Here's our summary of key economic events overnight that affect New Zealand, with news all about inflation and its pressure on central banks.
First up today, the headline American CPI inflation rate rose sharply in June by +9.1% and well above the expected +8.8%. That's their largest rise since 1981. But their core inflation rate actually fell to 5.9% in June from 6.0% in May. That shows that most of the inflation pressure is coming from petrol (+60% year-on-year) and food (+10%). The May to June food price rises were less than the prior month. So really, its an energy story.
In the US, food makes up 13.4% of their index, and fuel 7.3% (3.5% for household use, and 3.8% for petrol). For New Zealand, food makes up 18.5% of our index, while fuels 7.5% (4.0% for household use, and 3.5% for petrol). We tax ourselves a lot more for petrol, so their change just seems a very big increase, not that they are actually spending more than us. The New Zealand CPI data for the June quarter is due out on Monday, and analysts expect ours to rise from 6.9%. Actual forecasts aren't released yet but they will undoubtedly be above 7%.
But with the headline rate so high, that does to seem to open the door to a full +1.0% rate hike when they meet next to review rates on Thursday, July 28 NZT.
The latest US Fed Beige Book reports an economy ticking over at a good level, but with signs of a coming slowdown. Most Districts reported that consumer spending moderated as higher food and petrol prices reduced households' discretionary income. Due to continued low inventory levels, new car sales remained sluggish.
As we have noted in previous months, the US Government deficit is being repaired fast. In the past 12 months, it is now down to just over -US$1 tln in the year to June (-4.1% of GDP), and a far cry from the -US2.8 tln deficit in the year to September 2021 (-12.3% of GDP). By any measure that is an impressively fast repair. The monthly deficit in June 2022 was less than half the June 2021 level. Spending is down -US$900 bln while tax receipts from a healthy economy are up almost +US$800 bln for the year to June.
There was another US Treasury bond auction, well supported, this one for their 30 year maturity. The median yield today was 3.05%, down from 3.11% at the prior equivalent event 5 weeks ago.
We have noted it before, but keep an eye on the energy crisis in Texas. Blackouts seem close now.
The Canadian central bank surprised markets earlier today and took the plunge with a full +1.0% rate hike, taking their policy rate to 2.50%. Most analysts had expected an outsized +75% bps jump, but their central bank Canuks surprised them still. Canada's inflation rate is running at 7.7%. Its a rate change than makes yesterday's RBNZ hike look small by comparison.
Meanwhile, the IMF is warning G20 treasurers to tighten their budgets and their central banks to push up interest rates to prevent high inflation from becoming entrenched.
China reported a fatter trade surplus in June as exports rose almost +18% year-on-year, the most in five months as logistics constraints eased, especially in the Shanghai region and a catchup in delays were eased. Meanwhile imports grew barely, up just +1% and far less than the almost +4% rise expected, suggesting this June surge is really just a one-off. Still the June +US$98 bln surplus was impressive.
In the Chinese property sector the stresses just go on and on. Buyers involved in 35 projects across 22 cities have decided to stop paying mortgages as of last week due to project delays and a drop in real estate prices. Others say it could be what is happening in up to 100 projects. This will sharply raise the bad debt risks for the exposed banks. On top of the regional bank run we have noted over the past few days, calls are out to address a 'crisis of confidence' in China's banks, banking system, and what might be unexpected corruption among banking managers. Their stumbling economy is putting huge pressure on regional banks, it seems.
The RBNZ and the Bank of Canada weren't the only central bank to raise rates yesterday in the face of the threat inflation poses. The Bank of Korea raised its base rate, also by +50 bps to 2.25%, the largest increase since the bank adopted interest rates as its primary policy tool in 1999, as it stepped up its battle against inflation now running at a 23-year high. The move followed five previous +25 bps hikes, and was the rate markets expected.
In Australia, ANZ has confirmed it is in talks to buy SME accounting software company MYOB from private equity giant KKR, but says an agreement is yet to be reached.
The UST 10yr yield starts today down at 2.91% and another -4 bps slip from yesterday. The UST 2-10 rate curve has moved sharply negative, now at -21 bps. Their 1-5 curve is also negative now at -16 bps. Their 30 day-10yr curve is also flatter at +128 bps. The Australian ten year bond is unchanged at 3.44%. The China Govt ten year bond is also unchanged at 2.83%. And the New Zealand Govt ten year will start today down -7 bps at 3.63%.
Wall Street has opened its Wednesday trade with the S&P500 virtually unchanged. Overnight, European markets were all much lower, by about -1%. Yesterday, Tokyo ended its Wednesday session up +0.5%. Hong Kong was down -0.2% and Shanghai was up a minor +0.1%. The ASX200 ended up +0.2% and the NZX50 ended up +0.1%.
The price of gold will open today at US$1740/oz which is +US$14 higher than this time yesterday.
And oil prices are little-changed at just over US$94/bbl in the US, while the international Brent price is just under US$98/bbl.
The Kiwi dollar will open today a little firmer from this time yesterday at 61.6 USc. Against the Australian dollar we are still at 90.6 AUc. Against the euro we are little-changed at 61 euro cents. That means our TWI-5 starts today at just on 70.6 and a minor firming.
The bitcoin price returned to almost at the same level as this time yesterday at US$19,873. Volatility over the past 24 hours however has been high at +/-3.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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66 Comments
waiting on the NZ Q2 CPI Monday...but it won't prompt the RBNZ to get out of step with the 50 bps moves (but it will put the heat on them to keep up the pace)
an addition regarding the 2s/10s US spread...believed to be an advance indicator of recession...moved to -0.22% (the low in 2006 ahead of GFC was -0.19%) = trouble ahead for the economies of the world = interest rates (in particular Cash Rates) are going to overshoot and have to do a big 180 in a hurry to rescue the world...again
My amateur prediction for NZ at 7.4%. That is to align with Finance Minister Robertson’s pronouncement that most people think , inflation will peak at just over 7%. Just sneaks in then.
Even if it is 7.4% or even 7.1% - which is bad if 6.9% was but experts with vested biased interest to prove positive narrative will say that was expecting much higher but happy that is just 7.1% or 7.4%.
Exactly. Three months breathing space then. Phew! QED.
Adrian Orr: 👁👄👁
... where is the accountability ... for a guy who aided a 40 % spike in house prices , and repeatedly denied he'd overcooked the economy , that there is no inflation ...
There isn't any accountability for these wonks, that's one of the biggest issues. RBNZ is, in essence, a rogue agency full of unelected officials that can (and have) cause severe damage to our economy by creating their own interpretation of mouldy tea leaves. Their mandate and function desperately needs to be reformed but nobody in either party appears to have the skills or gumption to understand why or how.
This accountability debate is reminding me of the Police reforms, Central Bankers have the Global economy in a rear naked choke hold over a parking ticket.
Wonder if it will make a dent in Hongcouver house prices.
Hilarious.
calls are out to address a 'crisis of confidence' in China's banks, banking system, and what might be unexpected corruption among banking managers.
LOL. Unexpected?
Have to admit I had the same thought.
Just one huge house of cards. The banks provide security to each other; the businesses offer the same collateral multiple times over to different banks; the businesses give security to each other; the local governments need new debt to repay old debt with no viable plan to get income from anywhere other than property development. The banks reserve requirements keep decreasing in an effort to lend more debt on top of old debt. China has such an immature primitive banking system. What could possibly go wrong?
Something about it reminds me of this story of a banker named Fordyce.
Worth the read, at least to me it was.
Could someone please tell Robbo and Adrian that the above story is a cautionary tale, not an economics case history lesson.
US inflation at 9.1% the worst in 40 years not looking good for low FED rises is it ?
Multiple rise in OCR may not be as effective (though required as better than nothing) as one shock jump will be in trying to achieve the goal.
Yesterday MR Orr should have shocked yesterday by 0.75% than follow by 0.25% instead of 0.5%. Why are they not thinking out of the box like they were in early 2020.
Should have shocked with a 1% like I said at the first rate hike. Still room for it rates need to go to 3.5 or even 4% by the end of the year.
yes i do not understand, if they know rates need to get to 3.5% by the end of the year, why didn't they just set them at 3.5% months ago?
It's not like we are expecting inflation only at the end of the year, the inflation is here now and current low interest rates are making it worse.
If you are driving a car and you see a chasm in the road in front of you do you:
A) Calculate the maximum deceleration possible without making it too uncomfortable to your passengers, even if that means you fall down the hole
OR
B) Slam on the brakes as hard as possible?
So called experts / media going all out to highlight Plight of FHB, forgetting that FHB are already screwed and YES interest rate hike will effect them but that is nothing new but what they do not mention is that worse hit will be speculators and so called investors.
https://www.newshub.co.nz/home/money/2022/07/reserve-bank-s-ocr-hike-sc…
For FHB, it is better to pay more mortage for now but have less mortage ( long run) because of falling house price.
Besides craziness has to be halted before NZ turns into Ireland, if not already is. What better time to reset than now as no pain no gain.
Yes I read a lot of comments yesterday (on lesser news sites) all decrying the poor FHBs. Won't somebody think of the FHBs, they cried! None of these commenters came across as actual FHBs; just speaking on their behalf. Call me cynical, but I suspect these people aren't remotely concerned with affordability for FHBs, just their investments. I don't remember the same outcry when rates dropped. Didn't RBNZ peddle the lie that their rate cuts would help us get on the ladder?
It all looks good for the FHBs surely. More choice of rentals at lower prices while they save up a deposit to buy a house at an affordable price in 2-4 years when they bottom out and interest rates start to fall again.
Always best to buy near the bottom of the cycle and ignore the marketing hype and FOMO at the top. Easiest way to get ahead in life.
We haven't yet seen a drop in rental prices - instead the yoy rental price rise was 5.1%
https://www.stats.govt.nz/information-releases/rental-price-indexes-june-2022/
I have two properties in Auckland - a house and an apartment - both rents are now over $100 less than they were 3 years ago. I'm not complaining - most of the mortgages have been paid off. Maybe I am an exception but then again it is human nature to boast about gains and keep secret losses - both for house prices and house rents.
Investors crying crocodile tears for FHBs as that is a more sympathetic story than 'I had to sell part of my portfolio to bring my leverage back into an acceptable range and deal with the tax changes'
The thing with the internet, is you have a lot of grandstanding and feigning concern. It's trendy to be "offended" on behalf of others. That voice for the "little guy". But it's not genuine.
I'm concerned with affordability for FHBs, I just don't want to see existing owners rekt because they were unlucky enough to have decided they were getting left behind after 13 years of stacking the deck in favour of investors chasing tax-free gains.
As far as the rates dropping, it's really, really obvious that should have been done keeping LVRs in place for investors and mandating cash-deposit only. Imagine if we'd concentrated FLP on owner-occupiers refinancing and FHBs getting into the market. Let the investors take the hit and give the people trying to keep a roof over their head a break. Naturally we stuffed it all up.
But but the banks stress tested at 7% , interest rates are only at 5 -5.5%, not sure why these people are crying foul they have a full 1.5% to go before any stress.
If you're a 2020/2021 FHB not getting the 'special' 20% equity bank rates & have a margin applied - your rates are already over what the test rate was...
I'm a FHB hopeful who didn't succumb to the FOMO over the last couple of years. I couldn't be happier about falling house prices and rising interest rates. Even if my repayments are higher, I would far rather take on a sensible level of debt then the 10-12x DTI's seen during the peak. The price rises were what really hurt FHB's.
No one was handing out mortgages of 10-12 DTI. Hyperbole much?
The RBNZ Lending by DTI series only goes up to ">9" but there is a fair amount of lending in that category, it would be wrong to say that no one was handing out mortgages in that range.
https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/residen…
Depends on how you define that income. It's always talked about household incomes, which is a fair metric, but 30 - 40 years ago 1 x household income = 1 x average income. Therefore mortgages of 10 - 12 the median wage of $60k is not hyperbole.
Unless you want to go back to the days of forcing women to stay home then that fact is largely irrelevant.
This describes the swamp of today's outrage mentality to a tee.
Nowhere in the above statement was it mentioned that the single income has to come from a male. Turn the TV off, unsubscribe from twitter and calm down a little. Cheers
Calm down? Outrage mentality? You seem to have been offended by that comment somehow.
No-one wants to go back to those days and I definitely wasn't suggesting it. Just pointing out how irrelevant it is to compare today's household income multiples with those of 40 years ago. It was a different world then.
Why not? What a joy having 1 parent stay at home while the other person goes to work. The only thing stopping that from being viable is housing costs.
Fine for couples that want that. Reality these days is that most people don't want to be the long-term stay-at-home parent who misses out on a career and be reliant on their spouse for pocket money.
With the US fed raising rates by 0.75% and now Canada going by a full 1%, it's making the RBNZ's mere 0.5% look a bit dovish, even if they did start raising rates earlier than these other central banks.
Meanwhile the smartest minds in central banking and the political economy meet in Berlin. Their conclusion: Central Banks do not have the tools to bring down inflation.
But at least everyone thinks they do, so politicians can escape the blame.
Of course they don't. It is being driven by ultimate scarcity - actually, ultimate energy scarcity. Without which nothing happens.
https://english.alarabiya.net/business/energy/2022/07/12/Global-energy-…
They've injected far too many keystroked numbers, and now they're attempting to redress the situation by charging more numbers - putting out the fire with gasoline. The only way to deal with that kind of inflation is demand destruction, which is incompatible with repaying higher interest-rates. So the poor - including FHBs - get screwed. Not that that solves the underlying predicament.
Energy is not scarce. Can you remember just a couple of years ago oil was -$38 a barrel. That is a negative by the way. We have plenty of oil, gas and coal. Seems to me the sanctions against Russia have backfired (Venezuela, Iran) for the over consuming, money printing western world. We do tend to live above our means (NZ government).
I'm sure you're aware and just forgot to mention - the negative price was an artefact of sudden demand destruction with the initial covid lockdowns leading to fears that there wouldn't be enough storage. Noone wanted to sign up to oil in the future without knowing they had somewhere to put it.
It cannot be interpreted as evidence for on-going market balance of fossil fuels.
I think you have a false grasp on many things, from Covid to energy.
Ignorant throwaways - 'we have plenty of oil, gas and coal' - are no good here; you need to provide numbers. Discoveries per time, depletion-rates, estimated EROEI.
You are away back at the stage where you think fossil fuels are still being made (implied: at meaningful rates, on meaningful timescales), I seem to recall? Pretty much flat-earth territory, intellectually. Next stop religious beliefs and witch-hunts.
World Oil Statistics - Worldometer (worldometers.info)
List of countries by proven oil reserves - Wikipedia
around 50 years of proven reserves
If they all were to be burned, that's 50 years AT CURRENT RATES OF USAGE. Not at exponentially-growing rates.
Second, due to the OPEC agreement, many have upped their claimed reserves - SA being a classic example.
https://www.reuters.com/article/us-saudi-oil-kemp-idUSKCN0ZL1X6
'But there is widespread scepticism about the official estimates, which were abruptly raised without explanation from 170 billion barrels in 1987 to 260 billion in 1989 (tmsnrt.rs/29fzTm3). Official reserves have remained constant every year since then at 260-265 billion barrels, even as the country has consumed or exported another 94 billion barrels (“Statistical Review of World Energy”, BP, 2016).'
In other words, bollocks.
Then there's the little matter of 'economically'. If there was really that much available 'economically', then we wouldn't be going down the debt-incurrence that is fracking. We'd be using a 'cheaper' option.
The only swing-capable producers (it relies on the incumbents being disassociated from their oil, to an extent, as Nigeria, Iran, Iraq, Venezuela etc have witnessed, to a certain extent) are SA and Russia - but both are internally escalating use, while depleting stocks. Every net exporter becomes a net importer, but not everyone can.
I don't dispute fossil energy won't still be available in 100 years - but the EROEI will be so bad we won't bother with it.
I didn't really think 50 years was very long
There are far more fossil fuels and far more human ingenuity to get them, than your implied meaningful and depletion rates suggest. The more we use, the more we create as we keep running into them. Perhaps NZ could start looking here in our own backyard. If there is coal, surely there is oil? Or is that flat-earth territory. Fracking, tar sands, deeper drilling techniques, finding ever more reserves. Venezuela? Perhaps NZ should start prospecting here in our own backyard, if there is coal, surely there is oil.
I guess my false grasp of Covid and energy depletion comes from living with the rednecks in Wyoming, the guys that park their one ton dually diesel pick-ups in the Tesla charging stations and think Covid is some sort of religion.
Doesn't matter where you go it.
It's wrong. And yes, it's flat-earth territory. We had that debate - and your side lost - 15 years ago. Do me a favour, learn a bit about EROEI?
Are you religious? It tends to be the default-state for those who need a paradigm to fit them, rather than the other way around. Just guessing...
The UST 2-10 rate curve has moved sharply negative, now at -21 bps.
This is not normal. This is not fine. This is absolutely the end of "inflation." Markets after today's "red hot" CPI, most inverted yet (USTs, too). The curve has never been this f-ed up. Not even '07. Link
Are retailer woes just consumers going back to pre-COVID habits? The Economist thinks so. Markets, pretty much all of them, don't agree Link
UK retailers hit by sharp drop in spending as inflation soars
Reserve Banks attempt at soft landing look like they're going to completely miss the runway. Less emphasis on "soft" more emphasis on "landing".
They're raising OCR so timidly they haven't even managed to point the plane down yet.
Did they revise their OCR projections yesterday?
when do they tell us to brace,brace,brace…?
Maybe if they miss the strip, they might land in the harbour. That's a soft landing... of sorts.
Listening to Keith Fitz-Gerald this morning he says the real inflation figures are a lot higher.
He says the Data the Fed use is
A Academic
B Busted
C Last Century.
Inflation is what you are feeling in your wallet.
And my 'retirement' savings in the bank. Central bankers have literally stole my retirement.
What conspiracy theorist said this is an asset grab for the 1% ers? Blackrock!
No they didn't. There were parasitic on the energy flow through society, as are most of us. But the sum of you and them, is being curtailed; by ultimate scarcity. That is the bigger worry. That and the fact that folk go down rabbit-hoes and otherise others.
With OCR jumps of 1% I fear a massive overshoot. Our biggest mistake was leaving things too late.
These swings are getting increasingly violent. OCR the new Bitcoin?
The World’s 10 Worst Places to Live
- Kuwait
- New Zealand
- Hong Kong
- Cyprus
- Luxembourg
- Japan
- South Africa
- Turkey
- Italy
- Malta
.....and to follow up, from the same article:
At the other end of the scale is Kuwait—the worst country to live—followed by New Zealand and Hong Kong. Zeeck says that the company was surprised that New Zealand performed so badly in the 2022 ranking. “The general results are due to the fact that expats in New Zealand struggle the most with their personal finances: They rate the general cost of living and their financial situation negatively,” says Zeeck. “It might also play a role that 32% do not feel paid fairly for their work (vs. 20% globally).”
Pretty much what most who comment on this site have said in the past.
i have suspected for quite a while now that most foreigners perspective of NZ is somewhat distorted, and out of touch with reality for Kiwis. It'd be nice if we got a Government who would lift us all up, but then none have done that since the 70's.....
we refute the premise of that claim
whose "we" :)
Wow 7 stupid people so far upticked that.I suggest you try Google instead we don't make the top 100 of the worst places to live. I think many Kiwis have no idea what bad really is.
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