Breakfast briefing: Investor fears ease

Economy / news

US labour market stays healthy; US petrol prices low; India holds policy rate again; Taiwan exports rise; container shipping freight rates ease marginally; UST 10yr 4.00%; gold and oil up; NZ$1 = 60 USc; TWI-5 = 68.7

9th Aug 24, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news Monday's equity dump is now a fading memory.

First up, the latest signals from the US labour market are that there is no rising stress. Initial jobless claims came in less than expected at 203,000 and there are now 1.9 mln people on these benefits. Both are lower than last week and -10% lower than the same week a year ago.

This was data financial markets noticed today. Along with confirmation that mortgage interest rates are falling.

It is the summer driving season in the US, so petrol prices are important there too. And they are lowish, for them, down almost -10% from year-ago levels. In some places they are under US$3/gal (NZ$1.32/L) at the pump.

US wholesale inventories were up marginally (+0.1%) in June from a year ago. However the steady rises recently have ticked up the inventory-to-sales ratio recently, although it is still lower than year-ago levels.

And there was a well-supported UST 30yr bond auction earlier today and that delivered a median yield of 4.23%, lower than the 4.33% yield at the equivalent event a month ago.

In India and as expected, their central bank's monetary policy review brought no change to their 6.5% policy rate. It has been held at that level since February 2023.

Taiwanese exports held steady at about +US$40 bln in July. But that was 'only' +3.1% higher than the same month a year ago. However it comes on top of a steady expansion since November 2023.

Later today, China will release its July CPI inflation data and it is expected to remain very low (+0.3% year-on-year). Their PPI is again expected to report deflation.

Global shipping freight rates for containerised cargoes slipped marginally again last week, down -3% from the prior week. But they remain three times higher than year-ago levels. Bulk cargo freight rates were unchanged from the prior week, up +50% from the same week a year ago (although that year-ago level was a bit of a low point).

We have noted low steel prices recently. But we should also note than both wheat and soybean prices are low too, now down near five year lows. If there is food stress it is not because the cost of basics are high.

The UST 10yr yield is now at just on 4.00% and up another +3 bps from yesterday. The key 2-10 yield curve inversion has nearly gone, now at just -4 bps. Their 1-5 curve is also less at -65 bps. And their 3 mth-10yr curve inversion is down at -134 bps. The Australian 10 year bond yield starts today at just on 4.14% and down -2 bps. The China 10 year bond rate is up +1 bp at 2.15%. The NZ Government 10 year bond rate is now just on 4.32% and down -2 bps.

Wall Street is sharply higher in Thursday trade with the S&P500 up +2.2% from yesterday. Overnight European markets were mixed, bookended by Frankfurt's +0.4% rise and London's -0.3% dip. Yesterday Tokyo fell -0.7%. Hong Kong was a little-changed +0.1%, and Shanghai was also barely changed. Singapore rose +0.4%. The ASX200 ended down -0.2% and the NZX50 fell -0.8% in Thursday trade.

The price of gold will start today up +US$31 from yesterday at US$2423/oz.

Oil prices are +US$1 USc firmer at just over US$75.50/bbl in the US while the international Brent price is just on US$79/bbl.

The Kiwi dollar starts today little-changed from this time yesterday at just over 60 USc. Against the Aussie we are back down almost -¾c at 91.1 AUc. Against the euro we are up +10 bps at 55 euro cents. That all means our TWI-5 starts today at 68.7 and down -20 bps.

The bitcoin price starts today at US$59,562 and up +6.5% from where we left it yesterday. Volatility over the past 24 hours has been very high at +/- 4.8%.

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

The easiest place to stay up with event risk is by following our Economic Calendar here ».

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

91 Comments

by nktokyo | 9th Aug 24, 7:32am 1723145534

TA on point with the headline. The RBNZ refusing to make moves based on forwards-looking data got us into this mess and is now making the situation worse. Is it a cultural failing that they can't be more nuanced?

https://www.oneroof.co.nz/news/tony-alexander-why-interest-rate-cuts-wo…

by Flying high | 9th Aug 24, 7:57am 1723147029

Playing catch-up

by IT GUY | 9th Aug 24, 8:01am 1723147297

TA is yes, taken him ages to pass his first year DGM studies.

by Retired-Poppy | 9th Aug 24, 8:29am 1723148981

Banks are flush with TD's while lending demand has fallen steeply. It's understandable some are celebrating lower rates having arrived early - especially if you're paying interest on a declining asset.

If the banks have a cheaper source of cash, Spruikers should ask why the RBNZ even need to do anything with the OCR that has stayed HFL. Spruikers never envisioned the true cost of bringing inflation under control in this economy plagued by poor productivity. At risk of being labeled a DGM, they certainly never warned anyone on here by way of an insightful prediction.

It's funny what transpires given time.

by Pa1nter | 9th Aug 24, 8:42am 1723149776

Multiple people who weren't salivating over spruikers coming unstuck have been warning over what the higher rates meant for the wider economy for seemingly years now.

I'd say it's funny how fluid narratives can be here, but it's more sad.

by Retired-Poppy | 9th Aug 24, 8:55am 1723150540

You're one funny guy :) Spruikers just wanted their house values to rise forever without any consideration as to the near term cost.

It's selfishness in it's purist form. Maybe coming unstuck is the best lesson of all. Call this the timely reset of expectations we needed to have. (edit)

by Pa1nter | 9th Aug 24, 8:55am 1723150514

Yeah possibly. I guess I just don't waste the same volume of oxygen fostering malice over other members of society who are profiting in ways I don't agree with. Because I have no control, and if they're that bad often things have a way of catching up on them anyway. But the last couple years on here have been

DGM: mwa-ha-ha, these higher for longer rates are going to drop prices and wipe out the spruikers

Me: uhhhh, you realize that'll be occuring in an environment where many more regular people's jobs and livelihoods are getting wiped out, right?

DGM: *hands on ears* la la la la spruiker la la

by Retired-Poppy | 9th Aug 24, 4:02pm 1723176159

Fair enough. Having ridden a few downturns myself, the 90s one whilst working within the banking system itself, I am fully aware of the collateral damage that comes with higher rates.

I have noticed of late resident Spruikers salivating over releases such as weak jobs data hoping it is grim enough to trigger lower rates. Now that IS sad.

by Pa1nter | 9th Aug 24, 10:09am 1723154990

Haha, anyhoo, back on to spruikers.

by IT GUY | 9th Aug 24, 8:24am 1723148678

A week is a long time in markets , from emergency OCR cuts now on Monday back to November cuts by Friday

by JimboJones | 9th Aug 24, 7:53am 1723146821

The market is always underestimating the strength of the NZ economy. Almost every statistic comes in better than expected. I wonder how GDP will go?

I personally think the opposite to TA; once interest rates decrease many people will pick up spending and investing quicker than normal due to short fix terms. The only caveat is whether that causes inflation.

by IT GUY | 9th Aug 24, 8:03am 1723147385

The hills are alive to the sound of music.....

by JimboJones | 9th Aug 24, 8:32am 1723149123

We still have a lower unemployment rate than at any time during the Key / English rock star economy. I know it’s a lagging indicator, but that is quite some lag. Until that unemployment rate gets out of hand I think the economy is salvageable.

And no I am not a property investor or similar. I’ve just learnt that 99% of the gloom on here ends up being incorrect.

by HouseMouse | 9th Aug 24, 8:44am 1723149849

How about 99% of the rose tinted glasses stuff? Eg. Housing construction not tanking, house prices rising 10% in 2024 etc etc

by JimboJones | 9th Aug 24, 9:02am 1723150958

Yep that too. Although much of that has been correct over the years, house prices have often defied gravity / logic. Only recently those guys have been wrong.

I don't think anyone's glasses were tinted enough to predict Covid would cause a massive increase in house prices and unsustainable decreases to unemployment.

by Pa1nter | 9th Aug 24, 9:39am 1723153177

I felt maybe the latter pretty early. We weren't bringing in migrants and with more people home sick/quarantined, it was going to be a tall order getting stuff done.

The houses, not so much. I naively thought that in such tumultuous, uncertain times people weren't going to fight each other buying flash pads, new cars, boats, campers etc.

Now I see we're well and truly a short sighted herd.

by Advisor | 9th Aug 24, 8:12am 1723147966

One might argue that much of that economic strength stems from our inspiring ability to stamp tens of thousands of visas for low-skilled workers and their families.

This pyramid scheme creates more low-skilled work that Kiwis don't want to do and so we can bring in even more workers.

by dumbthoughts | 9th Aug 24, 7:54am 1723146852

A week is a long time in markets, politics, and especially so on holiday with my mother in law.

by Pa1nter | 9th Aug 24, 8:25am 1723148708

Smile and nod, smile and nod.

by bw | 9th Aug 24, 7:38am 1723145886

"Investor fears ease"

An alternative opinion:

“Most traders expect we are in not only for a more volatile summer but a more volatile decade.....If your portfolio is down X amount, you’ve got to close positions because you don’t want to lose double. You get people all trying to do the same thing at the same time...Analysts at ING estimate that cross-border loans from Japan had hit $1 trillion by March 2024, rising by a fifth since 2021. As a result, it is difficult to say how much of the yen carry trade is yet to be unwound. There could well be more pain to come both in the short and long term.

https://www.telegraph.co.uk/business/2024/08/08/japan-blew-up-global-ma…

by bw | 9th Aug 24, 7:56am 1723147005

"A magnitude 7.1 earthquake struck off the coast of Miyazaki Prefecture on Thursday, Japan issues first-ever alert over risk of Nankai Trough megaquake....

And if it arrives, then what happens to the Nikkei, and the rest? Aren't portfolio managers across the globe going to be looking at their exposure to Japan right now, and wondering, "What happens to our fund if those pictures we see of Gaza on TV each night are actually what downtown Tokyo looks like this morning?"

by nktokyo | 9th Aug 24, 8:01am 1723147295

Or San Francisco and LA, or ??

I live in Japan for ages and the people there just shrug and get on with things. If you asked a Tokyo-ite what crises are going on in their country they wouldn't understand the question, here we rattle off a list.

by IT GUY | 9th Aug 24, 8:05am 1723147539

Its a lost 2-3 decades now.

by bw | 9th Aug 24, 8:08am 1723147719

Quite right. And most banks in the World have long-standing contingency plans. Ours was to pretty much flick a switch and parallel operations kicked in elsewhere. So it's not solely the domestic Japanese financial market. But the fund manager in, say, Zurich who will be having another look at his exposure "Should I be selling now, given all the events of this last week. And now this..."

by HouseMouse | 9th Aug 24, 8:48am 1723150133

My partially educated guess is that the probability that this quake triggers ‘the really big one’ is still very low. But warnings rightly issued.

by Jonny.Foe | 9th Aug 24, 8:21am 1723148475

The obsession over whether rates are going to move 25pts next week or in November is getting daft now. Unemployment has taken off, and the job loss/falling demand spiral is established. The question now is how the hell do RBNZ think that unemployment will pause obediently at around 5%?

Worth remembering that the last time a National Govt took power in late-2008, CPI was on the up and had hit 4%, unemployment was 4.1% and rising. Bill English introduced an emergency budget and went big fiscal - like COVID years big. Unemployment still rose to 6.5% but at least it didn't get any higher. Funny that Luxon (Key's apparent apprentice), and Willis (English's understudy) have chosen exactly the opposite approach - fiscal tightening. Actually, it's not funny, it's incompetent. But, hey ho.

by nktokyo | 9th Aug 24, 8:02am 1723147348

Hard to steer a ship looking only 1km behind you

by Flying high | 9th Aug 24, 9:23am 1723152187

Some say that shares are forward looking 6 to 9 months... if so then the ocr drops whether August Oct or Nov will already be priced in and there wont be any gains to be had when the cuts actually first appear. Im not convinced

Good insights jfoe

by bw | 9th Aug 24, 8:15am 1723148134

"The question now is how the hell do RBNZ think that unemployment will pause obediently at around 5%?"

Perhaps the better question they should be asking themselves is, "How the Hell do we recalibrate the ingrained financial beliefs that New Zealanders have without breaking the whole System?". And maybe they've answered that question with what we are being given today. Is it better that we have 6.1% Unemployment but less Private Debt or 3% UE and even more PD?

by Jonny.Foe | 9th Aug 24, 8:26am 1723148800

That's not the trade-off. We have a Govt with a net positive financial worth. We are the only advanced economy with a trade deficit that in this position. It's stupid. We could have moderate levels of public debt, reducing levels of private debt, and full employment if we made the right changes. This is after all how we ran the economy for nearly 100 years - budget surpluses were often an accident caused by excess trade surpluses and taxation coming in on the upside.

by Audaxes | 9th Aug 24, 8:34am 1723149252

And the whole long 19th century leading up to World War One was this revolutionary value theory that depicted land rent and monopoly rent and financial returns as being unearned income and wanting to strip it away.

And all of this seemed to be moving toward socialism. The industrialists were all in favor of government public utilities, of government enterprise, because they said, if the government doesn’t provide health care, then individuals are going to have to pay it, and it’ll cost a lot of money, like it does in the United States.

And so you had the conservative prime minister of England, Benjamin Disraeli, saying, health, all is health, we’ve got to provide public health for the people.

And it was the conservative Bismarck in Germany that said, we’ve got to provide pensions. If labor has to save up for the pensions, then it’s not going to have enough money to buy the goods and services that we Germans are producing. We have got to make pensions public.

So all of this move towards socialism was not only in favor of increasing living standards, which soared in the 19th century, but also in freeing the economy from the rentier class, from the landlords, from the bankers.

And for the classical economists, a free market was a market free from landlords, free from bankers, free from monopolists. Link

by Jonny.Foe | 9th Aug 24, 8:40am 1723149641

Amen. I am always amazed when I hear the swivel-eyed idiots in the Act Party quoting Adam Smith - the man hated rentiers with a passion.

by powerdownkiwi | 9th Aug 24, 9:15am 1723151754

They still quote his understanding of energy: labour.

As if we still swung shovels, rather than drive diggers.

But our Bible says.....

by interesting1234 | 9th Aug 24, 9:39am 1723153154

So we have come ~110 years on and done a full cycle back towards concentrated wealth through capitalism it seems.

by Pa1nter | 9th Aug 24, 9:00am 1723150820

and full employment if we made the right changes.

"Full employment" probably isn't the right term. It implies a capacity by the whole population to be viable economic units.

We should have "full engagement", but that's a concept that'd need a radical re-think about how our society and economy operates.

by Jonny.Foe | 9th Aug 24, 9:21am 1723152089

Yes, perhaps I should have said an end to involuntary unemployment. Anyone that wants to work should be able to contribute and get paid.

by Pa1nter | 9th Aug 24, 9:44am 1723153454

If it's for money, then there has to be some performance required. That's not how everyone's geared.

But now an individual's worth is now tied to them being some sort of economic unit. This is a very restricted part of human experience.

Likely better would be some reversal of 5 days on 2 days off to 5 days off 2 days on. Just not sure how you'd sustain or distribute it.

by Jonny.Foe | 9th Aug 24, 12:29pm 1723163396

yes, no argument from me here. people do unpaid work for the good of the community and country everyday. it is grossly under-valued.

by Grattaway | 9th Aug 24, 10:08am 1723154932

So more tax cuts then

One of the problems that keeps arising though is the poor quality of public services - and with the abuse in care inquiry actually highlighting the absolute worst

but education, health (and water services) are also instructive - ideological capture has helped destroy the model

by Pa1nter | 9th Aug 24, 10:12am 1723155170

I'm not sure we ever got education right.

We can argue we used to be better at teaching basic fundamentals.

But as it was designed, the primary role of our education system isn't to foster independent thinkers, it's to institutionalize us as productive compliant workers.

by Let me be Frank | 9th Aug 24, 9:48am 1723153682

Is Willis English's understudy?...my suspicion is she is Richardson's protege, if not outright proxy.

by Zwifter | 9th Aug 24, 10:37am 1723156646

Got my haircut yesterday, even the hairdresser said things are way quieter than usual. Its tanking out there.

by JimboJones | 9th Aug 24, 10:46am 1723157211

Hair growth is relative to economic performance?

by Baywatch | 9th Aug 24, 11:03am 1723158216

Did you get a perm?

by Flying high | 9th Aug 24, 11:39am 1723160365

Professional self hair-cut, millions viewed

https://youtu.be/ZrTC5D-zYBs?si=c4G5nP9N5FI0VhBr

by The Person | 9th Aug 24, 11:06am 1723158365

> the job loss/falling demand spiral is established

What job losses? Employment is up in the latest stats. It's just that growth in the labour force was greater than the growth in employment, so the ratio has gone down. But the absolute number of people pulling a wage has gone up.

by kiwikidsnz | 9th Aug 24, 8:18am 1723148293

What is behind our super high electricity prices?

"…the fact that the gentailers have been incentivised to hold on to new generation consents and run generation lean to maximise profits is the root cause.”

https://www.stuff.co.nz/business/350371250/what-behind-our-super-high-electricity-prices

by M0ralHazard | 9th Aug 24, 8:42am 1723149727

Is there any good reasons why we shouldn't legislate to break up the Gentailers into separate generation and retail businesses?

by JimboJones | 9th Aug 24, 8:46am 1723149976

Agree, I do find that weird. But I can't see why it would create more generation.

by interesting1234 | 9th Aug 24, 9:46am 1723153586

They wouldn't hold control of retail and generation, therefore the generation outfits would need to compete to get more retailers purchasing from them and this would drive prices down, ideally via new generation investment allowing cheaper prices to be offered, bringing in more retailers and profits. Said savings for retailers would be passed in part to households. My theory at least

by Noncents | 9th Aug 24, 9:15am 1723151729

More layers, means more people requiring a "profit" which means higher prices.

Critical infrastructure should be govt owned.

by Grattaway | 9th Aug 24, 10:11am 1723155096

like the rail service

My phone service and options improved significantly once it was privatised

by Pa1nter | 9th Aug 24, 10:17am 1723155435

Not too long ago, I used to pay up to $500 a month in cell bills.

But different thing is different. The cost to deploy wireless cell coverage is dwarfed by the costs of in ground utilities like water and power. Blasting 5g to 10,000 devices is exponentially cheaper than hooking up 10,000 water lines.

Basically, the higher the capital costs, the less desire for investment by the owner.

by Let me be Frank | 9th Aug 24, 10:18am 1723155510

Or are you conflating an advance in technology and trade liberalisation that coincided with the privatisation?

by Pa1nter | 9th Aug 24, 10:23am 1723155829

Our cell network is reasonably affordable and of decent performance. Obviously it's better elsewhere, due to aspects like scale and density, but still pretty good. The private sector has provided something decent, with nominal costs.

But it's also fairly clear that there's investment we need to make, that don't have a great commercial case, with long (if ever) payoffs. That creates quite complex issues.

by Let me be Frank | 9th Aug 24, 10:38am 1723156723

"Our cell network is reasonably affordable and of decent performance. Obviously it's better elsewhere, due to aspects like scale and density, but still pretty good. The private sector has provided something decent, with nominal costs."

And you attribute that to privatisation?....cell technology was instigated and initially developed through public funding.

It appears common to compare that which was before the neoliberal revolution of the eighties to today and attribute 40 years of advancement solely somehow to privatisation....do we really believe that without that privatisation we would still be using rotary dial phones over copper lines today or any of the other changes that have occurred in that time?

by Pa1nter | 9th Aug 24, 10:46am 1723157210

And you attribute that to privatisation?....cell technology was instigated and initially developed through public funding.

Much of the commercial products today have manifest origins in the public sector. Can't deny that at all.

But in terms of taking something new, and potentially complex, and refining and producing it to a point where it's wildly available, it'd appear some sort of commercial model accomplishes that better than a centrally controlled apparatus. This is not to say that public and private entities can't work against that trend.

by Let me be Frank | 9th Aug 24, 10:56am 1723157800

Id suggest that all the commercial model has the potential to offer over public is perhaps choice, though even that can disappear with effective monopolies....and that is both a positive and a negative.

The same resources are available to either ownership model and the public model dosn't demand a return over and above cost.

by Pa1nter | 9th Aug 24, 11:07am 1723158420

It doesn't even demand covering costs.

I guess my biggest problem is a lack of faith in delivery. We can't even manage the basics, let alone future investment.

Then again much of our private sector seems to be going the same way.

by Let me be Frank | 9th Aug 24, 11:16am 1723159002

"I guess my biggest problem is a lack of faith in delivery. We can't even manage the basics, let alone future investment."

No, we cant now because we removed the capability of the state over a 40 year period, but we appeared to manage reasonably well up to that point....most of the major infrastructure we now rely on (and have failed to maintain) was developed prior to that 40 year period.

by mfd | 9th Aug 24, 10:57am 1723157840

"And you attribute that to privatisation?....cell technology was instigated and initially developed through public funding."

Sounds a lot like the electricity market.

by Let me be Frank | 9th Aug 24, 11:03am 1723158238

Sounds like a lot of things we now think only the private sector can deliver

by The Person | 9th Aug 24, 11:07am 1723158478

I'd say most of that was due to technology. Massive automation of exchanges and the like around the time of privatisation.

by Nzdan | 9th Aug 24, 1:40pm 1723167612

Strange. My phone service and broadband improved when a) the Government forced Telecom to unbundle and b) the Government rolled out Fibre. Until that happened, we were stuck with $0.20 text messages and 10 gigabyte caps on 128 kbit DSL lines.

by The Person | 13th Aug 24, 11:20pm 1723548040

The 20 cent txts where when c) the Government forced existing telcos to wholesale their cell towers to newcomers, allowing them to get established gradually.

by JimboJones | 9th Aug 24, 8:45am 1723149918

"Electric Kiwi wants the Government to step in" - why don't they step in? If generating electricity is so profitable, why don't they invest in generation?

by kiwikidsnz | 9th Aug 24, 8:52am 1723150321

The other reason "that shall not be mentioned"

https://www.kiwiblog.co.nz/2024/08/paying_off_objectors.html

by solardb | 9th Aug 24, 9:48am 1723153739

I don't think a total of $ 6 million per year is anything more than a rounding error to Meridian . But the thought of some of it going to Iwi overrides all to you .

by Grattaway | 9th Aug 24, 10:14am 1723155252

Because its corruption whether its a rounding error or not

and state sanctioned corruption is the worst kind - does matter if its $6 mill or a gold watch

by mfd | 9th Aug 24, 10:25am 1723155946

Only $3 million or so is thought to be going to Ngai Tahu, and I think the payment is shared with Genesis who own some of the dams along the Waitaki.

Meridian take in about $6 million a day in revenue.

by mfd | 9th Aug 24, 9:37am 1723153056

The government partly owns Mercury, Meridian and Genesis already and they are investing billions in new generation. Other private companies are investing billions more.

Are people really imagining that if this government were fully in charge, they would be stumping up 5-10 billion to really get things cranking?

by JimboJones | 9th Aug 24, 9:56am 1723154186

Exactly. Shane Jones will only decrease the amount of investment by overriding the market pricing signals.

by Peter M | 9th Aug 24, 11:44am 1723160659

The current pricing woes are the most outstanding example of a poorly structured and governed market. First of all generators were allowed to set up big retailing arms. Secondly the way pricing is stacked up during peak demand: the generator of the last resort which has the most expensive offer determines the price for all offers even if they were lower earlier. The generator of the last resort is always thermal generation which is normally scarcely used so you pay for them to be on stand by and has the highest input costs. Because of the way the pricing is determined our cheapest (hydro) generators are not interested in extending their capacity. They will always wait for the most expensive generator to come on line to make their profits. Lastly the gentailers (and other retailers) are hedging each other and that are financial instruments which also come at a cost. They need hedging because customers are not in the same location as where they generate. Example: Meridian generation is on the South Island. The majority of their customers are based on the North Island. Using the HVDC link will cause a energy loss, conversion from AC to DC and back, and therefore they have hedge arrangements with North Island generators like Mercury and Genesis.

What is the solution then? First of all generators should not be allowed to control retail arms because their retail arms underwrite high generation prices. You can't have a clean wholesale market when generators have the certainty that their retail arms subsidize high generation costs. Secondly structure the pricing stack by averaging the offers of generation as the determination of the final price and not the offer of the generator of last resort. And finally get the government out of the equation by forcing it to sell its majority stakes in the big gentailers. You can't have markets in which the majority player has two caps on!! But the last thing will be difficult because Nicola Willis needs to find a 1B NZD to compensate for the missed income of dividends every year.

by Peter M | 9th Aug 24, 9:21am 1723152118

How to isolate yourself from high eletricity pricing? You can still buy future contracts expiring Dec 2027 for 120$ /Mwh as of this morning but even for most of our energy extensive export businesses like woodprocessing and pulp & paper industry this is too high when they want to compete with the rest of world. Therefore I suspect most of them are only partly hedged and they are hoping for wet years like the last two when pricing is far lower than currently.

For the retail customers there are 2 options: Either solar on your roof or in your garden or buy shares in the gentailers. With the government as the majority shareholder they need the dividends to plug some other holes in their budget and, as a retail investor, you can use the dividend to lower your power bill. Because I am a little familiar with the market on the headlines, I immediately bought shares in Meridian and Mighty River, currently Mercury, as soon as John Key and Bill English floated them.

by kiwimm | 9th Aug 24, 10:52am 1723157527

My electricity company dividends are more than my electricity bill. I used to do the same with petrol companies but have since switched to an EV (and more electricity investment).

by mfd | 9th Aug 24, 9:35am 1723152922

If you don't offer the required price to tease out that last bit of generation or foregone electricity use, why would they bother firing up the expensive generation or shutting down parts of the factory? Sounds like a recipe for frequent brown-outs.

Or they will just offer at twice the price so the paid price ends up the same as before.

by JimboJones | 9th Aug 24, 10:00am 1723154414

Yep. I doubt there is a simple solution. What we have may not be perfect, but I'd bet there aren't many options that would get better outcomes.

Not sure why we allow the generators to be retailers though?

by mfd | 9th Aug 24, 10:22am 1723155778

Yeah I'm not sure about that - it's beyond my expertise to figure out how a completely separated industry would perform differently and whether it would be better. The current setup has the advantage of very stable retail prices despite swings in spot prices, as the two arms of each gentailer roughly balances out. That could of course be achieved via hedging with separated companies.

The current system also doesn't stop retailer- or generation-only companies from participating, but clearly they get knocked about by volatile conditions (as is happening now, with Prime Energy, a retailer, in default to Manawa, a generator). I'd assume mandating a separation would lead to more companies running into troubles as the market fragments, as was seen in the UK when gas price volatility crushed a bunch of companies recently. But maybe that's all good Capitalist competition?

https://newsroom.co.nz/2024/08/08/prime-energy-working-through-manawa-p…

by Pa1nter | 9th Aug 24, 10:26am 1723155997

The system is going to favour entities with a lower cost base, however the extra generation we need requires costs above those. Pretty hard for someone targeting that specific need to be viable.

by JimboJones | 9th Aug 24, 10:32am 1723156351

The fact that Electric Kiwi are struggling implies that separating the gentailers will require the new retailers to increase prices to cope with the (natural) volatility in generation price.

by interesting1234 | 9th Aug 24, 11:21am 1723159308

EK also stopped all advertising for 6-8months a couple of years back which saved them from having to put prices up, then they had to bite the bullet due to costs and the need for new customers as well.

by Grattaway | 9th Aug 24, 10:26am 1723156011

Peter M is correct- although Govt does have the opportunity to manage the last bit of generation so that it doesnt feed into pricing - or at least feed in the same way

The big players are squealing but medium business have been getting screwed for years - and I know as my bill went from $100k to north of $200k on renewal. A large solar install mitigated the impact but not every business has that opportunity

So I think two changes would help - But I am sure smarter minds have other or better improvements that could also be made

Generators out of retailing

Govt provides/pays for reserve generation -which could be recovered via a levy

by JimboJones | 9th Aug 24, 10:45am 1723157100

"Govt provides/pays for reserve generation -which could be recovered via a levy" - sounds like a possible plan, but its hard to know if that just distorts the market. It could lead to less investment if the government become the last resort.

by Audaxes | 9th Aug 24, 8:24am 1723148649

The UST 10yr yield is now at just on 4.00% and up another +3 bps from yesterday.

After yesterday's dire 10Y auction, which sent yields surging and stocks tumbling, the last thing the market needed was another debacle of an auction, but that's precisely what it got moments ago when today's 30Y auction tailed by 3.1bps, the exact same as yesterday's 10Y sale, and predictably yields spiked after both.

Stopping at a high yield of 4.314%, today's sale of $25 billion in 30Y paper saw the lowest yield since January's 4.229% and was down sharply from the 4.405% in July. And, like last month, today's auction tailed and by a substantial amount: with the When Issued trading at 4.283%, this was the biggest tail since November.

by Galloleous | 9th Aug 24, 9:41am 1723153279

From James Lavish:

Another day, another *dismal* Treasury auction, this time in the 30YR:

- 3.1 bps tail was*largest since Nov*

- Foreign bidders *took only 65%*

- Bid to Cover *dropped to 2.31*

- and Dealers had to swallow*19% of the offer*

This auction was *even worse* than yesterday's 10YR.

How is this being reported as good in the article above!?

by Galloleous | 9th Aug 24, 10:13am 1723155189

"For the first time in 48 years, 10y UST yields ROSE in response to a y/y decline in “World USD Liquidity”, which in our view was a warning that US debt/GDP, deficit/GDP, and NIIP/GDP are so high that US policymakers cannot overtighten USD liquidity without triggering a US debt spiral" - @LukeGromen

by kiwimm | 9th Aug 24, 10:57am 1723157860

The 2:10 treasuries spread is now at -0.05%. Very close to going positive which has signalled an incoming recession 12 out of the last 13 times.

by Audaxes | 9th Aug 24, 8:29am 1723148994

US signalling that Europe might end up on their own. That has always been the case. The US doesn't want to ever end up being eviscerated by Russia, by defending Europe. Europe still hasn't worked this out: Vance: US is not obliged to ensure the defence capability of European countries in case of a military threat. Link

Extraordinary interview of former Australian PM Paul Keating, accusing the current Australian government of "selling out to the United States": "The prime minister gets the dinners on the White House lawn … [and] these turkeys all fall for it." https://abc.net.au/news/2024-08-08/paul-keating-aukus-china-albanese-foreign-policy/104201388 Link

by profile | 9th Aug 24, 8:34am 1723149241

Don't mess with the military industrial complex.

Gabbard told Racket News this week that she and her husband had been subjected to extraordinarily invasive and lengthy searches before several flights in recent weeks and that their boarding passes were marked "SSSS," for "Secondary Security Screening Selection," a designation usually reserved for suspected terror threats.

...The surveillance reportedly began after Gabbard appeared on Laura Ingraham's program on Fox News last month and criticized Kamala Harris for her foreign policy inexperience. Foreign policy is being run by "unelected people in the military industrial complex who are profiting from us being in a constant state of war, and the national security state that has more power to undermine our freedoms and liberties when we are in a state of war. Kamala Harris does not have the strength to stand up to [them] so she is going to continue being a figurehead just like Joe Biden has been."

Tulsi Gabbard, the former Democratic congresswoman who has been a harsh critic of Joe Biden and Kamala Harris, has been placed under federal surveillance at airports and on planes under the "Quiet Skies" program designed to track terrorists after 9/11, whistleblowers claim.

https://nypost.com/author/miranda-devine/

by Audaxes | 9th Aug 24, 8:39am 1723149557

Important thread on the oligarchic rule system in Britain, which also includes the power to hold secret court hearings & issue "D notices" to the media, controlling the discourse, while themselves being secret. Plus MI5 rewriting history by forging documents (see History Thieves) Link

by Audaxes | 9th Aug 24, 8:55am 1723150533

A decade-long dispute between Coca-Cola and the US tax authorities has escalated that the company could owe $16bn in back taxes, enough to wipe out a year and a half of profits, rising by more than $1bn a year. The soft drink maker has been hiding “astronomical levels” of profit in low-tax countries including #Ireland to shield it from the US Internal Revenue Service, acc to a withering court judgment, which the company is planning to appeal against later this year. https://ft.com/content/cd05fb4b-8e67-4996-a5f3-bf1b8ccdf3af Link