Here's our summary of key economic events overnight that affect New Zealand, with news we have ended a turbulent week where the USD fell, US Treasury benchmark rates rose, and equities retreated. Gold jumped.
The turbulence will continue into next week with the US president lashing out because his signature tariff policies aren't producing the economic growth or reshoring he anticipated and other countries have worked out how to game him. His new lashes are at the EU, and Apple, for not reshoring. Neither seem in awe of his power any more.
But first we should note that this is the long Memorial Day holiday weekend in the US, the start of their summer season which won't end until their Labour Day holiday on September 1. (Traditional investors "sold in May, and went away" because volumes lighten and become more volatile over this northern summer period.)
This is also the start of the US summer 'driving season'. American petrol prices are currently averaging US$3.196/US gallon. That is NZ$1.41/L. (A year ago it was +10% higher, equivalent to NZ$1.566/L.)
But of course, business carries on. There was an unusually large rise in new home sales in the US in April, taking them up to an annualised rate of 743,000, a level they haven't seen since mid 2022. After a string of weak months (and downwardly revised earlier data) builders are now resorting to widespread incentives to move stock, and it seems to have worked in April. Housing starts remained weak, and new building consents are declining still.
In China, their central bank injected ¥500 bln (NZ$120 bln) of new liquidity into financial institutions through their one-year medium-term lending facility. That was less than the ¥600 bln added in April.
China's net foreign direct investment actually fell in April from March, a very unusual shift. The fall wasn't large at -US$4.8 bln for the month but a major shift from the +US$7.2 bln rise in April 2024 which was considered unusually small. Go back to April 2023 and it was +US$14.1 bln and +US$15.4 bln the year before. In the past two years, the August levels have stalled (but not retreated) and this is the first we have ever seen where there was a net outflow of foreign investment from China in a month. (China's official release noted the year-on-year -10.9% decrease, but only notes the year-to-date current levels so disguised the April month retreat.)
And Nikkei is reporting that protracted real estate woes are pushing down lending rates, and now 80% of Chinese banks have seen their interest margins fall below the industry threshold for profitability, raising concerns over the sector's stability. Fifty-four of 58 commercial banks listed in mainland China and Hong Kong posted reduced interest margins compared with the previous fiscal year, according to the analysis, which evaluated financial results announced for the year ended December 2024.
Japanese inflation is holding high, and came in at 3.6% in April, the same as in March. But that was its lowest since December. Food prices rose the least in four months but were still up +6.5% from a year ago, down from the March +7.4%. This dip came after the government took steps to curb rice prices that have doubled over the past year. High rice prices have cost the government minister 'responsible' for that sector his job this week.
In Singapore, April CPI inflation held art a very low 0.9%, but that belies the monthly fall of -0.3% from March. This is the second month in a row they have had month-on-month deflation. That is largely due to falling costs for clothing, household durables, and entertainment. Food price increases were modest.
Taiwanese retail sales growth was weak again in April. It hasn't really recovered after the unexpectedly large drop in February, bumping along essentially at year-ago levels.
But Taiwanese industrial production is on fire, rising another sharp +22% in April from the same month a year ago. That is the best growth on record for them, apart from the distorted pandemic recovery.
The UST 10yr yield is now at 4.52%, and down -3 bps from this time yesterday but up +7 bps for the week. The key 2-10 yield curve is again slightly flatter at +52 bps. Their 1-5 curve is now inverted at -7 bps. And their 3 mth-10yr curve pulled back more, now at +22 bps. The Australian 10 year bond yield starts today at 4.39% and down -4 bps from yesterday. The China 10 year bond rate is unchanged at 1.69%. The NZ Government 10 year bond rate is still at 4.67% and little-changed on the day but up +6 bps for the week.
Wall Street has ended its week lower, with the S&P500 down -0.7% in Friday trade with a late dip. For the week that is a -1.8% loss. (Earnings update here.) Overnight European markets fell about -1.5%, except London which dipped only -0.2%. Yesterday Tokyo ended its Friday session up +0.5% to limit its weekly fall to -1.1%. Hong Kong was up +0.2% for a +1.9% weekly gain. Shanghai was down -0.9% in Friday trade with a late-session dump for a weekly -0.5% loss. Singapore ended up +0.1%. The ASX200 also ticked up +0.1% on Friday to end its week up +0.2% while the NZX50 fell -0.5% yesterday for a -1.5% weekly retreat..
The Fear & Greed index is still in the 'greed' zone, unchanged from a week ago. Investors are ignoring the risks being highlighted by analysts.
The price of gold will start today at US$3,362/oz, and up +US$67 from yesterday. And that makes it +US$175 higher than a week ago, a +5.5% jump.
Oil prices are +50 USc firmer today at just over US$61.50/bbl in the US and the international Brent price is just under US$65/bbl. A week ago these levels were US$62.50 and U$$65.50 respectively.
And it is probably worth noting that the rig count in North America fell rather sharply last wee, with a net -17 platforms going out of service. Extended low prices and soft demand is hurting America's oil patch and they are disinvesting.
The Kiwi dollar is now at 59.9 USc, and up +90 bps from yesterday at this time. A week ago it was at 58.8 USc so an outsized +110 bps rise since then. Against the Aussie we are up +20 bps at 92.2 AUc. Against the euro we are up +30 bps at 52.7 euro cents. That all means our TWI-5 starts today still just under 67.8 and up a net -40 bps from yesterday, up the same for the week.
The bitcoin price starts today at US$108,910 and down -2.4% from yesterday but is a +4.9% rise for the week. Volatility over the past 24 hours has been modest at just on +/-1.7%.
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13 Comments
In my survey of businesses with MintHC, the comments on current conditions submitted by respondents are so negative that if I had no numerical outputs to challenge the pessimism, I’d probably conclude our economy was back in recession again. Businesspeople are disappointed that, having survived to 2025, things are not much better than last year.
That's from TA, it feels a bit bleak, II am hearing from friends across my industry that revenues are about 10-15% below target , so I guess 5-10% below last year. Everyone knows that staffing costs are going to be under pressure.
Beginning to think, given its internal financial and economic woes at present, China may find the temptation of Taiwan and its ongoing equivalent success, too much to resist. Especially as their pal in Russia Putin, has demonstrated just how easily, if not disdainfully, President Trump can be brushed off. Any military invasion will not though be easy given the terrain, high density urban population, well established defences and ability to retaliate in kind at least for some time. Just speculating.
If you are a China watcher you will see that many of Xi allies been purged from military, I think he has lost direct control of military, also there are three factions in CCP, they hate each other but seem to have come together to limit Xi power and possibly even remove, watch this space, IMHO Xi is about to get rolled. I do not think the CCP are ready or willing to fight a war they could lose.
“Political power grows out of the barrel of a gun.” That pearl of wisdom uttered by Mao is about to enjoy its 100th birthday. Yes as copiously demonstrated by Stalin, every dictator inherently fears their own military. However a dictator on the edge of a precipice can too, be a very dangerous dictator.
The CCP is the limiting control , in case of China , Hu Jintao’s youth league has a lot of power. I think Xi made a grave mistake to have Hu Jintao removed from that meeting. The youth league wants reform and more opening up.... If China really did open up it would be a challenge to the USA that it might not survive.
Societies with millions of excess men are typically a significant conflict risk
https://www.washingtonpost.com/graphics/2018/world/too-many-men/
Very interesting link
They have to be young though.
“Political power grows out of the barrel of a gun.” That pearl of wisdom uttered by Mao is about to enjoy its 100th birthday.
There's another quote, the specifics of which I can't recant verboten, that attests power legitimized only by a gun, is the most fragile.
I hope you are right IT, another major conflict is the last thing the World needs right now. With a weak leader in the White House and a tyrant in the Kremlin there is plenty to deal with already.
I actually think it would be far fetched to believe that the USA/Taiwan could "win" such, the straight is only 180km vs the great distances that US air support would have to fly, and also the extended supply lines etc. However Taiwan could target things like the Three Georges dam, its all about how many Chinese lives they are prepared to lose to absorb Taiwan. I think they will just wait there time, under a more reformed China Taiwan may wish to rejoin......
China is nothing like it was 50 years ago, who knows what it will look like in 50 years.
Speculating again but the concept of an air and sea blockade coupled with jamming of electronics would obviously not need boots on the ground. Just how the international world would react is well beyond my guess.
China is probably more exposed to international pressure than Russia both for imports and exports.
And each nation is at either end of the "am I a global superpower" spectrum. Russia is fighting to try and retain its status over being just another country. China is arguably still ascending, so risks that potential by kicking off prematurely.
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