Here's our summary of key economic events overnight that affect New Zealand, with a lot of "good news" on the economic front in the major economies.
First, new orders for US durable goods jumped +4.7% in June from May, the most since July 2020, following an upwardly revised +2% rise in May. They are +9.3% higher than year-ago levels, and handily exceeding inflation. The June result easily beating market expectations of a +1% increase. It was the fourth straight month that durable goods orders rose. Strong orders for civilian aircraft and cars drove the result.
And the first look at the US Q2-2023 GDP result is a very positive one. Their economy expanded an annualised +2.4% in the second quarter of 2023, higher than +2% in the previous period and way above market expectations of +1.8%. It is a resilience few picked, although remember there are still two more revisions ahead. This good result is driven by strong investment; consumer demand came in weaker than the overall result.
The number of Americans filing for unemployment benefits fell sharply from the prior week to 214,000 last week, the lowest in five months, and sharply below market expectations of 235,000. There are now 1.846 mln people on these benefits, the least since January, and suggesting that jobseekers are quickly able to find new jobs. The result further underscored the stubborn tightness in the American labour market, backing views the Federal Reserve may extend its tightening cycle in September.
US pending home sales aren't sharing in the gains. They were down -15.6% in June from year-ago levels, but they did manage a small rise from May.
The American trade deficit fell in June from May to -US$88 bln for the month, and down from -US$106.3 bln in June 2022.
Much of this data is first-tier, and shows an American economy powering ahead and likely to avoid a recession. "Soft-landing" optimism is everywhere today. It basically validates the Fed's policy positioning, and certainly leave the door open to more rate hikes without excessive pain.
Regulators are taking the opportunity to force banks to hold more capital, something they will no doubt use all their lobbying power to try and avert. The proposals are stiff for some. Banks with at least US$100 bln in assets would have to boost the amount of capital set aside by an estimated 16%. The eight largest banks face about a 19% increase, with lenders between US$100 bln and US$250 bln in assets seeing as little as +5% more.
In Canada, average weekly earnings rose +3.6% in May which was a faster rise than expected and up at a faster pace than the +2.9% rise in April.
Next up, Japan's central bank will review its policy positioning later today amid persistent inflation running well above their targets. They are expected to tweak their yield curve control policy to let long-term interest rates rise beyond its cap of 0.5% in a shift to a more flexible policy approach.
China's industrial profits data has been released for June showing them falling -8.3% from June a year ago. This is better than anticipated because the decline for the first half of the year rolls up to -16.8%. That indicates the profit pressures are receding somewhat. That said, "operating income" has been bouncing along at break-even for every month of 2023 and that is indicative of a zombie situation. Given the companies tracked in this data series are large state-owned enterprises mainly, that isn't a good thing.
However in Taiwan consumer confidence improved in July and to a thirteen-month high. It marked the most optimistic level since April 2022, as households' sentiment rose across the board.
The European Central Bank raised interest rates by +25 bps overnight, a ninth consecutive rate hike, saying inflation is still expected to remain "too high for too long" despite the recent slowdown. This brought the rate on main refinancing operations to 4.25%, the highest since October 2008.
Meanwhile, Germany's GfK Consumer Climate Indicator eased to be less negative in July.
The cost of containerised freight rose last week, a second week this has happened and confirming the bottom may have been reached. This was driven by outbound cargo rates from China to the US. Meanwhile bulk cargo rates were little-changed.
The UST 10yr yield will start today at 4.01% and up an unusual +16 bps from this time yesterday. Their key 2-10 yield curve inversion has eased to -94 bps. Their 1-5 curve is also less at -119 bps. And their 3 mth-10yr curve is also a lot less at -139 bps. The Australian 10 year bond yield is now at 4.00% and up a minor +1 bp from yesterday. The China 10 year bond rate down -1 bp at 2.68%. The NZ Government 10 year bond rate is up +3 bps from yesterday to 4.71%.
On Wall Street, the S&P500 has given up early gains to be down -0.4% in Thursday trade. Overnight, European markets were higher between +0.2% in London and +2.0% in Paris. Yesterday Tokyo ended up +0.7%. Hong Kong rose +1.4% in Thursday trade. Shanghai ended down -0.2%. The ASX200 ended its Thursday session up +0.7%. And the NZX50 was unchanged on the day.
The price of gold will start today at US$1948/oz and down -US$20 from yesterday.
And oil prices are up +50 USc at just under US$79.50/bbl in the US. The international Brent price is now just under US$83.50/bbl.
The Kiwi dollar starts today slightly lower at just on 62 USc. Against the Aussie we are slightly firmer at 92.1 AUc. Against the euro we are back up nearly +½c at 56.4 euro cents. That all means the TWI-5 has basically held at 69.9.
The bitcoin price has dipped slightly again since this time yesterday. It is down -0.3% and now is at US$29,216. Volatility over the past 24 hours has remained low at just over +/- 0.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
89 Comments
Yields are on an upward trajectory.. banks having to hold more capital..as a result rates will shoot up..
But
Much of this data is first-tier, and shows an American economy powering ahead and likely to avoid a recession. "Soft-landing" optimism is everywhere today. It basically validates the Fed's policy positioning, and certainly leave the door open to more rate hikes without excessive pain.
Sounds like you might have to kick a kitten or trip up and old lady to get your doom quota, if things stop going terribly bad.
An even sadder day than normal for doomers everywhere. The popcorn might go off before it gets enjoyed.
Rates are so hot, it's sure to set the pop corn off.. there will be enough for the spruikers too
That's the spirit, you'll be dining on suffering in no time!
Ah.. you must be hurting really bad ..you must feel better that you have revealed it
USA USA USA...!!
Totally off topic (not that many others stay on topic...) but i noticed at the soccer the other night that USA supporters have evolved their mono syllabic chants slightly and were verging on actually singing a song.
Why is it that only european supporters seem to be able to come up with and organise complicated songs for their teams? I cringe at some of the chants at NZ rugby games. Awful. Why can't kiwis sing songs at matches either given most are from european backgrounds?
Here's a classic for Paulo di canio
https://m.youtube.com/watch?v=D56In0Kvoso
Economic soft landing for some
Btw annualising one month of data makes fractional movements look massive. Gdp of 2.4 vs 1.8 annualised, is the difference of 0.2 and 0.15 over the month. But suddenly the capitalist spruikers are all over it.
There’s only one way interest rates are going in the USA….
Yip. And whete they lead we follow :)
Housemouse can we have a prediction
I'll give you one:
Debt will increase, faster than GDP. This will continue, as long as economists - and those reporting what they say, unchallenged - ignore depletion, limits, and the 2nd Law of Thermodynamics.
But at some point, physical supply, energy availability and overpopulation curtail our physical ability to maintain. Will the financial construct collapse first, presumably through mass-disbelief? Or will we do a 2008x2, 3 0r 4 - which they cannot plug?
The latter. Because a financial construct collapse will be fought with every tool available, and throw in a few new made-up ones along the way for good measure. But as you suggest, the final result will be the same. A Deflationary Bust of epic proportions. Before that, though, we get more of what we are getting now - more fighting the inevitable, tooth and nail. That's why interest rates will keep rising, util the Bust arrives.
Debt increases and so does incomes
Not sure where the article on the Māori party tax proposal went but a few changes (include Māori land/assets, scale back income rate increases and wealth tax) and that would be the transformative tax reform that Labour should have run with. Instead they chose to go with “National lite” tax reform and kick the can down the road. Watch support for the Māori party and Greens increase as a result.
They should adopt the TOP land tax. Job done.
? It's currently under this article on the main page...
It wasn’t there when the post was written
Voters will read as far as "Maori assets/people are exempt" and skip to the next question.
Wealth taxes are dumb and encourage capital flight. Entrepreneurs will start up where they won't be penalised as they grow. If you want to do something about speculation a simple CGT that adjusts in some way for inflation is your answer.
Yep if taxing wealth is that important we better be taxing ALL wealth, no matter whose hands it is in. I would include charities, churches and religious groups etc in this too. Strangely none of the parties advocating for a wealth tax seem to view it that way though (maybe TOP is different, I'm all ears?)
I'd personally like to see a simple CGT, along with taxation of equity release if it is for the purpose of purchasing additional residential property. Target leveraged speculation specifically, which is the problem.
TOP advocates stopping it outright which seems like a fairly basic change that almost any party could make, regardless of any other policy.
They're just going to 'stop wealth'?
I guess I really am too dumb to understand their policies. I just don't get it.
pretty sure he's referring to rampant housing speculation via leverage - which I think TOP's policy is 100% equity please..
Yeah I figured as much on second reading. Need another coffee clearly.
Māori Party wealth tax plan: Over 98 percent of NZers will get tax cut
https://www.newstalkzb.co.nz/news/politics/maori-party-wealth-tax-plan-…
GST: Labs v Nats. I am with the Nats on this one. (and ACT?).
We need strong simple structures. Not kneejerk patches. Yes the people are poor, so to solve that we need a productive economy, and secondly where New Zealanders keep the gains (to be fair, no political party campaigns for the second bit)
The madness of temporary petrol tax reduction was a great example. Cheap petrol paid for by Robertson borrowing and landing the cost onto our kids.
Similarly the Maori Party policy was about taking from A, to pay B. Not a clue about producing the goodies in the first place.
"Similarly the Maori Party policy was about taking from A, to pay B. Not a clue about producing the goodies in the first place."
What we have been seeing over the last decades is that A (2% of the population) has been hoarding a bigger proportion of the countries wealth and investing it in unproductive assets. This is one of the primary causes of our poor productivity. A wealth tax takes some of that wealth from A (2%) and redistributes it to A (the rest of the population).
Can't you see how that will help increase productivity?
And as for capital flight, I call bollocks first and foremost and secondly I would suggest that if it does result in capital flight then good riddance.
It like arguing that we should all be more lenient with gangs because you know they spend big on bikes and cars and flash stuff which is good for the economy.
If high value capital is unwilling to pay their fair share to help the country move forward then adios baby.
Correct. Not all wealth in NZ is tied up in business capital. In fact, there is a disproportionate amount locked in unproductive assets such as housing chasing rents where capital flight will be welcome.
The other question is where would all the capital "fly" to from NZ? Singapore? - A Wealth Tax For Singapore? (ifcreview.com)
Your linked article seems to conclude that the answer to "A wealth tax for Singapore ?" is no.
Also noted: "As compared to the 1990s, net wealth taxes are now far less common in the Organisation for Economic Co-operation and Development (OECD) countries. In 1990, there were 12 OECD countries, all European countries, which levied individual net wealth taxes. However, in 2020, Norway, Spain and Switzerland were the only OECD countries that still levied individual net wealth taxes. Countries like Germany, France and Denmark have stopped levying taxes on individuals’ net wealth and have not reinstated it."
Have a look at what capital flight does to emerging economies, and how it leads to hardship for ordinary people, ....and u might be less reckless with your assertions.
NZ is a debtor Nation who wants to have ist world standard of living...
I'd suggest u are dreaming if u think NZ can suddenly buckle down and make sacrifices,in terms of working hard, doing with less, being more self sufficient.
Our Social welfare state is built on the back of "debt", and not surplus wealth and productivity.
Capital flight would bring us to our knees, just like it does emerging, badly run economies.(economies without social welfare costs like ours )
With no skin in the game ( beyond needing to win votes ).... it's so easy to formulate ill-considered policy.... Seems to be the story of politics .
Also easy to confuse Wealth with monetary inflation.
With housing, wealth is the total number of houses. The total monetary value of those house is , to quite a large degree, a function of monetary inflation. https://en.wikipedia.org/wiki/Money_illusion
To tax illusionary gains that result from monetary inflation is puntative and a wrong thing to do in my view.
Ironically the primary beneficiaries of inflation are the Govt, thru taxes.
eg.. paye bracket creep. etc
I think a wealth tax (or land tax) looks like a good idea right now which is why people are proposing it and would be for the next few years but it would need to be removed after that for the reasons above ( loss of capital etc).
A land tax is far superior to a wealth tax in many ways. For example, an LVT is simpler to administer and targets housing/accommodation affordability more directly.
In a democracy with private property rights it's up to individuals to decide what to do with their own wealth - unless of course you're a communist.
Attorney General Parker happily removed centuries of a cornerstone to our law that protected that right when he initiated the enquiry into a selective number of so called wealthy. That legislation was ill concealed, supposedly nothing more than information gathering. But it wasn’t, it remains in place and provides the mechanism for a wealth tax that was already being drafted. Pretty duplicitous if you ask me.
We already have people creating companies and trusts to help them pay less tax on their wealth, and this is well known. Why pay 39% when you can pay 33%. This is precisely why those with wealth retain it, because they can simply pay an accountant to teach them about the methods available, then implement them. For example home businesses hat split the house and land then have one owned by a company and the other a trust, so the company can lease the land from the trust and balance the tax out. those who have IP's commonly under a business or trust so it isn't personal income and being paid at the appropriate tax bracket.
A to B can be productive sometimes. But the Maori Party ii's not interested in that at all.
Maybe for a short time but the governments job is to provide a safe market space for trading. Making money and innovation comes from people. People need to realise that and take the responsibility that if they don't create a profitable business then noone should do it for them. Yes there are some treats handed out by the government in terms of training when times are good
Credit due here. Not a fan of this party, but here they at least express some commonsense in some areas. For instance, land banking is a blight, it shortens housing stock availability, it needs to be disincentivised and/or penalised.
Am I right in saying that Iwi are exempt from rates and the policy excludes iwi from the proposed land tax?
I refuse to believe in a soft landing. Give it 3-6 months before it all goes tits up. Surely.
I will say this - if our economies get away with a soft landing, then our debt- dependent economies are far more resilient and robust than I, for one, thought.
I suppose with enough inflation anything possible. It's not like inflation effects the rich much, food is a minimal cost for them and their businesses will just put their prices up to reflect costs.
A little off topic but thought this is interesting to raise about the level of reporting in NZ. The am show this morning reporting on government possibly going to remove GST from fresh fruit and veg giving consumers a saving of 15%. This is where the reporting fails, taking GST off something actually reduces the price by 13.04%.
The sad part is people do not realise that cut on just one or two items will have no impact for the poor. The poor cannot afford fresh fruit and veges anyway.
The ones who save money always only buy frozen.
I grow a lettuce and spinach in a pot...and this time of year mandarins, lemons, grapefruit falling off trees. The planet provides all of this basically free and all we can do is get into more debt daily?
Complaining and expectation of entitlement are free and require minimal physical and intellectual energy.
Unsure quite how you get to that notion from someone proclaiming some form of self sufficiency through having a garden? Rough week?
Nah, every week above ground is a good week. :-)
Speaking of ground, I'm preparing it for spring. Garlic and broad beans looking good. Heap of greens in the tunnel.
Greens grown in Large PB bags $1each. Packet of seed $1. Potting mix $5. Green leaves for two months. Bag and mix can be reused
Almost less energy required than having a good whine. Almost.
Oh, and I wasn't having a go at baywatch. Good on him, or her, or they. That's my thumbs up.
It’s academic anyway. Supermarkets for example will soon have prices back up to where they were. Why not. They obviously will know folk have paid that much before.
Why not go the other way and put a 30% GST on takeaways. That would modify peoples purchasing.
"Here's your fresh apple for $30, Sir. And the free, complimentary fried chicken to go with it"
You could be arrested and serve 10 years for circumventing
Certainly, and likely only on circumstantial evidence.
Ah. I see.
So buying a new home with a free brand-new BMW in the garage, to keep the sale price of the property up, is ok - because that's not circumventing? Of course not! That's just marketing.
Oh, I thought you were presenting tax evasion dressed as marketing.
Reminds me of when they banned the sale of NOS cannisters for recreational use. So retailers just sold $5 balloons with a free cannister of NOS.
Modify purchasing? I don't know about purchasing, but it'd certainly modify the volume of complaining.
My 12 year old stopped asking for takeaways when I said we can have burgers at home once a week or burger fuel once a month.
That's a good one
No thanks my local Chinese can whip up a help yourself meal with as much veg as you want in it for less that I can cook it myself. If you only want to go to the same place and only ever order deep fried fish and chips that's up to you.
I went to a fruit and vege shop for the first time in ages last weekend. I was shocked at how cheap things were eg apples 49c per kilo, carrots $2 for a 2kg bag, avocados 39c each. It's just not worth going to supermarkets for fruit and veges.
Certainly pays to shop around - veggie shop, butcher, Asian grocery stores, all generally cheaper or better than the supermarket for their niches.
You pay a high price for the convenience of 1-stop shopping.
Why not put a 30% GST on takeaway alcohol too.
Alcohol should have a 300% tariff (or more)! It causes billions of dollars of social harm, which we all pay for. Which is not insignificant for a $7V industry. And don't get me started on the lack of ethics in the way they treat the vast majority of their staff either (and I'm not talking about just the bottle store workers either - Lion Nathan used to let go hundreds of workers on Christmas Eve because their product was 'seasonal') - never mind the office staff continuing to draw salaries the whole year from this 'seasonal' income - and where did those workers end up between seasons? Being paid a subsistance benefit by the rest of the tax payers. Business decision? Yes. Ethical? No.
Never touch alcohol sales..it's like the All Black's..part of NZ dna
My vote is to tax single-use plastic packaging and that money MUST be used to fund recycling and collection.
I'd like this to be quite high. There's a ton of packaging that doesn't need to be plastic, or we could move to more reuse/refill, or not need packaging at all.
People would be much more open to taking their own containers to a shop if every tray of meat cost $2 more.
I like this idea a lot.
You are actually wrong you are saving 15%. It relates to the pre tax amount going up not the taxed amount coming down. You are saving 15% of the original pre taxed price. No point debating it anyway, as others have already stated the difference would end up disappearing into the supermarkets profits and within 6 months the prices will be the same.
From the lion(IRDs) mouth: https://www.ird.govt.nz/gst/charging-gst
taking GST off the price you receive (for example, $100 including GST, which is 3/23 of $100, or $13.04)
You, sir, are wrong.
He's right, but in a completely irrelevant way. You do save 15% of the pre-tax price, which is 13.04% of the post-tax price (which is the number the consumer actually sees and thinks about).
Gotcha. Yeah, irrelevant - consumers don't budget on exc. GST prices!
If the Supermarkets advertised "Save 15% on all xxxx" due to the GST removal (not explicitly advertised as such) and they said WAS $11.50, NOW $10 that would be incorrect pricing. Because I've spent the last 12 months paying $11.50 for the item, I'm not saving 15% at $10.
How convenient.
https://www.nytimes.com/2023/07/27/business/sam-bankman-fried-campaign-…
"The authorities have said Mr. Bankman-Fried and others at FTX used customer deposits to make $90 million in campaign contributions to some 300 political candidates or political action committees. Months ago, prosecutors and bankruptcy lawyers for FTX began asking recipients of those donations to return them."
Fat chance of that.
Big if concerning if the world econ is on mend but if it is the result of all the borrowing is a lot more debt for the rich to charge lots of interest on. And all as a result of a virus which has killed only as many as air pollution kills in a year
Regulators are taking the opportunity to force banks to hold more capital, something they will no doubt use all their lobbying power to try and avert.
Jamie Dimon: ''You’re already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan''. It takes time, but banks not renewing credit lines is how credit contractions start Link
Banks continue to cut back. Lessons of Bear Stearns now into July '23: raise cash/collateral, hedge, and de-risk. The de-risking continues, banks selling securities and cutting back on lending. Another big drop in bank credit in latest weekly data. https://buff.ly/3JZxnzM Link
Those bending yield curves to inversion are the same as those withholding loans.
Love him or hate him, but he's not wrong.
We don’t have free market capitalism in this country. What we have is socialism for the super rich, and brutal capitalism for the poor. Link
All regressive taxation should be abolished. It's demeaning to impoverish the poor by design.
Australian Universities put up the white flag on AI
Universities say AI cheats can't be beaten, moving away from attempts to block AI - ABC News
You have to wonder how long it would take for NZ "...universities may reach a point "where they can no longer assure the required learning has occurred in what they claim to be teaching".
Open book exams with naught but a calculator? Plenty of evidence showing the in-vogue credits-for-take-home-assignments also doesn't assure the required learning has occurred.
Gees, I'm not really grumpy today, I swear!
Yup, the fix is easy.
The way you get around it is to do more assessments in an environment where AI is not accessible. When I sat maths exams at university I had to write my exams in the room.
Some items such as programming this won't work, but even then you could if you really wanted it. But it almost makes sense for programmers to have the tools early.
I'm no Prophet, but I foresee a day when what matters is one's ability to use AI to solve problems.
We will look back on attempts to catch their use as silly.
I agree, AI is just another technology tool. The purpose of Education is to prepare for work & realtime problem solving. Its important to know the ability & limitations of tools to choose the right one.
When I passed School Cert the then new portable electronic calculators were forbidden in exams - slide rules were ok. It takes a long for Education to adjust to technology change.
Although my last University courses are now long ago (mid career Business Administration & Information Systems) I remember being struck how out of date much of the content was in comparison to my work experience. Finance, stats & economic fundamentals notwithstanding, by the time the eg. marketing, IT & strategy textbooks were developed published & on the course list they were a decade out of date. The world moves a lot faster nowadays.
Banks to actually hold more capital vs vapor creation against loans. Will this ripple around the world and who pays for that.
Rates higher for longer....
Who pays? The depositor. Less risk, less return. Banks all good though.
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