Breakfast briefing: The major economies separate into two growth blocks

Economy / news

US powering ahead; India's expansion remains strong; China's wobbles worry policymakers; EU contracts; ACCC tackles supermarket ad tactics; UST 10yr 3.75%; gold form and oil soft, NZ$1 = 62.8; TWI = 70.2

24th Sep 24, 7:20am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news the global expansion seems to be getting more uneven.

In the US, the good economic data keeps on coming. They reported a healthy PMI expansion in September, driven primarily by their service sector which is now expanding its fastest since March 2022.

And the Chicago Fed's National Activity Index surprised with an unexpected gain in August.

And because there is now less than a week until the end of Q3-2024, the estimates now see an expanding economy rising at between a +2 and +3% rate 'real', and keeping up the pace of expansion that shows no sign of slacking. On a 'real', inflation-adjusted basis, the Trump economy grew +2.8% in his four year term. On the same 'real' basis the Biden economy has grown just on +10% during his 3½ years so far.

So it may seem a bit odd that the heads of the regional Fed banks in Chicago, Minneapolis, and Atlanta all said, at a conference yesterday, they recommend more rate cuts.

India's economy is still expanding fast in September, according to the same PMI survey results. However, the pace isn't quite as fast as they had in August.

Singapore said its inflation rate fell to 2.2% in August from 2.4% in the prior two months, matching market forecasts and notching the lowest level since April 2021, as food prices stayed at their lowest in over two years.

China's September PMIs aren't released until next week. But they may not be great.

China's car dealers are pleading for government help as demand softens fast.

So in China yesterday, their central bank unexpectedly lowered the 14-day reverse repurchase rate by -10 bps to 1.85% yesterday. They also injected ¥75 bln in liquidity into the banking system. And they pumped in up to another ¥160 bln via 7-day reverse repos, but kept the rate unchanged at 1.7%.

And in another unusual step, their central bank said its boss will give a unique briefing later today on "financial support for economic development".

Also not great were EU PMIs. Their service sector is still expanding, but not as fast and service activity is now at a 7 month low. Their factory sector is actually contracting and at a nine month low. Leading them down is Germany.

The Judo Bank Flash Australia Manufacturing PMI fell further into contraction in September, an eighth consecutive month of contraction in manufacturing activity and at the fastest drop since May 2020. New orders and production also fell at the quickest pace in 52 months amid softening demand conditions. Their service sector expansion has almost evaporated, according to this same survey.

And staying in Australia, their competition regulator is taking on the two dominant and giant supermarket chains (Coles & Woolworths), alleging that ‘Prices Dropped’ and ‘Down Down’ claims and the like are actually misleading.

The UST 10yr yield is now at just on 3.75% and up +2 bps from yesterday. The key 2-10 yield curve is up now +16 bps positive. Their 1-5 curve inversion is still inverted by -44 bps. And their 3 mth-10yr curve inversion is still at -102 bps. The Australian 10 year bond yield starts today at 4.02% and up +9 bps. The China 10 year bond rate is at 2.05% and unchanged. The NZ Government 10 year bond rate is now just on 4.24% and up +4 bps.

Wall Street has started its week up +0.2% and just off its record high (set Thursday). Overnight European markets opened their week with rises of about +0.5%. Yesterday Tokyo was closed for a public holiday. Hong Kong dipped -0.1%, but Shanghai rose +0.4%. And it was matched by Singapore. The ASX200 finished its Monday session down -0.7% however, and the NZX50 ended down -0.6%.

The price of gold will start today at US$2628/oz and up +US$7 from yesterday to a new all-time high again.

Oil prices have dipped -50 USc to US$70.50/bbl in the US while the international Brent price is now just under US$74/bbl.

The Kiwi dollar starts today at 62.8 USc and up +40 bps from this time yesterday and near its highest of the year. Against the Aussie we are unchanged at 91.6 AUc. Against the euro we are up +½c at 56.4 euro cents. That all means our TWI-5 starts today at 70.2, and up +30 bps from yesterday.

The bitcoin price starts today at US$63,245 and +0.3% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.

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Source: RBNZ

Source: CoinDesk

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49 Comments

by kiwikidsnz | 24th Sep 24, 7:28am 1727119731

KiwiSaver passes milestone of $100 billion of funds under management.

"Total fees, charged by KiwiSaver providers have increased, 18.9% - from $664.1 million in 2023 to $789.6 million in 2024. This is in line with the increase in total funds under management and shows that fees have not increased per dollar invested, but they have not decreased either.

“While we have seen a gradual decrease in fees as a percentage of funds under management over the last 10 years, this wasn’t continued in the 2024 data. As KiwiSaver grows, I expect to see the benefits that come with economies of scale shared with KiwiSaver members"

https://www.fma.govt.nz/news/all-releases/media-releases/kiwisaver-pass…

by JimboJones | 24th Sep 24, 8:07am 1727122054

"but they have not decreased either" - they have in real terms haven't they? The cost to manage the funds would have increased with inflation.

by kiwikidsnz | 24th Sep 24, 8:17am 1727122632

Would it? These KS are not actively managed funds.

Once the account structure is setup, there is no significant marginal increase in actual costs in managing $1000 or $1M. Which is why all fund managers work on a ticket clipping %.

NZ KS funds are also reinvested in global fund managers who also clip their share of the % ticket.

by KH | 24th Sep 24, 8:17am 1727122678

New Zealand would be a better place with a trillion in Kiwisaver.

Time for the governments to wake up and organise it.

by M0ralHazard | 24th Sep 24, 11:13am 1727133195

Wouldn't it be better for NZ if that Kiwisaver money was invested in NZ (infrastructure, etc), rather than overseas index funds?

by mfd | 24th Sep 24, 8:32am 1727123566

Vote with your feet if you don't like high fees - there are plenty of options much cheaper than that implied average of ~0.7%. I pay 0.25% with Simplicity and they do reduce their fees as their scale increases.

by kiwikidsnz | 24th Sep 24, 8:37am 1727123850

While I no longer have a KS account I have previously had investment funds with Simplicity for several years.

by Foxglove. | 24th Sep 24, 7:32am 1727119924

If the renowned comment “it’s the economy stupid” was highly impactful for Clinton’s presidential run then it does not seem to wash much now as by and large the American people are reported as dissatisfied with the performance of Biden and apprehensive about ithe prospect of its continuation by Harris. Yet the general situation as basically explained as above, for economic growth anyway, evidences Biden having significantly improved what Trump left behind despite inheriting the pandemic crisis. All rather enigmatic isn’t it.

by JimboJones | 24th Sep 24, 7:51am 1727121104

It’s hard to promote your economic achievements when there is a cost of living crisis and some people are doing it tough. Hipkins was in that position last election.

by Pa1nter | 24th Sep 24, 7:59am 1727121544

Ones a financial achievement, the other is a social one.

Sorta like how someone can be a Billionaire, but be fairly dysfunctional in their private life.

by Foxglove. | 24th Sep 24, 8:16am 1727122596

Would contend that Hipkins had no economic achievements to promote, full stop. On current standards, would be good credentials for the Wellington mayoralty though.

by JimboJones | 24th Sep 24, 8:20am 1727122846

If you care to do an unbiassed statistical review of their term, you would probably give them a B grade. Economic growth was fairly good (until the OCR was hiked at the fastest pace in history), unemployment was low. Nothing to crow about, but it was hard for Hipkins to defend in the middle of a "cost of living crisis".

by kiwikidsnz | 24th Sep 24, 8:32am 1727123563

https://croakingcassandra.com/2023/12/16/gdp-per-capita-growth/

by JimboJones | 24th Sep 24, 8:55am 1727124919

Please look at the real stats from stats NZ, not someone's right wing cheery picking. I notice they didn't include Jun 21 when we had 6% annual growth for example.

by kiwikidsnz | 24th Sep 24, 10:41am 1727131278

"...someone's right wing cheery picking. "

- sourced from BNZ & OECD...

& using mid year rates just for NZ in an international comparisom would actually be cherry picking

by Pa1nter | 24th Sep 24, 8:21am 1727122895

Burning money quicker than if you poured kerosene on it and lit a match is quite a neat trick.

by Advisor | 24th Sep 24, 8:38am 1727123924

I agree. Each of the 4 Labour budgets during Covid and thereafter pumped a fiscal deficit equivalent to approx. 8-10% of NZ's GDP.

Most of that went into stimulatory pursuits in the short run bursts such as public back-office bloat, welfare increases and writing lengthy business cases for capital projects that never got built.

by JimboJones | 24th Sep 24, 8:56am 1727124999

So there must be a lot of very quick wins for the current government then? We should be back in surplus now, right?

by IT GUY | 24th Sep 24, 9:00am 1727125213

Once all the civil servants leave there beach houses and start the march into WGTN CBD 5 days a week, the local economy will roar ahead.

Productivity will soar. GDP will boom.

Many corporates have 3 mandated office days now and will move to 4 next year. 1 flexible day a week is enough imho.

by agnostium | 24th Sep 24, 9:52am 1727128340

Really, let's see shall we.

All Willis has said is that WFH needs to be agreed on an individual basis rather than being a right. I can't see managers who also like WFH not approving for staff who currently WFH to continue doing so.

If it is forced on staff I think it will just accelerate the exodus of best candidates to OZ where pay is higher and conditions are better. Heaps of public service jobs are 9 day fortnights by default and employer contribution to super is 12% on top of salary. Moving to OZ normally results in an immediate 20/30% salary jump for similar or lower role than in NZ.

Obviously in New Zealand being a public servant also comes with a high level of respect and status from the general population and politicians ... Oh wait...

by murray86 | 24th Sep 24, 10:31am 1727130689

In part though it is about deliverables. The problem in government service is they appoint people to managerial positions who cannot manage and lead staff. Any team leader irrespective of industry, must understand what the deliverables from their team are. Why they do the job they have. To be able to meet this requirement they then have to know their staff. Some staff will need to be at work to meet the deliverable requirements, while others are better at home. Face time is important. Micromanagement undermines productivity too. Some jobs naturally have to be at the work face. But another part is the model of work places.

Most government work places are open plan except for senior staff. I have seen Harvard School of business studies which identifies that open plan offices undermine productivity by up to 20%. Building a work environment that promotes productivity and a collegial team environment is crucial to being able to produce the deliverables required.

by interesting1234 | 24th Sep 24, 12:01pm 1727136099

It was a joke through 2020-2021 lockdowns and all the traffic light nonsense. I was in leadership for a time then and the upper management were pressuring us o get staff back into the office, when they had no legal way to do so, and the government both peddling fear and telling everyone to stay home if they could. Couple this with the repetitive messaging to stay home if you had any slight sniffle, it was ridiculous. I left that role due to the large level of conflicting pressures and realising that upper management would happily throw me under the bus to keep their jobs if thins went south, and a good decision it was.

by singautim | 24th Sep 24, 11:55am 1727135749

A generalisation. Working from home can be good or bad depending on your job. There were times when I was a cobol programmer when it would have been good to have been able to work from home - say three or four days per week with the other one or two days indirectly learning from colleagues and teaching/training newcomers. Then I became technical manager leading a team supporting several hundred computer users - that demanded a minimum of 9 to 5 (actually 8 to 5 being the official hours in the 3rd world country where I was working) in the office plus overtime to keep on top of the work. I assume public servants will be the same - designing a major piece of infrastructure while working from home but taking responsibility for its implementation while being in the office or on site.

by Jonny.Foe | 24th Sep 24, 10:03am 1727129014

For the avoidance of doubt - the deficit spend (residual cash) from 2020 to 2024 was:

7.5%
4.0%
7.4%
6.5%
5.3%

The latter couple of years deficit spend was not enough to offset our current account (deficit - so offshore savings increased by more than the Govt pumped into the domestic economy - basically cancelling out the stimulus.

by Advisor | 24th Sep 24, 7:55am 1727121339

Recent increase in global conflicts have been very profitable for corporate America.

Europe replacing Russian natural gas with American LNG and the world re-arming itself with American defence goods have benefited the US economy. Reshoring/near-shoring from CHIPs Act and IRA have also boosted the economy with well-paying job growth.

US exports on average are now ~60 billion a month (~30%) higher than they were pre-pandemic.

by TommyYank-old | 24th Sep 24, 8:07am 1727122074

Like Clinton said--people are not stupid. In January 2021 when Biden assumed office Gasoline averaged $2.25 gallon-reached below $2.00 gallon under Trump. By mid 2025 it averaged $5.00 gallon after Biden discouraged production increases--long before the Ukraine War disruption. And every time people go to buy fast food or shop for good at a grocery store it ticks them off how high prices under Biden have zoomed. And $25k to $50k as Harris is proposing for a 1st Home subsidy makes the Labour Parties inducement to University Students back in 2017 look measely. Apparently $35 Trillion in Federal Debt doesn't mean a thing to the Democrats.

by Larry76 | 24th Sep 24, 10:52am 1727131930

Ah the usual BS dichotomy that republicans create low oil prices and democrats create high federal deficits.

Look at any statistics since Reagan and you will see both parties have spent more than they earned. Trump smashed federal revenue with his tax cuts for billionaires, and Biden has spent up large on covid recovery and onshoring efforts.

by solardb | 24th Sep 24, 8:17am 1727122631

Any other candidate other than Trump would probably be ahead because of that.

by murray86 | 24th Sep 24, 8:26am 1727123191

and just how much impact can a government really have on an economy? Some changes implemented can take years to have effect.

In the US they like to blame the President, but anything the President wants to achieve pretty much has to pass through the Senate and Congress. Executive powers only go so far.

In NZ the RBNZ is supposed to be independent, the private banks certainly are and have their own interests, so what effect can a government really have in the short term?

by Pa1nter | 24th Sep 24, 8:30am 1727123441

Short term unsustainable cash injections.

Potentially they could do some sort of capital/infra build out, that provides jobs in the short term doing the build, with longer term net positive financial returns. A bit of a unicorn scenario though.

by Jonny.Foe | 24th Sep 24, 9:53am 1727128434

US Govt and Fed still pumping deficit spending into the economy. Those dollars are flowing quickly into business bank accounts (voila increase in GDP) and then through to shareholders. They eventually get swapped for US Treasuries.

The average American is just a cog in wheel - they might briefly hold those stimulus dollars but they don't get to build any wealth with them - they just consume day-to-day (like good little cogs) and feel like they are slogging away without making any progress. That's why they don't appreciate the GDP growth or think the economy is going great guns.

Same is happening in India of course - although it is private debt there that is fuelling the growth (and loads of cheap fossil fuels obviously). Same in NZ from 1990 to 2009 too. You know, when we liberalised the economy and nobody noticed that our growth was driven almost entirely by increases in private debt?

by Pa1nter | 24th Sep 24, 8:27am 1727123227

It's almost like the de facto wealth and power distribution of larger societal groups is for a few to lord it over the many.

Large corporate entities are almost the exclusive provider of the necessities most people need to survive. Fairly hard not to have a lot of hand to mouth existence going on in such a scenario.

by interesting1234 | 24th Sep 24, 12:04pm 1727136260

And effective taxation is intended to prevent the hoarding of such wealth to the extreme end of the spectrum, this allowing the middle class to prosper and grow for the benefit of the many instead of the few.

by Jonny.Foe | 24th Sep 24, 12:13pm 1727136794

Exactly, the quicker cash is gathered up by rentiers, the more govt has to deficit spend (or banks have to lend). That is the purpose of tax - to keep money moving.

by Foxglove. | 24th Sep 24, 8:13am 1727122406

Damn good nutshell jf. Thanks.

by Yvil | 25th Sep 24, 4:37am 1727195841

Good summary Jfoe. But I believe you're also advocating for the current NZ government to end austerity and deficit spend, is that not so ?

by kiwikidsnz | 24th Sep 24, 8:41am 1727124101

What ‘net zero’ migration means for New Zealanders and the economy.

"Westpac has forecast net migration will hit net zero next year, after reaching a record high just last year.

“It’s quite a dramatic shift from 136,000 coming in to maybe a net zero and presents probably as a little bit of a headwind,” Dann said."

Just a little bit.

https://www.nzherald.co.nz/nz/what-net-zero-migration-means-for-new-zea…

by bw | 24th Sep 24, 8:58am 1727125116

“According to the Prime Minister, he’s softening a bit on the idea that if we have other investment criteria tied to residential housing, they might be able to get some agreement on some international investment in residential housing."

And where's as good a place to stimulate as any? Stonewood Key...ex brothel and strip club owners + ex politician families + property development. The New Zealand economy at its very best.

https://www.nbr.co.nz/property/stonewood-key-goes-offline/

by Advisor | 24th Sep 24, 9:27am 1727126864

The net negative forecast here is based on a net gain in foreigners offset by a net loss in Kiwis and longer-term migrants. Michael Gordon confirms in this podcast that the profile of Kiwis leaving are trending towards mid-career workers, often skilled ones, in their 30s banking on better income and/or homeowning opportunities abroad.

In other words, our economy will continue heading down the toilet in the long run as we continue to lose skilled workers with a fair chance that the ones coming in and bringing their family is low-skilled.

by rastus1 | 24th Sep 24, 9:51am 1727128280

And of course much of the loss overseas due to the insane price of housing.

by singautim | 24th Sep 24, 12:07pm 1727136424

I've spent the last decade grumbling about NZ's immigration policies and the stunningly pathetic actions of INZ. But the last couple of potential immigrants I've met are a Chinese recent graduate in IT from Auckland Uni and a couple both studying PhDs on scholarship in Auckland who already have a decade of experience with medical body imaging. In a sane NZ these people would be welcomed and then well rewarded to keep them here. I worry they will leave and the other recent immigrants I met working the supermarket checkout, running the local liquor outlet, driving Uber will be staying forever.

by The Person | 24th Sep 24, 11:47am 1727135277

net zero is a headwind? I would have thought constant population with neither a headwind nor a tailwind.

by HouseMouse | 24th Sep 24, 9:15am 1727126138

Du Val’s ‘Lakewood’ apartments- fitting name?

https://www.nzherald.co.nz/business/property-insider-stonewood-keys-joh…

by nightstalker | 24th Sep 24, 9:30am 1727127000

So it may seem a bit odd that the heads of the regional Fed banks in Chicago, Minneapolis, and Atlanta all said, at a conference yesterday, they recommend more rate cuts.

The only odd thing is NZ leadership making decisions based on rear mirror views.

The fact, the US economy grew well under Biden doesn't mean it will continue to do so.

The FED is trying to stay ahead of the curve, unlike the RBNZ or our current govt.

by Peter M | 24th Sep 24, 9:49am 1727128177

The US is showing the way how it is done:

Killing off any overseas competition at the front door with tariffs and (CHIPS and IRA) laws.
Running 6 -8% government deficits to keep the enormous creation of USD going (which has to flow to somewhere, preferedly Wall Street)
Making the rest of the world paying for it.
If anybody in the rest of the world wants a piece of the pie, they have to settle in the US and bring their innovations with them.

by Foxglove. | 24th Sep 24, 10:06am 1727129196

Well suggest that in itself illustrates Trump’s view at least, that the world needs the USA more than the USA needs the world

by J.C. | 24th Sep 24, 11:33am 1727134434

The price of gold will start today at US$2628/oz and up +US$7 from yesterday to a new all-time high again.

Interview with David Tait, CEO of the World Gold Council in Chinese media (China Daily) suggesting that the gold convertible 'PetroYuan' oil contract will be consequential in the resurgence of gold in the global monetary system, as the world de-dollarizes away from the fiat-based PetroDollar.

by Zwifter | 24th Sep 24, 12:24pm 1727137449

China has not choice but to move away from the USD if it wants the No.1 spot. Lessons were learned the hard way when the US just stole all the Russian's money.

by Palmtree08 | 24th Sep 24, 1:43pm 1727142234

All that Russian money is safely tucked away. Bankers don't want it spent on supporting Ukraine because that sends a bad message to other despots wanting a safe place for cash thieved from their respective states.