Here's our summary of key economic events overnight that affect New Zealand, with news there is still no US debt deal, and that is starting to raise financial market nerves.
Also, American retail sales are still in the doldrums, rising minorly above last year level in last week's same-store assessment, but still well below the expansion that inflation requires to just stay even.
And the latest look at the American factory PMI (for May) shows them slipping from a steady state into a minor contraction. However, that was cancelled out and more by an improving services landscape where the expansion gathered pace in May and is now at more than a one year high
But that services improvement is not reflected in the mid-Atlantic states, where the Richmond Fed reports weakness in both their services and factory sectors.
American new home sales activity picked up minorly in April from March, and is now running +12% higher than year-ago levels. However the year-ago base was unusually low.
In Canada, their producer prices are dropping - signaling deflation may be coming there. Those producer prices were -0.2% lower in April than March and recall March also recorded a fall from February. And year-on-year they are now -3.5% lower, also a faster decline than in March. But at least it wasn't as fast a fall-away than the -5.6% drop analysts were expecting. Driving this sharpish decline is energy costs, which they probably appreciate (unless you are an oil producer).
In Japan, their flash May PMIs have come in strong, in fact the strongest rise in private sector activity in almost ten years. Their services sector expanded faster at 56.8, and their factory sector shifted from a contraction in April to a modest expansion in May.
In South Korea, their central bank's Composite Consumer Sentiment Index came in at 98 points in May of 2023, up from 95.1 points in the previous month. It marked the highest figure since May a year ago as easing inflation expectations led to a rise in "living conditions".
Singapore's inflation rate is rising again, now up to +5.7% in April from March's +5.2%, but down from the peak in August of +7.5%. For them it is food, housing and fuel that is keeping this pace up, and it is surprising they haven't benefited from the lower oil prices.
Retail sales in Taiwan rise +7.5% in April from a year ago, much faster than their 2.4% inflation rate. But their industrial production is really suffering, now more than -20% lower than year-ago levels.
In Europe, their early look at May PMIs shows their services sector still expanding at a good pace, but their factory sector still in a small contraction.
While not strong in the first place, the latest PMIs for Australia indicate a further softening of activity. Their services PMI fell to 51.8 (now only just expanding) in May. Their manufacturing PMI didn't change from its contraction, holding at its weakest level since May 2020.
We should note that the price of copper, a bellwether for the Chinese economy and the global economy more generally, is slipping and is back at levels we last saw last year, and down -15% from its early 2023 peak.
The UST 10yr yield starts today at 3.70% and down -1 bp from yesterday. Their key 2-10 yield curve is slightly more inverted at -64 bps. Their 1-5 curve is at -135 bps and also slightly more inverted. And their 3 mth-10yr curve is virtually unchanged at -190 bps. The Australian 10 year bond yield is now at 3.66% and up +4 bps from yesterday. The China 10 year bond rate is little-changed at 2.72%. And the NZ Government 10 year bond rate is at 4.42% and down -3 bps bp from yesterday.
Wall Street has opened its Tuesday session soft with the S&P500 down -1.0%. Overnight, European markets closed lower with Paris down -1.3% at the weak end and London down just -0.1% at the other end. Yesterday Tokyo closed its Tuesday session down -0.4%. But Hong Kong was down -1.3% continuing is volatile run. Shanghai ended down -1.5% and an unusually large fall for them. The ASX200 ended its Tuesday session down -0.1% while the NZX50 found things harder going again, dropping another -0.4%.
The price of gold will start today at US$1976/oz and little-changed from yesterday.
And oil prices are +US$1 firmer from where we left them yesterday to be just over US$73/bbl in the US. The international Brent price is now just over US$77/bbl.
The Kiwi dollar is slightly softer against the USD from yesterday and now just on 62.5 USc. Against the Aussie we are little-changed at just on 94.5 AUc although that is its highest of the year. Against the euro we are still at just over 58 euro cents. That means the TWI-5 is has slipped slightly to 71.2 and just off its five month high.
The bitcoin price is up +1.2% today, now at US$27,195. Volatility over the past 24 hours has been modest at just on +/- 1.2%.
Join is at 2 pm today for full coverage of the RBNZ Monetary Policy Statement and its decision of the Official Cash rate change. Analysts expect a +25 bps rise to 5.50% although financial markets have priced in an equal chance of a +25 bps or +50 bps rise.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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79 Comments
Did anyone see Chris Luxon on the breakfast shows this morning. He made a strong case for the replacement of actors with AI and the benefits of AI in lifting productivity for business by replacing roles. Someone should remind him that AI doesn’t have a vote; working people do.
He's right in many respects. I've seen it first hand, where clients I'm working with have been already able to replace various functions such as website copywriters, video editors, social media staff etc with AI and save a bunch on salaries, not to mention hassle and stress (no more sick days, no more office politics etc). My own productivity in business has increased drastically with the use of AI tools this year.
It doesn't matter whether you like it or not, the revolution - or at least evolution - is coming.
However, you are also right that ultimately it is working people who vote (many of whom might feel threatened by AI) and so a tightrope needs to be walked here.
I presume Luxon was being interviewed on this after his umpteenth gaffe yesterday around National using AI-generated imagery in political ads? He should have just owned it rather than pleading ignorance. The ads are eye-catching and effective and ultimately nothing more than a vessel through which to convey the message, e.g. crime going up under Labour.
He should have said it doesn't matter whether the imagery is AI-generated, real photos, or done by kids doodling on an Etch-A-Sketch ... the underlying message is the same - and he then could have leveraged the faux-outrage to National's advantage by getting more eyeballs on the ads. Instead he looks weak by having effectively backed away from the issue.
Also incredibly rich of Labour to claim they won't use AI because they are running a campaign of truth and honesty after some of their whoppers in recent weeks ... I wonder if ChatGPT wrote that?
It sounds to me that all this Chatbot and AI stuff will replace bullshit artists who write the stuff they write for a living. If it saves on consultancy fees etc, it can't be a bad thing. A bit similar to the journalists writing their copy onto computers which then got the newspapers printed, bypassing the typesetting industry. That's life. Check NZ's unemployment stats since Rogernomic's reforms. We didn't bat an eyelid over all the job losses at NZPO and the Railways.
This is exactly right, but we have to program them right. There's already a lot of cases of AI gone feral. Am starting to agree with Musk though, we need to be programming stuff right, from the start. Which means we should be regulating them. Maybe program in the laws of robotics to start with, possibly extend its definition of what hurting a human is, which really feeds into whether people are allowed to be offended and to what level.
He might be right, but its not exactly what people want to hear in a cost of living crisis when they are worried about keeping their jobs to pay the mortgage. As the Luddites found out, you can't stop progress. However, enthusiastically talking about productivity gains is not a smart way to connect with "hard working kiwi's".
This isn't about 'progress'; that was incorrect framing.
This is about the Laws of Thermodynamics - the Luddites were fighting an efficiency-gain (we make the mistake of putting other labels on them).
Productivity is one of those names; AI can be more efficient than a human, in some respects. But it still has to operate within the Laws of Thermodynamics - which is why all this talk of replacing humans (overshot, fallible, limited by ecological factors) with AI is silly. It needs powered. One switch, one flat battery..... and what would it do? Why?
From yesterday afternoon - https://www.interest.co.nz/business/121358/review-things-you-need-know-…
BROWNOUTS COMING?
Transpower says it is working closely with the electricity sector to manage potentially tight supply during cold snaps this winter - and warns consumers may be asked to cut back on power use at peak times. They say: "These tight supply situations during short periods of peak demand are a result of increasing electricity demand as well as New Zealand’s transition to a future with a decarbonised economy powered by renewable electricity generation."
Failure to plan strategically, combined with increased population driven demand, and reduction in FF are all leading down the same path.
Something is going to give, it is just a question of when.
Why on Gods green earth would anybody want to watch an AI generated anything..! Imagine movies or TV shows which are written by AI - it sounds like an Orwellian nightmare. AI in creative settings results in circular output (based on the same stuff that has come before it). No new ideas, no creativity.
What sane human being can honestly say “I would watch AI generated content”?!
AI generated music video stream will accompany my work day: https://www.twitch.tv/blotterstream
It's fun to give it suggestions.
It's obviously not genuine crafted content, but AI is going to carve out quite a niche for itself.
Not that I pay much attention to Mike Hoskings, but do you really think he couldn't be replaced by an AI? Would his listeners even notice? Just set the Aggression/Rant level to 7 and feed it the news headlines and watch it go. No doubt several on the left that could also be replaced just as easily.
This is from ChatGPT, when I asked it to write a Mike Hoskings style blurb about why losing 500 jobs at the council is a good thing. You could easily plug this into an AI trained voice/video creator since Mike has so much content to train it on, like: https://www.synthesia.io/
Ladies and gentlemen, brace yourselves for some unadulterated truth bombs. This is Mike Hosking, the voice of reason and the purveyor of unpopular opinions. Today, we're diving headfirst into the controversy surrounding the Auckland City Council's decision to axe 500 jobs. And guess what? It's actually a good thing!
Now, I know the bleeding hearts out there will be clutching their pearls, lamenting the loss of livelihoods. But let me tell you, folks, this is an essential move for the greater good of Auckland. The bloated bureaucracy of the council has been hemorrhaging taxpayer money for far too long, and it's high time someone took a stand.
Firstly, let's talk about efficiency. We all know that government institutions have a knack for inefficiency and red tape. With 500 jobs out the door, we're streamlining operations, trimming the fat, and ultimately ensuring that our hard-earned money is put to better use. It's about time the Auckland City Council gets lean and mean.
But wait, there's more! By reducing the workforce, we're sending a clear message that accountability and performance matter. No longer can council employees rest on their laurels, secure in the knowledge that their jobs are safe regardless of their efforts. This shake-up will light a fire under their bureaucratic behinds, and we'll start seeing real results for the taxpayers' investment.
Oh, and let's not forget the economic impact. By cutting costs and eliminating unnecessary positions, we free up resources for more productive endeavors. This means more investment, more infrastructure development, and ultimately, more jobs for hardworking Kiwis who actually contribute to the economy. It's a win-win situation, my friends.
I know change can be uncomfortable, and emotions may run high when people lose their jobs. But let's not lose sight of the bigger picture here. We need a council that works efficiently, serves the interests of the people, and stops sucking up our hard-earned money like a bureaucratic black hole. Tough decisions have to be made, and the 500 jobs being axed in Auckland City Council are a necessary step in the right direction.
So, before you grab your pitchforks and start protesting, take a moment to consider the potential benefits. The axe is swinging, and it's clearing the path for a leaner, more effective council that prioritizes the needs of the people and the prosperity of our great city. And that, my friends, is why this job cut is a good thing.
This is Mike Hosking, bringing you the unvarnished truth, even when it's hard to swallow. Stay tuned for more provocative discussions and unpopular opinions.
Big bands (12 people) were replaced by rock bands (5 people) in the 1950s. At the time it caused quite a stir, but it was just artists adopting new technology. In the early 1980s there was discussion about whether large orchestras would survive the onslaught of cheap digital synthesisers. Nowdays, most of the commercial music you hear has been auto-tuned; no such thing as a wrong note anymore. AI to write the songs will be a new era, but most commercially released music in the last 20 years has been focus-grouped to not offend too many people anyway so I doubt that most listeners will notice the difference. As a counter-culture, some artists will release "authentic content" without assistance of AI, and promote themselves on that basis.
He just doesn't have "it". He's too corporate (always trying to say nothing while saying something). I can't put my finger on it, to be honest.
In my professional life I am in frequent contact with a sizeable cohort of dyed-in-the-wool, two-ticks blue types who were all salivating at the fact that Mr Business Man would be National's political saviour.
Even they are starting to realise how naff he is as a politician ... I can't comment on the business aspect as I never worked for Air NZ, but I do feel that running a de facto monopoly with enormous existing brand recognition and a guaranteed customer base is probably not the toughest gig on the planet.
As someone who would like to see a change of government, it's depressing. My gut feel is that Labour will scrape back in purely because Luxon is so unlikeable and incompetent as a politician, and it is now too late in the piece to roll him.
I'll probably vote Act (unless Top has a change of heart and decides that punishing homeowners is less important than targeting the real problem - speculators) and I think Act will have a great showing come election night, but at this stage in the game I have little confidence National under Luxon can carry enough of the middle for NACT to form a government.
The thing about giving a vote to TOP isn't that if they get in the tax system will undergo a wholesale change. It's about sending a message to parliament that you're fed up with the current tax landscape.
Even if they get representation, and possibly end up in a coalition government, I can hardly see the whole tax system being given to them to rewrite on their own.
Agreed.
We are always told how good home ownership is for society, so why would I vote for a party that wants to punish home ownership by making you pay a potential very large amount of tax (if their calculator is anything to go by) not because you're owning multiple properties, not because you're leveraging capital gains, but because some QV quango and/or algorithm has declared the land under your house is worth $X - even if you haven't tried to sell it - and therefore you need to cough up.
Its not 'punishing', its taxing. The emotive phrasing is ridiculous. Does the tax on wages 'punish' every employee in New Zealand for wanting to get ahead by having a job?
The question is how the tax take is extracted and what is fairest. More land associated tax (on top of the rates every landowner already pays) in exchange for less wage associated tax seems like a good deal to me, and should to every person with lots of earning years ahead of them and simple (or no) property holdings, which will be the vast majority of people under 40...
The tax take on wages these days (considering no indexing of brackets) is pretty punishing too, come to think of it.
I plugged in my address into the TOP calculator, as well as my income, and I'd actually be better off each year to the tune of about a grand. Aside from ACT's tax policy I think that is actually the most directly financially beneficial for me.
But I will content it is punishment (or nothing more than emotionally-detached, academically pure taxation if you prefer that language) for someone on a modest income who owns a home to have their overall tax increase substantially just for the privilege of putting a roof over their head.
If you've got to cough up more of your after-PAYE tax wages derived from trying to get ahead by having a job to pay a land value tax on the unrealised, decreed value of your property that you simply want to live in, not speculate on, your effective tax paid has gone up for absolutely no gain to you.
I have no opposition to taxing realised capital gains, and I think we should even consider taxing equity release from property for the purpose of buying more property as realised income, however.
Yes it is punishing and less tax would be great. But not at the expense of less hospitals or more government debt etc, so here we are.
The other side of your coin is that the current situation is 'punishment' for you and me and most other wage earners to continue to have to pay higher PAYE while NZ's property sector remains very lightly taxed compared to jurisdictions we usually compare ourselves with - https://www.stuff.co.nz/life-style/homed/real-estate/128152892/how-does….
It is not tax for the privilege of putting a roof over their head - again the emotive ploy. Are rates tax for the privilege of putting a roof over your head? If you want to name it, it is tax for the privilege of owning hundreds of thousands of dollars worth of land, supported government provided services which help maintain the value of that land.
I went out and bought some apples and was "punished" with a 15% tax!
I went and earned $100 and was "punished" with a 20% tax!
I own a property and every year are "punished" for local council rates at around 3%!
I imported a car and was "punished"...
You can extend your idea that all tax is punishment all you want, it doesn't make it true. The only thing we should care about is that our tax system is broad based (means you can't easily avoid tax) and focuses on making productive use of resources (human/land etc). There's a glaring omission in our tax system that makes it easy to avoid (land ownership) while making infrastructure uneconomic because of urban sprawl. LVT limits both of these things.
While I don't agree with TOPs LV/UBI proposition, the really scary thing is the thin end of the wedge they then create for any subsequent incompetent & malign Govt (= most of them) of any persuasion to simply extort more to fund their dogma by changing the tax rate.
A land value tax generally encourages home ownership where it has been implemented. It makes speculation much more difficult and prevents land banking which both have a lot of negative externalities that we are seeing now. It would also likely encourage more development and encourage people to use land more efficiently.
What I would change with TOP's proposal is to bring it in over a longer time frame, phase it in so it isn't quite as much of a shock and give people time to plan, but in the long run, we would likely all be better off with a LVT in place over our current dependency on income tax that discourages productive work.
It's balancing tax between income and land. If you only own your own house, paid for from your income, you will likely be better off.
Try it for yourself Tax Switch Calculator
Yes. He took over from Fyfe who left him a strong hand. Luxon had a lucky run with the economy in those years (naturally taking the credit for himself), however he over-extended the airline and left Foran a bloated beast in poor shape to face the challenges of Covid.
Luxon was known to be petty and proud, insisting people call him Christopher. In two years I never once saw him out visiting the troops. So I imagine all these public photo ops, having to smile and feign in interest in people, must be rather painful for him.
Living beyond our means as a household let alone as a country seems to be concept, few Americans or NZers understand and the current debt ceiling negations in the USA should be a signal to everyone, including us that we also need to rein in spending, as a country and as households within NZ.
Politicians here and in the US are feeding us "sugar" money, in the hope we vote for them again, if only we all understood the risks of a "sugar" diet in an economic sense.
Less debt means a stronger dollar in the future, and a more sustainable future for us and our children. The kicking of the can down the road encourages wasteful consumption now.
Trek bicycles have 20,000 unsold bicycles sitting in warehouses in NZ costing $1 a day per bike storage, and Trek is one of many bicycle manufacturers sitting on unsold bikes. A big bike shop might sell ten bikes a day, a small shop might sell one. I dont know how many big bike shops we have in NZ, but not enough to sell existing stock, let alone what is on its way. Do the maths, when will this madness stop? The Chinese factories have done very well to catch up so quickly after Covid, but what next?
"In Japan, their flash May PMIs have come in strong, in fact the strongest rise in private sector activity in almost ten years. Their services sector expanded faster..."
Worth keeping a close eye on. If this gets moving, all that capital etc that Mrs Watanabe sent from Land of the Rising Sun, looking for a yield above 0%, is going to stampede back to her ¥ term deposit account. Then what do the rest of us do for finance?
Yet we still reckon yields are going to fall here.
Worth keeping a close eye on. If this gets a move on, all that capital etc that Mrs Watanabe sent from Land of the Rising Sun, looking for a yield above 0%, is going to stampede back. Then what do the rest of us do for finance?
Not just Watanabe-san but Japanese insurance companies, banks, and pension funds have the potential to cause havoc. Warren Buffet having the last laugh on Japanese trading companies. Your local financial advisor and media like Granny Herald wouldn't have touched those stocks with a barge pole.
In all seriousness, it's a threat to financial stability.
A bit of banter y'day on interest dot co about gold and someone mentioned the eccentricity of goldbugs and how useless gold has been compared to interest-bearing assets and the everything bubble. Quite possibly a troll but anyway.
So while fiddling around last night on TradingView and checking the gold price action offshore, I decided to compare the gold price in Kiwi pesos vs a proxy for Kiwi equities - the Smartshares NZ 50 (FNZ). Woe and behold. Since the inception of Smartshares in 2005.
FNZ - +116% (not accounting for divs of 1.92% pa)
Gold - +262% (actually starting from 2006 price as charts don't go back to 2005 for XAUNZD on TradingView)
You wouldn't read about it. But this is definitely one for the water cooler trivia.
Join is at 2 pm today for full coverage of the RBNZ Monetary Policy Statement and its decision of the Official Cash rate change.
Should we care?
According to BBC's Andy Verity, central bankers may have broken the law during '08 by getting banks to fake LIBOR to make it appear crisis was getting better when it wasn't. Something to keep in mind for, you know, 2023 banking crisis. https://buff.ly/45roCre Link
Retail investing in crypto possible from June 1. In China's next-door gambling hub of Hong Kong.
Could be nothing.
Hong Kong will allow retail investors to buy big-cap cryptocurrency tokens such as bitcoin and Ether, according to the latest policy proposal by Hong Kong’s securities watchdog.
Retail investors will be allowed to trade liquid digital tokens on licensed virtual-asset platforms, which will provide certain regulatory oversight and investor protections to once vibrant but unregulated cryptocurrency investment activities, the Securities and Futures Commission (SFC) said on Monday.
https://www.scmp.com/tech/policy/article/3210863/hong-kong-allow-retail…
https://www.news.com.au/finance/economy/australian-economy/nonsense-rad…
Mr Pallas added that the government thought it was “fair” to expect Victorians with multiple properties to “make a modest contribution to repaying Covid debt”.
According to the Herald Sun, those who own more than one home will pay at least $5000 over the next 10 years, with a new $500 annual tax for investment properties with a land value between $50,000 and $100,000.
The payment will increase to $975 for homes valued between $100,000 and $300,000, while an extra 0.1 per cent of the land value will be applied to properties worth more than $300,000.
Mr Pallas said roughly 860,000 landowners would be affected by the land tax change.
Meanwhile, businesses with a national payroll of more than $10 million will also be forced to pay extra payroll tax of 0.5 per cent, or 1 per cent if their national payroll is more than $100 million.
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