Here's our summary of key economic events overnight that affect New Zealand, with news global full employment just goes on and on, and is calling into question some of the ways we measure economic activity.
First in the US, Americans are in the last week of their summer holidays and heading toward the crucial final third of 2022 with rising economic uncertainty. Much of that is because their housing markets are slowing quickly, and mortgage interest rates are rising. In fact rates for this past week turned up again after a few weeks relief. But like most consumers, negative news weighs heavier than positive news, but there are positives, and even in the global circumstances, a lot of them. The mood should be upbeat, even if it isn't.
New American jobless claims fell yet again to only 184,400 and well below what was expected. There are now 1.4 mln people on these benefits, a new modern low. Just one year ago, there were 12 mln people on these benefits, so the improvement has been epic. It is not a metric reported much these days, but we shouldn't lose sight of the achievement.
Meanwhile, the second estimate of the US GDP result for the second quarter was released and that brought a small improvement (actually a lower decline of -0.6% from Q1) than in the first estimate revealed. Interestingly they also released data for "Gross Domestic Income", which is the same data as GDP, just from a mirror perspective: one person's spending is another's income. And that shows GDI rose +1.4% in Q2, even if it was down from +1.8% in Q1. Obviously one of GDP or GDI is wrong and increasing numbers of economists now think that history will show that GDI is closer to the actual situation.
Away from this geeky data, all eyes are on the Powell speech at Jackson Hole, WY, in a central bank gathering organised by the Kansas City Fed. Actually the same regional Fed branch released their factory survey for its District and that showed a weakening expansion in August.
We will have details of the Powell comments, and the market reaction, in tomorrow's briefing.
In Canada it is probably worth noting that weekly earnings there are rose faster than expected June and a notably faster pace than for May. The overall gains are not keeping up with inflation though. But some are however, with factory wages up +6.9% year-on-year, and wages for people in professional and technical jobs were up almost +11%.
China has rushed out more economic stimulus with a further ¥1 tln set of policy measures to try and rebuild some growth, guard against the effects of their pandemic policies and try to fix the corrosion of their property market crisis. A 19-point policy package announced yesterday included another ¥300 bln that SOE banks can invest in infrastructure projects, on top of ¥300 bln already announced in June. Local governments will be allocated ¥500 bln of special bonds although this is not all strictly 'new'.
Overnight rains swept across parts of Sichuan, which has been suffering from a prolonged drought as a result of the worst heatwave in 60 years. But no-one is saying the impact of drought is behind them yet. They will need rain for a month to catchup.
The Bank of Korea raised its base rate by +25 bps to 2.5% during its August meeting, as widely expected, citing persistent inflationary pressures and high inflation expectations. This move came after they delivered an unprecedented +50 bps rate increase in July and as they try to prevent capital outflows amid more rate hikes in the US. The latest decision was also the 7th increase in borrowing costs since they lifted their base rate for the first time in August 2021. South Korea's inflation rate to hit 5.2% this year, the highest level since 1998.
Germany also reported its Q2 economic activity and in contrast to the US, it expanded, and expanded a bit more than expected. Having said that the growth was a low +1.7% year on year, just better than the +1.4% expected. Germany might be struggling with energy pain, and angst levels high. But in fact history will show they are handling the challenge well in the circumstances.
Freight rates for container shipping fell at a faster pace last week. But although it is -40% lower than the September 2021 peak, these rates are still +60% above the five-year average. Freight rates for bulk cargoes fell even faster last week.
The UST 10yr yield starts today at 3.03% and down -8 bps from this time yesterday and awaiting Powell's speech. The UST 2-10 rate curve is a bit more inverted at -34 bps. Their 1-5 curve is also more inverted at -17 bps. Their 30 day-10yr curve is now at +79 bps and quite a bit flatter than this time yesterday. The Australian ten year bond is down -7 bps at 3.62%. The China Govt ten year bond is up +2 bps at 2.67%. And the New Zealand Govt ten year will start today up another +6 bps at 3.89% and a two month high.
Wall Street is up +0.8% in Thursday trade today on the S&P500 index and making back yesterday's dip and more. Overnight, European markets closed mixed with Frankfurt up +0.4% and Paris down -0.1% to bookend their trading. Tokyo ended its Thursday session yesterday up +0.6%. Hong Kong was closed in the morning for a typhoon, but absolutely roared higher in afternoon trade, up +3.6%, while Shanghai was up +1.0%. The ASX ended its Thursday session with a +0.7% gain, while the NZX50 fell -0.2% with a very late dive.
The price of gold will open today at US$1758/oz which is up +US$9/oz from this time yesterday.
And oil prices start today at just over US$93/bbl in the US which is a -US$1.50 USc fall, while the international Brent price is still just over US$99/bbl.
The Kiwi dollar will open today at 62.3 USc and +½c higher than this time yesterday. Against the Australian dollar we are lower at 89.3 AUc and while it is only a small slip since yesterday, it is in fact our weakest against the Aussie since October 2017, a 5 year low. Against the euro we have risen slightly to just on 62.4 euro cents. That all means our TWI-5 starts today at 71.3 and a +30 bps firming.
The bitcoin price is now at US$21,572 and a tiny -0.3% slip from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
35 Comments
A lot of positive out there.
"The Tracking Universal Health Coverage in the WHO African Region 2022 report shows that healthy life expectancy—or the number of years an individual is in a good state of health—increased to 56 years in 2019, compared with 46 in 2000. While still well below the global average of 64, over the same period, global healthy life expectancy increased by only five years."
https://reliefweb.int/report/world/healthy-life-expectancy-africa-rises…
Might just need to be so too. Europe, the UK & the Continent, are approaching winter. Lack of fuel and cost of what there is are going to make keeping the home fires burning an awful challenge and ditto for staying healthy. Winter of discontent likely to be a euphemism I would suggest.
If only there was a solution.
"Fracking ‘could ease soaring energy bills if given immediate green light’
End to drilling ban could produce much-needed supplies as early as January, according to government source"
https://www.telegraph.co.uk/politics/2022/08/24/fracking-could-ease-soa…
Not so good for African wildlife or the African environment more generally.
What are the main factors leading to accelerated habitat loss across the continent?
The simple answer is growth. This includes economic, population, development, resource extraction, agricultural, and international growth—all of which is directly and indirectly resulting in habitat loss.
The Silent Killer of Africa's Wildlife | African Wildlife Foundation (awf.org)
No so bad either. People care for the environment more when their lives are not hand-to-mouth, nasty, brutish and short. No growth, low life expectancy moa hunters were devastating for forests and multiple species for example. It is a bit more nuanced than growth bad - send money to our foundation.
Citation please - I challenge that statement.
Sounds like economics to me - aka blind ignorance.
The North Sea peaked a long time ago:
https://en.wikipedia.org/wiki/North_Sea_oil
'When it peaked in 1999, production of North Sea oil was 128 million tonnes per year, approx, 950,000 m³ (6 million barrels) per day, having risen by ~ 5% from the early 1990s. However, by 2010 this had halved to under 60million tonnes/year, and continued declining further, and between 2015 and 2020 has hovered between 40 and 50 million tonnes/year, at around 35% of the 1999 peak. From 2005 the UK became a net importer of crude oil, and as production declined, the amount imported has slowly risen to ~ 20 million tonnes per year by 2020.'
Truths and facts - always good.
...and far more coal - there no shortage of recoverable energy resources in the UK. "“We think there are between three trillion and 23 trillion tonnes of coal buried under the North Sea,” explained Dermot Roddy, former professor of energy at Newcastle University.
“This is thousands of times greater than all the oil and gas we have taken out so far, which totals around six billion tonnes. If we could extract just a few per cent of that coal it would be enough to power the UK for decades or centuries.
Data from seismic tests and boreholes shows that the North Sea seabed contains up to 20 layers of coal, most of which can be reached with the technology already in place to extract offshore oil and gas.”
https://www.worldcoal.com/coal/31032014/coal_discovered_in_north_sea_67…
I don't believe growth can and should be sustained forever. Given birth rates are plummeting how could it be? Some demographers see population peak as early as 2040. Farmland has already peaked. Global greening is a thing. Start planning for depopulation.
"It’s not a matter of if but when global populations will start to decline. Under the UN’s medium variant projection, the world’s population will peak in 2086, while under the low variant, the peak will occur in 2053, and by 2100, the population will be about a billion below today’s level. Demographer Wolfgang Lutz and colleagues project a global population of between 8.8 and 9.0 billion by 2050 falling to between 8.2 and 8.7 billion by 2100. The projected declines are concentrated in countries with high fertility rates, especially in sub-Saharan Africa. In the process, we will inhabit a rapidly aging planet. In 1970, the median world age was 21.5 years. By 2020, it had increased to 30.9 years, and the UN projects that it will be 41.9 years in 2100."
https://www.newgeography.com/content/007551-the-unexpected-future
"The world is ill-prepared for the global crash in children being born which is set to have a "jaw-dropping" impact on societies, say researchers."
Simple. It's too expensive to have children. We are long past the point where education can be credibly called the main driver in Western countries, the reality is it's too expensive and too difficult to find and afford the space to house a larger family. Look at the massive price premium of four bedroom new build homes over all others. I get that education outcomes drive lower birthrates but at what point do you take into account the educated and supposedly well-off people who are delaying having kids later and later because financial stability is harder and harder to come by?
First in the US, Americans are in the last week of their summer holidays and heading toward the crucial final third of 2022 with rising economic uncertainty. Much of that is because their housing markets are slowing quickly, and mortgage interest rates are rising.
The majority of bank credit creation in the UK (same in NZ &US) is not even used for transactions that contribute to and are part of GDP, but instead is used for asset transactions. They are not part of GDP, since national income accountants require a ‘value added’ for inclusion in GDP, not just the shifting of ownership rights from one person to another. When bank credit for asset transactions rises, asset prices are driven up, because the loans do not transfer existing purchasing power, but instead constitute an increase in net purchasing power: money is being created and injected into asset markets. When a larger effective demand for assets is exerted, while in the short-term the amount of available assets is largely fixed, the price of assets must rise. Link
“Ultimately there’s no natural income streams to be able to service and repay loans. What you have is capital gains which are contingent on the game continuing. So it’s a Ponzi scheme. says Werner. - https://wire.insiderfinance.io/richard-werner-qe-infinity-707e2c627e03
The off repeated mantra that the NZ housing bubble is due to a supply/demand imbalance is correct but not as we have been led to believe.
Rather, the principal cause is, and has always been, an oversupply of credit into a speculative non productive asset class even though the "experts" would have us believe otherwise.
Banks have migrated away from lending to productive business enterprises because the risk weights can be as high as 150%. Thus around 60% of NZ bank lending is dedicated to residential property mortgages owed by one third of already wealthy households
Gave up a business credit card (limit say $5000.00)and then realised we needed it.
Unbelieveable investigative process by Westpac, wanting everything from usual accounts, including a letter from our insurance company??? On and on. Have not got there yet.
All this despite previous 25 years of card paid monthly and six figure term deposit in the bank by the business.
And then because we privilege property investment from a taxation and welfare subsidies perspective (as well as zoning policy), people have little incentive to invest their own money in productive businesses either. So we have an anemic NZX and too much land speculation.
Great to finally see some figures as to the impact of long covid on the US jobs market - those apparently 'super strong' jobs numbers are not reflecting reality (as elsewhere - the UK has also revealed there are significant numbers absent).
https://www.theguardian.com/world/2022/aug/25/long-covid-americans-work…
Core Logic are desperately trying to pump FHBs to enter the market
On top of growing recession data, there was also the clear-as-day deflationary deluge in mid-June. It was so big that the 2y forward rate flipped from curve pricing still rate hikes to more pricing their approaching end. Link
Once the 2y forward rate flips on the cash/nominal 2y yield, recent history shows rate hikes are likely near or at their end. Right now it's really close. In '06, forward 2s flipped just before Bernanke's last rate hike. Link
How come all experts and economist are wise after the event...
https://i.stuff.co.nz/business/129686339/anz-brands-housing-a-deflated-…
That millions are absent because of long covid?
https://www.theguardian.com/world/2022/aug/25/long-covid-americans-work…
US 2/10 as inverted as it was just prior to the dotcom crash.
If things get crazy in the next 12 months...it can't be said that it was a surprise...
https://pbs.twimg.com/media/Fac4ndYUUAY7f3k?format=jpg&name=medium
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.