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US data ok; Japan frets ahead of BofJ decision; India's Budget awaited; China cuts rates, attempts to raise retirement age; UST 10yr 4.26%; gold and oil soft; NZ$1 = 59.8 USc; TWI-5 = 68.8

Economy / news
US data ok; Japan frets ahead of BofJ decision; India's Budget awaited; China cuts rates, attempts to raise retirement age; UST 10yr 4.26%; gold and oil soft; NZ$1 = 59.8 USc; TWI-5 = 68.8

Here's our summary of key economic events overnight that affect New Zealand with news it's been a toughish night for commodity currencies as markets mark down these prospects. That has been true for both hard and soft commodities, although it is more of a sag than a significant fall.

In the US, the Chicago Fed's National Activity Index rose again, although this time it was minor. But the May index was revised higher. That makes it three rises in the past six months, and is a sharpish positive change from a year ago. This is actually an important indicator but one that is usually ignored by markets.

In Japan, the next meeting of their central bank is Wednesday, July 31. It has been widely expected they would raise their policy rate and make other moves toward normalisation, largely because their long-held goal of getting moderate inflation embedded seems to have been achieved. But now they are giving unofficial signals that there may be [yet another] delay because household consumption is not improving as they want.

Taiwanese export order growth eased in June, rising 3.1% year-on-year, but that missed expectations of a +12% rise. The miss is largely due to lower orders from Japan. You may recall that May orders rose 7% on this year-on-year basis.

Today is Budget day in India. This one may reflect the pressures on Modi from his coalition support parties, the ones he needed to stay in power. This price may not be 'cheap' and if it does seem excessive, there could well be financial market reactions.

The People's Bank of China unexpectedly cut key lending rates by -10 bps to fresh record lows. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans was cut to 3.35%. Meanwhile, the 5-year rate, a reference for property mortgages, was trimmed to 3.85%. Yesterday's decision came days after the Third Plenum meetings at the end of last week, and follows a slew of data that indicated the Chinese economy continues to lose steam. At the same time, the central bank reduced its collateral requirement for its MTF facility. What we are seeing is a skew to short-term priorities.

And staying in China, they are grappling not only with a fast-aging population, but an out-of-balance retirement age. Chinese men 'retire' at age 60, women at 50 to 55. By 2035 more than 30% of the population is expected to be at that age. Even though retirement support programs are skinny, these ages will have a dramatic impact sooner than many realise. But Beijing realises. And it moved at the Third Plenum meeting to raise that age. However the messaging is subtle because it is widely expected to generate substantial pushback among those affected. Demographics is destiny, and China won't have gotten rich like Japan before these trends become very difficult to manage, so their options are closing fast.

In the EU, the ECB's survey of professional analysts suggests markets expect them to make only begrudging progress against inflation, but progress none-the-less. It won't be until 2025 that inflation hits 2% these analysts suggest. They haven't changed their view on economic growth in the region with tepid +1.3% real growth in 2025. But they do see 'better' progress battling unemployment even though the levels will remain relatively high by international standards (6.4% in 2025).

The CrowdStrike IT disaster is still lingering, especially in the travel industry. It has raised many questions. One is, who will pay? That now largely seems to be insurers, and that has implications for premiums and coverage in the future.

The UST 10yr yield is now at 4.26% and up +2 bps from this time yesterday. The key 2-10 yield curve inversion is again little-changed at -27 bps. Their 1-5 curve is still at -73 bps. And their 3 mth-10yr curve inversion is holding at -111 bps. The Australian 10 year bond yield starts today at 4.34% and back uop +10 bps from yesterday. The China 10 year bond rate is down -2 bps at 2.25%. The NZ Government 10 year bond rate is now at 4.43%, and up +3 bps.

On Wall Street, the S&P500 is up +1.1% in a rise well-signaled yesterday by the futures markets. This was driven by both a recovering tech sector and some positive clarity in the US political scene. Overnight, European markets were up similarly or more, except London which gained only half that. Yesterday, Tokyo closed down -1.2%. Hong Kong rose +1.3%. Shanghai gave up -0.6% in its Monday trade. Singapore slipped -0.3%. The ASX200 fell -0.5% in Monday trade and the NZX50 was down a minor -0.1% at the end.

The price of gold will start today down -US$6 from yesterday at US$2393/oz.

Oil prices are -50 USc lower at just over US$78/bbl in the US while the international Brent price is just on US$81.50/bbl.

The Kiwi dollar starts today down more than -¼c at 59.8 USc as commodity currencies take a hit. Against the Aussie we are still at 90 AUc. Against the euro we are also down more than -¼c at 54.9 euro cents. That all means our TWI-5 starts today at 68.8 but down -20 bps from yesterday.

The bitcoin price starts today at US$67,370 and up +1.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.

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56 Comments

The CrowdStrike commentary which suggests that the cost will fall to insurers is a possible indicator for the future. some years ago a commenter in a stream on this site mused that there was not enough money on the planet to cover all the things that were insured if it all crashed at once. To me this seems to be another one of those limits that we are finding so many of these days. 

Insurance itself in my view is a ripoff, but backed by most governments. the ripoff is that they are too quick to take profits, depleting reserves in the event a lot of it, or even just a couple of big things with huge costs, goes bad. There is too much reliance of re-insurance which also is too quick to take profits. That part of the money go round needs to be better regulated and the fundamental principles re-examined to ensure it is fit for purpose in the current era, if it can be.

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- if every Bitcoin were to be liquidated today, is there the money to pay for them?

- if every house went on the market, where would the buyers come from?

- who has $3 trillion in their change jar to buy nVidia?

The reality is we have all this paper value, that greatly exceeds the liquidity to pay it. Yet we have an entire global economy/market which uses all these non recoverable values to underpin it.

The insurance thing really does suck, it's now been inserted into so many day to day operations, just another private tax, mandated by government.

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"- if every Bitcoin were to be liquidated today, is there the money to pay for them?"

Well 4 millions are lost, but assuming everybody was compelled to sell the other 16 million or so, the answer is that the market price would keep going down until all had been sold.   So BTC price might be $4k or so, but there would be enough fiat and debt to buy them.  

Put another way, let's say the BTC price went to 10c.  I'd buy them all with cash 

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Gee imagine if your bank lost 25% of your money. Greatest Ponzi of all time, by the time those NVidia cards stop whirring half of it will have been lost. Let me take a guess at the way crypto holder thinks, its great if most of it gets lost because what's left that they are holding is worth even more ?

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 Greatest Ponzi of all time, by the time those NVidia cards stop whirring half of it will have been lost. 

Are you saying that it a meteorite took out all mining operations, then ratty would be finished? Quite possibly. But you could say that about many things. 

But I don't think you really understand how BTC mining works. Study what happened when China banned mining at a time when mining was concentrated in China. 

 

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"Well 4 millions (Bitcoin) are lost"

It doesn't sound like such a safe store of value to me.

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- if every Bitcoin were to be liquidated today, is there the money to pay for them?

- if every house went on the market, where would the buyers come from?

- who has $3 trillion in their change jar to buy nVidia?

The reality is we have all this paper value, that greatly exceeds the liquidity to pay it. Yet we have an entire global economy/market which uses all these non recoverable values to underpin it.

An interesting view. But a purely philosophical one with no relevance to the real world.

Why? Because it completely fails to understand what "money" actually is, e.g. a medium of exchange. Gained lots of thumbs ups from equally confused philosophers as 'thought experiments' so often do. 

The insurance thing really does suck, it's now been inserted into so many day to day operations, just another private tax, mandated by government.

Would you have a return to the 'good old days' where the aggrieved party simply rounded up a possie and forcibly sought redress by seizing assets (or the life / lives) of persons responsible for the damage? I suspect not. Or maybe you do?

So what other alternative to insurance do you propose? Maybe another one from the 'good old days' that favors the very rich, i.e. unless you personally have the assets to cover any foreseeable / or un-foreseeable accident then you can't even start or perform the activity?

Or maybe you'd prefer a return to the 'not so long ago good old days' where the taxpayer carried the risk?

If you've got a better solution to insurance, mandated or not, I'd love to hear it.

Or perhaps your issue is that those providing insurance are making too much from it? In that you may have a case. But you'd need to prove it. You may also like to explain why mutuals (non-profits) have very similar premiums to for-profit insurers.

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An interesting view. But a purely philosophical one with no relevance to the real world.

Why? Because it completely fails to understand what "money" actually is, e.g. a medium of exchange. Gained lots of thumbs ups from equally confused philosophers as 'thought experiments' so often do. 

It's a thought experiment to shed light on the fact that so much of our economic activity has foundations on often illusory market valuations. nVidia isn't really worth $3 trillion dollars, that's just the market value set by the nominal amount of shares transacted in recent times.

As an underpinning for an economy/society, to me that seems rather problematic.

You beg to differ then?

If you've got a better solution to insurance, mandated or not, I'd love to hear it.

I'm illustrating how things are going, I don't have to be an advocate of an alternative. The requirements to be insured for more and more activities will keep increasing, as will the amount of economic energy being diverted towards insurance premiums.

It's sort of like health and safety policy, our ultimate aim is to try and make us invulnerable to misfortune, and we'll just throw ever increasing amounts of money at it, for extremely diminishing returns. 

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The reality is we have all this paper value, that greatly exceeds the liquidity to pay it. Yet we have an entire global economy/market which uses all these non recoverable values to underpin it.

All depends P. I think better examples are the GLD ETF and commercial banks. 

- If the owners of GLD all simultaneously decided to claim the underlying asset, there would be more claims than gold. JPM would not be able to deliver and would reserve the right to pay owners in fiat. 

- If all depositors (creditors) at a bank decided to withdraw cash, the bank of course wouldn't be able to meet demand.  

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The model does not and can not work in a substantial and widespread claim scenario....they make their money (from the premiums) by investing in equities and bonds ....what happens to the value of those (supposedly) liquid assets when large volumes need to realised all at once?

As the people of Canterbury discovered, time is the ICs best friend....time to spread the costs and time and realise the assets.

Delay, deny, defend

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AIG, 2008.

Told us all we needed to know. Bailed out by socialised debt. 

By nothing, in other words. 

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That was sickening to hear about. Big daddy ‘murrrica can’t lose power on the world stage can it 

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You are spot on.  Hard to believe, but I still have an active contents claim from IAG from the ChCh quake - it's taking me years to locate the damaged items.  I think they are hoping I'll die before the claim is closed.

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For all its warts, unfortunately insurance is one of those necessary evils for most.

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Very hard to build up service based economy if 30% of your population are retired, there biggest asset (Property) is falling like a rock and super age benefits are skinny.

Add in limited free healthcare, youth unemployment, trade sanctions ….. wallets will be closed, it’s obvious why Chinese tourism to NZ is down 

 

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China’s Population Could Shrink to Half by 2100

https://www.scientificamerican.com/article/chinas-population-could-shri…

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Not aimed at China but in truth that would be a good thing to have the planet's population decline by a billion (Yes I know that is more than half China's population i.4 billion) without having to have a war to achieve it. The political question is problematic though. Will China's leadership, or any other country's leadership accept a declining population to that degree?

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 "Will China's leadership, or any other country's leadership accept a declining population to that degree?"

If the demographers are to be believed then they have little choice...the time to reverse it is past.

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Ah, but David Chaston picked up the key point there: their population is rapidly aging. 

As compared, presumably, to the rest of us aging at a normal pace. 

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lol...and some of us are aging faster than others.

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I really wouldn't be surprised if people started getting cloned this century.

Replicants would end up outnumbering naturally birthed humans, and.....

We've all seen that sci fi movie.

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...wallets will be closed, it’s obvious why Chinese tourism to NZ is down 

According to Credit Suisse estimates, the number of dollar-millionaires residing in China totaled 6.2 million individuals..

I think it's a problem of perception projected by NZ. The following publicity hardly helps.

New Zealand as US ‘Force Multiplier’ in Asia Pacific

Statement on NZ Government jeopardising NZ's independent foreign policy and economic security

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Two things. First to be a force multiplier, then ones must have the capability. Today military forces are multi-layered with capabilities at all levels. The P8 and C130J purchases are just the beginning of what is required. A strike wing is need too. then there is the defensive layers, as well as the advanced capabilities based on IT structures. a lot of work to be done. This could be a great time to be in the military here.

Secondly and this was discussed a couple of days ago; HC and DB are quoted as saying "They said Luxon was jeopardising New Zealand’s foreign policy and economic security." Do they need to be reminded that NZ's foreign policy is set by the government of the day? And that they have no right, nor position to try to influence it. Luxon has the mandate of the people. Neither Clark nor Brash do. they are also cited as saying "he has abandoned New Zealand’s independent foreign policy" which is not true. He has just independently decided to side with the western alliance rather than China. Something I might add, I'm entirely in favour of. 

I have no doubt that HC has told people in the past, possible critics, that they need to keep their opinions to themselves. I would suggest that she needs to do just that. She has no mandate to influence any of the government's policies. So frankly butt out!

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It’s bigger than NATO and it’s heading our way

New Zealand is about to sacrifice what it cannot afford to lose for something it doesn’t need: gambling we can keep the strength and security of our trading relationship with China whilst leaping into the US anti-China military alliance.

The Chinese have noticed. Writing in the South China Morning Post last week, Alex Lo gave an unvarnished Chinese perspective on this. In a piece titled “NATO barbarians are expanding and gathering at the gates of Asia,” he says: “Most regional countries want none of it, but four Trojan horses – South Korea, Japan, Australia and New Zealand – are ready to let them in”.

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they missed out Taiwan, the people of Hong Kong, the Philippines, Singapore, Malaysia, Indonesia et al - while they might not be "NATO barbarians" they all remain concerned at China's expansionist behaviour just a little more discreet about how they respond

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And that is China, a dictatorship, trying to bully other nations into doing as it says. Clark might tremble in fear when they fart, but I don't believe we should. Luxon has many tools to use when talking to the US to get what we need and be useful to them, including if they don't want to come to the party, that we could just invite China in. I don't think past negotiators on behalf of the government have considered playing hard ball with the US, but when we are caught between the US and China and have a clear preference because in the end it is one side or the other, perhaps it is time to flex some muscle. 

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So youre happy to send your kids off to war to defend the shareholders of say Boeing but not Alibaba?

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Well said.

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No Frank, you're being silly. I signed up to the military myself for the right to be able to make free choices, including who gets to govern us for a period. Those rights sit within the bounds of responsible behaviour to respect those around us. Going to war is not about protecting the shareholders of Boeing, but it is about their right to choose to be one. I might add that I think Alibaba is listed on the US stock exchange, so yes a war would also defend their rights. 

But ask yourself this; what are the fundamental differences between the US and a western alliance and China and perhaps a China, North Korea and Russian alliance? Which one, from our cultural preferences do you think is worth defending? 

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Neither....I do however agree that should China (or Russia, or the US) decide to physically threaten us and our own then we would right to defend ourselves as per Ukraine....preemptive strikes for the sake of maintaining hegemony isnt even in the same ballpark.

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Not sure where the preemptive strike bit came from. But being able to defend ourselves is crucial. something i would suggest we are currently unable to do. Clark goes on about independence, but real independence only comes from a position of strength, some all our PM's since Lange have systematically whittled away.

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If we are honest Murray the reasons for 'choosing sides' at this point in time have little to do with military threats and a lot to do with economic extortion.

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I'd have to agree, but most of that is coming from China. Luxon is trying to realign us to old axis'.

As i suggested earlier I don't think our government has played all the cards they have in past negotiations re trade and as a consequence as a country we got screwed. The willingness to play hardball at the appropriate time has to be there. 

HC looks too much like a Chinese agent, Brash the banker that he is.

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What hardball cards do we to play here?

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There are a couple which will need some courage to play. Around trade tell them we will get our drugs and pharmaceuticals from India (they don't recognise the US patents). Plus if they don't let us play on a level playing field where we get a decent shot, tell them we will invite China in.

If they call our bluff remind them what it will mean to Australia and the US if China gets to base military assets in NZ. This might be seen as a hail Mary , bluff, but in the 90s I observed PLAAF officers being shown around Ohakea. So we've actually got close before. I don't believe we should be letting people dictate to us or run rough shod like the Adern government did.

People tend to dismiss NZs geographic position as unimportant, but we are within range for modern fighter bombers of most of Australia's major population centers, and Antarctica (VXE6 is based in Christchurch) where China has also established a military/scientific base.

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Also happy to kill free speech when you don’t like the message?

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Nope happy to discuss anything. But the message from China is essentially a threat wrapped in fancy words. Look at my response to Frank above and answer the last question.

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Since Bernays, the US is no different. 

Sorry Murray, but there you dream. 

https://en.wikipedia.org/wiki/The_Century_of_the_Self

Well worth watching the whole thing. 

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It’s a democracy Murray. We all have the same right to try and influence government policy by speaking about it. That’s what free speech is. 
 

Also, I know which way I’d jump but I won’t do it till I have no other choice but to. 

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We do but how many of get to criticise the government from an international platform that holds considerable weight? Besides she sounds very much like an agent of the CCP. 

Also leaving it until you have no choice, might just be too late.

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Anyone managed to get a fixed rate lower than they could get before the supposed interest rate drops?  ASB want me to pay 6.95% for 6 months, more than I could get a few weeks ago.  It feels like they have used this opportunity to drop term deposit rates without actually dropping mortgage rates. 

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I'm in a similar boat (with ASB). Gave up trying to get anything and just did the 6.95% for 6 months. I've got the payments maxed out (in terms of the option it gives me online) so hopefully rates will have dropped a bit by January and then I can consider fixing for longer.

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Ah, ASB. I was with them for many years. Good service, competitive and easy to do deals with.

Not so now. Totally profits focused with a sub-standard, error prone service. They're milking their existing customer base.

When your 6 months is up - were I you - I'd find another bank and get the cash backs on offer. I still have some transactional accounts with them as I couldn't be bothered changing all the DDs, SO, dividend DCs, etc. but all the big stuff has left them and the smaller stuff is leaving bit by bit when I get around to it - daily ASB balances are kept around $1. It's far easier to do than many think (and I do more frequently than most).

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I'll take note of your advice. I've admittedly been slack in the past at the whole business of 'shopping around' for key services and moving away from an existing provider. Although just did it yesterday for some car insurance and saved hundreds on one policy (with another to change over soon for similar savings).

I'll definitely look to shop around some cashback or other incentive options when I can.

 

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I do the same - accounts with 5 different banks to keep their CRM systems happy and make moving mortgages around easier. Minimal amounts in 3 of them at present, salary going to one with most savings, mortgage with another with moderate savings.

One doesn't even have to move between banks to gain a better rate, just a credible threat can be enough to drop trousers and obtain a very similar offer.

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We got 6.85% from asb for 6montvs about 2 weeks ago.  Rates seem higher now?

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Yes I was offered that too. And yes they are higher now. Thieves. 

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They are jamming people short knowing that rates will be way lower by then end of the term 

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I’m still waiting to hear back from the chemist, Peter, on whether or not he’s going to set me up at 4%.

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I would say they are short on the "free "money they use for floating and short term loans. People are just scraping in paying there mortgage, and there is not much left in their everyday and oncall accounts.

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"The reality of how money is created today differs from the description found in some economics textbooks. Rather than banks receiving deposits when households save and then lending them out, bank lending creates the amount of money in the economy...."

When fruit is no longer being produced by the Magic Money Tree (e.g.: mortgages stop being created to manufacture 'money'), the problems start. Hence, the desire to 'get it going again' at any cost. But I'm sure you know all of that.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/20…

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Indeed bw.

But from the point of view of the bank, it has acquired the security without giving up any cash; the counterpart, in its balance-sheet, is an increase in its liabilities. There is expansion, from its point of view, on each side of its balance-sheet. But from the point of view of the rest of the economy, the bank has ‘created’ money. This is not to be denied. Hicks (1989, 58)

We start with the idea of credit creation, specifically a swap of IOUs between a bank and myself involving a bank loan that is my IOU and a bank deposit that is the bank’s IOU. Nothing could be simpler, and yet the mind rebels, especially the well-trained economist’s mind, because this simple operation increases my purchasing power without decreasing anyone else’s. It seems like alchemy, or anyway a violation of some deep conservation law. Real productive resources are the same as they were before, and the swap doesn’t change that, does it?

Spending of the new purchasing power adds another layer of perplexity. If spending increases but real resources do not, then it seems logical that the increased spending must exhaust itself in higher prices—that is the intuitive appeal of the quantity theory of money. My purchasing power may increase, but everyone else’s decreases because their money balances buy less. From this point of view, the alchemy of banking seems like a kind of theft, something to be deplored in the name of economic science and if possible outlawed in the name of the general good. Link

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On Wall Street, the S&P500 is up +1.1% in a rise well-signaled yesterday by the futures markets. This was driven by both a recovering tech sector and some positive clarity in the US political scene. Hardly.

Succession by Defenestration: How Biden’s Withdrawal May Trigger a 25th Amendment Fight

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Brilliant. At least someone with the inside know is telling it how it is. Fixing it though is an altogether different story. I know many will interpret his words to be advocating for an invasion of Russia, but it is not, although that is but one possible solution (likely the least desirable one). But there does need to be a workable solution.

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