Here's our summary of key economic events overnight that affect New Zealand, with news bad-news bears can't catch a break at present.
Overnight US data was quite good again, and is seen underpinning more US Fed rate hikes with the next one on July 27 NZT and just before their summer holidays.
US jobless claims came in lower than expected with a decrease of -18,000 from the prior week. Seasonally-adjusted it was higher than that, but still lower than expected. There are now 1.68 mln people on these benefits.
The third and 'final' calculation of Q1-2023 GDP recorded an expansion of +2.0% which was much better than either of the two prior estimates. Analysts had expected a +1.4% 'final' result. Higher consumer spending was essentially behind this result.
But what really got analyst attention was the higher inflation rate in their PCE version for April. A +4.4% annual rate, and an annualised rate higher than this between March and April would not have been unnoticed by Fed policymakers. And because they had already signaled more hikes in speeches earlier in the week, markets are now bracing for a robust response. Clearly inflation's impulse isn't beaten yet and probably won't be while their labour market is expanding so quickly. The June non-farm payrolls data will come out a week tomorrow and will very closely watched. Bets are being placed now that it will be another impressive increase.
There is one set of negative data today and one not expected; pending home sales in May fell when a rise was anticipated. It wasn't a minor shrinkage either. Perhaps we were wrong to suggest their housing market was showing signs of bottoming out and turning up. Their economy is expanding solidly, but it isn't due to their housing markets.
Meanwhile, the 23 largest American banks passed the US Fed’s annual stress test, and clearing a key hurdle for returning billions of dollars to investors. According to these results, those banks showed they can withstand a severe global recession and related real estate market turmoil and will be strong enough to come out intact. According to the Fed, "This year's stress test includes a severe global recession with a 40% decline in commercial real estate prices, a substantial increase in office vacancies, and a 38% decline in house prices. The unemployment rate rises by +6.4 percentage points to a peak of 10% and economic output declines commensurately" in these tests.
In Canada, the April data shows that their recent 2023 weakness in weekly earnings is behind them, with wages rising back at the same rate it did in 2022. That isn't spectacular, but the recent drag seem behind them now.
In China, their fast expanding EV car industry is facing a reckoning, one their country doesn't need. Many smaller EV manufacturers are either going bust or being swallowed up in a big consolidation drive. But the real problem is that production and capacity is far bigger than demand. Prices are dropping fast, and prices for components like batteries are falling fast too. This is part of a general decline, and the yuan continues to weaken. In theory that should make exports from China more price-competitive.
Japanese retail sales rose +5.7% in May from a year ago and handily higher than inflation's effect, so a real gain. We should note that this expansion has been running higher than +5% for every month in 2023, and that is the longest streak at that level since the late 1970s!
Germany reported a small rise in CPI inflation for May, running at 6.4% and up from 6.1% in April. This was more than expected but the April-to-May rate slipped to about half that.
The Swedish central bank hiked their policy rate by +25 bps to 3.75%, a seventh consecutive increase, and pushing Swedish borrowing costs to fresh post-2008-highs. But is was the increase markets expected. CPI inflation there was running at a heady +9.7% in May and is only seen coming down relatively slowly.
Yesterday, Australia reported their retail sales grew +4.2% in May from the same month a year ago, but given that CPI inflation is running there at 5.6%, those gains are not 'real. A growing level of special 'sales events' did boost the April-to-May increase however.
Saying in Australia, there were 432,000 job vacancies in May, down -9,000 from February, according to new figures from the Australian Bureau of Statistics. While job vacancies have fallen by around -10% over the past year, they were still high – around +90% higher in May 2023 than in February 2020, just before the start of the pandemic. And staying in Australia, Mainfreight says the Aussie freight industry market has peaked and that conditions will worsen in the coming months.
Overall global containerised freight rates fell sharply yet again last week and are now -80% lower than a year ago and almost back to the 2019 pre-pandemic average. Outbound rates from China is where the main weakness is. Bulk cargo rates were a bit softer last week but are essentially holding on to their recent minor recovery.
The UST 10yr yield will start today up sharply at 3.85% and a jump of +13 bps from yesterday and the highest since mid-March. Their key 2-10 yield curve inversion is little-changed however at -102 bps. Their 1-5 curve is less inverted at -130 bps. And their 3 mth-10yr curve is also less inverted, also now by -130 bps. The Australian 10 year bond yield is now at 4.00% and up +14 bps. The China 10 year bond rate is still unchanged at 2.71%. And the NZ Government 10 year bond rate is up another +4 bps at 4.64% and its highest since early March 2023.
Wall Street is closing its Thursday trade with a modest +0.4% gain on the S&P500. Overnight, European markets were mixed with London down -0.4% and Paris up +0.4%. Frankfurt was unchanged in between. Yesterday, Tokyo ended its Thursday trade up a minor +0.1% to hold its big Wednesday gain. Hong Kong fell a sharp -1.2%, and Shanghai ended down -0.2%. The ASX200 ended its session unchanged. But the NZX50 managed a +0.6% gain in an end-of-session burst.
The price of gold will start today at US$1908/oz and that's down -US$4 from yesterday.
And oil prices are little-changed from yesterday to now be just over US$69.50/bbl in the US. The international Brent price is still just under US$74.50/bbl.
The Kiwi dollar starts today at 60.7 USc and little-changed from yesterday. Against the Aussie we have slipped again to 91.6 AUc. Against the euro we are little-changed at 55.8 euro cents. That means the TWI-5 has fallen to 69.2 and down another -20 bps since this time yesterday and a four week low all of a sudden.
The bitcoin price has risen from this time yesterday and now is at US$30,533 which is a +1.3% gain and it looks like it will finish the month above NZ$50,000 for the first time since April 2022. Volatility over the past 24 hours has remained modest at just over +/- 1.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
83 Comments
Food prices and energy prices are linked via the Haber process and cost of transport. These have dropped quite dramatically now, however they take a growing season to actually come through to real prices we see in the supermarkets. Food price inflation is likely to disappear or even go in reverse in the mid term IMO.
Rent/mortgages, not so much. But the RBNZ has already raised rates dramatically, they should pause until they see the real effect flowing through, which takes at least a year.
It doesn’t add up. A considerable number of countries, now Sweden as above, are still combating inflation by continued intervention, increasing interest rates. Yet the RBNZ has signalled they are done with that even though our government continues to explain away inflation as being imported. Seems to me, once again, the RBNZ has painted itself into a corner, and us with them.
I don’t necessarily think raising rates makes much difference, but….if you are going to be logically consistent (ie. raise rates to combat inflation) then why should you stop now. Unemployment is still very low and that’s the other key mandate for the RBNZ along with inflation.
Banks, trade and govt flows are levelling out.
Theres been a massive shift from banks with -40% change in lending into the economy.
Trade has levelled out and we’ve run two months at a minor surplus for the first time in years.
Tax take is up through bracket creep and other very small taxes such as the removal of investment income tax deductions, which is balancing spend.
Things seem to be on hold everywhere, there’s very little movement in either direction in some weird calm before the storm. Or will it be a sunny day?
Raising rates does take more money out of the local economy, but more importantly it restrains the inflow. We had unrestrained inflows of money and loose tax systems, if we hadn’t raised rates we’d be well into covid boom #2 by now.
Those countries that navigated inflation with lower interest rates, what are their tax policies? If their cause of inflation was to spend money, where did that money go? Was it productive? Ours was used to pump the same house full of intrinsic value so of course it hurts more because we have to try and Hoover it all back out again, while it’s sitting in the pockets of a small portion of the population.
I’d like to see higher interest rates and more govt spending, and a balanced tax system. No more lazy speculation for whiners.
"Yet the RBNZ has signalled they are done"
They didn't say they were done, they said that their last modelling exercise indicated they are done. The next time they run the model with new inputs there is no guarantee that it will say they do not need to raise rates.
That's a welcome relief from the actually govt-subsidised Ford Rangers, Audis and BMWs. Bring on the regular fuel levy from 1 July.
And of course, anyone can buy a new Tesla or BYD or whatever if they are actually in the market for a new car, and the clowns buying utes and V8s are helping them with the rebate, not the govt.
"anyone can buy a new Tesla"? The CO2 savings are so marginal it is better to just give the Tesla owner some carbon credits rather than set up a tradie-rich prick subsidy system.
"International Energy Agency estimates that an electric car using the global average mix of power sources over its lifetime will still emit about half as much CO2 as a gas car. You can buy that same carbon emission reduction on America’s longest-established carbon trading system for about $300. Yet many countries pay more than 20 times that in subsidies to convince people to make the switch.
The climate effect of our electric-car efforts in the 2020s will be trivial. If every country achieved its stated ambitious electric-vehicle targets by 2030, the world would save 231 million tons of CO2 emissions. Plugging these savings into the standard United Nations Climate Panel model, that comes to a reduction of 0.0002 degree Fahrenheit by the end of the century."
https://www.wsj.com/amp/articles/policies-pushing-electric-vehicles-sho…
The difference being that an EV is an actual reduction in carbon emissions, while credits is noting but trading paper.
From your linked study: "Vehicle assumptions: 200 000 km lifetime mileage; ICE fuel economy 6.8 Lge/100 km; BEV fuel economy 0.19 kWh/km; BEV battery 40 kWh NMC622. NMC622 = nickel manganese cobalt in a 6:2:2 ratio. Lge = litre of gasoline-equivalent."
0.19 kWh/km.. yeah, that over the top, 25% high compared to what I'm getting.
The rest is also complete nonsense for NZ conditions, vehicle lifetime likely to easily be double that, and we don't follow the global average electricity generation profile, we are far far cleaner than that. 200,000kms is barely out of warranty for most new EVs. Also the use of NMC batteries is declining, LFP and LFMP are becoming the mainstream, and now Sodium is due out in production cars soon. So yeah, that study seems like a load of old cobblers, well, definately old, it was finished at the end of 2020, the EV world has moved on already.
"Chinese authorities have issued an operational permit for the country’s first thorium reactor. The decision comes two years after researchers at the Shanghai Institute of Applied Physics unveiled a prototype, which was billed as the first reactor that did not require water for cooling.
The reactor also has advantages that are more specific to China, since the country is thought to have several hundred thousand tonnes of the element, or enough to meet its total energy needs for more than 20,000 years.
...thorium is less radioactive than uranium or plutonium, produces less toxic waste and cannot be used to create nuclear weapons. And because it is in liquid form, it solidifies in the event of a disaster, which would limit environmental damage."
https://www.globalconstructionreview.com/worlds-first-commercial-thoriu…
"Germany reported a small rise in CPI inflation for May, running at 6.4% and up from 6.1% in April."
German inflation unexpectedly jumped in June as a rise in transport prices hit Europe’s biggest economy. Prices rose by 6.8pc in the year to June, up from 6.3pc for the previous month.
https://www.telegraph.co.uk/business/2023/06/29/german-inflation-jumps-…
And what do we have today? A rise in transport costs...
But I thought interest rates peaked June last year!?
We’ll keep edging up until it breaks IMO. There’s no real reason why they should raise the OCR in November when these flow through CPI figure in October. But they probably will, unless everything is already on fire. Cost of everything: up.
China activity falling, dairy payout falling, Cabinet Ministers falling, house prices falling, and lotsa rain still falling. Council rates up, fuel up, inflation still up, crime up, Fed signaling rates up, local interest rates up and some pretty large layoffs underway.
What could go wrong...?
Friends in Sydney and surrounds relating numbers of stranded EVs dotted all around the place. Running down when stuck in traffic, charging stations/points too few and distant. People most unhappy. Just as well NZ has all this surplus electricity and transmission capability isn’t it, not.
Internal combustion engine car sales peaked in 2017 - Global auto sales rebound, but internal combustion engine (ICE) vehicles may never return to pre-pandemic levels. Electric vehicle adoption is accelerating in China, Europe, and the US, indicating a significant shift toward a sustainable future.
Yeah, this sounds like the sort of manure that falls out the back end of a male bovine. Sitting in traffic in an EV doesn't deplete the battery like sitting idling in traffic does an ICEs gas tank. Maybe those 20hr traffic jams they get in China might be an issue if you left home low on charge, but an hour or two max in sydney. Nah. You must've jumped in the car with the low battery warning already on and done nothing about it. I hate to think how often that driver was the guy walking down the side of the motorway with the borrowed can of gas.
Sounds like BS to me, the EV has a big screen with a battery indicator telling you exactly how much further you can drive before you run out. You'd have to be ignoring that for hours. And the slower you go the less charge you use (unlike a fossil fuel vehicle) so being in a traffic jam is no problem.
Ouch!
A 40 minute presentation of propaganda and misinformation by President Biden was destroyed overnight with one unquestionable, government-data-driven, sentence by The Wall Street Journal Editorial Board:
"The Bureau of Labor Statistics says real average hourly earnings have fallen 3.16% during the Biden Presidency."
As we noted yesterday ahead of Biden's speech, real wages are down on a YoY basis for 26 straight months (i.e. since the president's term began), but that never stopped the exaltation of so-called "Bidenomics" by The White House and its media lackeys... Link
Even today a good example of everything being backwards. CBers in Portugal hawk, hawk, hawk. Powell: "Although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough.” Yet rates down today, too. https://buff.ly/3Nyw6kk Link
For the first time ever yield on cash, bonds, & equities is the same. The yield on 3mth US Treasury bills was 5.3% this week after Fed held interest rates at between 5-5.25%. That is the same level as the expected 12mth forward earnings yield across the S&P 500, which has risen by >15% since Jan. https://ft.com/content/79b7775a-fe35-4591-ae4a-cc31eea1c81c (HT @knowledge_vital) Link
US jobless claims came in lower than expected with a decrease of -18,000 from the prior week. Seasonally-adjusted it was higher than that, but still lower than expected.
I enjoy that the US jobs market continues to demolish all estimates. To me it's absolutely clear that demographics mean a permanently tighter labor market.
Hire good people if you can and hold onto them.
Interesting illustration of industries with the highest automation potential. Everyone expects legal and admin to be up there but a surprise entry is architecture & engineering at #3.
Looks like AI is going to swallow cushy office jobs, sending workers back to factories and construction sites for employment.
https://www.visualcapitalist.com/sp/ranking-industries-by-their-potenti…
Unlikely in my opinion. What these articles come across as is “one tool to do them all!” But what’s more likely is an array of suitable tools used for performing specific mundane tasks which only require a certain level of accuracy.
For example, AI can draw a unique floor plan. But can it provide 100% accuracy in signing off complex fittings and load bearing? Because that’s what’s required; 100% accuracy. AI cannot do 100% accuracy and never will, purely by definition. So while these things will help, they’re more likely to make these jobs more productive than push people out of work.
Next question: how many jobs will AI create? Chat GPT 1, already deprecated less than a year later.
I agree with you. However, higher productivity in these sectors implies fewer workers can produce the same level of output, so slower job growth.
I work in engineering and we get grads and cheaper offshore employees to do a lot of the mundane work that has to be reviewed later for accuracy and completeness. So deploying AI means we require fewer grads and offshore employees.
The trouble I see in places like NZ is the shortage of higher skilled workers who can build and operate those AI tools, meaning we will once again underutilise those technological benefits for economic gains.
Yea fair point, though does that not undermine future productivity if there’s a bottleneck in gaining experience? If there’s no grad pathway, we stop studying and the outcome is fewer and fewer people actually able to do these jobs in 10-20 years time.
As for building and maintaining these tools, we should consider serious investment in learning in this space. Very specific though, imagine you’d need a compsci and maths degree, with 2 years experience in each to get going.
In tech we have copilot which writes code for you. I gave up on it for now as I was spending more time refactoring the output. Stack Overflow on steroids really.
Also in programming. I use copilot and chatgpt 4. I am also on the copilot x beta.
It’s all useful for boilerplate and help with debugging. From my perspective, it can be awesome at times, and a waste of times at others where I feel like I’m chasing my own tail.
Currently my biggest gripe is that I feel like I am relying on it too much at different points and not understanding the problem correctly. Ie it’s making me lazy. I would bet this will become a bigger problem, with newer devs not even knowing how to properly diagnose and track down bugs and wow I am going off on a tangent…
Overnight US data was quite good again... more US Fed rate hikes.
At some point the Fed is going to have to accept that their rate hikes are probably net stimulatory in the real economy. They might be slowing down house sales, commercial construction and causing some wobbles in the finance sector, but they are also pumping billions of dollars of interest payments out to rich people (who appear to be spending it).
Meanwhile in Spain, inflation dropped below 2%. We now have a situation where the countries that shunned orthodoxy and implemented price management tools and other common sense interventions (Spain, France, Japan, Switzerland etc) are easily winning the inflation war. They simply stopped high prices of key imported goods having second and third order effects on other prices. It's not rocket science.
The best and most misunderstood kiwi economist ever, Bill Phillips (of Curve fame) put it like this in his seminal 1958 paper:
"cost of living adjustments will have little or no effect [on wages / inflation etc]... except at times when retail prices are forced up by a very rapid rise in import prices".
Over the last couple of years, all countries have experienced a major shock in the import prices of goods that have significant knock-on effects to other prices. Imported diesel and fertiliser price spikes have driven up the costs of food production and goods transport in NZ for example. We have also had significant increases in profit margins, which play straight through to higher prices. Unchecked these contagious price increases feed through to wages as workers struggle to keep up - adding further costs to businesses etc.
The countries that have most successfully tackled inflation have done so by preventing contagion - they capped the price of gas for example, froze rents for two years, gave profiteering businesses dressing downs (or implemented windfall taxes). This prevented higher prices driving higher prices and wages (creating a feedback loop).
I mean NZ company profits just went up by 20% to $104b, we could do the same, but instead we treat our population like slaves, only existing to serve the needs of corporates with ever increasing profit margins. There will come a time where this is far too much to bear for our population if it doesn't get under control soon. Companies have their noses in the abuse the population trough because a weak Comcom and inept government policy encourages them to do so. For reference see the banks/supermarkets/building supply companies etc etc.
Agreed. Don't forget those large companies in NZ make super profits by squeezing the working classes both as their employers and key market suppliers of essential items. We're very much like the US in this regard, a similarity nobody should be proud of.
In the US, Walmart earns a significant share of its revenue from food stamps (subsidies to low earners to buy food and other necessities). Many spenders of the food stamps at their stores are Walmart's own grossly underpaid workers.
I fear NZ could become like that if we don't fix these major market inefficiencies.
" ...We have also had significant increases in profit margins..."
Yes
Here's a video about that from Geopolitical Economy Report on YouTube
How corporate profits are driving inflation, not workers' wages
https://www.youtube.com/watch?v=qdZbq1iw-ho
"Rising corporate profits have caused 45% of inflation in Europe, compared to 40% for rising import prices and just 15% for wages, according to research by IMF economists"
Finally, after all the big banks passed the stress test with flying colors, we remind readers that banks have 9 months left under the original 12-month BTFP Fed bailout program to find a way to stabilize their balance sheets.
Not only have they failed to do so, usage of the BTFP facility is at a new all time high, and yields are rising even more (great MTM losses). Link
Now clear evidence show higher OCR lead to much better economy and better for people‘s life. Every country in the world must immediately increase their OCR 20% or above and keep it for next 100%z New Zealand can be more aggressive than that. Increase to OCR to 50% or above, New Zealand could be number 1 strongest economy in this world, with aggressive internet hike with last 12 month, economy is becoming much stronger not weaker. !!! So 50% OCR is working better
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.