Here's our summary of key economic events overnight that affect New Zealand, with news that hotter-than-expected American jobs data raises the likelihood of higher interest rates for longer.
But first, US jobless claims rose sharply and by +251,000 last week to leave 1.74 mln people on these benefits, the highest it has been since February.
However American job cuts levels shrank sharply as tech layoffs eased.
And the ADP employment report, the pre-cursor to tomorrow's US non-farm payrolls report on their June labour market, came in with a surprisingly strong jobs surge. It was enough to move financial markets sharply. They reported almost +500,000 new jobs added in June. The gains were widespread in both the factory and services sector, noticeably in SMEs (but not in large firms), and nationwide (except in the South). Pay rates rose again, but just not as fast as previously but for those changing jobs they were still up an impressive +11%.
Analysts are still only pencilling in a non-farm payroll rise of +225,000 for June so there is plenty of upside potential here if the ADP data is any indication.
We should probably also note that the May JOLTS report said job openings retreated in the month to 9.8 mln. But we have moved a long way on from then.
Also unexpectedly more positive was the wide-watched ISM services PMI. It unexpectedly jumped to an index level of 53.9 in June, pointing to the strongest growth in the services sector in four months, and well above 50.3 in May and forecasts of 51.
Not so positive were American mortgage application levels last week. They fell rather sharply ending a string of four weeks of gains. Perhaps that was because their benchmark fixed 30 year interest rate rose to 6.81% plus points. They are now back at levels approaching the recent November highs.
Moving north, Canada posted a surprise goods trade deficit in May as imports surged but exports went in the opposite direction.
Across the Pacific, Australia recorded another large trade surplus for both goods and services in May, +AU$10.4 bln and a level that is being normalised for them. Over the past 12 months that surplus is now just under +AU$150 bln. That's equivalent to 5.9% of their AU$2.5 tln nominal GDP.
In China, their heat wave is burning in substantial damage, especially in northern China. They have had the highest number of scorching days on record in the first half of this year. Cities like Beijing saw temperatures soaring above 41oC, threatening lives and crops. Beijing reported 15 days in June when the average temperature exceeded 35oC. This makes last month the hottest June on record. In the southwest of China, the story is different with damaging seasonal flooding.
In Germany, we should note that factory orders there turned up sharply in June; some calling it a boom. It certainly is an impressive turnaround for them after some lackluster months.
Global air travel is booming again. Strong growth continued in May as airline load factors rose back to 2019 levels. But Asia/Pacific volumes are still dragging the chain even though the May year-on-year data was encouraging.
Meanwhile, container shipping rates fell yet again last week although some outbound China rates seem to have bottomed out. Bulk cargo rates fell as well, basically giving up all of their recent gains.
The UST 10yr yield will start today at 4.05% and up another sharp +11 bps from yesterday. That is its highest since early March and approaching its November highs. Their key 2-10 yield curve inversion is lower at -96 bps. Their 1-5 curve is very much lower at -109 bps. And their 3 mth-10yr curve is also lower at -115 bps. The Australian 10 year bond yield is now at 4.23% and up a very sharp +19 bps. The China 10 year bond rate is unchanged at 2.70%. And the NZ Government 10 year bond rate is up another +5 bps at 4.78% and that is a ten year high.
Wall Street is lower today in their Thursday trade with the S&P500 down -0.8%. Overnight, European markets were sharply lower with London down -2.2%, and Paris down -3.1% to bookend their trading. Yesterday, Tokyo ended its Thursday session down -1.7%. And Hong Kong fell a sharper -3.0%, while Shanghai was down -0.5%. The ASX200 ended its Thursday session down -1.2% while the NZX50 fell a modest -0.4% at the end after being higher for most of the day.
The price of gold will start today at US$1910/oz and down -US$9 from yesterday to a four month low.
And oil prices are down -50 USc at just over US$71.50/bbl in the US. The international Brent price is softer too at just under US$76.50/bbl.
The Kiwi dollar starts today just over 61.5 USc and down nearly -½c from this time yesterday. Against the Aussie we are firm at 92.9 AUc. Against the euro we are nearly -½c lower at 56.6 euro cents. That means the TWI-5 is now just under 70.2, and down -30 bps on the day.
The bitcoin price has fallen marginally from this time yesterday and now is at US$30,268 which is a -0.8% fall. Volatility over the past 24 hours has been moderate at just under +/- 2.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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61 Comments
Strong evidence shows that the higher internet rate lead to better economy growth. Minimum OCR should be 20% or above. RBs cross world must increase OCR to 20% -100%. This will lead world economy to grow faster. Once OCR reach 100% pa . Unemployment will become 0. Every body will have a job.
[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link
"if it will stop us 'investing' in asset speculation and into productive enterprise."
This would require a massive paradigm shift in the beliefs/goals/rules of Capitalism, which requires a massive shift in the human/ego psyche.
There's a comment below about shifting from borrowers to owners - yet all we've been doing is borrowing for the belief that we're owners of a financial asset/investment - it all ends up as speculation and the magical belief that bigger numbers is built/created wealth.
Everyone's demanding productive enterprise but why is this not happening? Maybe the markets are saturated hence the move to financial capitalism? The economics don't stack up compared to asset speculation so it's a fundamental flaw in "the system"? There's also the history of enterprises ending up in the hands of the few - one only has to look at FMCG and retail brands owned by a minority of "investment" firms and private equity funds - and Joe Bloggs gets to speculate through the sharemarket for his retirement. Maybe we do need to move to Marx's view of workers having direct ownership in the enterprise - we'd all be owners and investing our efforts for more than just a paycheck?
Re; China heatwave.
The mechanisms by which global warming is in the process of destroying the economy and our 'way of life' are many and varied.....
''In 2019, the International Labour Organization published a report which contained some sobering details.
“The economic losses due to heat stress at work were estimated at US$280 billion in 1995,” the U.N. agency said.
This, it added, “is projected to increase to US$2,400 billion in 2030, with the impact of heat stress being most pronounced in lower-middle- and low-income countries.”
https://www.cnbc.com/2023/07/05/as-planet-heats-calls-to-protect-worker…
Oh, and Monday's record hottest day on record lasted......all of a day.......
https://www.theguardian.com/environment/2023/jul/05/tuesday-was-worlds-…
Shell boss under fire for saying cutting fossil fuel production is ‘dangerous
Shell last month announced that it would hold its oil and gas production steady until 2030, after previously saying it would cut output by about 1-2% each year. Sawan is understood to have backtracked on the company’s modest climate goals in order to take advantage of lucrative fossil fuel prices which have been stoked by the war in Ukraine.
Are we really expecting the big oil companies to drive change away from oil? All cutting production would do is push oil prices to the sky and deliver windfall profits once more, or the other oil cos/sovereigns will up production and eat their lunch.
If we really want to discourage use of oil (which I think we do), surely it's much better to use tax so the income accrues to governments? In our case - just reduce the cap in the cap & trade scheme faster.
Bonus points if the associated tax take is distributed per capita, so that low emitters and low income households end up better off.
The government loves oil products.
https://www.stuff.co.nz/southland-times/news/132491762/government-plan-…
Government urged the use of environmental product declarations (EPD), green certificates that reported products’ lifetime environmental data in line with a set standard. and showed synthetic materials were better for the planet,
How wool has come to be seen as worse for the environment than synthetics | Stuff.co.nz
In the bigger picture of what’s better for the planet, the “end of life” phase, where research showed wool was renewable and biodegradable, needed to be considered, Booker said.
The wool industry needed to decide what the actual impact was it wanted to address, and whether it was end of life or current carbon emissions, he said.
Why?
The RBNZ, and like as not other CB's, have done the one thing they shouldn't have done - taken their foot from the throat of an adversary before they had made absolutely sure it had been stone dead for some time before they did.
There's nothing worse than an adversary that has survived your attempt to kill it. It's angrier than it was before, and is determined not to make the same mistake you just did.
My view on why inflation will come back down… as I sit in an expensive and crowded cafe…. people are going to realise they are poor.
1/3 of the cafe is construction workers who just spent $30 on a meal and coffee. This year they’ll have higher interest costs, next year they won’t have the work and will probably be thinking a bit differently about spending what they have.
There's still a lot of stupid money floating around the economy, artificially propping up low productive sectors such as construction. Productivity figures released by Infometrics for 2022 show construction workers in NZ were only two-thirds as productive as the average worker in NZ. Yet the sector enjoys higher pay rates and margins than the broader economy.
How about degrowth? The only logical action on a planet with collapsing life support systems caused by humans.
Https://www.theguardian.com/world/2022/aug/22/china-drought-causes-yangtze-rive…
US five year real yields are on an upward trajectory - 2.14% today - the real cost of financing US fiscal deficit spending could approach levels last seen in 2009.
UK housing activity PMI at 39.6 Lowest since April 2009 I understand some sticky demand for housing, the tight supply due to potential sellers having locked in low mortgage rates etc But 70%+ of house purchases are historically backed by mortgages - for how long can this hold? Link
You're obviously exporting solar power to the grid at times when demand isn't that high.
A better idea would be to invest in a battery pack for your house (or an EV designed for vehicle-to-load charging) and store the excess energy you generate for your mornings and evenings.
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