Here's our summary of key economic events overnight that affect New Zealand with news that while the world's politics are getting messier and more partisan, the world's big economies are basically doing ok.
First up today, the US Fed released the minutes of its June 13 (NZT) meeting and those show it is in no hurry to cut its policy rate. But they do seem to be on alert for signs of labour-market deterioration.
US mortgage applications fell -2.5% last week from the week before to be -12% lower than last year's weak level. The benchmark 30yr fixed mortgage rate blipped up over 7% again which won't have helped. So, no signs the hibernating American housing market is waking up yet.
Reports of job layoffs among major companies remained very low in June, and noted strong hiring in the month.
But the pre-cursor ADP Employment Report for June said American the private sector added 'only' +150,000 new jobs in the month, less than +160,000 expected. Analysts now expect the June non-farm payrolls to have expanded by +190,000 and we get that data on Saturday (NZT).
There was a minor uptick in the weekly initial jobless claims last week taking them to 238,000 and lifting the number of people on these benefits to 1.8 mln but still well below where they started the year.
US exports of goods and services dipped slightly in May from April but remain +4.3% higher than for the same month a year ago. The overall trade deficit was about US$9 bln more on that basis, insignificant for an economy as large as theirs.
In something of a surprise, the widely-watched local ISM services PMI reported a contraction in June when a similar expansion to May was expected. This was suddenly its worst result since 2020. This garnered headlines. But the internationally benchmarked S&P Global/Markit version did report a rising expansion and at the fastest pace in a year. Again, take your pick depending on your inbuilt bias.
Their May report for new factory orders revealed a small retreat from the prior month after a similar rise in April. Year-on-year they remain almost +1% higher however.
In India, their service sector is on a real spurt higher. Sharp rises in sales and business activity were the main feature in June. International orders increased at a record pace, and they had their fastest upturn in employment for 22 months.
But that is in sharp contrast to China. Although its June factory PMI was stronger than the official NBS version, the Caixin services PMI was weaker, and by quite a bit. But at least it is still expanding, although the rate is at its slowest pace since October 2023.
And it wasn't too different in Japan. Their service sector stalled in June, according to the latest PMI data. The volume of new business was broadly unchanged from May.
In Europe, perhaps we should note that Greece is introducing a six day/48 hour working week for some industries. But it only applies to businesses which operate on a 24-hour basis and is optional for workers.
Meanwhile, Australian retail sales in May rose far less than inflation, a situation they have had for a long time now - since the beginning of 2023. What improvements there are coming from 'chasing bargains'.
There was a small rise in May for dwelling building permits in Australia, and a helicopter view of these trends suggests they may have passed their tough.
There were two PMIs out for Australia yesterday. The internationally-benchmarked Markit version shows their service sector growth was sustained in June. New business and activity both continued to rise, albeit at slower rates. But the AiG version for their factory sector isn't flash at all, even if it 'improved' from May.
The UST 10yr yield is now at 4.36% and down -7 bps. The key 2-10 yield curve inversion is a bit deeper at -35 bps. Their 1-5 curve is also deeper, now at -74 bps. And their 3 mth-10yr curve inversion is slightly more inverted at -100 bps. The Australian 10 year bond yield starts today at 4.46% and up +1 bp. The China 10 year bond rate is now at 2.25% and unchanged. The NZ Government 10 year bond rate is now at 4.77% and up +4 bps.
Wall Street is positive with the S&P500 up +0.5% in its Wednesday session. Overnight European markets were up +1.2% except London where the gain was half that. Yesterday Tokyo ended its Wednesday session up another strong +1.3%. Hong Kong was up +1.2%. Shanghai ended down -0.5%. Singapore was up +1.4%. The ASX200 however ended up +0.3% in its Wednesday trade, but the NZX50 only rose +0.1%.
The price of gold will start today up +US$32 from yesterday at US$2356/oz, up +1.4% in a day.
Oil prices are little-changed from this time yesterday at just under US$83/bbl in the US while the international Brent price is still at US$86.50/bbl. And perhaps we should note that ahead of the American summer 'driving season' petrol prices there are marginally less than a year ago at this time.
The Kiwi dollar starts today +¼c firmer from yesterday and back up at 61 USc. Against the Aussie we are -20 bps softer at 91 AUc. Against the euro we are also holding at 56.6 euro cents. That all means our TWI-5 starts today at 70.4 with a +10 bps gain.
The bitcoin price starts today at US$60,198 and down -2.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.2%.
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59 Comments
Are we leading the world in tanking our economy? Is anyone 'letting their mojo go' as quickly as we are?
This is what many voted for....back on track..?
Dream on Baywatch. Or face realities.
https://www.odt.co.nz/opinion/unrealistic-surmises-and-real-world
Do tell KH ..I can't get passed the pay wall, so will carry on thinking about Barcelona and cities with great public transport.
Paywall. Sorry.
Where we are is a result of 6 years of labours economic vandalism. It will take a decade to get back on track, or even back to 2018.
At least we have a good skipper back at the wheel house - steerage has been playing up lately however? Getting some overpriced engineers to check - probably nothing we hope.
We tanked our economy when we decided to head down the path of unmitigated debt speculation. My interpretation is we are now returning to reality as opposed to tanking the economy. Reality can be painful if you haven’t been living truthfully.
Agree IO. It's the same with house prices. It's not the fall in price that is destroying some people. The real fault lies in the insane house price rises of previous years.
Our economy is tanking not because of monetary policy, but because
-We have state facilitated cartels & oligopoly's which impoverish the nation and create a virtual subsistence economy, forcing our young talent abroad.
-A lack of capital gains tax on property has created one of the largest wealth distribution inequalities in the world
-We have some of the highest petrol prices in the Western world, up to 50% higher than Australia
-We are a primary produce export economy increasingly imposing restrictions that make it less profitable and given away any IP we had.
-We have failed to invest in the infrastructure required for population growth, prioritising benefits and state super, leading to productivity falling.
'We have failed to invest in the infrastructure required for population growth, prioritising benefits and state super, leading to productivity falling.'
Anthropological arrogance, and failure to grasp what productivity really is.
There are no 'rights' for an unfettered population, including 'rights' to housing. This is a finite planet, and set of islands.
Productivity is the efficiency with which we turn energy into work. Period. The Second Law of Thermodynamics applies/prevails. The rest is churn - a zero-sum game with betting-slips, until the moment of truth when they come to be cashed-in - for the results of work-done. Which means: for the results of energy having been expended.
I should have taken up dentistry - lotta practice pulling teeth.
You need a week in Vegas PDK.
Overcoming insecurity is cheaper.
Hint
‘US economy is yet to experience the full impact of rate hikes
High rates point to economic weakness until June 2025
Something is bound to break’
https://x.com/gameoftrades_/status/1808526260827816165?s=46&t=MUwQeKa7M…
"This Cannot Go On Forever": Explaining The U.S. Debt Crisis In Simple Terms
And then he lays out the case bare: "We can walk through the numbers, but the bottom line is that the US government and the Treasury have entered a debt spiral. We now have $34.7 trillion of debt, which is over 120% of GDP. If you're a country with debt over 120% of GDP, your fiat currency fails. This is where we're at, and we're just spending and spending and spending.”
“What happens if you get into a recession? Your tax revenues drop precipitously, and your spending rises at a similar rate because of all your social programs like unemployment and wage security. You could wind up having a deficit that's not $2 trillion but could be $3, $4, $5, or even $6 trillion if it gets bad enough. Just imagine that. Suddenly, we are adding over 10% to our debt in a year, maybe 20% in a year. That is the debt spiral.”
He continues: “We can't do that because the rest of the world will turn around and look at our bonds and say, 'Why would I buy those bonds if they have to keep issuing new bonds to pay me for my bond?' We are in a situation where we have to continually issue more and more debt. This is rising exponentially, and there really is no way out. That's the problem.”
“Modern monetary theory proponents think it's just driving the economy; there's no big deal. However, when the music stops and people stop having confidence in the U.S. Treasury, that feeds into the US dollar. That's when you get into a problem. Why does that happen? It happens because of inflation. It all goes back to this central problem: this constant and relentless manipulation of the monetary system through central banks that create inflation.”
“That is a soft default on that debt every single day because the dollars you're getting paid back in the future are worth less than when you lent them out to the government initially. So, who wants to lend the U.S. Treasury dollars for 30 years when they know that inflation only has to go up to continue the charade?"
"They get into what's called a debt spiral. They can't get out of it. And this is where we are. So what is the option for the U.S. government if they continue to borrow? What does that mean? Well, that means that they must have inflation. There absolutely is no way around it. That inflation allows GDP to grow nominally. Remember that $28.5 trillion number? That has to go up. Nominally meaning just in terms of dollars, not inflation-adjusted.”
“When you have more dollars in the system, it creates more GDP because there's more dollars. And so that GDP number goes up. The productivity number goes up. But it's fake. It's not more stuff. It's just stuff that's more expensive. So there are more dollars in the system. And when you go to pay down that debt in the future, you're paying it down with dollars that are cheaper, that are worth less. This is called the debasement of the U.S. dollar. The U.S. dollar gets worth less and less and less every single year.”
He concludes: “And so this is the challenge. The U.S. government absolutely must have negative real rates. What do I mean by that? That means they must have coupons on their treasuries that are lower than the inflation rate, and they have to have this in perpetuity. That's the only way they can keep this charade going. It won't go on forever. Make no mistake, this cannot go on forever."
Yes was trying to convey elements of this the other day during the daily wrap up - especially in terms of the risk to the US as a reserve currency and the potential of it not remaining so over the coming decades.
My view is that unless the US have a massive pullback in military spending, they risk doing exactly what all previous global powers have done..over extend internationally while neglecting their domestic economy. The result is political and financial turmoil. And a loss of credibility of their debt obligations Ie higher premiums required due to risk of default so funding the forever wars just becomes too expensive.
https://www.jameslavish.com/p/-whats-a-debt-spiral-and-is-the-us
Fantastic article with great images.
Opt out with an undebasable store of value, Bitcoin.
Brilliant. Meanwhile RBNZ have set the OCR at twice the rate of inflation. What could go wrong ?
Isn't that pretty normal? Inflation of 2-3% and interest rates of 5-6% were standard when I grew up in the UK, at least pre-GFC.
where does he get the "Modern monetary theory proponents..." bit? My read of the theories does not see them as supporting ever increasing debt. I would agree that many seem disconnected from reality, but the then that could be said of the Fed and too many economists too.
The problem here is that debt is being raised for things that do not provide any economic return. The problem for the politicians and bankers now is that this issue has been going on for so long that no one has the courage to turn the tap off, and if they tried it would kill their career in a nano second. As PDK would say, the country has become addicted to the sugar hits.
Silly USA plundered their social security to fund this and that, and will be crippled by it in no time ads there's not enough in the kitty and they already have unsustainable debt. As a cruel irony, the very generation that demanded better services and saw a huge rise in living standards, conveniences and opportunities, will be the ones who have to see the downfall of the very system they set up and had the best of faith in. It goes to show that left unchecked, greed, corruption and image of those they represented (by allowing too much influence of large corporations into the political sphere) has done them in after all these years.
Government to ‘flood’ cities with more housing by liberalising planning rules
Housing Minister Chris Bishop will announce sweeping planning changes today. Photo / Mark Mitchell
- Housing Minister Chris Bishop will announce plans to increase land for development to tackle the housing crisis.
- Bishop’s reforms will remove council powers over urban boundaries and development standards.
- The Government will require councils to plan for 30 years of housing growth.
Housing Minister Chris Bishop will today unveil the Government’s plan to “flood the market’ with land for development in a bid to end New Zealand’s housing crisis.
Bishop will use a speech to the Real Estate Institute of New Zealand today to announce a slew of changes to New Zealand’s planning laws recently agreed by Cabinet. He will argue the changes will flood the market with affordable land to develop and make it easier and cheaper to develop that land into housing.
Some of the changes are bound to be controversial; the Government will abolish councils’ ability to set fixed urban-rural boundaries and will abolish powers that let councils mandate balconies or minimum floor area sizes for developments.
This means the market, and not councils, will set the minimum size of new apartments. This could be controversial, but Bishop will defend his changes in his speech, noting the rules “can significantly increase the cost of new apartments, and limit the supply of lower cost apartments”.
re urban boundries
He dismissed the Auckland Council research as "complete drivel" and questioned Norman's independence.
"They'd have to use arithmetical gymnastics to come up with that conclusion."
Pavletich said the numbers were simple. Raw undeveloped land in rural areas several kilometres outside the RUB was worth $30,000 to $50,000 per hectare. Inside the RUB such land was $2m to $3m or more.
"It is really that simple. Most laymen could understand it but it appears some economists are baffled by it all."
After coming to power in 2017, the Labour government vowed to axe "highly restrictive planning rules like the urban growth boundary" to address house prices.
You may be in for some good doh then IT Guy.
I personally think its more likely that we don't loose much rather then make a massive profit , relative to many just inside the boundary in Dairy Flat , Coatesville, Riverhead... etc...
They paid a big margin to be future urban.....now we may all be future urban.
This is going to be a massive fight between Auckland Council and central Gov IMHO, may take years, but if it happens things will be better for Aucklanders.
Abolish Central Government. #4states. No fighting.
Luckily we have such a good public transportation and not reliant on cars for Nationals ideas of blanketing the outer fringes of Auckland in cookie cutter suburbs - visionary.
Exactly! I expect National to announce funding for more buses and trains to Drury and Pukekohe, and support for Watercare to provide water & WW to these places. Oh wait, hang on…
I guess we will just need to import more food as this fertile farmland becomes suburban wasteland.
Under the Ardern regime KO built thousands of “walk ups”. Social housing with no car parks and limited public transport. How do people get to work?
Same the world over Blackdog, but they have great public transport and walking,cycling options. Not a priority under this regime ..
On John Key's cycle ways
Careful of his flag collection
Assumedly, as there would not appear to be any council in any sizeable urban locality exactly flush with cash, land that becomes available will be purchased by private, let’s say enterprise which will also create and install the requisite infrastructure. For example nearby to Christchurch in Lincoln as recently approved to go ahead.
I was down that way in Feb, after maybe 8 years or so since the last visit, and was surprised to see the level of development around halswell and tai tapu way + inland towards Lincoln. All smallish sections with very similar homes, I was told a few tales from family there of bits and pieces where developers have skimmed on their requirements when prepping the land.
Yes it is filling up alright. The one that alarms me is at the north east approach to Rangiora. Grey look alike houses, minimal section size, all crammed in. Not ideal for family, privacy, space, activities and on. Wouldn’t like it myself but guess somewhere at least to own a roof over your head.
The tricky bit is where the new infrastructure joins the old. Those new sewer pipes often connect to the old network to get to the treatment plant. So the whole old main line can need replacing too, to cope with the new bits added on the end.... who pays for that and does that have to be part of "live zoned"? it's very expensive to dig up existing roads and replace pipes under them. Same applies to stormwater, road capacity, water lines.
I expect this will see a huge increase in the councils up front infrastructure costs. They just did their 10 year plans. The next 2 years pulling together the numbers for next plan for "live zoning" is going to stress their accountants.this years round of rates rises in double digits may well be the norm for a decade.
Last year I had to visit Auckland to take my wife up there for eye surgery and was shocked to see the urban leakage south of the Bombays (it had been a while since I was last up there). All I could think of was Trump's call that we, the rest of NZ need to build a wall!
Are you saying 2 states? Auckland and the rest? Not going to work. Has to be 4.
It sort of always has been. Auckland expects the rest of the country to subsidise it's infrastructure, but for decades Aucklanders have refused to pay the rates they need to to maintain their own services. They con the rest of the country with the BS argument that if Auckland fails, NZ fails.
Sir Dove-Meyer Robinson was a mayor there from 68 to 80 and he told Aucklanders how it was repeatedly and what needed to happen, but he lost his seat because they didn't want to know or pay. Now it is all coming home to roost. Current generations of Aucklanders can thank their parents and grandparents for that gift!
The question for Aucklanders is that while the rest of the country has to stump up for what they need, who pays for their infrastructure?
Current generations of Aucklanders can thank their parents and grandparents for that gift!
While not the case in every region, there are large parts of the country who can say the same for their folks demanding low rates increases over the years and populist councils caving and deferring infrastructure spending. Sadly the same parents and grandparents will have to pay the higher rates now to catch up until they pass, have to make big decisions in order to cover the costs, or otherwise.
South Island has to pay for it?
Interesting indeed, but most of this had been well signalled in advance, so not really shocking. I also don’t think it is as impactful as it first seems. For example, Auckland already has enough ‘live zoned’ land for 30 years of growth. So this won’t create a compelling argument to free up a lot more land for sprawl. Although getting rid of the Rural Urban Boundary will certainly make it easier, no doubt.
I like getting rid of minimum floor areas for apartments though
‘This is an enormous opportunity. It will likely be followed by another enormous opportunity.
The alternative is to lock into equities now, at record valuations, stay locked in, and enjoy a long, volatile, interesting, but needless 10-20 year trip to nowhere relative to T-bills.’
https://x.com/hussmanjp/status/1808516345056661870?s=46&t=MUwQeKa7MkEJ7…
I am happy to be short term NZ Cash here, will move to equities once the dust settles.
Agree
First up today, the US Fed released the minutes of its June 13 (NZT) meeting and those show it is in no hurry to cut its policy rate.
Powell expressed concerns about a large deficit being run at a time of full employment. “The level of debt we have is not unsustainable, but the path that we’re on is unsustainable,” Powell stated.
He urged policymakers to prioritize fiscal sustainability, warning that running large deficits during good economic times cannot continue indefinitely. “In the longer run, we’ll have to do something sooner or later, and sooner will be better than later,” he added.
‘The CBO has raised the US government's deficit forecast for Fiscal Year 2024 from $1.5 trillion to $1.9 trillion, or 6.7% of GDP.
This would be the highest deficit since 2021 when the deficit hit $2.8 trillion in response to pandemic lockdowns.
By 2034, the deficit is expected to reach $2.9 trillion or 6.9% of GDP, totaling a whopping $22.1 trillion over the 2025-2034 period.
The CBO projection also assumes that net interest will reflect over 50% of the budget deficit over the next decade.
These numbers all assume no recessions and lower interest rates.
What happens if rate cuts are delayed and a recession hits?’
https://x.com/kobeissiletter/status/1805224314620235814?s=46&t=MUwQeKa7…
Interesting data from RNZ this morning showing the correlation between rates rises and rising rents.
https://www.rnz.co.nz/news/national/521220/council-rates-rises-blamed-f…
Feedback loop could get nasty..
1. Rates rise
2. Landlords increase rents to cover increased costs.
3. Tenants demand higher wages to pay for higher rents.
4. Businesses increase prices of goods and services to cover increase wage costs.
5. RBNZ receives higher CPI reading so they increase OCR.
6. Mortgage rates rise and landlords expenses increase again..(and continue back to point 2 again).
Regarding 3. Are we not currently seeing a slight decrease in rents due to the level of availability? This would lean more towards larger levels of movement from tenants as they move to cheaper pastures so to speak, and after 2, the landlords getting left with either shouldering the costs, or having to sell up if not affordable, this adding to a doom loop for housing and with the potential therefore, to lower the OCR due to even greater pullbacks from tenants spending. Farfetched? Possibly but spit-balling these ideas shows good differing lines of thought :-)
Spending data out, we are staring down a massive recession as bad as 1987:
https://www.rnz.co.nz/news/business/521229/retail-spending-slump-nearly…
Don't worry though, RBNZ is working off last years data to define what happens going forward. All this "short term noise" of what is actually happening now will surprise them in a years time when its too late to act. Hold on to your hats...
And the government will cut a few more thousand jobs and do more austerity. That will definitely help things.
It was easy to see this awful train wreck coming a year and a half ago. Many businesses and people are really starting to struggle now.
I think the OCR is going to have to be cut repeatedly between late 2024 and late 2025. Could be as low as 3% by late 2025.
Scary stuff…with the lag effect how long post any cuts would it take to put some life back into the economy, or at least some confidence back into consumers 😬
Yep I think we need to tread lightly . I think some folk have yet to grasp that risk is growing. I dont think theres any chance of seeing an OCR cut this year at all. The better position is to not expect or rely on any easing from my viewpoint.
I disagree. See above.
I think the economy is already in a real pickle. And I also think the CPI will be in the high 2’s by late 2024, so (just) within the target band.
The economic train wreck is going to start impacting on financial stability, which is part of the RBNZ’s considerations.
Don't panic. It's just a transitory recession.
Who cares about the collateral damage currently going on; it's all about that 6% non tradeables.
But, you know, it's painless when you're setting interest rates on a multiple six figure salary and no debt.
Perhaps businesses need to realise that they can't keep importing things form China and upping the price more and more in NZ, when the consumer can get the same items online at 1/8 the cost if they're willing to wait a week or two. Convenience is coming at an ever increasing price in NZ that many simply aren't willing to pay.
In Europe, perhaps we should note that Greece is introducing a six day/48 hour working week for some industries. But it only applies to businesses which operate on a 24-hour basis and is optional for workers.
Ah yes. "Optional". Let's see how that works.
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