Here's our summary of key economic events over Waitangi Day that affect New Zealand, with news the US economy is powering a global expansion, covering a weakening Chinese economy.
But first up, the overnight dairy auction was a good one. Prices rose another +4.2% and are now up +5.4% since the start of the year and up +3.3% above year-ago levels, the largest year-on-year rise since July 2022. In New Zealand dollars the rise is +5.4%. WMP was up +3.4% and SMP was up +4.6%. But the most encouraging signals are from the foodservice commodities like cheddar cheese, up +6.3%, and butter, up +10.3%. This is the ninth good rise in the past twelve auctions so analysts will be reaching for their calculators on this one to look at a possible raising of their farmgate milk payout price forecasts.
Elsewhere, the weekly monitoring of American retail sales at bricks & mortar stores revealed a strong rise last week, up more than +6% from a year ago and showing excellent above-inflation growth. It is an impressive signal that Q1-2024 is developing positively for them.
American household debt is also rising, and although it hit a new record high, the rise was a modest +US$212 bln in Q4-2023 from Q3-2023 to US$17.5 tln. Home loan balances accounted for half the rise (up +0.9%) boosted more by rising interest rates than activity. Credit card balances however rose +4.6% in a quarter (+US$50 bln) but car loans rose only +0.8% in the same period. Of some concern is that delinquency rates rose for all debt types - except for student loans.
The ISM services PMI jumped much more than expected, continuing the strong data we have had in 2024. It validates the strong labour market data we have had recently. The result was led by a healthy jump in both new orders and the level of order backlogs. American service industry companies are however cautious about lingering inflation and the associated cost pressures.
In Japan, Toyota has raised its profit forecasts as it hybrid business soars. That is notable because EV makers are going the other way with shrinking margins and profits.
In China, it is clear Beijing is rattled by their economic stutter. Markets are betting big that some major short-term stimulus is about to be announced. It is also backed up by announcements that home team financials will be big buyers in stock markets, a manipulation that will benefit traders - and give them a profitable lifeline to quit markets. It seems like a naive strategy by Beijing. But you never know, it might work. China is also expecting interest rate cuts soon.
China is also struggling with a major cold weather snap, right at the start of their major New Year travel season. It is widespread and a big weather event.
The level of "de-risking" from China is expected to be on display in export data due out very soon from China and import data from the US. Analysts are expecting the trade deficit to be its lowest between the two countries since 2003 (when George W Bush was president). It has retreated fast in the past three years.
We should perhaps note that Kurt Campbell, the American foreign policy expert handling their Asian affairs (and well known in Wellington), has been elevated to number two at the State Department under Anthony Blinken. But the US is dispensing with his "Asia Tsar" position, a point of disappointment among some regional governments.
In Taiwan, inflation is easing, coming it at only 1.8% in January, a sharpish fall from 2.7% in the previous month. They were expecting a sharp easing, but only to 2.2% so this shift is an outsized one.
EU retail sales volumes declined in December from November, and rather sharply too. That puts them down about the same year-on-year.
But they are getting an unexpected boost from a rise in German factory orders in December, boosted by orders for major capital equipment. It was an impressive turnaround from November and recorded a creditable +2.7% gain in real terms from a year ago.
Across the ditch, the Aussie central bank held it policy rate in its Tuesday review. This was as expected. Perhaps the only observation worth noting is that they didn't wholeheartedly signal that they are done raising rates, something markets were perhaps expecting. They are still looking for reassurance that recent trends are sustained. The Aussie dollar rose on that thought; true not by much, but it did rise. The RBA has kept the option open to raise rates if inflation's retreat doesn't pan out.
And staying in Australia, retail sales barely rose in their Q4-2023 period in real, inflation adjusted terms. But on a per-capita basis retail volumes fell for a sixth straight quarter, down -3.5% compared to the same period in 2022.
The UST 10yr yield starts today at 4.09% and up +5 bps from Monday. The key 2-10 yield curve inversion is less at -31 bps. Their 1-5 curve inversion is also less at -78 bps. And their 3 mth-10yr curve inversion is much less at -128 bps. The Australian 10 year bond yield is now at 4.11% and up +2 bps from Monday. The China 10 year bond rate is back up +5 bps at 2.47% and off its lows. The NZ Government 10 year bond rate is up +11 bps at 4.73% and back to about week-ago levels.
Wall Street is in its Tuesday trade and little-changed from yesterday and hovering near its record highs. Overnight European markets all closed strongly higher by about +0.8%. Yesterday Tokyo ended its Tuesday session down -0.5%. But Hong Kong roared back, up +4.0% on the stimulus signals. Shanghai rose +3.2%. Singapore was down -0.3% yesterday. And the ASX200 fell -0.6%. Of course, the NZX50 didn't trade.
The price of gold will start today down -US$3/oz from Monday at just on US$2037/oz.
However oil prices are +US$1 higher at just over US$73.50/bbl in the US while the international Brent price is now just over US$78.50/bbl. But they are still in this tight range that have been in for a while.
The Kiwi dollar starts today at just on 60.7 USc and holding its lower Monday level. Against the Aussie we are still at 93.2 AUc. Against the euro we open at 56.5 euro cents and a small gain. That all means our TWI-5 starts today at just on 70 and up +10 bps from Monday.
The bitcoin price starts today higher at US$43,183 and up +0.7% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.2%.
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58 Comments
Deflation now a concern...(and debt on interest)..
Inflation is now 1.54%
https://truflation.com/dashboard
The primary stat that will cause a rate cut is 'inflation within range'. (My view is that it is already and the Fed is only making issues bubbling along in the background worse. And not just in the US either.)
That's pretty much all that is required at this time because inflation has been falling for months. Nobody - including businesses - wants to pay more for borrowing than they have too.
(BT[!]W ... Is anyone else having difficult[!]ies posting comments? Something on[!] the web page is grabbing the focus from the text[!]box and one's typing is igno[!]red. Very frustrating.[!] I've added a [!] into this pa[!]ragraph for each tim[!]e it happened.)[!]
Wall Street is in its Tuesday trade and little-changed from yesterday and hovering near its record highs.
The key point is simple: the “prosperity” of U.S. corporations here is the mirror image of massive government deficits and weak household savings.While temporary pandemic subsidies drove a brief push to record profit margins in 2021, the larger structural difficulty for both government and households has been a progressive collapse in their income as a share of GDP, resulting from a combination of aggressive tax cuts and weak growth in wage and salary compensation. Corporations have been the primary beneficiaries of both. The problem for investors is that maintaining deficits of this size is likely to prove unsustainable without a debt crisis. Link
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"By relentlessly depriving investors of risk-free return, the Federal Reserve has spawned an all-asset speculative bubble that we estimate will provide investors little but return-free risk. From a valuation standpoint, there is no ‘tradeoff’ between return and risk. Rather, depressed valuations tend to be followed by both strong long-term returns and modest subsequent losses, while extreme valuations tend to be followed by both poor long-term returns and deep subsequent losses."
Kaching
The reasoning is right. But it seems like this mechanism can roll on for much, much longer than simple logic would suggest.
I do wonder how much salience Mike Green's arguments about passive funds have here. With mechanical, mandated inflows into the sharemarket from a majority of employed people, can the market *ever* reflect the fundamental value of a company? It seems like shares in an index now function more like a form of currency, or a bond, than a share of expected future profits.
The Millennial engine is more indebted than any other generation at similar ages in history. And they're necessary for maintaining what you describe. Student debt is a major handbrake, in the US and you can guess across the whole Anglosphere.
The boomers didn't think this through.
Americans — particularly Millennials and those with lower incomes — are becoming increasingly overextended financially: Credit card and auto loan delinquencies have not only surpassed pre-pandemic levels, they’re the highest they’ve been in more than a decade.
https://edition.cnn.com/2024/02/06/economy/more-americans-falling-behin…
Even a China stumble doesn't derail the global expansion
Here’s how the heavy artillery of money is firing in the Middle East -- capitalizing on Israel’s defeat may soon be more profitable in the money markets than investing in its success. https://johnhelmer.net/attrition-war-
The issue is you're looking only at money. There are bigger issues than the financial cost of these wars. What will be the long term costs if Russia wins in Europe, or the Islamic radicals win in the ME, or China in Asia? The clues abound, but while you may be betting short term to make big money, the longer terms suggest the costs to everyone will be far greater, and worse!
Oh so true KH. But I do think your original post makes an interesting point, although perhaps not intended. Politicians always tend to look at voter response, and short term costs (intrinsically connected). But their prevarication inevitably leads to far larger long term costs. While it is true that it is better to avoid a war than it is to have to fight one, wars are only ever avoided when those who are stirring the pot clearly understand that the opposition, potential or actual, has the capability and the political will to actually use the millitaries at their disposal.
JFK made this point with the Cuban missile crisis, but since then the western powers have essentially only be seen to quaking in their boots at the thought of a serious conflict with potentially near peer foes. Afghanistan and Iraq don't really count. In Iraq the first Gulf War proved they didn't really have the capability, and in Afghanistan the US thought they were going to teach an unpopular rag tag bunch of religious nuts a lesson in humility. Both of those misadventures turned out far more costly than expected, and I'd wager because of how and who they fought, neither of those wars are over yet, in the Middle East, or for the rest of the world.
Alibaba looking to sell its bricks and mortar supermarket brands / online grocery shopping business. This business has failed fast. Western retail experts and the media were gushing praise about these businesses as late as Q4 2023.
Bigger question is if online grocery cannot work in a country will a massive total addressable market, how on earth do people think it can work in markets like Nu Zillun. People must have rocks in their heads.
Chinese internet giant Alibaba Group (9988.HK), opens new tab is looking to sell a number of consumer sector assets, including grocery business Freshippo and retailer RT-Mart, three sources with knowledge of the situation said.
The sale plan comes as Alibaba, under chairman Joe Tsai and newly appointed chief executive Eddie Wu, has shifted focus back to its core profitable e-commerce business model while divesting non-core, loss-making units, said one of the people.
https://www.reuters.com/technology/alibaba-considers-sale-consumer-asse…
Going to hear a lot more of this sort of nonsense from Auckland’s cowboy developers:
https://www.nzherald.co.nz/nz/auckland-first-home-buyers-claim-builder-…
Moisture here is great. Actually the Kikuyu is rampant and a pita, being low energy and dominant around this farm. Last year's moisture was a nightmare even at a years distance and we didn't even get flooded.
Cheddar affects added value therefore fonterra dividend rather than milk solid payout, not sure on butter.
Remind us where you are from time to time redcows. I have worked it out in the past. But then forget.
Odd here in Central Otago. Very dry, and winds here dry it out hugely and quickly. On the other hand we have had the saving of a good rain once a week. But not enough to make mowing safe.
Was away for a couple of months over Christmas, and the house sitters did not work out it needed more than the automatic watering. Think I have lost some oak trees.
New York Community Bank, which acquired Signature Bank, crashed 25% overnight - now down 61% in 2024 and back to the price it was in 2000.
Approx 40% of NYCB's assets are not under FDIC insurance and the bank posted an unexpected $260 million loss in Q4 2023.
It's not clear the regional bank crisis has ended. In March, the Fed's emergency loan program for regional banks will end. And these banks hold 70% of the outstanding commercial real estate debt. USD1.2 trillion now wiped from valuation.
Update: New York Community Bancorp downgraded by to junk, to Ba2 from Baa3. Losses all concentrated in real estate.
Chickens...roost...
Once were a trading nation | croaking cassandra
"...no growth in foreign trade as a share of GDP over those decades" (27years)
https://www.productivity.govt.nz/ Formed in 2011...
That piece of truth has got to hurt a few generations of politicians and, give the current bunch some pause for thought.
I have argued the 'resilience' lesson that COVID taught us but many say it is just too expensive to build the capability and capacity. But this proves the current path is even more expensive.
Toyota has raised its profit forecasts as it hybrid business soars. That is notable because EV makers are going the other way with shrinking margins and profits.
Toyota have tended to favour hybrid technology over EVs, they just don't think the lithium based battery technology is sustainable at their scale.
only legacy manufactures are struggling, because they are trying to make electric vehicles using existing high labour systems, even toyota are now studying tesla manufacturing process as they know it is vastly more efficient.
BYD and tesla profits will continue to grow as they take market share and produce cheaper cars that can compete on buy price with ICE cars
China's BYD forecasts 2023 net profit to rise as much as 86.5% y/y | Reuters
Been some interesting negative commentary on PHEVs from owners since the new RUC regime was announced.
Some want to remove their plug. Degraded battery is the problem, which were super small to start with.
We still need a battery breakthrough of some sort, but it persistently does not happen.
"We still need a battery breakthrough of some sort, but it persistently does not happen."
Nope we need a transport paradigm breakthrough. SUVs, Utes, even sedan's are last century's technology. We're going to be heading back to bikes and ebikes, electric micromobility, public transport and walking. The days of 1 ton cars carrying mostly 1 person as primary means of transportation are over. Even Tesla is backwards looking in this sense, it's trying to continue the status quo.
The Values party tried that on nearly 50 years ago, we all know how that turned out.
1 ton cars ? aren't EV''s close to 2 tons ? The future was much smaller and lighter turbo ICE vehicles but we have gone in totally the opposite direction with bigger and bigger SUV's. Many 2 lane roads could become 3 lane roads. Like you said, huge vehicles to carry one person most of the time is a joke really but its not going to change anytime soon.
Agreed.
EVs are far, far cheaper to make. Current pricing includes past spend on new tooling and design. EVs will continue to fall in price. Battery tech will continue to improve. Hydrogen powered EVs will remain a pipedream until two major issues are resolved: 1. Where does the hydrogen come from. 2. How will the hydrogen get distributed.
So Luxon has his speeches pre-written for the next 9 years then, they are whatever he said at the last similar event.
The Prime Ministers main role after being in control of cabinet is being the spokesperson for the government both within and outside Parliament.
Maybe we should stop him using his phone at work so he can do his job properly?
Embarrassing.
lol so precious, but I get your point.
On a non-snowflake note, I think Luxon does need to swap out his PR team. Saying nothing worked when Labour were busy hanging themselves, but now they are in power they need to be smarter about what they say to whom.
Talking with MM is pointless and can only lead to the outcomes the leftist radicals want. He should be speaking with RNZ for the reds (not the attack dogs, someone like Corin only) ZB for the blues, and then the rest of the communications via their FB and Insta channels.
I do...smart move ....Here is Mikes take on Covid (that nearly killed his wife)
1 We need to stop overreacting to coronavirus
2. The government shouldn’t be too quick to intervene in the economy
3. The government should have been quicker to intervene in the economy
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