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US jobless claims up modestly; US PPI stays low; eyes on China new yuan loans; China grants NZers visa-free entry; Aussie payrolls rise; UST 10yr 4.24%; gold down and oil stable; NZ$1 = 61.7 USc; TWI-5 = 71.2

Economy / news
US jobless claims up modestly; US PPI stays low; eyes on China new yuan loans; China grants NZers visa-free entry; Aussie payrolls rise; UST 10yr 4.24%; gold down and oil stable; NZ$1 = 61.7 USc; TWI-5 = 71.2
14th Jun 24, 7:27am by David Chaston

Here's our summary of key economic events overnight with news some think the first signs of a labour market slowdown in the US are showing.

Initial American actual jobless claims "jumped" last week to +235,000, above the expected +225,000 and to the highest level since August 2023. This may be the early signs that their labour market is softening somewhat, although there are only just over 1.7 mln people on these benefits, little-changed from a year ago and much lower than the more than 2 mln in mid-January.

Meanwhile American producer prices dipped in May from April to be +2.2% higher than year ago levels. There is no inflationary pressure from this sector, and to be fair there hasn't been any since February 2023. Even a month-on-month dip has happened frequently since mid-2022.

There was another well supported UST 30yr bond auction earlier today with yields easing lower on the demand. The softer PPI and higher jobless claims may have influenced yields too. Today's median yield was 4.35%, and that compares with the prior equivalent event one month ago of 4.59%.

Later today we should get China's bank credit data, an important indicator of investment demand and economic activity.

And China is waiving entry visa requirements for New Zealand citizens, as part of the country’s drive to boost inbound tourism. That puts us on a par with Singapore, Malaysia, France and Thailand among others. Scheduled flights between the two nations are already more than before the pandemic and it turns out New Zealand is China's 15th largest source of tourists. Immigrants from China who settled here are making many trips back 'home' it seems.

EU industrial production sagged rather badly in April, down -3.0% from a year ago in the Euro Area, down -2.0% in the wider EU. A worsening from March was expected (-1.9%), but not by this much. Generally it is southern and eastern Europe doing much better than the northern group (but Denmark is an outier, doing the best of all).

Australian payrolls rose by almost +40,000 in May, more than the expected +30,000 rise. Full-time employment rose +41,700 and part-time jobs fell by -2,100. There are now 14.458 mln people in Australian jobs, 31.4% of them part-time and that is their highest level since mid-2021. (The highest ever was in October 2020.) Their actual jobless rate is now 3.9% and their participation rate 67.2%.

Although they still rose, international container freight rates were up 'only' +2% last week from the week before and seem to have topped out now. But that puts them +200% higher (three times higher) than at the same week in 2023. Fortunately bulk cargo rates are still holding at their long-term average levels.

The UST 10yr yield is now at 4.24% and down -6 bps from yesterday. The key 2-10 yield curve inversion is little-changed at -44 bps. Their 1-5 curve is still inverted by -83 bps. And their 3 mth-10yr curve inversion is still at -109 bps. The Australian 10 year bond yield is down -4 bps at 4.20%. The China 10 year bond rate is unchanged as usual at 2.32%. The NZ Government 10 year bond rate is now at 4.72% and down -7 bps from yesterday.

Wall Street in its Thursday session has the S&P500 up +0.2%. Overnight European markets were lower, some sharply, with London down -0.6%. Frankfurt down -2.0%, and Paris also down -2.0%. Yesterday Tokyo ended down -0.4%. Hong Kong was +1.0% higher but Shanghai closed down -0.3%. Singapore ended down -0.1%. The ASX was up +0.4%. And the NZX50 ended its day up +1.1% and the best of the equity markets we follow.

The price of gold will start today down -US$28 from yesterday at US$2301/oz.

Oil prices are unchanged at US$78/bbl in the US while the international Brent price is up +50 USc to just under US$82.50/bbl.

The Kiwi dollar starts today -20 bps softer at just under 61.7 USc. Against the Aussie we are +20 bps firmer at 93 AUc. Against the euro we are little-changed at 57.4 euro cents. That all means our TWI-5 starts today little-changed at just under 71.2.

The bitcoin price starts today at US$66,888 and down -3.3% from this time yesterday. Volatility over the past 24 hours has again been moderate at just on +/- 2.6%.

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63 Comments

by  Roheir  |  14th Jun 24, 8:12am 1718309538

Lots of indicators of global softening of data and trends towards weakness.

Locally, the struggle is real and the pain is everywhere. I talked with a tradie yesterday who does small jobs and said his work load came to a screaming halt this month. He has had to cut his work force in half. Bigger companies who typically focus on larger projects are moving into his space to keep busy so as his work dries up, his competition is heating up. This is consistent with many conversations from various industries where companies are forced to move out of their traditional running lanes in order to find enough work to survive. Many won’t survive, especially those without strong balance sheets. It’s too late now for those companies who weren’t prepared.

Our business just downsized  FTE by 10%.

NZ’s Q2 figures will be terrible. Q3 will be even worse. Assuming of course that our antiquated data is indicative of what’s actually happening. Questionable.

 

NZ is slipping backwards in so many different ways and at an alarming rate.

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by  HouseMouse  |  14th Jun 24, 8:12am 1718309540

I am bumping into people left, right and centre whose employers are restructuring/ cutting jobs. In both public and private sectors.

I think unemployment could easily pass 6%.

The one thing that might soften the blow is the saviour that is Australia. And also the fact that we have so many people on work visas here who will simply have to return to their home countries.

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by  mfd  |  14th Jun 24, 8:34am 1718310867

Health New Zealand have just announced a hiring freeze too, except for patient facing roles. Turns out all the promises to fill vacancies and aim for reasonable staff levels are actually unaffordable.

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by  Hamish  |  14th Jun 24, 10:15am 1718316957

Patient facing roles like this one?

https://www.rnz.co.nz/news/national/518756/kapiti-coast-s-last-psychiat…

Professor Marie Bismark is gutted to be leaving her patients, but is burned out from doing the work of three doctors.

It took two months of her three-month notice period for Te Whatu Ora to approve the vacancy being advertised, she noted.

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by  interesting1234  |  14th Jun 24, 10:39am 1718318376

Not uncommon. There's been plenty of stories of GP's headed back to the UK, USA etc as they have been pushed to exhaustion by not being able to fill vacancies when someone leaves, or just having too much demand by patients. I do however query the value of phone consults. Granted they are ok for some things, but the doctor can't see body language or physically examine someone to make the best judgement for the matter at hand. it leaves me to wonder the level of things being missed or passed on when they could have been picked up at an in-person consult.

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by  K.W.  |  14th Jun 24, 12:38pm 1718325485

Mine went back to Canada :-(

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by  Whatwillhappen  |  14th Jun 24, 1:03pm 1718327002

My excellent GP went back to Singapore because there were issues getting his family over here during Covid and he's had enough. Huge loss to our provincial practice.

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by  mfd  |  14th Jun 24, 10:56am 1718319392

Yes, my experience is that HNZ wallets are very tight at the moment and I wouldn't be surprised if this is affect patient facing rolls. There are also issues with the HNZ structure still being formed and uncertainty on how to actually get things approved and who is allowed to do so. 

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by  K.W.  |  14th Jun 24, 12:39pm 1718325588

Those who run HNZ (and every other Govt Dept) and who are in charge of determining cost savings and redundancies will never make themselves redundant.  They would rather find the savings from not hiring doctors and nurses then sack themselves or their colleagues.  A consultant really should have been brought in to do the firings - like Up In The Air.  Turkeys will never vote for Thanksgiving. 

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by  Rumpole  |  14th Jun 24, 1:45pm 1718329539

So bureacrats were largely responsible for budget blow outs and under deliverance so same bureacrats are being tasked with making the cuts in the best way - prediction a trifecta of blunders.

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by  RookieInvestor  |  14th Jun 24, 10:09am 1718316541

I work in manufacturing, for construction, our order books are they biggest the have even been.

Record months ahead.

public sector is unproductive, that's why there is job cuts.

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by  Advisor  |  14th Jun 24, 10:55am 1718319334

Our order book and opportunity pipeline as design/technical consultants to NZ's industrial sector is growing rapidly. The challenge we now face is staff retention as Aussie employers with greater pricing power are also trying to keep up with very high demand levels from their country's high capital spending.

That's my biggest peeve with the record migration levels we witnessed in the last ~2 years, it may have increased demand for high skilled workers across various sectors (medical, engineering, tech, etc.) rather than filling it. That's not a sign of success because an all-out bidding war for talent is not in anyone's long-term interest and only make complex projects unaffordable/unattractive for investors.

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by  Pa1nter  |  14th Jun 24, 11:35am 1718321754

On the flipside, anyone young should have a fairly clear path of what vocations they should be looking at.

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by  powerdownkiwi  |  14th Jun 24, 8:26am 1718310362

It's not just New Zealand; it's the global north.

I presume you mean 'backwards'  in terms of economic activity? Or physical? 

The peak of physical, was always expected about now.

https://onlinelibrary.wiley.com/doi/full/10.1111/jiec.13442   (figure 3)

Luxon and Starmer bleating 'growth, growth, growth' - it would be funny if it weren't so tragic. 

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by  General Comment  |  14th Jun 24, 9:24am 1718313876

I note our farm machinery supplier is facing material uncertainty. "Bugger."

 

(Edited to correct spin words used.)

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by  Whatwillhappen  |  14th Jun 24, 9:38am 1718314736

Is that they're uncertain about when their supplies will show up, or that the uncertainty about their viability is significant?

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by  General Comment  |  14th Jun 24, 10:01am 1718316119

Loss of a brand (New Holland) that constituted nearly 40% of their revenue. Profit has gone negative, debt is climbing. Talk of new contracts on the way to substantially replace the lost brand so hopefully they pull through, they're a great bunch of folks.

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by  RookieInvestor  |  14th Jun 24, 10:10am 1718316626

Yea business is really holding back on capital expenditure, make for tough times for machinery suppliers.

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by  Rumpole  |  14th Jun 24, 1:47pm 1718329678

Local tractor dealer Norwood is facing major issues,report is paywalled so have to gues but its likely loss of major delaership.

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by  HouseMouse  |  14th Jun 24, 8:08am 1718309338

I am not convinced China’s visa-free move has much to do with boosting inward tourism. I loved China but it didn’t seem to me that foreign tourism was embraced much at all. It’s quite a hard place to travel for a foreigner. I was lucky I had Chinese support. Unless foreign tourism numbers turn huge it’s not likely to be a very significant economic factor in China.

I suspect the visa-free approach is more to do with being part of a mini charm-offensive from the CCP.

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by  tim52  |  14th Jun 24, 8:42am 1718311326

Relative to other diplomatic options is a mini charm-offensive really that bad?

It's probably preferable to being bullied into doing things.

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by  False economies  |  14th Jun 24, 8:47am 1718311646

You don't think there is bullying going on behind the scenes?

Maybe watch that Stuff doco (although the modern preference for it all to be about the journalists is kind of grating)

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by  tim52  |  14th Jun 24, 9:08am 1718312937

Open question: why do you think stuff released a doco following up on old events on the same day as Li's visit? Was this necessary or does it have obvious political purpose? (Any other week would have been an option.)

You think Blinken came over here to do anything but lay down the hard word that we must join AUKUS. It's not like the US is playing this above board.

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by  powerdownkiwi  |  14th Jun 24, 9:24am 1718313895

The US and Israel are the outliers here - https://www.aljazeera.com/news/2023/10/26/how-the-us-has-used-its-veto-…

Not hard to se why, for both; Israel cannot survive without backing; the US cannot survive without ME oil (thence a local foothold/ advance pawn). 

The global tide is receding now; surplus energy and surplus resources dwindling; entropy increasing. The posturing will harden; eventually the first-world will have to fight or relinquish. We fooled ourselves we growth, we fooled ourselves about limits, we told ourselves a placatory story about democracy - that era is coming to an end. 

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by  Rumpole  |  14th Jun 24, 1:50pm 1718329827

China present itself as a velvet glove hiding a stainless steel fist and is as truthfull as Billy Liar.

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by  huttman  |  14th Jun 24, 8:56am 1718312200

here is a bit of background,  the 'one-way open up' was a advice put forward to Xi by an economist, the advice basically is saying China should open up even more, and not to wait to reach mutual agreement with other countries. Opening up Chinese borders to selected countries is just one of them. so it's not exactly about tourism per say.  pretty soon, we can expect China will open more industries to other countries, and less controls. 

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by  nktokyo  |  14th Jun 24, 8:58am 1718312330

Less control IF you toe all of the party lines

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by  huttman  |  14th Jun 24, 9:05am 1718312746

lol, I hear ya.

but all systems have controls, and all have boundaries. 

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by  HouseMouse  |  14th Jun 24, 9:01am 1718312488

Have you got a link to the advice that you speak of?

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by  huttman  |  14th Jun 24, 9:16am 1718313397

the idea was from Zhou Qiren

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by  HouseMouse  |  14th Jun 24, 9:19am 1718313576

‘Idea’ or official advice? Your comment suggested the latter.

link?

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by  Jonny.Foe  |  14th Jun 24, 9:50am 1718315415

My (macro-obsessed) take is that China are building up huge reserves of foreign currency (and gold). That is an inevitable consequence of being a huge net exporter (see also Norway). My view is that China do not want to hold loads of FX that could potentially be seized - they would rather own real assets in other countries that give them strategic advantage, resilience, and a supply of the things the Chinese economy will need for the next 100 years. This strategy relies on other Govts being willing to allow Chinese offshore ownership of domestic assets. Everything China 'give' to countries should be viewed through this lens.

I am not criticising China for this strategy of course - they are streets ahead of the West in their long-term thinking.

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by  powerdownkiwi  |  14th Jun 24, 10:20am 1718317225

Nothing the west didn't do to them... and others.

The joke is that there isn't 100 years left. 

You didn't look at the 'figure 3' upthread? I cannot see how that can be reconciles with your '100 years' ? Or vice versa...

(look at the NNR trajectory)

 

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by  False economies  |  14th Jun 24, 8:42am 1718311331

Immigrants from China who settled here are making many trips back 'home' it seems.

Not always willingly it seems...

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by  huttman  |  14th Jun 24, 9:00am 1718312405

I like visiting China, mostly because of food.  food here quality is good, variety is not. 

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by  kiwikidsnz  |  14th Jun 24, 9:00am 1718312425

The Govt aged care inquiry starts in July, it will be interesting to see what comes from reviewing their failing business model.

https://www.nzherald.co.nz/business/rescuing-ryman-chairman-reveals-his…

 

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by  Audaxes  |  14th Jun 24, 9:14am 1718313291
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by  powerdownkiwi  |  14th Jun 24, 10:21am 1718317293

Nah - must be a different old as time marches on

:)

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by  kiwikidsnz  |  14th Jun 24, 9:02am 1718312549
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by  kiwikidsnz  |  14th Jun 24, 1:39pm 1718329148

A way to go yet to beat Labours $50M on the Harbour bridge cycleway consultants 

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by  ChrisOfNoFame  |  14th Jun 24, 10:26am 1718317575

$100,000 per grad? That's not a lot to set up a brand new history course.

It cost  $1.7m to set up the course which doesn't seem that bad - there would be a huge amount of research & material to assemble together with peer reviews to ensure it is balanced. None of that work is wasted as it becomes a body of information for future reference.

Strip the $1.7m from the total and each grad cost ~ $43k - so not bad. About the same as many other courses.

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by  powerdownkiwi  |  14th Jun 24, 10:55am 1718319358

In the past, the taxpayer could foot that bill, without noticing. 

Then - incrementally - they couldn't - hence incremental increases in 'student debt'. 

That process reflects a reduction in physical underwrite; projecting of which is pretty easy. And the young are doing that. Yes, history is important. Yes, advanced grads could expect to teach, to repay their debt. 

But that gravy-train is losing carriages.... As are most...

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by  kiwikidsnz  |  14th Jun 24, 1:43pm 1718329417

Apparently it's not your money.

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by  Audaxes  |  14th Jun 24, 9:09am 1718312979
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by  Audaxes  |  14th Jun 24, 9:32am 1718314362

Do EU citizens understand their liability?

G7 leaders strike deal on $50bn loan to Ukraine

Leaders agree to front-load funding for Kyiv backed by expected profits from frozen Russian assets

Thursday’s deal came together after the EU and its G7 member states — Italy, France and Germany — balked at a US proposal that EU-generated earnings would underpin a US-issued loan. Brussels argued it could not give a cast-iron guarantee that its sanctions — which collect profits on the Russian assets worth about €3bn a year and are rolled over every six months — would remain in place indefinitely, and thus each country would need to assume a slice of the risk. The World Bank was expected to play a role in the disbursement of the US slice of the loan package, said two people familiar with the talks.

 

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by  Audaxes  |  14th Jun 24, 9:45am 1718315103

US-EU spat derails push for $50B Ukraine loan using Russian assets

“We might be stupid but we’re not that stupid,” says European official over plan for proposed loan.

Yeah right

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by  nktokyo  |  14th Jun 24, 9:32am 1718314379

Death knell for retail if it costs more to bring stuff in right as people are pulling back heavily on spending?

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by  phalanax  |  14th Jun 24, 10:20am 1718317235

12.4% of young 15-24 year olds not working or studying .... not a good statistic at all... (ODT today)

 

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by  ChrisOfNoFame  |  14th Jun 24, 10:12am 1718316751

"And China is waiving entry visa requirements for New Zealand citizens ..." At last !!!

"EU industrial production sagged rather badly in April, down -3.0% from a year ago in the Euro Area, down -2.0% in the wider EU" ... And that's what happens when central banks don't normalise interest rates earlier enough !!!

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by  Pa1nter  |  14th Jun 24, 10:39am 1718318384

Do you think they don't know their actions are going to cause some destruction?

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by  kiwichas  |  14th Jun 24, 10:23am 1718317414

From the Herald

"As one of the worst-performing stocks of the year and the fury of financial analysts for many more, Ryman Healthcare has been a financial disaster, its executive chairman Dean Hamilton admits.

The company was formerly using its borrowings to pay shareholders a dividend, and directors were internally assessing the value of its property portfolio."

 

I have never understood why many companies carry debt and pay dividends, rather than paying off debt, which always eats away at your bottom er, line

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by  ChrisOfNoFame  |  14th Jun 24, 10:38am 1718318295

"The company was formerly using its borrowings to pay shareholders a dividend ... "

So copying what the National Party, ACT and NZF does then? I.e. borrowing money to pay off rich people.

"I have never understood why many companies carry debt and pay dividends, rather than paying off debt, which always eats away at your bottom er, line"

Could that be because your knowledge of both accountancy and NZ's tax system needs work?

And there is a kind of 'contract' with shareholders when the company took the shareholder's money in the first instance on the basis that dividends would be regular (and we can't have shareholders that borrowed the money being forced to sell as the share price may go down with the C-level's bonuses with it).

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by  mfd  |  14th Jun 24, 10:48am 1718318934

It is strongly ingrained in corporate culture that carrying some debt is efficient, reduces your cost of capital, leverages the company. Usually great and can certainly make sense if you're making investments that will be paid off over time, but obviously higher debt makes you more exposed in downturns. Ryman in particular got themselves in a horrible mess with some US denominated debt that from memory cost them an extra few hundred million to tidy up. 

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by  kiwichas  |  14th Jun 24, 11:28am 1718321309

I can't see exactly how carrying debt and paying interest reduces your costs, I regard it as an expense to be avoided .Dividends should be paid out of profits;borrowing money to pay dividends is odd, although common and seems embedded but I don't think it makes it right.

Just because you can borrow does not make it right, except for the lender maybe.

If you are borrowing money to buy shares you had better be confident, and not expect  the company to borrow to underwrite your investment.

And excess debt and  fantasy property revaluations have certainly bitten Rymans.

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by  mfd  |  14th Jun 24, 11:30am 1718321404

I should say average cost of capital. I'm on the edge of my knowledge here so someone might be able to correct me, but imagine you have equity holders expecting a ~10% return and you have the ability to borrow at ~6%. Borrowing is cheaper than equity capital so taking on some debt reduces your average cost of capital. 

It's always felt a little like mental gymnastics to me and I certainly had the same instincts as you. 

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by  kiwichas  |  14th Jun 24, 1:06pm 1718327197

I'm a shareholder in a company with no debt., no profit last 2 years, Should the Directors borrow money to pay me a dividend??

And

Mercury energy, profits collapsing, P/E 199.4, owes 4.6 bill,big interest liability, paid dividends to the Govt et al for years, share price OK despite.

https://www.interest.co.nz/nzx50/MCY

Need a bit of doublethink  methinks

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by  mfd  |  14th Jun 24, 1:15pm 1718327755

P/Es are a little deceptive for some of the Powercos as the depreciation on assets like hydro dams doesn't seem to match the future investment needs - maybe a bit of a tax dodge? Keep updating the asset values, increase depreciation as a result, reduce profits but the cashflows keep coming. Mercury have also been on a heavy investment spree with acquisitions and new windfarms. I have shares in them as I expect them to do well with hydro assets in the right place and their debt doesn't keep me up at night - their revenues are pretty stable and predictable. 

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by  murray86  |  14th Jun 24, 1:33pm 1718328788

From too long ago business papers we were taught that debt is good as it brings in external oversight (banks) of business practices. I have since learnt that banks are not the ones to have oversight as debt is in their favour, (and their own practices are questionable) and if a business owner wants oversight then they can set up a board for themselves with having to be told to. I think there is a lot of BS being or been taught at uni's

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by  dumbthoughts  |  14th Jun 24, 10:52am 1718319161

Have had a couple of interesting calls with clients this week, both of whom have been in business for many years. They both said the drop off in 'mainstream' activity they are seeing is far worse than what they experienced during the GFC. One in particular has a number of sole trader tradesperson/man-with-van type customers (this is the majority of their customer base by volume although larger orgs actually generate more revenue). My contact says he has never seen anything like the number of tradies just replying saying "can't pay the bill, going into liquidation, see ya bro" or words to that effect.

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by  powerdownkiwi  |  14th Jun 24, 10:58am 1718319537

Whenever I visit the Wanaka basin, I wonder what happens when they stop building each other's houses. 

Which is no different to taking in each other's washing - funny how the one is understood and the other is not...

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by  justaminute  |  14th Jun 24, 11:21am 1718320907

Selected price index out for May. Most metric down or flat mom (food -0.2, alcohol/tobacco (drive of March CPI) 0.1, rent stock 0.3, petrol -2.6, international airfare -8.2)

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