Here's our summary of key economic events overnight that affect New Zealand, with news the inflationary pressure in the US is easing and that is probably a turning point for their central bank.
The June CPI inflation number came in pretty much as expected. It was 3.0% in June from a year ago, the lowest since March of 2021 and that compares to 4.0% in May and a market expectation of 3.1%. The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%. This time, energy cost slumped more than -16%, and the food component went up +5.7% which was less than the May +6.7% rate of rise.
Overall, the annualised rate of increase in June from May was about +2½%, so that indicates a recent slowing in cost pressures.
The impact on financial markets when these expectations were confirmed was muted - they were priced in - but US equities rose (to 15 month highs), bond yields fell, and the US dollar fell. In fact the US dollar fell to its lowest since April 2022. Risk appetites are rising and commodity currencies are back in favour. All this raises the probability of a soft landing for the giant US economy as the Fed is less likely to raise rates much further. But the expectation remains that they will still raise them again.
Meanwhile, American mortgage applications rose last week after the prior week's large fall. This may just we a rebalancing because American mortgage interest rates rose sharply to over 7% (and their highest since November) as the bond market sold off back then. There will probably be an easing in these rises in the next two weeks.
We will got the latest Fed's Beige Book survey and it painted a modest picture of the giant American economy ticking along ok. They said overall economic activity increased slightly since late May. Five Districts reported slight or modest growth, five noted no change, and two reported slight and modest declines. Reports on consumer spending were mixed; growth was generally observed in consumer services, but some retailers noted shifts away from discretionary spending. Tourism and travel activity was robust, and hospitality contacts expected a busy summer season. Car sales remained unchanged or exhibited moderate growth across most Districts. Manufacturing activity edged up in half of the Districts and declined in the other half.
And the closely-watched USDA WASDE crop yield update for July made a rare cut in corn and soybean production forecasts as extreme weather takes some toll. But to be fair the corn cut in the forecast was from a record high and the new lower levels will still probably be records. Wheat production is still expected to be a record too. But their Mid-West farming sector is going through a drought.
In Canada, their central bank raised its policy rate by the +25 bps expected to 5% overnight, doubling the surprise +25 bps rate hike from the previous meeting and extending its tightening cycle after the brief pause in March and April. They said that stronger-than-expected consumption and stubbornly tight labour markets are keeping inflation persistent for services, warranting another increase in borrowing costs.
Japanese machinery orders (excluding those for ships and electric power companies), declined by -7.6% in May from April, reversing from a +5.5% rise in April and defying expectations for a +1% gain. The manufacturing sector saw an increase in private capital investment of +3.2% in May, while the non-manufacturing sector posted a sharp drop. The highly volatile data series is considered as a leading indicator of capital spending in the coming six to nine months. On an annual basis, machinery orders fell by -8.7% in May, accelerating from a -5.9% fall in April. Analysts expected little change.
India said consumer inflation accelerated for the first time in five months to 4.8% in June from an upwardly revised 4.3% in May, and above market forecasts of 4.6%. Food inflation increased to 5%, from 2.9% in May.
And industrial production in India rose +5.2% in May from a year ago, accelerating from a +4.2% gain in the previous month and above market expectations of +4.8%.
In China, two major Chinese commercial banks have allowed their customers to start making payments in their CBDB e-CNY without being connected to the internet, in another push to get more people to use the central bank-created digital currency. Bank of China has partnered with two telecom giants to launch the new feature on the central bank-backed e-CNY app, according to a BoC statement.
The UST 10yr yield will start today at 3.86% and down -11 bps from this time yesterday. Their key 2-10 yield curve inversion is slightly less at -89 bps. Their 1-5 curve is however more inverted at -128 bps. And their 3 mth-10yr curve is much more inverted at -140 bps. The Australian 10 year bond yield is now at 4.04% and down another -13 bps from yesterday. The China 10 year bond rate is holding lower at 2.69%. The NZ Government 10 year bond rate has fallen sharply again too, down another -11 bps from yesterday to 4.72%.
On Wall Street, the S&P500 is up +0.9% in Wednesday trade, a gain that predates the CPI news. Overnight, European markets all rose about +1.6% on average. Yesterday, Tokyo ended it Wednesday session down -0.8% (which is more about the yen's value change) while Hong Kong was up another +1.1%. Shanghai however ended down -0.8% with an afternoon selloff. The ASX200 finished with a +0.4% gain while the NZX50 ended essentially unchanged for a second day.
The price of gold will start today at US$1957/oz and up +US$25 from yesterday.
And oil prices are +US$1 higher at just under US$75.50/bbl in the US. The international Brent price is now at just under US$79.50/bbl.
The Kiwi dollar starts today more than +1c higher at just on 63 USc and that is a two month high. Against the Aussie we are holding up at just on 92.8 AUc. Against the euro we are firm at 56.6 euro cents. That means the TWI-5 is now up to 70.5 and a +50 bps gain from yesterday.
The bitcoin price has slipped slightly from this time yesterday and now is at US$30448 which is a tiny -0.5% move down. Volatility over the past 24 hours has also been low at just under +/- 0.9%.
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49 Comments
It'll go up again. Take note of the base effect - it'll appear to be slowing because it was at a peak this time last year. Later in the year it will pick up again.
Nonetheless, the USA is in a much better position than us because they have a large and very diversified economy that is busy onshoring, ie building productive capacity. They'll come out of this better than us, but not because of superior interest rate policy.
Good comment. With the next wave of technological change coming, most manufacturers are spending significant business and human capital in redesigning their products and retooling their factories. Biden's incentives will lock US companies into local manufacturing for a couple of decades at least.
The tech layoffs we saw earlier this year in the US has released thousands of talented workers into the broader market and has helped create a steady pipeline of those coming out of unis or migrating to the US wary of joining overvalued unicorns.
"due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%."
To put it another way, the rises of the last year have become embedded. It's what happens now they have that will be interesting to watch. The lag effect will work with more than just interest rate rises.
What there have been of them....so far.
It's all part of The Plan. A Debt soaked System has no other option once the debt cannot be repaid from current propductive enterprise. All that's left is more Debt; more speculation, and another spin on the same roundabout. Until the speed is so great that we all get tossed off. (and that can't be far away as the ageing societies we all have speed the process up i.e. those that work will ask for bigger and more frequent wage rises to allocate their scarce resource; their labour)
Healthy? An 8% wages rise to produce the same product - or, dare I say it, less? That's anything but healthy - it's ultimately corrosive. Those who ram raided the malls last week didn't get their 8% pay rise, so they went and took it in another way. And that is as good an illustration of corrosiveness as there is. There will be fewer of 'us' with the 8% pay rises, and an ever-increasing number of 'them'
Inflation is much healthier than stagflation. 7% inflation is hardly the end of the world, as I said yesterday before central banks controlled inflation 7%+ was a common occurrence.
The dickheads doing ram raids aren’t doing it because they can’t afford to eat, they are doing it because they are bored.
In a way.
The pre-collapse end-game is usually accompanied by the biggest stratification-spread (elites vs peasants) the culture has seen (Diamond, Tainter etc., Tainter mentions 'energy-averaging). What we are seeing is folk with no 'hope', trying to equalise energy inequality; ironically they're using an energy lever to redress that. As did the folk who overtook their ancestors; cannons vs spears.
The Elites NEVER survive the collapse...
No useful skills, coupled with underclass resentment.
While you align it to 'pre-collapse end game', I say it is due to decades and generations of poor socio-economic policies, but ultimately yes as you say "in a way" it is a response to the economy. But he is also correct in saying they are doing it because they are bored. That too is a consequence.
Ah yes, ram-raiders are merely economic victims. Better take more from the people who get up and slog their guts out for 40 + hour a week and incur childcare, travel costs, petrol costs, time lost to traffic etc and give it to people who don't because they don't feel like it - lest they resort to hugely damaging property crime.
This reason is why this country is over a barrel. It wants to take from people who do the right thing and give it to people who don't care either way. After all, it's not like there's real consequences because there's always some soft-touch who can find a way to make sure they're the victims, somehow.
Exactly:
The @nzlabourparty is making a big mistake by not running an election campaign on fair taxation after an IRD report found that the wealthiest New Zealanders only pay a single digit percentage in taxes while the working class pays the full rate. My family has also benefitted to the tune of tens of millions from the New Zealand capital gains tax regime which is a free for all for the wealthy and unfair to the vast majority of Kiwis. NZ Labour is the party for the people, the workers, those who keep our country going every day. The National Party is the party for the rich, the bankers and corporations. If my family wants to hire lobbyists to get even more tax benefits we would send them to National Party politicians like many rich Kiwi families do, not Labour. Kim Dotcom
Absolutely - see mine above. But net wages never keep up with Inflation for a number of reasons.
But this last time it was 9.1% and has stuck (and still rising on a compound basis, of course). So why anyone would think that debt rates aren't going to keep on rising, and that whatever we have today is just a lull in the battle, is beyond me. But I guess that's what makes a market!
Depends on the timing of payrises. If you get a quarter of 'normal' inflation, you can bet that all pay rises from that point on will be at that reduced rate - never mind the fact that annual inflation up to that point has impaired people's purcahsing power at a much higher rate.
[00:03:58] Hudson: Well, I think it’s a failed state because its economy is paralyzed and we’re in a debt deflation, an economic polarization, that is just transferring all wealth and income away from labor, away from industry, into really the financial sector and what I call the finance, insurance, and real estate sector.
And what’s failed is, right now, President Biden says that he wants the future to re-industrialize. He realizes that ever since the Clinton administration, the Democratic Party has been solidly behind de-industrializing the United States, and that’s actually going back to the 1960s and early 70s when economists were celebrating what they called, a post-industrial society.
Well, what does a post-industrial society mean? It meant a society without blue collar labor, really, service labor, which happened to be a society without labor unions. And the promise was that a post-industrial society was going to make everybody richer, and you’d have easier working conditions, and shorter working days, and productivity would rise, and everybody would have an easier, more prosperous life.
Well, that hasn’t happened, so the question is: Why did the United States decide to de-industrialize? And I think it was done as a combination between two parties. You had the Democrats with a pro-financial anti-labor policy, and the Republicans with a pro-financial, pro-landlord, pro-1% policy, wanting tax cuts; and the real objective of de-industrialization from Clinton on, was an anti-labor policy, because de-industrialization meant essentially lowering employment, and thereby lowering the demand for labor, and lowering the wages. And the question that everyone was asking from 1980 on was, why were wages having to be reduced, and why are wages lower right now? Well, for years, American dominance, as an industrial power in the late 19th century, was a result of low wages, as a result of low housing costs, low debt, free education, public services, and this had created a very prosperous US economy, from right after the Civil War, down through Roosevelt’s New Deal. Link
It's amazing how quickly things balance out price-wise when your key sectors aren't dominated by one or two large firms.
Main story on the Herald site today painting a grim picture of kiwis leaving. I don't know how Labour can campaign with a straight face, they have utterly failed their voter base.
In my skilled Healthcare profession, it has got a lot worse. Our pay increase was well below inflation, the Aussies are storming away from us. Last year a colleague completed their training, and moved to Australia for a salary higher than the head of department they left behind. In some states, the pay is roughly double the same grade in NZ.
It was always terrible negotiating under the Nats - we had to strike to get anything above inflation. Surprisingly, it has been even harder under Labour.
Yes, we had to jump through hoops and wait for the freeze to expire before we could settle on anything vaguely acceptable.
In fairness, we are relatively well paid for Healthcare workers - most of us on 6 figures. Government policy has pretty openly been to support lower wage workers which mean compression, with those at the top end held back - there is only so much to go round. Bringing this up at work doesn't normally go down well, even with my usually left-wing colleagues.
This is also a risky strategy when we are free to work in Australia who have not followed the same path, meaning the pay gap has grown into a chasm.
Its mostly National voters that have gone. Labour voters are welfare dependent and won't find any joy in Australia. People with the mentality of wanting others to pay for everything they want are not the type that head off overseas to work hard and better themselves. So Labour are probably achieving exactly what they intended - decimate the Right's voting base.
Had the bizarre experience of being at a social event yesterday with strangers. Next thing I'm cornered with two persons, one a landlord, the other a climate denier.
Both were educated middle aged boomer types (such as I am). Both well off.
And then the Maori place name winge was also wheeled out.
I'm no leftie and vote TOP (ex Nat supporter). But by oh boy what a horrible experience talking to my demographic and 'culture' self.
Ugly ugly people.
Its annoying how we combine economic conservatism with backwards thinking. The UK wasn't so bad for that when I lived there. The Conservatives built Crossrail for example.
You shouldn't have to be left wing to believe in climate action and Maori rights. Rastus maybe you and I are the only people in NZ who are both economically conservative and socially progressive.
That sounds like an ACT town hall event I made the mistake of going to once. I thought I was going to hear about small government and economic realities, instead it was a solid stream of pro-gun, anti-EV, anti-any welfare, anti-climate change, pro-coal messaging that had the pundits nodding in their seats. When question time was called the anti-science people in the crowd got their comments in as well.
I'm glad I went. It cured me of voting for Act again. I think I'll stick to the middle two parties and pick from the least shit policies each time.
EVs are great and 99% of people who used one for a month would probably never go back to anything else.
If you have an extremely specific ("I like to drive back-to-back full Bathurst-level stints without stopping towing a boat and a caravan and a 2011 Nissan Leaf can't do that so it's a UN Agenda 69 conspiracy!!!!") use case that it doesn't suit, then don't buy one. Much in the same way I would not buy a Suzuki Swift to haul a 44 tonne container.
From that comment. You are morally superior? The landlord should give all the properties away. He shouldn't support his retirement this way and you can show him how to invest differently. Maori names changed every where will help new Zealanders in schools, reduce health care, reduce crime etc.
Ugly are the people that intimate, tell you how you should save or invest your own money. They also like to dictate to people that their tax money will be spent on changing place names and adding spiritualism to better new Zealand.
I personally think the people that beat, molest, rape, rob, sell drugs or kill are the ugliest.
Yes, those are ugly people, but also a minority.
I think the urk is around using government issued currency to speculate on tax free assets while relying on somebody else to foot the bill.
It's like if I were hired for a job by sliding some money under the table, outsourced all of my work to somebody else, took all the money for myself and made them foot my tax bill all in the name of "providing" them a job. Then on top of that, other tax payers pay a portion of money towards my tax bill because the person can't afford my tax bill themselves. AND ON TOP OF THAT, I claim a sweet ass deal with the government to claim my own benefit to the tune of about 15% of GDP.
Then, when I tire of my welfare, I will give that job to somebody else, but I will require them to pay me a larger sum of money for it than I originally paid when adjusted for any other form of inflation, and once again, I refuse to pay tax.
And this is "normal", not a minority.
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