Here's our summary of key economic events overnight that affect New Zealand, with news investors have rushed to safe-haven assets amid persistent fears that the US Fed's aggressive tightening program to tame sky-high inflation will eventually tip the US economy into a recession.
Not helping were reports that US factories were expanding at their slowest pace in two years in June.
The widely-watched local ISM factory PMI came in with a more modest expansion, one that was lower than expected however. New orders contracted for the first time in two years.
The internationally benchmarked Markit PMI came in marginally better than expected, but quite a drop from May. And this one is recording almost the same modest expansion as the ISM one. But it also recorded a fall in new orders. Stretched supply chains and elevated cost inflation have not gone away.
Both are evidence that customers are moving to reduce inventories in their systems. All eyes will be on how far that needs to go, but at this time it looks like a shortish correction. But it won't just affect American factories, it will have worldwide implications. So far that impact hasn't really shown up on the global stage, but it will.
[You should also note that it is a long weekend holiday in the US, July 4 Independence Day.]
In China, the private sector factory PMI recorded that manufacturing output rebounded as their pandemic restrictions receded, much like the official PMI reported on Thursday. But this one was actually a stronger result than the official one - not by much, but it is recording a better expansion. It was their best in more than a year. Japan and South Korea are still expanding, but the expansion in Taiwan has evaporated. All countries are reporting strong cost pressures and new order levels that are fading.
Hong Kong may have been on holiday yesterday 'celebrating' China's takeover of the territory but before they did they released some grim retail sales data showing just what a wet blanket the takeover has been for the people of the once-vibrant City.
India introduced export duties on petrol, diesel and jet fuel to help maintain domestic supplies, while also imposing a windfall tax on oil producers who have benefited from higher global crude oil prices. It also raised its import taxes on gold.
Eurozone inflation hit yet another record high in June at 8.6% as price pressures broadened, and its peak could still be months away, adding to the case for rapid ECB rate hikes, and probably starting this month at their next review on Friday, July 22, 2022 NZT.
Investors now seem to be racing to exit the Buy Now Pay Later sector. The rush away is highlighted by the crash in valuation of Swedish firm Klarna who once boasted a US$46 bln valuation. The latest update is US$6.5 bln. It is unlikely to rise from there. Similar retreats are underway in the Aussie BNPL sector. The sellers of AfterPay will be pleased with their timing; Jack Dorsey not so much.
BNPL is only the most visible of the retreats from many fintechs. Profitability is what investors are refocusing on, not just 'growth'.
Australia’s housing market is on track for a -15% year-on-year fall by the middle of 2023, the weakest performance in more than fifty years, and that is according to analysts at Deutsche Bank.
There were two PMI surveys out for Australia yesterday, and both show that factory activity is expanding faster there now, and at a healthy rate. Here and here.
The UST 10yr yield starts today another -9 bps lower from this time yesterday at 2.89% and it has ended the month in New York almost exactly about where it started, although it did get as high as 3.49% in between. The UST 2-10 rate curve is little-changed at just +5 bps and their 1-5 curve is much flatter at +13 bps. Their 30 day-10yr curve is flatter at +160 bps. The Australian ten year bond is -10 bps lower again at 3.48%. The China Govt ten year bond is unchanged at 2.84%. And the New Zealand Govt ten year will start today down a massive -17 bps at 3.71%. A week ago this rate was 4.01% so a -30 bps retreat in that time.
On Wall Street the S&P500 has turned up to end its week, up +1.1% on the day to limit its loss to -2.4% for the week. Overnight European markets rose about +0.2% although London slipped -0.1%. Yesterday Tokyo ended its Friday session down -1.7%, Hong Kong was on "holiday", and Shanghai ended down -0.3% on the day. The ASX200 ended its daily session down -0.4% for a weekly loss of -0.6%, while the NZX50 ended -1.1% lower for a weekly loss of -0.6% as well.
The price of gold is at US$1808/oz in New York and down -US$1 from this time yesterday. That is a -US$23/oz fall in a week. India raised its import taxes on gold to 15%.
And oil prices are +US$2/bbl higher at just under US$107/bbl in the US, while the international Brent price is just under US$111/bbl. A week ago these prices were very similar.
Russia has confiscated (without compensation) the minority shareholdings of the mainly Japanese partners in a large Far East gas project. It will be a long time (and after Putin) before any non-Russian company risks an investment in any Russian project.
The Kiwi dollar will open today softer at 62.1 USc and a -1c fall in a week. Against the Australian dollar we are firmer at 91.1 AUc. Against the euro we are unchanged at 59.6 euro cents. That means our TWI-5 starts today at just on 70.4 and down fractionally.
The bitcoin price has not fallen since this time yesterday and is now at US$19,398 and up +1.4%. A week ago the bitcoin price was US$20,942. Volatility over the past 24 hours has been extreme however at +/-5.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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74 Comments
Russia has confiscated (without compensation) the minority shareholdings of the mainly Japanese partners in a large Far East gas project. It will be a long time (and after Putin) before any non-Russian company risks an investment in any Russian project.
Russia will continue to respond to the US stealing Russia's assets (numbered in $300 billion) and all this is just the warm up.
Sort of like Russian army village boys are conficating Ukrainian toilets. Wait till they find they need to be connected to a reticulated sewerage system. I guess they'll still be able to keep their ladies happy with the confiscated underwear though, even if the trip to the long drop in -20C is still on.
Sorry for the late reply. Have been in Superlife since 2005 through a company scheme. Retired a year ago and left it all in there without exploring options. Foolish as it turns out. Read some articles about how rich people invest. They go for individually managed funds via Milford and Craigs etc. Thing is you need at least 500k for them to take you on. So we qualify now as can swap out of Superlife. My gripe has always been a lack of control and transparency with regard to which companies we were invested in. All funds seem to have the same shortcomings. With this system everything stays in our name and we get to approve any purchase/sale of shares etc. Superlife Ethica we were in. Seems no better/no worse than other funds largely. Just pleased that when we decided to jump out this week that the markets stabilised. Pure luck really.
"Read some articles about how rich people invest. They go for individually managed funds via Milford and Craigs etc. Thing is you need at least 500k for them to take you on."
You don't if you sign up with an intermediary such as InvestNow.
I think nowadays many investors prefer Exchange Traded Funds (available in NZ through Smartshares), as the fees are usually quite a lot lower than managed funds, and often they perform as well or better than managed funds.
I'm not advising anything here, just pointing out some other options to explore. All the best with your re-investing.
Thanks for sharing. I’m an amateur but simply a suggestion; Get some independent advice on pros and cons of active fund management against passive. There seems to be a lot of support for a very broad base of ETFs.
Disclaimer: I’m in 2 company super funds incl Superlife and own 10 ETFs
In our amateur hour, spent hours researching different books /podcasts etc on equity market investment for dummies!
Ultimately decided to dollar cost average a good chunk of cash in a Simplicity Growth fund, diverse and low expense ratios.
Must say, the more I read of the ESG framework, the less comfortable I feel? Tesla stock gets booted (b/cause Musk is sick of wokeness) with facebook and social media (clearly socially divisive) ticking the boxes!!!
For finance wiz kids among this group, what's the truth on ESG? Not the gloss.
Last 6 months performance has been abysmal. Should have invested in a rental property 😂 ....
Have small holdings aside in commodity and hi spec stocks via Sharesies. They have done much better, for the moment.
BNPL is only the most visible of the retreats from many fintechs. Profitability is what investors are refocusing on, not just 'growth'.
I remember when valuable businesses were ones that managed to make money. People would invest on the assumption the company would continue to increase their volume or refine their profit making ability, or both.
It’s the fundamental problem of shares that don’t pay dividends. You can have a good profitable company, the share price rises accordingly, but then the price stops rising unless you can show growth, and no one wants a share that isn’t growing in price. So everyone is looking for growth no matter how risky or unlikely and meanwhile the good businesses are ignored.
Someone (Craig Investments?) wrote a good piece in the last 2 weeks about a related topic; namely the types of stocks in the SP500 vs NZ50. The former heavily weighted to growth whereas in NZ a much higher proportion of dividend payers. Bunch of other stuff in there as well….
I'm not after shares that simply grow in price. I'm after shares that grow in price because they are doing well and will eventually start and then keep paying ever increasing dividends. IFT is the best example in my portfolio. It's usually the unprofitable companies that don't pay dividends. The punt is on, will they become profitable? And when? A2 milk comes to mind and yes I took a punt.
Pa1nter,
I remember the Dotcom. boom and bust over 20 years ago. For a while you could call anything a dotcom company and the investors flooded in. All that mattered was the number of clicks on your website, until the small boy said loudly, but the emperor's got no clothes on and very quickly the bubble burst. There's nothing new under the sun.
I don't consider myself clever, but I've lived through numerous crashes professionally and personally and I can now view current events with equanimity. Personally, it would suit me fine if our markets-housing and shares-quite a bit further. Unless the world as we know it comes to an end, we will have a situation that Warren Buffett loves; good quality shares at reasonable valuations.I don't have a fraction of his ability but I will back myself to do well enough.
IRD are unhappy that 14 " richlisters " have not complied with their demands to come in clean & spill the guts on everything they own ... everything ...
.. 376 have complied ...
And , what message does this send to an aspirational younger generation with dreams of creating something amazing , establishing their own business , becoming outrageously successful ... the message David " pickpocket " Parker is sending is .... go to Australia !
... at every turn , the current government resort immediately to using the stick of threats , rather than the carrot of appeasement , to get their way ... think Covid mandates , an insanely dumb idea , which they still grasp tightly ...
Ardern's legacy will be that she's remembered as a time of great unkindness , a divided society , child poverty , a shattered economy ...
Believe there’s litigation in process. That might account for the absentees. There are some serious implications for all of society here. In essence the government would have the power to set up and monitor the equivalent of William 1’s Doomsday Book of 1085, Eventually British Law overturned that, and King John 1, by establishing the Magna Carta in 1215, famously at Runnymede. That basis of freedom of ownership, away from the Crown, has therefore been in place and respected in law for over 800 years. A keen student of law, Minister Parker would undoubtedly be fully aware of this, and as with the rest of his government, quite content to compromise a foundation stone of our law of today.
No not a guess it was published somewhere. Will see if can locate it.
ps : apologies I’m too computer illiterate to post links but go to Hamish Rutherford NZ Herald 2 & 6 November 2021. In particular the comment and opinion by the NZ Law Society, quite a warning shot in fact, should be read by every New Zealander as to the potential of this legislation.
GBH,
Dear god, you do talk some awful rubbish. Just who do you think uses all the many tax havens? Apart of course from downright criminals, it's the very wealthy, many of whom didn't actually make it themselves, but inherited it. Just don't start me on the many tricks of the farming community to avoid paying their fair share. I dealt with with too many professionally.
Joe Bloggs on a wage has no opportunity to avoid tax, while many of the wealthy whom you admire so much are willing to go to extraordinary lengths to avoid it. Then they have the brass neck to become big donators and bask in all the adulation. Give me a break.
Ah just remember that that legislation, slipped in usual fashion, through just prior to the Xmas break, has given the IRD extraordinary and unprecedented powers of enquiry and search. The existing threshold for that can be reduced without a moments notice to include whatever level of wealth this government might deem as a worthwhile tax target.
Or maybe a leader who successfully saw us through several major crisis, won a landslide victory thanks to her management of the pandemic all the time having to contend with mysogynistic attitudes, crackpot social media conspiracy theories, and resistance from the entitled landowning and asset holding elite who undermined any attempt to address her wealth redistribution promises.
Eye of the beholder.
Management of the pandemic was heinous at best. The gene therapy forced on everyone did not work and the debt amassed by government will create inflation and weaken our dollar. She has run off all the tourists, created a welfare state, ruined our fragile economy, split the country with vaccination passports and mandatory mask wearing, created a police state that use violence to squash protests. Try MIQ! Sick.
Nah just another social media conspiracy theory.
Surprising actually. A good thinker and expounder in normal form but appears to not recognise a serious development and initiative whereby the Crown is empowering itself to assume a legislated interest in private asset holdings of any one individual, and assess tax purely on basis of that. As posted earlier this is throwing the law book back into the reign of William the Conqueror.
.. it seems a fabbo idea when they're targeting " rich pricks " ( Sir Micky Cullen ) ... those with assets they deem to be over $ 20 million ... who's next though ... the $10 to $20 million folks ... then $ 5 to $10 million .... ... they've given themselves powers to strip any one of us our right to privacy : dont take my word for it , ask Nicky Hager . .. the police arrived unannounced & ransacked his house infront of him , his partner , and their scared witless 2 children ... the police found nothing ...
... this is the new NZ Ardern has forced upon us .. the police & the IRD have almost unlimited powers ...
Well GBH the Greens set the bar at $1 mill. Labour have now provided the mechanism to enable a wealth tax. The way property prices have been propelled upwards, will be a very big catchment when the Greens get their say. After all, they have made it clear their wealth tax is a prerequisite to joining any coalition with Labour.
Hello Mr F : I'm very much wanting some form of rebalancing the tax take ... but , Labour's methodology sucks ... IRD harassing & interrogating citizens arbitrarily deemed to be " rich " is not the way to go ... a simple LVT across the board achieves so much , and with no need to scare people sh*less ...
Yes it is too, too often overlooked, that the local councils invariably already calculate a wealth tax via local rates. They try to obfuscate themselves out of that, but the fact is, if your property is more valuable than your neighbours, even though same sized section, structure & position, you will pay more rates.
Sounds like you want an LVT. You're unlike to get one with any major party, yet you've adopted this "reds under the bed" conspiracy theory that Labour is going to dust off the old "Dawn Raids" playbook and start kicking down the doors of factories and commercial showrooms on the hunt for business ledgers.
Bollocks.
The logic of progressive tax rates is if you use/control the common resources you pay the taxes.
I'd have way more sympathy if the top whatever percent you want to name were actually getting poorer due to over contributing to society but that's not the reality.
Bollocks. We live in a stable society and the price of that is we tax. You can't tax those that have nothing to tax so you tax those that have taken a larger share of the spoils that society has produced. If you don't think the rich should be taxed as much then the solution is to have a system that shares the wealth more equitably across society so the tax rates can be flatter.
The top 5% of income earners pay 31% of all tax paid. The bottom 74% of income earners pay 29.7% of all tax paid.
https://www.treasury.govt.nz/information-and-services/financial-managem…
How do we solve this disparity? Maybe we raise the wages of the bottom 74% to a point where they're contributing more in tax? Maybe the top 5% income earners could drop their salaries if the burden of tax is so great, or be grateful that they were born with a set of skills and were presented with the opportunity to succeed.
Go to Australia where the upper tax bracket of $180k+ is 45% versus our 39%. And their "Tax Avoidance Taskforce"?
The taskforce helped raise the following tax liabilities from privately owned and wealth groups (including trusts and promoters):
- 2016–17 was $1.1 billion
- 2017–18 was $1.8 billion
- 2018–19 it was $1.4 billion
- 2019–20 it was $1.8 billion
- 2020–21 it was $1.5 billion.
... so , you'll be pleasant & compliant if the IRD haul you in for interrogation , and fully open up your every financial transaction & asset to their scrutiny ? ... they have the power to separately interrogate your partner , and cross check if their answers match yours ... you're OK with that ?
Is the UK a sustainable FTA destination for NZ exports?
UK winning again UK’s trade performance fell to its worst level since records began in 1955, with the current account deficit being 8.3 per cent of gross domestic product in the first quarter of 2022, up from 2.6% in 2021. Link
Eurozone inflation hit yet another record high in June at 8.6% as price pressures broadened, and its peak could still be months away, adding to the case for rapid ECB rate hikes, and probably starting this month at their next review on Friday, July 22, 2022 NZT.
Euro plunges as traders pare back their #ECB rate hike bets. Link
Interesting watching longer term rates coming back on the wholesale markets whilst our retail banks keep putting up our shorter term rates. The UST 2-10 rate curve is down to +5bps with the other curves also on the down. Inverted curves coming to a place near you - followed by a loud crashing noise, with much wailing & the gnashing of teeth.
Given the Indian Rupee performance you'd think they'd be encouraging exports. India is being hit with the same problem as many emerging market currencies, not enough dollars.
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