Here's our summary of key economic events overnight that affect New Zealand, with news the equity markets and the bond markets are flashing quite different signals, and equity markets seem quite out of step with the operating economic data. When these vary, there is usually a reckoning, and that usually (but not always) results in an equity correction.
But first up today, the overnight dairy auction brought results similar to what the derivatives market expected, maybe slightly better because of show early season strength in WMP demand and prices. Volumes sold were the highest since October 2024. And helping the tone was the fall in the NZD which boosted the rise in local currency. Overall the event ended up +0.7% in USD and up +1.5% in NZD. The industry will be satisfied the new season is off to a good start.
On the butter demand front, there was a noted fall off in demand at these prices - except frim China and Middle East buyers. There is enough there to keep prices elevated, although to be fair the butter price did ease +3.8% at this event.
Meanwhile, the widely watched American ISM services PMI unexpectedly fell in July from June, and the result was lower than expected. The services sector is now nearly stagnant, with seasonal and weather factors having a negative impact on business. A slowdown was most evident in the fall in new orders - activity is still operating faster than new orders are arriving so that is not great for the future. Not slowing are price increases, so all the signs of stagflation here. However, the internationally-benchmarked S&P Global/Markit version told a more upbeat story.
US exports fell in June from May but the fall was only minor, and from a year ago there were up +3.3%. US imports fell more sharply in the month to be -1.4% below year-ago levels. But that only results in their trade deficit being back to mif 2024 levels. Or 2023 levels. The needle has moved very little.
But the RCM/TIPP sentiment survey rose in July although the move was minor. It mirrored the month's equity markets and this index also hit a 4 year high.
American household debt rose by +US$185 bln in the June quarter to a new record high of US$18.4 tln. That is now 60.6% of GDP. The flow of household debt into serious delinquency was mixed across debt types, with credit card and car loans holding steady, student loans continuing to rise, and mortgages edging up slightly.
In India, their services PMI tells a booming story. International orders and overall sales rose sharply from the fastest increase in business activity for 11 months. However, price pressures re-accelerated, so this boom comes with inflation consequences. It's a report in sharp contrast to the lackluster American equivalents. "Someone" is quite envious of their success and is threatening sharply higher tariffs.
Meanwhile Trump is signaling that their endless 'truce' with China will get another extension.
And China delivered a positive data surprise yesterday, with the private Caixin services PMI rising and by more than expected. (Remember the official NBS services PMI eased lower.) The Caixin China General Services PMI rose in July from June’s nine-month low with the fastest expansion in the services sector since May 2024, and with new business growing at the strongest pace in a year.
That is in contrast to the EU services PMI which remains weak, although it is still expanding.
Quarterly June data out today in Australia shows household spending rose at a good rate, up +5.1% from the same month a year ago - and the rate it rose from March was good too. Discretionary spending was strong. Western Australia was the only jurisdiction where spending fell. On a volume basis (after inflation's impact), it is up +0.7%.
Join us at 10:45am for the New Zealand labour market report for June, although it might just confirm the tough operating environment we are in.
The UST 10yr yield is now at 4.20%, up +1 bp from yesterday. The key 2-10 yield curve is softer at +49 bps. Their 1-5 curve is much flatter at -16 bps. And their 3 mth-10yr curve is slightly less inverted at -16 bps. The Australian 10 year bond yield starts today at 4.21% and unchanged from yesterday. The China 10 year bond rate is still at 1.71%. The NZ Government 10 year bond rate starts today at just over 4.45% and down another -5 bps.
Wall Street is soft today, down -0.4% from yesterday. Overnight, European markets were up about +0.2. Tokyo ended its Tuesday session up +0.6%. Hong Kong was up +0.7%, Shanghai was up a full +1.0% and Singapore was up +0.3%. The ASX200 closed its Tuesday session up a strong +1.2%. But the NZX50 bested that, up +1.5%.
The price of gold will start today at US$3,379/oz, up +US$7 from yesterday.
American oil prices have slipped back again, down another -US$1 to just under US$65.50/bbl with the international Brent price just over US$67.50/bbl.
The Kiwi dollar is at 59 USc and little-changed from yesterday. Against the Aussie we are down -30 bps at 91.3 AUc. Against the euro we are unchanged at 51 euro cents. That all means our TWI-5 starts today at just on 66.9, down -10 bps.
The bitcoin price started today at US$113,625 and down -1.4% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/-1.2%.
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24 Comments
Is there a betting market where I can put money on who will lead National into the next election?
Luxon has lost the room.
It is remarkable enough to enter parliament and at the end of your first term emerge as Prime Minister. It would be astounding though to not then complete even one term of the prime ministership , inviting both ridicule and loss of confidence in the stability of the coalition. My pick is that the grandstanding of government will be left to the better equipped other coalition leaders &co, and the emerging brighter lights in National such as Bishop and Stanford. Many successful executives in business have lead from the back and Luxon may be reduced to the same. It would be fatal to try and re-image. The electorate immediately recognises and rejects falsity. Some may recall the ill fated attempt by former PM Palmer to liven up matters by blowing his trumpet around the beehive.
I think those same ambitious people will be calculating if they want to spend 6 years in opposition and deciding they dont like that math.
There remains the opportunity for a significant change away from the orthodoxy that has reigned for the last 50ish years that is not working. The myopia in politics is worrying. In NZ it is steadily relegating us to a third world status. Across the world stable countries are being made to dance to the tune of maniacs.
I doubt the opportunities for China are not going unnoticed. An invasion of Taiwan would destroy what international credibility they have at the moment. I doubt they are pleased the Aussies are going to buy their newest frigates from Japan, but Aussie will need to be very careful about the security of the electronic systems on those ships to ensure there is no Chinese penetration. The South China Sea is an increasing area of concern as completed airbases there puts Chinese bombers (H6) in range of Aussie, without stand-off weapons. China would be best suited to just sit back and wait for the time being. The are very likely to be the most significant power on the planet for the next little while.
National were almost unelectable under Bridges and Collins, they were putting their foot in their mouth every second week. Luxon has completely turned them around. I doubt they will get rid of him - there is still a pretty good chance the economy will improve by the election, and if it doesn't they are probably toast anyway.
He's also done a pretty good job of holding a volatile coalition together.
Yes, he is in the unenviable position of being PM with two relatively tiny parties having more say than their "mandates" should justify.
National would want to consider whether rolling their leader would make that situation even worse (by having one or other of those parties gaining a greater percentage of the overall vote).
Not that I'm suggesting he is doing a great job though.
No Toyko. Lutxon is going into the election as leader.
Media love to speculate on leadership, and even more uselessly, predict early elections.
Best to stick to actual issues. But maybe that's too hard.
I think this government is ticking off item on their list quite well every week. This week was schools.
Winston on a roll...
"For the tenth straight month neither major party has managed to secure a third of the vote. Within the National-led Government support for National was down 1% point to 31%, support for ACT was down 1% point to 10.5% and support for NZ First increased 1.5% points to 9.5% - the highest support for NZ First since the last New Zealand Election."
https://www.roymorgan.com/findings/9984-nz-national-voting-intention-ju…
These polls seem to be regarded as somewhat maverick but actually, especially at election time, they turn out to be pretty accurate. What is being illustrated here is that the present coalition of National,ACT,NZF are favoured by the electorate over the other combination on offer of Labour, Greens,TPM. That is hardly surprising given the unsightly disintegration of the sixth Labour government and the raucous and unruly elements continually at the forefront of the other two.
I see Nationals support eroding and moving to either NZF or ACT, I am not sure this is a recipe for future coalition cohesion. At a point Act plus NZF will together be a bigger block then National, interesting dynamics may well emerge.
Depends whether you believe the current numbers are more important, or the trend. The trend seems to be more voters moving left as the economy gets worse under the right. The right need things to improve to win the next election - which it probably will but no guarantee.
Yes. The original universal RUC proposal encompassed eliminating petrol tax as the quid pro quo however I doubt that a future Greens enabled Labour govt would continue to honour that. Their virtue signals could be misunderstood.
Likely as happened with the introduction of GST where the next Labour government took out any compensation for their it and increased income tax over the top of it. So in similar fashion the new RUC system will remain and the old fuel tax reinstated.
I agree. I suggest this needs to be fully in place before the next election, or not at all. By fully in place the fuel taxes currently in place completely removed. Thus who ever wins the next elections will wear the responsibility for what they do about it when they do. And the coalition can take the cred for what they did. History tells us that few if any politicians will abolish or reduce taxes if they can avoid it.
It'll be interesting to find out what the threshold for being a 'light' vehicle is. For example would the diesel pickups like Ford Rangers be included? I've argued quite a bit that big trucks need to pay more towards the damage they do on the roads.
I can't see, under the proposal of electronic vehicle monitoring (by either a private provider or a government operation), that the infrastructure could possibly be in place by the end of 2026.
Whether that monitoring be a device in each and every registered car or by roadside tracking technology (number plate recognition cameras).
Pretty sure Labour were saying the same thing that fuel tax needed to go. Surely they can't charge fuel tax and RUCs on Petrol but not on Diesel.
And/or road tolls....easy to apply with electronic RUC monitering
How will those on even moderate incomes be able to budget for this (10,00ks at $700).
Pay as you go in petrol is the only way a big% of road users can pay i.e inescapable.
And pay on petrol at pump is the only way a % of road users will pay.
The outcome will be unpaid RUC's leading to unpaid fines and many areas paying zilch towards roading.
Firstly if outstanding charges then the subject vehicle cannot be registered and if necessary impounded. And while at it, not allowed on the road either, unless covered by at least third party insurance.
Do you work for govt or in a city office as you have a overly simplistic view of how the real world out there functions.
The underclass, the working poor and rural NZ are already giving wofs, drivers licenses, car rego's and fines the middle finger.
Vehicle clocking is going gangbusters with imported tech form China.
You really think they will bother with RUC's?
Well strangely enough I can fill all of those in because recently, out in the country, we were hit by a vehicle that barrelled straight through a compulsory stop and that had neither, registration nor WOF and was uninsured. Whether or not the driver had a license is unknown. Most importantly those in either car were unhurt. My vehicle lost a mud guard and door surrounds. As it happened the police knew the other driver and his parents met the cost of my repairs. True that situation as a fact is hardly uncommon in society but that does not mean that criteria and law should be abandoned in the face of it.
Distance licences are bought in units of 1000km so $76 - with their savings from removing fuel tax
Three problems:
You need to buy the RUCs prior to getting the petrol excise tax savings (we are talking about people living paycheque to paycheque here),
At the moment, RUC labels are only available from NZTA agents or online. The former are inconvenient to visit each week and the latter requires internet access and a degree of computer ability. Plus the label is mailed to the address of the car owner (so anyone moving due to being a renter needs to remember to keep that up to date).
Each separate purchase incurs an administration fee (and agent fee if bought from an NZTA agent), further punishing those who can only afford to buy the minimum each time they need more RUCs. It's not much in isolation but it adds up - especially for the aforementioned people living paycheque to paycheque.
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