Here's our summary of key economic events overnight that affect New Zealand, with news inflation is hard to beat and the US Fed is unsure it has done enough yet.
First up today, the US Federal Reserve raised its benchmark interest rates by +25 bps to 5.25%-5.5%, in line with market expectations. It was a unanimous decision. That takes them to their highest levels since January 2001. At this level it matches the RBNZ OCR.
Because it was expected, there was little reaction in financial markets on the announcement, with equity, bond and currency markets deciding the increase was already priced in. Perhaps the bond market is showing some caution however after the press conference. Even though markets don't expect it, the Fed did leave the door open for more increases because they seem unsure they have done enough to quash inflation.
Elsewhere in the US, mortgage applications eased -1.8% last week, the first drop in three weeks. That fall came despite mortgage interest rates being essentially unchanged.
Sales of new single-family houses dropped -2.5% in June, retreating from May's 15-month high. The June level was lower than expected. Sales in the West were down -14%, while those in the Midwest tumbled -28%. On the other hand, sales in the South rose +4.3%, and those in the Northeast surged +21%. It was an unusually mixed picture regionally.
Across the Pacific, Singapore's industrial production rose in June from May, reversing a soft patch earlier in the year. It was a bigger gain that anticipated, and trimmed the year-on-year retreat to a smaller level than expected.
In June in the EU, bank lending to households rose +1.7% from a year ago, the lowest growth rate since May 2016. On the other hand, lending to companies grew by +3.0%, but it still marked the slowest rate of growth in seven years. The overall private sector credit growth, encompassing both households and non-financial corporations, decelerated to +2.0% in June, representing the slowest expansion since August 2016.
And even these levels may be hard to sustain. An ECB bank survey showed that loan demand is falling sharply now as the ECB tightening bites harder. Some shifts in this survey seem quite large, but in the past such big shifts (either way) don't end up in actual lending. However, it is still a worrying signal.
In Australia, CPI inflation rose +6.0% in the June quarter from the same period a year ago. (Expected: 6.2%.) But it is slowing; it only rose at the rate of 3.2% annualised from the March quarter to the June quarter. New Zealand has already released its June CPI rate and that was up +6.0% as well. Australia also tracks CPI inflation monthly, and the year-on-year June month rate was 5.4%, down from 5.6% in May. Housing and food costs are keeping inflation elevated in Australia.
Also part of the pressure holding inflation up is electricity prices. In the background, wholesale electricity prices increased +31% in June over the March quarter, even if they weren't as high as last year’s record levels.
The UST 10yr yield will start today at 3.85% and down -6 bps from this time yesterday. Their key 2-10 yield curve inversion is deeper at -102 bps. Their 1-5 curve is unchanged at -122 bps. And their 3 mth-10yr curve is also unchanged at -148 bps. The Australian 10 year bond yield is now at 3.99% and down -7 bps from yesterday. The China 10 year bond rate down -2 bps at 2.69%. The NZ Government 10 year bond rate is up +1 bp from yesterday to 4.68%.
On Wall Street, the S&P500 has opened its Wednesday trade up +0.1% and taking the news of the Fed rate hike in its stride. Overnight, European markets were mixed between -0.2% in London and -1.4% in Paris. Yesterday Tokyo ended essentially unchanged again. Hong Kong fell -0.4% in Wednesday trade. Shanghai ended down -0.3%. The ASX200 ended its Wednesday session up +0.9%. And the NZX50 rose +0.2% on the day.
The price of gold will start today at US$1968/oz and up +US$6 from yesterday.
And oil prices are down -50 USc at just under US$79/bbl in the US. The international Brent price is now at US$82.50/bbl.
The Kiwi dollar starts today unchanged at just on 62.2 USc. Against the Aussie we are slightly firmer at 91.9 AUc. Against the euro we are down nearly -½c at 56 euro cents. That all means the TWI-5 has held at 69.9.
The bitcoin price has firmed slightly again since this time yesterday. It is up +0.2% and now is at US$29,311. Volatility over the past 24 hours has been low at just over +/- 0.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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107 Comments
Kaaaarrrkkkkkk indeed. The imortant bit is the fast approaching roleover of billions of short term leverage for all the TA (fix short) believers. Leverage that is increasing as a percentage of value every day as price continue to fall. Banks don't care about failed equity requirement as debt ratios increasingly fail...yeah right.
So crush the speculative, or crush everyone thru imported inflation as the doller tanks. Should be an easy decision.
Choices....
Unfortunately it does sound like a lot of people refixed short term because they couldn't face the higher long term rates at the time. If they had gone 3 to 5 years it now would be making a huge difference to the tune of hundreds of dollars a week. There is going to be some collateral damage for sure but don't expect more rates rises.
Stop making up stuff. It's very simple. You and I had an agreement not to use the words spruikers and DGM.
Look you can lie and deny things, try to change the subject to avoid the topic, renege on your promise, but at some stage, we all have to grow up and become trustworthy and accountable. I hope that time will come soon for you.
But Yvil - You are a Proven Liar !
by Yvil | 3rd Jul 23, 1:39pm
Finally a rate over 7%, although anyone can get a rates starting with a 6 with a bit of negotiation. Who remembers the clown who "guaranteed" 7% by the end of last year. I think he used to say 10% guaranteed in 2023 . It just goes to show how some people have no clue!
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by Hawkes Bay | 3rd Jul 23, 4:29pm
So Yvil how does this comment of yours from last year fit into your comment today ??????????????????????????
by Yvil | 15th Nov 22, 4:43pm
Well you did very well predicting 7% interest rates by December 2022, when most of us, me included, didn't believe it, so well done on this prediction!
I have noticed how unstable and rattled you have become. But this continual manipulation to control the narrative is unacceptable .
The Prophet said 7% Interest Rates This Year, Guaranteed ! (2022) - Prophecy Confirmed.
10% Interest Rates This Year, Guaranteed ! (2023) To Be Confirmed.
It is important for us to watch the Vile meter. Or should I say the Yvil meter ?
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Thanks for taking the time to find these comments HB, much appreciated.
by Yvil | 15th Nov 22, 4:43pm
Well you did very well predicting 7% interest rates by December 2022, when most of us, me included, didn't believe it, so well done on this prediction
I would say that it shows that I can admit when I'm wrong , and give others credit for when they are right, wouldn't you agree?
No Yvil. It shows your true level of Deception.
And here is another example you will also try to worm your way out of. You are in Panic Mode.
by Nzdan | 23rd Nov 22, 8:58pm
I recall a few years back he turned up to the Interest.co offices and put on a morning tea shout. The aspirations go back a while.
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by Yvil | 23rd Nov 22, 10:02pm
That's right, maybe I'll do the same again for X-mas now that Covid is over. It was great meeting the team at Interest, I was impressed they didn't even take a proper break to have their morning shout. I thought they deserve it, don't you ?
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by Millennial_Woman | 23rd Nov 22, 11:10pm
Wow is this how the real estate lobby got into bed with our MSM?
Ridiculously on Track for 10% Interest Rates This Year, Guaranteed !
Good to see ANZ, John Key, Yvil and HouseMouse all Conceding to the Teachings of The Prophet.
It’s difficult to see, if the government was telling the truth that is, that if NZ’s problems with fast rising inflation were mostly imported, then why NZ will not therefore require to keep raising its OCR in similar alignment with the nations, eg USA as above, from which it has been importing its inflation. Just asking.
I pointed out last weekend that the Indian government panicked as food prices in the country soared to 4.5% YoY and imposed an export ban on several variants of rice.
Meanwhile in good old NZ, food inflation has now remained above 4% YoY since November 2021 and last reported at 12.5%. No meaningful action from policymakers here other than pumping up demand further via welfare payment increases.
We're importing thousands more mouths to feed each week and Chippy decides this is a great time to strike more deals with our trade partners and export more of our food produce.
We should be rioting on the streets but yeah nah, she'll be right!
If, say, a year ago the 1 year interest rate was 4% and the 5 years was 1%, and today the 1 year rate is 6% and the 5 years is 3%, what did the shape of the yield curve tell you a year ago? And whatever the shape is today doesn't guarantee that in a year time the 1 year isn't 7% and the 5 years 5%.
But what is for sure is that if you have an asset to fund, borrowing long, for 5 years, a year ago at 1% was the way to go, as it probably is at 3% today. And all the time, the curve has been inverted.
If my reading of the graphs here are correct, the yield curve was inverted for 4 years before the GFC, 4 years! You gonna spend almost the length of an entire business cycle worried that a recession is coming?
https://www.interest.co.nz/personal-finance/123182/what-does-five-year-…
And yet it provided people with ample warning to limit their risk exposure prior to share and property markets tanking in the US (where I was living at the time) and yet not many listened.
Here's the US 10 year - 2 year inversion. https://fred.stlouisfed.org/series/T10Y2Y It clearly warned people to reduce risk in 2006 - 2007. If they did so, they:
1. saved themselves from risk of insolvency.
2. set themselves up for their financial freedom when they were able to purchased cheap assets from distressed owners a few years later.
I was working with people who didn't heed the warning and found themselves in negative equity with their own homes or property investments, or down 50% with their share portfolios.
I'm waiting for the MSM reaction to this when things do start to go bad for some people. Is it going to be like Covid THEN when the media were all over it or is it going to be like Covid NOW where 15 people die a week and nobody says a word ? One hell of a time to have an election, no shortage of ammo for National.
I'm in my mid-30s, the only time we would ever watch the news on TV is when the mother-in-law is round. I think my peers are similar.
Why on earth would you when you can read just the stories you are actually interested in, from multiple perspectives, much quicker online?
All the people I know who get their 'news' from TV are over 60 - and nearly always 2 days behind unless it's something sensational. Also, if ONE news didn't report it, it's fake.
As for the younger folk, their listening net (pun intended) is cast far and wide over a variety of news sources - and not limited to NZ either.
the Fed did leave the door open for more increases because they seem unsure they have done enough to quash inflation
The Fed are literally stimulating the economy - throwing billions in extra interest payments at rich people, and, with 30-year fixed mortgage rates, doing nothing to slow consumer spending. They think they can bring prices down by making credit more expensive. These are the end days for medieval monetarism.
They have no choice. Can't we all feel the bubbling (pun there) asset markets just itching to rocket up the second The Fed back peddles? Of course, we can, and that's why there is a lot further to go.
It doesn't matter that it's barbaric, it's necessary there, as it is here.
They are trying to control two things - consumer prices and asset prices (aka speculative investment) with the same blunt instrument and they are pushing the former up and holding the latter back! The Fed (and RBNZ) used to know how to do this - they constrained credit for speculative purposes. Next level stupidity.
But you are talking about this like it is a new thing they are doing!
Post GFC - 2021 to avoid deflation in consumer prices we pumped debt/asset bubbles by artifically lowering interest rates. And everyone went stupid and loaded up with debt/mortgages - even though the aim was to stop consumer prices going below 1% inflation. The result being a very dangerous property bubble.
That was the madness - not what is happening now.
Now is economic fundamentals trying to restore some normality back into markets. i.e. forcing us to face the pain that we have been trying to avoid (but needs to be faced and moved past - too much debt relative to our productivity/incomes).
Interesting isn't it, especially noting that the Federal Reserve were introduced to try and prevent the booms and busts that were happening in the decades before.
And yet now here they are, with the Fed creating financial crisis by switching from over stimulatory settings, to overly restrictive settings.
Strange world we live in.
"especially noting that the Federal Reserve were introduced to try and prevent the booms and busts that were happening in the decades before."
That might've been what we were told but I don't believe that's the real reason it was introduced. I think we've had more speculative booms since and they've been doing all they can to prevent the busts. There's no smoothing of the cycles which, are unnatural to begin with.
Fact is our belief systems (capitalism, economics, finance, money, wealth), our "values" are fundamentally flawed. And it's our indoctrinated bias towards "capital", an inbuilt/inherited collective fear and ignorance in the masses, and a history of narcissistic sociopathic "rulers" controlling the narrative that underlies our inability to question any of it, envision something better or even begin to make changes.
One only has to look at the volume of commentary on house prices compared to the better journalistic articles, to see we're devoid of critical thinking and rational discussion of wider socioeconomics. Even the Breakfast Briefings here follow a dogma, hence the reporting of low EU lending expansion as a negative.
And one has to try and laugh. Some peer reviewed research would probably suggest that those visiting this site could be considered to be more "educated".
It's all a natural consequence of a lean towards hard materialism, you end up with a society fixated on objects. So we have a culture that is flat, with no depth.
Sad thing is, other cultures living outside that sort of thinking are very quickly getting dragged into it.
Yes the more data I look at the more I think the Fed is getting itself further into a whole.
It appears it might find itself in a position where it has to start bailing out more and more entities - if it doesn't do that, it may need to start dropping rates/QE even while inflation is still above its target band.
I don't see how they get themselves out of this rock/hard place they find themselves in. And yet, which is of their own making.
"They think they can bring prices down by making credit more expensive"
They also thought they could push prices up (to avoid deflation) by making credit less expensive.
And that is exactly what they did GFC - 2021.
So which is crazier, what we did then, or what we are doing now? (both equally mad in my opinion).
Yes, both are stupid. They are using one lever that has opposing impacts on two things that they want to suppress. It is worth a look at the reserve bank comms from the 1940s and 1950s, they recognised this challenge clearly and basically banned commercial banks from offering credit for speculation. Mind you in those days, 90% of debt was for expanding businesses and actually building houses and infrastructure, now nearly 90% of credit extended by banks goes into existing property!
Monetary policymakers urgently need to be schooled in behavioural psychology so that they can take a more real-world perspective on consumer behaviour.
Basically, they should understand that raising interest rates in a short span isn't simply going to flick a switch in the brains of the general public to go from borrowing and spending like drunken sailors (as they've been pushed to for over a decade) or save frugally.
Sure if you look at only narrow parts of income, I guess, you can argue raises are inflationary or stimulus. If you look at broad money (and realise interest payments come from someone else's income so zero net effect) these raises will most defiantly will have a deflationary effect.
https://data.oecd.org/money/broad-money-m3.htm
You can't get rid of that much broad money in the system (especially compared to a baseline post 2020 trend) without things going wrong and people in general not having extra money to pay for things. It might crash the economy in the process but increased rates will stop monetary inflation (which is the kind of inflation central banks care about).
Gasoline Is Surging All Over the World in Fresh Inflation Blow
https://ca.finance.yahoo.com/news/gasoline-surging-over-world-fresh-155…
I thought Auckland still had the 12 cents fuel tax ? Petrol in the regions is now MORE expensive than Auckland.
We are still being Fleeced, just another broken Labour promise to look into petrol pricing years ago.
Get the "Gaspy" App on your phone, petrol prices vary wildly across Auckland.
50cc scooters/mopeds will be getting more popular by the day. 2 weeks of commuting and filled mine up the other day, $9.82 of 91. Wife takes the car to commute for 1 week, ~$25 of 91 used or quarter tank. The mopeds pay themselves off in savings in under 6months then you're away laughing and roll on summer for some roadies with mates!
Provided you can bike on paths that keep you separated from the Ford Ranger brigade, cycling is the best form of short distance transport IMO. That being said the weather has been crap for it recently.
eBikes remove the fitness concern. I can get anywhere within Chch CBD faster on bike than by car, from 7am-7pm when there is traffic on the roads.
Plus the whole 'parking' thing becomes a non-issue. Driving is terrible - stuck in a box moving from queue to queue and stressing about where you can leave your box and how much it will cost.
I agree, Chch is great by bike. I'm close enough to work and shops not to need an e-bike but they really open up cycling for those living further out. The roads should be left for the tradies, families with young children, and those unable to ride.
The US president must find ways of spreading benefits of economic growth to society as a whole
#Italy's Prime Minister Giorgia Meloni is looking to build up a relationship w/Joe Biden by pledging to break with #China. Meloni plans to exit China’s Belt and Road Initiative. Biden will be asked to include Italy in calls on Ukraine. Italy, like much of Europe, has been caught in the escalating tensions between Washington and Beijing, which have been exacerbated by Beijing’s support for Russia following Vladimir Putin’s invasion of Ukraine. https://bloomberg.com/news/articles/ Link
President Vladimir Zelensky has enough fingers to count that $115 billion is worth almost three times more than $41.3 billion.
The first number is the International Monetary Fund’s (IMF) calculation of “external support over 2023–27 involving sizable official financing in the form of grants and concessional loans, as well as debt relief.” This includes “SDR [Special Drawing Rights] 11.608 billion (577.01 percent of quota, about US$15.6 billion).” No IMF member state has ever been allowed to take a six-times multiple of its borrowing quota at this money volume except for the Ukraine. Nor has any IMF member state ever been authorised by the IMF board of directors to stop new domestic bank lending and postpone all borrowing obligations (“current debt standstill”) for at least another three years from this Christmas.
The resulting money pile the IMF calls “the wartime liquidity surplus”. Link
Classic US strategy to gain influence for their own long term benefit. The big question is will their dollar hold out long enough for the war to end or will they wind up like every other failed empire and reserve currency printing their way out of it in effort to maintain the scale of the empire, and thus devaluing the currency. History would indicate the latter as they never wish to show weakness and dial their territory back somewhat to preserve their currency. Watch this space
No wonder the ex? UK Minister of Defence said the UK is not Amazon and Zelensky should be grateful. Zelensky obviously thinks UKs contribution to Ukraine is chump change compared with all the other assistance both militarily and financially the Ukraine is getting.
In June in the EU, bank lending to households rose +1.7% from a year ago, the lowest growth rate since May 2016. On the other hand, lending to companies grew by +3.0%, but it still marked the slowest rate of growth in seven years.
OOPS! #Eurozone M2 money growth turned NEGATIVE for the first time in Eurozone history, in a promising sign for #inflation. M2 growth revised to -0.1% in May from initially +0.3%, and falls deeper into negative territory in June to -0.5%. Link
Core inflation is still high - 4.8%. This excludes food and energy - the headline was significantly affected by changes in oil prices.
To some extent, the Fed looks through this and focuses on what is happening in the rest of the economy that they actually have some control over - and it's still running hot.
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