Here's our summary of key economic events overnight that affect New Zealand, with news that stresses are building in China and so far they aren't doing much to effectively turn them around.
But first, aided by sharply retreating energy costs, annual inflation ran at 4.9% in April in the US, lower than the 5.0% in March and the 5.0% rate expected. And very much lower than the 8.3% rate a year ago. That is the first time in two years it has been below 5%. Progress in taming inflation might seem slow, but actually they are making steady progress. However, the March to April annualised rate is 6.1% unadjusted for seasonal effects, or 4.8% adjusted for seasonal effects. So they might find it tricky to make progress from here. The next stage will require inflation expectations to recede. There are signs of that, but these signs are not solid yet.
Because the data is broadly in line with what analysts had expected, there has been only muted market reaction - it has been priced in. But that assumes the Fed is less likely to go hard on its rate increase track. The 5.25% policy rate is now not expected to rise from here. Maybe a brave market expectation, but than is what is priced in.
American mortgage applications jumped 6.3% in the first week of May, the biggest rise in nearly two months and rebounding from a -1.2% fall in the prior week. But that is now three of the last six weeks recording notable rises, seven of the last twelve weeks. Helping is a slow retreat in benchmark mortgage rates. The declines are tiny, but sentiment is helped when they don't go up.
US monthly Budget Statement revealed a smaller surplus in April that the prior year. April is just one of the two months in the year when receipts traditionally exceed payments. But this year their deficit is rising compared to the prior year, up to -$1.9 tln over the past twelve months. But this is not because spending is rising. In fact Federal expenditures are -16.8% lower in April that the same month a year ago. It is the severe clamp on tax receipts that is swelling this deficit. They were -26.0% lower than a year ago. Republican intransigence is killing any current chance of sorting this out. These are huge inhibitions; that -26% April reduction in tax receipts is a -US$225 bln shortfall, in just one month. Even the US can't sustain that.
In China, they are trying to stop the relentless decline in domestic food production. Their way is to bring new land back into production, and force farmers to grow strategic crops, rather than economically sustainable ones on that land. It is an aggressive national priority, driven by Beijing directives. It has all the hallmarks of being successful only in the short-term and disastrous long-term as soils exhaust themselves.
Meanwhile, China's monetary policies are reaching their limits and they show signs of turning conservative. Debt is still rising from what are already extreme levels, and when matched with their current tepid consumption, they have some serious pressures and concerns ahead.
In Turkey, we are watching their presidential election campaign and the vote this weekend. It could be close if it remains a fair contest.
Germany also released inflation data overnight coming in at 7.2%. But this is really just a confirmation of their earlier 'flash' result for April, not fresh data.
At the latest G7 Finance Ministers meeting, they called for tightening oversight of cryptocurrency transactions between individuals, in a bid to close loopholes for money laundering and sanctions evasion. These rules are controlled by the international Financial Action Task Force and the G7 wants regulatory standards to curb money laundering and terrorist financing using cryptocurrencies which they claim is rife.
The UST 10yr yield starts today at 3.45%, and down -7 bps from yesterday. Their key 2-10 yield curve is less inverted at -46 bps. Their 1-5 curve is little-changed by -137 bps. But their 3 mth-10yr curve is more even inverted than yesterday, now by -209 bps. The Australian 10 year bond yield is now at 3.40% and down -6 bps from yesterday. The China 10 year bond rate is down a sharp -4 bps at 2.73%. This is quite a drop for them, taking this rate back to November 2022 levels. And the NZ Government 10 year bond rate is now at 4.21% and unchanged from this time yesterday.
On Wall Street, the S&P500 is up +0.2% in its Wednesday session. Progress on the inflation front is helping, especially as markets assess how the Fed might react. Overnight European markets were all down -0.4%. Yesterday Tokyo ended down -0.4%. Hong Kong ended its Wednesday session down -0.5% and Shanghai went further, dropping -1.2% on the day and wiping out all the prior day's gain. The ASX200 closed Wednesday down -0.1% while the NZX50 bucked all trends and ended up +0.8% on the day.
The price of gold will start today at US$2031/oz and down -US$4 from this time yesterday.
And oil prices have fallen -US$1 from yesterday to be just over US$72.50/bbl in the US. The international Brent price is just under US$76/bbl. These are their lowest levels since December 2021.
The Kiwi dollar is firmer against the USD and now at 63.5 USc. That is a +3.5% appreciation in just two weeks. Against the Aussie we are up over 94 AUc. Against the euro we are marginally firmer at 57.9 euro cents. That means the TWI-5 is now at 71.2 and a one month high. We should also note that the Chinese yuan is weakening, now at a three month low against the USD which is also a bit weaker. Against the NZD the yuan is at a six month low.
The bitcoin price is lower today, now at US$27,330 and down -1.1% from this time yesterday. At one point however it was down -3.0%. Volatility over the past 24 hours has been moderate at just over +/- 2.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
66 Comments
Para’s 6 & 7 regarding China are greatly concerning. A huge country creating a huge mess it would seem. History depicts such scenarios as fermentation of civil unrest and particularly if hunger is on the prowl. The regime’s greatest threat and fear has always been that of mass uprisings. Similar regimes, from Cromwell to Khomeini, have resorted to quelling domestic unrest by creating warfare over the border(s.) This question mark over China is getting bigger & bigger every day especially with a huge military force, all dressed up with nowhere to go.
Yep. It makes me giggle when people talk about New Zealand being a relative safe haven if WW3 breaks out. A small island with no real military power in the Pacific that produces a food surplus. A massive neighbour with a starving population with ambitions for dominating the Pacific and a huge military force. NZ is not a sitting duck at all.
My understanding from old letters of my grandparents is that it was well known during WW2 that the Japanese invasion plans for NZ considered us the obvious foodbowl of the South Pacific.
Let's hope Aussie doesn't start demanding we cough up our fair share of their naval defence spending.
We'd have to sell a lot of milk and meat to be able to contribute towards their $400b nuclear submarine programme.
When WW1 broke out NZ came to the party by commissioning a battle cruiser HMS New Zealand. Reputedly at Jutland she fired more ammunition than any other British vessel. Comparatively, in today’s world New Zealand, would need to do ditto for one of Australia’s nuke powered subs.
Reality strikes again: Australian Trade Ministry is travelling to China seeking the unimpeded resumption of Australian exports to China in all sectors. Link
Nah, Robo just "Found" $4b he must have just forgotten where he put the rest of it.
Just like his Dad.
The tyranny of distance works both for and against us.
Those huge stretches of water can hide a lot of subs and even surface ships. And that's to say nothing about how many guided missiles can be quickly and easily hidden around our shores. It would be brave and fearless (and probably insane) military commander that tried to take NZ by force.
Except that we do not currently have those capabilities and it takes considerable time to build them, and is unlikely to be accomplished without some level of public awareness.
Our government/s seem resistant to acknowledge a strategic need for protecting ourselves from invasion. Foolishly I suggest, as there is an implicit expectation that Aussie will rise to our defence. But the reality is Chinese forces will be much easier to attack after they've invaded rather than before. And the Aussie navy is not equipped or sized to take out an invasion fleet, and i'm not sure the US is prepared for that either.
The Argentinian old Exocets took out HMS Sheffield & others. Today satellite guidance, carriers & subs a new dimension. All the way under said surveillance, past Japan/Okinawa, Taiwan, Hawaii, Guam, Midway, Fiji plus some not known. Spanish Armada had a better chance of .surprise.
Don't forget the 200,000 guerilla snipers (AKA hunters) we have in reserve like Finland did during WWII.
Yes that will have an impact, especially those with weapons that can reach fair distances. I have often debated with friends across the services that with a gutted defence force the only really viable strategy left to us is to train our forces, especially the army, in small unit, dispersed, high mobility guerrilla type tactics. Make any invading force pay very dearly for every metre of ground they take, and the whole invasion a war of attrition. Technology will make it difficult but not impossible, and we have plenty of interesting terrain the use as a weapon.
Only if our government lets us keep our weapons.
I'd say you're right there Murray.
Most (big game) hunting rifles have effective ranges of 300m regardless of calibre, with the bigger calibres effective to two-three times that distance (even more if you disregard ethical kills and just go for casualties).
The problem is under the Geneva Convention (I believe) guerilla forces (i.e. ununiformed irregular forces) can be treated as saboteurs or spies and don't have the protection of the Convention. Whether China would care either way is moot.
If the first casualty of war is said to be the truth, then the Geneva convention runs a close second.
We're only a food bowl if the imported fertilizer keeps flowing. And we're not a grain or wheat food bowl. NZ food exports need a complex system of industrial processes and coolstore's that need to keep operating if anyone is to take advantage of it.
In wartime unless China wants some more logs they're going to be disappointed with what we've got to offer.
China runs out of food and fuel within 3 months anyway in 99% of wartime scenarios. They wont get past their neighbors or civil unrest.
I'm not sure Putin would sit idle on the sidelines while US puts in place a marine blockade of China.
Agree Foxglove. If history has taught “societies” any lessons, it’s that strategic directives from authoritarian governments are statistically likely to lead to greater long term negatives! Taking NZ’s recent disastrous anti-democratic mandates, severe lockdowns, social division and multiple disruptive state failures and surprise, surprise, metrics by most standards have regressed. And that’s in five short years. Chinese dictators can kick policies of such gigantic consequences over decades. The bigger the stupidities, the more milk gets spilt! God help us China really muscles up....
We are about to depart from a visit to the USA location where we lived 20 years ago. It’s been markedly different afraid to say. The community has hardened and there is impatience & intolerance now that we scarcely ever used to encounter. Our old neighbours & friends recognise this candidly and blame it on the GFC but mostly covid, the associated fear, lockdowns and destitution it caused. You can too sense an increased latent fear, as the shootings occur almost daily, nationwide. Never knew our old neighbours had a gun (lawfully of course) but we do now.
86 guns deaths a day...but the right to bear arms aka AR-14 (100 rounds a minute with a bump stock which is legal), but we can send them thoughts and prayers.
At least the majority of NZ have common sense when it comes to gun laws and support the action taken.
Are you blind! The draconian gun laws bought in by this government have in no way made New Zealanders safer! All it has done is penalised LEGAL gun owners! The crims still do as they please! You are the master of stupid, ill informed comments Baywatch!
Baywatch may well be referring to our gun laws that allow sporting firearms without too much hindrance, but not the military type.
Though with respect to recent an upcoming changes I agree that they are a nonsense. Ill thought out, unnecessary and will achieve nothing but inconvenience and cost to the law biding.
Opportunist new laws by Jacinda in order to look righteous after Christchurch - and nothing more.
Praying for you DD62 and Rastus
Well that takes a load off my mind!
God will be less help than a semi automatic if law breaks down or the Chinese get uppity.
After the Napier floods the farmers had to put up roadblocks and many rode with a 22 in their utes. Why? not for kisses and cuddles, its because of the losers in NZ who tried to steal and loot.
Meanwhile the woke in WGTN told the gangs to "Cut it out"
Hope for the best but plan for the worst. The Chinese would have to protect a long supply chain to take NZ, it will not happen, their country will be glowing from radiation long before that occurs.
Best burn I've read for a decade !!!
draconian gun laws ....did you get that out of the NRA playbook?
My guess is you are not a firearms license holder. This would account for your ignorance of our gun laws.
Actually I consider the NRA a bunch of nut-jobs! US gun laws are appalling and I have no idea how they can remove guns from their society. I cannot see any reason for the public to have assault weapons. I am more than happy for them to be banned in NZ, with the odd exception for pest control. However our current laws went way to far with the removal of all sorts of guns that posed no threat to society in the right hands. I reiterate, all these laws have done is penalise LEGAL, law abiding gun owners and has not decreased gun crimes AT ALL!
This all came about because a deranged nut-job managed to gain a gun license and weapons because the POLICE totally failed to do their job! Unfortunately this has been swept under the carpet!
I am a firearms license holder and endorse Baywatch 110%.
Well bully for you!
Ditto - I have firearms and the new laws affected me not one bit. The 308 22 and shotgun still serve their intended purposes.
I totally agree DD62. The gun buy back scheme has cost taxpayers and the result is even more guns are in the hands of gangs. The Govt punished the wrong people.
Watch out - a shadow.
And we can thank China for covid.
I think it’s societal impact is underestimated. It’s had a really bad effect on many young people. My 15 year daughter has developed a mild form of long covid and anxiety. From what I can see mental health issues have increased dramatically amongst young people.
Not to mention the divisiveness
btw it’s long been a minority view, as so many have sucked up to China, but a small number of us have been China cynics and critics for a long time
Luckily, Chippy has just organised a Free Trade Agreement with Charlie with the New Hat. So we can go back to the old days with our imports and exports. I hope they still make Wolseleys.
The author Eric L Harry wrote an excellent fictional novel (title Invasion) back in 2000 based on China starting World War 3. A man way ahead of his time! This is an excellent read and well worth finding. Could well be a portent of things to come!
Ken Follett is another author who did a great book on a similar scenario...
It may come as a surprise to you but the vast majority of Chinese would never support invading other countries. (Attack China though, and they'll fight to the death irrespective of who leads.)
Invading other country would likely be the match that lit the fuse to the the bomb that is widespread resentment of the CCP. The CCP's hold on power is actually tenuous and based upon not upsetting the bulk of the Chinese. I.e. they are tolerated but not loved by many. Case in point? Look at how fast the draconian covid policies fell once the groundswell against them became apparent. Even the oldies who were most at risk came out against it. Didn't hear about the groundswell? Not surprising. Western media doesn't really understand China.
Eric L Harry knows nothing about Chinese cultures. Quote him at your peril.
That depends on the definition of invade as opposed to reclaim. The Yuan dynasty stretched west as far as Ukraine. Mongolia was part of China until the early 20th century. Tibet didn’t last much past 1949. Russia is currently “reclaiming” the old imperial empire territory and/or that of the Soviet Union.
Check our history regarding the Russian invasion scare of the 1870s. Our coastlines are littered with old fortifications from that one. Probably started by the concrete manufacturers association. What a silly joke that one was.
My Chinese friend says nobody needs to be scared of the Chinese armed forces. They only exist to corruptly extract money off people. They have been moaning about Taiwan since 1948, and are still unable to invade them. Tibet only succumbed because they had literally no defences against them, and also because there was no water between Tibet and China.
You make it sound as thought NZ acted in isolation. If we had no restrictions I'm not sure it would have made any difference to our movements as the rest of the world was locked down.
Personally I enjoyed the couple of years in my life tourist free.
The next stage will require inflation expectations to recede.
We will next see Saturn from Earth when the sun completes its orbit of Mercury.
Doesn’t us inflation measures exclude food and energy, therefore vastly understated
That depends on which index you quote. There are many.
US Federal deficit worsens
4 US Banks Crash in Two Months; Banking Crisis Explained - The Hard Iron Financial Fist
And that means that in just two months, since the beginning of March, the FDIC’s deposit insurance fund has paid out around $35 billion to save Silicon Valley Bank, Signature Bank and now First Republic Bank.
Sounds like a huge number and it is.
However, it is important to strip out the "investment" elements. And to recognize that such spending has the inevitable multiplier effects across the whole economy. I'd also add that the US military is something akin to a first-line penal institution. Some great papers have been written about the effects of this spending on the US and global economy.
Would love to read more about this - any recommendations?
This is a sobering read. Thanks, Audaxes.
Did stuff break April sales embargo. Pulled article?
REINZ data out now - 17.5% fall from peak on their HPI measure. Worst April sales volume since the early 1990's (barring the covid year). The crash continues....
The HPI measure has turned into a Spruikers noose. It was a great thing to gloat about on the ride up. Its just as accurate a measure on the ride down too!
Still think we're collectively at the denial stage and far from the anger stage. I think the gubmint, banks, and boomers in particular would be happy if we don't go any further.
The credit provisions of the big four are growing. Spruikers are completely in denial regarding this fact. News that a Waiheke developer of 2.5-4.5 mil sections now trying to sell all the remaining sections in a single lot is a white flag..... now just wants to get out alive to fight another day. Anyone else on Waiheke trying to sell high end sections is now proper ^%%$$&&^
With the average price across NZ down 160k already, and the falls showing no signs of reversing in an increasingly grim economic outlook, the Spruikers are looking foolish.
MSM have turned on them.
Yet the despicable OneWoof still features pieces from the ‘Spruikers Supreme’ TA and AC.
You missed T.A.'s latest article then? Something has spooked him and he's now sounding notes of caution. (I wonder if my paper was the cause? LOL)
What a complete embarrassment to the cause.....
MYOB's latest nationwide survey of over 500 small-to-medium businesses (SMEs) showed 62% of business owners were not confident that Budget would deliver any benefits for them
Why would the Budget have any benefits for businesses? Robertson firmly believes that productivity can be achieved with government spending. He has said so in many of his interviews.
You could flip that on it's head - business is overwhelmingly negative about Labour (just look at the ANZ surveys). Given that nothing Labour will do will change these built in biases from the business community, why would Robertson bother?
Because some people have to actually go and make the money that Grant gets to then take and fritter away on hiring more overpaid fresh-out-of-uni policy advisors and pointlessly rebranding public organisations.
For disclosure, I'm a small business owner myself and don't see much difference between Labour and National in terms of what's in it for small business. National's business interests are firmly in the big end of town, and if I think about many of the business owners I know who are firmly "two ticks blue" because National is better for business, this attitude is just a pavlovian response at this point.
I think most right-leaners are going for "one tick blue, one tick yellow". Going by current trends, ACT could bring 1/4th of centre-right coalition seats by election day, which could fetch Seymour some rather meaty portfolios.
Businesses are growing tired of National's tired political narrative of "repeal everything and do nothing" that has plagued its leadership since English's departure.
Hello NZD. What are you up to?
Lol
Curious isn’t it
RBNZ is looking a tad out-of-step given they were amongst the first to raise.
Just quietly - there have been so many papers published on swings in oil & energy prices (and what exacerbates them!) that I'm really surprised at our central bank's actions. Once again my conclusion is that they love a bit a drama and want to be front pages. They should, in fact, be heard from infrequently.
Today's summary:
- Tax system broken according to those benefitting from it.
- House sales plummeting and prices crashing.
- Inflation far from being controlled. More interest rate pain to come.
- 2 major parties asleep at the wheel with no policies to address any of the above.
What a time to be alive.
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.