Here's our summary of key economic events overnight that affect New Zealand, with news that mixed US data that doesn't show their labour market retreating, along with weak Chinese data, has the greenback rising but bond yields falling. Commodities are out of favour.
US mortgage applications fell last week to a three month low (and approaching only half the level of a year ago), held back by both a lack of inventory for sale in their residential market as sellers are reluctant to chase prices lower, and higher interest rates. The benchmark 30 year fixed rate is now 6.91% plus points, a +22 bps rise in a week (thanks to the debt-limit debate).
Meanwhile their labour market just keep surprising with its strength. We get the May non-farm payroll data on Saturday NZT. Today the April job openings data surprised with an unexpected rise when a modest fall was anticipated. That pressure will keep the Fed on edge.
And this is despite last week's retail data coming in only +1.2% higher than a year ago on a same-store basis, far less than inflation.
And despite the Dallas Fed's services sector weakening. And despite the Chicago PMI coming in sharply lower too.
However the Fed's latest Beige Book reported economic activity was little changed overall in April and early May. Four Districts reported small increases in activity, six no change, and two slight to moderate declines. Expectations for future growth deteriorated a little, though most in this survey still largely expected a further expansion in activity. The labour market is still tight, they report. Price pressures are easing.
In Canada, they also report a reasonable expansion. Their Q1-2023 economic activity expanded +3.1% from the same quarter a year ago. This was more than was expected and is sure to raise the pressure on the next Bank of Canada rate review.
They weren't the only one to report a better than expected economic expansion in Q1-2023 overnight. India did too. The Indian economy expanded +6.1% year-on-year in the quarter, higher than an upwardly revised +4.5% in Q4-2022 and well above market forecasts of +5%.
But it isn't so upbeat in China, Their official factory PMI contracted more in May than April and more than expected, reinforcing the lackluster - even failing - recovery there. The yuan is still under pressure. But their services PMI shows that side of their economy still expanding at a good rate, but a little less than expected and near the least of 2023.
Japan also reported a stuttering, with retail sales slipping in April, and industrial production falling when a rise was expected. But they are expecting both May and June to expand. They see their strongest consumer sentiment of the year. This is all reflected in a booking stock market.
Both France and Germany reported CPI inflation rates for May overnight (+5.1% and +6.1% respectively) and both say the pressure is easing - not as fast as they would like however. But they are both far lower than year-ago levels. And hopes rise that ECB rate rises may now pause.
Australia's monthly inflation rate rose to 6.8% in the twelve months to April, which is a rise from the monthly indication of 6.3% in the March month.
And AUSTRAC says Bank of Queensland has breached prudential standards and fallen short in its compliance with anti-money laundering laws. For most customers, these requirements seem an unnecessary overreach. But they seem here to stay.
In international trade, air cargo demand in April continued its year-on-year decline but at a slower rate than the first three months of 2023, with volumes falling by -6.6% compared to April a year ago. The fall was about half that in the Asia/Pacific region however.
The UST 10yr yield will start today at 3.63% and down another -7 bps. Their key 2-10 yield curve is less inverted at -73 bps. Their 1-5 curve is at -145 bps and marginally more inverted. And their 3 mth-10yr curve is again less inverted at -155 bps. The Australian 10 year bond yield is now at 3.59% and down another -4 bps. The China 10 year bond rate is little-changed at 2.73%. And the NZ Government 10 year bond rate is at 4.35% and down a rather large -12 bps from this time yesterday.
Wall Street opened their Wednesday session, the final for May, with the S&P500 down -0.3% and heading for a minor monthly +0.4% gain. European markets were all lower, bookended by London down -1.0% and Frankfurt and Paris down -1.5%. For the month, the London market lost 4.2% while at the other end Frankfurt only shed -0.4%. Tokyo ended its Wednesday session down -1.4% on the day but rose +6.1% for the month. Hong Kong fell -1.9% yesterday and ended the month down a massive -8.5%. Shanghai gave up -0.6% yesterday for a monthly -4.4% fall. The ASX200 ended its Wednesday session down -1.3% for a -3.3% monthly drop. The NZX50 fell -0.6% yesterday for a lesser -1.6% monthly retreat.
The price of gold will start today at US$1967/oz and up +US$8 from yesterday.
But oil prices are -50 USc lower today from yesterday at just under US$68.50/bbl in the US. The international Brent price is now just under US$73/bbl.
The Kiwi dollar starts today -¼c softer at 60.1 USc. Against the Aussie we are marginally softer 92.6 AUc. Against the euro we are little-changed at 56.4 euro cents. That means the TWI-5 is down -20 bps at 69.1.
The bitcoin price is lower today at US$27,043 which is down -2.5% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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67 Comments
No mention of the NZ uk trade deal starting today. Use of UPPER and lower case implys who benefits more
UK supermarket customers get to pay less. Our exporters will be paid the same, not more. The benefit of the drop in duties goes to the end buyer.
Similarly. In the dreadful days around the 70/80’s repeated NZ$ devaluations the overseas importers were fast to demand on each event, oh you can now reduce your CIF price(s) relatively, can’t you.
A drop in duties should make NZ-made goods more competitive on UK supermarket shelves. This should help push more volumes overall even if it means the same per unit revenue to our exporters.
I take that as a big win, given the pathetic current account/trade balance position we're in. Also helps us diversify away from China and its economic dependents (Aussie).
And if the lower price the UK consumers are now paying, is still higher than what the chinese are paying, then our exporters will get paid more by redirecting trade from china to the uk.
Isn't that benefit designed to encourage the end user to buy more?
Surely you aren't implying there is some kind of relationship between price and quantity demanded?
I very much doubt it will have any significant impact on New Zealand. Only for 'show'.
Much like the Prime Min we had at the time, only for show
Anyone know why oil is dropping so much?
Russia is pumping more and more and pissing off the Saudi's. Could get rather nasty.
And isn't India then refining it and then on selling it to the EU?
Seems they are working to close that loophole
https://www.aljazeera.com/news/2023/5/16/eu-to-curb-indian-fuel-imports…
A Orr needs inflation down fast and using covid bonds to short sell
HW2, is that you?
Not that buzzard why do you say that
Aussie inflation is not stopping as it seems. A sign of things to come here.
Edit: Sorry Aussie not Aunty!
Thought it seemed pretty obvious their measly rate increases favouring the mortgage holders weren't going to tame inflation, but it seems the economists were pretty surprised by the uptick.
It seems rent rises caused by mass immigration are one of the core reasons. The reserve bank governor is suggesting people need to move back home to mum and dad or pack more suckers into that rental property. I'd say the students already pitching their tents in the living room to make a bedroom is defined as the maximum capacity for a rental.
For anyone hoping that we have a roadmap for a way forward for this country, this is quite a grim read. I'd initially thought there was a bit of a bad smell to the new story about Mike Joy being let go from VUW. Looks more like widespread incompetence.
What benefits does the country get from the money spent on consultants in Wellington vs money invested in research?
Bullet points from the article. Link
- a press release lauding the “biggest increase in at least 20 years” to tertiary subsidies ($521 million over 4 years);
- $355 million of funding reallocated in the same year away from tertiary education because student numbers are down;
- a policy of increasing research expenditure significantly on the basis of economic strategy, but refuses to distribute the funding due to concerns about the human “capacity” to do the work;
- announced major investment in a “Wellington Science City”;
- declared that it will not fill the funding hole responsible for current redundancies.
Hamish I think we are all 'hoping' for a road map for the way forward, but most of us realise our politicians have us on a drive to the bottom. There is no vision, and little creativity other than to entrench their own power and privilege.
I'd even go so far as to suggest that even some of the commenters on this site who feed into the comment trails, cling too firmly to old theory that has been proven to be flawed. A current example discussing the possibility of price controls on groceries is a case in point where many have argued that price controls don't work, while others have provided many examples of where they do very well. The term 'free market' is even bandied around when it is understood that a) the free market is not actually 'free', and b) it just doesn't work. As long as people stick to old theory which has been proven to be flawed there con be little or no hope for a way forward, and vested interests will always try to torpedo any new ideas that look like threatening their wealth, power and privilege.
The only vision is coming from one man, Raf Manji of TOP. Look at the site. The only politician with some common sense to get some inequality out of the system.
The big problem is that TOP was created by an economist, and the principles adhered to are too wedded to conventional theory which is proven to be flawed.
That economist is long gone, so get over Gareth Morgan
Have a look at there very sensible climate change and mitigation policy as well, based on science and not idealology. BREATHE OF FRESH AIR, PUN INTENDED.
their
Great, another politician who thinks they are omnipotent enough to change the climate.
Changing public opinion is difficult when the terminally stupid work so hard to send humanity to hell.
Which conventional theory is that murray?
I don't care who created TOP, I do care whether or not policies such as taxing land and using that revenue to give workers the first 15k tax free will make for a better long-term NZ or not.
I think TOP's taxation reform policy would improve NZ hugely over time, therefore, I will vote for what I think is the best policy by far of any current political party.
Your last half of the last paragraph gets my tick. That is what democracy is.
But the Government doesn't have to tax land or any other asset to provide a tax free bottom bracket. But they won't do it ever because their attitude is to keep the population subservient the the neo-elite classes. It is curious that 100 or so years ago it was clearly identified that the class system in society was bad for society as a whole, but today the politicians and wealthy seem hell bent on creating their own, modern version of it.
I recall at a family reunion being surprised that my ancestors owned large amounts of land (basically the whole district I grew up in). At the time Dad said they were unable to hold onto it due to [land] tax - this would be over 100 years ago. He also said that's how a lot of people got a chance to own their own farms.
I think we need a repeat of the medicine to make [especially] housing land affordable. Agree that a land tax isn't the only way to do it - I just think it's the best / most efficient way.
No, a land tax won't achieve that today. But it will be a barrier to FHBs getting in. what will achieve the out come is Government regulation on rentals; capping rents, making anyone who want to rent out a property have a licence (includes owners and managers), set minimum standard for rental properties that must be met before they can be rented, do not allow properties to be kept empty (land banking), and do not allow foreign ownership for a start. I think regulating RE fees would help too.
This regulation would cause a lot of people to have to sell, likely cause the property values to drop a lot further which is a good thing as everyone wins when housing is cheaper. But Government is too scared to do their job.
Cheers for the reply Murray, I think we want the same outcome but have different ideas about how to achieve it. I actually think your route could work, recall you saying years ago about capping rentals and it fell on deaf ears. It would have helped in my view to contain the 2+ billion beast that is the accommodation supplement - and that's just the bit the government pays landlords (all renters pay more rent due to the accommodation supplement). I would also support the poster Kate's idea of regulating rents.
We will agree to disagree that a land tax would be a barrier to FHB's. There is no way the price of land goes up if an additional tax is put on it, no one pays freehold price for leasehold land and the lease amount is no different to a tax.
I agree we want the same outcome.
Don't be too sure that the price doesn't go up if an additional tax is put on it. Wealthy often have ways to offset or avoid taxes. I am sure that there are examples where Governments have put additional costs/fees/taxes on things to limit their price escalation, and all they achieved was cutting people at the bottom out.
Besides i also suggest that the real goal we should be seeking is a reduction in population, and that in itself would result in a reduction in the demand for land.
I think land is the exception to the rule, everything else goes up if a tax is added but land goes down as it's a holding cost after purchase (not added to the purchase price).
Wealthy are often astute at minimising tax; hence I like a broad land tax as they cannot hide the land offshore. The only way to avoid a land tax is to sell it and more sellers means lower prices than would otherwise be the case. Lower prices mean more FHB will be able to afford to purchase (of course their holding cost will be higher and act as a disincentive for them to buy a second house too, but they will have saved on the initial purchase price to begin with).
Population growth has and is causing extra demand for housing to rent and purchase. So easy to stop with the stroke of a pen as we witnessed during covid too, but all current politicians are addicted to short term growth for re-election and to hell with anything after that. Even TOP seems to have fallen victim to this now and NZF never does anything about it despite multiple opportunities to.
Why wouldn't it work? How would it be a barrier t FHB's
Go and use the TOP tax calc. Pretend you have a bach, an air bnb, 100 ha sitting in a land bank, undeveloped sections and so on.
Then see how keen you might be to hand onto an underperforming or idle asset - all of which with the policy would drop in price and/or become available for use.
What happens if you own nothing and want to buy your first home? Just like most FHBs for decades you stretch really beyond rational limits to achieve and live below the poverty line for a while to keep it, a land tax on top of existing costs would just make it harder. And that reminds me - we already have a land tax - it's called rates.
What happens is you are taxed less today, and the house you want to buy tomorrow becomes cheaper as owning land becomes a liability. The change in tax base would be massively beneficial to those who own the least.
..looks like you didn’t make the effort to try that TOP tax calculator huh
I get an ouch when I use their tax calculator....a bigger ouch when i wind down my income.
That said, I can see how it will sort out tax fairness and reduce housing prices - the reason I became a fan from the outset (but confess, as it hurts me more now, the enthusiasm takes hit).
I would urge any non or younger one home owners to take a look at TOP, they are certainly a party for that group.
Yes, same here Rastus, but then I emailed Raf and did get a reply, and now I understand more of the detail behind the policy. Interesting.
Well that's a problem they need to fix pronto IMO. Their policies need to be more easily and quickly understood.
Basically, the policy is the starting point.
Australia have an initial $18000 tax free for all before being subject to tax. Imagine if NZ had $20,000 TAX FREE. We would be very competitive for retaining our graduates, and have very little poverty.
Aussie over $180k tax rate is 45% (was 47% back in 2006), NZ's is 39% and was only introduced from 2022 tax year (33% prior to that). We would need to up our higher marginal tax rates to pick up the loss of tax on under $18,000.
Exactly
From 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
https://www.abc.net.au/news/2023-04-28/stage-three-tax-cuts-to-scale/10…
competitive against who?
UK has GBP 12570 or NZD 26,000 tax free allowance.
I've been nagging Raf since last year that TOP need to have fewer and less complex policies. This was the feedback from the 2017 election review I attended as well as my own thoughts. They have cut out some policy (including some I liked) but continue to have too much detail for the vast majority of time poor voters to assimilate.
I would have liked to see them go fully after the housing rent/price (biggest part of the cost of living) as the core issue and include a population policy to either reduce demand (immigration down/wages up) or offer a referendum to ask what population the people here want.
Screws me over completely. Retiring next year and going to 1 income to pay fixed costs. Travel comes from a separate fund. They want an extra $5k from the primary income of $70k. Vote TOP if you own nothing and have no desire to move ahead. Should merge with the Greens.
Universities are a product of surplus energy; we could specialise. That was temporary, and the tide is receding (everywhere; health, 3waters, polytechs, LG, infrastructure). But Universities - particularly since the Joyce ideological sabotage - are unsustainable; they were predicated on ever-available future energy and resources - to repay the student debt (note how it wasn't needed, then it was, then it was, more).
That underwrite increasingly isn't there (alle same oil-extraction Capex) and so less bums on seats, less support for building programmes and debt-repayment. They're in the cart - and jettisoning any who address the truth of the 'why?'.
Which means they will end up with just Economics - the one which projects the reassuring lie (that you can decouple growth from things physical, or that there is no limit - same thing really). This is simultaneous with the trend to re-write science with Maori beliefs (which the Uni's - indeed Education at all levels - seem too stunned to challenge)
As a society, we need an urgent discussion about knowledge; retention, addition-to, and teaching of. The current model is broken.
The model is broken and the interest free loans have enabled them to stumble along with a guaranteed client base who is ignorant to debt..
The US is even worse as the finance market predators lie behind loans - which are almost impossible to escape via bankruptcy law.
If you want to be educated the Kahn Academy shows the way...all free. Makes teachers redundant - they hate it.
Makes teachers redundant - they hate it.
All my teachers - or rather, all my good teachers - encouraged us to use Khan Academy to supplement our studies. Back then it was only a limited set of courses but really helped with 7th form calculus. I see it's expanded massively since then - what an amazing resource.
OECD has found our workforce to be overqualified for the jobs they do. The premium our economy places on tertiary qualification over high school grads is 29%, well-below the OECD average of 54%.
29% of tertiary students in NZ opted for arts and humanities, compared to 6% across OECD - explains some of the overqualification issue. To be clear, nothing wrong with studying arts and humanities but our economy's ability to absorb those grads is limited, especially when skills critical to run a developed economy (construction, engineering, medical, etc.) are missing in action.
Is it because they want to be consultocrats for government departments, just asking.
Driven by low entry requirements and results in near useless career prospects. Get a professional degree-Engineering, Optometry, Law, Architect. Yes, yes, yes. There are always some fringe jobs for the Zoology and Anthropology grads but most never make use of what they learnt.
The beauty with the humanities department, is it teaches a student how to think, not what to think. Something critically lacking in todays society.
That's good to know... a while since I've been near a school but back then they knew nothing about it and weren't interested. It's amazing with teaching basic math. Get your kids onto it.
This is a great podcast about Sal Kahn.
https://podcasts.apple.com/us/podcast/khan-academy-sal-khan/id115051029…
That's the problem in a nutshell.
Teaching (as a commodity) and research (investigation into solving problems that are left to some accountant to put a monetary value on) being so tightly bundled together.
Our tertiary education model is why you get young people graduating with worthless degrees. The university/polytech doesn't care if 200 people graduate with a qualification in an industry with 10 vacancies, so they end up back at McDonalds.
I suppose, like young people taking out mortgages, this is another example of "individual responsibility"? Students "should know" etc.
I encouraged as many of my university class mates as I could to take out a student loan rather than paying their course fees.
It is ignorant of how inflation and opportunity cost work NOT to take out interest free debt if the alternative is paying it off with your savings or income from work.
Even though I am now in Australia, I am still only paying 2.9% which is less than half of the rate of inflation, so the purchasing power of loaned money is loosing value faster than it is making money. Win for me, loss for the NZ tax payer (which is also me but I get less out of it).
And if I put the $3000 I need to pay back this year into a savings account, as long as I am earning an interest rate above ~4.15% (at 30% tax and not accounting for compounding interest) I am coming out ahead.
Somebody tell chippy and Rod.
"NuScale’s VOYGR SMRs are set to be the first to get regulated for use in the US. What’s more, they have a project cost per MWh of $89, putting them on par with US coal energy which costs $88 per MWh."
https://medium.com/predict/nuclear-steel-could-save-2-billion-tonnes-of…
I vote we store the radioactive waste at profiles place.
it would make more sense to keep using it until it is producing relatively little radiation, which is possible now, and then bury it in a sealed chamber deep underground, somewhere remote and geologically stable.
As long as you let me build a fast breeder Palmtree.
"“Fundamentally, in light-water reactors, out of the uranium we dig out of the ground, we use a half a percent of the energy that’s in the uranium that’s dug out of the ground,” Gehin told CNBC in a phone interview. “You can get a large fraction of that energy if you were to recycle the fuel through fast reactors.”
https://www.cnbc.com/2022/06/02/nuclear-waste-us-could-power-the-us-for…
"Uranium can be used 60 times more efficiently in fast breeder reactors,
which burn up all the uranium – both the 238U and the 235U (in contrast to
the once-through reactors, which burn mainly 235U). As long as we don’t
chuck away the spent fuel that is spat out by once-through reactors, this
source of depleted uranium could be used too, so uranium that is put in
once-through reactors need not be wasted. "
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