Here's our summary of key economic events overnight that affect New Zealand, with news the world's largest economy keeps on throwing up unexpected positive surprises.
First up today, there was a very strong August services ISM PMI out for the giant American economy. It is a widely-watched and influential metric and it rose unexpectedly with its strongest growth in six months. Faster increases were seen in business activity, and both new orders and employment especially. It's a confirmation of the resilience we have been pointing out recently, and might even change the mind of some Fed waverers. Markets think so, and equities recoiled somewhat on the prospects of a rate hike again.
A widely-watched GDP-Now tracker is suggesting that most analysts are significantly underestimating American economic growth for Q3-2023.
Unnoticed, small business optimism rose sharply too in its independent August survey.
Meanwhile, the yo-yoing of mortgage application levels continued last week with them falling -2.9% from the prior week after an earlier lift. But the outsized fall took them down to their lowest level since the end of 1996 - and that was despite mortgage interest rates easing slightly in the same period.
The Redbook survey of American bricks & mortar retail activity is again reporting a year-on-year sales increase higher than inflation, a situation that has only turned positive in the past couple of weeks.
US exports rose +1.6% in August to a four month high but the US merchandise trade deficit widened marginally , even if -US$3 bln less than expected. Exports were boosted by vehicles, airplanes and pharma.
The US Fed's September Beige Book update reported that economic growth was modest during July and August. Consumer spending on tourism was stronger than expected, surging during what most considered the last stage of pent-up demand for leisure travel from the pandemic era. The found that labour market pressures are easing but many employers still see shortages. Price rises are easing they said, but they did find sharp increases in property insurance costs during the past few months.
Of course, not everything is positive, and the threats to regional banks who loaded up on commercial real estate remain large.
The Bank of Canada held its policy rate unchanged at 5% in its September meeting overnight, as largely expected by financial markets and marks an extended pause in its tightening cycle. But it is still selling down its bond holdings.
In China, reports are emerging that President XI was "reprimanded" by Communist Party elders at the Party's secretive summer enclave. And that he wasn't happy about the supposed dressing-down. In turn the elders aren't happy about China's recent off-track trajectory. To be fair, high-level policy making is very opaque in China, but someone is leaking these private discussions.
Their downward turn is affecting the world. And the opacity is extending.
Taiwanese inflation rose to 2.5% in August and while that may not seem high, it is the highest for them since January.
Global air travel is now back to 95% of its pre-pandemic levels. Domestic air traffic has fully recovered almost everywhere. but international travel is more than -10% lower still. In the Asian/Pacific region it is lagging significantly, still -25% below pre-pandemic levels as Chinese travellers remain more reluctant to venture abroad. But they are making that up with a huge +22% surge in domestic travel over pre-pandemic levels.
In Australia, they released their Q2 GDP result and their economy expanded +0.4% from the March quarter, the same pace as an upwardly revised figure in Q1 but above market forecasts of a +0.3% growth. This was the seventh straight period of economic growth for them and came from better exports, business investment and public spending. Household consumption however contributed very little. For the year, their overall expansion was +2.1%. New Zealand's Q2-GDP will be released on Thursday, September 21, 2023. It will probably be marginally positive too.
And staying in Australia, their official estimates are that they will have a record grain harvest this year, and then it will fall next year as El Nino weather brings drier conditions. They are also forecasting a -14% fall in rural production values of AU$92 bln this year to AU$80 bln next year. (It is not exactly the same metric, but New Zealand agricultural exports will be NZ$56 bln this year, up +6% and also a record high, as a rough perspective.)
The UST 10yr yield starts today up +3 bps at 4.30% and getting back to the highs of three weeks ago. Their key 2-10 yield curve is marginally more inverted at -72 bps. And their 1-5 curve is less inverted at -100 bps. Their 3 mth-10yr curve inversion is also flatter at -108 bps. The Australian 10 year bond yield is now at 4.15% and down -5 bps from yesterday. The China 10 year bond rate is up +3 bps at 2.69%. And the NZ Government 10 year bond rate is now at 5.08% and up +3 bps.
Wall Street is lower in their Wednesday session, down -0.8% on the S&P500. Overnight European markets all slipped another -0.2% except Paris which was down -0.8%. Yesterday, Tokyo ended its Wednesday session up +0.6%. But Hong Kong ended flat and Shanghai rose a minor +0.1%. The ASX200 ended its Wednesday session down -0.8% but the NZX50 fell just -0.1%.
The price of gold will start today at just under US$1918/oz and down another -US$6 from yesterday.
And oil prices are up +US$1.50 at just over US$87.50/bbl in the US. The international Brent price is up +US$1 at just over US$90.50/bbl as markets react to the Saudi production curbs.
The Kiwi dollar starts today little-changed from yesterday at 58.7 USc. Against the Aussie we are almost -¼c softer at 92 AUc. Against the euro we are little-changed at 54.7 euro cents. That all means the TWI-5 has slipped ever-so-slightly to 68.2.
The bitcoin price is up +0.7% from this time yesterday, and is now at US$25,916. Volatility over the past 24 hours has been modest at just on +/-1.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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In China, reports are emerging that President XI was "reprimanded" by Communist Party elders at the Party's secretive summer enclave. And that he wasn't happy about the supposed dressing-down. In turn the elders aren't happy about China's recent off-track trajectory.
Open window alert!
I think the Chinese CCP has different retirement plans than Russia has for senior military leaders. Generally theirs seem to include special rest homes that function on an austere principle with barred windows and locked doors? Who knows, Xi might be special?
He'll get transported to the gulag in an underutilized high speed train.
I mean he is 70 years old now, same age his predecessor waved goodbye, Jiang Zemin was like 75 though, Zhao Ziyang was also 70. Its about time for him to go, 11 years since he got in.
Something’s up. He hasn’t looked well recently and has missed a couple of big events.
But didn't he get voted "Emperor for life" or the CCCP equivalent? So will he have to cark it while he's in the seat, somewhat like Mao? Does he have tasters checking his tea before he drinks it? If he loses favour he might need them.
He removed term limits, something that I thought was completely stupid, so setting himself up for emperor for life. I don't think he will be successful though.
People think the CCP/Xi Jinping are all powerful in China, they aren't. They are deathly afraid of their people, but put on a face like they are in absolute control (you only need to see their disorganised back tracking on their COVID stance to see this, after protests broke out). The party itself has a bunch of factions, things can change really quickly, but not necessarily with malice (most old leaders are still alive). If Xi were to purge old leadership to make himself seem more in control, for instance, I don't think he could do it without turning China into a military state. Which would likely create serious internal divisions, likely the people would revolt. He is walking a fine line, I suspect he will be peacefully retired in the next few years and a younger leader take over. Then hopefully they put term limits back in, cos 10 years is plenty of time, Xi is a good example of things starting to turn to custard after 10 years of leadership.
I recall reading in the 90's that the CCP trod a fine line in keeping their military leaders in check. It seems their Military Industrial Complex (was then) is all owned/controlled by the military so to all intents the military leadership is powerful and wealthy. But that must be somewhat fractious too? Just keeping that in check.
Biden is 80, and Trump is 77.
Ol' Winnie is 78.
Chinese leaders are just babies in comparison.
Winnie has preservative flowing through his veins. Should be good for another 50 years at least.
As long as there are Baubles to be had a journalists to bark at - he will be around the trough.
Trump and Biden are too old. It just needs a younger candidate to say "all the merits of experience that come with age are not worth the risk of having a president die or be disabled by illness while in office." It is not as if either have dynamic competent deputies.
Those soil maps starting to show el niño effects? It'll be droughts next...
Think back over last 5 years. Aussie had wildfires, then floods, now lush grass. Exports of meat products are up
That actually sounds like a natural cycle? Although it is far, far too long ago I seem to recall a school lesson that talked about nature's self cleansing processes involving fires and floods.
It's too-limited scoping that makes most appraisals bull---t.
I get up every morning, go to sleep most evenings - does that mean it will happen forever? Global averages - remembering that heat is the common manifestation of energy - are inexorably up. Some need to avoid, and will do so by cherry-picking - a characteristic of which is usually a very-truncated time selection.
Stands out like canine scroti...
It is to all extents a local phenomenon, which can be significantly at variance with global trends. But that doesn't make it any less real.
But I do wonder about our literal interference with natural cycles and the consequences. I we as a species stopped actively interfering with the natural environment everywhere by trying to modify it, including efforts to correct the effects of our presence, what would happen? Can't happen of course, our very existence interferes with the environment, and that doesn't even consider the fact that there are just far too many of us.
Too many of us?
Well that too would be a natural cycle.
Eventually there will be less of us. (Also a natural cycle)
We no longer have natural cycles, we have crises, please talk about ether, global warming making the atmosphere hotter or alternatively wetter. The ice packs are melting and rising sea levels...(except of course in the red pill world they are not https://eos.org/science-updates/new-perspectives-on-the-enigma-of-expan… and http://www.climatedata.info/impacts/sea-levels/pacific-islands/files/st…)
The sea levels look to be rising in the chart you published. Not sure what you see. Not a perfect way of measuring it of course, as tectonic movement can affect local areas.
And the fact that one place in the world has more ice for some reason doesn't disprove an overall trend. It just shows that the climate is complicated.
Look at the black line (the average), it is trending downwards.
The fact that the largest ice-pack on the planet is in fact increasing in size is the trend! Cognitive dissonance?
Trending down from 2013 you mean? You are completely ignoring the trend of the overall chart you are showing then, just to concentrate on the tip that is completely within the noise range of the rest of the chart?
So the glaciers all disappearing, the North Island ski fields running out of money from no snow, the Artic losing ice and the worldwide temperature record increasing is all to be ignored, because one place in the world has a different trend, and we don't know exactly why?
People have been clutching their pearls for a long, long time, I am just a bit tired of it all. "Glaciers are all disappearing!!!!!!!" https://www.wgtn.ac.nz/news/2017/02/explaining-new-zealands-unusual-gro…
I appreciate that there is no one interested in a counter trend set of information but I thought it worth mentioning. I now appreciate this is uncomfortable for some so I shall cease.
Good. Return to your rabbit hole. From your quoted link -
Associate Professor Mackintosh says although glaciers advancing sounds promising, the future “doesn’t look good” for New Zealand’s glaciers.
Yep, that link sums up your view well. You read 'glaciers are all growing and climate change is a fraud' when the article clearly states "New Zealand glaciers lost mass overall over this period".
Don't worry JAO. Audaxes posted a link a week or so ago that said more or less the same thing, but that Professor also discussed the price of dissent. The politically acceptable commentary is that we are in a man made climate change crisis. The counter commentary is that the raw scientific data doesn't necessarily support that consensus, and that it is possible the data is modified to make it align to the consensus. So the jury is really still out.
The counter commentary is that the raw scientific data doesn't necessarily support that consensus, and that it is possible the data is modified to make it align to the consensus. So the jury is really still out.
From that perspective, 'the jury' is still out on a lot of things.
True. But years ago, soon after the debate on climate change began to gain momentum, National Radio interviewed a scientist on the topic and he made one comment that got my attention. He was asked whether there was definitive proof that the climatic changes that were occurring were the result of human actions. He responded by saying that by the time we could prove conclusively that climate change was caused by human actions, it would be too late to save ourselves. Bottom line there is always a shred of doubt, but on the balance of probabilities the evidence is that we are causing an impact that is accelerating the current direction of climate change.
Which raw data doesn't support the consensus?
Look it up yourself. JAO puts one link up above that suggests that, Audaxes link from a week or so ago is another, and is better. But I am commenting on the commentary. I tend towards my answer to the Joneses above; that by the time we know conclusively, we have to have taken action or we are screwed if the news is bad.
I have been looking "it up" for two decades now and the noise from deniers has proved BS. I ask you to provide a reference for your assertion because without it, your opinion remains out of step with basic reality.
The solid data is boring - miniscule changes in average temperature of deep oceans. The exciting data is also the suspect data. Too often the proclaimed experts predict ice free Artic, demise of polar bears, hurricanes to hit southern states of USA more frequently etc and then it doesn't happen. Then the skeptics point out that forest fires and floods killed more in the past while ignoring our improved forecasting and technology.
If my car ignorant partner tells me the brakes seem to be erratic do I carefully go to a car mechnic or just drive my kid to school as usual?
"The red pill and blue pill represent a choice between the willingness to learn a potentially unsettling or life-changing truth by taking the red pill or remaining in the contented experience of ordinary reality with the blue pill." - Wikipedia, red pill and blue pill
I think you have the pill colours mixed up... Nobody feels content that the climate is on the move.
" the willingness to learn a potentially unsettling or life-changing truth by taking the red pill " and so the red pill world. Everyone is content with the contention that the climate is warming as per mass media. I am suggesting we examine some facts that counter this story...
I understand. I was just pointing out that the idea that the world is warming up is not something that makes people feel content. Content - "in a state of peaceful happiness." Content, is the idea that we don't have to worry about our effect on the planet. That the problem doesn't exist.
You would have to be in fantasy land to believe that temperatures aren't increasing. It's basically been reported everywhere. The question whether its caused by man is the contentious one, but the body of evidence is absolutely massive that it is us. While the weight of evidence that it isn't is dwindling by the day.
While agreeing I'd say the question is not did man cause it but can man reverse it?
Soil moisture mappers must look the other way when they go past our farm. Still definitely in the "water surplus" category. Been here for nearly a year now.
For us the rain was needed, we've had very little the last 2 months. Made for a great mud free calving and excellent feed utilisation but was getting a bit dry.
Central Otago is dry.
Hawkes Bay warming up and drying out. We were barely touched by the cyclone but a lot of croppers still have major issues to deal with. Poukawa/Otane beside SH2 is still heavily flooded, worse than I've seen in 15 years, or at least were as of a coupe of weeks ago. High hopes for this coming season for us.
South Canterbury drying also. No rain for weeks. Forecast dry for next couple of weeks. There's still a good store of moisture deeper in the profile, but the trend is pretty clear.
I think the soil moisture map is generated by a computer guess from rainfall data, with no input from actual soil moisture measurements or even walking out into a paddock.
It was showing green for us the other day even though every step you take in the paddock causes water to come up the side of your gumboot.
Did you mean wading into a paddock instead of walking?
Good odds of another Fed hike or two.
Problematic for NZ.
Watch that NZD go…
Your Full Stops should have gone ...
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Aus keeps their cash rate on hold at 4.1
Must be because their economy is in a hole 🤣 a deep mine hole
Visa has already moved millions of USDC between its partners over the Solana and Ethereum blockchain networks to settle fiat-denominated payments authorized over VisaNet.
But crypto is a scam and will fail - knashing of teeth!
It is a bit infantile to continue simplifying debate about economic forecasting which considers that things are deflating or stagnating as doomsters.
Trend growth has been falling in USA and EU for decades. This is not negativity it is fact
When people said "The US might get a soft landing" the doomsters said it wasn't possible, inflation was going to the moon, their fiat currency was going to collapse, they would have a depression, etc. Some of that could end up being true, but it looks like the soft landing is still the most likely outcome and the doomsters were wrong yet again.
Its hard to know what will happen in NZ however. I feel like our landing might be a bit more bumpy. Probably not doomster levels though.
They are much better insulated against inflation than little ole NZ.
The fact that mortgages are long term is a massive factor.
And they are much less impacted than NZ (or Aus) by a slump in residential construction.
Plus having the US dollar as the reserve currency means they were able to export inflation and make it everyone else's problem as well to an extent.
I mean it was pretty fringe people saying all that, usually the mad max bitcoin investor types.
Bidens infrastructure plan is likely to result in some serious growth, if projects actually get delivered (its hard to know if that will happen) and all the money doesn't get spent in planning/corporate welfare.
Trillion USD in interest payments...said the mad BTC investor...sounds sustainable?
David is hamstrung by the economics-take; there is no room in that narrative for a never-bigger collection of never-more-decayed infrastructure, decaying.
Perchance that never-bigger collection of never-more-decayed infrastructure needed something, what could that be?
Maintenance comes to mind - just a guess of course, what would I know? - and what would we file maintenance under?
Services?
No, really?
Just as GDP increased with Christchurch getting back to where it had already been. We are going to see more and more 'servicing' as bridges, roads, ferries and buildings decay. Adding negatives as positives is dubious accounting in physics terms; maybe it's different in economics.
That last sentence is a gem. :-) Yes economics is different. One mans + is another mans -- and physics is an abstract concept in the ethereal world of tea leaves.
Central Bankers Wandering in the Woods
In recent quarters, the Fed has shown admirable resolve in responding to inflationary pressures. On the interest rate front, the Federal funds rate is now close to systematic benchmarks that have historically been consistent with prevailing core inflation, nominal GDP growth, and unemployment. Though we estimate that core inflation may remain in the 3-4% range longer than investors seem to expect, an easing of inflation, nominal growth and labor tightness would make it reasonable to ease interest rates as well. Unfortunately, a couple of percent in above-target inflation is probably not the central problem the Fed will face in the next few years.
While the Fed has suspended the “zero interest” part of its experimental policies, it has been extraordinarily slow to reduce its balance sheet to a size that would allow it to manage interest rates without hundreds of billions of dollars of annual public expense. The Fed has done only half its job, and seems insistent on maintaining a ruinously bloated balance sheet. The real problem is that a decade of experimental distortion encouraged unprecedented speculation in every conventional asset class, not to mention fringe speculation in assets detached from any standard of value, including meme stocks, pictures of bored monkeys, and digital Pokémon posing as “currency.” As with every similar episode across history, the unwinding of this bubble in the form of financial crisis is already quietly baked in the cake.
In defending the deranged and experimental notion of an “ample reserves regime,” the Fed is defending continued misalignment between monetary aggregates and economic output. It is defending exactly the element of monetary policy that contributed to a decade of yield-seeking financial speculation, forced $8 trillion of uninsured deposits into the banking system, encouraged the passive acceptance of enormous government deficits, leaves in place the fuel for future episodes of inflation, and has already produced trillions of dollars of losses both in commercial banks and in the Fed itself – invisible because the assets are not marked to market. Even as the Fed battles the flames of a fire-breathing dragon, it insists on keeping that dragon as a house pet.
Apropos of September’s summit of central bankers at Jackson Hole, it may be useful to discuss what “data dependent” means, if the phrase is to mean anything at all. There are two key aspects of monetary policy that the Fed has to get right, if it wishes to serve the public and support the economy, without inadvertently setting up destructive consequences. One is to act as a lender of last resort for the banking system, subject to important constraints. The second is to align monetary quantities (mainly currency and bank reserves) with economic quantities (mainly economic output), ideally in a way that supports certain goals including employment, price stability, and moderate long-term interest rates.
In the discussion below, notice the unintentional risks, instabilities, and public costs that have been introduced by a decade of dogmatic quantitative easing and zero interest (until recently) policies. Some segments may be familiar – if I repeat certain points from time to time, it is to counter the nonstop deluge of data-free gibberish that passes for economic analysis. I’ve updated and extended some previous charts and commentary to describe how various systematic, activist, or reckless policy decisions can produce beneficial, weak, or economically damaging consequences. What follows may also build context around the current economic outlook and some of the most salient risks
Maybe nothing wrong with 3-4% inflation rates for a decade or so given we had a decade of near zero? Just reversion to mean?
I agree, nothing wrong with that if wages keep pace, it allows debt to be reduced more easily and therefore allows risks to be taken. I think ideally inflation should reflect productivity growth, in essence simply set it in line with GDP growth or maybe 1% under.
Spoken like a true economist.
Blind and blinkered.
Just out of interest, did you bother to read my most recent op/ed re that? I suspect not.
PDK never change :), I have been briefed some-time ago, the sky is falling, I will keep that in mind.
Judging by your need to mount a straw-man avoidance (sky falling=denigration=your own superiority=justification without needing to research) I suspect you won't keep it in mind.
Indeed, you will proactively do the very opposite, I'm guessing
:)
A decade of imported inflation being near zero, our domestic non-tradeable inflation has been quite high for ages
Unrelenting upwards pressure on our rates..
We are probably at the ceiling of rates at these debt levels, i appreciate the RBNZ are cack-handed but even a cursory spreadsheet would shout this out. Further demand destruction (higher rates) will trigger consequences that will leave generational damage and threaten the banking sector to level that looks like IMF relief (read ownership). So that leaves us with real inflation hitting us in the chops imported via the exchange rate. Get used to expensive gas and therefore groceries etc.
That's right. 95+% of our population need to keep experiencing reduced purchasing power so the 5% who took on more debt than they could sanely afford won't experience the consequences of their decisions.
Property is our biggest and most generous welfare scheme, all things considered.
Around 33.1% of NZ households have a mortgage. The average mortgage is $408,435 (may22), currently $617 per week at current rates. Just in case you wanted to know what the actual data is.
Look at the debt concentration. Mortgages per head are highly leptokurtic - the vast majority of mortgages are well below average (it will have changed since, but a year ago 2/3rds of mortgagees were paying less than 1/2 the average rent, for example).
The media is full of horror stories of people who are facing increasing hardship due to unaffordable mortgages - but it's fairly easy to see from the RBNZ data that that is not so many people in comparison to the number of households.
The average mortgagee moved into their house just over 7 years ago. Outside of Auckland, those mortgages are very low compared to those who bought at peak. If they extended beyond their house price back then, that's on them, not everyone else.
The craziness of our immigration residency - heard today that a qualified mechanic who also works as a snow groomer (worked here for last 8years and groomed at the Olympics) was denied a residency visa but 14 Brazilian models working in Queenstown were granted residency.
This is unsurprising unfortunately, https://www.stuff.co.nz/national/immigration/132853434/shambles-of-our-…
A scientific observation of this system can provide some insights. Has this mechanic considered plastic surgery?
They were told to ignore criminal convictions and investigations when granting visas and residency to individuals.
They were told not to open and check attachments on visa applications as this would delay processing times.
Far out, that's worse than even I thought it would be.
Once National and Act increase visa numbers and cut staffing levels back a bit, I am sure things will improve.
Brazilian 'models'. Sounds plausible. Got to give those high end visitors something to do after the slopes and gold courses are shut.
Looks like effective policy to me
Yep plenty of weird things. Had a staff member that took months and months to get approved. Been in the country for 3 years. Working as an engineer. Yet he had a mate come over and get his within weeks.... he works as a barber....
My sympathies, as a Manager it must have been frustrating for you to have to address your staff member who's had that experience. Hard to be proud of the country and promote it to others when this is the sort of clown-show that you have to deal with.
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