Here's our summary of key economic events overnight that affect New Zealand, with another day focused on commodity prices, including this time, dairy prices.
The overnight dairy auction has brought lower prices again, down -4.1% in US dollar terms. Butter was the big loser, down -9.1% at this auction. SMP fell -5.2% and WMP fell -3.3%. But somewhat saving the day has been a sharpish retreat in our currency, so in NZD terms prices fell only -1.0%. This is the seventh retreat in dairy prices in the past eight auction events, taking prices back to levels last seen at the start of 2022.
But dairy prices weren't the only commodity to take it on the chin. The gold price has fallen below US$1800/oz for the first time since October 2021. And oil prices have crashed, down about -10% and below US$100/bbl for the first time since mid-May. Lower demand expectations and Russians selling at huge discounts has finally caught up with the main oil indexes.
All this is despite US factory orders levels coming in surprisingly positive, up +1.7% from April when a good monthly +0.5% rise was expected. Overall these orders are up +15.5% from year-ago levels, far more than can be explained by inflation. And durable goods orders were up +12.2% so the gains are more than just temporary consumption. It is data that isn't getting much respect today.
The private Caixin China services PMI also revealed a big recovery, even stronger than the official June services PMI.
Not to be out-done, the Japanese services PMI also recorded a steep rise revealing an impressive recovery underway there. It has been their third-fastest rise in business activity there since 2008.
China needs jobs badly. In the south, it is peak hiring season, but young workers face slumping wages and fewer opportunities in the Pearl River manufacturing heartland, a region grappling with pandemic disruptions and slumping exports when supply chains shift their business out for strategic reasons.
China is taking aim at the international technology firms by rolling out new "standards". This effort is to try and get key tech "made in China" in return for access to their huge economy. They are building a large non-tariff "bamboo curtain" that circumvents the WTO.
And in Europe, their Parliament has overwhelmingly approved two sweeping new pieces of digital regulation, paving the way for clashes between regulators and some of the world’s largest tech companies over how the rules should be applied.
In the UK, senior ministers are now abandoning the Prime Minister, as their sleaze crisis just goes on and on. And their central bank says the British economic outlook is deteriorating "materially".
The Reserve Bank of Australia raised its offial cash target rate by +50 bps to 1.35% at its July meeting late yesterday. "The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead. The size and timing of future interest rate increases will be guided by the incoming data ... " they said. A third +50 bps rate rise is entirely possible in August.
The Australian services PMI wasn't so impressive, still expanding but much slower, in fact their softest expansion in five months.
The UST 10yr yield starts today down at 2.80% and a -9 bps drop. The UST 2-10 rate curve has slipped negative - just, at -1 bp. Their 1-5 curve is flatter at +4 bps. Their 30 day-10yr curve is a lot flatter at +150 bps. The Australian ten year bond is -16 bps lower at 3.41%. The China Govt ten year bond is down -3 bps at 2.84%. But the New Zealand Govt ten year will actually start today up +9 bps at 3.72%.
Wall Street has opened after their long gun-marred holiday weekend with the S&P500 down -0.2% in their afternoon Tuesday session, which is a recovery from an initial -2.1% drop. Update: it ended up +0.2%. Overnight, European markets all fell hard, down -2.9% on average. Yesterday, Tokyo ended up +1.0%. Hong Kong was up a minor +0.1%, while Shanghai closed flat. The ASX200 closed its Tuesday session up +0.3% while the NZX50 closed up almost +1.0%.
The price of gold is down sharply, down a very chunky -US$42 at US$1766/oz.
And oil prices are down very sharply, down a massive -US$12.50 at just under US$96.50/bbl in the US, while the international Brent price is just on US$100.50/bbl. Even natural gas prices are falling.
The Kiwi dollar will open today -¾c lower at 61.4 USc. Against the Australian dollar we are lower at 90.7 AUc. Against the euro we are a little firmer at 59.9 euro cents. That means our TWI-5 starts today at just on 70.1 and -20 bps softer.
The bitcoin price has slipped since this time yesterday and is now at US$19,708 and down -1.0%. Volatility over the past 24 hours has been moderate at +/-2.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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91 Comments
With the today's UK political fallout tonight's dinner there will be cheaper.
No mention of yesterday's website outage?
They apologised last night
Ah thanks, I hadn't seen that.
I found David C on twitter hoping to learn what was going on.
David you have 4 followers now...you could have tweeted us huh!!
Westpac have joined ANZ with their 2 year fixed special & BNZ have gone lower... watch all banks follow the leader...
it is so easy to give back 35 basis points when markets have fallen by over double that and more to come
Not sure if there's more to come. They just overcooked on the 50bps rise three weeks ago. Rates still up significantly from where they were a month ago.
Incorrect, wholesale rates are quite a bit lower than a month ago.
Things have changed, the market has turned. Commodity prices are tumbling and recession fears are front and centre. I'm dealing back my house price falls as a result. Retail rates will not go as high as had been forecast.
My contrarian position might be broadly correct?
I still think rates will have to rise further (in NZ). Structural factors behind fuel & food inflation are unchanged. $NZ continues to weaken. Funding for banks (in NZ) will continue to get more expensive regardless of RBNZ rates. Inflation will continue to rise because it's in essentials - people can't just choose to stop eating in the same way the can choose not to buy new jeans, or indeed a new house...
Just got a letter informing that gas prices are going up 15% at next delivery for heating/cooking/hot water.
Had to happen. Just recently upgraded to Gas hot water too :(. But hey, I'd rather a 15% increase heating the water when It's used than the inevitable 15% increase in the electricity to keep the water hot all day.
Could you not do solar?
It tends to be less vulnerable to supply issues.....
:)
Gas install was all up $2k all inclusive (we know a plumber/gas fitter and partner's boss is an electrician who does work for free).
Was a short term fix to a 20+ year old low pressure cylinder on its last legs. Medium to long term yes to Solar, just have other monetary priorities.
Have lived with solar hot water from evacuated tube and small pump and controller. Great in the summer basically almost free hot water but it's not set and forget and you still need to understand how it works to optimise it. 100,% useless in the winter which is when you really need it as the cold to hot temp difference is the highest. Would probably go solar panel nowdays and direct DC to a second heating element it's cheaper.
Depends on the term. The longer term rates, yes, are down. Shorter term are still a little higher.
It's all bout the swap curve and the 3y swap is 85bp lower than a few weeks ago and 25bp lower than a month ago. It will come down further, peak OCR will be 3%.
Long may it continue with the commodity unwind.
https://kunstler.com/clusterfuck-nation/a-great-endeavor/
Except here the trans would be from a certain racially-segradating cohort...
And almost certainly either a high-placed Govt official, or an RNZ employee...
Nothing like a little hate to wake you up in the morning.
A competition to see how many metaphors one can fit into a ranty blog post without actually having a point.
"Except here the trans would be from a certain racially-segradating cohort...
And almost certainly either a high-placed Govt official, or an RNZ employee... "
In my ignorance Oh Great One might I ask that you elucidate as to who or what the "racially-segradating cohort" is ?
Racism cuts more than one way. We are rapidly widening a gap that had been closing. But the widening is being done by the prior-loser.
Don't confuse equality (which is a goodly thing) with reverse racism.
:)
Or confuse what Trudeau senior nicely described as: "the rights of consenting adults", with peddling to 6-year-olds.
That's not really what you were asked.
As northman46 wrote, "That's not really what you were asked." Are you related to our PM or Winston Peters ?
Inflation might take a breather until we hit the northern hemisphere winter months
No such luck.
Norwegian govt had to step in today to block a strike by the oil and gas workers (norway is the second largest supplier to EU after russia). Workers wanted a pay rise to match inflation.
Probably we are in a lull.
Will be an interesting winter in northern hemisphere
could be a cold winter for a lot of Europe
Oh dear NASA's lost communications with Capstone. Time to sell RKLB.
Back to property: interesting to see the rate shifts, particularly as there seems to be strong signals in from the US Fed that there will be solid rate increase at the end of the month. Really hoping the RBNZ (and government) hold their nerve and don't take measures that bring speculators running back into the market.
RBNZ and government cant fight the global headwinds now. The worst they will do is stick to a .5 rise of ocr instead of .75 or even 1. The impact of backing off will lose labour the election.
Our dollar is dropping, inflation is still rampant and employment rates too high.
They should be politically neutral and do what it takes to fulfil their mandate.
Should.
Their mandate is to keep inflation within range which they have failed miserably at, over the last 18 months to 2 years.
Now they have to play catch up before we go all "Zimbabwe" over the kitchen floor
Going Zimbabwe over the kitchen floor... sounds bad, especially if we are going all Ireland in the bedroom at the same time.
Should check with PM, what they have to say about latest survey and how they twist to justify.
Saw in newsletter from Bernard Hickey.
"A new survey of views about housing affordability has found 77% think home ownership is unaffordable and 61% think it will get worse over the next decade. It also found 55% were anxious day-to-day about ever buying their first home and 46% believed their chances of ever owning were hopeless."
We certainly need media to do their job in informing younger Kiwis of the policy causes for the housing crisis, lest they think nothing can be done about the housing crisis and continue to meekly tolerate poor governance from central and local government, and monetary policy ideas that seem very on-again-off-again in their insistence they aren't interested in keeping house prices up.
I suspect that its not actually the elected government that runs this country....but the ministries in Wellington that do. Why? The manner within which elected governments appear to flop within 12 months of being elected from their pre-election promises (most likely because the ministers are being used as puppets by the ministries as opposed to leading them).
Why would young people care who they vote for when every time over the past 15 years or so (thinking Key and now Adern) the governments have completely flopped on issues like immigration and house prices? They vote for change and simply end up with more of the same that isn't working in their favour.
Then young people get told 'if only you voted in greater numbers like the older generations then you would see real change'....
I think the real change will happen when the older generations leave key positions in ministries, councils and regulatory institutions...as opposed to a change of elected government officials. The rot appears to be within the construct of the structure of society and not who is filling a 3 year term of supposed oversight of the country by way of a democratic election.
Very good point. Does explain why Key and Ardern both flip-flopped on housing, productivity etc. Key seemed to have genuine intent and ideas on productivity and the housing crisis when he was running, but years later seemed to have completely turned about face and just made money off perpetuating the status quo. Ardern seemed to suffer from turning into Key 2.0 - "expect the price of the primary asset to keep going up".
I suspect a degree of ideological orthodoxy in ministries (and Treasury, RBNZ) that does a number on politicians. You certainly see it repeated widely that prices simply cannot be allowed to fall significantly - which means the various policies that could be enacted in housing, tax, and zoning, are very slowly, if ever, broached. Perhaps some of the same ideologues who helped cause the leaky buildings crisis, perpetually restrictive zoning etc.
Yes I have worked among various government agencies in an earlier period but couldn't deal with the incompetence and how toxic the environment was. Prior to going to Wellington I assumed we lived in a relatively free and trustworthy society and left thinking the complete opposite. It was exceptionally dodgy, toxic and uninspiring. People walking all over one another for power, a focus on pleasing those above you with zero regard for responsible use of tax payer money. George Orwells 1984 comes to mind when thinking about the brainwashing that was going on among the workers within the ministries.
My theory is that the likes of Key and Adern (and their ministers) get elected, then within the first few weeks get briefed by the various ministries and get told 'hey we've seen what you've been elected on, but in reality this is how things are going to work'. Take Treasury for example, of which I've read many of their public statements and forecasts. They will have told that government that immigration is a priority in order to fund the boomers superannuation via increased tax take from more workers in the younger age group. So as such, any promises of reduce immigration (and therefore improved housing outcomes) simply are not feasible. Then again, if we had strong enough leaders who might actually lead the ministry as opposed to the reverse, other policy might be a possibility. But that would require strength of character which doesn't appear to be applicable to those who currently want to win a short term popularity competition (an election..).
Thus young people get told "look, we can't really do much about the housing crisis" in various different words. Whereas the likes of Michael Reddell and Bernard Hickey - while coming from quite different sides - are both easily able to point out how untrue this is. The housing crisis is eminently fixable, it's just not palatable where it needs to be for anything to be done.
"Yes Minister" all over again. But yes, having worked for Government organisations I have noted entrenched attitudes and filters. But in some respects i would put a bit more blame on the Government. they tend to appoint people who will tell them what they want to hear, rather than what they need to hear.
I suggest a lot of it has to do with entrenched, erroneous attitudes about what can and cannot be achieved (what you are describing of ministries telling the government what can be done) and the Government not understanding the facts that lie behind their issues. For example full prisons/lots of crime/ high Maori stats in the crime stats are because of very bad economic policies depriving people of opportunity, especially in the regions. In some respects the ministries are guilty here too as they cannot tell the Government the truth, but in the end it is the government who are driving this ship.
From what I have seen, from working on contract in government ministries, I don’t agree with your first paragraph.
Most of Labour’s original ridiculous promises - eg. 100,000 kiwibuild homes, light rail operational by 2020 - were done on a whim by hopelessly incompetent ministers. From what I saw, it was the ministers directing the ministries. And this meant good people left the ministries because they had enough integrity to refuse to back nonsense. The ‘Yes Minister’ people remained.
A related eye opener was seeing ministry executives very much taking the ‘Yes Minister’ approach, and ignoring the so called policy of ‘free and frank advice’. Contrary positions, although occasionally offered, are usually heavily watered down to the point of meaningless l.
The Wellington bureaucracy is a joke. I would like to see it cut in half staff wise. They have armies of policy analysts making work for themselves, seriously it’s a debacle.
There are probably a few elements to this problem, though. Including the ability of people to now lose their careers over a few miss-phrased statements in the wrong places or to the wrong media, and the rise of full time communications specialists to insulate them.
You might compare some of the ambitious policy followed by inaction with ambitious policy followed by enforcement under Richard Prebble (dealing with ministries) in earlier decades. Importing Panasonic Homes en masse while building others here - and ramping up training, as in fairness they did - would seem a whole lot more achievable than putting man on the moon by the end of a decade. Although, unlike in other countries, enforcement can't easily be used to navigate the objections of all parties including local ratepayers (trains).
I can't help but wonder if there was a lack of real intent from both politicians and ministries on these polices.
The other thing is that there are hardly any experts in many of the ministries now. For the most part they are full of generalist policy wonks, which is very dangerous.
And $200k+ "Procurement managers". That's if you get them on a fixed salary, otherwise it's $200 per hour and part time hours.
Yeah, that's something in today's data I found fascinating. There is so much recession fear in US, yet our NZD dropped lowest point since 2020. This is not gonna be helpful with our inflation here until RBNZ to gain some solid creditability, not just some talk. The weak NZD also indicated there are some serious structural issues in our economy. We need more than just housing industry and dairy export.
I strongly agree, and think this is what is being overlooked by the 'RBNZ will pivot' crowd.
Much like ARK, or Zoom, or cryptocurrency, NZ is a money-losing, debt-laden enterprise that has been kept aloft by easy credit. Liquidity tightening is disastrous for such an economy. The $NZ has little real support once confidence starts to erode. The RBNZ doesn't have one-hundredth the wriggle room that the Federal Reserve or the BoJ has.
Flight to quality normally happens in a recession - “quality” in this case being the reserve currency
I think it's fair to say at this point that Labour has already lost the election - it certainly won't be the impact of "backing off"
Propeller Property still spruiking their wares. They've changed their angle a bit so it doesn't blatantly lie, but they're still promoting the doubling every 10 years canard, which is true, if you started in 1822 with a house price of $1
‘Ground Control to Major Tom’
:)
RKLB successfully launched Capstone and has nothing more to do with the mission?
Gotta be a lot of recently-experienced contact-tracers out there
Correct. Yesterday I bought a few shares based on the good news (posted on the breakfast briefing), so thought I would post something sardonic when I heard the news this morning. Anyway, am super chuffed that they managed a successful launch and have high hopes (so to speak) for their future.
The real money will be bringing stuff down from orbit not putting it up there
The news suggests that Capstone was communicating for a period after being released from the rocket and moved into the higher orbits, suggesting that the failure has nothing to do with RKLB.
Could be caused by any number of things. They build a fair amount of redundancy into the satellites these days, so unless a micro meteor trashed it, there should be a good chance they'll get it back.
Next few months will decide, if we go down in history and 2022 will be talked about the way we now talk about 1980s.
or 1929
Perhaps this breakfast briefing should be call (burnt) toast for breakfast given markets overnight have been completely toasted. There are very bad things to come for global markets and world economies so put on those racing 5 point harnesses and hold on because it will be ugly
Yep.
I have flirted with the idea of buying shares again but have resisted.
still far to fall, I feel
Well you learn something every day here I thought there was only a 4 point race harness things are going to get bad.
A 5-point has a crotch strap, which as you'd expect is the most uncomfortable and scary one.
Interesting that the refusal of some countries to buy Russian oil is now lowering prices from other suppliers.
They are all refusing to buy Russian oil. But have replaced that oil with oil from "Unknown" ports. Doesn't take a rocket scientist to figure out where those ports are.
Oil prices down on recession fears, which will be realised.
I am calling it, inflation has peaked and is starting to subside.
The OCR will start being cut by May 2023.
It certainly feels like it has peaked but still very elevated, it is only the upcoming recession that will restore some balance. But IMO we are going to see a new order of energy pricing that wont go away anytime soon, so as we come out of recession the demand for energy will continue to exceed supply causing inflationary pressures once again
This game is far from over...
Keep in mind that inflation slowing markedly doesn’t mean that prices can’t or won’t rise.
I am sure you understand this but I don’t know if everyone does.
To be fair not much of a call. Inflation has to peak and be controlled. More of a call would be the peak rates and then the level of return that's a sustainable norm again. Are we simply returning to 6% mortgage rates as the norm ?
7% by Christmas is a certainty.
Why not much of a call? The majority of the commentariat are talking high inflation sticking around for at least 1-2 years.
You yourself have called for ongoing aggressive OCR hiking.
I think rates will peak at circa 6 to 6.5%. They will be back to no more than 4.5% by late 2023.
Living the long term on emergency rates eh... we are addicted to welfare.
Love a good suckers’ rally
There are informative bits and pieces here. Much more than just on employment.
https://www.newsroom.co.nz/finally-our-unemployment-figures-make-sense
Bojo one of the worst things to happen to the UK in recent history.
His political career should have never got past the clown show when he was mayor of London.
Muppet.
History shows us that a community under stress, votes for anyone with a promise.
In times when the truth is that there is no way out, the only ones to promise anything are those who can lie, meaning they're either dishonest or on the spectrum to the point of having no moral compass (which I suspect is Boris' problem). Which means that getting rid of them neither fixes the problem, nor eliminates the potential for an equally glib successor.
no moral compass (which I suspect is Boris' problem)
That would go some way to explaining why he's got 3 marriages and unknown children under his belt. Some red (or at least yellow) flags there.
Perhaps one underestimates just how much - by virtue of his good birth - he is simply entitled to power, money, and women, far more than the peasants over whom he is perfectly right to rule. It's important to use a foppish act to keep the peasants onside, obviously, goes without saying.
It's the plummy accent that keeps me coming back for more. How could someone speak like that and not be a ruler?
Easy. Be like me. Get sent to an elocution teacher by your English public school father to get rid of your Kiwi accent and learn RP - Received Pronunciation. Stood me in very good stead amongst the Japanese, but confused the Yanks (sorry, cousins) and pissed off the Brits I worked with. "F^cking Kiwi prick".
And oil prices have crashed, down about -10% and below US$100/bbl for the first time since mid-May.
Want a laugh? Here is an ANZ economist talking about the tight oil market less than two weeks ago.
Haha
Economists have no clue. It’s a joke of a discipline.
They are basically guessing and trying to find ways of making that guessing sound rational and credible.
Their forecasting track record is generally awful.
I think you mean macroeconomics. I believe ANZ economists have day jobs measuring and publishing microeconomic stats such truckometer, commodity price index, business confidence, etc.
All of them.
Is this the trend or noise? Hard to tell in the short term
More than one trend, none on the same timeline (quite) and some oscillations with Doppler-effect coincidences.
But you cannot read that through watching debt-issued token-sets vis-a-vis each other and backdropped by (unfactored) energy reduction and resource depletion.
So I'm with HM upthread - all of them.....
Or, in the vernacular, a crock.
The price of gold is down sharply, down a very chunky -US$42 at US$1766/oz. - No orange banner?
Townhouses for rent in Auckland now up to 520. About 25% more than in February / March. Every week more added as the surge of new townhouse build completions continues.
Rent inflation will be dead in the water.
Add that to moderation in food and fuel inflation, some of the biggies in the CPI, and it looks highly likely that CPI inflation will be dropping quite a bit.
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