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US economic data uninspiring; China faces new food security trouble, and continuing liquidity trap; huge AML fine for Aussie casino; UST 10yr 3.70%; gold rises and oil drops; NZ$1 = 60.4 USc; TWI-5 = 69.3

Business / news
US economic data uninspiring; China faces new food security trouble, and continuing liquidity trap; huge AML fine for Aussie casino; UST 10yr 3.70%; gold rises and oil drops; NZ$1 = 60.4 USc; TWI-5 = 69.3

Here's our summary of key economic events overnight that affect New Zealand, with news we are in the shadow period until the US House votes on the debt deal. The chatter accentuates the risks of failure, so markets are holding their breath. But they also assume it will get passed.

Meanwhile, the data being released is all quite bland, and will be until the May non-farm payrolls report is available. American consumer sentiment as monitored in the Conference Board survey held in May when a small dip was anticipated. This is consistent with the good personal income data we had recently, and a declining inflation rate. But overall levels are still low; the Expectations Index has now remained below 80, a level associated with a recession within the next year, for every month since February 2022, with the exception of a brief uptick in December 2022. But the endless signals of recession just don't seem to materialise, probably because of the strong labour markets.

We get the May US non-farm payrolls report on Saturday NZT and it is expected to show a modest +190,000 gain - although don't be surprised if it beats that estimate yet again.

The Dallas Fed survey of factories in their oil patch is quite subdued in May which is probably no surprise given the languishing oil price. And with today's oil price retreat it will probably be even lower in June.

According to the US Federal Housing Finance Agency, American house prices rose in the year to March at about their long-run average of ~4%, ending the pandemic turmoil period when for a few years they were up almost +20%. Separately, the Case-Shiller index on house prices in major urban areas fell in the year to March and below their long-run average. Analysts watch the Case-Shiller Index more.

In China, they have been getting a lot of late-season rain and that is causing havoc with crop harvesting. They have lost millions of tonnes of wheat right before harvest, with global price implications. The unseasonal rains have infected crops with blight and caused pre-harvest sprouting. That sets China up for some massive imports, disrupting global prices - and their own plans at a time when local food security is a high-level concern.

And staying in China, a strong echo from their brutal pandemic lockdown is starting to play out in their economy. Memories of that has reinforced the urge by households to save, and at such a level that it seems to be inhibiting their economy from recovering. They have a liquidity trap which is frustrating efforts by Beijing to expand domestic demand and increase consumption’s share of national GDP. And this is putting severe pressures on local governments.

These two big trends in the Chinese economy has seen their yuan devalue further.

In Japan, their jobless rate fell back to the 2.6% level it was a few months ago, which was a better result than expected. An expanding economy is having a positive effect on employment and wages now.

EU sentiment is still in the doldrums and fell in May to a six month low. There was little change in consumer sentiment, but manufacturer sentiment eased lower.

In Australia, they are about to hand down a NZ$485 mln financial penalty on the Crown casino business for breaches of its AML-CFT laws. As such it will be one of the largest money-laundering penalties imposed on a casino anywhere in the world. But no-one went to jail. Despite its size, Crown casinos won't be crippled financially - it just seems like a cost of doing business in the world of gambling.

The UST 10yr yield will start today at 3.70% and down -7 bps as Wall Street trades again after their holiday weekend. Their key 2-10 yield curve is less inverted at -79 bps. Their 1-5 curve is at -142 bps and more inverted. And their 3 mth-10yr curve is a lot less inverted at -160 bps. The Australian 10 year bond yield is now at 3.63% and down -3 bps. The China 10 year bond rate is little-changed at 2.74%. And the NZ Government 10 year bond rate is at 4.47% and up +4 bps from this time yesterday.

Wall Street opened after their Memorial Day holiday with the S&P500 in a bit of a [debt] relief rally, but it has slid from there and is now down -0.3%. European markets were all lower, bookended by London down -1.4% and Frankfurt down -0.3%. Tokyo ended its Tuesday session up 0.3%, Hong Kong +0.2% and Shanghai +0.1%. The ASX200 ended its Tuesday session down a minor -0.1% but the NZX50 fell -0.5% yesterday.

The price of gold will start today at US$1959/oz and up +US$3 from yesterday.

But oil prices are a lot lower today from yesterday at just over US$69/bbl in the US and that is down -US$4/bbl. The international Brent price is now just on US$73.50/bbl.

The Kiwi dollar starts today marginally softer at 60.4 USc. Against the Aussie we are marginally firmer 92.8 AUc. Against the euro we are softer at 56.3 euro cents. That means the TWI-5 is down -10 bps at 69.3.

The bitcoin price is almost unchanged today at US$27,739. Volatility over the past 24 hours has been low at just on +/- 0.9%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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27 Comments

And staying in China, a strong echo from their brutal pandemic lockdown is starting to play out in their economy.

I'm not sure you need to go to China to be able to report on that.

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5

Who would trust any economic data coming out of China.

It's al fabricated to fit the dictatorships world plan

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Insurance premiums soar 20%

https://www.stuff.co.nz/business/132183079/average-household-can-expect…

So we see the insurance companies schooling the great New Zealand public on the ever mounting costs of climate change. You were warned folks.............

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18

I’m working with Dirk Bezemer and others on an article where we calculate how much of the GNP, the reported product, is actually overhead. In other words, what is Gross Domestic Product (GDP) without the FIRE sector (finance, insurance and real estate)? A strict classical economist would say, let’s take out the monopolist rent. How much of American industry’s reported profits, e.g., in healthcare, are really monopoly rent? The idea of industrial development today is to carve out a monopoly where there’s no competition and get super profits. This is a concept that has been dropped, really, ever since World War One, about a century ago. There’s no distinction between productive and unproductive labor, between wealth and overhead. John Bates Clark said that if somebody’s wealthy, they earned the wealth; there’s no such thing as unearned wealth. Today wealth is mainly achieved by asset-price inflation; by capital gains. You won’t find a single wealthy family that made money simply by saving up what they earned. They make money by increasing the price of their stocks and bonds and real estate holdings, not by saving up their earnings. Yet, capital gains, i.e., asset-price inflation, are left out of the statistics of almost every country. So it is very hard to explain how wealth is achieved, and yet that was the purpose of economics in the 19th century and centuries before. But suddenly the idea of wealth has been suppressed as sex was in the day of Sigmund Freud Link

 

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It will be interesting to see the outcome of the proposed study looking at the effect of the Tongan volcano eruption to the proceeding weather patterns and see if there's a causal link:

https://www.stuff.co.nz/national/weather-news/131248166/new-study-will-…

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8

And if there isn't a causal link with the Tongan volcano you will be happy to accept that I assume?

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"One year later, a preliminary calculation has been done that suggests the eruption increased the earth’s surface by 0.1C.

That’s a very small amount in terms of the overall global warming behind the increase in extreme weather events being experienced in the North Island, he said."

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1

what has the inflated cost of building and repairing cars got to do with "climate change" ?

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Blackdog - EVERYTHING.

Direct cause/causal link.

We burn fossilised sunlight, to gain the energy. Without that, no buildings as we know them; no cars. No other energy source comes close, and we are half-way through the fossil resource.

Climate alteration is a direct result of that burn. We can't afford to burn the second half, and we're sc---ed once we do anyway.

Wear it. Physics is what physics is. Time to design life there-fossil-after.

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Problem is PDK you know that fossil fuels are still going to be here after the current decision making generation have departed the planet, so really we don't give a shit.

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Biden era yes; Hipkins/Keyclone ear no.

:)

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The problem there PDK is that politics is still screwing us. New generations are taking over the big corporations too, but the choices they are making are not changing. They are still choosing to feather their own nests before doing good for the planet. 

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So another component of the CPI basket that ignores the OCR influence?

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Insurance is 100% optional in New Zealand, even home insurance once you no longer have a mortgage. I would do you own assessment as to the risks. Sometimes you have to take some risks in life.

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You should insure what you can't afford to lose. So for 98% of people at the very least that would include 3rd party insurance. 

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I would argue its only the 2% that can truly afford insurance on everything. Trying to cover everything for the average person will cripple them financially. Third party car insurance, sure its cheap, very cheap in fact after several years an no claims but we re talking home and contents insurance. If you want to save a significant amount here get home insurance but no contents.

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Here's recession confirmation & not later this year like Fed forecast. Recession already by Q1 before banking crisis. Real GDI down Y/Y. In 75yrs of data, it has NEVER happened outside recession (or immediately after). Happens IN EVERY contraction. https://buff.ly/3ILJCzp  Link

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5

Starting to see a lot of defaults in the China shadow banking world, they have a very serious construction collapse, too much debt , not enough demand....

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I've been watching this development for quite a while. Where this becomes a problem for the global economy is Chinese authorities forcing its industries to cut output in order to avoid a supply glut of materials such as steel, cement and aluminium.

This could trigger another crash in global prices for base metals, fossil fuels, ores and other commodities more generally.

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5

It would probably help bring inflation down

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2

Maybe a good news story on the inflation side but troubling for businesses if our two largest export destinations (China and Aus) face major economic headwinds in their core industries.

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With oil prices' continued weakness, I hope that Labour has the courage to stand by its promises and remove the fuel discount. It's the perfect time to do it.

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2

https://www.nzherald.co.nz/nz/grant-robertson-announces-fuel-tax-subsid….

Looks pretty definite come 30-June, it will be removed. 

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1

I wonder if National would roll this one back as well?

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Come on guys are you not anticipating the Labour promise of them keeping the fuel discount IF they get re-elected ? This election could turn into one giant lolly scramble.

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If #inflation is always and everywhere a monetary phenomenon, the #Eurozone could also be heading toward #deflation. The M2 money supply grew by only 0.9% YoY in April, the lowest in history and compared w/1.4% in March, 2% in Feb, and 2.9% in Jan.  Link

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Hey what happened to the comments section getting reopened on the Māori party piece ? That was turning into a giant punching bag and its got at least a few days left in it before it falls off the ceiling.

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