Here's our summary of key economic events over the weekend night that affect New Zealand, with news bond investors are pricing their yields for a sharp slowdown coming soon with some key yields getting more inverted. Attention is shifting to what the US Fed will announce on Thursday.
But first up, Japan reported June CPI inflation at the end of last week with their headline rate now at 2.4%, down fractionally from 2.5% in May, but still above the Bank of Japan's target of 2%. It's been above that target for three consecutive months now. And it's been seven years since they have had inflation like this although that was because of a GST hike. Excluding that, it's been 32 years.
In China, the central bank said there were NZ$1.6 tln of bonds issued in June, taking their total issuance to NZ$33.7 tln. That is about 125% of annual Chinese economic activity, just for this official debt. Much of this new issuance will be just to keep the lights on, rather than investing for future gains.
In Russia, they slashed their official interest rate by -150 bps. Earlier in the year it was raised fast to weigh against a spike in inflation. Now it is being cut hard to try an invigorate a war-damaged economy with sinking demand.
Globally, the 'flash' business activity surveys were out over the weekend for most major economies and they paint a somber picture.
The American one reported a contraction in July, all due to services activity. The factory sector is still expanding at the same rate as in June, but the services sector took an unexpectedly retreat. The decline was the sharpest since the initial stages of the pandemic in May 2020. Separately, new export orders fell for a second successive month but new local orders are still expanding making the combined new order inflow the weakest in the past two years.
With little other major economic data around, the unexpected contraction in the giant US services sector had an immediate impact on equity and bond markets on Wall Street on their Friday.
Weaker growth in new orders was also a feature of the Japanese flash PMI for July. But at least both their factory and service sectors are still expanding there.
In Europe, their factory PMI slipped into a minor contraction while their services sector is still expanding in July - but only just. But none of this will be much of a surprise given the invasion from the east. Perhaps you could say it is quite resilient in the circumstances, that they are not yet in a major contraction.
A lot of the EU result is due to the pressure Germany is under with both their factory and services sectors contracting now. The French services sector is a bright spot.
Data for Canadian retail sales in May was strong, and a bright spot in the weekend releases. Year-on-year increases are impressive and far more than inflation can account for. But of course this data is quite dated now.
In Australia, the big general insurer there, IAG, has reported that natural perils and rising costs will push up premiums by up to +9% for house and car cover. This comes as their shareholder funds shrink as provisions and reserves need to be raised, and it missed profit guidance to investors. Since mid April which was before the latest flooding on the Australian eastern seaboard, its share price has fallen -20% and investors worry about what the climate will do to its business.
And we should note that over the past week, the iron ore price has fallen -8%, copper is flat, but it had already fallen -27% since early June. Nickel fell almost -30% from early June. Wheat is down more than -30% since mid June. Soybeans are down -15%. Only coal is holding its new high price. Aluminium is down -15% from early June. And crude oil is down -18% from that early June peak.
The UST 10yr yield starts today at 2.75% and unchanged from Saturday but back to mid-April levels. A week ago this was at 2.93%. Market attention is squarely on Thursday's US Fed announcements where a +75 bps rate hike is universally expected. The UST 2-10 rate curve is marginally flatter today, now at -22 bps and their 1-5 curve is slightly more inverted at -17 bps. Their 30 day-10yr curve is now at +61 bps and little-changed from Saturday. The Australian ten year bond is down another -2 bps at 3.32%. The China Govt ten year bond is unchanged at 2.80%. And the New Zealand Govt ten year will start today also unchanged at 3.72%.
The price of gold will open today at US$1727/oz in New York which is up +US$3 from this time Saturday. It is also up +US$16 from this time last week.
And oil prices are little-changed at just under US$95/bbl in the US, while the international Brent price is now at just over US$99.50/bbl. These prices are almost exactly the same as this time last week.
The Kiwi dollar will open today marginally firmer than this time Saturday at 62.5 USc. Against the Australian dollar we are also a little firmer at 90.3 AUc. Against the euro we are unchanged at just over 61.2 euro cents. That means our TWI-5 starts today at 71.1 and this is -60 bps lower than this time last week.
The bitcoin price is little-changed from this time Saturday, down by just -0.9% to US$22,788. Volatility over the past 24 hours has been moderate at just on +/-2.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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47 Comments
"In China, the central bank said there were NZ$1.6 tln of bonds issued in June, taking their total issuance to NZ$33.7 tln. That is about 125% of annual Chinese economic activity, just for this official debt. Much of this new issuance will be just to keep the lights on, rather than investing for future gains."
Rich China stopped lending to poorer countries a few years ago, no longer the "ATM". Failures of provincial banks and rare public protests points to the question- can the Chinese Regime keep their banks operating.
The issue is that we are effectively a cashless planet nowadays with most relying on card payments which must continue or there will be no ability to purchase food. That brings down countries ….. China probably like every country needs retail banks to keep operating. The alternative is collapse of society and the end times
you can tell as banks refuse to lend to each other in Repo markets that things are bad hence reserve banks setting up repo windows ….
China seems to have bigger problems that new debt issuance. https://youtu.be/N57doBGQTNY This could be their "Lehman Brothers" moment.
"attracted customers by offering extremely high interest rates marketed as safe!"
Sound like the finance companies here back in 2006/7, we know how that ended
https://www.nzherald.co.nz/nz/newsreader-long-faces-strife-over-hanover…
I think the question "Is Russia dropping its interest rate despite high inflation?" is an important one, as it could be a precursor to what could happen in 2023 in other countries including. NZ. It's my view that interest rates will stop rising in 2023, and quite possibly start falling, even if high inflation was to persist, because of the economic hurt.
I keep seeing the average loan in NZ is considerably lower than the average amount that would need to be borrowed by a FHB in the last 5 years or so.
Does this mean that there is a large chunk of the population with little to no mortgage debt? If so then wouldn't increasing interest rates be impacting these people the hardest, whilst providing inflationary pressure as those with savings are getting more paid back to them on higher TD rates?
I guess whichever group is bigger (or more vocal) is likely to get the treats come election time next year?
a large chunk of the population with little to no mortgage debt? If so then wouldn't increasing interest rates be impacting these people the hardest, whilst providing
If you don't have debt, then generally you have savings, where increasing interest rates is a good thing?
As for the inflationary impact, that's negated by the borrowers paying more.
Savings are a good thing yes but increasing the spending power of savers at a micro level would seem to be against the stated reason for increasing interest rates which was to reduce demand?
Seems a bit like kicking those fhb who took on more debt while they are down to me. Yes they took on the debt but I have never met anyone who says "I wish I paid more for my house", they paid what they had to for a house
Both of our cars had renewed annual policies in June and July. Values were retained at the same and premium basically stayed the same ($20 cheaper for the full year).
Use trademe as the broker and underwritten by tower. Have a claim underway so will find put how painful that is.
I think they will be reviewing the book in total, you can expect all insurances to rise as the re-insurers (the actual insurers) will be covering climate exposures elsewhere.
There is still no arguing with house insurance but car insurance (apart from 3rd party) for NZ with free medical service needs to be more carefully considered. My insurance (and I am the perfect insurance customer) is now approaching 4% on the car, will be thinking hard about that next year.
two words: "Sum insured"
Insurance companies aren't worried. Joe Bloggs, on the other hand now needs to become a fully qualified builder, Electrician, Plumber, and Quantity Surveyor. To ensure they take out the correct amount of coverage should they need to rebuild.
I had to keep writing to my insurance company every 3 months to revise the sum insured on our property or risk having it be out of date.
How many home owners have the presence of mind to keep on top of that? Surely part of insurance companies deriving a profit from issuing insurance, is they carry the burden of ensuring they're providing accurate coverage.....I guess it's the same with banks and lending, every FHB is expected to be a economist and accountant.
I can assure you that this is not something any government in NZ will ever look at from a competition point of view either, the hardcore on the left view private healthcare and the insurance that enables it as undermining the public system and those on the right are probably too close to the big end of town that cream it.
The only thing I can suggest is make the most of it, get prodded and poked as often as your premium allows and at least use it to buy yourself a clean conscience, if only for the fact that it might help you sleep better at night to have a specialist take a look at anything that ails you.
The big news today for me is that Bear Grylls has given up veganism and gone almost full carnivore.
If this becomes more popular it will be great for NZ's meat industry and for many people's health.
Why a article from GQ magazine belongs on this site but had to comment, and I wonder if Novak Djokovic will make the switch too?
"I’ll make a burger from grass-fed mince, with cheese and an egg on top, cooked in tallow, fry some white rice in it. A scoop of bone marrow, and a massive tub of Greek yogurt, and honey and berries. If I was to have a treat, I’d have some cocktails and a sourdough pizza. Maybe a good British roast, sticky toffee pudding. And freshly squeezed orange juice. I found eating like this, I have fewer cravings."
Yes can just see a family of 4 eating this every day..cheap as chips?
Breakfast Briefing comments are allowed to be a little diverse. Our economy is supported by agricultural exports so a heightened awareness of the health enhancing qualities of meat by celebrities in countries that buy our meat will be significant.
Eggs and beef are better value than vegetables for a family of 4.
Dude, we are a primary exporter of grass fed beef and lamb. Close to 10 billion dollars a year. Meat processing employs 25,000 Kiwis. We should support this product.
And what about Bear Grylls though?
You guys crack me up. Gotta have my broccoli and jam doughnut...pathetic.
We need to stop believing that those Chinese tanks are anything to do with the bank bail ins. Those tanks are on a manoeuvre from an army base in another city. The truth about China's economy is somewhere in between the Official press releases and the fake news seen of FB and other social media avenues.
Its vital however that we monitor their housing crisis. There are a lot of chinese investors who will probably need to cash up their profitable NZ investments to cover their losses from the fallout back home. Some posters here need to wake up to this. The contaigon will be huge.
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