Here's our summary of key economic events over the weekend that affect New Zealand, with news there are meetings underway by two powerful economic groupings today - the G7 and the BRICS countries.
The G7 has about twice the economic activity of the BRICS countries, and the BRICS are in a bit of a rut at present, which is unusual for them. The BRICS are meeting 'virtually' and India seems to be a weak link, also meeting on the sidelines with the G7. It is noticeable that the G7 is active while the BRICS are defensive.
The G7 are about to roll out an extended set of sanctions on the invading Russians, including around gold transfers, insurance, and the oil price. A number of BRICS members (like China) could be boxed in by these moves. The G7 leaders morph into NATO leaders in a few days later.
The annual inflation rate in Japan was at +2.5% in May, unchanged from April's 7½-year high but in line with market expectations. This was also their 9th straight month of rising consumer prices, with food inflation hitting its highest in over 7 years, now topping +4%. The Bank of Japan has shown no signs of changing course from its ultra-easy money policies designed to raise inflation, but some sort of change must be getting closer.
Meanwhile, very hot temperatures are causing concern over how to keep the electricity system from suffering blackouts, especially in the Tokyo area.
In China, the sluggish economy is really putting the squeeze on job seekers. Their jobless rate for 16-24 year olds is now more than 18%, far above the high general jobless rate of almost 6%, which is also rising. (The equivalent NZ levels are 10.2% and 3.2%; for the US they are 10.4% and 3.6%.)
Separately, we noticed a change that may not be anything, or it might be. China's aggressive senior deputy Foreign Minister and negotiator with Russia, who had been riding high on the relationship has been suddenly demoted sharply. Perhaps China knows that this relationship isn't going to help it, and they need to repair the economic relationship with the US in some way to restart their faltering economy. Who knows, but it is worth watching because a thaw in the China-US relationship is about the only thing that can move their needle.
Keep an eye on flooding in the vast southern Pearl River system. It has been worse than prior years and isn't over yet. Officials are calling the situation 'grim', but things do seem to have eased somewhat over the past day or so. But new flood warnings are now in place for the northern Yellow River system, also likely to be serious. And in other parts of the country, including around Shanghai, excessive heat seems to be a big issue too.
Singaporean industrial production took off in May, rising much faster than anyone expected, especially after the dour prospects that were reported in April. The May recovery was broad-based.
And in Singapore, Sun Cable said Infrastructure Australia has affirmed the economic merit of its NZ$33 bln Australia-Asia Power Link project to supply solar power to Singapore and eventually Indonesia through the world's longest undersea high voltage cable. Its a project backed by the Fortescue Minerals billionaire owner and the Atlassian billionaire. It could start delivering power down its cable as early as 2027 rising to full output by 2029.
Separately, the early PMI readings for the US are out, and they suggest that factory activity is slowing now, although still expanding modestly. The same is true of their services sector, although that expansion is a little stronger. But not so hot is that new order levels are now lower than previously, the first contraction in new orders since July 2020.
The Kansas City Fed's factory survey for June showed activity slowed further but remained positive. Expectations for future activity also moderated slightly but were also still at solid levels overall. Supply chain pressures seemed to be easing for these businesses.
In its latest updated review, the US Fed released the results of its annual bank stress tests, which showed that banks continue to have strong capital levels, enough in the regulator's judgment to allow them to continue lending to households and businesses even in a severe recession.
Sales of new American single-family houses in May were at an annual rate of 696,000. This is almost +11% above the revised April level and comes after a string of slowing months. Still, this latest level is still almost -6% lower than for May 2021.
Meanwhile, American petrol prices seemed to have topped out and are now off their peak. They are currently at US$3.80/gallon in their futures market, a far cry from the US$5/gal that the AAA reported recently. Even that AAA price is lower, although not by a lot. But the November 2022 futures pricing is down at just above US$3/gal. The December futures pricing is now below US$3. If those signals play out as in-money market traders suggest, American CPI inflation could retrace quite quickly.
In Australia, it appears that the bank owned by Suncorp is on the market, either to be listed or sold. NAB is the most likely buyer.
The widely-watched Economist Liveability Index has dumped Auckland and Wellington from near the top of their rankings. Cities in New Zealand and Australia are listed among the biggest fallers in these rankings, including Wellington and Auckland, which tumbled by -46 and -33 places respectively. Both countries benefited in early 2021, when covid vaccines were scarce: closed borders kept cases down, keeping liveability high. Auckland actually came top of the early 2021 survey. However, this changed as a more infectious covid-19 wave struck in late 2021, which made closed borders less of a defense. Although New Zealand’s lockdowns ended in December, before our survey period, its cities no longer have a Covid advantage over well-vaccinated European and Canadian cities.
Container shipping rates fell -3% last week alone for trans-pacific cargoes out of China. This is their biggest fall since when they came off their peak in September last year. Interestingly, rates from the US back to China are actually rising, against the trend. American imports seem to be shifting away from China, to a variety of ASEAN countries, especially Vietnam, and US exports are picking up.
The UST 10yr yield starts today up +1 bp from this time Saturday at 3.14%. The UST 2-10 rate curve is unchanged at +7 bps and their 1-5 curve is steeper at +39 bps. Their 30 day-10yr curve is little-changed at +194 bps. The Australian ten year bond is holding lower at 3.71%. The China Govt ten year bond is unchanged at 2.82%. And the New Zealand Govt ten year will start today unchanged at it lower level of 4.01%, mirroring the Aussie retreat.
The price of gold was at US$1826/oz in New York and down -US$5 at the end of last week. The gold price may open this week with some turbulence as markets absorb the G7 sanctions on Russian gold trading.
And oil prices are -50 USc/bbl lower from this time Saturday at just over US$106/bbl in the US, while the international Brent price is now just under US$109/bbl.
The Kiwi dollar will open today at just over 63.1 USc. Against the Australian dollar we are a tad softer at just under 91 AUc. Against the euro we are little-changed at 59.9 euro cents. That all means our TWI-5 starts today at just on 71.1.
The bitcoin price has moved up from this time Saturday and is now at US$21,212, up +1.3%. Volatility over the past 24 hours has been high at +/- 3.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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61 Comments
Going to get worst......
https://www.macrobusiness.com.au/2022/06/new-zealand-crowned-worlds-ris…
https://www.stuff.co.nz/business/the-monitor/128837247/five-parts-of-th…
Australia too may follow NZ
https://www.news.com.au/finance/economy/interest-rates/australias-house…
High cost of houses (compared to salary) agreed.
Health care certainly needs serious govt investment but is not bad (my family has had superb care).
Lack of good jobs: finding a job is easy whether it is good is subjective.
I agree with the falling in the ranks: too rapid, poorly planned population growth. The charm of a uniquely Kiwi sense of place is being replaced with a poor copy of international suburbia.
Watched an excellent interview with Dalio and Grantham last night. I especially like Grantham. Had some interesting thoughts on climate change.
where I disagree with them is on their view that inflation is going to be persistent for many years. I side with Krugman who sees inflation peetering out within 1-2 years.
The two key factors that are going to ensure there is higher inflation than the last 15-20 years is two things - 1. Globalisation going backwards i.e. economies turning inwards to be self sufficient. The reason being is you've got a number of geo-political risks and you can't have major commodities or the like all being exported/imported from the same place - especially from somewhere like China.
The other one is the next 10 years push to renewables is going to cause lower supply of oil and therefore higher prices of oil. Pretty simple really so inflation will stay up towards the higher end around 2-3% not 0.5-1%
LR market (TIPS) "inflation" expectations still below 2014, let alone 2005, let alone something like the Great Inflation. Markets "know" (probabilities) CPI is not to be confused with the economic condition. If CPI goes up, just means econ comes down that much harder. Link
Most distinguished climate scientist. Hmmmm, the guy is an Electrical engineer with a background in mostly laser spectroscopy that seems to have become a anti-climate change campaigner later in his career.
https://www.realclimate.org/index.php/archives/2018/04/harde-times/
The idea that ageing populations will be deflationary is fairly questionable. In many western countries retiring boomers now have higher spend (after housing costs) than working populations. So we will see falling workforce participation, but without a corresponding fall in demand.
falling populations are deflationary, but ageing populations, due to disproportionate wealth distribution, may ultimately be inflationary (particularly for wages)
Fossil fuels are not going away. Supply will increase and prices will drop again. The western world is addicted to oil and the USA will continue to consume at an increasing rate. The Covid scam slowed consumption a little here in the US but most Americans think little of the new Green initiative, as evidenced in Wyoming with the diesel pick-ups all parked up in the Tesla charging stations. Quite entertaining. Drill baby drill.
Oil will be around for a while, but prices aren't going back to $60/bbl again, and dont expect anything under $80/bbl anytime soon
As for pickup drivers parking in EV charging spots, they are just the Redneck/Bogan version of the "Tyre Extingushers". Both of which are a bunch of mouth breathing morons that deserve the punch in the mouth that they will eventually no doubt get.
I believe the economist actually explains that they are aimed at very particular groups of people (white collar expats on first overseas jaunt).. and include things like geo, climate, salaries, etc..
I suspect apart from during covid lockdown Australasian cities are unlikely to rank too high vs richer Euro cities etc.
But very clickable news if media focus on the 'drop' without the detail...
Wall Street Faces Billion-Dollar Losses on Sinking Buyout Debt
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Lenders get a reality check on bumper deals as sentiment sours
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US and European banks feel the pain amid rising risk premiums
Coming back from a work trip to Africa last week I got studk in a customs queue. It was tedious waiting and the fellow behind me was getting upset, upset to the degree the guy on security made his presence known. The fellow said to me that he'd visited a dozen countries and Zealand was the most difficult to get into, and he was a kiwi.
We've covered the most liveable city topic here before and it was generally accepted that the measure is designed for someone travelling here on business. So on that basis Covid management has pushed us well down the list.
While there the company flew in people from a number of countries in Europe. I was told that whatever governments are saying, Covid on the street has finished. No one wears masks anymore.
Despite the messages over the PA to wear a mask on the aircraft I didn't. No one bothered me, including transiting Dubai. Not many in business class were wearing one. But I notice that in Auckland most are still terrified and compliant. I can't see New Zealand getting more liveable when we have so many gullible people and such control of the media by government.
Heathrow criticises Border Force for 'unacceptable' queues
https://www.bbc.com/news/uk-58448565
Wouldn't surprise me that the regional airports are a bit better.
Or it could be you just assuming that, because they can't wear a mask, it automatically means they don't think as you do, so you get to call them a knob, even though it is unwarranted.
'Imagine proactively going out of your way, so you don't have to be inconvenienced.' And you what, 'reactively go out of your way, so you don't have to be convenienced?
If you are doing it for yourself, then be happy enough about it. Or if you are doing it because almost everyone else is doing it, even though it makes you unhappy, then at least be happy for those that don't have to do it at all.
There is something perverse about the Media reporting on a livability index that they know does not survey the inhabitants of the cities they are indexing, and allowing people that read these indexes to think it measures anything meaningful to them.
They are solely for setting the total remuneration package for transferring high-paid executives.
NZ was in not a nice place to live for a lot of people when we were scoring high on the index and is just as worse off when we are scoring lower.
The index does not measure anything useful for those of us that actually live here.
I agree with most of what you're saying but it is useful for us. It shows how we are tracking in relation to other cities, this gives at least some indication of how attractive we are compared to those cities and what our prospects are for attracting international talent. I think the drop correlates with the general sense I've been getting for the last couple of years that New Zealand and Auckland in particular is not going to be as attractive as it used to be. Other cities have upped their game in terms of livability and not only will we lose our own young talent to these other cities but the pool of people that will want to travel across the world to work here is diminishing by the day. This is useful when deciding whether to also up sticks or invest locally.
Yes, I agree with your points, but it is amazing how liveable many cities are when your income is in the top quartile, and the move is likely to be temporary.
For many NZers, wanting or having to, live your whole life in NZ on less than an adequate income is not that liveable or appealing for most.
But if you are going to be in the category, I suppose it might make you feel better to have a survey tell you you are living the dream. rather than your nightmare.
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