Here's our summary of key economic events overnight that affect New Zealand, with news financial markets have convinced themselves a deal is about to be concluded in the US debt limit standoff and have gone on their Memorial Day long weekend holiday in a chipper mood.
The 'hard yards' are underway in the debt limit negotiations. They have enough funding authorised to last until June 5.
In the real world, American personal spending jumped +0.8% in April from March, the most in three months, and double the market forecasts of a +0.4% gain. It is a clear sign consumer spending remains solid. And it is supported by higher wages which have consistently risen more than spending (just not in April), and a tight labour market.
If there is a downside, PCE inflation is hovering around the +5% pa mark and not retreating much yet.
Durable goods orders rose by +1.1% in April from a month earlier following an upwardly revised +3.3% growth in March and easily beating market expectations of a -1.0% retreat. But year-on-year there was virtually no gain. Capital goods orders were even stronger for their recent rises, but again little year-on-year.
Rising economic activity however is making the US trade balance higher as it raises the demand for all goods including imported goods. Over the past year to April the US has run a merchandise trade deficit of -US$1.1 tln, but that is -7% lower than in the same year in 2022. And the deficit as a proportion of GDP has fallen from -4.8% to -4.2%. Of course their overall deficit is much less when services are also taken into account.
The IMF has been reviewing the US economic situation and said American interest rates will likely need to remain higher for longer to tame inflation, and Washington needs to tighten fiscal policy to bring down its federal debt. But overall it has been impressed with the way the US economy has been managed over the past few years.
Taiwan lowered its economic growth forecast for the year to +2.0%, the slowest pace in nearly eight years, after the island slipped into a recession in Q1-2023 reporting a -2.9% annualised drop in Q1-2023 after a -0.8% retreat in Q4,-2022.
Singapore’s industrial production dropped more than forecast in April, down -6.9% year on year and -1.9% from March. This was the seventh consecutive month of year-on-year decline and the worst streak since 2015.
In Turkey, they have a final round of voting today and it is widely expected the incumbent Erdogan will win again. But financial markets are also voting with their money, driving the Turkish lira to 20 to the USD, an all-time record low. Erdogan had to come out and deny there were cash withdrawal problems at banks as people remained skittish.
There is final voting in Greece this weekend too.
Australian retail sales didn't change in April from March and were +4.2% higher than year-ago levels. That means in volume terms they will be lower because Australian inflation is running at 6.3%. (Their April CPI will be released on Wednesday.)
And in Canberra, MPs from the new Labor Government tackled RBA Governor Lowe in a private meeting over what they see as his 'demonising' of wage increases. But Lowe held his ground, warning them that generous wage rises they were backing would make inflation worse unless they were accompanied by increases in productivity. And if that is what turns out - wage rises without productivity increases - he said rates would rise in response. It was probably an unhappy and tense meeting, and probably seals the end of his time as RBA governor when his term expires in September. Being right is no defense in politics.
In the background, a Fair Work Commission decision on the 2023 Minimum Wage/Awards application is due soon.
The IEA says global investment in clean energy is on course to rise to US$1.7 tln in 2023, with solar generation set to eclipse oil production for the first time.
The UST 10yr yield has ended today at 3.80% and down -2 bps from yesterday. A week ago this benchmark was at 3.69%. Their key 2-10 yield curve is more inverted at -80 bps which is more than the -59 bps a week ago. Their 1-5 curve is at -133 bps and little-changed. And their 3 mth-10yr curve is less inverted at -179 bps. The Australian 10 year bond yield is now at 3.71% and down -3 bps from yesterday. The China 10 year bond rate is little-changed at 2.73%. And the NZ Government 10 year bond rate is at 4.46% and up +2 bps bp from yesterday and exactly where it was a week ago.
Wall Street has ended its Friday session with the S&P500 up +1.4% for a weekly gain of +0.4%. Overnight, European markets all closed higher bookended by Paris up +1.2% and London up +0.7%.. Yesterday Tokyo closed its Friday session up +0.4% for a +0.6% weekly gain. But Hong Kong was closed for a holiday but that locked in a sharp -4.0% loss for them. Shanghai ended up +0.4% on Friday for a weekly -2.0% loss. The ASX200 ended its Friday session up +0.2% to book a -1.7% loss. The NZX50 found things tougher, falling -1.1% on the day and -2.2% for the week.
The price of gold will start today at US$1946/oz and up +US$3 from yesterday. A week ago the price of gold was US$1976/oz so a -1.5% fall from then.
And oil prices are +50 USc firmer from yesterday to be just under US$72.50/bbl in the US. The international Brent price is now just under US$77/bbl. For the week that is +US$1 firmer.
The Kiwi dollar is marginally softer against the USD from yesterday, down ast 60.5 USc. That devalues it -3.8% in a week, and -4.8% in a year. Against the Aussie we are down to 92.8 AUc. Against the euro we are softish 56.4 euro cents. That means the TWI-5 is has fallen another -20 bps to 69.4. So overall the NZD has devalued -2.7% for the week, and the same since the start of 2023.
The bitcoin price is a little higher today, now at US$26,775 and up +1.6% from yesterday. But it is down -0.4% from this time last week. Volatility over the past 24 hours has stayed modest at just on +/- 1.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
78 Comments
Weekend briefing: Markets ignore tough debt limit negotiations
There's a Real Ceiling on Money and Finance Unrelated to Government
Anyone see the story about the family in the car in Taupo?
There will be a LOT of this in small town New Zealand.
More and more rentals go to AirBnb or social housing to pay the extra tax, or are even left empty because it's now illegal to contract to rent your holiday crib out for 50 weeks a year and still have your summer near the lake.
Perhaps someone should point out to this family that it's OK because the houses still exist and some people get to stay there, just not them. They might be homeless trucked into the region like Rotorua had, or tourists, or the home might have been a holiday home rented out the rest of the year in the past, however to protect tenants you can't do that anymore so the house probably just sits empty.... but hey, have another blanket.
I hate this government so much I avoid the news so I don't have to listen to them talk. Every single consequence of every policy that has backfired was pointed out at the time by multiple people and agencies. They're dangerously ignorant and cocky - a toxic mix.
https://www.nzherald.co.nz/nz/homeless-family-of-five-sleeping-in-car-i…
Its sad to see. You could argue that it's a result of bad government management over the last 2 decades though. Prices shouldn't have been allowed to get out of control which would have resulted in better returns on Rental properties. Just saying... John Key was just accountable as Ardern in my book. Both dishonest and pondered to the rich.
The housing problem in NZ is largely due to how local Council's implement their planning and zoning rules. Their behaviour seriously constricts and restricts what can be built where. Council elections are joke in that few vote so that vested interests and NIMBY's get what they want at the expense of what is good for all. See my other reply as well.
Without knowing the specifics, I would be interested to know this family's history. I am pretty sure the farm employer is not legally allowed to evict his/her tenants. Which is part of why people refuse to have long term rentals. There is more money and less hassle with holiday rentals. The only way to make people let their properties long term is to make them. Local and national government need to make laws to sort things out. Why don't they?
‘They’re dangerously ignorant and cocky - a toxic mix’
John Key wasn’t ignorant, but was cocky.
He knew what was happening and used it for political gain.
Therefore I ask, who is more toxic? The person who knows they are doing wrong and yet chooses to do so for their own gain, or the person who does it because they know no better?
Maybe your ire should be directed at Taupo's Council.
They are a massively conservative bunch that are so NIMBY they block so many developments its a joke. If Taupo has a shortage of low income housing them I would put the blame on the Council, not central Government.
(And, as you know, the National Party leader has foolishly pledged to grant Council's the right to opt out of the MDRS that both National and Labour jointly passed through. So, yeah, a Ntional led government will really help these people in Taupo - NOT!)
I would also say an own goal by the pressure groups, renters united and the like. The Govt vis-a-vis P Twyford, implied that the private LLs were milking it and there was nothing to the upgrades. They even had Mrs Kerre McIvor saying she can't understand what the fuss is about.
Well, she would say that wouldn't she.
No mention of the fact that because of the cost & difficulty in engaging resources the Gov't gave their own public housing provider several years extra extension on HH compliance than the private landlords who provide the majority of rentals.
Remember when social housing managed stock reduced from 67k in 2015 to 63k in 2017? Sure, it's 2023 now, by December 2022 the managed housing stock is now 70k. A huge turn around, but obviously still not enough or not in the right places?
- https://kaingaora.govt.nz/assets/Publications/Archive-Managed-and-Vacan…
- https://kaingaora.govt.nz/assets/Publications/Archive-Managed-and-Vacan…
- https://kaingaora.govt.nz/assets/Publications/Archive-Managed-and-Vacan…
Not sure why you're referencing holiday homes rented for 50 weeks of the year? Turf your tenants out for 2 weeks so you can go on vacation? Not really what I'd be advocating for to be honest. Either it's a rental full time, or it's not.
He's concern trolling. He's made his mind up about Labour and tries to fit the events to his internal narrative. Doesn't matter that National's housing platform is to just reverse the great policies Labour has brought in that is starting to address the housing crisis that has been festering for decades.
Inflation? What Inflation! ("How could you spend $600 for dinner for 4 the other night?!" I was asked. Well...)
"Mt Maunganui’s Fife Lane steak menu ranges from $46 to $80. Plates to share included châteaubriand at $138. Director Kat Dippie said the cost of meals was “most likely” to rise further. “Menu prices are a direct reflection of wage and cost of living increases. As long as these continue to rise, so will the menu prices."
https://www.stuff.co.nz/bay-of-plenty/300887505/58-for-veg-dish-80-for-…
“Menu prices are a direct reflection of wage and cost of living increases. As long as these continue to rise, so will the menu prices."
And with all these factors rising, the probability that the restaurant will have a smaller addressable customer base will also rise. Fewer customers means lower turnover, revenue, and profit.
Pretty easy to spend that. We got a $250 voucher for a place that will remain nameless and I thought wow that's a lot for 2 people until I saw the menu, probably will not even cover the full bill if you order wine as well. My idea of dinner out is a $46 curry nite and BYO. Still you have to look at the location, if you can afford to live out at the Mt, then you are probably old and loaded with cash, the place would not be able to exist otherwise.
This is what happens when a roof over your head sucks up 50% or more of your disposal income. I find it utterly ridiculous that people can't see this. All restaurants & takeaways need labor and the labor needs to be paid enough to a) get to work as they often can't afford to live near where the restaurants are located and public transport doesn't run when they finish work and, b) provide for themselves and their families - that costs! If you want a cheap night out - get the cost of housing down!
But wait! Luxon says he's laser focused on bringing down the cost of housing. (He's not actually serious, nor believable, on this count as he's going to let Councils opt out of the MDRS so they can go back to limited land for building upon.)
Have you tried running a restaurant on your own? ;-) You need staff. The staff have to be paid.
Back when housing costs consumed 30% or less of the staff's income, they would be happy with less pay - or just one job. Now they demand more. Waiting tables is not a highly skilled job. Ergo, the restaurant owner has to compete with other employers who may hire them for more and/or provide better conditions. Further, many waiting staff will have other jobs and to get them to work an extra 20-30 hours a week when their top marginal tax rate is in play requires more incentives from the restaurant owner.
Putting a roof over your head and those of your family, and keeping it warm, the lights on and the water running, is now a significant fixed cost for many low income people. When fixed costs rise to high proportions of income it becomes more and more difficult squeeze reduced consumption (savings) from the smaller and smaller amount that is left once fixed costs have been paid.
Is my post making more sense now?
That's where you'd be wrong. (again)
I waited tables when I was a university student. I applied in person and was working the next day with about 10 minutes of "training". It's training on the job mostly. You build up skills over time. However, the pay rates remain largely static. If you can get a job with no prior skills the job is classified as 'unskilled labor'. I've done lots of these types of jobs over time. Gas station attendant, lawn mowing, retail floor staff, nurse aiding / hospital porter, builders laborer, bar tender, life guard, ski field dog's body, etc. Fulltime university degrees have to be paid for. And some of these are me starting businesses just for fun or as ways to give up bad habits or get fitter - and sometimes just as a short break from my real job.
It was probably an unhappy and tense meeting, and probably seals the end of his time as RBA governor when his term expires in September. Being right is no defense in politics. Indeed.
The Herald report Orr telling FEC that "he had not failed his mandate". The facts say otherwise, but perhaps he reckons if he says it often enough he'll get away with it. https://nzherald.co.nz/business/adria Link
He caused a 3.8% devaluation of the Kiwi dollar in one week with his latest statements. More price increases in the pipeline I would say and with our main exports, milk powder and logs in the doldrums don't expect a similar upswing in export earnings. Trade deficit is going 'to the moon'!
Ideally, we'd have wise and foresighted progressive politicians that despise the status quo and reject 'doing nothing' as an option.
We don't. And we'll never have a 'stable and consistent' currency either. Somehow I feel these two issues are related but I can't think why.
Sorry, thought we had a massive trade deficit - i.e., we're importing way more that we export.
In which case, a dropping dollar really doesn't help. Yes, it makes our exports more competitive price-wise, but that's offset by the greatly increased manufacturing costs of all the materials we import to make that product in the first place - which includes food, et al, that the workers consume in order to do the work - which then requires a pay increase to maintain their set quality of life - which requires a price increase on the exported item - which make the exported item less competitive.
All that's happening is that we're collectively getting poorer, while we bow down to the interests of those over-laden with debt.
Without qualification and context, this is pub economics.
Let me use an example to highlight what I mean. Lets take butter. For this pub economics hold true you'd expect imported capital goods to make up almost all of the price of a pound of butter when it hits the export ship with only a small amount left over which ends up being distributed among the people who helped produce it. Does this happen? Hell no. In actual fact the contribution of imported capital goods is actually far, far less. Different products vary. Some are reliant on imported capital goods (see next example) but many are not (software development) and some even less so (tourism).
Another example, A farmer wants a new tractor. He delays buying because the NZD is low and the cost of a new imported tractor is high. Instead he maintains and repairs his existing tractor. He delays the marginal increase in productivity the new tractor might have brought and accepts the small additional costs of additional maintenance and the risk (which he can manage with neighbors) of it breaking down for long periods. There is considerable elasticity in how capital goods are used and when they are renewed. Most good businesses know these cycles and plan for them. (Russians are becoming experts in this now - like they were before Glasnost.)
What you say about our balance of payments deficits needs qualification and I'll not labor this because it's all been said before. The blow-out is temporary. It is due to massively reduced tourist numbers. These are now back to 4/5 of pre-covid numbers but margins are not as high as pre-covid.
What will get us back to full pre-covid tourism? Getting the Chinese back. How do we do that? Hmmm. You know NZ is a premium travel destination, right? How about we drop the price of coming here for a bit? Stack 'em high and sell 'em cheap until supply becomes constrained and we can increase the prices we charge tourists. Seem like a plan? And by golly by dropping the NZD a bit that's exactly what has happened.
So not as chaotic as you first thought, Chaosinflesh.
The key words are: "Same volume of goods". With log exports about 20% below the last 5 years average, dairy export YoY 3.8% down and Kiwi fruit export about 500M NZD lower compared with previous year we are not exporting enough to pay our import bills. There is a reason for our record account deficit.
The IMF has been reviewing the US economic situation and said American interest rates will likely need to remain higher for longer to tame inflation
Donkeys at the IMF still think that hiking rates in the US is going to bring down prices. Even the Fed is now questioning this openly - e.g. see latest Fed minutes... 'several participants remarked that tighter credit conditions may not put much downward pressure on inflation in part because lower credit availability could restrain aggregate supply as well as aggregate demand'
Exactly - if supply side issues are pushing on inflation, the last thing you want to do is make it harder for businesses to invest in increasing capacity. Remember the US Fed, unlike RBNZ, do not have the ability to take loads of disposable income off mortgagors because US mortgages are almost all 30-year fixed rate. Also worth noting that the higher the rates go, the more the US Govt pumps stimulatory interest payments into the economy. Crazy.
As I have said to you repeatedly Jfoe - what was really crazy was how we got into this situation. What we are seeing now with normalisation of interest rates isn’t crazy. This is the market trying to return to equilibrium after being artificially manipulated for years in an unsustainable fashion.
And, as I always repond... yes the drop to the floor was crazy, and so is the hike to the moon.
Where I think we might disagree on is what constitutes 'normal interest rates'. When we decided to 'liberalise our economy', shrink the State, and go on some daft super low Govt debt mission, we kicked off a process of basically transferring Govt debts to households and businesses. Between 1991 and 2008:
- Household debt rose from 30% to 90% of GDP
- Govt debt (old measure) dropped from 50% of GDP to zero
- Business debts went from 45% to 70% of GDP
Right now, household debts are around 95% of GDP and business debt (thanks to piles of COVID funding and NZ basically not investing in anything useful for years) is back down to nearly early 1990s levels (about 50% of GDP).
When you have private debt (households and businesses) of around $600 billion (150% of GDP, skewed towards households) you cannot have interest rates at levels historically considered 'normal' - the drag on the economy is huge. For example, total wages in NZ are about $150 billion per year and household debt is about $360 billion. A 7% interest rate on that debt would see $25 billion (one out of every 6 dollars earned) going on interest payments! Those interest payments go roughly 50/50 to savers and bank equity holders (mostly overseas). It's a recipe for collapse.
So, interest rates have to be low. Do they have to be zero? No, but they need to be close.
What? How many people can buy a house in NZ without getting into debt?!? How many farms can run without using revolving credit to smooth out seasonal variation in income?
The problem is our economy is really poorly structured - people make money (rent) out of their assets rather than enterprise, debt is the fuel of our economic growth (without which we would see a complete collapse), and we produce low value goods for China by destroying our ecosystem to earn overseas currency to spend on Teslas and the oil for our Ford Rangers. We're bankrupt - the only thing holding our economy up is having relatively competent institutions, which reassure overseas holders of debt that the interest payments will keep flowing.
It's possible to bootstrap everything. It's been good in my line of work not to have a bunch of regular loan payments for equipment and vehicles. It's not as nicer stuff, but it does what I need it to.
That said, if you make a measured risk and borrow from your future earnings to increase what you can make in the here and now, that's not something anyone should dismiss out of hand. Increased productivity, that sort of thing.
Jfoe as I've said before, having high inflation and low interest rates causes wealth to be transferred from saver to person in debt. So who on earth would keep their money in the bank if A: inflation eats it away with little compensation, and B: They fall behind while people in debt get ahead. Psychology plays a big part in this. Banks still need deposits, who's going to do it if they lose out?
I have no issue with there being the occasional episode when peoples' debts and savings lose value due to price rises. It's not like our society is suffering from rampant equality is it? The idea of people with debts getting ahead is a peach though!
Banks do not need deposits - they need loan agreements and supporting equity (from investors / shareholders). It is the loans that create the deposits. Loan agreements are bank assets, deposits are their liabilities.
It doesn't work out that way. If the whole public were sitting in debt, where would their money go via interest rates? That's right, the wealthy. Now you obviously think interest rates are the enemy, in fact the real enemy is inflation and inflation expectations which drive the public to not save and get into excessive debt in the first place.
Free to speak his mind, Kaplan concludes rather ominously, "the recent banking turmoil has highlighted the disparity between too-big-to-fail banks and smaller and midsize banks. I worry that increasing the Fed funds rate from here may create further strains on the deposit base for those smaller banks. I’m concerned that, as the Fed raises rates, it is tightening the vice on small and midsize banks and the small and midsize businesses that rely on those banks for funding."
NZD down 3.63% against USD on the week with the next RBNZ OCR call 46 days away, next GDP numbers only 19 days away. A short term Kiwi dollar massacre inbound....and if they don't lift rates again on 12 July, it will be prolonged with inflation having a 2nd peak in Spring..
Agree. RBNZ stating it expects OCR to now stay at 5.5% till the second half of next year before slowly declining is absolutely meaningless and will simply apply until after the election. Ask any middle income family if they feel their cost of living is improving and they will tell you how it really is.
This is predictable, unless rates went into double figures to bring it down fast, we are left with the option of lower rates and then waiting much longer for it to come down. The question will remain however, have we gone high enough ? Only time will tell on this one. Do you remember when everyone was saying rates will not rise until 2024 ? now its rates will not fall until 2024 ? how wrong can you get.
Do you remember when everyone was saying rates will not rise until 2024 ? now its rates will not fall until 2024 ? how wrong can you get.
Yes I clearly remember, hence now saying OCR will stay where it is until the second half of 2024 is a joke. I wish TAB could offer bets on such things!
https://i.stuff.co.nz/business/opinion-analysis/300887515/those-with-la…
Wisdom indeed. The beloved and I have big amounts in Kiwisaver. To avoid 'single manager risk' we should be able to have accounts with more than one scheme, once over some limit, say $50K
Oh. Was this supposed to be taken seriously? I thought it was yet another example of someone who knows next to nothing about risk sounding off. She starts ...
"It’s a bit like going into a supermarket and being told you’re only allowed to buy food made by Wattie’s".
Seriously? The investment landscape is like your local supermarket? And fund mangers only buy products from a single conglomerate? Golly. I did not know that.
But some people are clearly nodding their heads in agreement. Why? Perhaps they haven't seen through what is a faulty "argument from analogy". (See https://en.wikipedia.org/wiki/Argument_from_analogy and https://simple.wikipedia.org/wiki/False_analogy )
The risk of "single manager risk" is extremely low but not zero. I do 100% agree with the article that once you have enough surplus income to invest beyond the kiwisaver minimums, you absolutely should be investing with another manager if for no other reason than it's fun to compare which is doing better given the economic situation at the time (although funds of similar types often produce quite similar results). You can also explore having your kiwisaver split into different fund types from the same manager - but follow the Buffet rule: don't invest in something you don't understand.
Which made me think, KH, that you and the beloved are of course with separate kiwisaver managers? Y'know. Managing the risk? If not, please report back on how and who decided to switch to another manager to manage the "single manager risk". ;-)
??? You sound off, then end up agreeing.
Because you asked, the beloved and I have always been in different schemes from the start.
And as an aside I thought it illustrative in the finance company days when all the old ladies spread risk by putting their money into different companies.
Then - they all went broke together, at the same time. Tells ya something about spread that isn't spread.
I worked for a year or two writing statistical 'widgets' to assist insurance underwriters who underwrite financial 'contracts'. Quite an eye opener. Most people haven't got a clue about how to assess risk. It is both mind numblingly obvious once you know what to assess and mind numblingly complicated having to actually quantify the risk into numerical terms.
No - I'm not agreeing. I think the risk is so low for most people it's not really worth any time worrying about. Most people that sign up to 30 year mortgages are putting far more at risk than a small slice of their kiwisaver balance.
(BTW - Great satire with finance company analogy. A perfect example of a faulty analogy fallacy.)
Healthy Homes has done wonders for our hospital admissions. Sarc
Remember when you were a child and you could get into hospital. Not anymore.
Hospitals hit 100% occupancy more than 600 times last year
https://www.1news.co.nz/2023/02/09/hospitals-hit-100-occupancy-more-tha…
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.