Here's our summary of key economic events overnight that affect New Zealand, with news UST yields are now near a 16-year high on fears American interest rates will stay higher for longer. And EU bonds yields are moving up too. Higher interest rates will weigh on asset valuations, especially real estate and commercial real estate in particular.
But first, new US jobless claims came in at 212,000 last week, less than the week before and lower than expected. There are now 1.8 mln people on these benefits, a +10,000 increase from the prior week.
The US Conference Board leading economic index is still pointing to an upcoming decline in near-term American economic activity but the weight is very much less now, in the July survey out today.
And the Philadelphia Fed's factory survey in its industrial heartland is pointing to a good pickup in new order levels. It was a sub-index that had been negative for 14 consecutive months, so it is a sharp turnaround. And it wasn't the only improving indicator.
Across the Pacific, Japan's exports fell -0.3% in July from a year earlier, the first drop in more than two years, reflecting the slowing global economy including in key trade partner China.
But Japanese machinery orders rose slightly in June.
Today, all eyes will be on the release of Japan's July CPI. It was running at 3.3% in June and analysts expect the July increase to come in at about 2.5%.
In China, their central bank is trying to force the value of the yuan up when it is under devaluation pressure. It's in a tough spot because it needs to cut local interest rates to support growth but that would normally depress its currency. But markets aren't buying the moves and have devalued the currency anyway despite the official fixing indication. The gap between the official rate and the market rate is now its widest in ten months. But without a better rate, the central bank will have to absorb some very chunky losses.
In London and New York, China's major state-owned banks were seen selling US dollars to buy yuan in an attempt to slow the yuan's depreciation. Though they also trade on their own behalf or to execute clients' orders, state banks often act for the central bank when the yuan is under pressure, as it is now.
And in China itself, investors who put money in a troubled shadow bank said police officers visited their homes and urged them to avoid public protests, the latest sign authorities are worried about unrest as fears grow of financial contagion.
It is increasingly noticeable that the financial media in China are avoiding any coverage of their economic stresses. And because there isn't a lot of 'good news', their coverage of any economic news has become somewhat trivial.
As expected the Philippines left its official policy interest rate unchanged at 6.25% in their regular review.
Overnight Norway raised its policy rate by +25 bps from 3.75% to 4.0%.
In Australia, they released their July labour market data. Their jobless rate rose to 3.7% in July from 3.5% in June, above market expectations of 3.6%, and the highest level since April. There are now 541,000 unemployed in Australia, and increase of +35,600 in one month. Employment unexpectedly fell by -14,600 when analysts expected a +15,000 rise. Full-time employment fell by -24,200 while part-time employment rose by +9,600. Their participation rate fell to 66.7%.
And staying in Australia, there is a listing surge underway in their housing markets, rising at a rate far higher than the market can absorb without selling price discounting.
Freight rates for containerised cargoes rose another +2.3% last week as the upturn gathers pace. Bulk cargo rates turned higher as well.
The UST 10yr yield will start today at 4.31% and up another +4 bps from yesterday and now a new sixteen year high. Their key 2-10 yield curve inversion is less, now at -66 bps. Their 1-5 curve is also less at -92 bps. Their 3 mth-10yr curve is a lot less at -105 bps. The Australian 10 year bond yield is now at 4.31% and up +8 bps from yesterday. The China 10 year bond rate is lower at 2.58% and its lowest since the temporary drop at the start of the pandemic in early 2020. Apart from that it is a 20 year low. And the NZ Government 10 year bond rate is up another +8 bps, now at 5.12% and also its highest since 2011.
Wall Street is lower with the S&P500 down -0.8% at the end of Thursday trade. Overnight, European equity markets were all down about -0.7%. Yesterday, Tokyo ended its Wednesday session down -0.4%. Hong Kong ended little-changed, and Shanghai rose +0.4% on 'home team' support. The ASX200 ended down -0.7%, but the NZX50 slipped a relatively larger -1.0%.
The price of gold will start today at US$1885/oz and down -US$13 from yesterday.
And oil prices are +50 USc firmer at just under US$80/bbl in the US. The international Brent price is just under US$84/bbl.
The Kiwi dollar starts today softish at just on 59.3 USc, down -10 bps and its lowest since November 2022. Against the Aussie we are a little firmer at 92.5 AUc. Against the euro we are marginally softer at 54.5 euro cents. That all means the TWI-5 is still at 68.5 and little-changed from this time yesterday.
The bitcoin price is very much lower today from this time yesterday and now at US$27,929 which is down a rather substantial -4.1%. Volatility over the past 24 hours has also been moderate at just on +/- 2.7%. The latest CFTC survey shows hedge funds and commodity trading advisors ramped up bearish bets in CME-listed cash-settled bitcoin futures. And in the UK Pay-Pal pulled back from allowing crypto purchases via its platform. Neither move improved sentiment for bitcoin.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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80 Comments
Yes but the fed and rates were still increasing through 2007 and into 2008 until they werent anymore and rapidly went the opposite direction. Its only a matter of time. Nothing has changed, the world still has record debt and a disinflationary monetary system. Eventually people stop spending and the system pops. I still think before mid next year we will be cutting
"I still think before mid next year we will be cutting"
"The bank’s latest forecasts suggest it won’t start cutting interest rates until towards the middle of 2025, rather than early that year or towards the end of next year."
https://www.stuff.co.nz/business/132745140/reserve-bank-holds-ocr-at-55…
2 MORE YEARS. You Know It,s Bad When The MSM Are Saying This !
Can someone explain to me how NZ hoki fish is cut up and crumbed in China, and ends up in Pak N Save supermarkets,at $17 a kg. There has to be a fair bit of see shipping involved, obviously GST and supermarket margins. Is labour so expensive in NZ, that we can't even feed ourselves.
The same question needs to be asked how stoned cherries from Chile ends up in a NZ supermarket for $16 a kg. We have cherry farms in Otago, pumping out fresh cherries, you would think we could somehow have them frozen in the NZ supermarkets. They are the same kinds of cherries.
with our foreign exchange earnings from dairy dropping, now is the time to learn to feed ourselves where it makes sense to, instead of increasing the NZ deficit even more than necessary.
No, it's important to remember that it doesn't keep going.
The key is consumption; the consumption is of stocks; many finite, all limited. The rate of consumption was exponentially-increasing, on average. Only one end-game possible, the only variable being: When?
I think there's another side to disagreeing with your posit too; it depends on how much fiat proxy is keystroked into existence - and even the 'backing' is only based on 'values' retained in a collection of minds; not on physical realities.
the core part is that everything is limited and that all is connected. The question re hoki from China is fundamentally one of greed. A week or so back Gareth Vaughn link and article on the de-regulation of banks, and this identified that in the 70's NZ was as the top end of productivity in the OECD, but now we are at the bottom end. In this case the fishing companies, but pretty much all business's now, are to all intents avoiding investing in productivity by exporting jobs to places like China where they can get stuff done cheaply. And then there is the question of the massively overfished oceans with rapidly diminishing stocks.
It is all connected, but the crux is that we live in a finite world and are near the limits (likely past them in some areas) of what the system can sustain. It needs to change. The article Audaxes linked to that countered the climate change mainstream yesterday, remains valid. But within the total picture we still need to understand that there are literal physical limits to what we can do to our environment. there are an awful lot of examples to demonstrate this. Your living standard would be the ideal, but few would be able to afford it today.
So easy to land a job pushing paper around in NZ, why would anyone want to work hard in a factory environment? The guy from Fraser engineering said he was competing with not only construction companies for engineering tradies until a few years ago and lately the public sector is also randomly competing for skilled labour.
Most of those tens of thousands of workers who got sucked into desk jobs for contact tracing, MIQ, etc. in public service aren't going back into the real economy.
Yes, our acting government sees itself as owning the delivery and not just setting the ground rules and monitoring. By doing this they are crowding out the private sector. The costs are usually much higher and delivery times longer since the public sector are normally much less efficient that private. This is why they have spent so much to deliver so little.
The next government needs to pull back and outsource delivery to the private sector.
I think the private sector being more efficient than the public is a myth that has been widely disproved time and time again.
What is called public sector inefficiency is actually down to democratic processes. Politicians and people having more of a say in outcomes. It is also that the public sector work with more ambiguous targets that can be hard to measure (public good vs profit).
Its simply because we are stupid enough to buy it, we want it as cheap as possible. I always look where food is made and won't buy it if it is a country that doesn't have our standards. You would be surprised how much food comes from China, even supermarket squid rings (yuck), basically if it is cheap there is a good reason.
In this case it may have been hard to tell, but if everyone did as I do then the supermarkets wouldn't risk anything from China.
south america (chile, i think) and serbia before that. comes about about because the pickers do their #2's in the fields
country of origin can be questionable when comes to processed foods (incl tinned) as the tomatoes may have been tinned in italy but if they are cheap then likely the tomatoes were grown somewhere else but the processing costs were enough to justify changing COO
Chile exported 415,315kgs of cherries in 2022/23. NZ exported a crop of 3594kgs. That shows the difference in size of the industry between the two countries. Other than manually stoning cherries, there are very few options in NZ to get this done. And you do need to stone cherries when freezing otherwise they can have an almond taste to them.
Did anyone see this article. Article: Japan has gone its own way on fighting inflation – can NZ can learn from a global outlier?
I found it very interesting and wondered if this would work in NZ.
"We are not Japanese, we are sheeple."
I mean I think it is overly simplistic to classify a nation of individuals with homogenous character traits but if you were going to be xenophobic and classify one Nation as Sheeple the Japanese would have to factor pretty highly. The social norms are incredibly strong in Japan. When I worked there our company has guidance on how to dress, how to talk and in what order, how to cut our hair, how to behave, etc... It was pretty strict and everyone toed the line. I would say that is as close to being sheeple as you can be.
It could work anywhere ... where consumers and businesses behave in a similar way to the Japanese.
From outside Japan, and applying economic measures used in the west (rightly or wrongly), Japan's economy has been labeled a basket case. But from inside Japan, viewed from the perspective of the vast majority of Japanese people, everything is - in fact - just tickety-boo.
Outside Japan, the economic orthodoxy focusses around the Great God of Growth. I.e. if you're not growing - you're failing. Japan's ethos is much more "does everyone have enough?".
Thus, outside Japan, we have a growth at any costs mentality, including granting draconian powers to central banks. Such powers, but particularly their use, when the pain caused to many is well-known and actually glorified in media as near ritual sacrifices, would never be accepted in Japan.
And rightly so. Why sacrifice the young families with mortgages and start-up business debts while enriching older people who are savers by virtue of their age & stage in life? Again, that would never be tolerated in Japan, probably not in China either although it appears to be happening and unrest is growing quickly. (The CCP got started with high youth unemployment, they know the risk only too well.)
Western economic orthodoxy of using central bank to control "growth" and "inflation" via interest rates was first discussed in academic circles in the 50s, became mainstream in the 60,70s and so fashionable most countries had adopted it by the 90s. The downsides were quietly swept under the carpet and human sacrifices became acceptable again. But this economic orthodoxy is in fact 70 years old!
The economic orthodoxy has become so ingrained that the main perpetrators of these theories - banks and other financial institutions - have become the biggest beneficiaries of it - by a huge margin. Take NZ for example. What would happen to NZ retail banks if house prices, where the bulk of their lending goes and the source of most of their "growth", were to stagnate? Let that think in for a bit. It's a whole new world, isn't it?
For the last 30 years, many economist have been saying using 70 year old economic orthodoxy is daft. We must find new tools. These new tools must be fair for everyone and the human sacrifices to the "Great God of Growth" must stop.
This is why the Reserve Bank of NZ needs new leadership. New tools like the Debt to Income Ratio framework have been far too slow coming and they've resorted to human sacrifices again. But the DTI ratio is just one tool. Another, considered "too messy", much like removing GST on some products, is different interest rates for different purposes rather than the one-size-fits-all OCR.
The RBNZ is - in my opinion - far too beholden to banking interests. They need to do as Japan does. I.e. the citizen comes first and human sacrifices must never be used so a few can become even richer.
That article is disingenuous, refer the following sentence.
There are three reasons why Japan’s refusal to tinker with interest rates may have been more successful at fighting inflation than New Zealand’s orthodox policy of raising rates.
Japan has been one of the world leaders at buying its own govt bonds (QE) – so it has been avoiding the reality of market interest rates for its own debt.
As of December 2023, the BOJ owned a record 52.02% of outstanding JGBs, as it ramped up purchases to defend its cap on long-term yields.1 The BOJ began buying up billions of dollars of JGBs in 2013 to propel the country's low annual inflation rate toward its 2% target. [Investopedia]
However given that all currencies are fiat based (good link by powerdownkiwi above) perhaps Japan is just better managing their currency and economy than NZ is.
My question; but is it that as Japan is the sovereign owner of it's own currency, then buying it's own bonds is just the way it manages its own economy through printing money on one side and taxes on the other? The value of the yen would be essentially set by the level of value it produces in it's economy, through exports etc. What level of foreign investment is there in Japan? If it is limited, would that explain the comparatively low rate of the Yen v the US$?
There is always risk associated with politicians printing money, but if this is well regulated (to support only projects that produce an economic return to the country) then the risk should be minimalised.
I’m the last to suggest I know much about stabilising the value of one’s currency.
The central bankers of the world do what ever is necessary (lie, print money, etc) to maintain confidence in their currency. All the major western (+ China) economies were doing QE after the GFC which made it easier to sell the policy to the bond buyers of the world. I expect that was coordinated between the central bankers/BIS. ‘It’s ok if everyone is doing it’. Once QE is started in very indebted countries I suspect it is hard to stop if countries have deficits instead of surpluses.
Things got interesting for Japan at the start of this year.
The Bank of Japan’s decision to double its 10-year yield ceiling was meant to improve market functioning. So far it’s triggered even heavier intervention from the central bank, threatening to reduce liquidity further in the local bond market. The BOJ announced a fourth day of unscheduled bond buying Wednesday, offering to buy unlimited amounts of two- and five-year notes and to purchase ¥600 billion ($4.6 billion) of 1-to-25 year bonds. The announcement came in addition to its outstanding daily offer to buy unlimited quantities of 10-year securities and those linked to futures at 0.5%, the new cap for benchmark yields.
In our view the wheels are starting to well and truly fall off the New Zealand economy.
Source:
Stephen Toplis (BNZ Head of research) - 16.08.2023
https://www.bnz.co.nz/assets/markets/research/20230816_Eco-MPS.pdf?462c…
He's not wrong. Clearly a man who augments desk research with field trips, i.e. He gets out more.
So, where do things stand:
Next OCR movement ...
Kiwibank, BNZ(?) ... DOWN
ANZ, Westpac ... UP (Probably based on a profligate new National led government)
RBNZ, other banks - Haven't got a clue (they don't get out much).
Luxon said there was no need for laws specifying which toilets people could use.
"Bathrooms is not a big topic for this election. What this country is focused on is who are the best economic managers, who's going to reduce the cost of living. When I'm out and about across New Zealand, bathrooms is not going to be a big election issue."
He said it "may well be" a big issue for Peters.
"You are on another planet if you want to have a conversation about bathrooms and make that an election issue.
Not a huge fan of Luxon but gotta give him credit for not getting dragged down with this culture war bullshit and staying focused on issues that actually matter.
Well it’s pretty easy to understand why housing occupies such a large mindshare as housing policy has an impact on basically the entire population. It’s like saying people are to obsessed with air or water.
Certainly a more important issue to discuss than who can use what bathrooms.
Was it a better investment (parasitic-potential) environment pre 1800?
Just realise that all this has been foretold for 50 years - those who chose not to listen....
Just to play the devil’s advocate to your limits of growth argument, here’s a video you might be interested in which attempts to make a case for optimism for the long term future of humanity: https://m.youtube.com/watch?v=o48X3_XQ9to
The author also interestingly points out the declining costs of harnessing solar energy over time.
Needless to say, my mind is far from made up though, re optimism and limits to growth debate.
PDK, I’ll offer another devil’s advocate position. I agree the basic principle of resource depletion is obvious. My concern regards the use of Wikipedia as an information source. It is relatively easy for wiki to steer people over controversial issues.
https://www.abc.net.au/news/2007-08-16/program-shows-cia-behind-wikipedia-entries/642224
A new identification program on the site reveals that some of the most prolific contributors to Wikipedia are the CIA, the British Labour Party and the Vatican - and they are not just updating their own entries.
The Wikiscanner site shows the CIA has edited entries on many issues relating to the United States Government, including presidential biographies and descriptions of military operations.
It has also edited topics as diverse as Adam Smith's Wealth of Nations and the singer Richard Marx.
Fonterra has revised their payout forecast
Off the back of continued decline in Global Dairy Trade (GDT) prices, we have revised our forecast range to $6.00 - $7.50 per kgMS with a midpoint of $6.75 per kgMS.
This is down from $6.25 - $7.75 per kgMS, with a midpoint of $7.00 per kgMS.
A bigger concern here is how long are farmgate prices going to stay this low. A bad season isn't the worst thing but anything more than that will be catastrophic for our entire economy.
More than 23% of NZ's export earnings came from dairy in the year ended March 2023.
The word from the chinese street is that the CCP won't allow this - too much instability and it could be (actually, will be) contagious. Also the word from the chinese street, "The CCP can't control everything so they should stop wasting time & money and stop trying". (The chinese street also wants the CCP to stop sabre rattling as it gains nothing.) (I love weibo.)
GHG emissions already making a mark on farm mortgage rates. A young farmer owner got 0.50% reduced on his mortgage recently because of his 'good sustainability score'. He runs a self contained farm with 2.2cows/ha.
A second young farmer owner got 0.20% reduction on his mortgage because of his 'good sustainability score'. He farms at 3.5cows/ha and his bank said they will visit in two years time to check that he is farming sustainably. (They haven't been out to visit the farm yet, so first visit is two years away)
I see in the news that yet another Russian general who commanded the forces in Ukraine has died. Not a particularly good career move to get promoted to that position I suspect. The Russian news media is reporting he died after a long illness. How long? Possibly about 60 metres? The standard retirement option for critics of the Putin regime?
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