rising now as central banks fight to combat inflation but sometime in the future int rates will subside and those with higher debt levels will find their debts have been eroded by inflation.
Until recently rents have lagged house price growth which is understandable given the price gains. However the latest rent rises tell a different story, 11.2 percent nationally.
However my question was in relation to business owners not landlords. Let's not confuse the two although there is some cross over
"Landlords have to act in a business like manner definitely" (lol)
They are a business....if they are not, all expenses (not just interest expense) are non-deductable. See the Income Tax Act 2007.
No point considering EBIT for something that is not a business as there are no deductable expenses to distinguish between gross and net income.
It is non-deductible not non-deductable btw
Whether a rental is a business all depends on the scale imo. A mum and dad with a single rental property can happily straddle the fence. Ird and ACC treat them as a passive investors and Acc do not charge acc levy, Ird does not allow interest deduction. REITs on the other hand have staff and shareholders, so yes they are a business. We personally have a company with lots of tenants so probably are one of the bigger private landlords :)
Regardless of size All landlords are required to act responsibly and carry out their responsibilities. I guess you have one that treats you differently and that colours your opinion. You sound angry.
Double digit inflation on food in US I guess if our figures were more believable we would be similar. I suspect double digit inflation must eventually lead to double digit interest rates . There is no sign of inflation cooling anywhere and energy prices continue to grow this will inevitably lead again to higher inflation.
Hard recession and demand destruction,more likely. Goods and services will be permanently"on sale" to get some business cash flow, but people can not spend what they do not have,and personal debt de-leveraging will take voluntary precedence, then forced precedence. Keep your finances in impeccable order,and CHILL .
The amount the council collects in rates is not affected by valuations changes. Individual valuation changes only affect what proportion of that rates are paid by an individual property. Relatively less expensive houses pay less, more expensive pay a larger share. For the council, it all comes out in the wash.
as for watercare... it's interesting that 16% of their income comes from infrastructure growth charges, yet 46% of spending is on increasing capacity to support growth. Sounds like a new meter connection should be allot higher, then your user charges would go down.
“In real terms, households with average water use will pay around $1.50 more per week.”
https://www.watercare.co.nz/About-us/News-media/Auckland%E2%80%99s-wate…
You know the people who work there are usually normal kiwis right?
They're often good ones who earn less in public orgs than they could in private, as they want to make a difference.
If you think a group of wellington mums, dads and dink's are changing official stats for some feckless means, you need to try a different perspective.
The USA is losing its hegemony as the world's reserve currency. They have always been able to export inflation through the Euro-dollar. All the US government spending on the Covid scam (money printing) has been spent. NZ is a year behind and yet still fear this mild cold. Inflation in NZ will accelerate as kiwis spend their 'wage subsidy' (money printing) money, without the tourists to buy our dollars.
We fell for the big Keynesian experiment but Pfizer sure liked it. $$$
Not hard at all. Reverse all of Biden's policies regards Oil & Gas leases as well as stopping construction of the pipeline bringing North Dakota & Canadian crude to refineries on the Gulf Coast--in essence reestablish Trump's policies since under his mantle US surpassed Saudi Arabia in terms to total oil and gas production. And where today is Joe Biden, and doing what?
Seems Biden is working just as hard to crash Earth's life support systems as Trump before him?
What is Biden doing? "Following calls by the Biden administration and others to raise production and help quell rising oil prices following Russia’s invasion of Ukraine, shale executives have pointed to a number of bottlenecks that limit their ability to increase production quickly this year, including supply-chain issues, wary investors and limits to their remaining drilling inventory."
https://www.wsj.com/articles/shale-companies-drilling-more-but-oil-output-growing-little-11647855002
They're could strategic oil reserves for a reason ie adverse weather events,wars etc trump took opportunity to fill them up when the oil price crashed Biden drains them to help him stay in power from a problem of the democrats own making at a time when refilling them would be ruiness and further push oil prices higher.
Oh no! Someone is telling porkies. "When he (Trump) took office in January 2017, the SPR contained 695 million barrels. When he left office four years later, the SPR contained 638 million barrels. So not only is the claim of filling it untrue, but the level of the SPR actually declined while President Trump was in office."
That's the thing about Trump, as bored as I am with his clown like behavior, there seems no escaping his fanboys, even here in NZ. "The (Trump") administration has proposed selling off 270 million barrels from the reserve by the year 2027, a move that it also said would allow it to retire two out of the four Gulf Coast facilities that store the oil." Seems fake facts know no boundries. But I already knew that. https://www.washingtonpost.com/news/energy-environment/wp/2017/05/22/trump-seeks-to-sell-off-half-of-the-strategic-petroleum-reserve/
On further investigation, I see Trump did an about face after wanting to slash the Strategic reserve by half early in his presidency. Seems when Covid hit, he was wanting to subsidise the oil industry and buy its production. Guess Trump was a socialist all along. Well a corporate socialist anyhow. "Trump’s plan to fill the U.S. emergency crude oil stockpile has become the centerpiece of his administration’s strategy to shield drillers from a meltdown in energy demand"
https://www.reuters.com/article/us-global-oil-usa-reserves-idUSKCN2251QU
Trump got more votes than any president ever so obviously there's plenty of supporters or "fan boys "as you put it out there sounds like you've been watching too much tvnz-cnn crap look it made sense to fill spr when prices were $20 a barrel plus he was helping out domestic oil producers so they didn't go broke I don't know what's wrong with that,you seem to be taking the let's wage war on oil producers approach which has just led to sky high energy prices which along with money printing has created high inflation.Wether you like it or not trump turned America into biggest oil producer in the world then overnight the biden loonies destroyed it now they're begging Venezuela Iran etc to sell them oil just great, I'll never get how you woke anti trump clowns think the way you do.
That is probably the fastest budget repair ever accomplished, all while their economy expands.
Also known as the fastest destruction of cash in private sector bank balances in history. Last time the US ran surpluses (1999 / 2000 - 23 years ago!) a sharp recession quickly followed.
I've been slowing getting into US stocks since early May. Thanks to the US dollar movement I'm actually still up 3-4% in NZD terms.
Main holding is XOP (oil and glass exploration - this helped a lot). Others are VOOV, Lockhead Martin and J&J. Its very early days but I sense more discounts for a while. Buying some Coke shares on Monday (even if in a recession people like their Coke right?)
The media don't mention it, however a share split is coming, but to shareholders as a share dividend. In addition, retail (apes) have learnt that it's shorted like crazy, with lots of phantom shares out there. To counteract this, they are direct registering (DRS) their shares with Gamestop's transfer agent, Computershare. GME are now highlighting the DRS numbers in their earnings reports - starting around 5m, then 7.8m, with the latest being 12.7m shares. A bot is counting the DRSd shares and today retail believe that approx. 14.4m shares have been DRSd. Very few shares are available for borrowing at the moment and the interest to borrow rate has gone sky high. It's entertaining as retail are proving that they own the float.
Lets go Brandon/Biden blames/deflects to Putin for everything he screwed up on. Joe is 5 years past his enrolement date in the sunny corner chair, at the resthome.
As his old pal Obama is know to have mused......"everything Brandon touches go to sheeit".
The major inflation driver of massively high energy prices (I should not complain....my oil and gas shares are doing well) had its genesis in Brandons outright war on the USA oil industry from day one. Just as demand was picking up after lockdowns. Now he flogs off the SPR oil reserves......Im sure the USAs enemies are loving these master strokes of Brandon.
High oil/gas has always predated major world shocks.....it happening. Find your hardhat!
Incase cave dwellers were unsure: https://www.youtube.com/watch?v=64u0boevHGc
Well gecko it's good to know you haven't been drinking the mainstream media cool aid but you might remember Obama talking about fundamently transforming America you probably agree with me Bidens just a puppet Barry's the real president still while Biden gets shuffled on by the white house Easter bunnie.
Its going to be an interesting election next year, House prices will be down, rates will be up, let's assume we are in an inflationary recession, young people leaving for Aussie and uk/offshore.... Hospitals will be in crisis due to low wages and lack of nursing staff..... and it will be long enough sine National where in that Labour will not just be able to blame the last crowd, I think JA will bail before it happens
Grants no dummy....but he keeps to the Labour company line.
He wont want to be sailing this NZ ship in the Iceburg laden waters next year.......he too will be looking to hitch his "Get out of Town" wagan to Jackies in tandem.
He spruiked, signed off again and again on the unnecessary helicopter cash and knows in his soul, he has setup the "castle in the sky ponzi" for a perfect collapse.
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.