Here's our summary of key economic events overnight that affect New Zealand, with news we now have a better idea of how the Americans are going to tackle their surging inflation problem.
The US Fed has raised its policy rate by +75 bps to 1.75% in a strong lean against their inflation threat. It is the largest increase by them since 1994. But it is not as strong as it could have been. They said they are "strongly committed to returning inflation to its 2 percent objective" which given that inflation is 8.6% is now a long way off and will require a lot more than a 75 bps hike. So they have begun quantitative tightening on an unprecedented scale.
Their dot-plot (p4) is now 3.5% for later this year, so another +175 bps of rises are likely coming over the coming four reviews in 2022, but then up only another 25 bps in 2023 before slipping back to 3.5% in 2024. The bottom line is that they themselves see a very high policy rate for the next two years plus.
They have also baked in an expectation that this will slow the expansion of the American economy and raise their jobless rate.
Meanwhile, American retail sales were up +8.1% from year-ago levels, but actually slipped marginally and unexpectedly in May from April. The near-term culprit is weak vehicle sales. The annual increase barely matches inflation.
US business inventories were higher in May but the rise was less than for April and largely because dealer lots have building unsold cars. The important inventory/sale ratio is not showing any warning signals.
US mortgage applications actually rose sharply last week from the prior week, the first rise in more than a month and the largest rise since April. This came despite another rise in home loan interest rates.
In Canada, May data show house prices there are falling and sales volumes are down.
Across the Pacific, China's retail trade fell by -6.7% in May from the same month last year, compared with market expectations of a -7.1% fall and after a -11% drop in April which incidentally was the steepest decrease since March 2020. This May data is the third straight month of falling retail trade.
China's industrial production unexpectedly grew by +0.7% in May from the same month a year ago, easily beating market consensus of a -0.7% drop and reversing from a -2.9% fall in April.
But in a more telling release, they said electricity production fell -3.3% in May from the same month in 2021. So it doesn't really support the claim that industrial production grew. They say there was a fall in coal-based generation, the growth in hydro- and nuclear power rose, but the change in wind power turned from an increase to a decline, and the growth rate of solar power slowed down. But maybe they have some magic secret on how to raise output by cutting back on electricity?
China's state media is having a hard time talking up 'progress' and watching the convolutions is actually kind of fun.
European industrial production rose more than expected in May from April, although is still lower than year-ago levels.
And in France, burger chain McDonald’s has settled its French tax dispute after paying US$ $1.3 bln. It's a dispute that dates back more than five years.
Australian consumer confidence is now falling towards historic lows as inflation bites harder there and the RBA seems very late to implementing any meaningful resolve.
The Australian "Fair Work Commission" has ruled that this year’s minimum wage will rise by AU$40 per week, up +5.2%. It will affect 182,000 workers and be effective from July 1. But for the 2 mln workers earning above the minimum will increase +4.6%. Both a well below current inflation. And this central planning move bolsters the argument that this type of one-size-fits-all approach actually hurts everyone. It's a system the New Zealand Government seem to want to go back to here. They seem blind to the fact that such 'national awards' effectively become what every employer defaults to, which of course makes the situation worse by locking everyone in to low wages.
Also getting worse is the electricity situation on their eastern seaboard. Their regulator has suspended the spot market and now requires all operators to run at a loss to keep the lights on. It will get uglier from here.
And the new Australian government has summoned business and industry leaders to witness formalising its campaign pledge to reduce emissions by -43% over 2005 levels to 2030.
Join us later this morning when we bring you the outcome of the New Zealand Q1-2022 GDP result. Expected is a +1.2% rise from a year ago, well down on the +3.1% rise we had for Q4-2021.
The UST 10yr yield will start today down -14 bps from this time yesterday at 3.36% after the Fed moves. Although some minor curves are inverting, the major and important ones haven't yet. The UST 2-10 rate curve is holding at +3 bps and their 1-5 curve is flatter at +45 bps. Their 30 day-10yr curve is marginally flatter at +225 bps. The Australian ten year bond is up sharply at 4.15% and another +8 bps jump. The China Govt ten year bond is little-changed at 2.84%. And the New Zealand Govt ten year will start today at 4.31%, a rise of +8 bps from this time yesterday. This is a 7-year high.
On Wall Street, the S&P500 is up +2.3% in Wednesday afternoon trade, taking the Fed's move in stride confident it had priced it correctly in the lead-up. Overnight, European markets all rose about +1.4%. Tokyo ended yesterday down -1.1%, Hong Kong ended up +1.1%, and Shanghai ended up +0.5%. The ASX200 ended down another -1.3% but the NZX50 was little-changed.
The price of gold is up US$23 in New York, now at US$1834/oz.
And oil prices fell sharply on the US Fed news and from this time yesterday are now down -US$4 at just over US$113/bbl in the US, while the international Brent price is now just on US$116.50/bbl.
The Kiwi dollar will open today firmer at just on 62.7 USc. It rose overnight and slipped after the Fed, but since has risen strongly in the circumstances. Against the Australian dollar we are -½c lower at 89.8 AUc because their firming against the USD was more. Against the euro we are up +½c at 60.1 euro cents. That all means our TWI-5 starts today at just under 70.6, and up +60 bps since this time yesterday.
The bitcoin price has fallen again from this time yesterday and is now at US$20,825 and down another -7%. Volatility over the past 24 hours has been extreme again at +/- 6.1%. Below US$30,000 there is no technical support. If it goes below US$20,000 the speed of the fall could be sudden.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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