Here's our summary of key economic events over the weekend that affect New Zealand, with news the next 15 weeks will set the tone for 2023. So far in 2023 the benchmark equity market is up +15% (S&P500), benchmark bond yields are up +70 bps ( UST10yr +20%), and the USD is unchanged.
First we are now in the last week before the America's Labor Day holiday, signaling the end of the "sell in May (Memorial Day) and stay away (until Labor Day)" hiatus. Financial markets will then come back to full capacity. If investors did sell in May, they have missed a +5% stock market rally. The benchmark UST 10yr rate rose +50 bps hurting bond prices. And US CPI inflation fell -1% over that time. But what awaits them? How they react will lock in 2023's reputation.
This upcoming week will be a busy one for big data releases. It will be a very busy week in the United States with investors closely following their labour market report (the non-farm payrolls report) which for August drops on Saturday, September 2 (NZT). Markets currently expect only a gain of +170,000 this time. Before then we will get the US PCE price index, personal income and spending data, JOLTS job openings, ISM Manufacturing PMI, and the second estimate of American Q2 GDP growth.
Elsewhere, the focus will be on inflation rate figures for the EU, Germany, France, Italy, Spain, and Switzerland. Additionally, flash manufacturing PMI readings will be released for China, South Korea, India, Russia, Spain, Italy, and Canada. Finally, Turkey, India, Brazil, and Canada are set to report their Q2 GDP growth figures.
The last big northern 'holiday season' event is the central banker conference at Jackson Hole.
With his eyes firmly on expected American inflation pressures, Federal Reserve Chair Jerome Powell, speaking at the symposium, emphasised the potential necessity for additional interest rate hikes in order to effectively manage the pressures they still see ahead. Despite currently waning inflation, they still have "robust" consumer spending, and an expanding economy he said, and a healthy labour market. However, he did suggest they could hold rates steady at its next meeting in September.
Market reactions to this closely-watched speech have been modest, although Wall Street equities rose and they have ended with a winning week. And the USD rose modestly.
At the same conference a respected Stanford professor warned that liquidity risks in the gigantic US Treasury bond market may get worse if another crisis like the March 2020 pandemic shock occurs again. (Also, see this.) And that is because dealer balance sheets are growing much more slowly than the holdings of US Treasuries (because so much more is being issued). Attempts to sell those down in a financial crisis will get stymied by what dealers can handle without themselves coming under stress. And that could cause a meltdown. He did have some suggestions for policymakers.
Meanwhile the one piece of American data that was released over the weekend, the University of Michigan consumer sentiment survey, didn't have much market impact. After rising sharply for the past several months, this consumer sentiment indicator moved sideways in August. Still, it was at its second highest reading in 21 months and is now about 39% above the all-time historic low reached in June of 2022.
In China, they said they will scrap a rule that disqualifies people who’ve already had a mortgage from being considered a first-time homebuyer in major cities; the official Xinhua news agency reported this. It is couched in slightly different terms, but that will be the effect. It does look like an odd approach to take to spark an uptick in their residential property markets.
Meanwhile, Country Garden isn't getting much support for delaying payments on its bond. Bond holders are digging in.
And not helping China's labour markets, the giant tech assemblers (like Foxconn) just aren't hiring like they used to, and this is the high season for manufacturing for shipment to the US for the end of year holiday season. Brands like Apple are de-risking away from China. Those new manufacturing centers are getting the bulk of the orders (like India and Vietnam) while any softness from weaker end-market demand is being felt primarily at the Chinese centers in an accentuated way. This lack of hiring is actually quite a big deal.
And it will be no surprise that the persistent weakness in Chinese industrial profits is extending, even if not quite as weak in July as June. These profits last month fell -6.7% from a year earlier, compared with a drop of -8.3% in June. For the first seven months of 2023, profits declined -15.5%, although that eased from a -16.8% decrease a year earlier.
In Europe, and after peaking in April, it has been downhill for German business sentiment, and it fell again in August in the latest Ifo survey and is back to October 2022 levels.
The UST 10yr yield will start today at 4.23%, down -1 bp from this time Saturday to where it was a week ago. Their key 2-10 yield curve inversion is a bit deeper again at -85 bps. Their 1-5 curve inversion is little-changed at -102 bps. Their 3 mth-10yr curve inversion is also little-changed at -117 bps. The Australian 10 year bond yield is now at 4.14% and unchanged from Saturday. The China 10 year bond rate is unchanged at 2.58%. And the NZ Government 10 year bond rate is still at 5.09%. That is the same as the week-ago level.
The price of gold will start today at US$1915/oz and up +US$2 from Saturday. A week ago it was at US$1889/oz, so up +1.3% over that period.
And oil prices are marginally softer at just under US$80/bbl in the US. The international Brent price is now just on US$84.50/bbl, both levels very similar to a week ago.
The Kiwi dollar starts today -20 bps lower than Saturday at just on 59 USc. Against the Aussie we are firmish at 92.3 AUc. Against the euro we are unchanged at 54.7 euro cents. That all means the TWI-5 is still at 68.4, and actually little-changed from a week ago.
The bitcoin price is little-changed today and now at US$26,018 and up +0.4% from Saturday. It is down by -1% from a week ago. Volatility over the past 24 hours has been very low at just under +/- 0.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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49 Comments
After a week of heavy commercial "selling dollars" (borrowing in swaps, relending in mkts) in China, Thursday it just suddenly stopped. Same on Friday, too. Why? What does all this mean? What's the end game here? https://buff.ly/3R1RYIh Link
The traffic is getting thin on the Auckland motorway these days. What's happening??
Looks like a lot of trades are staying home and not much activity happening.
Sign of things to come in NZ? We are an economy highly dependent on world to buy our stuff or come and spend in our land. That's seems to be not happening. But still we are buying from the fellow kiwi at every higher prices. What could go wrong.
God save NZ
New Zealand grew as a mercantile nation. It still is. Except some elements on the left side of government are not only in denial of either that fact or necessity, they are hell bent on closing down the shop. If that ideological expression should get even more sway there it will force an exodus of the population as it will be too difficult for anyone to make living and ditto for the nation.
Doesn’t seem so does it. Heck they even support the construction and operation of wide bodied international airport in Central Otago. What’s the carbon footprint of that and how are we all to be carbon taxed to compensate for it. Even the ecological guardians the Greens are all for it, or if they are not, they are certainly bloody quiet about the fact.
Rodney Jones throwing around the DGM. His point about being able to the trade shows is pertinent though - the relationship is light and fluffy. NZTE is little more than an event organizer and very difficult to see what it does in terms of commercial opportunity. Not saying that NZTE is bloated in any way. But in many ways it's a 'cushy gig' with little in the way of having to deliver on results like 'closing deals.'
I used to work at NZTE in a non customer facing role. They aren't too bad actually, they have a whole raft of people who rub shoulders with both overseas and local investors, who also connect them with organisations who need funding in NZ. Super vital that we have these financial wheel greasers for growing small start ups into bigger ones. Very difficult for them to quantify their exact effect, but I suspect its bigger than we think it is from the outside. And over long time frames, their effect is probably huge (think Rocket Labs and various now NZX listed start up like companies that have had fairly dedicated "client managers" at NZTE). The client managers also help a lot of startups figure out financing, develop investor decks, attend conferences, analyse overseas markets, provide high level guidance for young companies etc.
I would say if we didn't have them, we would probably have about half the startups growing to medium to large size businesses that we currently have.
I used to work at NZTE in a non customer facing role. They aren't too bad actually, they have a whole raft of people who rub shoulders with both overseas and local investors, who also connect them with organisations who need funding in NZ.
TBH, I don't know much about the investment arm of NZTE but I'm aware of them in S'pore. However this is a relatively small function. The value of the gin-slinging side of the operation needs some scrutiny. Glossy brochures only get you so far.
Yeah, agree, but its really, really hard to quantify. I was literally in a role that tried to do it, it's completely fuzzy area. "So you introduced this person to this company and they invested a wee bit of money 5 years ago which they may or may not have gone under or grown in that area if you hadn't made that introduction... right??? And now they are making $10m a year in FCF, but they did most of that without us...". You can imagine the nightmare of actually quantifying each client managers net effect. Here's an edited conversation I overheard from one of them though on the phone to a fairly new startup CEO: "Look, just because you got series B across the line, doesn't mean you can buy a new BMW and go on holiday, you need to return the car or the investor is likely to pull all funding"
That sort of guidance happened all the time, unfortunately. Along with "No... no ... LISTEN. The grant money is NOT to be spent on parties"
Seconded.
I have done some work for NZTE in the past and know a few people there fairly well.
I would say they deliver better "value for taxpayer money" than some of the other government departments I have worked with.
The biggest issues I've encountered with NZTE are:
- Some of the work (e.g. events/trade shows) inherently involves junkets - and junketing always means expenditure for which it can be hard to quantify the return. I believe there have also been some culture issues raised in the past e.g. excessive drinking/partying culture. This area probably needs the most scrutiny.
- At the customer manager level there are some brilliant customer managers who do a lot of good work in trying to introduce startups to investors, improve internal discipline, arrange external providers who come and add some real value and boost performance (once again hard to quantify exactly the return) and losing their support would be a real blow to not only startups but even larger exporting businesses. However, for every good customer manager there seems to be one who is just cruising along being paid fairly well - and getting to attend plenty of junkets - despite little in the way of output and no real value/benefit added.
- Some of their focus customers aren't a great fit, and are just using NZTE funding to get free/discounted services with no real intention to generate a return from that. There probably needs to be a more robust process in place to identify the businesses that are (for lack of a better term) not taking the support for granted and double down on those and eliminate the laggards.
My direct knowledge of NZTE is brief interactions ~10-15 years ago. Maybe they've improved.
I. I travelled to Brazil for work. There were approx 4-6 NZTE staff on their way to a minor meeting, making the most of their business class privileges. I wondered at the time why so many were necessary, looked a lot like a taxpayer funded jaunt.
2. Shortly after a visiting regional director of the multinational I managed (NZ Division) said that NZTE manager at a Govt function had offered to look at support arrangements for our import/export trade (this was around the GFC, we were then one of the largest Wgtn Container Port users.). I had to follow up the contact however after a couple of very equivocal conversations they simply stopped responding.
3. My wife & I joined a week long NZTE Trade opportunities bus tour around the NI. This had NZTE staff, local investors plus a dozen overseas visitors (mainly Asian) meeting a number of different businesses & local Govt to see if there was any scope for mutual development. It was frankly embarrassing, very unprofessional eg. no one had any details for preliminary business cases, it was just "show me your money & we'll find a way to spend it".
Thanks for the link Audaxes. It suggests we are going to have a real come to Jesus moment in regards to our Dairy-centric economy. We are going to see the REAL impact of our socialist stupidity. When you have a system that compels mediocrity you will get the rewards. For us when we sent out precious, precious cattle stock and our farming systems to China they have simply no need for us anymore.
Moronic and depressing but there is always Australia.
To play this game, we need to focus on innovation and stay ahead of the following pack. That way, we can keep selling the new innovations. This works well for some countries (Israel, South Korea, Taiwan, Japan, Switzerland) but all of these have R&D spending above 3% of GDP whereas we are at 1.7%.
The development of China will shatter all bad-mouthing voices: Global Times editorial
Those who belittle China's economy probably never expected it to prosper and develop. Their narratives are full of contradictory logic. One second, they may be exaggerating China's economic development, saying it is too fast and too good, posing a threat to their interests. The next second, they start talking about China's economic decline and the suffering it will bring to the world. One second, they are taking actions to contain and suppress China's economic development and progress, and the next second, they hypocritically express concerns about the risks caused by China's economic weakness.
I have just come back from China. Man, you wouldn't want to bet against them. Their infrastructure is growing enormously still, along with at home consumption and financial services. Most of their economy appears to be way ahead of us.
I ordered and payed for a meal using my phone on a train moving 2000 people at 300kmph and had it delivered to me piping hot in 5 minutes.
Let me know when we have anything like that in NZ, I suspect its decades away.
Interesting news that because Kāinga Ora issues its own debt, it uses Bloomie terminals that come with relatively costly monthly subscriptions.
Granny Herald states "A recent change has meant that Treasury’s New Zealand Debt Management will look after Kāinga Ora’s financing". One would have thought that would be case anyway.
Also, there is this:
Stiven added the computers also help to “manage cash balances and same-day supplier payments to hundreds of suppliers and build partners”.
OK. But you don't need a Bloomie terminal for cash management. This is all quite an eye opener in more ones than one.
https://www.nzherald.co.nz/nz/politics/kainga-ora-spends-more-than-3000…
Bloomie terminals are good for market info (to a limited data-centric degree) and for trading. They are not for managing cash balances or supplier payments. One wonders if the Media will ask someone who knows what the software actually does? (I am not holding my breath).
#Germany’s ruling Social Democratic party will propose a 3y rent freeze in a bid to clamp down on inflation and provide relief on soaring housing costs party plans to curb rent increases. Rents have this year risen at record rates across Germany — a country where the cost of housing has traditionally been stable enough for families to live in rented accommodation throughout their lives. Among Germany’s 41mn households, slightly <60% live in rented accommodation. https://ft.com/content/8dd658d3-eb29-4129-ad2a-ffee7391db69 (HT @knowledge_vital) Link
There will certainly be some upsides in regards to FHB's being able to afford these ex-rentals. A lot of them will be direct transfers from renter to owner and that is good news for some (probable economic destruction for previous owners but lets not get distracted) the reality is that not all renters can service a mortgage. It is those people who will be directly affected by this sort of policy. Also note that we are almost out of motel space as it is so my presumptions is the additional thousands of people without accommodation will hit the streets.
Interesting clip on how dire the future is looking for Germany
https://youtu.be/3ACX9xqMsRM?si=VXbZ-mLSYR_yuw5a
It'd seem like Western exceptionalism only exists so long as it doesn't have to compete with a global market.
The newly released IMF Regional Economic Outlook say NZ is projected to be the worst performing economy in the entire world in 2024 in terms of GDP growth, with one exception, Equatorial Guinea, which has been ripped apart by civil war.
For a country whose citizens love rankings telling them how special they are from the likes of Conde Next and Lonely Planet published in Granny Herald, I'm betting that this one gets no air.
https://www.imf.org/en/Publications/REO/APAC/Issues/2023/04/11/regional…
What, sort of like how you like reminding everyone that Bitcoin has made 160% annualised returns, but neglect to let everyone know that being a Bitcoin investor values your time lower than a Vietnamese factory worker?
Do you have anything to comment about the IMF forecast or is this just an internet troll releasing one of its sock puppets because it has a bee in its bonnet about the BTC price?
He also told a friend of his that Fonterra's performance in China is woefully inadequate
Look what others are doing in Vietnam. They're all moving in anticipation of Chinese dairy producer Yili.
-- South Korean bakery company Orion Food Vina (OFV) decided to join the Vietnamese dairy industry after cooperating with Thai dairy company, Dutch Mill. The result of the joint venture is the appearance of two new brands, Choco IQ milk and ProYo drinking yogurt, which are being launched this month.
-- In June 2022, the market welcomed Morinaga Milk Industry, a Japanese enterprise with 100 years of experience in developing dairy products, after the acquisition of shares of Elovi Vietnam Joint Stock Company. Morinaga Milk aims to increase sales outside of Japan to more than 15 per cent of total sales by 2029. In Vietnam, the company also aims to achieve around $73 million in sales.
-- Vinamilk is investing in a $1.2 billion state-of-the-art dairy cow farm and fresh milk processing plant in the central province of Nghe An, with a capacity of 500,000 tonnes of fresh milk a year, and with three clusters including nine farms, about 70,000 cows, and a meadow area of nearly 8,100 hectares, TH Group is also developing a concentrated large-scale high-tech dairy cow production project in Russia, with total investment capital of $2.7 billion.
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