Here's our summary of key economic events overnight that affect New Zealand, with news hopes are building that an upcoming US-China summit may ease some global tensions.
But first, the latest consumer sentiment survey for the US, the one by the University of Michigan, reported a sharpish retreat of sentiment in November from October. But to be fair it is still 6.5% higher than a year ago. Almost all the fall is in the 'current conditions' component. The future expectations component rose marginally. Of more concern is that the inflation expectations component rose somewhat to 4.4% for the year ahead. Long term inflation expectations in this survey hit a 12 year high of 3.2%.
US CPI data will be released on Wednesday NZT and is expected to come in at 3.7% with their 'core' rate at 4.1%, unchanged for October from September. A more comprehensive and professional reading of inflation expectations will come from the New York Fed this coming week as well.
Still in the US we should note that they regularly adjust their tax rate bands for inflation, avoiding bracket-creep. This year they rise by 5.4%, following last years +7% rise in the bands. The IRS released the details yesterday
Staying in the US, Fed boss Powell said it is too early for them to definitively announce the conclusion of its interest-rate hikes. But he didn't make a case for further rate hikes either. Powell was quite cautious acknowledging the dangers overtightening, while also noting the danger of being “misled by a few good months of data.” The tone reinforced they are not ready to declare an end to their tightening campaign, even though financial markets and many economists have concluded the central bank is done raising rates. He noted the supply-side benefits that have helped slow American inflation so far may have run their course, and repeated that stronger growth could warrant further tightening.
Japan and Korea are partnering up on building out hydrogen infrastructure, a major effort to decarbonise their domestic freight systems. They also signaled that they will cooperate closer on the technology around quantum technology and semiconductors. These agreements are expected to be signed on the sidelines of teh San Francisco APEC meeting.
Also at that meeting, China has finally confirmed a worst-kept 'secret', that President Xi will meet with the US President.
China’s October vehicles sales rose at a faster pace of 13.8% year-on-year to 2.85 mln units, a record high for an October. But still, that level was fractionally lower than for September, despite the rising levels of discounting in the drive to meet every higher sales targets. Production is rising faster than sales now, so the crunch is on. Electric and hybrid sales were up +33.5% year-on-year to 956,000 units, now representing a third of total sales.
The world's biggest holiday shopping bonanza, Singles Day, or 11/11, peaks today. The commercial shopping event similar to back-to-school sales, Black Friday and Cyber Monday in the US features major discounts from China's retail giants like Alibaba and JD.com. But all indications are that sales are muted sales in this year's spending spree. Which is why Hong Kong and Shanghai stock markets ended the week on a downer.
India's industrial production was up +5.8% from a year ago in September, a sharp slowdown from the 14-month high of a +10.3% gain in August. This is also well below market expectations of +7% year-on-year gain. Most key sectors are in retreat, especially for factory production and electricity production. Overall, industrial production fell -3.5% in September from August, with factories down -2.0% and electricity production down -6.6%. They won't want this recent trend to embed.
The OECD said 48 countries have signed a data sharing agreement for crypto asset reporting as part of their global tax transparency data sharing moves. The US, Canada, Japan, and the EU are core signers, as is Australia, Korea and Singapore. Tax haven like the British Channel Island and the Caymans are signed up too. But New Zealand is not on the list. Nor is China, Russia, or North Korea obviously.
We should note that ratings agency Fitch has maintained Australia's AAA rating with a 'Stable' outlook.
And staying in Australia, the RBA released its Monetary Policy Review with updated data and forecasts and noting there “was likely to be less progress” in bringing down inflation in the quarters ahead than it had previously thought, and that had increased the risks of inflation remaining higher for longer. They now see inflation only down to 3.5% by the end of next year, and to just 3% by the end of the following year.
And more from Australia, flying between Sydney and Melbourne is now the highest revenue generating air route in the world, and that is despite a fall in the number of passengers traveling the route. According to updated data, for the first six months of 2023 it generated US$1.2 bln in revenue - even while suffering sharply rising rates of cancellations. It beat out the New York to London route, and the New York to Los Angeles routes, despite flying fewer planes. It is a river of gold for Qantas and Virgin, without them having to provide decent service. It is what happens when competition authorities let entrenched players run wild.
The UST 10yr yield is unchanged from yesterday, still at 4.62%. And that is up from 4.56% a week ago. And their key 2-10 yield curve is now inverted by -42 bps which is 3 mps more. Their 1-5 curve is now inverted by -73 bps which is 8 bps less. Their 3 mth-10yr curve inversion is now -77 bps and that is 5 bps less than yesterday. The Australian 10 year bond yield is now at 4.65% and up +8 bps from yesterday. The China 10 year bond rate is little-changed at 2.67%. The NZ Government 10 year bond rate is much higher at 5.22%, and up +11 bps. A week ago it was at 5.35% however.
Wall Street has opened higher with the S&P500 up +1.3% in Friday trade and heading for a +0.9% weekly rise. Overnight European markets closed -1.0% lower however, bookended by Paris which was down -0.8% and London which was down -1.3%. Yesterday Tokyo ended its Friday session down -0.2% with a late recovery to be up +0.4% for the week. Hong Kong ended down a sharp -1.8% for a crunchy -4.0% weekly retreat. Shanghai was down -0.5% on the day to be -0.3 lower for the week. The ASX200 ended its Friday session down -0.6%, and no change for the week. The NZX50 fell -0.5% yesterday, but did end the week with a modest +0.2% gain.
In New York, a ransomware attack on one of China's largest state-owned bank by Russian hackers has brought Chinese and American authorities together to fight the threat.
The Fear & Greed index we follow is still on the 'fear' side but only just, so the same as this time last week. Or the four weeks before.
The price of gold will start today at US$1936/oz and down -US$27/oz from this time yesterday. A week ago this price was US$1991/oz, so a -US$55 drop since, or down -2.8%.
Oil prices have recovered +US$1 overnight, to be just on US$77/bbl in the US. The international Brent price is now just on US$81/bbl. A week ago these prices were US$80 and US$84.50/bbl respectively.
The Kiwi dollar starts today at 58.9 USc and down -½c from this time yesterday. A week ago it was at 59.9 USc so a -1c drop since. Against the Aussie we are unchanged at 92.6 AUc. Against the euro we are almost -½c lower at 55.1 euro cents. That all means our TWI-5 starts today at just on at 68.9, and down -40 bps. A week ago it was at 69.3.
The bitcoin price starts today at US$37,215 and up another +2.0% from this time yesterday. A week ago it was at US$34,417 so a +8.1% ruse since then. Volatility over the past 24 hours has been modest however at just on +/- 1.8%.
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57 Comments
Big global CPI news this week was in Denmark. They have reduced inflation from 10% last October to 0.1% this October. All achieved without any notable increase in unemployment (now at 2.5%) and with mortgage rates only moderately increased to just over 4%.
How did they do it? The Govt got involved and stopped price rises in energy and food from spreading through other prices. They used temporary subsidies for energy and paid for houses to switch from old gas boilers to electric heating. They capped rent increases to a couple of per cent for two years. They monitored the hell out of grocery stores (and gave grants to rural shops). Their heavily unionised workforce agreed to phased wage rises.
In other words, they played it right.
https://www.economist.com/leaders/2023/08/31/to-fix-broken-mortgage-mar…
Note: free registration at Economist allows viewing 3 articles/week
You mean they kicked the can? We tried the energy subsidy, it’s why fuel inflation is so high now. There is only so long you can hold back rents before you find there aren’t enough rentals. And how would we end up with any supermarket competition while forcing them to make a loss?
We won’t know if Denmark’s market tinkering will have any side effects for a while yet, but I bet it will.
"The inside account of how Commonwealth Bank tried to bury the scandal that sparked a royal commission"
https://www.abc.net.au/news/2023-11-11/the-dirty-tricks-the-cba-used-to…
A lengthy & illuminating read.
Once again the sky didn't fall on our heads.
"On Thursday, the Department of Agriculture made it official: This year’s corn harvest was the biggest ever.
The supply boost isn’t just happening in America. The USDA raised its corn-production forecast for Ukraine and Russia, and global corn reserves are seen climbing to a three-year high.
The world will be awash with the grain for some time to come."
--Michael Hirtzer, Bloomberg News
Most of the crop is used domestically as the main energy ingredient in livestock feed and for fuel ethanol production. Corn is also processed into a multitude of food and industrial products including starch, sweeteners, corn oil, and beverage and industrial alcohols.
Don’t suppose President Xi will be touring much of downtown San Francisco. Beautiful city of grand American history. Not anymore though. Nothing to be proud of in that part at least. Twenty years ago, after a nasty encounter with a squad of panhandlers, swore I would never return. From reports it has got infinitely worse.
Powell was quite cautious acknowledging the dangers overtightening, while also noting the danger of being “misled by a few good months of data.”
The economy is great, why are people ''feeling'' so poor? Well - how is this for a feeling? Since April 2020: 1) Inflation up a cumulative 20% 2) But median wages up only 12% 3) Monthly mortgage installments to buy the median house: up from $1000 to $2300 (!) Link
Also at that meeting, China has finally confirmed a worst-kept 'secret', that President Xi will meet with the US President.
But the pundit said the US was not prepared for a full-blown confrontation with China, while it still had its failing proxy fight with Russia and the sudden escalation of the Israel-Palestine confluct on its plate.
"We see this with US-China relations itself, with Gavin Newsom's visit to China, with Janet Yellen's outreach," Noh pointed out. "So there is a kind of an attempt to put it back on the back burner, let it simmer. We don't want it to boil over just yet. We have our hands full with a full-scale genocide that we are greenlighting and supporting. And on the other hand, we have a total collapse of our proxy war in Ukraine."
"So they want the China issue to calm down a little bit," he continued. "it's buying time. These are tactical retrenchments. And unless there's massive change in policy and people, I think that we can assume that this train is still headed towards the same direction. It's just kind of stopping for refueling." Link
Very sad attitude from the USA, fact is they are never going to be prepared to take on China now anyway. The Ukraine war is sucking them dry and the final demise date of the USA being the world power just keeps on jumping closer. I'm pretty surprised that the Gaza war has not widened by now and dragged in other states in the region, perhaps the Palestinians miscalculated the level of support they have, pretty hard to come to any other conclusion over a month into the war.
Zwifter. Suggest look beyond the hyperbolic assertions spouted by this pundit and consider the depth of the US military inventory vs the comparatively modest % that's going to Ukraine. The US is very far from being 'sucked dry' in supporting these two conflicts. In any case an invasion of Taiwan 130KM across open sea would be a massively perilous endeavour for Xi who has built his position by low risk incrementalism, even against a depleted US. Hamas's 'miscalculation' may have been relying on an Iranian undertaking to throw its Lebanese Hezbollah forces against Northern Israel. How else to explain its suicidal strategy that barring outside intervention was always going to end with the likely destruction of its Gazan regime?
To date the USA has never wilted financially in terms of warfare. Bearing in mind the huge outlay to bolster the UK & allies against Germany etc in two world wars, and not only retire largely the associated debt but also then fund the Marshall plan. It would be interesting to get a fix on just how much the expenditure on armaments & munitions feeds back into the USA economy, in terms of taxation and levies of those employed and profits of companies involved not to mention export revenue for same.
FG.Yes, many people don't realise the enormous size of US inventories nor the inherent production capacity of the US military industrial machine, which you discuss. Russia is struggling to combat decades old US technology in Ukraine; it's now apparent that in a full on conventional war the RU militarily would be crushed by a US utilising its most up to date arsenal. Add to that its power projection capability and the Americans remain not just dominant but unlikely to be seriously militarily challenged for quite some time.
I hear that the USA cannot even keep up with the rate the 155mm artillery shells that are being used and like you said, it costs 10 times the price for the USA to make them.
Thats because their military focuses on precision munitions, not protracted artillery warfare.
Blackdog. Russian military doctrine developed in WW2 remains centred on saturation shelling. While skilled at mass conventional artillery they have limited precision strike capability as demonstrated by their regular random missile hits on UKR civilian, as opposed to military, targets. They have no equivalent to US Himars which is now a decades old and well superseded system.
This is the scenario that Reagan exploited against Gorbachev. The Russians were outplayed and overpowered militarily and they knew it. Yes they could inflict great damage but they couldn’t win. Unlike Gorbachev though Putin has been nuclear bellicose and the worry there is that he is of sufficient intemperate potential to choose to take everything down with him. Of course, then then are no winners. Still there remained the deterrence of the counterstrike. That is what Eisenhower formulated way back, when he took that role off Le May’s SAC and invested instead in the nuke subs. Well over ninety of them now, locations at sea, unknown.
FG. Yes. But the Russians figured this out well before Reagan. It was by the end of the Vietnam war that they first grasped that the US military industrial complex was always going to win the technological development and production race; that the inherent weaknesses in the soviet system meant she could not compete. After that a succession of old guard leaders existed in denial until super salesman Ronnie made his pitch.
The T34 was better adapted to especially harsh environmental conditions than the panzers but one on one in more 'normal' conditions it had critical shortcomings relative to the German machines. Battles such as Kursk saw kill ratios significantly in favour of the hun but the vast superiority in numbers enjoyed by the Russians was the decisive factor. The Katyusha was a brilliant Russian invention - but more as a psychological weapon than for its accuracy and destructive ability. A limitation was their relatively short range meant they needed to be well forward and thus exposed to counter battery fire. Interesting to see this same issue playing out in UKR just now.
Yep, and preferred for almost all other tasks by the Russians on the Eastern front. A staggering 200,000 of these fabulous trucks were provided to Russia by the US in WW2. They, along with Russias superior railway logistics, were two of the critical factors in securing victory. Not that Stalin acknowledged the yanks saved his bacon.
Not really. In aircraft design they knew the US was well ahead, particularly in heavy bombers ( the soviet theft and copying of US B29's at wars end is testimony to this). But for most of WW2 US tank technology was well behind and didn't advance materially until near the end. Meanwhile the eastern front was in materiel terms a contest of manufacturing capacity rather than superior design, the success of which numbers game disguised the reality that much Soviet design was inferior to that of the Germans. The Soviet missile and space programs played leapfrog with the US's until the mid 1960's. It's not until Vietnam that technology rather than weight of numbers becomes a decisive factor, with the contest between soviet SAM missiles and US counter capability an example.
Inflation adjusted, the US lend leased $180 billion of equipment to the Soviets in WW2.
Unlike the Germans or the Russians, US military hardware was under-developed at the start of the war, but fairly quickly they had parity (or better) and much greater production capability.
Plus, the States were having to allocate resources to a much larger and functional naval capacity.
Aye the author sure got to know Ukraine and more at dirt level. I’m on my second copy now. The first one wore out. It went from hand around two workplaces, extended family, many friends and even some at my gym, males and females alike which says something to its value.
What state is not dragged in? Maybe Jordan has not fired a missile or dropped a bomb yet? and the Saudis and Egypt are only protecting Israel or their air spaces with AA missiles.
Does it not count unless is WW3? We have US military bases in Syria and Iraq attacked, a US reaper drone shot down by Yemen and both Hezbollah and Ansar Allah are directly attacking Israel with Hezbollah forces inside Israel. As a bonus, we Iran flying military planes around delivering things and also Algeria and Turkey posturing to declare war (of course this is just talk). Everyone waiting for the US to make up their mind on how far they are in.
Our MSM have decided to not properly report on the war so we all think nothing is happening.
Tim. It's interesting that no other middle eastern state has yet undertaken to engage militarily in Gaza. The various events you cite are all small scale peripheral actions carried out by Iranian sponsored factions. Syria has been racked by civil war and is in no position to join the fight. Egypt is nothing like the military powerhouse it once was during the Nasser era and even if it wanted to join the fight knows it would be mauled if attacked Israel across the Sinai desert. Stand off defensive weapons technology has advanced hugely since it last attempted that in 1972. Both it and Jordan have experienced the disruptive effect of historic Palestinian militancy within their own countries and remain cautious about going much beyond moral support for Gaza; Egypt's reluctance to allow Palestinians through its southern blockade of Gaza is instructive. The Saudis are occupied with their struggle against Iranian backed rebels in neighbouring Yemen. Even the Iranian backed and sizeable Hezbollah force in Lebanon is sitting on its stockpile of 150K missiles, mostly waiting. And watching the deployment in Gaza of fearsome US military capability by the IDF.
First, if I was not clear Egypt and the Saudis intervened to protect Israel, from Ansar Allah (Houthis) missiles. They are on Israel's side militarily wise or the status quo is fine to their leadership. All I believe I am arguing is, almost every state that might involved in this militarily already is.
None of these parties can help defend Gaza as they can't get there (unless Egypt changes it's mind). The best they can do is force the IDF to redeploy forces to the North or attack the US bases in Syria. Again, everyone's waiting for the US to decide to decide what they want to do?
What do you mean Hezbollah are "mostly waiting"? Do you think they have the capability to be more aggressive than they currently are? They are active in northern Israel and have carried out many attacks.
And watching the deployment in Gaza of fearsome US military capability by the IDF.
This being, bombing the crap out of civilians...
The US maintains significant military resources within Saudi Arabia and if my memory serves me correctly it was a US missile ship in the Red Sea that shot down the Houthi (read Iranian) launched missiles. But yes, I think you are correct in believing Hamas has received all the support it's going to from nearby muslim countries. The US will not wish to be dragged into this any further. It's made a powerful statement by placing task forces in the Med. But significant I suspect is that its retaliation for attacks from Syrian based militants on its bases that caused US deaths and injuries, was relatively restrained - just 2 F16's dropping a relatively small number of munitions on Hezbollah bases in Syria. Hezbollah is just twitching the Israeli tail so far with minor skirmishing. They have probably 50,000 soldiers capable of fighting and enough missiles to give Israel a reasonable headache. But it'd be a suicide mission, initially over relatively open country where they would risk being decimated. Their masters in Tehran are watching Hamas being destroyed and won't want to risk losing both ME proxies at the same time.
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