Here's our summary of key economic events overnight that affect New Zealand, with news of rising interest rates as economic activity wanes.
But first up today, there was another dairy auction earlier this morning and it was another positive one. Prices were up +2.5% in USD terms, up 2.4% in NZD terms. That is the second rise in a row totaling +5.9% after a string of four retreats that totaled -9.2% so we have recovered a bit more than half the falls since February. There were rises across the board led by the +5.0% rise in WMP.
But this has been a rare bright spot in today's lineup.
Not helping today are equity market pressures on more American regional bank stocks. This is coming ahead of tomorrow's Federal Reserve meeting, which is shaping up as a critical even for market confidence. A +25 bps rate rise is on the cards there taking their policy rate to 5.25% (and matching the RBNZ).
And the US retail impulse remains very weak. On a same-store basis, last week retail sales were up a mere +1.3% from year-ago levels and far less than accounts for price inflation. Excluding the pandemic they are back to 2017 levels when inflation was much lower, so the situation is quite weak.
In March, the number of job openings in the United States decreased by 384,000 to 9.6 mln the lowest level in almost two years and below the market's expectation of just under 9.8 mln, indicating that their labour market is cooling off faster now. We will know by how much when we get the non-farm payrolls data for April on Saturday, NZT. Analysts are expecting a modest rise in employment of +179,000 for the month which would be a two year low.
American factory order levels disappointed as well. New orders for manufactured goods increased by just +0.9% compared to the previous month, rebounding from two consecutive months of decline. However, the growth fell short of market expectations of +1.1% and followed a revised -1.1% drop in February. Year-on-year these orders are up just +1.3% which is pretty weak.
There was a sharpish fall in the Logistics Managers Index as well. It fell for a third consecutive month to hit another record low of 50.9, compared to 51.1 in March. The decline was mainly driven by a dip in inventory levels suggesting that firms continue to get closer to properly balancing their supply of goods. So this fall isn't all negative and indicates sensible inventory management.
China may be on holiday this week, but the economic recovery is setting them back on the air quality front. A clear blue sky, once a rare sight, is again becoming a luxury this spring as factories gear up production in a bid to recover from three years of pandemic disruptions. In March, 14 days of heavy pollution were recorded in Beijing, and the number of days with good air quality decreased by a quarter from the previous year, according to official Air Quality Index data.
After suffering at least two full years of ugly retreats, Hong Kong managed some sort of bounce-back in Q1-2023 with a +5.3% rise in GDP from the prior quarter. That puts the year to March +2.7% ahead or the equivalent prior period. But they are nowhere near back to 2018 and prior levels yet. Still, it is better than even more retreats.
EU inflation isn't abating. Their CPI rose marginally to 7.0% in April from March's 13-month low of 6.9%. The pressure remains on the ECB.
Meanwhile, German retail sales were particularly weak in March and dropping at a somewhat alarming rate, although some of this was due to price declines for energy.
The Reserve Bank of Australia unexpectedly raised their cash rate by +25 bps to 3.85% yesterday after maintaining it at 3.6% in April. This marks the 11th time the bank has raised rates in the past year, defying market predictions for a pause and pushing borrowing costs to their highest level since April 2012. The move was motivated by the bank's concern that the current inflation rate in Australia, which is at 7%, is still too high. Markets really struggle to understand the RBA's communication and forward guidance, frustrating many analysts. And the RBA is itself frustrated with Australia's poor productivity which is says is hampering economic recovery without inflation.
Today - this morning in fact - the RBNZ will release its Financial Stability review, and important part of their market guidance. Their view of credit conditions in a retreating housing market will be of interest, especially as we haven't seen this level of value decline in housing (and commercial property?) in many generations.
And the RBNZ FSR will come out at about the same time as the local March labour market data, so it will be a very busy morning of important local indicators. We are expecting employment levels to have risen, although the jobless rate might tick up to 3.5%.
The UST 10yr yield starts today at 3.43%, and back down a very sharp -15 bps from this time yesterday.
Wall Street is much weaker in its Tuesday trade, down -1.1% near the session end. Overnight, European markets were all down about -1.3%. Yesterday Tokyo closed up a minor +0.1%. Hong Kong was up +0.2% but Shanghai was still on its holiday break. It will be back tomorrow. Yesterday, the ASX200 ended down -0.9% while the NZX50 ended up +0.3%.
The price of gold will start today at US$2012/oz and up +US$30 from this time yesterday.
And oil prices have fallen -US$4 from yesterday to be just over US$71.50/bbl in the US. The international Brent price is just under US$75.50/bbl.
The Kiwi dollar is almost +½c firmer against the USD and now at 62.1 USc. Against the Aussie we are a tad firmer at 93.1 AUc. Against the euro we are up marginally at 56.4 euro cents. That means the TWI-5 is now at 70.1 and up +30 bps since this time yesterday.
The bitcoin price is firmer today, up to US$28,601 and +1.1% higher than this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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66 Comments
Newsflash 4 May
Fed Reserve REDUCES the fed funds rate 25bp
More to come but in the meantime, may the 4th be with you
Good luck with that prediction consolidation of US banks..it is the way ..plus plus
Wall Street Rattled by 20% Plunge in Pair of Banks: Markets Wrap
Investors poured >$50bn into money market funds last week as investors enter the sell-in-May-and-go-away period. Link
MMF managers place these deposits in the Fed's Reverse Repo facility and US Tbills.
Feds reverse repo is starving banks of deposits.
China's weakness - not reopening strength as was advertised - is already beginning to spillover to its closest partners like Japan, Australia, and South Korea. #globalrecession https://youtu.be/tH7y8omG7PM Link
Who was responsible for the strength in dairy prices rising 2.5 pct in usd terms. A. China B. Saudi C. Africa D. A mystery bidder
It was pretty broad-based regionally. Perhaps China's demand was more focussed on WMP, but overall demand came from all over.
Thanks David
I heard on the grapevine that the last auction (up 5pct approx) was ramped by Saudi demand and not China. So its good to see more broad based coming through
Today - this morning in fact - the RBNZ will release its Financial Stability review, and important part of their market guidance. Their view of credit conditions in a retreating housing market will be of interest, especially as we haven't seen this level of value decline in housing (and commercial property?) in many generations.
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
It's probably transitory.
We don't have a business lending framework. Try to get funding without a house.
This..... is so true.
We barely have a stock exchange either, as people just lazily park money in land speculation, our state sponsored investment vehicle.
"We haven't seen this level of value decline in housing in many generations."
No.
Neither have we seen the insane levels reached over the last 15 year, peaking in 2021. They were overstretched, as Sir John Key correctly told us, in 2007. Did we listen; politicians, the general populace, Central Bankers and bankers alike? No. So if we think the correction so far 'is it', I doubt it.
An economist that saw inflation coming...
https://rxicb4.n3cdn1.secureserver.net/wp-content/uploads/2021/09/The-W…
https://economicperspectives.co.uk/presentations/
I've always thought that the Monetary/Credit aggregates were important.
I agree that Central Bankers should have...." skin in the game ".... ( I kinda loath them ).
Not even John Key listened to 2007 John Key, in fairness. I voted for him on that and his identifying the need for action to improve productivity. Back then, there was time.
Massive lost opportunity. Was the easy money too attractive?
Our centre-right leaders firmly sit in the pockets of unscrupulous businesses. Notice how Seymour and Mark Mitchell are always up in arms for the slightest issues facing dairy store owners, tourism operators, hospitality businesses, etc. Can't get through an entire day without someone from ACT or National making a case for more government support to these hardworking people.
When was the last time they fronted the media representing the interests of gaming companies, aerospace companies, software exporters, etc.
Are dairies considered unscrupulous businesses? I've known my local dairy owner 15+ years, he moved here from Pakistan with his family, they live in the back of the dairy. Sent his kids to school here, very proud of his son who recently graduated from Auckland Uni in Engineering. He always asks how my mum is doing and so on. Sure, they're never going to be the backbone of our economy but someone has to go to bat for them considering the amount of crap they have to put up with for a meagre income and a better chance for their family.
There are some good apples in the basket and these businesses need to be protected but giving them a platform to lobby major parties on key issues is nonsense.
We want a party to focus on key issues holding back productivity, which when improved, should unlock better economic gains for our broader economy. Instead, we've got the likes of Luxon invested in the low hanging fruit.
You mean asking them to do something because they keep being attacked by people with machetes and hammers? I think that's a pretty reasonable request, hardly nonsense.
I've heard from someone who values those dairies that they're actually little goldmines when you look at the true figures.
I'm not interested in subsidising the sale of cigarettes and alcohol, and operators have said themselves without those products there's no viable corner shop business.
Yes, John Key. The unspoken hero of the property super bubble.
Thanks for dropping the Sir 😁
Haha, the RBA is worried about Australia's poor productivity?
NZ's is so poor we don't even know the meaning of the word.
Actually, that isn't true. We have productivity growth. But that growth isn't as strong as it should/could be
Disagree, David.
On what basis do you forecast/preclaim that? Back-casting, sans physics?
Usually it is in comparison to other countries, whom we're lagging.
The four main factors of economic growth are land, labor, capital, and entrepreneurship. Which one of these is limited?
No, they're not.
The factors are two: energy and materials/resources.
Land is a collector of energy.
Labour is a poor transmission of that energy, outgunned (by several orders of magnitude) by fossilised sunlight. It is mere noise in comparison.
Capital is debt-allocation, which is forward-betting on there being future energy (to do the work to future materials/resources).
Entrepreneurship? The capacity to think - yes, that is a factor. But you can only optimise use of available energy/resources; you can't create them out of nowhere.
PDK... In economics Land is the generic term for "all natural resources"
Capital is NOT debt allocation.
A reasonable definition might be "Capital is an investment, either in the form of money or machinery and equipment that is used to produce goods and services."
( money can be equity or borrowed )
Entrepreneurship/productivity is a BIG deal...... It is what has lifted us out of "caveman living" into what we have today.
reason I'm commenting on this is that the important narrative that you share with us ( humanity living in a sustainable relationship with Planet earth ) , can get watered down when u start redefining standard terms.
just my view...
Agree with Roelof PDK. His comment " humanity living in a sustainable relationship with Planet earth" hits the nail on the head. Too much detail on semantics is unproductive (irony not intended). Discussion towards how to achieve the required outcome is needed.
I note that a lot of your commentary is simply criticism of current discussions (I'm probably somewhat guilty too) rather than presenting a pragmatic solution to how we achieve what is required. Taking the sum of most if not all your feedback and we should all retreat to the stone age. But that is not a solution and you must know that? The one solution that MUST be included, however else we do it, is reduce the overall population. Do that and the other technology based solutions become possible. Ignore population size and we are well and truly screwed!
R's description of 'land' is woefully inadequate; Adam Smith level. Misses the energy flow angle completely, too. 'We've got that covered; move on' - is what I took from that; a refusal to acknowledge...
Physical Capital can indeed be machinery/plant, but that's energy-processed NNRs. It's a confusion of the first order to conflate or measure it with debt-issued money. As we are witnessing, this last decade-plus. Investment and return are other loose terms, vis-a-vis the remaining planet.
As to Stone Age; it wasn't. In physics/energy terms, it was the firewood age. And if it denuded too much land-area - think Sumer slash southern Iraq - they died out.
I don't advocate going back there; I do point out that the current paradigm will collapse and take us there (there will still be the same acres of land as the day before the collapse, too, just sayin - it will be energy and NNR curtailment which beat us).
Some of us, therefore, have attempted to live in a less draw-down style, a more energy-efficient style. But the mindlessness marches on, en masse. Economic growth, productivity of labour compared to the OECD....
Most of your comment is semantics, but yes, those in power who get to make the overall choices are making errors there which will have consequences.
Re your comment on the stone age, doesn't that add emphasis to my point re population? Too many people needed too much wood and cut down too many trees.
It certainly feels like everything is grinding to a halt, doesn't it? That's the interesting thing about big picture economics, you know the long term trends but week to week it's a toss up.
I'm pessimistic enough to be sticking with my "somewhere in June" prediction for when it properly turns to custard.
Chuckle: Big picture economics is an oxymoron.
Clue? Externalities...
:)
Good call NKT. Your timing should be close.
Whilst we focus locally on houses the US banking system seems to be the biggest risk right now. Some reports are actually putting numbers on the size of regional banks at risk.. kinda funny as thats inviting a run on those specific banks which presumably would spread to everything else like wildfire.
Could get interesting very quickly in this tech age.... if the US lets this get out of control even for a moment and they would need to drop external focus to sort things out at home ( historically most great empires have sìmilar endings).
Gotta shoot and restock the bunker... lol.
Get Cows and Chickens, grow Potatoes, fixed it for you... Steak eggs and chips......... slow cooked beef... mmmmmmm productive land is a bonus as things get tough. Vege garden etc. And for NZ things are going to get real tough as there is no fix coming for that external trade account
I have a vision where during the televised political debates the host just keeps hammering them with that question.
How will your party fix the trade deficit that we're in now?
Instead it will be "now tell me Chris 1 and Chris 2 - what do you eat for breakfast?"
I do not see tourism saving our bacon. Or low end buy-a-visa education.... Kiwi is going to get SMASHED.
Not against STG.
Britain Is Dead - is this NZ's future?
You've been pushing that smashed kiwi barrow around wherever you go.
It's as tired as a tradies second-hand ute.
25% devaluation in NZ dollar might do the trick
In the areas I work in, it's been feeling more and more GFC to me. Main thing being the number of applicants per decent job shooting up [though it will be interesting to see what Seek publishes, whenever they next do, as this is my gut feel based on a small sample], whilst many companies that were formerly hiring are now either not hiring, or actively shedding staff. With a whole lot of people rolling onto higher interest rates over the rest of the year, I expect to see a sharp rise in both job applicants from those who will attempt to hold, and house listings from those who capitulate.
There are a lot of recruitment freezes and reduction by attrition going on behind the scenes.
To add to the likely carnage we opened the immigration tap up full blast again.
So the government can hold off on pumping immigration again then?
Doubt. No major party in NZ has any other economic plan beyond high level immigration and supporting high house prices and rents and low wages. Entitlement mentality is too entrenched, and long-termism too absent.
Hey! It's what the proletariat demand of their politicians?
Entitlement is indeed a major issue.
And comes in many forms, on many levels.
Been a growing malaise since the 50's.
End of September/early October is my pick for SHTF.
It wouldn't surprise me if we see rate cuts by then regardless of inflation numbers to try and give the rats more time to get off the ship.
Is there some event or thing happening in Sept/Oct that might cause some speed wobbles, maybe at a political level?
Actually basing it around mortgages. Sep 21 is when Mortgage rates bottomed out and house pricess peaked, then the inflation started.
When those two year rates come up this sep, I expect some issues.
But Chippy has already gone to have a chat with the King
Big news on the upcoming election… Meka defecting to maori party.
Your original comment said "Megan", and I immediately thought it was Megan Woods. I almost had to pinch myself.
Yeah sorry about that but that would have been far more entertaining...
Even more of a economy killer is the start of a maori defection to the Maori radical party.
Mahuta has been quite...
https://www.newsroom.co.nz/minister-meka-whaitiri-quits-govt-to-become-…
If this radical party has the power broker status you will see a full blown depression? Mentally and fiscally.
If the job market gets bad enough National will get in and Te Paati Maori will be irrelevant once again.
this guy is worth a read
https://breakingviewsnz.blogspot.com/2022/11/bruce-moon-reflections-of-…
The ‘several generations’ quote should be giving us all pause for thought. ‘Unprecedented’ is another one that springs to mind. The current political climate is ripe for some party to come up with a vision for our country to lead us forward into the future with some plan that incorporates a fair distribution of both resource consumption by the masses and fair distribution of paying taxes to run, maintain and equitably develop our country. What we will probably get is a ‘wait and see’ approach where each piece of the puzzle is monitored into oblivion. House prices will drop to 3.5 x median income if not lower. A good thing mostly. The rich will continue to gain untaxed profits knowing no current political party that has any chance of governance will challenge them and the population at large will continue to muddle along wondering why education, health care and housing the poor remain permanently underfunded.
The US banks are the greatest concern for me currently. We have already seen how things go down like a pack of cards when their banks collapse. The bigger banks can only prop up the smaller ones for so long and they are trying desperately to stop the ripple effect.
I've been pretty hawkish on inflation but I think leading Reserve Banks should just be a little more cautious from here to only exert that deflationary pressure that is required to meet their inflation path towards target. "Transitory inflation" was a mistake, let's just set appropriate rates and not try to second guess the effect of rising rates.
Movements in gold and silver have been fascinating in past 24 hours / 48 hours. As well as the miners.
Charts are looking particularly interesting. All slipping under the radar of most.
Gold to Kiwi pesos and even USD. AUD sneaking back to ATHs.
RBNZ - house prices still overvalued and could fall further
https://www.nzherald.co.nz/business/reserve-bank-house-prices-remain-ov…
I see Meka Whaitiri has joined the Maori Party. Is she the beginning of an exodus of Maori Labour Party MP’s to the more outspoken Te Pati Maori? Maybe that is too long a bow to draw. I think at least the Maori Party does not fear the untaxed wealthy, their lobby groups and vested interests in the 2 current major parties who will keep the status quo with absolutely no threat to the current taxation set up.
Te Pati Maori suffers from the small party syndrome of gaining 5% before becoming credible in our political structure. Political muscle via gaining all or most of the Maori electoral seats plus 5% from the electorate might get them on to the top table where a more realistic conversation can occur about equality in NZ. That conversation is certainly not happening anywhere else that I can see.
At least they could if they wish to do so could propose a radical new tax structure where the untaxed billions can be funnelled into operating, maintaining and growing this country in a fairer and more equitable way. This funding seems the only source of new cash available apart some unforseen lift in national productivity. Otherwise it is BAU and we stay stuck where we are.
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