Here's our summary of key economic events overnight that affect New Zealand, with news inflation's bite is rising in some places, but easing in others.
The New York Fed released its national survey of inflation expectations today which shows little change at the short-, medium-, and long-term horizons. Similarly, labour and household finance expectations have been mostly stable, with one exception: Households income growth expectations dropped substantially in January even if they remain above their pre-pandemic levels.
This comes a day ahead of the US CPI data for January, which is widely expected to show a 6.2% inflation rate, and the December-to-January rate also running at an annualised +6% rate. There seems little financial market anxiety ahead of this release, so these levels are all priced in.
Singapore said its economy expanded by +3.6% in 2022 and is expected to expand by a lesser amount in 2023. In fact, their expansion tailed off in Q4-2022 to a +2.1% annualised rate which was lower than expected.
The Indian central bank has a policy target range for inflation of "2% to 6%" in the medium term, some very generously wide wiggle-room. But January's CPI came in above that at 6.5%, up from 5.7% in December and its highest in three months.
The EU is looking ahead with an improved view. It says it will escape recession and 2023 growth will now be +3.5%, and improvement from their "Autumn" (September) forecasts. They also say inflation there has peaked already and is likely on the way down now.
Australia is being welcomed back by Beijing is further steps to unfreeze their relationship. It will probably culminate in a visit to Beijing by Prime Minister Albanese later in the year. Chinese sanctions on their beef and timber trade are getting early relief.
We should also note that bank reporting season is about to kick off in Australia (half year results to December 2022 from CBA, for example), and expectations are "high".
Also reporting are Aussie retailers, and it is becoming clear that consumers are more restrained as interest rates rise, and with two or three more +25 bps RBA hikes to come (taking their cash rate target close to 4%), the pressure is on in their retailing sector.
The UST 10yr yield starts the week at 3.72% and dipping -2 bps from yesterday, but essentially holding on to all of last week's big rise. The UST 2-10 rate curve is more inverted at -82 bps. And their 1-5 curve inversion is little-changed at -98 bps. Their 30 day-10yr curve is also little-changed at -88 bps. The Australian ten year bond is down -4 bps at 3.76%. The China Govt ten year bond is unchanged at 2.92%. The New Zealand Govt ten year is starting today at 4.32% and up another strong +10 bps from yesterday.
Wall Street has started its Monday session with building gains. The S&P500 is up +1.0% near the close. Overnight, European markets were all up as well, led by Paris (+1.1) and trailed by Frankfurt (+0.6%). Yesterday Tokyo finished down -0.9%. Hong Kong ended down -0.1%. But Shanghai ended its Monday session up +0.7%. The ASX200 ended down -0.2% and the NZX50 shed -0.9%, led by some majors.
The price of gold will open today at US$1852/oz and down -US$14 from this time yesterday.
And oil prices start today up +50 USc at just over US$80.50/bbl in the US. The international Brent price is now just over US$86.50/bbl.
The Kiwi dollar is up +½c today, now at 63.6 USc. Against the Australian dollar we are little-changed at 91.3 AUc. Against the euro we are firmer at 59.3 euro cents. That all means our TWI-5 starts today at 71.1 and up +50 bps from yesterday.
The bitcoin price is now at US$21,486 US$22,025 and down -2.4% from this time yesterday. Volatility over the past 24 hours has remained modest at +/- 1.4%.
We trust you remain safe during Cyclone Gabrielle's landfall. Our Auckland office is closed and without power so some data updates will be delayed today. There will be no video or podcast versions today.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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52 Comments
The EU is looking ahead with an improved view. It says it will escape recession and 2023 growth will now be +3.5%, and improvement from their "Autumn" (September) forecasts. They also say inflation there has peaked already and is likely on the way down now. Hmmm..
Germany winning again: Betlin has issued bailouts to combat rising energy costs to the tune of €270bn. Link
This speaks volumes, drastically cutting gas consumption is masking major problems: The total consumption in the Netherlands amounted to 31bn cubic meters in 2022, the lowest level since 1972. Link
US Cpi figures tonight. They include a calculation for Owners Equivalent Rent to show the effect of house prices. Maybe we should use that instead of the more volatile new home construction and rental prices
Retail sales tomorrow night.
Fingers crossed
The Owners Equivalent Rent component of US CPI cops a lot of criticism - seen as arbitrary. Not sure it would be an improvement if introduced here.
Probably because the method (ask owners what they think it would cost to rent their house) is nonsense, not sure how people would feel about it if it was properly calculated off a decent statistical index of the rental market.
from the 1st link. Liked this comment "And Europe has avoided a recession. What do you call subsidizing an economy to avoid a recession"
1 year swaps at a new high of 5.49%. Not looking like inflation is going to be killed in 2023.
No the wolf is through the door and still very hungry.No doubt about that, every household would confirm. Next week the OCR will be required to be lifted by 0.75% at the least. But it won’t be. The undeclared “political” consideration will dampen it down to 0.50% and hope for the best.
I'll go out on a limb and predict 60 basis points. Signaling a new approach to markets that they are driven by data not traditional benchmarks. Followed up by 40 basis points then 20 to settle at 5.45. We may see smaller 10 basis point moves up or down throughout the next 18 months to keep the markets guessing and engender more confidence in the banks hawkishness.
I agree, I can see only a meager 50 bps increase this time. A 75 bps increase is what is needed, but Orr will only deliver a 50 bps instead.
I can see 0.25 is possible if AO takes a wait and see approach. 0.5 probable
Announcement is more than one week away
Indeed. Cost escalation is inbuilt, given our infrastructure demands.
Speaking to The Front Page podcast amid the onslaught of ex-cyclone Gabrielle on the North Island, NZ Herald science and environmental writer Jamie Morton says there are three key areas we need to focus on to prepare our cities for the future.
The first, he says, relates to the effectiveness of our stormwater systems.
“Our water network infrastructure is woefully unprepared for climate change,” Morton says.
“We’re having to look at making $120- to $180-billion worth of upgrades just to bring them up to scratch to deal with the pressure and demand that we’re going to get with increasing extreme rainfall events.” Link
As questioned here in another column. NZ has undertaken worthy and well intentioned measures to combat climate change but should not the priority now be defence against what is being imposed on the globe by the huge industrial powers and for which NZ’s contribution is negligible in comparison.
Not sure that you can argue that the measures are 'worthy', in light of your final comment Foxy. But I do accept they are 'well intentioned'. I think they are more virtue signalling. And James Shaw has been forced to back track on sustainable fuels.
I would have preferred NZ to have undertaken a progressive plan to build the economy in a way that developed alternatives. Instead what they did was just clumsy and if they had had any clues, they would have realised they'd never work, but did impose a cost on every one. Our climate change plan was pure BS. A deeper consideration of the Greens position would make anyone realise the only way they could succeed was if they disinvented the wheel.
Agreed. Often on here, it is worthy to include an “aside” to please the strident ones. Also satisfies my cynical nature.
So called "sustainable fuels" are of very marginal environmental benefit, especially considering we were going to be importing them. Unless they can be made locally using waste of some sort Shaw has made the right call.
Looking at the carnage in my block of 30 year pines this morning, the stupidest thing in our climate policy is imagining that planting pines is any sort of permanent carbon store.
We’re having to look at making $120- to $180-billion
Who's going to pay for that? Low-wage migrants employed in tourism and hospitality? Chippy is putting his faith on a tourism-led recovery.
No fresh ideas from the opposition either. Luxon has made up his mind to further suppress productivity in an attempt to woo voters on the right. National is swearing to replace median wage requirements on work/residence visas with industry averages.
The industry average wage for hospitality currently sits $24.5/hour, $5 lower than median wage.
You talk to tourists, NZ has now become a luxury destination as we are so expensive compared to most other countries now, we are getting out competed by Asia, OZ even the Islands are comparable to NZ now. Can't really see a massive tourism led recovery.
You talk to tourists, NZ has now become a luxury destination as we are so expensive compared to most other countries now, we are getting out competed by Asia, OZ even the Islands are comparable to NZ now. Can't really see a massive tourism led recovery.
NZ does seem to be a bit top heavy in luxury tourism. But as you say, other countries cater for those people as well. At least the backpacker properties can be put to use for something else.
I ran some numbers based on MBIE's tourism satellite account 2019. Even while NZ was catering to peak arrival of tourists, the gross value added (GDP) per worker contributed by the sector was 33% lower than the rest of the economy.
So, a "tourism-led recovery" would require plenty more workers only to produce less economic value than the rest of the economy, i.e., drag down NZ's productivity further and makes the economy worse off.
Love your work Advisor. You're unlikely to get a gig with KPMG or BCG though. Narrative's all wrong.
Thanks. You'd be sad to know I began my career in consulting with a large firm.
Speaking of incorrect narratives, check your facts around NZ being a top-heavy travel destination because MBIE suggest only about a-fifth of international tourists in NZ were high spenders up until a few years ago.
I'll bite. How much additional ancillary spending to tourists do in NZ outside of tourism centric businesses? They stay in a hotel, go Bungy jumping, etc but then they will also spend export dollars in non tourism businesses also.
An MBIE report suggests only 21% of NZ's tourists were classed as high spenders. Moreover, they spent more per day but only stuck around in NZ for an average of 5 days, compared to 20 days for other visitors.
Higher-spending visitors in the IVS - Tourism Evidence and Insights Centre (mbie.govt.nz)
As per this release, the indirect economic value added per worker supporting tourism is roughly the same as the output per worker in tourism (70-72k).
..and if you offset outward tourism then the benefits of 'tourism' as an industry is possibly nil?
Thanks. You'd be sad to know I began my career in consulting with a large firm.
Did you see this intetrview doing the rounds?
The theory is simple. When organisations face challenges, they bring in high-IQ, high-octane outsiders with specialist skills and new ideas. Although the outsiders cost a lot, they don’t stay long and they more than pay their way by improving efficiency. No one ever got fired for hiring McKinsey. The reality has long been more complex. What do these outsiders — strategy consultants, such as the ‘Big Three’ of McKinsey, Bain and Boston Consulting Group — really know? Critics say their ideas are often ones that the hiring organisation has already thought of. There are some complete disasters, such as McKinsey’s work promoting opioids. Yet consultants, supposedly brought in for short projects, never seem to leave.
https://www.ft.com/content/fb1254dd-a011-44cc-bde9-a434e5a09fb4?sharety…
Critics say their ideas are often ones that the hiring organisation has already thought of
Not all consultants are cut from the same cloth. Many around with strong subject matter expertise providing solid solutions to technical problems facing clients.
Then there are management consultants/change managers, etc. that corporations and government agencies use for backside-covering against stakeholders knocking on their doors for when those in-charge fail to deliver.
In the eyes of the layperson, a structural engineer conducting geotechnical investigations for Kaikoura District Council is as much a consulting engagement as well-suited dreamers coming with catchphrases for Jacinda's daily Covid announcements for millions of dollars.
It depends if you believe that exports are more important than the local economy. Personally I don't but many here do.
I find your statement quite unbelievable!
Two businesses we help direct in are in the process of putting up prices. Firstly to catch up with Covid losses, secondly to catch up with recent increases in expenses, and thirdly to allow for the many future increases coming up this year. Not a good year for a government to be having an election. Let's see what their price rises are! The good news is that everyone else seems to be getting more money so they should be able to pay for our increases.
Yes, there is inertia and then momentum in raising prices. I can't see inflation falling as quickly as some are predicting. It will be years rather than months before we are back under 3%.
Brexit hit UK growth by £29bn, says Bank of England rate setter
At least the UK doesn't have to pay their share of all the EU gas subsidies for the spendthrift countries of Europe. Among other expenses the same nations continually generate. Historically, "a small island nation, off the coast of Europe." Not a big deal having gone back to being that.
Not a big deal having gone back to being that....own goal if you ask me, especially looking at the power prices currently in the UK.
Biggest act of self harm any nation state has voluntarily entered into by any objective analysis.
The chickens are coming home to roost - almost every day a new report comes out illustrating what an economic disaster Brexit has been for the UK.
Wall Street has started its Monday session with building gains. The S&P500 is up +1.0% near the close.
LOL - market makers protecting their exposure?
Investors paying up to protect themselves in case stock mkt sinks: Contracts protecting against 10% decline in S&P 500 ETF in next 30d cost 1.7 times more than options that profit from 10% rally, BBG reports. Price relationship, known as put-to-call skew, at highest since Aug2022 Link
Good for a chuckle about Western society and asset markets. Stock prices since Nov 2001:
Apple: +45,719%
Amazon: +40,719%
Monster Beverages: +79,000%
I think you have the start date wrong in your post. Or am I missing something?
Oops. Corrected.
??? Don't understand.
APPL (Nasdaq)
Nov-21 = US$151
Feb-23 = US$154
AMZN (Nasdaq)
Nov-21 = US$169
Feb-23 = US$100
MNST (Nasdaq)
Nov-21 = US$92
Feb-23 = US$104
OK, I see you have corrected to 2001.
But all three were just starting out, none dominant in 2001. Why is 2001 relevant for the 2023 versions of these companies?
September 11 attacks as a starting point? *Shrug*.
But all three were just starting out, none dominant in 2001. Why is 2001 relevant for the 2023 versions of these companies?
The main point is that an energy drink company has outperformed arguably one of the most innovative companies ever and another company that has transformed how we buy things. I thought it was a little amusing.
Inflation in the US is cooling. The world will follow.
The monster will be back in no time. We have a war to fight, to the last Ukrainian.
Hard to imagine what might end it. Regime change, one or two. In the meantime along with covid the fighting must surely have reduced pressure on Russian unemployment, the prisons and asylums and supplemented too, by a high level of emigration.
120 to 180 billion is an eye watering amount of cash. Spread over decades probably affordable. Unfortunately these extreme rainfall events are here now and concentrating on our most populous areas in the north. Re-locating pepple from the m9st flood prone areas is an uncosted number at this time just to give us breathing space to begin the infrastruct8re rebuild and spend. Looks like the affected people are on their own politically at the moment. I wonder where the accountability for allowing the more recent building on flood plains will ultimately rest. Local authorities (ratepayers) and/or developers?
Yup, $24k-36k per inhabitant (@ 5,000,000 popn).
Good way of looking at it. Sounds more affordable over the medium term.
Existing lending (RBNZ C32) on residential property alone increased from $205b to $340b between 2015 and 2022.
Imagine how much borrowing head room we would have had if we kept the property market under control?
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