Here's our summary of key economic events overnight that affect New Zealand, with news all laser-focused on the US Fed today.
In the waiting period before the US Fed policy announcement on Thursday (NZT), the US dollar is edging higher, and hovering at a 20-year high. This is a distortion that is having global impacts. The UST bond yield benchmarks are also pushing higher, at 11 year highs. But equities are little-changed, waiting nervously to see if they have priced in the Fed's expected rise properly. At this point, the expectation is for a +75 bps hike taking the US Fed funds rate up to 3.25%. Markets have priced in +80 bps now, and expect their benchmark rate to max out at 4.5% in mid 2023. That means they expect another +125 bps over the next nine months, indicating they think most of the work has been done and after this weeks rise it will be mopping up operations from the Fed. Still, the last time the US Fed funds rate was at 4.5% was in 2008.
There was a small fall in homebuilder sentiment in the US in September, but it is the ninth in a row for this sector. This is a sector on the front lines of any looming recession.
Canada has reported that its August producer prices fell, making it three consecutive month-on-month falls in a row and taking the annual rise back to +10.6%. Recall the annual rise was over +18% in March so the recent declines are gathering pace. The falling cost of raw materials is a feature of this reversal.
But from the Fed's point of view, inflation is still stalking their economy. US retail petrol prices might be -6.2% lower now than a month ago, but they are still +15% higher than year-ago levels. That's a big improvement, but probably not enough.
Of more concern for policymakers is that inflation is embedding itself in wider sections of their economy, and the risk of wage-push inflation remains high.
China has reported a good inflow of foreign direct investment in August, +US$14.5 bln and +11% more than the same month a year ago. In a longer perspective however, this level is only equivalent to a +5% rise pa from 2018. Good but not special.
It has now been two months since many Chinese homebuyers stopped repaying mortgages to protest stalled construction on their properties. A lack of progress at more sites now threatens to intensify the boycott, despite assurances from authorities.
Later today Japan will reveal its August CPI rate. It was 2.6% in July, 2.4% for its 'core rate'. Markets expect that core rate to rise to 2.7% in August. The Bank of Japan has maintained its ultra-loose monetary policy for a very long time now, and eyes are on whether these sort of rates will be enough to induce any sort of change.
The UST 10yr yield starts today at 3.49% and up +3 bps from this time yesterday. That is touching an 11-year high. The UST 2-10 rate curve is more inverted at -47 bps. Their 1-5 curve is unchanged at -35 bps. And their 30 day-10yr curve has steepened further to +90 bps. The Australian ten year bond is unchanged at 3.72%. The China Govt ten year bond is also unchanged at 2.69%. And the New Zealand Govt ten year will start today at 4.05%, down -3 bps from this time yesterday.
Wall Street has started the week unsure of its new direction, and the S&P500 was down a trivial -0.1% for much of today's trade. But near the end it has started to rise and is up +0.5%. Overnight European markets closed mixed, bookended by London's -0.6% fall and Frankfurt's +0.5% rise. Yesterday Tokyo was on holiday, Hong Kong closed down -1.0% and Shanghai closed down -0.4%. The ASX200 ended its Monday session down -0.3% and the NZX50 fell -0.4%.
The price of gold will open today at US$1671/oz. This is -US$5 below where it was this time yesterday.
And oil prices start today little-changed from yesterday at just over US$85/bbl in the US while the international Brent price is still just under US$91/bbl.
The Kiwi dollar will open today at just on 59.6 USc and almost -½c lower than this time yesterday. Against the Australian dollar we are also -½c lower at 88.7 AUc. Against the euro we are down likewise to 59.4 euro cents. That all means our TWI-5 starts today at 69.2, down -40 bps and a two year low.
The bitcoin price is now at US$18,987 and -3.5% lower than this time yesterday. Volatility over the past 24 hours has been very high at just on +/- 4.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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79 Comments
The NZD is becoming entrenched below 60c - this should be of great concern to the RBNZ and Mr Orr.
The USD is up against pretty much everything.
Whether or not that's "entrenched" is another story.
You confuse exchange rate with penile size. The present situation helps us as a country. The only issue is paying back the loans that Grant Robertson has negotiated in the last few years.
Helping us by making my upcoming holiday more expensive... Boooo!
Simple - holiday in NZ
Only if you are living overseas.
No. It is obvious to the rest of us that Kiwis holidaying in NZ favouring NZ owned businesses will also do better in the same way that foreigners holidaying here do. Compared to holidaying overseas that is.
Holidaying in New Zealand is the greatest rip-off of all.
Maybe you should actually try it some time, Brock. I live and do business in a tourist destination. Kiwis who are holidaying here for the first time consistently say what a better time they have had here than they thought they would.
Easy to have a good time when you coming off its "gonna be crap" baseline
NZ imports everything so 15% fall in NZD is prices going up by 15% and effect should be felt in near future and many think that inflation has peaked. Even if it has and falls by 0.1% or 0.2% it will be long before it actualls falls below 3% and will witness lot of drama in between.
Malaysia's economy grew by 8.9% in Q2, Vietnam 7.7% and the Philippines 7.4%. Link
I disagree that everything hangs off the FED David. As I've been pointing out for almost a decade, the FED isn't in control of the trends. The FED follows not leads.
It is reported by many professional investors that liquidity is tight, has been for a while, so no surprise the price of money is going up.
There are quite a few things outside of the FEDs control.
Indeed - the Fed is always behind the curve.
How long until Germans turn against the USA? The strongest economy in Europe was on the verge of doubling their supply of cheap gas from Russia via Nord Stream 2. Instead they're facing deindustrialization and wondering how they're going to keep the lights on this winter.
THE GLOBAL ECONOMY HAS BEEN GROUNDED
Summary: China’s modest improvement in its major economic statistics in August was actually consistent with the alarming announcement from FedEx all but confirming the (nasty) global recession solidly priced in markets (including one unprecedented inversion). And there won’t (can’t) be a Chinese rescue just in the nick of time.
The 5 largest economies in the world are experiencing the fastest slowdown in credit creation in over 20 years. History suggests that earnings and economic activity will follow. Soft landing my a** Link
Received an email from the Bank of Montreal this morning on mortgage rate changes. Nothing under 5.59% (2-yr fixed).
Indeed. Credit cycles seem to reflect a human behavioural cycle that predates our current system. Roughly ten years apart suggests it is due to a new group entering the peak borrowing period of household establishment.
Bureaucrats need to convince us we need them so they can grow their empires.
https://gm-media-library.s3.eu-west-1.amazonaws.com/image_f3b6bceb71.png
Doesn't really matter either way scarfie, within months the outcome is the same. The FED is being forced to rise and are in fact still way behind a correction, at least 6 months at this stage looking at the curve, which is not currently a curve its a near vertical straight line. FED needs to go at least 1% and they will still be behind.
This is the key point. It doesn't matter what kicks in credit cycles, just that they exist and are inevitable. The length and duration etc are also very up for debate.
Better question is how can I take advantage of it (or not get steamrolled when it happens). Ie, taking some time to conduct 10 to 15 year planning of personal finances etc and being prepared for such events.
Interest rates will have to go up...a lot. Otherwise all imported goods like fuel etc will go to the moon. The Govt is facing protecting housing speculation and banks profits vs letting inflation punish everyone else.
A Labour govt is facing favouring banks ahead of people....what to do.
Love to see the numbers on our imported fuel costs vs refining in NZ. Are we really getting cheaper fuels and refined products, not to mention the loss of jobs and manufacturing capabilities.
We are not! I July 2022 Brent crude oil increased as modest 60% year on year while Diesel increased 119% over the same time. It should have been far more efficient to spend the 25 cent VAT rebate on keeping Marsden Point open than on lowering the price of fuel and halving the price of public transport. See the latest trade deficit reporting from Statistics New Zealand.
So how do we then fund transport projects????
and we are not importing bitumen, could have finished some roads by now if Marsden Point stayed open. Time to nationalise it.
Boomers will never pick up that tab..oh wait yes they will just borrow some more $$$
i remember when they convinced us to close car assembly
convinced us we would all save money on cars....about three grand a year they reckoned
as soon as we did it affected our import receipts...a blow out due to now buying finished product prices,our dollar fell and they ended costing the same
Yeah but we were worse off because we lost a load of jobs at the same time.
exactly carlos but it freed up labour to sell drugs at least.....wear a patch.hard to start a gang when everyones well paid working at the mill
and we have a productivity commission...inspector cludeuaesq
The industry was going to fail anyway, the unions and poor management were only a few years from bulleting the british car industry.
Governments and industries are supposed to come up with a plan B for the sector. Redeploy the skills and knowhow elsewhere in the economy with targeted planning and investments.
The transition group in Taranaki for all its flaws is a good model of stakeholders working together towards a joint solution. We know NZ shutting off its gas fields is going to make not even a rounding error of difference in global emissions but the push towards hydrogen in the region cannot be entirely discredited. Hell, why not do both!
We did, and there were people in those jobs that realistically weren't ever going to be able to 'up-skill' to a different industry. Those people got tossed on to the scrap heap and we wonder why we have a generation who don't buy into society - they got to watch their parents get kicked to the kerb by it.
Some sort of cashless subsistence living. When there's no food, you just starve, no extra money to tide you over. Perfect Darwinism.
Yup. At what point will being intelligent and being able to manipulate and trick people out of their dough and possessions not be an advantage, and we go back to intelligence with physical strength being the decider of who survives
Ah yes. The expression Main St not Wall St comes to mind. That was by a Democrat, Mr Obama I believe. So much for an ostensibly labour based party.
National of course would be Wall St, but at least they wouldn't be saying Wall St not Main St.
National's voters are Main Street
Inflate or bust. Central banks and government (more spending for their pet projects, 3 waters?), want inflation. The US government has favored the too Big too Fail banks, like the GFC bailouts, the Fed buying corporate debt, MBS, the system is rigged against us. What to do. Get out of the system, by buying land, get off grid, produce your own food and stop supporting our corrupt governments and corporations.
Leading the whey: the synthetic milk startups shaking up the dairy industry - “If synthetic milk really takes off, the biggest disruption I think will be if it can be powdered and used in the ingredients space … as an additive like milk solids, which is in a lot of processed foods,” Bojovic says. “I don’t think most consumers are questioning where the milk solids in their KitKat came from.
://www.theguardian.com/food/2022/sep/18/leading-the-whey-the-synthetic-mil…
"Beyond Meat’s market capitalization reached a high of $14 billion in 2019 and was still over $9 billion in June and early July 2021, with a stock price around $150 a share. On Friday the stock closed at $18.29, for a market cap of $1.16 billion. Even that’s probably too high. There’s a lesson here: It’s important to ask the simple questions like, “Who’s going to eat all the product?” Wishful thinking, media hype, and “It’s the future!” bandwagon appeals can’t repeal the laws of supply and demand."
https://www.wsj.com/articles/beyond-meat-is-beyond-hope-market-capitali…
Speak to anyone in the food industry about what the next 20 years will look like and they will tell you that synthetic or plant-based proteins are guaranteed to be huge by 2040. Singapore and China have already licensed bio-meat production (growing real meat in a vat from cells) and they are scaling at pace. In 10 - 20 years the environmental taxes on livestock meat will make it a niche food for the very rich.
Maybe you could also factor in the feedstock for those synthetics. And where from.
All that material does not magic up into the tank from nothing.
Did you read the article??
Easy. Ever think about producing your own? The food industry has failed us, all they produce are commodities devoid of nutrition, loaded with refined sugar, refined flour, toxic oils, dyes and chemicals, making the western world inhabitants sick, obese, cancerous and diabetic.
You cannot tax my livestock until I sell.
Most of the Scientific Agricultural community in NZ have known this for 30 years (NZ supplying meat that got a tan outdoors and lived a good life). How that translates into policy and outcomes I don't know.
There’s way more to this the beyond meats bubble share price. Why are you always behind the times prof?
This pioneer is already aiming on a TRL (Technology Readiness Level) of 8 by installing a 150 ton/year precision fermentation for milk protein in The Netherlands. Open the link and use Google translate. The article is in the Dutch language.
https://www.volkskrant.nl/nieuws-achtergrond/het-smaakt-en-ruikt-naar-n…
150 tonne, really.
That's equal to the protein production of two average NZ farms, which also produce double that in fat and lactose. There's 14000 in NZ Incase you don't realize and they only produce 3% of the worlds production.
The science to create precision fermentation is far more advanced than the science to prevent cows from burping up Methane!
In the end the company will build a 150000 ton year facility if they are capable to show that they can produce 150 tons/year if you have read the article. But that is 1 facility in 1 country. Imagine in a decade when several more countries will built facilities like these.
Once the dairy cartel is been ruined we might get affordable dairy products and a first world selection of cheeses.
Not a bad article, realitively balanced and realistic. Didn't like the comparison with the introduction of synthetic clothing, that has not been a good thing for the environment in anyway.
"US Fed policy expectations distorting global finances;"
Where were all the experts when Fed was moving towards zero interest and coined - Temporary Inflation.
One cannot be selective, choose appreciate and follow Fed when suits individual vested biased interest and now critsize, when.......
US retail petrol prices might be -6.2% lower now than a month ago, but they are still +15% higher than year-ago levels. That's a big improvement, but probably not enough.
Petrol prices have come down because of the release of strategic reserves, the unwinding of traders' positions, and an increased flow of Russian oil through murky channels. Higher interest rates in the US will not dent demand enough to trigger reductions in the oil price, which is effectively set by a cartel who will be happy to settle at around $100 a barrel.
Many commentators are now questioning whether hiking rates to the moon to show that you're really serious about fighting inflation, is a bit dumb when you are having little actual impact on prices, you risk destroying your housing construction industry, throwing poor people on the dole, and doing huge damage to overseas economies. Or, maybe this latter point is the true objective? Push countries like Chile and Argentina into crisis levels of dollarised debt so that you don't have to invade them to steal their lithium!
How far will Biden empty the SPRs, 40% used already
Insanity IMO
Biden has been selling off some of the SPR to China
Tropical wheat developed and rolled out in Brazil. "Albrecht was intimately involved in producing variant BRS 264, which finally achieved a breakthrough. Since then, tropical wheat production in Brazil has rapidly expanded. Indeed, the savannah-grown variant "can keep up with the best in the world from Argentina and Canada."
This is the best year for Brazilian wheat in the last half a century," says Albrecht. Demand for wheat seed was so great in March and May that supplies ran out. For this year, record harvests of at least 9 million tons are expected, around three-quarters of the country’s needs. "And we have so much more potential."
https://www.spiegel.de/international/world/farming-in-the-tropics-brazi…
Indeed, Brazil will be a south american economic power in the decades to come. Their "oil" is the amazon, the wood, then soy or wheat or cattle.
Of course the world will go to hell but I do think they will get their 15 mins of fame.
"savannah-grown variant". Rainforests don't grow in savannah due to the annual dry season. The Time Bolsonaro hit piece is in the wrong climatic zone.
https://ourworldindata.org/grapher/forest-area-net-change-rate?tab=char…
Try reading your links chap. Amazon rain forest it ain't. Easy mistake I guess, Brazil is a big place. "savannah, vegetation type that grows under hot, seasonally dry climatic conditions and is characterized by an open tree canopy (i.e., scattered trees) above a continuous tall grass understory"
Yep read the link, did you look at the map link?
Having said that I am sure it will not all turn to Savannah, so your point is made, but some will as it is within the right climatic region.
Also deforestation will naturally dry the environment so I think it is pretty safe comment from the Time team.
Genuine question: Why are the US and other central banks continuing to aggressively crank up interest rates? Surely it takes time for the increases already made to have an effect; aren't they just risking crashing their economies with these huge rises at every review?
Even with these rises, current interest rates are still highly stimulatory.
US dollar hegemony is part of the US strategy of full spectrum global dominance. You may not have noticed other aspects, like the War on Terror, invasions contrary to the Nuremburg Code of Afghanistan, Iraq, Libya, Syria and now Ukraine. Climate change global taxation policy. Biological warfare via COVID release and highly coercive genetic modification via vaccination, again contrary to the Nuremburg Code. Global taxation via big Pharma, the largest donor sector to the US political aristocracy. The FATCA reporting regime of who owns what worldwide. Global surveillance and control via Facebook, Microsoft, Apple, Google, Netflix.
Dollar interest rates down causes worldwide borrowing, USD interest rate rises cause everyone to desperately try to repay their loans or get their assets confiscated.
Does that help?
Roger, you missed a couple, the great reset and the fact they are all lizard people.
Ahh yes RT, that bastion of fair and unbiased reporting.
unlike CNN lol
You jest, but the trouble is the US is quite possibly collapsing, hence the lashing out to deceive the populace. Rome collapsed in eight years. I would far rather have a free and fair America as world leader than the Chinese. My hope is that the decent and sensible Americans can somehow restore order in their country.
Yeah but imagine if it is lizard people in control of everything. Where there's smoke, there's fire...and lizards
It looks like the US empire is coming to an end.
But they sure wont go down without a fight.
This is a good time to claim neutrality, but instead we got suckered into getting involved in this whole Ukrainian debacle.
Ah yes of course it's the US that has invaded Ukraine. The mainstream media is so easily fooled by american servicemen putting on a Russian accent.
They are behind the curve, the nature of explosive price increases in energy has gone on long enough to build in inflation "momentum" in wages etc. Their target is ~3% growth and this needs a period of demand destruction to achieve. Think of it as taking our medicine, except this medicine is leaches not anitbiotics lol.
There is a risk that inflation in the US hasn't peaked, and if the Fed get it wrong, they risk losing global power with the USD as the reserve currency if they don't tame this inflation.
So, its better for them to crash their economy (making a bunch of people unemployed) and bring about deflation than it is for inflation to get out of control and end their global dominance.
US Inflation last month was 0.1% (1.2% annualised) - this inflation period is on the fade unless OPEC reduce supply.
Fed rate rises are now nothing more than a costly attempt to prevent labour organising.
Yes but the Fed will have been spooked now that they called inflation transitory from their modelling, and now realising they don't understand what thy are doing as well as what they thought they were.
So from their perspective, its best to be absolutely certain that they have tamed inflation, than risk not doing enough and finding out that inflation has gone even higher (and risk losing the USD as the global reserve)
The next problem they face (in my opinion) will be:
1. Unemployment rises as interest rates rise to tame inflation.
2. The quantity of goods and services produced by the US economy shrinks as people lose jobs.
3. Biden administration will pump more fiscal spending into the economy to 'help' those who are unemployed.
4. The balance between money supply and productivity gets even worse as people get given money for producing nothing.
5. This causes inflation to be very sticky on the way down.
6. The Fed feels like it isn't winning the battle on inflation and continues to raise rates when it wouldn't have needed to if the fiscal response was limited/reduced.
Summary: the monetary and fiscal response we might see will be at odds with one another with no goal congruence making the situation far more painful than it needs/needed to be.
People generally forget that the US already functions with a huge number of people consigned to low-wage service jobs, undocumented labour and debt slavery over minor matters like trivial healthcare and has done so for decades. So there is not likely to be the same level of hand-wringing there over wide-scale deflation and unemployment that you might see here.
Yes I remember a business trip to San Hose about 15 years ago, we would arrive early to make the most of our time there and there were many 10+ employees asleep in their cars in the corporate car park.
This has been their reality for so long. They have no real social cohesion, and it shows in the way they talk, "have a nice day" in the most insincere tone and without any real intent is a staple farewell.
I returned to NZ for the social cohesion I remembered growing up to find the society very fractured. Perhaps this is progress, where people can be different and speak for themselves. I don't remember any people sleeping in cars growing up (I lived in the poor part of Wellington, full of immigrants).
They are staring down the barrel of stagflation which they want to avoid at all costs. How do you do that? manufacture a recession.
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