Here's our summary of key economic events overnight that affect New Zealand, with news the threat of the Chinese economic slowdown hangs over the global economy and now they are staring at imminent deflation.
But first we should note, there was a right-shift in the political mood evident in weekend voting in both Australia and New Zealand. There is also a key election going on in Poland that is worthy of our attention. Locally, early celebrations by the winning parties may be followed by nervousness, as the late and overseas votes get counted. It may herald complex coalition negotiations.
Coming up this week, the big economic issue will be the release of our inflation rate for Q3-2023 on Tuesday. Markets currently expect the headline CPI rate to be 5.9%, down only marginally from 6.0% in Q2-2023. But if it does come in at that level, that will represent no material progress from the RBNZ's perspective.
In the United States, a key focus will be on the onset of the earnings season featuring major players like Tesla, Bank of America, Johnson & Johnson, Procter & Gamble, and Netflix. Also, investors will be paying attention to Fed speeches, and data including retail sales, building permits, housing starts, existing home sales, and industrial production.
Across the Pacific, China will grab attention this week with its Q3 GDP growth rate, retail sales, industrial production, fixed asset investment, unemployment rate, and house price index.
Over the weekend, Chinese consumer prices were unexpectedly unchanged in September from a year ago, missing market forecasts of a +0.2% gain. Meanwhile their PPI fell -2.5% in September from a year ago.
Exports from China declined by -6.2% from a year ago to US$300 bln in September, which was an improvement from the -8.8% drop in August and compares with the market's expected -7.6% decrease. This marked the fifth consecutive month of declining exports but was the least severe in the series. However, the result was underpinned by a very sharp +21% rise to Russia. Exports to normal countries were all very weak; to the US down -9.3%, the EU down -11.6%, to Japan down -6.4% and to Australia down more than -17%. This is a sign of the international trading blocs sharply cleaving.
And staying in China, the IMF is warning there are heightened spillover risks from the country's property woes. The failures are famous; but there are actually less of them, especially domestic bonds in stress.
In Singapore, their central bank announced it would shift from half-yearly monetary policy reviews to quarterly.
Indian exports were marginally lower in September and slipped -2.5% from a year ago. India however is not a powerhouse exporting force yet, exporting only an eighth of the goods that China does. And there is little indication Indian exports are firing up.
In Asia generally, more key central banks are worried about the US 'higher-for-longer' rate threat from the US, one that could sharply weaken their currencies because their local interest rates are lower than the US. They are addressing that with aggressive bond selling moves to soak up cash to defend their currencies. India, China and Indonesia have already ramped up these activities. Watch out for similar moves by Korea, Malaysia, the Philippines, and possibly Thailand in the next few months. But a bond rush like this does come with other risks for them.
In the US, consumer sentiment as monitored by the widely-watched University of Michigan survey fell rather sharply in October. It fell to an index level of 63 this month from 68.1 in September, the lowest in five months, and missing market estimates of 67.2. But to be fair it is still well ahead of year-ago levels and it has been in this general range since late 2021. However, it's lower-than-expected reading has moved financial markets in the US.
The UST 10yr yield starts today little-changed from Saturday at 4.62% which is -16 bps lower than a week ago. Their key 2-10 yield curve is still by -44 bps. Their 1-5 curve is also still at -76 bps. Their 3 mth-10yr curve inversion is holding at -82 bps. The Australian 10 year bond yield is now at 4.44% and unchanged from Saturday. And the China 10 year bond rate remains at 2.72%. The NZ Government 10 year bond rate is also holding at 5.51%. A week ago it was at 5.61%.
The price of gold will start today at US$1933/oz and up another +US$5/oz from this time Saturday. That has cumulated to a heady +5.7% rise for the week.
Oil prices have risen a further +50 USc/bbl from Saturday to be now at just on US$86.50/bbl in the US. The international Brent price is now just on US$90/bbl. A week ago these prices were US$82 and US$84 respectively.
The Kiwi dollar starts the week weak at 58.8 USc and down marginally after Saturday's drop, as commodity currencies stay out of favour. Recall a week ago this rate was 60 USc so more than a -1c fall for the week. Against the Aussie we are slightly softer at 93.5 AUc. Against the euro we are down to 56 euro cents. That all means our TWI-5 starts today at under 69.2 which is down -10 bps from Saturday and down -70 bps for the week.
The bitcoin price starts today at US$26,925 which is up +0.8% from this time Saturday. Volatility over the past 24 hours has again been virtually non-existent at +/-0.2%.
The easiest place to stay up with event risk is by following our Economic Calendar here ».
32 Comments
Shovelling the last of the coal
on a runaway train.
Going to be an interesting three years.
I sense a lot of can kicking, hopium, denial, distraction and general incompetence. But that is just extending what we had anyway, so not much change.
Given that TS was going to increasingly HTF globally from here on; the only question was who would be best to have in control during the period.
Pragmatically speaking, there are a handful, and they are cross-Party.
Overpopulation and Wars are coming before there is an energy crisis. Two carriers now alongside Israel, Things are poised to to turn to shit in the middle east right now.
US siding with Israel as always. Even when it looks like Israel is keen to kill 2m people in a flagrant violation of the Geneva convention. Hopefully they will grow a conscience and start supplying Gaza with the necessities.
Where were the carrier groups when Israel was violating all the UN Resolutions and forcibly removing Palestinians from their land? Oh, that's right, the US abstained, so let Israel do whatever they want. "I will look the other way when you do something bad and supply you lots of weapons no matter what you do". The folly of US foreign policy on great display once again.
Energy Destinies. Satyajit Das (Australian Economist). This is the first article in a series of eight. They are an overview from EROI to the politics. A long but worthwhile read. Comment is made on such questions as can solar panels generate self replicate.
https://www.newindianexpress.com/web-only/2023/jun/14/energy-destinies-…
Have we trapped in a silent depression since 2008? The evidence is staggering, I cannot stress checking out this video enough! it was one of my all time best. https://youtu.be/Jh-PUM_BGeQ Link
After years of zero interest rates such an abrupt tightening is bound to break something. The main questions are: what, when and where does something break? One of the most important yet underestimated macro variables can help us find the answer. Thread.
I fully agree! Not only Jeff Snider suggest this but I have seen video's from others like Ray Dalio suggesting we are already in a depression by arguing the GDP growth since 2007 is well below the multi decades average GDP growth before 2007.
GDP growth was the narrative for the serfs, whilst the masters built their financial empires since 1984?
Peak GDP growth, law of diminishing returns and the workers are tapped out, both financially and in productivity measures?
Maybe a massive wave of deflation is necessary to rebalance everything, but given the existing power imbalances, are we too late?
I'm reminded of this alleged Thomas Jefferson quote;
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."
I find it boggling that Port Waikato means National will get their fair share of the votes + 1 more seat. Why doesn't the List seat simply convert to a Electorate seat?
If i were an election strategist for any of the main parties, i would be down the hospice signing up people as independent candidates in my parties safe seats for a small sum of cash that they can leave to their loved ones.
Come election day most of them would have passed away, by-elections will be held a month later, and bingo! 15 extra seat for my party.
The hidden complexities of MMP...
Cash for votes. Shows who you are.
sorry i mean signing up to stand as candidates, not to vote. Corrected.
As for who I am, a whitehat who wants to protect our democracy by pointing where it is open to exploit.
Why bother with productivity enhancing automation when you can get more warm bodies to tenant your rentals?
Pugh said she also wanted to champion labour issues and that she was unhappy about some of the changes to the RSE scheme.
In particular, she said the recent increases to minimum pay had encouraged some employers to consider alternatives.
"It's now more profitable in the long term for them to automate a lot of the processes than it is to get real people to do that work.
"So you've got to be really careful when you make those changes to a system that has evolved over time and when you make a sudden change, you clearly haven't thought through the consequences of that."
Seems Luxon counted his chickens too early on election night and Winnie will be required after all.
I felt pretty confident they were gonna need Winnie after the specials, but then I found out Port Waikato is going to give them an extra seat, on top of their share from the party vote. So National/Act would need to loose two seats in the specials to need NZF. They did loose 2 seats in 2020, but i think loosing 1 is more common.
What staggers me is how few people understand how MMP actually works. The basic knowledge of what happens under certain circumstances is incredibly poor. For some reason we let these people vote and they don't even understand how it works.
Luke Malpass, stuffs Political editor, wrapping up their election night coverage said that it was National and Act to govern, and very unlikely to need NZF.
I was like 'very unlikely'??? WTF how many elections has this man covered, National just about always loose a seat in the specials.
Given most people don't understand politics or economics other than what is fed to them via mainstream and social media, why let any of them vote?
There is currently an overhang which means that national really only need to lose one seat before they can't form a government without Winny. Even if they don't lose a seat having a one seat majority is playing with fire given the history of badly performing MPs
At present with the overhang due do Maori Party electorate seats they have 61 of 121
But on Nov 25 they will win Port Waikato and we will get another MP, so they will have 62 of 122.
So you're right, they just need to loose one seat in the specials, and that does usually happen to National.
(Reuters) -U.S. crude oil production climbed to a record 13.2 million barrels per day last week, government data showed on Thursday, topping the previous peak set in 2020 before the coronavirus pandemic decimated global oil demand.
...While output is growing to record highs, the number of rigs in operation at U.S. fields has declined this year. In the week to Oct. 6, the rig count fell to 497, the lowest since February. 2022.
U.S. producers, however, are squeezing more oil out of shale fields with longer horizontal drills and more simultaneous fracking.
“Private industry is doing a very good job of extracting more oil out of the ground at the same time that the rig count has been declining,” said Andrew Lipow, president of Lipow Oil Associates.
Stop it, PDK will have a stroke when you put facts out like this. According to he/him/they/it? we've run out of easy oil and only the super hard stuff to extract is left. No way anyone can raise output according to PDK. Meanwhile, my cousin works for Aramco and the list of tech innovations they have sidelined/waiting to extract more is extensive. Oil is here for a long time to come.
https://www.thetimes.co.uk/article/5bd12548-cf8d-11ed-9a00-73fd2b90e22e…
Hey, opportunity here to get those Russians to buy up our land. Thanks National.
And regardless of politics, markets do their own thing.
NZX50 down 0.5 early in the day.
I wonder how much of that is just Fletcher shitting the bed?
re ... "Coming up this week, the big economic issue will be the release of our inflation rate for Q3-2023 on Tuesday. Markets currently expect the headline CPI rate to be 5.9%, down only marginally from 6.0% in Q2-2023. But if it does come in at that level, that will represent no material progress from the RBNZ's perspective."
If there is no change after a number of government subsidies have been removed then that means falls in many other prices. Ergo, were I on the MPC I'd consider that to represent a very real sign of progress. I.e. that the trend down is firmly in place and the next result will be much better.
Markets currently expect
Which market would that be though or is it just economists in specific markets attempting to juice, influence narratives? They also believed inflation was transitory.
An interesting read I hadn't seen before;
https://www.reuters.com/markets/mouse-that-roared-new-zealand-worlds-2-…
Would suggest they didn't have a clue back then either. Have we been led down the wrong path and now unwilling to admit we're seriously lost?
Can someone explain to me like I'm 5 why Chinese 10 year bonds have a lower yield than US 10 year Treasury bonds? Is there more demand for Chinese bonds or just greater supply of US bonds given the level of deficit the US Gvt runs?
I don’t know the answer to the question, but I want to add that it’s not only China-specific. E.g. I’m holding Singapore bonds. Over the past year, the yield has been between 2.8 to 3.2% for a 10-year bond and 3.4-3.8% for 6 months.
Both are usually 2-3x oversubscribed and are historically very high yields, however are pretty low vs US bonds.
It has probably more to do with the respective rates of inflation in the different countries. China is basically a disinflationary environment. When I google China's inflation rate, last month it was 0.00 percent. If there is a positive Chinese bond rate then you are actually making a real return on your money. If the US rate of return isn't higher than US inflation then a US investor will be losing money in real terms.
You can get 40 per cent on an Argentinian 1 year bond, but when the annual inflation rate in August was 124.4 per cent that's probably not a great deal.
Local banking authorities who issue bonds have to keep the returns in the national currency moving in tandem with the rate of return traders in that currency will accept so that they lose less of their capital than they would transferring it to another currency or failing the ability to do that transferring their wealth into another asset/store of value.
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