Breakfast briefing: US returns from holidays in grumpy mood

Economy / news

Key US indicators point lower, risk appetite fades; dairy prices drop; EU inflation stable; global electricity demand surges; UST 10yr at 4.28%; gold rises sharply to new ATH, oil firmish; NZ$1 = 58.7 USc; TWI-5 = 66.3

3rd Sep 25, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news that US financial markets are back from holiday and concluding that the tech sector is over-valued and that US public policy is heading into a blind alley. The bond market sentiment we noted in the past month has now spread into the equity markets.

And you can see the rising risk aversion in the gold price, driving it sharply higher today into new territory.

At the overnight dairy auction, prices slumped more than -4.3% in US dollar terms. The situation was 'saved' somewhat by the sharpish recent fall in the NZD, so in local currency terms it was 'only' down -3.5%. Both the milk powders retreated sharply, with SMP down -5.8% and WMP down -5.3%. Most other milk fat commodities fell too with the notable exception of cheddar cheese which was up +3.6%.

Although its only one event, the dominant WMP price is now back to early 2025 levels, and with a bit of a thud. Analysts will be keeping an eye on this, unlikely to shift their farmgate price forecasts but wouldn't want these lower levels to repeat. But good global supply levels won't help future prices especially if demand turns soft and it seems to be doing in some key markets.

In the US, the widely-watched ISM factory PMI was still contracting at a concerning rate in August. And that was despite a small rise in new orders. Both measures were lower than expected. The alternate S&P Global/Markit PMI told a different story however, rising on more production and inventory building. But it was the ISM one that markets took more notice of.

US logistics LMI was little-changed. But the elements like inventory levels and inventory costs are rising at an increasing rate, and these are not good portends.

And the RCM/TIPP consumer sentiment index was quite downbeat as well. In fact it fell when a rise was anticipated.

In Canada, their factory PMI rose from the deepish contraction it has been in for most of 2025, but it is still not expanding. It too was based on rising production, but no rise in new orders.

In Europe, they said their August inflation was running at 2.1%, up marginally from +2.0% in July. Interestingly, energy costs are still retreating but the impact on the overall price level is now much less with food and services prices rising at a much lesser rate now.

A new global report is highlighting that electricity demand is on course to rise by +3.3% in 2025 and +3.7% in 2026, more than twice as fast as total energy demand growth over the same period. According to the report, renewables are expected to overtake coal as the world’s largest source of electricity generation as early as 2025 or by 2026 at the latest, depending on weather and fuel price trends. At the same time, nuclear power output is expected to reach record highs. The steady increase in natural gas-fired power generation is set to continue displacing coal and oil in the power sector in many regions.

The UST 10yr yield is now at 4.28%, up +3 bps from yesterday at this time. The key 2-10 yield curve is up at +63 bps. The last time it was this steep was in February 2022. Long dated yields are on the move higher. The UST 30 year yield is actually closing in on 2007 levels and almost at 5%. Their 1-5 curve is now inverted by -10 bps. And their 3 mth-10yr curve is now inverted -3 bps. The China 10 year bond rate is down -1 bp at 1.77%. The Australian 10 year bond yield starts today at 4.38% and up another +4 bps from yesterday. The NZ Government 10 year bond rate starts today at just over 4.46%, up +5 bps.

Wall Street is back from holiday and grumpy with the S&P500 down -1.0%. Overnight, European markets were all lower with Frankfurt down -2.3% and Paris down -0.7%. Yesterday, Tokyo closed up +0.3%, Hong Kong closed down -0.5% and Shanghai closed down -0.4%. Singapore ended its session up +0.5%. The ASX200 ended its Tuesday session down -0.3%. The NZX however was up a good +0.5% in the circumstances.

The price of gold will start today at US$3,526/oz, up +US$50 from yesterday and surging to a new record high. Silver has moved higher too but not as aggressively.

American oil prices are +US$1 firmer at just over US$65.50/bbl with the international Brent price holding just over US$69/bbl.

The Kiwi dollar is at just under 58.7 USc and down -30 bps from yesterday and its lowest level since mid-April. Against the Aussie we are down -10 bps 89.9 AUc. Against the euro we are unchanged at 50.4 euro cents. That all means our TWI-5 starts today at just over 66.3, down -10 bps from yesterday.

The bitcoin price starts today at US$110,892 and up +1.8% 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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11 Comments

by murray86 | 3rd Sep 25, 7:59am 1756843163

"The Kiwi dollar is at just under 58.7 USc and down -30 bps from yesterday and its lowest level since mid-April."

????The chart shows that it hit 0.5817 on 22 August.

by IT GUY | 3rd Sep 25, 9:29am 1756848557

The valuations of many equity market leaders are like NZ house prices in Oct 2021.

Even in fair weather sailing they would struggle to achieve profits in line with expectations.

CBA about to lose 170

by profile | 3rd Sep 25, 9:48am 1756849706

"The United States is on the precipice of a historic, if dubious, achievement. If current trends hold, 2025 could be the first year on record in which the US population actually shrinks.

The math is straightforward. Population growth has two sources: natural increase (births minus deaths) and net immigration (arrivals minus departures). Last year, births outnumbered deaths by 519,000 people. That means any decline in net immigration in excess of half a million could push the U.S. into population decline. A recent analysis of Census data by the Pew Research Center found that between January and June, the US foreign-born population fell for the first time in decades by more than one million. While some economists have questioned the report, a separate analysis by the American Enterprise Institute predicted that net migration in 2025 could be as low as negative 525,000. In either case, annual population growth this year could easily turn negative.

...Census tabulations analyzed by Brookings show that among the 54 large metros that grew in 2023–24, immigration accounted for all of the growth in about 20 and at least half in another 24. Without the inflow of foreign-born folks, many of the country’s marquee hubs—including New York, Los Angeles, San Francisco, and Boston—would see a declining workforce in a few years, if not within a few months.

...In 1965, there were about 4 workers for every Social Security beneficiary. Today there are fewer than 3. By the end of the century, there could be fewer than 2. In a long-term political environment that was hostile to immigration, it could be closer to 1."

https://www.derekthompson.org/p/the-us-population-could-shrink-in

by murray86 | 3rd Sep 25, 10:50am 1756853426

their gun laws and failing health system will be contributing too.

Xi and Putin (and Modi?) will be happy, but in truth they're doing it to themselves. No idea of the how every thing is connected, and the consequences of ill advised policies.

their collapse is becoming inevitable and the hatred and blaming will only get worse.

On an interesting note a retired General has spoken out on trump's direction to the USAF to give Babbit a military funeral. (she was shot and killed by a police officer while trying to get into the Capitol). the General has come out and said what should have been said a long time ago, she was attacking the constitution of the US in her actions, not defending it as per her, and his , oath. Question is what is the rest of the military doing to defend the constitution?

by interesting1234 | 3rd Sep 25, 11:02am 1756854178

Cost of living increases and lower births occur. Now why does this sound so familiar.......

by JimboJones | 3rd Sep 25, 11:26am 1756855568

The recent cost of living increases have been fairly minor compared to much of history.

by nigelh | 3rd Sep 25, 1:58pm 1756864693

What about illegal undocumented immigration. Couldn't that be anything from 250k to 500k over the last 5 years or less?

by Phoenix (FKA JC) | 3rd Sep 25, 11:36am 1756856177

Sad to see this but the success of the Ponzi in Aussie is being used as a smoke screen to con people. And even some of their folk legends are being used in scams combining property, retirement, and the promise of riches.

Former Test cricketer Glenn McGrath became a hero for his ability to embarrass opening batsman with relentless line and length. He now appears to be running between the wickets for any corporate who’ll have him.

Until recently, he also listed his promotion of NDIS-housing investment firm Apollo Investment Australia.

Even describing the business model of Apollo will cause this masthead’s rational readers to howl at the moon. The company went to mum and dad investors to pitch them the specialist disability accommodation market.

Investors put up the capital to build homes for the severely disabled in outer suburban areas. The pay-off involved collecting high rental yield of 13 per cent to 15 per cent. The rent was paid by the ever-expanding NDIS, so it was “government-backed”. Apollo was the middle-man that clipped a fee for facilitating it all.

https://www.afr.com/rear-window/glenn-mcgrath-fronted-an-ndis-property-…

by kiwikidsnz | 3rd Sep 25, 11:59am 1756857552

A couple of decades ago it was more common to see many spruikers of various dubious NZ investment & business schemes substantially drawn from ex All Black's, sporting, political has beens & TV personalities.

Why anyone would consider these people had any relevant expertise outside games, party machinations & media promotion is unknown.

by Ahuhyeah | 3rd Sep 25, 12:54pm 1756860847

Hanover and Richard Long stuck in my memory. Though I did like the graphic that spun while moving along in the background and that's now an analogy I use for a lot of life/change/progress.

by Phoenix (FKA JC) | 3rd Sep 25, 1:18pm 1756862306

One of the issues here is that these scams target boomer retirees who have $2.5 million in net assets (including the family home) or earn more than $250,000 in gross income in two consecutive years. In Aussie this qualifies as a 'sophisticated investor' be definition. Of course the success of the Aussie Ponzi means that many fall in to this category.

'Sophisticated investors' forgo many important consumer protections, such as conflict-free financial advice and being able to complain to a government dispute resolution body. By doing this, they can get access to lucrative but riskier investments, such as private equity, venture capital, start-ups and unlisted real estate. This is an opportunity for the scammers to pounce.

Unfortunately because NDIS is 'govt' related, people believe it's 'safe.'