Here's our summary of key economic events over the long weekend that affect New Zealand, with news the global service sector is expanding faster and keeping the long-awaited economic retreat at bay.
First in the US, there were two PMIs out for their services sector. The widely-watched ISM one retreated from a modest expansion to a minor expansion in May. This wasn't expected because a faster expansion was anticipated. (However new order growth was notably strong.) The internationally benchmarked Markit one rose to a moderate expansion, but not by as much as was anticipated. (New order growth as a feature of this one too.) Markets took their cues from the ISM one.
But there was little growth in US factory orders in April. They did grow from March but it was modest, but from a year ago, they fell -1.1%. Given inflation in that period, that is a substantial retreat.
And this is reflected in American May vehicle sales which were a bit of a disappointment. They ran at about a +15.0 mln annual rate and well down on the +16.1 mln annual rate in April. But the 15 mln rate is what they have had for most of 2023 and this is well above the rate for the past two years. Still the American vehicle market is still much smaller than the Chinese vehicle market that runs at about a 22 mln annual rate.
Over the weekend, not only did the US Congress approve the debt-limit compromise and their President sign it, their labour market showed much more strength than expected in May. At a headline level, the US economy created +339,000 jobs in May, compared to market expectations of +190,000 and following an upwardly revised +294,000 in April. Job gains occurred across the board in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.
Across the Pacific, China's services PMI expanded at a good pace in May, according to the Caixin survey, and faster than the official version.
Japan's service sector is expanding even faster now and at a record pace since this survey began in 2008
India's service sector is expanding faster as well. There has been a slower, but historically strong, expansion in new business in May. But this survey reveals inflation is now at its joint-highest since July 2017.
In Australia, consumer inflation expectations rose to 5.0% in May from 4.6% in April, reinforcing the view that inflation is far from beaten there.
And staying in Australia, home loan approvals fell a surprise -2.9% in April, when a solid +2% rise was expected. This follows a strong +5.3% gain in March. Some analysts blamed the timing of Easter, but that was hardly unexpected. More likely it is an overall reflection of the state of the new house building market. The supply of new homes is set to continue to decline under the weight of rising interest rates designed to rein in inflation. They have a lot of work to do on that front.
Meanwhile, their official pay review body raised pay rates for their lowest paid workers by +8.65% and workers under their Award system will get +5.75% effective July 1, 2023. It will apply to about a fifth of the Australian workforce. Data out Monday shows wages and salaries rose at a fast +11.4% year-on-year. That probably means the RBA will raise rates again soon. Inflation was running at 6.8% in April.
And the record-breaking grain production in Australia is now expected to come to an end as favourable weather conditions fade. In fact, the volume reductions will be quite sharp and may affect global food prices.
The UST 10yr yield will start today at 3.69% and little-changed from Saturday. Their key 2-10 yield curve is essentially unchanged at -80 bps. Their 1-5 curve is little-changed at a -138 bps inversion. And their 3 mth-10yr curve is at -149 bps and marginally less inverted. The Australian 10 year bond yield is now at 3.79% and up +6 bps. The China 10 year bond rate is little-changed at 2.73%. And the NZ Government 10 year bond rate is at 4.39% and unchanged from this time Saturday.
Wall Street has opened its Monday session with a -0.3% retreat on the S&P500. Overnight, European markets were all lower, on average by -0.5%. Yesterday, Tokyo hit a new record high, powering up +2.2% on the day. Hong Kong was up +0.8%. Shanghai was up +0.1%. The ASX200 ended its Monday session up +1.0%, and of course the NZX50 was closed for the holiday.
The price of gold will start today at US$1961/oz and up +US$10 from Saturday.
And oil prices are up +US$1 today from Saturday at just on US$72.50/bbl in the US. The international Brent price is now just on US$77/bbl. The Saudi announcement that they will be cutting supply for longer to try and raise the price has had only minimal impact. Cheap Russian oil flooding many markets undermines them.
The Kiwi dollar starts today little-changed at 60.8 USc. Against the Aussie we are still at 91.8 AUc. Against the euro we are little-changed at 56.7 euro cents. That means the TWI-5 is down -20 bps at 69.3 from where we left it Saturday.
The bitcoin price is sharply lower today at US$25,759 which is a full -5.0% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.8%. The US Securities & Exchange Commission has filed charges against Binance, accusing it of a 'giant web of deception'.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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57 Comments
Was charged $7.10 for a flat white over the weekend. I think the cash rate will definitely be going higher. So will the Aus! Houston....we have a problem.
Don't think raising the cash rate is going to make your flat white cheaper. I guess it could go to zero when the cafe can't survive to operate anymore...
Come on Nifty. Did you not engage your brain this morning. I'm not asking for a cheaper flat white. More highlighting the symptoms that lead to a record (for me) coffee price. Wages, raw materials. I think you know this but choose to be obtuse.
@tomjones,out of interest,was that coffee on the public holiday, i.e surcharge?
It was Sunday.
It could be worse lol;
https://www.news.com.au/lifestyle/food/drink/western-sydney-cafe-offers…
If you think the price of coffee at your local cafe is getting a bit pricey, you may want to brace yourself before reading about this $1500 brew found in western Sydney.
The Brew Lab Cafe in Penrith claims to offer the “rarest coffee in Australia”, a brew so special it is served by “appointment only” for an eye-watering price.
Cafe owner Mitchell Johnson, who has tasted the “phenomenal” cup of joe, says the coffee is so special he has literally seen it bring customers to tears.
I think the tears were probably from the realisation that they had been ripped off and could have made a cup of Greg's at home.
Tom, it was your choice to pay $7.10 for a flat white. Another way to look at inflation is that, as long as people are willing to pay the higher price, inflation will keep rising.
I've stopped buying any takeaway coffee now. I'll only order one if I'm dining in for a brunch or work meeting or something like that.
The espresso machine and grinder set that I bought from the Airpoints store a few years ago is still going strong and working harder than ever. Costs me about $7 per week in beans for two coffees a day (I don't have milk any more).
Even the Nescafe Cappuccino strong instant sachets, if that's your thing, are about 60 cents a coffee.
They aren't bad at all, although I find that any sort of instant coffee gives me a bit of a headache (honestly no idea why, I don't get it if I grind the beans fresh or even have pre-ground espresso or plunger coffee).
When I was working it amazed me how many people would walk into work with the expensive coffee they had just purchased. They just didn't get it that by they took their petrol to and from work as well as their coffee they were in effect working the first hour (or more) for nothing. These people will never get their first rental property.
Agreed Yvil. That's why a market correction/recession is what's needed to bring sanity back into economies after a period of abnormally high inflation.
If the average worker is happy to take higher prices without a fight (bargaining, shopping around, reassessing its need, etc.), assuming that they would negotiate a xx% pay hike to make up for the higher spend, inflation gets caught in a spiral.
Hence partly why central banks attempt to trigger a recession, so the threat of job losses corrects consumer behaviour.
The useless Commerce Commission report on supermarket competition did contain some gems. One of which was that a barrier to achieving competition is that New Zealanders are poor shoppers. We don't look about, we just pay what we are told to.
Businesses aren't price restricted
So if consumers will pay 10 bucks a cup then all the better. Ultimately that's what we will pay, even if inflation is near zero.
Competition helps to limit price increases.
You have to be in Auckland at some trendy cafe. I have not noticed the coffee prices shift much down here but the food prices sure have. We no longer spend like $55 on brunch, its a couple of flat whites and date loaf to share so about $20. At home I shifted to plunger coffee a while back and this really takes the need away to buy coffee out. $9 probably makes 20 cups.
The RBNZ was out ahead of this lot, but for some mystifying reason, surrendered mid-battle.
The Reserve Bank of Australia must raise the cash rate multiple times as accelerating wages growth and fears of persistently high inflation....new data revealed rapid rates of private-sector pay growth likely outstripped business profits and productivity gains (AFR)
The RBNZ will raise the OCR if it has to. Despite the media chorus claiming that the RBNZ said no more rises, they never said any such thing.
"On-farm inflation sitting at 16.3 percent, two-and-a -half times the consumer price inflation rate of 6.7 percent."
Higher interest rates isn't the answer to the above sentence in itself. The RBNZ doing their job, is (was). Had they not dropped the OCR to ludicrously low levels and failed to respond when it was possible (ramping the OCR to....3.5% - shudder- when the CPI was making a move towards that level) then we might not be facing what we are. But making the same mistake that was made back at 3.5% = not moving hard and fast and stopping further CPI upward moves in its track will be unforgivable. The longer they delay - again - the worse it's going to get.
Higher interest rates are responsible for just over half of those on farm cost increases. This is what happens when you tackle supply-side / imported inflation by trying to suppress demand... prices are more likely to go up than down. The idea that reduced demand in NZ will persuade global food markets to lower their price is next level dumb.
Prices don't need to fall to reduce inflation Jfoe, they just need to stop rising. If enough people stop paying $7.10 for a coffee, prices will stop rising and inflation will drop.
Yes, sorry, wasn't clear.
Yvil. You make a good point about the coffee. It's obviously a choice. We can apply the same logic to the prices vendors are asking for houses at the moment, or vehicle sales. We all have a choice...
If there is a shortage of houses and rentals coupled with immigrant supply outstripping baby supply is there much choice when it comes to housing? A hell of a lot less choice on house pricing when compared to forgoing a coffee.
In a nutshell you have explained why the politicians have failed so miserably.
This and their rental portfolios and legislative bias should be the election issue.
Young Chloe is doing her best I see - good on her.
Tom, I'm glad you agree that we all have choices, this is the first step towards accountability vs blaming others.
Your comparison between the cup of coffee and real estate is a bit of a push though, because with coffee you have an easy alternative: have a cheap cuppa at home. With real estate, you need a roof over your head and there are not many cheaper alternatives...
"The first step towards accountability and blaming others". Did you read a self help book over the weekend? My initial point about the coffee is that it 'appears' that the inflationary forces are still pushing up costs. I respected your point about choice... but I'm not blaming anyone. (Not today anyway:-)
SCAM ALERT Obviously targetting those with funds.
High return seeking investors come badly unstuck. High reward equals high risk
Derek Handley’s Aera offers 6.45 per cent ‘Deposit Accelerator’ rate for first-home buyers
https://www.nzherald.co.nz/business/derek-handleys-aera-offers-645-per-…
Hasn't this guy been involved in all sorts of fairly iffy ventures in the past? (mostly digital media)
Chequered past, was involved with SKY as a hotshot, then failed to perform.
Although in many cases the returns in dodgy funds is deliberately set only slightly higher than reputable funds so that people are lulled into thinking that it is a legitimate fund and not a ponzi scheme.
Exactly what my broker said about finance companies pre GFC.
Beware of the statements " High reward equals high risk"
There was a finance company back then that offered extraordinary high interest rates - like 16%. Could not attract deposits because it was assumed as high risk.
Their brilliant solution was to offer depositors was to advertise at 8% and deposits flowed in. Some company same scheme.
Of course both options were the same risk. And yes it went broke anyway.
So. Determine risk first, then decide what is an acceptable rate to you for that risk. But don't look at the interest rate offered and decide that is a measure of the risk.
Great advice.
High is still a relative term. Earlier headline was using "millionaire" in the heading as click bait.
US Govt now throwing well over $400 million per day at US banks in interest on reserves. Apparently if the Fed increases interest rates and increases this stimulus, this will, errrrm, cool things down. Seriously, at what point will people recognise that in the US economy higher interests rates may be net stimulatory? Or, that the net suppressive effect on consumer demand is so weak that rate hikes will only 'work' when they are high enough to cause a complete collapse of the finance system (which the Fed will then rescue anyway!)
We are giving $7.7M of govt cash to commercial banks everyday by the way. Thankfully this flows to offshore equity holders of banks so risk of overstimulating our economy is pretty low. Phew.
Fed draining more in exchange for pristine collateral: Link
I see your point Jfoe, so what do you propose NZ can/should do to reduce inflation ? It's not easy to resolve supply issues for NZ.
I actually don't think we should do anything at this point other than mitigate the risk of interest rate hikes sustaining our current spell of inflation. For example:
- offer discounted revolving credit to food producers so that they survive the next year. The high cost of credit is killing them and they are now passing those higher costs onto wholesalers and retailers (causing inflation!)
- replace the fuel excise duty and ETS levy with a flexible duty that keeps the petrol / diesel gate price constant for the next year as we continue to navigate turbulent times, and the ETS remains mortally wounded. Basically aim for petrol to retail at $2.20 and diesel at $1.60 (or thereabouts). Certainty of price for 12 months will allow businesses to plan with more confidence and will prevent oscillating prices pushing up other prices in the economy
- introduce import / retail price monitoring on key goods to make sure that falling import prices are passed on quickly to consumers (keep an eye on that cynical price freeze strategy from Countdown!)
- we might have to do something on Auckland rents, which are running really hot. But, I'll not wind up all the ma and pa landlords on here with my reckons.
The global market crash everyone sees but no one wants to talk about.
#realestate and property #assetbubble across the world is going bust risking a renewed #bankcrisis plus #recession the US. The situation in #China with developers rather than turning around is causing the government to repeat its failed strategies.
The money is the motivation for anyone to get out of bed in the morning and go to work.
We have printed a lot of it in last two years so there is lot of it in the market out there albeit borrowed one.
Now the rich who helped print that money and made all the Dumbo borrow it, are turning the tap of interest rates and they will reap in the benefits.
The dumb who borrowed like crazy to buy that house and pump up their lifestyle.. Now you will know what slavery means. Slaves will remain slaves, no matter which century or generation. Slavery is a mindset and ignorance. And information is power.
Although information is more readily available now, only few of have eyes to see it and brain to understand it.
That's why I'm a strong advocate to teach basic budgeting at school level. Currently, if you are born into a family with no money sense, you are at a big disadvantage. Teaching money management at school would level the playing field!
"Debt slavery" is nothing like real slavery. Your assets will be taken if you don't pay your debts. But that's it. You work 40 hour weeks, weekends off, 5 weeks annual leave, 2 weeks of public holidays, you're free to change jobs, partake in sports and leisure activities, and at the end of the day you could decide to walk away from it all and lose your assets. You really can't compare that to 100+ hour weeks with chains around your ankles and little or no hope of escape.
But they are still re-inventing slavery today. Many jobs are not restricted to 40 hours a week, and more than that often no overtime is paid. They get around that by putting people on a miserly salary. On top of all that is the actual pay puts people into what is essentially a subsistence situation, forcing them into multiple jobs , usually at the bottom. So 100+ hours a week can be reality for some. So there might not be physical chains, but the nonphysical ones can trap people just as effectively.
I disagree. You still have the option to forego the assets and remove the bond, or to upskill and earn more.
The US Securities & Exchange Commission has filed charges against Binance, accusing it of a 'giant web of deception'.
Well this took some time. Better to happen sooner rather than later. The founder of Binance openly taunts SEC Chair Gary Gensler on Twitter with the comment "Wonder if he ever reads the comments under his post, from the consumers he is suppose to protect." Regardless, Binance Japan starts operations this month after passing all checks imposed by the Japan FSA.
Anyway, in my opinion, the U.S. regulatory environment is a clown show. The SEC refuses to tell people what a security is but goes after Binance. If you’re a US citizen, this is your government trying to kick out crypto adoption before their CBDC is implemented.
A good chart to remind readers just how exposed we are as a nation to financial difficulties because we extended too much debt against our housing market and thus dangerously decoupled house prices from rents and incomes (i.e. the future discounted cash flows of which are used to price the same asset).
https://pbs.twimg.com/media/FxyeUY6acAI3wfQ?format=jpg&name=large
Canada finds itself in the same precarious situation.
Wow..that's a sobering. Shows the potential for a hard landing.
Interesting stuff. As per OECD stats from 2020, NZ households spend the highest proportion of their disposable income to keep a roof over their heads at about 26%. Doesn't help that both our average household disposable income and purchasing power are lower than the OECD average.
No plan from either of our major political parties to do anything but worsen the issue by throwing rapid population growth into our already messed up housing market.
...by trying to throw rapid population growth into our already messed up housing market.
I do wonder if Labour opened the immigration tap to pull the rug out from under National. Can't promise immigration if the flood gates are already open but the water is flowing back upstream.
No plan from either of our major political parties to do anything but worsen the issue by throwing rapid population growth into our already messed up housing market.
Same game plan across the ditch. In fact they're doing a much better job. The property ponzi; population crush loading; and cheap labor are the 3 pillars of their economic strategy.
Much of the Anglosphere is actually pumping up net migration to grow their domestic economies. That being said, NZ is probably the worst off on the list with nothing much to show for even before the population-mania began.
The US and UK at least have some high-value sectors doing the heavy-lifting, Canada and Aussie have their mining sectors pulling the weight and Ireland's tax sheltering schemes though unpopular has put them in a formidable economic position.
What have we got? Agriculture is fully tapped out I suppose and, like it or not, tourism makes us poorer as a nation.
"People these days are lazy and just want to take pictures of themselves to put online instead of trying to work hard to get a home of their own."
Plenty of chatter in the comments around this topic lately, would be good to keep this chart on hand as some minor indication of the uphill battle that many Millennials and Gen Z face. I'm sure if you asked these same "hard working back in my day" people why they were spending their money instead of aiming to become billionaires then there would be a certain amount of umm uhh spluttering.
NZ Top of the Charts.
Goes nicely with our Top of the Charts Balance of Payment deficit.
We are all millionaires so no problemo.
Wow. MBIE have a list of the top 20 visa approvals (was on stuff this morning as part of the brain drain article). Only TWO of these positions could be even remotely considered skilled (sorry I love a good chef, but no). It'd be interesting to see how the skills leaving for Aussie matched...
Builder's Labourer 7578
Carpenter 3678
Cook 2500
Chef 2231
Truck Driver (General) 1687
Personal Care Assistant 1439
Meat Process Worker 1238
Dairy Cattle Farm Worker 1132
Deck Hand 983
Fast Food Cook 944
Painting Trades Worker 935
Retail Supervisor 927
Metal Fabricator 867
Scaffolder 857
Aged or Disabled Carer 841
Commercial Housekeeper 770
Bus Driver 764
Kitchenhand 733
Cafe or Restaurant Manager 695
Meat Boner and Slicer 667
As the article stated, teachers and healthcare - there are better opportunities in Aus so more likely to make the move. Unsure about construction. Technology pays better but you don't necessarily have to move to Aus to get the salary.
Would be interesting to get the stats on departures but no more departure cards..
Approvals on the MBIE website doesn't always mean new migrants because visas are also approved for those extending their stay or moving to a different visa category. Also, tens of thousands of visas are approved each year for international students, partners of workers/students, holidaymakers, etc. and MBIE isn't aware of their occupation in NZ.
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