Here's our summary of key economic events overnight that affect New Zealand, with news markets seem to have decided China isn't doing anywhere near enough to reverse their economic challenges.
But first, Fed boss Powell has been presenting the central bank's Semi Annual Monetary Policy Report to Congress today and in testimony he said "Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year." He suggested that another +50 bps could come by the end of 2023 and taking their policy rate to 5.75% and taking it higher than even the rates that applied before the GFC. Bond markets ignored the comments but the currency markets marked the USD down. Equity markets dipped too.
And we should note that the debt-limit deal struck by the White House and congressional Republicans requires that the pause on student loan payments be lifted no later than the end of August. Analysts are starting to factor in some pretty significant economic implications when that happens.
The American mortgage market activity rose again last week from the prior week, and unusual expansion even if it was minor recently. Mortgage interest rates slipped slightly with their benchmark 30 year down to 6.73% plus points.
There was also a rise last week in a key retail sales indicator, but despite that it remains mired deeply less than inflation's surge.
Canadian retail sales surprised in April with more of a gain than expected and reversing out the March dip.
In China, equities dropped rather hard across the board yesterday after a smaller-than-expected interest rate cut by China's central bank. The pain was especially felt in Hong Kong. Shanghai dropped too as did the tech-hub Shenzhen markets. But other markets exposed to China are feeling the impacts too, like Australia.
China's yuan is weakening fast again too. It is down to 7.18 to the USD, a -1.4% devaluation since the start of the month and -3.1% from the start of the year. Against the NZD their devaluation is -3.8% since the start of the month.
In the UK, their CPI inflation held at 8.7% in May when a fall was expected. Month-on-month it is running at about the same annualised rate, so they aren't making any noticeable progress. Worryingly, their 'core inflation' rate actually rose in May from April. Markets there are now expecting more rate rises soon.
The UST 10yr yield will start today little-changed at 3.72%. Their key 2-10 yield curve inversion is unchanged at -97 bps. Their 1-5 curve is also unchanged at -130 bps. And their 3 mth-10yr curve is marginally less inverted at -137 bps. The Australian 10 year bond yield is now at 3.94% and up +1 bp. The China 10 year bond rate little-changed at 2.72%. But the NZ Government 10 year bond rate is up +4 bps at 4.54%.
Wall Street is slightly lower today with the S&P500 trading in its Wednesday session down -0.2%. Overnight, European markets closed lower across the board again by about -0.4%. Yesterday, Tokyo ended its Wednesday session up +0.6%. But Hong Kong fell another -2.0% and Shanghai followed, down another -1.3% with a late selloff. The ASX200 ended its Wednesday session down -0.6% and also with a late selloff, and the NZX50 dipped a minor -0.1%.
The price of gold will start today down another -US$2 at US$1935/oz and a new three month low.
But oil prices are up +US$2 from yesterday to now be just over US$72.50/bbl in the US. The international Brent price is now just on US$77/bbl.
The Kiwi dollar starts today at 62.1 USc and up +½c from yesterday. Against the Aussie we are +½c firmer too at 91.3 AUc. Against the euro we are little-changed at 56.5 euro cents. That means the TWI-5 is now just on 69.9 and up +50 bps from this time yesterday.
The bitcoin price has again jumped sharply from this time yesterday and now at US$30,044 with another gain of +4.0%. Volatility over the past 24 hours has been extreme at just over +/- 5.4%. In the past seven days this price has surged +19.6% in USD terms, a bit less in NZD terms because the NZD has risen too. The tiny opening up moves from traditional fund platforms like BlackRock or Fidelity has been enough to move this market, emphasising just how thin this markets is.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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93 Comments
Rates higher for longer. Looks like all the noise about further rises being over was just that. Noise.
A long and very hard winter ahead
The GF has a wry smile on her dial
Talk means nothing. If the real economy continues to pull back they won't raise.
Which economy? US could stay strong and NZ could pull back.
Small cork on a big ocean.
That is a likely outcome.... damn
Chickens are coming home.
Word from my mates around the US is that recent Fed government subsidy programmes (CHIPS, Inflation Reduction, etc.) are starting to show positive signs in the sector.
Bridging the country's large infrastructure gap is translating into strong industrial activity and better-paid jobs. For example, the country saw 3.8 GW of utility-scale solar PV installations just in Q1 of 2023.
Reshoring manufacturing in the US is estimated to have created 364k jobs in 2022 alone and there's more to come.
I have long been a China bear and a USA bull. USA will pull away again
On a level playing field China would be an economic basketcase. But how can US pay back their debt? Honest question . Low interest rates and high inflation is my only solution. Any others?
China itself has a $52 trillion debt problem owed by state/local government bodies and state-owned enterprises. The debt cannot be restructured without a deep recession because many of its large sectors (property, manufacturing, etc) are uncompetitive on the global landscape without cheap debt and generous debt-funded subsidies from their governments.
Inflating away debt is a conundrum for China because of the overreliance of its oversized manufacturing sector on exports that once again needs debt to remain globally competitive.
Combine the above with shrinking workforce to fill said jobs due to demographics, and hello inflation!
Wishful thinking nktokyo. I wouldn't bet the house on it, though a lot of people are. IMHO the integrity of the currency is more important than the housing market. Further currency integrity is ultimately the RBNZ's legal mandate. If they have to pick one or the other it will be the former
I didn't mention the housing market.
Agree.. last week we saw the longer rates go up a bit, when woofroof kept saying rates are going to start dropping...
10% Interest Rates This Year, Guaranteed !
Is that by yr end or end of fiscal yr?
Before the year is over. This Year. 2023.
HB is just being sarcastic!
by Yvil | 22nd Jun 23, 10:40am - HB is just being sarcastic!
I understand John Key made a similar prediction but with indications that banks stress testing of floating rates would reach 10%.
Hope this helps you to better understand where the 10% might have originated from.
No Sarcasm .
The Prophet was 100% correct last year with 7% Interest Rates Prophecy. And Yvil had to apologise.
The Scroll that was written by The Prophet last year says this below.
10% Interest Rates Next Year ( 2023 ), Guaranteed !
They are just going to keep raising interest rates until something really breaks. There will be no soft landing
Inflation you say. What Inflation?
Car Insurance on one of the vehicle in the inbox this morning = "11.7% increase"
Recovering losses from natural events. Anyone with an insurance policy will cop this.
Another re-shuffling of the CPI basket of goods to remove 'natural event influenced items' maybe?
a good chunk of that insurance cost is probably because the 'agreed' value has gone up. I think mine was ~25% increase in the car value. It was set only 10% lower than what I paid for the thing new 7 years ago.
Falling yuan will mean stuff coming out of China will be cheaper. Makes it harder for countries to counter the Chinese dominance. Pump consumption, destroy the planet a little quicker!
And it means the Chinese importers' agents here will have to tighten the screw on our export prices, to offset the increase in landed price in Shanghai. Less for our timber, meat and wool. And......their domestic tourism and unis will perk up and leave the duty-free stores and foreign language schools in Auckland less busy.
The upshot? China is exporting their domestic economic problems - because they can (as any county with a large economy and strictly controlled exchange rate/economy can). Our reaction? Lower prices to retain business - and that will lower the price of everything. The level of the OCR will be the least of our problems.
The last time China was exporting deflation to the world was in the mid-2010s.
RBNZ's reaction to low export prices and low headline CPI was to cut OCR 7 times between 2015 and 2017, despite non-tradables inflation remaining at the top end of its 1-3% target band.
I don't see how the reaction to a tradables deflationary spell would be any different this time.
Someone remind me why we are trying to export high quality ag products to a market that can't really afford it?
Because most of our industries need to shift volume to make their cost base competetive?
Looks like SK's opposition isn't too happy with president Yoon's hostility to China. Opposition leader: “We used to have the largest trade surplus with China. The president’s tough line against China has cost us 15 consecutive months of trade deficits” Link
Talk BOE will keep lifting rates as inflation still 8.7% in NZ inflation on big items , like rates mortgage payments etc running higher then that....
Gold up 12.7% since this time 2020, Bitcoin up 233.3% in the same time. Both those numbers not adjusted for inflation, so gold is really at a loss.
Accumulation of the hardest sound money is continuing.
Going to zero ...well thats the view on this site by many ...
To be frank, they won't see it go to zero before they're beneath zero (ft), if you know what I mean?
Younger generations understand it!
It will only go to zero if you remove demand for it, and the only way to do that is by introducing another decentralised cryptocurrency that is atleast as secure, limited in supply and uses less energy to sustain. The anti cryptos will think that worthless too, they trust the central banks will make the best decisions and look after their interests.
That's what ETH claims to be but it isn't. Remove the heavy energy dependance removes the proof of work concept that secures the network and makes it somewhat of high value. If we could all start a gold mine in the backyard with $1000 of tools from bunnings, Gold would be like dirt.
Bitcoin is open source. Anyone can start a new one that looks and works exactly like the original. And it has been cloned and copied hundreds of times already.
The clones just don't have the popularity that is the source of value in Bitcoin.
Apparently that popularity will last forever.
And I would then ask you, why have these numerous clones never worked?
Even the most popular, Bitcoin Cash, is nothing compared to Bitcoin
The problem with the clones are:
They have made changes to the code, so it is no long Bitcoin. Its like in a game of chess, if you decide that your pawns can now also move diagonally, you are no longer playing chess so you will get kicked out of the world chess championships. Bitcoin is a global consensus on the rules as determined by the globally distributed network of nodes.
Now you have a person or a group of people who are in control
And it will not have the massive amount of both physical and human infrastructure behind it. There is a lot of different components that all come together to make Bitcoin work.
Bitcoin is a discovery in absolute digital scarcity. Once discovered it can not be discovered again, only imitated to a lesser degree. And why would anyone use those when Bitcoin has been working for 14+ years?
Actually pawns can move diagonally. When taking an opposition's piece. Bad example.😄😄
"Bitcoin is a global consensus" "massive amount of both physical and human infrastructure behind it"
So you agree with me that it's value is intrinsically linked to its popularity.
"Bitcoin is a discovery in absolute digital scarcity, Once discovered it can not be discovered again"
I bet some said thought that about Bit Gold and Hashcash. Though they never got the cult following that Bitcoin has managed. Bitcoin is a public algorithm. Anyone can copy it exactly and run a parallel network. The only thing the original has is popularity - users.
"They have made changes to the code, so it is no long Bitcoin."
I see version 25 of Bitcoin was released last month. Which specific version of Bitcoin do you think was the real Bitcoin?
Here is the source code if you are interested - https://github.com/bitcoin/bitcoin
Another analogy to bitcoin is the trademe website. It has had a monopoly on selling used goods in NZ for a long time. It's value is not in it's code or algorithms as they are easily copied. It's value is in its user base. If something better comes along (facebook marketplace?), people will move to there and trademe will die off. When trademe dies, those who worked there might get jobs at Facebook, no real harm done.
When bitcoin dies, lots of people lose their life savings to whoever sold off their bitcoin at the right time. Overall the money coming out will be less than the money going in, as someone has to pay the power/technology bills. The winners will fritter their gains away on Lamborghinis (as it was easy money), the losers will have nothing.
Bitcoins death might happen next year, it might happen 20 years from now. But it will happen at some point in time as nothing lasts forever. Especially in technology.
Yep its just wealth redistribution at the end of the day. Brilliant scheme though, couldn't have designed one better.
Proof of work is a pointless waste of energy, its turning electricity into heat and acheiving nothing useful. That energy is not recoverable.
Clear lack of research.
But thankfully what people value using electricity for is decided by the market, and if they want ot pay the price for it, they can do what ever they like with it. As they should be allowed to.
Just like I want to burn electricity on Christmas lights, or drying my clothes, or playing computer games. All subjective uses of electricity that you could argue achieve nothing useful.
No, I just don't buy the crypto nonsense. The electrical waste in proof of work crypto is criminal. Drying clothes in the list above is objectively work of some value. I agree the rest are indeed of little hard economic value, but they also use comparatively small amounts of electricity. Turning Electricity into heat to take guesses at a magic number doesn't even provide entertainment value or aesthetic value like christmas lights or computer gaming.
I guess when you're in a country with 7% inflation, and owning private assets is a common thing, the idea of having a decentralized store of value is not that important.
Can be easy to forget about much of the unbanked world or those living under corruption where preservation or building of wealth is near impossible.
Internet porn uses more electricity than Bitcoin and can be very easily argued it's benefit to society or the value it provides is far worse, but hey we never see that being mentioned.
The idea that we should be scarce with electricity and not use it, rather than find ways to produce more, in a cleaner or cheaper way, is a backwards approach to the evolution of the human race.
No token is a 'store of value'.
Not money, not bitcoin. If there's nothing to buy, tokens are worthless.
They are all forward bets. No more, no less.
The anti cryptos will think that worthless too, they trust the central banks will make the best decisions and look after their interests.
You're confusing thinking crypto is bollocks with an endorsement of central banking.
It's just that fiat money is the best ecosystem to operate in, it's widely accepted, very easy to use, insurable, and legally protected.
The crypto ecosystem is mostly people retaining them for future value, can't be used conveniently in day to day life, offers little to no legal protection, and lacks stability.
So as usable money in anywhere with half a banking system, its inferior.
Just say you don't understand what it is and why it's so important, take your debased fiat currency and buy something else or hold it and watch its value inflated away.
I do understand what it is, that is the problem. I didn't buy into the fairy tale.
it really sounds like you're uneducated on it and have walked in with a closed approach.
Not at all. I looked at crypto way back when, and decided it was of little value, and still is. cryptographically signed numbers are still just numbers. Zero real backing, still not seeing any actual use for crypto.
Blockchain is useful, but the pretending its money side of it all is BS.
Yep. It's a potentially good service, not money.
Netflix, Facebook, hell this site is just numbers and data, yet here you are using it daily and finding value from it.
Crypto, specifically Bitcoin is doing the same for many.
It doesn't affect me if you see it or not, but it hurts seeing such closed thinking.
You'll be able to laugh and point from your private Yacht later.
I guess I will, and I'll sin for a 2nd time for the boomers here, I'll buy Elon Musk Starlink to do so from the yacht.
What a fool I am!
You must be smarter than Blackrock then?
Blackrock are happy to take fees/commissions off bitcoiners, skimming a few Satoshis off the top and selling them for real money is okay by them. Don't be fooled into thinking they have any other interest.
Dont be fooled...ironic
to quote coindesk:
So yes, the institutions are back. But why did $10 trillion asset manager BlackRock and $1.5 trillion asset manager Invesco decide it was time for the spot bitcoin ETF again? Many have offered convoluted and tinfoil-hat theories (some which I quite like).
Theories like BlackRock is scrambling to backstop Coinbase for some reason or the big firms are acting on behalf of three letter agencies to keep self-custodied bitcoin away from everyday people or that Wall Street can’t let the crypto crowd get too far ahead of them.
There are more theories out there, but here’s a much simpler one: Financial institutions like making money and offering a spot bitcoin ETF is a way to make money.
You literally can start mining for gold in your backyard with $1000 of tools, hell a pan and a shovel are probaly $50 max. It just will be a very unproductive use of your capital and time, the ROI will be zero.
I'm buying gold at anything under USD 1,950
Whats your buy source and preference Yvil? Physical I assume?
"Tiny opening up moves"!?!?
You do realise that in the last 5 days there have been 5 Bitcoin ETF applications from:
- Blackrock
-Fidelity
-Investco
-Wisdom Tree
-Valkyrie
Just the largest asset management firms in the world. It is only a matter of time before real capital starts to flow into Bitcoin. With only a half a trillion market cap the price is extremely indervalued at the current level of $30,000.
Its just basic supply and demand mathematics. But some people are just too lazy to put in the work required to understand what is coming.
Its easier to talk about house values, and the hard work being a landLORD I guess?
That's right just like people ain't prepared to put in the work and learn about property. Yet complain that it should be given too them and let's tax the ones that did learn. Good on you for getting into it and succeeding at it. And for the young ones who do it might be the parallel to property for this generation. Darn they have it so good these younger ones you can learn everything on internet and people have all this advice.
That's right just like people ain't prepared to put in the work and learn about property
Lesson one you cannot taper a ponzi
Ironic coming from a bitcoiner.
Lol, i'm sure that is objective and balanced.
Read it and decide for yourself based on the points presented perhaps? Or too lazy?
You obviously do not know who Lyn Alden is otherwise you wouldnt have made the above claim.
Bwahaha. You're just as bad as some of the Elon fanbois. I don't hold anyone to be a prophet. I did start to read that article, but it really was nonsense, bitcoin isn't a ponzi because its open source. lol, it still depends on a bigger fool paying more for a token than the current owner paid for the owner to get a return. New money in pay out to the previous 'investors'. The asset itself does not generate a return.
1637
Tulipmania
So gold is a ponzi too then?
Relax and enjoy your day mate :)
Gold, yeah, as a form of money it pretty much is. There is a small natural demand as a commodity for jewelery and electronics, but mostly it's a speculative play like butt coin.
You bet Prag...done lots of research into both, one comes out on top.😄
Property is rigged and working against younger generations. Anyone in their 20's that has done some basic economics and math research into property in NZ* would come to the conclusion that it's a high-risk house of cards.
I've spent well over 1000 hours researching this stuff, and NZ property is the last thing I'd be putting my wealth into now and for the future.
The gold rush you experienced with property is over, decentralized reserve assets are now the next gold rush, and it's a global market without any govt manipulation or control.
If you did some decent work instead of the research
You'd have a deposit for a house by now.....
So research is not classed as "decent work'? What's an example of decent work....let me guess a landlord?
Decent
Profitable
Take your pick. Even flipping burgers would have generated 15k or so in ones pocket.
Nah mate, I had over 100k for a deposit but my research told me to not throw it into a giant ponzi scheme, to get a run down old home in a gang street. That was for Taupo, not a major city.
15k in ones pocket, 20% deposit needed, average house in NZ 800k give or take $160k needed, 11 years of saving, and that's assuming COL or house prices don't go up in 11 years.
Flawed.
The big boys got into the sandpit back in 2008 as well - how did that end?
Oh I know -we all paid the bills
Most small business borrowing is secured by a home.
That lending is largely stalled now under all of the recent moves to cool the housing market. Ironic.
Carbon price is certainly getting smashed. Loss of confidence...where to from here?
Love this site but the ignorance of Bitcoin from the admins and journalists has been an issue of mine for a while now. David, how is the largest asset managers in the world all filing to open BTC ETF "tiny opening up"?
You can call it ignorance - which is ignorance itself.
There are very good reasons for avoiding BTC, just as some avoid other investments.
It's the relentless bible bashing attitude of the 'believers' a they try to convert that is rather pathetic. If you are not a believer then apparently you are either stupid, ignorant, old or some other general insult.
You'd be less negative if you read our holy scriptures for 10,000 hours!
This is an economics/financial based news site but they talk down / don't cover on the best performing asset class for the last 12 years?
It's ONLY reported on in content when there's a major downfall or negative change, never the other way around.
Hi Team- anyone got any thoughts on the Infratil capital raise?
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