Here's our summary of key economic events overnight that affect New Zealand, with news of more signals inflation pressure is fading.
First today, American inflation expectations fell in June to 3.8% over the next year, the third consecutive retreat and the lowest level since April 2021. In fact from its peak in June 2022 when it topped out at 6.8%, it has now fallen -300 bps.
On Thursday we will get their actual CPI rate and it is expected to come in at 3.1%.
Meanwhile data for American consumer debt appetite has come in low for May. It rose +5.7% in the year to April but that impetus eased back in May to just a +1.8% expansion. Instead of growing by the expected +US$20 bln, it only grew by an insignificant +US$7 bln.
After coming in somewhat low in April, Canadian building consents recovered a bit in May to be up 10% from April but they are still down -14% from a year ago.
In China, their central bank extended some policies in a November rescue package to shore up the real estate sector until the end of 2024. However because these policies have failed to gain traction, this extension is being taken a s a signal that more stimulus will be rolled out soon.
China's annual inflation rate was unexpectedly flat in June (0.0%), compared with market expectations and May's figure of +0.2%. This was the lowest reading since deflation in February 2021.
China's producer prices dropped -5.4% in June from a year ago, a faster decline than a -4.6% fall in May and worse than market forecasts of a -5.0% drop. It was the ninth straight month of producer deflation and the steepest fall since December 2015. It comes amid weakening demand and fast-easing commodity prices.
The UST 10yr yield will start today at 3.99% and down -8 bps from this time yesterday. Their key 2-10 yield curve inversion is holding at -88 bps. Their 1-5 curve is much more inverted at -116 bps. And their 3 mth-10yr curve is more inverted at -127 bps. The Australian 10 year bond yield is now at 4.22% and down -6 bps from yesterday. The China 10 year bond rate is marginally lower at 2.69%. The NZ Government 10 year bond rate has stayed up, rising +5 bps from yesterday to 4.95% and a new twelve year high.
On Wall Street, the S&P500 has started their week little-changed. Overnight, European markets all rose about +0.5%. Yesterday, Tokyo ended it Monday session down -0.6% while Hong Kong was up +0.6%. Shanghai ended up +0.2%. The ASX200 finished down -0.5% while the NZX50 ended down -0.6%.
The price of gold will start today at US$1926/oz and up +US$2 from yesterday.
And oil prices are -50 USc softer at just under US$73/bbl in the US. The international Brent price is now at just under US$77.50/bbl.
The Kiwi dollar starts today unchanged at just over 62.1 USc. Against the Aussie we are slightly firmer at just under 9.1 AUc. Against the euro we are holding at 56.5 euro cents. That means the TWI-5 is still just over 70.3 and little-changed from yesterday.
The bitcoin price has slipped marginally from this time yesterday and now is at US$30,170 which is a minor -0.4% shift lower and a developing yo-yo pattern. Volatility over the past 24 hours has been low at just under +/- 0.7%.
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35 Comments
"more stimulus will be rolled out soon."
And if that seeps into the rest of us, then any talk of Inflation abating might be short-lived. A devalued Yuan and cheaper goods for us all to buy? We'll go mad on a spending binge. And be back to where we were at the start of this correction, only worse off - again.
Those imported goods are cheap at the factory gate. Shipping freight, port charges, road freight, importer margins and goods-handling costs are then added to bring these goods to our doorsteps. Servicing more inward goods volume is going to be inflationary in the current demand-pull environment.
Also, our largest trading partners witnessing sustained drops in their currency values is bad news for our exporters while our terms of trade are also in decline.
Yes. In fact, falling prices, negative CPI, is a better thing," More Goods of a Better Quality at a LOWER PRICE" is what Capitalism is supposed to be about. But in a Debt soaked society, 0% Inflation is the last thing that 'they' need (or why else is it mandated that there has to be a targeted 2%-3%inflation every year?)
“China is the world’s largest market for semiconductors, and our companies simply need to do business there to continue to grow, innovate and stay ahead of global competitors,” he said. “We urge solutions that protect national security, avoid inadvertent and lasting damage to the chip industry, and avert future escalations.” Link
Goldman Sachs says #India will overtake US to become world's 2nd-largest economy by 2075. On top of a burgeoning population, driving the forecast is country’s progress in innovation & technology, higher capital investment & a rising worker productivity. https://cnb.cx/3NL5D2Z Link
"neither Foxconn nor Vedanta had prior experience or technology in the semiconductor industry. It was anticipated that they would source fabrication technology from a suitable tech partner. While their JV, Vedanta-Foxconn Semiconductor Limited (VFSL), had initially proposed a 28nm Fab, they were unable to find an appropriate tech partner for that proposal."
We are not in the same boat as the UK on balancing our current account gap with capital flows. Data for the year ended March '23 suggests more than 1,600 foreign direct investment (FDI) projects were kicked off in the UK that should create more than 80k jobs in manufacturing, life sciences and technology.
Our wide current account gap is a symptom of decades of broken policies (taxes, migration, education & training, land planning, R&D, etc.). I fail to see how we claw our way out of this hole without a hard correction forcing lower imported consumption on our population, or in other words, drop in living standards.
One study from BIS last month dug up by our friend@EmilKalinowski showed both QT and QE as having no real impact on bond rates. Without affecting rates, QT doesn't impact the economy (forget "liquidity", bank reserves do NOT matter). All smoke & mirrors. https://buff.ly/3O57Bg6 Link
If they're lying to you (by omitting these results) about QT, what else have Fed officials and Economists been lying to you about? Everything starting with inflation risks. Fed is this all-powerful monster of an institution. Bullsh--. https://buff.ly/3O57Bg6 Link
I'm picking a proper recession. Why? partly on the US 2-10 year yield curve inversion, partly on the news out of China, partly on the fact that many mortgages have yet to be rolled-over and partly on nothing but gut-feeling.
I have been loading up on 5 year government stock and other bonds. Why 5 years? Well, at 78 and with stage 4 cancer, I don't expect to last any longer than that.
Without reforms, China can still afford the time to muddle through its economic problems says former Morgan Stanley economist
https://www.scmp.com/comment/opinion/article/3226694/without-reforms-ch…
If anyone has switched banks recently I'd be interested to hear about your experience. You can contact me via email; gareth.vaughan@interest.co.nz
Thanks.
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