Here's our summary of key economic events overnight that affect New Zealand, with news we are likely to get a lesson this week reconfirming that equity markets all look for short-term profit hits and are now setting prices on these short-term factors. But bond markets are much more focused on risks 10-30 years ahead and their signals are diverging markedly.
This coming week however will largely feature reactions to last week's big events - the US Fed positioning and rate cut, and the awful NZ Q2-2025 GDP data.
Here we will be watching for more fallout from that, after the NZD got marked down sharply. Will markets assess that the June result will be repeated in Q3? After all we are now only nine days from the end of Q3 and the appearance of 'better data' has been sparse and perhaps only in the last week or so. And on Thursday we will get an update of household net worth, but it will be year-old data. Much more current will be Thursday's results announcement from Fonterra.
In Australia, they will also release household net worth data, on Friday, but for March this year. They will get PMI updates as well.
Globally, the focus will briefly turn to New York for what is expected to be a turbulent moment for the UN with the US already barring some leaders from attending. New York's time as the home of the General Assembly may be coming to an end.
But economically, there will be many PMI updates out this week. The US will release its PCE data and another Q2-GDP update. And Fed speakers will all be out giving context to last week's rate cut decision. Switzerland and Sweden will be among those reviewing their policy interest rates. And later today, China will review its Loan Prime rates, although no change is expected.
China released its August year-to-date foreign direct investment data over the weekend. They said they only attracted ¥507 bln in net foreign investment in those eight months. They said they attracted ¥467 bln in the seven months to July. So that means they gained a net +¥39 bln in August alone and that is a very low +US$5.5 bln and that is only one third of the August 2024 gain. Basically foreign direct investment into China from all sources is close to dead in the water.
This doesn't mean that China's economic expansion won't be good in 2025 (over +5%). But it does point out how the two big powers are isolating themselves, with cross-border investment and economic connections all retreating.
A recent example is that China's new iron ore buying monopoly has moved to shut out a key Australian blend from BHP. They have other options and are using their heft to try and bring BHP and Australia into line.
Separately, Japan's inflation eased to 2.7% in August from 3.1% in July, the level since October 2024. There was a notable slowing in the rise in rice prices, enabling food price inflation to ease to 'only' 7.2% in August from a year ago. Overall prices were up +0.8% in the month with food prices up just +0.3% for the month.
Japan's central bank announced the results of its policy rate review late on Friday and as expected left it unchanged at 0.5% at Friday's. This came amid the political uncertainty around the resignation of Prime Minister Ishiba. They also said that it will sell its holdings of exchange-traded funds and Japan real estate investment trusts (J-REITs) to the market. Here is their decision.
Germany said its producer prices fell an outsized -2.2% in August from a year ago, a deflation sign they will not welcome and extends their deflationary pressure that started in July 2023. But most of that is coming from the lower cost of imported energy with local producer prices basically unchanged.
Canada said its August retail sales rose +1%, more than offsetting its July dip. But it isn't clear how much of that is inflation related. But financial markets reacted positively, seeing consumer 'resilience' in the data. (One more -25 bps rate cut is expected in Canada before the end of the year.)
In the US cancel culture has turned into government policy with free speech suddenly under grave threat. Misogyny, retribution and racism are back and celebrated, with tolerance and equal treatment vanishing. This won't affect their economy, until it does, and that will come as they chase blind alleys run by financial dominance while their rivals (especially China) build an economy driven by engineers. We could be witnessing a fast end to US supremacy, all self-inflicted.
The UST 10yr yield is now at 4.14%, up +1 bp from Saturday to be up +7 bps from a week ago. The key 2-10 yield curve is still at +56 bps. Their 1-5 curve is no longer inverted, now positive by +9 bps. And their 3 mth-10yr curve is now +3 bps positive. The China 10 year bond rate is still at 1.87%, up +7 bps for the week. The Australian 10 year bond yield starts today at 4.25, down -1 bp from Saturday and up +2 bps from a week ago. The NZ Government 10 year bond rate starts today at just under 4.23%, and down -8 bps from a week ago.
The price of gold will start today at US$3684/oz, up +US$3 from Saturday. That is up +US$36 from a week ago. Silver had another spurt over the weekend, now up over US$43/oz, a weekly gain of +US$1.
American oil prices are little-changed at just over US$62.50/bbl and back to where they were a week ago, with the international Brent price still just over US$66.50/bbl.
The Kiwi dollar is at just under 58.6 USc and unchanged from Saturday although down a full -1c from a week ago. Against the Aussie we are just under 88.9 AUc. Against the euro we are still at 49.9 euro cents. That all means our TWI-5 starts today at just over 65.8, unchanged from Saturday but down -100 bps for the week.
The bitcoin price starts today at US$115,509 and very little-changed from this time Saturday. Volatility over the past 24 hours has been very low at just under +/- 0.3%.
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7 Comments
"We could be witnessing a fast end to US supremacy, all self-inflicted."
During a relaxing scroll through YouTube on the weekend where the algorithm spits up some weird choices (I normally just search aviation, engineering and science) I had a brief article pop up on a lady, Jeane Dixon, who made a name for herself making prophesies. She famously predicted the election of JFK and his assassination and a number of other events, and seemed to be taken seriously by at least a couple of presidents. The clip I saw claimed she predicted the US would not survive the 21st century and it's breakup would begin with one state seceding from the union. She also indicated the Russia would swallow Ukraine suggesting they would win the war. She died in 1997. (I wonder if she saw that coming?)
A further check on who she was indicates she got as much wrong as she got right, but that raises questions as to the point of these skills. Surely a look at the future gives us an opportunity to prevent a slide to destruction, from the perspective of forewarned is forearmed?
I don't know if I believe. Nostradamus is notoriously cryptic apparently in an effort to avoid being burnt at a stake, but that makes his writing open for very wide and varying interpretations that just mean nothing.
Siting the UN in New York was intended to guarantee both interest and support from the USA in comparison to the previous opposite attitude to the failed League of Nations. But nonetheless it took an offer of free land by the Rockefeller family to get it up and running. It was always going to a bit of an odd fit given that the USA itself was, and still is, highly conscious of and sensitive to its own security, reds under the bed, McCarthyism etc and therefore suspicion aplenty regarding the presence of all manner of staff in the attending nations. The Trump administration now then seems poised to enact entry barriers to selected participating nations which in its own way is about as ironic as you can get given a mandate of the UN is to safeguard universal freedom.
We've long acknowledged that the UN is a failing organisation. I'd suggest that Trump be let to do what he wills and let the UN be rendered defunct, but start a new version in Europe without the Veto. Let the UN be a fully democratic organisation. Ultimately work for it to be an organisation that countries want to be a member of, and work with them to raise standards of government to encompass human rights, rule of law, freedom of the press, democracy. Corruption can be insidious, as the US has shown to the point that it is not and becomes blatant, so measure to prevent that should be included.
Democracy is an odd notion at the nation state level. Should all countries have a single vote at the UN, and should that vote carry equal weight?
Tuvalu is the UN member country with the smallest population: 9,816
India has the largest population: 1,438,069,596
Should India's vote carry 146,503 times more weight than Tuvalu's?
If democracy is about 1 person 1 vote...
Clearly, it's not.
Well, it had to be somewhere, and the US still had a mood of patriarchal obligation, back then.
Edit - Murray, democracy and rights are the product of surplus energy; increasingly the peak of which is in the rear-view mirror. Especially for Europe. The next global dominant hegemony - or bloc - will likely not be democratic. Or egalitarian, unless revolution threatens.
But the sentence of the day is: 'as they chase blind alleys run by financial dominance while their rivals (especially China) build an economy driven by engineers.'
Exactly. And I think it is time to put to bed the idea that we can 'decouple' economic activity from the real.
I agree with your sentiment that DC's comment is a good one, but also that engineers still focus on growth.
I disagree that democracy and rights are beyond reach. The role of government is to manage and regulate around the big picture. Even today our rights are curtailed to a degree for the good of society. The big picture requires a few more rights to be constrained; for example stop paying people to breed.
"The next global dominant hegemony - or bloc - will likely not be democratic." You are more likely correct, given the current trajectory, but that is also a very concerning thought, as to the possible and likely aspirations of any ruling class and the impacts on those on the people.
“We could be witnessing a fast end to US supremacy, all self-inflicted.”
I agree. China has been increasingly become more economically dominant and Trump’s ill-conceived and bumbling introduction of tariffs has simply encouraged the strengthening of BRICS. We are experiencing a geopolitical and economic shift - such as the strengthening of Sino-China relations - and will look back on Trump's 2024 bumbling as being more significant than the fall of the communist bloc in 1990.
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