Here's our summary of key economic events overnight that affect New Zealand, with news investors are upbeat, positioning that the economic threats will mostly be diffused.
First up today, a look at the US Q2 corporate earnings being reported. So far Q2 earnings for the S&P 500, are down sharply from the same period a year ago. But both the number of companies reporting positive earnings surprises and the magnitude of these earnings surprises are above their 10-year averages. So as the current Q2 earnings reporting builds, more results that are better than expected are coming through. This is helping keep Wall Street equity trading in an upbeat mood. And Warren Buffet's company is one of those and has posted record results.
But the threat from commercial real estate revaluations keeps on building and has the potential to rock Wall Street at some point.
American consumers are facing sharply lower inflation now. It came in at 3.0% in June and we will get the July rate on Friday NZT. Analysts expect that to inch up to 3.3% then although recent data on used car prices have them down almost -12% from a year ago. Now research at the San Francisco Fed shows that "shelter inflation" may in fact turn negative nationwide as rents stumble. So there may be risks to the downside in the upcoming US July CPI.
And American consumers are taking out modestly more consumer debt. The growth in this has been restrained for some time with a modest increase of +US$7 bln in May reported. That rose +$18 bln in June, up +4.3%. These balances have been rising less than +2% pa recently. Prior to 2023 rises of about $30 bln per month were normal and rises of about +5% year-on-year.
Across the Pacific, China said its foreign exchange reserves rose to US$3.2 tln in July, although the change was minor, it was more about the exchange rate than anything else, and about what was expected. Foreign direct investment is tumbling, so their FX reserves may now be at a high point.
And staying in China, seven well-regarded economists told the Financial Times that their employers had told them some topics were off-limits for public discussion. The China Securities and Regulatory Commission, the stock regulator, has accused brokerage analysts of playing up risks facing the economy, which is suffering from weak consumer demand, declining exports and an ailing property sector. Two think-tank scholars and two brokerage economists, all of whom serve as government advisers, said there was pressure to present economic news positively to increase public confidence.
Meanwhile, 48 Chinese Local Government Financing Vehicles (LGFVs) were overdue on commercial paper in July, up from 29 in June, according to a report that referenced data from the Shanghai Commercial Paper Exchange. Their missed payments amounted to ¥1.86 bln (NZ$423 mln), versus ¥780 mln in June. This will aggravate concerns about the financial health of LGFVs, which are mostly tasked with building infrastructure projects that may take years to generate investment returns.
Moving on to Europe, although we earlier noted a heady rise of factory orders in Germany in June, German industrial production hasn't responded yet. In fact it came in lower than expected, slipping -1.5% from May and was down -1.7% from June 2022.
Globally, air cargo demand fell by -3.4% year-on-year in June, the smallest decline since February 2022. Year-to-date this cargo activity is down -8.1% below last year’s level. The declines were similar in the Asia/Pacific region but that actually means the region has gone backwards faster than others from May.
The UST 10yr yield will start today at 4.08% and up +4 bps from yesterday. Their key 2-10 yield curve inversion is less at -68 bps. But their 1-5 curve is still at -119 bps. Their 3 mth-10yr curve is less as well at -131 bps. The Australian 10 year bond yield is now at 4.09% and up +3 bps from yesterday. The China 10 year bond rate down -2 bps at 2.67%. The NZ Government 10 year bond rate is now at 4.82% and down -6 bps.
Wall Street has started the week on a positive note with the S&P500 up +0.7%. Overnight European markets were all little-changed. Yesterday Tokyo ended its Monday session up +0.2%, Hong Kong was essentially unchanged, but Shanghai shed -0.6% (Shenzhen was down -0.8%). The ASX200 ended Monday down -0.2% and the NZX50 ended down -0.1%.
The price of gold will start today at US$1936/oz and down -US$7 from yesterday.
And oil prices are down -US$1 and now at US$81.50/bbl in the US. The international Brent price is just under US$85.50/bbl.
The Kiwi dollar starts today marginally softer at just on 61 USc. Against the Aussie we are unchanged at 92.9 AUc. Against the euro we are firmish at 55.5 euro cents. That all means the TWI-5 has basically held at 69.5 and up a mere +10 bps in a day.
The bitcoin price is slightly lower today since this time yesterday and now at US$28,917 which is down -0.5%. Volatility over the past 24 hours has also been low at just under +/- 0.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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46 Comments
"Don't look up" was a parody of the economic system; characterised as an unavoidable destructive comet (Debt), and how not only are we being continually distracted, but those who think they know best - don't have a clue. It doesn't matter that the country will be destroyed, because we will all get rich in the process. (Sounds all too familiar to a tiny economy we all know)
WHY IS THE WEST SO WEAK (AND RUSSIA SO STRONG)?
The cost and debt crisis – The migration of the ideologically pure into the ideological power base and positions of influence has created millions of jobs in western societies which create no value. These jobs are much more numerous and more widespread than most people realize, and I wouldn’t be surprised if something like 20%-30% of the entire labor force of the West could be fired without any adverse effect. In fact, the effect would be positive, especially if those people could be made to work the (mostly menial) real-economy jobs they are suitable for.
Deindustrialization has been blamed for the extreme debt levels and tax burdens of the West. That is, as far as it goes, true – but maintaining this giant group of incompetents in their fake jobs is also placing an extreme burden on the West. Western societies are now completely unsustainable and cannot be run without constant debt increase.
Gaius Baltar, seriously ??! Why would someone post that using an anonymous handle based on a star wars character? If they were serious the author wouldn't need to be so opaque. Or is it just another from a troll factory?
It's emotionally appealing without presenting any verifiable evidence, and it's absurd in positing that a *profoundly* damaged, corrupt society (Russia), completely dependent on income from fossil fuel deposits whose extraction they can't even maintain without outside help, with catastrophic demographics, whose entire cohort of educated young men have fled the country -- are somehow doing better than us because at least they don't have bullshit jobs. He's probably right about the bullshit jobs but it is being used to make a ridiculous, propagandistic comparison.
The main difference is within Russia, criticism of the state or overarching structure is also repressed as it is within the West.
I am very critical of the anti-white plutocratic policies of Western governments and their increasing censorship, but Russia is literally no better.
Russian propaganda is relatively weak, I have never found it very compelling, Russia's future position is likely to be managed decline as a junior partner in a coalition with China rather than anything else.
David Chaston fell into the big hole described by the author. Nothing in DC's retort relates to the article. His retort is all about the author's name.
The article includes commentary on the problem caused by prefering the 'right people' over and above what they can do. Very happy to see that countered. Not happy at derision over the name.
David, I think your site is a great creation. But you fell in with that comment
I'm ignoring the "Russia strong" bit but; In NZ too. And I note yesterday Hipkins was reported as saying there is not enough tax. I assume he means not enough income from tax. Which just goes to show he hasn't a clue, and all the advisors in government don't either. Successive governments have fallen into the trap of the 'free market' where we exported industry and jobs, changed from a largely producer, and productive economy to a dependent consumer economy.
From time to time outlier MPs stand up and talk about NZ diversifying away from being too reliant on agricultural products. But these calls have faded into the whistling background as political resistance to doing something constructive overwhelms them with bland ideological visionless mediocrity. Those bureaucrats are the ones who are burning the planet down while they talk about fiddling on the edges of climate change legislation in areas that will make no difference other than increasing the cost of living for those in real jobs. Hipkins want more money, but for what? It is perhaps just as well that he doesn't have it to waste.
Great post. Hipkins also proudly stated that if we could pay for and build a harbour crossing ourselves back in the 50s, we can surely do the same for a new crossing today. Never mind the fact that, even if we were to somehow arrange the capital for new infrastructure, we don't have the skills and expertise to build anything worthwhile in this country anymore.
In the 2017 Budget, tax was forecast to be $74.6 billion or 27.7% of GDP.
In the 2023 Budget, tax was forecast to be $123.2 billion or 29.7% of GDP.
Under Labour, the tax take has gone up by around $50 billion / 66%. The Labour Govt first needs to stop wasting our money before making a case for more tax.
In what sense is Russia strong? The West has refrained from *any* direct intervention in Ukraine, and even Ukraine has refrained from attacks on Russian territory aside from a few symbolic drone attacks. Nonetheless, they’re struggling to hold territory. Saying they’re ‘strong’ is like watching a fight between an adult schoolteacher and an unruly child and asserting the child must be stronger because the teacher isn’t punching them.
I’m disturbed by how many intelligent people are drawn into justifying Russia’s positions by their (rightful) anger at Western stupidities like Iraq, corporate malfeasance, etc. It’s a complete non-sequitur.
I find that today, with some years of experience, and hopefully a little wisdom, as an analyst I tend to ask why more often. Hence when someone commented yesterday about Lange and Clark's positions (in Chris Trotter's article) I was able to provide a little of my insight. Around HC making the right choice on the invasion of Iraq, I am reminded of a comment made by a lady in the US being interviewed about why she didn't like Trump, and on some detail of his comments, and her response was classic - "Even a blind squirrel finds the occasional nut"!
To avoid being driven blindly by ideology (which is all too easy), I suggest you have to ask yourself why, more than you ask others.
The articles relates heaps to New Zealand's current tragedy. Worth the read and a think.
Just one example. Pointless non producing roles in government, but to get them you have to be of the right people.
Then rules created so that private companies have to do the same.
Thus we are poor.
(don't get triggered by the 'Russia' word. It's easily avoided. But there is lots of important things in the article)
Yes - and some excuse their tenacious clinging to exposed falsehoods, by claiming that the unwanted narratives are 'conspiracy theories'.
The Audaxes link misses the point, though; complexity begets complexity, growth begets growth, and no complex, growing System is sustainable. A growing cohort are virtue-signalling and/or ignoring what is increasingly obvious; a remnant cohort cling to the past; polarisation is a red herring.
Interesting times...
Paypal releases a stablecoin last night: PYSUD, which operates on the Ethereum blockchain (ERC-20) and backed by USD deposits, short-term US Treasury bills, and cash equivalents.
What's particularly interesting is that Paypal are thumbing their nose at the U.S. govt agencies. The issuer of the stablecoin is Paxos who also issued one of the first digital gold tokens. Binance was told to stop listing Paxos tokens. Regardless, Paypal is not taking that as a threat.
https://www.paypal.com/us/digital-wallet/manage-money/crypto/pyusd
If it's linked to the US$ 1:1 what would be the point?
The point is that it's a USD proxy that can be transferred digitally or sent to Ethereum wallets (not banks).
Maybe you need to understand what a stablecoin is and what its benefits are:
"Stablecoins can provide inclusive, broad access to the financial system, and can enable fast and efficient money movement. Stablecoins are programmable, offering developers a useful digital currency that can be built into public blockchains and can help link the traditional economy and Web3."
Lets face it they are no able to be spent on a daily basis and as governments have lost control of banks, and banks control cash, at either end there will be opportunity. But being pegged to the US$ means that there is little to no investment value. Hard cash can serve exactly the same purpose without the risks that go with digital.
But being pegged to the US$ means that there is little to no investment value. Hard cash can serve exactly the same purpose without the risks that go with digital.
Who said it was an investment? It can serve as a store of value if the country you live in has out of control inflation - Venezuela, Argentina, Lebanon, Turkey for ex.
And what are these risks you speak? That you lose your password? What if you lose your cash wallet? Arguably this stablecoin is safer than physical cash.
Another craft beer company goes under:
https://i.stuff.co.nz/business/132698722/brothers-beer-put-into-volunta…
As cheap money continues to get sucked out of our economy, very few consumers will be able to shell out $10 for a single can of beer at a retail store or $15-18 at a bar. Hundreds of craft breweries and other specialty food/beverage manufacturers will meet this fate across the country.
This is usually how the jobless downward spiral begins with more Kiwi consumers facing financial turbulence switching to cheaper imports or bulk manufacturers over local premium brands, resulting in job losses and then some more.
As cheap money continues to get sucked out of our economy, very few consumers will be able to shell out $10 for a single can of beer at a retail store or $15-18 at a bar.
I "predicted" this years ago. "Nice to haves" are less frequently transferred from shelf to basket. The craft beer, cottage, and niche FMCG industries get hit hard.
Govt agencies such as NZTE still waste time trying to market much of this stuff globally.
Govt agencies such as NZTE still waste time trying to market much of this stuff globally
Add tourism exports to the list of "nice to have" that we're positioning for reduced marginal gains for the economy. These exports are often reported by government agencies in gross figures without accounting for the sizeable outflows of booking fees and commissions to foreign agents.
Also, the sector has abysmal labour productivity that is a-third lower than the NZ average despite sky-high costs.
Not a brewery, but the Pet Central chain (had a number of stores in Chch as well as nationwide eCommerce presence) shut up shop yesterday too.
Having had a little bit to do with them behind the scenes, I think there was some shady behaviour by the new management that exacerbated issues, but also consumers tightening the belt didn't help.
Captured!!!!!
A "first-of-its-kind" $2 billion climate infrastructure fund has been announced by the government.
Prime Minister Chris Hipkins made the announcement in Auckland this morning, saying the government is partnering with Blackrock to launch the fund with the goal of making New Zealand the first country in the world to reach 100 percent renewable electricity.
"It will be Blackrock's largest single-nation decarbonisation investment to date," he said. Link
Hipkins said the climate infrastructure fund will mean renewable energy intellectual properties (IP) can be developed in New Zealand
Good. Is there also a plan to bring in the engineers and technologists to actually do the work? Otherwise, all this achieves in the short term is a gold rush for skills already employed in our industrial sectors.
Except that Blackrock is a foreign company which is sucking up a very large amount of funds from NZ. Why couldn't the Government have a NZ company over see this? I realise the expertise will not be in NZ, but it never will be unless we change the way we do business.
Indeed:
The Ukraine Mess is Animal Farm in Reverse: Starring Blackrock and Other Pigs
This American Conservative report says, “BlackRock Plots to Buy Ukraine,” in a recent editorial. Author Bradley Devlin outlines the Ukraine case, while also revealing how Fink and BlackRock are transforming America into a nation of renters by artificially elevating the prices of normal houses. If ever a man were appropriately named, Fink is that man.
Biggest factor weighing on forward risks is what an absence of a second half rebound will do to banks who are desperately waiting for it to show up. The credit crunch is still going even if no one wants to talk about it (certainly not on the NYSE). https://buff.ly/3Ou4dKq Link
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