Here's our summary of key economic events overnight that affect New Zealand, with news market chatter is building for a Fed rate pause.
First up today, the American consumer inflation rate came in at 3.2% in July, almost exactly as expected (3.3%). Base effects and rising rents were behind the tick up, and it marks a halt in the 12 consecutive months of declines. A year ago they were reporting CPI inflation of 9.1% so it is actually huge progress from there and a solid tick for monetary policy positioning, especially as a year ago it was widely predicted the US would be in recession now, and it obviously it isn't.
Because this result was as expected, there has been only muted financial market responses. But one is that core inflation is still high even though it eased to 4.7% from 4.8% in June. The bond market sees this as a reason the Fed might keep rates high, or even raise them again. But most others see encouraging signs in the detail that inflation will fall from here. The next US Fed (FOMC) rate review is on September 21 (NZ).
US jobless claims rose by +20,000 last week to 226,000. That isn't a lot in such a large labour market but is was more than anticipated. There are now 1.8 mln people on these benefits, a decrease because qualification expired faster than new claimants.
The US Federal government deficit came in at -US$221 bln in July, almost the same as it was in June. But it was expected to be about half that. Of more concern is that they are heading for a -US$2.3 tln deficit this year or -8.5% of GDP and that would be up from -5.3% last year. The tax-breaks extracted by Republicans to pass the last funding extension are really starting to bite now. The total Federal debt outstanding is now US$32.6 tln of which US$6.9 tln is between Federal agencies. So the debt held by the public is US$25.7 tln or 97% of GDP. Some of this is held by foreigners (US$7.4 tln or 28%) so the other 71% is an earning asset by Americans internally. (And don't forget their States have combined surplus balances exceeding US$220 bln.)
Meanwhile, despite the widely publicised stumbles, it seems that overall the 6500 American banks with a Federal charter are in good financial shape. It is data that supports the regulator judgments.
In Japan, producer prices are still rising, but at a slower rate. They rose 3.6% year-on-year in July, the least since March 2021, after an upwardly revised 4.3% rise in June and compared with market expectations of 3.5%. The latest result also marked the 7th straight month of a slowdown in producer inflation, amid the easing global cost pressures. (Japanese consumer price inflation ran at 3.3% in June and their July CPI data will be released on August 17, 2023.)
In India, their central bank kept its policy rate at 6.5%, even though their hot economy is now generating rising inflation (4.8%) although mainly driven by food prices.
In Australia, inflation expectations fell to 4.9% in August, from 5.2% in July.
Container shipping rates rose again last week, this time by another +1.7% with increases across all major trade routes. But bulk cargo rates were unchanged last week at historically average levels.
The UST 10yr yield will start today at 4.09% and up +8 bps from yesterday. Their key 2-10 yield curve inversion is less, now at -73 bps. Their 1-5 curve is now at -113 bps and 10 bps less. Their 3 mth-10yr curve is less by 7 bps as well at -128 bps. The Australian 10 year bond yield is now at 4.08% and up +8 bps from yesterday. The China 10 year bond rate is little-changed at 2.67%. The NZ Government 10 year bond rate is now at 4.84% and also unchanged.
Wall Street was up in its Thursday session with the S&P500 in a +0.3% gain. Overnight European markets were all up, with London up +.04%, Frankfurt up twice that by +0.9%, and Paris topping them all, up +1.4%. Yesterday Tokyo ended its Thursday session up +0.8%. Hong Kong was unchanged however, but Shanghai rose +0.3%. The ASX200 ended Thursday up +0.3% but the NZX50 was the odd-man-out, ending down -0.2%.
The price of gold will start today at US$1913/oz and down another -US$2 from yesterday.
And oil prices are -50 USc and now at just on US$82.50/bbl in the US. The international Brent price is now at just over US$86/bbl.
The Kiwi dollar starts today -20 bps lower at just on 60.4 USc. Against the Aussie we are down similarly at 92.5 AUc. Against the euro we are softened -20 bps too to 55 euro cents. That all means the TWI-5 is now down at 69.1.
The bitcoin price is marginally lower today since this time yesterday and now at US$29,380 which is down -0.3%. Volatility over the past 24 hours has been low at just under +/- 0.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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70 Comments
Meanwhile, in Canada
Oh wait, that might as well be here.
Looks like the kids will be fleeing to Guatemala or Laos for anything to be different
Very true...as it said in the video,their(our) economy stopped making and producing things and turned to selling houses to each other at ever increasing amounts...and we are about to vote to throw fuel on our housing ponzi with a change of government.
Say what you will about 'this lot' and I disagree with most of their direction...they put in place policies that over time would have had more control over the housing ponzi.
Foreign buyer ban,mortgage interest deductions on new builds only,brightline to 10 years will all be gone soon...such a shame to have put that work in to see it removed with a stroke of a pen....our young ones mortgages and hence there futures will become untenable in this country if prices head up again....at least with the Nats close ties with China we will be ok given all our eggs(and dairy) are in one basket...oh dear (sarc)...the basket has become a basket case..
There should be access to cheap housing for sure.
But fixing the housing sector, does not resolve the fundamental issue facing every developed economy; how do you deliver the same or improved quality of life to your citizens, in light of the fact that globalisation dramatically diminishes the price of labour? Japan for instance, as the opposite of a housing Ponzi, but also low productivity and falling relative incomes for it's working populace.
The model as it stands is someone else, somewhere else makes most things, and we just make money selling those things to each other. Didn't compute 20 years ago, even less so now.
I wouldn't let the system off that easily. For example, the 5% threshold should be 0.8333%. No different to a sports team, those selected will work harder if they know there is a good selection (and realistic chance) fresh faces could replace them. A good system would encourage MP's to do a good job on more than improving their list ranking.
Im actually agnostic to silly thought trains. It might look otherwise, because there's a disproportionate level of silly doomer comments on here to dumb spruiker comments (not to mention there an army of willing combatants for an overt spruiker).
I thought the rises in 20 and 21 were nuts and can't see why they'd increase currently either, so if you came in crowing what a mint you're going to make in the next 6 months, probably.
The more interesting topics for discussion would be things like:
- how to weather the most anticipated recession in history
And
- what'll likely occur in the ashes once it's passed
Instead the place is a circular loop track for people with a stiffie for some schadenfreude. I don't know how that mindset translates well into being in the positive side of the ledger.
Good points. Let’s discuss (in terms of weathering the recession):
- Pull back on discretionary spend, and save hard (but get rid of debt first)
- don’t have all your eggs in one basket on multiple fronts: diversify….
- but don’t diversify much in terms of investments. Do mainly cash, but also look at some shares that might perform well
- pull closer to family and friends. Embrace the ‘sharing economy’ more
- make and grow more stuff
probably all pretty obvious
Regarding point one, 'pull back on discretionary spend', if we all on average do this, won't it collectively make the recession worse/deeper?
The way out of a recession (and to prevent it from turning into a depression) is to encourage people to spend and encourage people to lend.
Indeed, it is going to be a very fine balancing act for central banks. They are walking a tight rope now between having too much aggregate demand like you mention above (and thus too much inflation), or causing the economy to rapidly fall into a deflationary recession if people cut their spending collectively as HouseMouse suggest they should do (and banks stop lending).
I believe it would be better to encourage people to spend and encourage people to stop hoarding. How large is the giant capital 'glug' just sitting their doing nothing productive due to people a) saving for the nonsense that is 'retirement', or b) satisfying a few sociopaths' personal-value driven egos?
Then there is the large amount borrowing from their future selves because they cannot afford what they need (and some want) today otherwise.
Pa1ner - silly comments about silly comments.
Yesterday, I pointed out that a litre of fossil energy burnt now, could NEVER be burnt by any member of any future generation. You can back with some strawman cra- about farted-in grundies.
Life - individually and societally - is energy-dependent.
There is silly, and then there is silly...
It's really only a US specific phenom amoung developed nations.
Potentially more down to being the global hegemon, than diversity.
That settles it, all NZ has to do is finance and win a global conflict, become the default global currency, and control and police global shipping routes. Almost too easy....
Meanwhile, despite the widely publicised stumbles, it seems that overall the 6500 American banks with a Federal charter are in good financial shape. It is data that supports the regulator judgments.
Lets check back on this comment at the end of the year..
China Facing "Bigger Debt Crisis Than Evergrande" In Under 30 Days
https://www.zerohedge.com/markets/china-facing-bigger-debt-crisis-everg…
The US seems to have inflation under control
But not oil and its derivative gasoline. How long before Russia's foreign reserves are unfrozen?
US-Iran Reach Prisoner Swap Deal, Tehran To Gain Access To $6BN In Oil Revenue
I agree my comment was short term focused, in response to another comment that was looking short term.
With regard to your comment I think the only solution is to manage population numbers so we are living within environmental limits. Any ideas how to do that? Happen to know any political parties I can vote for so I can look my kids and hopefully grandkids in the eye? :)
No, I don't. For the first time since perhaps '75, I have no one to vote for.
That reflects our society, of course - as Donella Meadows said, a system does what a system is set up to do - and presumably all politics and all wrangling - environmentalists vs developers for example - are just part of that system. If said system is unsustainable - and our one clearly is - then it will go until it runs into the limits, whatever they are.
I think we need a re-make of the 1975 Values Party - it's Manifesto still stands scrutiny. But likely we are looking at financial collapse, reduction as a result, and localism as the inevitable end-game. Leadership will probably be of much smaller clusters.
I like your thinking PDK. When the choice is between dumb and dumber legitimising either option with a vote I take extremely seriously, seems like chewing on an old leather boot that just stood on a turd. Although I do thank the Gloriavale party for clarifying my lack of enthusiasm for voting at all, with their intention to let the gene jockeys loose in NZ. It reminded me how much worse it could actually get.
You raise interest rates when you can, not when you have to. Or should. And that's where it's all gone wrong. Not higher rates, but the lunacy low ones that were enacted to 'save' the System. History tells us what happens when interest-free money is created; whether that's Roman clipping a bit off their coins to mint additional ones or the 100 trillion dollar notes of (pick one of many examples).
We can all drop interest rates today, but if we do, expect a loaf of bread at Countdown to cost $100 tomorrow; ram-raids to explode and South Africa's murder rate of 70 per day look tame across the globe.
Instead of encouraging people to start businesses etc it has done the opposite, encouraged them to invest in houses.
The central banks not only need an inflation mandate but also an interest rate mandate. So they can use interest rates to get inflation under control but then must return interest rates to a standard rate (say 5%) when achieved. The reason housing has gone up is because interest rates have continued a long decline, if they had always been returned to 5% then a lot of the house price increases wouldn't have happened.
Jfoe interest rates have done an amazing job of controlling inflation for decades, not sure there is any evidence to the contrary. The only reason we have this mess is because central banks lowered interest rates in anticipation of deflation due to Covid when in fact Covid was inflationary. And now when interest rates are doing their job to get things back to normal you think it is a fluke.
Wolf Richter writes that USA inflation is artificially low due to health costs construction and this will go up in Oct. Also Biden has used up oil stores in USA to make gasoline price go down. This too is reversing. Meanwhile debt is a huge issue for bonds which are rising due to USA blow out. This makes borrowing more costly for rest of world. At same time China housing giant is beginning to miss payments and has debt of $200b. Overall commentators are too soft on all this. Rates in real terms are rising as inflation comes down. No cuts til next April likely
Will history repeat on the inflation front?
https://twitter.com/JeffreyKleintop/status/1689698973139738624?s=20
I checked Bayleys' results for their 04/08 Hawkes Bay auctions. All three at Havelock North went for over their August 2022 RV, with what seems fairly robust bidding for two of them. The lone sale in Napier didn't specify a price so place your bets there.
It should be noted two of the Havelock North auctions were for large lifestyle properties of over 20Ha each. The third Havelock North sale was a large recent build in the village, and its location suggests there may be specific motives.
I have no issue with house prices returning to what they were a couple of years ago. I have a lot of sympathy for first time buyers who raised 20% deposit only to see it disappear. Should they have to sell to move for work, with current lending criteria they will probably have to rent until they can save another deposit. They will have no KiwiSaver to help them the 2nd or 3rd time they want to get back onto the property ladder.
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