Here's our summary of key economic events overnight that affect New Zealand, with news China's woes are affecting us, devaluing our currency to a nine month low. And the AUD is suffering similarly.
But first today, we can report that American inflation expectations continue to retreat, falling to their lowest since April 2021 and are now at 3.5% in July for the year ahead (and that is down from 3.8% in June). This mirrors the sort of levels we had noted in recent consumer sentiment surveys. Although this is not back to what the Fed says it needs, it is clearly on track, and consumers themselves seem to believe the Fed's actions won't bring a renewal of price pressure.
The same survey showed households’ perceptions about their current financial situations and expectations for the future improved. The share of respondents expecting to be better off a year from now is the highest since September 2021.
India however does not have control of inflation. Retail prices consumers face jumped to 7.4% in July, the highest since April 2022. A rise was expected, but nothing like that. It is a jump from 4.9% in June caused mainly by sharply rising food prices that were up +11.5%, their highest since January 2020, and in turn led by the cost of vegetables which were up an eye-watering 37% for the year.
As high as that may be, it is nothing like what the Argentines are facing. They just reported CPI inflation running at the rate of 116% and yesterday the Argentine peso was devalued sharply to 350 to the USD. This was all triggered when a wild-card hard-right populist took the top spot in a poll ahead of their upcoming presidential elections. They are in a sad spiral and that poll was probably the last straw; they are out of options and out of money.
Yesterday we noted the rapid devaluation in the Russian ruble. Well, today their central bank announced it will be holding an emergency meeting which will likely raise its policy rate sharply. It is currently at 8.5% and will probably go to at least 10% then. The ruble has devalued -27% so far this year amid a slowing economy, unbalanced currency flows, and capital flight.
In Australia, iron ore prices are falling, solely because of negative sentiment about the Chinese economy. We are seeing other commodity prices retreat too, including food commodities with declines for soybeans and wheat. Tomorrow morning, we have another dairy auction and everyone should hold their breath over that. As you know prices have been very weak recently, resulting in Fonterra cutting their payout forecast to well below break-even levels for most dairy farmers. The question that tomorrow will answer is how deep the current pressures will reveal. There is almost zero chance prices will hold or rise. Last week's WMP Pulse auction brought a -7% price drop and that probably foreshadows what is ahead tomorrow. Yes, the dairy sector is hurting, but the sheep and beef sector is finding it tough going too. Farmers will have shelved spending plans and the ripple effect on our whole economy will be significant.
The UST 10yr yield will start today at 4.19% and up +3 bps from yesterday and still near its October 2022 highs. Their key 2-10 yield curve inversion is a little deeper, now at -77 bps. Their 1-5 curve is still at -104 bps. Their 3 mth-10yr curve is still at -122 bps. The Australian 10 year bond yield is now at 4.23% and up +6 bps from yesterday. The China 10 year bond rate is down -2 bps at 2.64%. And the NZ Government 10 year bond rate is up +7 bps, now at 4.97%.
Wall Street has started its week with the S&P500 up +0.3%. Overnight, European equity markets were mixed with London down -0.2% and Frankfurt up +0.5% and Paris in between but positive. Yesterday, Tokyo ended its Monday session down -1.3%. Hong Kong ended down -1.6%, but Shanghai had a late recover and ended down just -0.3%. The ASX200 ended down -0.9%, but the NZX50 only slipped a relatively minor -0.1%.
The price of gold will start today at US$1910/oz and down -US$3 from yesterday.
And oil prices are a touch lower at just over US$82/bbl in the US. The international Brent price is unchanged at just on US$86/bbl.
The Kiwi dollar starts today essentially unchanged at just on 59.8 USc and near its lowest since November 2022. Against the Aussie we are a little softer at 92.1 AUc. Against the euro we are marginally firmer at 54.8 euro cents. That all means the TWI-5 is now at 68.5 and down -20 bps from this time yesterday.
The bitcoin price is also virtually unchanged today from this time yesterday and still at US$29,374 which is up +US$52 or +0.1%. Volatility over the past 24 hours has been very low at just on +/- 0.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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69 Comments
Brilliant Mullign interview yesterday:
https://www.rnz.co.nz/national/programmes/afternoons/audio/2018902574/h…
Systems, siloing, he gets it all. Clearly the conversation is moving on.
Inflation dropping & USA households now more optimistic. President Biden, or more realistically his “executive team” may have restored some certainty it would appear. The incumbent and the likely other contender for the next presidency though don’t appear to be much of an endorsement for such optimism to bear out.
Will Trump be disqualified from running for office by the 14th amendment.
"Passed by the Senate on June 8, 1866, and ratified two years later, on July 9, 1868, the Fourteenth Amendment banned those who “engaged in insurrection” against the United States from holding any civil, military, or elected office without the approval of two-thirds of the House and Senate"
Thats the catch, isn't it? For charges to stick then they are acknowledging the judgement is there.
It is safe to say that given the current (and previous election) was between a less animated weekend at Bernies and an oversized oompa loompa, that the entire nation lacks critical judgement.
The authorities are finally getting on with the indictments. It was predicted (by trump and others) there would be a supporter backlash to any indictment. Absolutely nothing happened and hardly anyone showed up. The court guard even let the courtroom door slam in his sour face
Yes it is interesting. Trying to claim incitement etc... when it is clear nobody really listens to Trump.
It reeks of blatant politics.
Both parties would be better just ignoring this crap, and sorting out a candidate that won't die of old age during their term. Choice of VP will be critical in their next election.
No. Many of the rioters openly admit that they went to the Capitol at, they believe, Trump's urging. They were listening to him.
The problem is deeper and more complex. In the US there is, and has always been an anti-government clique. Sometimes I wonder if it is a left over of the civil war and Southern sentiment. But some certainly stems from the prohibition era. In recent time the people have been becoming more and more disenchanted with the political establishment on both sides of the aisle, see each as essentially corrupt, perhaps with some justification. That fermenting sentiment is what led to Trump's election I suggest as he himself was very different from the establishment. But what the voters who chose him didn't understand and still seem to refuse to accept is that he is even more corrupt and venal. Many are starting to wake to him, but most realise that the very constitution that protects their freedoms, will also hold them to account if they overstep. And no excuses will ever help them escape. So on the action front Trump's support appears to be drying up. On the political front ... that has yet to be decided for once and all.
" So on the action front Trump's support appears to be drying up." Perhaps on physical action but not support. Some rally of de Santis a presidential hopeful completely eclipsed by Trump. Pity someone doesn't start a movement in the US, ARBT, Any Republican But Trump. De santis or Cruz would make a better President than Trump.
Perhaps behind closed doors, they are now accusing & blaming one another and of course, the recently departed. A caucus and/or cabinet that leaks is a harbinger of internal dissension. Bit like those in a boat that is awash, drilling holes in the hull to let the water out.
The creative destruction of economic productivity in NZ is far from over. Not a single hospital, bridge or school in sight in our major growth centres that was built in this century, yet population has grown by more than a third over the same period and we're still hitting records on net migration.
The problem with overcrowded infrastructure and sweating your assets too much is that it eventually becomes more expensive to operate and those high costs provide diminishing returns. In other words, we'll have to spend more to get the same economic outcomes, i.e., higher non-tradable inflation.
Just the last 6 years Jimbo? With global events in the mix I suggest the evidence of the degree has become very much more evident in the last 2 - 3 years, but i would suggest this started for NZ in 1984 when NZ, under Lange's Labour Government adopted the free market economic policies of Milton Friedman, peddled by the US and known by us as Rogernomics.
Lange's stopping for a cup of tea, allowed National in and Ruth Richardson's opportunity to further entrench the policies. So both the main stream parties are guilty. But any who continue to up hold the 'free market' myth are just as bad.
Not discounting Labour's horrendous borrowing spree, but whatever happened to that $60b added to the Government debt early into National's tenure?
People claim it was because we had a GFC and some Earthquakes, although the RBNZ published a report that the EQ had a total cost of $40b, of which $26b had been paid out by insurers in 2015. Did we ship that $60b off to help bail out the American banks?
There is nothing particularly heroic or meaningful about running budget surpluses and it's more likely to display a lack of understanding of economics. If the government is running a surplus then households are forced into a deficit and must run down savings or increase debt and this is a far worse outcome for the economy and for peoples welfare.
Workers’ parties in NZ and Australia compete to be the most neoliberal https://billmitchell.org/blog/?p=38819
Absolutely. In the time C&C were supposedly paying off that debt from $Billion + surpluses, the Aussies gave their people a 5% tax cut. When asked why we couldn't get the same cuts, Cullen, backed by Clark blatantly lied to the population by saying to get those cuts they would have to cut the Health and Education budgets. The costs of those tax cuts for us had been costed at around $250 million. With surpluses running between $1.3 and 1.2 billion, no one questioned Cullen's maths. I suggest they were too ideologically driven in keeping the people poor.
Government debt is the private sectors savings held in the governments currency, it's the currency which the government has spent but hasn't taxed back and has stored up in the form of bonds and some will end up in offshore accounts due to our current account deficits.
Exactly - in thrall of economists, who think finance can offer 'products', they offshored manufacturing to the lowest-common-denominator, then they played poker, to fund purchase of same.
Of course they all lived happily ever after.
Not.
Any wonder the young are p---ed?
As sectoral balances describes, a government deficit must equal a private sector surplus. If the government is spending more of its currency into the economy than is returning in taxes then where does this money go? Households will be retaining it as their savings or using it to pay down their debt and some goes offshore due to our current account deficits.
"Our tax take is in free fall" - surely a sign of recession, I wonder if it will be quite a big one. Will be interesting to see what happens if / when National get elected. Very hard to afford tax cuts without some significant spending cuts, I wonder what they will be, there are some obvious ones but that won't be anywhere near enough.
I still think the real blame should go to the RBNZ. Too much stimulus with no evidence it was necessary, and now I fear they went 1% or so too far the other way.
I put the real blame on the media.
They regurgitated the mantra - the completely false mantra - that economic growth (a) could continue, and (b) was good. Heck, some still peddle it, and even use straw-man avoidance tactics. They, in turn, condition societal thinking (if we can use that word, considering...).
The Mulligan link I posted upthread, is an important conversation - but it renders his repeat pieces with Mary Holm, moot (to put it mildly). Where is the reconciliation? There isn't any.
That has to be an F; it's reporting/infotainment, it sure as heck ain't journalism.
There is still the false narrative being propagated out there that high interest rates are to blame for NZ's poor economic performance, not the debt-binged economic growth that went on for more than a decade.
Most commentators and economists on MSM are also guilty of selling false hopes that a relief from high interest rates is just around the corner, which means we can all go back to an ultralow interest rate environment and life will go on as before Covid.
I see this in commercial property on a daily basis. I can't count how many times I have been told in the last 3 months that interest rates will soon 'go back to normal' and that prices won't drop as a consequence.
I am constantly laughed at when I suggest you can't pay 6% cap rates on property when your commercial interest rates are nearing 9%.
The securing and exploitation of cheap(er) labour purposefully stokes a throwaway society encouraged by easy credit, beyond its means. The Romans and others didn’t pretty it up, slavery full stop. Some time back someone posted here that society now can’t afford itself. There it is.
The Romans and others didn’t pretty it up, slavery full stop.
Are we there yet?
Much of it is due to climate induced shortages and profit gouging. https://www.theguardian.com/commentisfree/2023/jun/28/wage-rises-inflat…
Yesterday we noted the rapid devaluation in the Russian ruble.
To resolve a debt crisis a country needs negative real yields to inflate debt away - financial repression.
The comeback of bond vigilantes: US 10y real rates have jumped to 1.77%, almost the highest level since 2009. Link
Soft Landing ahead...
I've fallen several hundred metres off a cliff but the rate of decent has slowed as I am currently bashing through several layers of tree canopy before smashing into the jungle floor - where if I survive I will be wounded and eaten by wild animals.
Nice entertaining piece of prose there! However, the statistics show that the HPI has already started to rise. The OCR will stay the same, nurses are earning up to $160,000pa and immigration is up. It's going to be a tough few months for the dgms, but please keep up with the entertaining comments!
Better for me if it doesn't drop, however for the greater good of NZ I believe it needs to drop by 20 - 30% to enable some sort of functional and aspirational society to emerge. At present it only suits the intergenerational wealthy.
CPI may be rising, and I'm' still stumbling around on the forest floor, a little bruised about to discover the forest is on a ledge - I'm not at the bottom after all. All i can see is mist another 200 metres below.
Falling diary, falling dollar, rising unemployed, lower tax take, failing infrastructure, forestry rooted, construction industry dying, car market stalled, thousands about to go onto higher rates..........then there's China.
... this has hardly started.
By the way, two nurses in family. $160k! Nah...that's BS. Be one less for NZ very soon.
.
Thanks for that comment, and I agree that falling dairy and construction could cause a recession. However, due to other factors, I think house prices won't fall much further. Please note that I don't want prices to go crazy, and I think that rises of 3% pa would be reasonable.
Regarding nurses salaries, Senior nurses are now going to be paid $114,000 to $161,000 in New Zealand.
Soft Landing ahead...
For who? If there is any truth to this: https://www.oneroof.co.nz/news/first-home-loan-scheme-is-open-to-abuse-…
Then the banks may be paying a bit more attention to the outwards migration stats. Don't want a whole bunch of peeps doing a runna.
They just reported CPI inflation running at the rate of 116% and yesterday the Argentine peso was devalued sharply to 350 to the USD. This was all triggered when a wild-card hard-right populist took the top spot in a poll ahead of their upcoming presidential elections. They are in a sad spiral and that poll was probably the last straw; they are out of options and out of money.
That's just the government exchange rate, the real open market exchange rate ("blue dollar") is 650-700 pesos per USD: https://bluedollar.net/
In fact one of the reasons that far right candidate is popular is that he just wants to dollarize the economy. Given the collapsing value of the local peso you can kind of see why.
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