Here's our summary of key economic events overnight that affect New Zealand, with news that China is wobbling dangerously and may be a danger to global financial security. The USD is gaining in a flight to 'safety'.
But first, annual producer price inflation in the US rose to +0.8% in July from +0.2% in June. A rise was expected but this was higher than those forecasts. Still it is quite a low level and doesn't really alter the downward trend that started in July 2022 when PPI was rising at more than an +11% annual rate. It's been slowing since.
Americans seem to be starting to acknowledge the gains being achieved in the battle against inflation. First the July, and now the August University of Michigan survey records a significant improvement in sentiment from a year ago, and this is really around 'current conditions'. This is a widely-watched and influential survey. Interestingly, this survey shows consumer inflation being felt at 3.3% which is almost exactly what the official data shows.
Meanwhile in the background, the US Fed is back reducing its balance sheet. From its peak in April 2022 at US$8.965 tln, it has now reduced by more than -US$750 bln to US$8.2 tln, and putting the temporary regional banking stress well behind it. But there are some who think the pace of this retreat is behind the rise in long-term UST yields - and it probably is. It is another effective lever the Fed has to weigh on a resilient US economy to keep inflation restained.
Across the Pacific, investors are watching what is unfolding in China's economy with growing alarm. Maybe it isn't a "ticking time bomb" yet but stresses are building and not being dealt with. An economically struggling one-man-ruled situation is also politically risky because a military adventure might seem like a distraction worth trying.
China's banks lent ¥346 bln in new yuan loans in July, the least since November 2009 and well below analyst expectations of ¥800 bln. In June this new loan value was ¥3.05 tln; a year ago it was ¥679 bln so by every measure the July level is very low. If clients now won't take on more debt, it is something of a watershed moment (perhaps) and suggests it will be very hard for Beijing to use its usual levers to overcome the lacklustre economic recovery. Household lending, mostly mortgages, was down to ¥201 bln, while corporate lending fell to ¥238 bln in July. Remember it was ¥2.3 tln in June. Meanwhile, outstanding yuan loan balances rose +11.1% in July.
Calls for more decisive action are growing more strident.
Meanwhile, vehicle sales slipped in July to just under the 24 mln/year pace in China, the world's largest vehicle market - by far. They fell -1.4% from the same month a year ago and this was the first decline since January. It was maybe a bit worse than it appears because the base a year ago was low too, but July is the off-season of their car market. Local sales went down -6.3% to under 2 mln units in the month, while export sales increased +35% to 392,000 units, some of which ended up here, especially EVs like Teslas and BYDs.
And property developer Country Garden signaled it will be reporting a very large loss soon, maybe as much a -NZ$12 bln. In the same period a year ago it said it made a profit of +NZ$440 mln. It might be going down like its larger rival Evergrande.
Singapore cut its economic growth expectations for this year to "0.5% to 1.5%", down from "0.5% to 2.5%" in an earlier assessment. They see a weak global economy and low demand from key trade partners like China.
In Australia, RBA Governor Philip Lowe has told a Canberra parliamentary hearing that there would be major ramifications if productivity did not return to pre-Covid levels. Inflation will stay high and interest rates would too, unless this problem can be solved. It is doubtful he got much sympathy from that audience. But he will be proved right in the long term.
The UST 10yr yield will start today at 4.17% and up another +7 bps from yesterday and back near its October 2022 highs. A week ago it was 4.04%. Their key 2-10 yield curve inversion is little-changed, now at -72 bps. Their 1-5 curve is now at -105 bps and 8 bps less. Their 3 mth-10yr curve is less by 6 bps as well at -122 bps. The Australian 10 year bond yield is now at 4.18% and up another +18 bps from yesterday. The China 10 year bond rate is little-changed at 2.66%. But the NZ Government 10 year bond rate is now at 4.90% and up +6 bps. A week ago it was at 4.89%, so little net change there.
Wall Street was little-changed on the S&P500 in its Friday session but it ended the week with a -0.6% slip. Overnight European markets were all down sharply by about -1.2%. That meant that London ended its week down -0.5%. But Paris ended the week with a +0.7% gain. And Frankfurt ended with a -0.3% dip. Yesterday Tokyo had a Friday holiday so ended its week up +1.4%. Hong Kong was down -0.9% yesterday ended the week down -2.1%. However Shanghai fell an even harder -2.0% on Friday to be down -2.7% for the week. The ASX200 ended Friday down -0.2% for a weekly rise of+0.2%. The NZX50 was up +0.2% in Friday trade to end the week down -0.9%.
The Fear & Greed Index is mid-greed range and little-changed from a week ago.
The price of gold will start today at US$1913/oz and unchanged from yesterday. But they are -US$28 lower than a week ago (-1.4%).
And oil prices are little-changed at just on US$82.50/bbl in the US. The international Brent price is up slightly at just under US$86.50/bbl. These levels are almost exactly what they were a week ago. Russia earned US$15 bln from oil exports in July, up US$2.5 bln in June and the highest in eight months
The Kiwi dollar starts today another -½c lower at just on 59.8 USc. This is its lowest since November 2022. A week ago it was at 61.1 USc so it is down more than -1c since then on a surging USD. Against the Aussie we are down similarly at 92.1 AUc. Against the euro we are lower too at 54.6 euro cents. That all means the TWI-5 is now down at 68.6 and -50 bps lower and also its lowest in eight months. A week ago it was 69.4..
The bitcoin price is fractionally lower today since this time yesterday and now at US$29,322 which is down -US$58 or -0.1%. Volatility over the past 24 hours has been low at just under +/- 0.5%. FTX founder Sam Bankman-Fried is no longer on bail awaiting trial. He is in prison. Bail was revoked because the judge said he was concerned about witness tampering.
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55 Comments
Americans seem to be starting to acknowledge the gains being achieved in the battle against inflation.
The Real Challenge Is Broad Understanding of the STL Fed Model
Hey guys, look how (not) sticky inflation is! Powell's preferred inflation measure update (using Core CPI Services Ex-Shelter), 6-month annualized rates: Jan 2023: 5.3% Feb 2023: 5.3% Mar 2023: 4.6% Apr 2023: 4.1% May 2023: 4.1% Jun 2023: 3.3% Jul 2023: 2.9% Link
US Shelter Inflation May Go Negative Next Year, Fed Study Finds
Who knows, perhaps, maybe if the backyards in the USA are brightening up so too might Biden’s prospects if the “it’s the economy- stupid” axiom is still in play. Then again what does that mean. The incumbent overaged going on enfeebled and the likely opposer trailing criminal accusations if not convictions from his yardarm. Somehow that seems like a B grade Hollywood script. Keep going back to Liz Cheney “we’re electing idiots.”
Not to worry, the Government has this covered...
Reserve Bank gets an extra $500 million to build up the foreign reserves it would use to prop up the New Zealand dollar in a crisis
https://www.interest.co.nz/currencies/123431/reserve-bank-gets-extra-50…
“Their economic purpose was to seize raw materials, markets and labour power; their political purpose was to free the Pacific of British and American domination and to establish an Asiatic sphere of “co-prosperity” ; and their military purpose was to use every resource of the ******** nation to sweep away the territorial armies of Britain and America in the Pacific.” Written by Jack Belden 1943 relating his retreat with General Stilwell overland through Burma to India. Except then of course ******** was Japanese but in essence Chinese today could fit?
The West needs to be careful that it doesn't make the same mistake it did in WW2. They knew full well that Japan was a military threat yet suffered a "surprise" attack on Hawaii, the loss of Hong Kong, Singapore and the Philippines and much more in profoundly embarrassing military defeats.
Some irony there. General Douglas MacArthur, despite Pearl Harbour only hours earlier, was caught with more than his pants down in the Phillipines. Yet he survived that and proved to be a better statesman than general, as the architect and driver of the restructure and restoration of Japan. So much so that today, it is the world’s third largest economy and now sits comfortably in the Western Allies camp..
Deflation is now coming and an unrecognised type of crisis
Deflation is not coming, unless globally we have found an amazingly large cheap source of new resources, and/or we radically depopulate.
What is coming is the destruction of our current living standards as many products and services will simply no longer be economical, as they begin to reflect the true price of the underlying resources.
Too soon? It is already happening, there are some products I used to buy (and was willing to pay more for) that have already ceased production.
Plan for the worst, hope for the best.
Mights, maybe's, and possibilities sit firmly in the latter. We need to be doing the former.
You guys need some alternative news sources, China makes NZ look like a 3rd world country. Personally even I'm still shocked with the little video that comes out of there, take their space launch and the facility they have it was mind blowing. I'm at the point of laughing now when I hear that the USA is trying to protect it's IP, the Chinese are already ahead in so many areas. The USA is now trying its hardest to hold back China in every way possible, they can see them moving to the number one spot within 5 years. Basically China is unstoppable and its best we work to being a neutral country and stay out of what's coming.
Dollar going down fast and so will the NZ asset prices. I would like to see the faces of those who kept telling that it will all go up and up.
The spruikers have destroyed livelihood of many in this country just by their greed and lying to fill that greed. Those shameless people really
God save NZ
Are foreign investors rushing in to cash in on a devaluing yuan by buying up real estate or other assets on the cheap in China?
The discount on the price of a presidential suite is irrelevant when the cruise ship is sinking.
Foreign investors aren't as naive as Kiwi speculators. They understand that a nation's housing market can't operate in isolation and requires a strong economy to support it.
For we DGM Death Cultists it's all the same - we are on the sidelines munching popcorn, trying not to eat too fast.
What is that John Lennon song? "I'm just sitting here watching the wheels go round and round..."
I have a mate who has been pretty positive at barbecues (gone long on resi and commerical RE and vehicles) but is finally starting to worry about his borrowing costs. Not much point listening to fear if you leave it so late you're in deep anyway. And that is really the state of the country - we've borrowed and stacked the chips and will live or die based on our luck with international interest rates and milk powder. We will argue politics for the next few months but the government matters little now. The wheel is spinning.
I have a mate who has been pretty positive at barbecues........... we've borrowed and stacked the chips and will live or die based on our luck with international interest rates and milk powder. We will argue politics for the next few months but the government matters little now. The wheel is spinning.
Money post. Humor, psychology, and the sheeple.
Assuming we continue on our merry way I expect we can linger on with a slowly declining standard of living (for most of us) for years. The big drama will be when some balloon goes up and the oil tankers slow down and prices spike. Everyone will be screwed then, but NZ will be a doubly-screwed given our isolation and dependency on importing anything with more complexity than fruit, meat and milk powder.
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