Here's our summary of key economic events overnight that affect New Zealand, with news the latest data shows American business activity slowing further.
But first up this morning we should note that the overnight dairy Pulse event brought little-change to either the SMP or WMP prices. This is as expected for SMP but 'better' than expected for WMP. In NZD however there was a rise because the Kiwi dollar fell. All eyes are now on tomorrows Fonterra annual report.
There were also no surprises in the S&P Global/Markit PMIs for the US for September. Both their flash factory and services PMI reading eased slightly, but are not contracting. Growth may be slowing, but selling price inflation is cooling too. The report noted weak new order growth and tariff-taxes were widely cited as the main cause of sharply higher costs, but the weaker demand and stiff competition reportedly limited the scope to raise selling prices.
And that is confirmed in the Richmond Fed factory survey which turned down sharply in September. New order levels were weak, cost pressures strong. Services in the same mid-Atlantic area were not very positive either.
There was another very large US Treasury 2yr Note auction today, one that saw another pull-back in overall support although the coverage remains strong. The median yield dipped to 3.52% from 3.60% at the prior equivalent event a month ago.
In China, Nikkei has found that retail consumer loans are going bad faster, the latest headache for Chinese lenders already plagued by the country's real estate problems. And it comes just when the government aims to stimulate consumption through increased consumer debt backed up by more public borrowings. Nikkei Asia combed through the latest interim disclosures by mainland banks listed in Shanghai, Shenzhen and Hong Kong and found that nonperforming personal loans rose at a faster pace than those in the real estate sector during the first half of the year.
Overnight, Taiwan reported yet another outstandingly good export orders data, again exceeding the expected very good expansion.
Super Typhoon Ragasa is expected to hit Hong Kong today, and they are still expecting up to a 5m storm surge (above chart datum). But the eye of the storm is passing slightly south, so it will affect large parts of southern China.
India's PMI's were again very expansionary in September for both their services and factory sectors. No signs of cooling in this market.
In Europe, their PMIs continue with a modest expansion, even if it is their best in 16 months. But new order levels are only holding, not growing. And the factory sector is now not expanding.
And the Swedes delivered a surprise cut to their policy rate, down -25 bps to 1.75%. They cited geopolitical tensions and uncertain US trade policy as the reasons for the move now even though they are experiencing good current growth with inflation up at 3.2% when 2% is their target.
A month from today, Argentina will hold mid-term elections. The promised turnaround of the revolutionary free-market programs of President Milei are not eventuating and he seems headed for a drubbing - despite some serious backing by Washington. Sharply lower economic activity is widespread with few benefiting from his approach. Basically markets have abandoned Milei and his only ally is Trump. The Brazilian approach is winning in South America.
In Australia, their PMI's reveal a pullback in September but both sectors are still expanding.
Globally, the OECD reported that the global economy was more resilient than anticipated in the first half of 2025, but downside risks loom large as higher barriers to trade and geopolitical and policy uncertainty continue to weigh on activity in many economies. New Zealand doesn't feature in this report, but is sees Australian growth rising, Chinese growth holding at a reasonably good level, and US growth halving to a weak level by 2026.
The UST 10yr yield is now at 4.12%, down -2 bps from yesterday at this time. The key 2-10 yield curve is now at +53 bps. Their 1-5 curve is no longer inverted, now positive by +6 bps. And their 3 mth-10yr curve is now +4 bps positive. The China 10 year bond rate is now at 1.88%, unchanged. The Australian 10 year bond yield starts today at 4.26, down -2 bps. The NZ Government 10 year bond rate starts today at just over 4.25%, and also down -2 bps from yesterday.
Wall Street is lower today with the S&P500 down -0.6%. European markets were about +0.4% higher but London was little-changed. Tokyo ended its Tuesday session uo a full +1.0% again and also a new ATH. Hong Kong however fell -0.7% and Shanghai was down -0.2%. Singapore firmed +0.1%. The ASX200 ended with another +0.4% gain but the NZX50 ended little-changed.
The price of gold will start today at US$3781/oz, up another +US$45 from yesterday and a new ATH. Silver was little-changed but still up over US$44/oz.
American oil prices are up +US$1 at just under US$63.50/bbl, with the international Brent price now just on US$67.50/bbl.
The Kiwi dollar is at just under 58.6 USc and down -10 bps from yesterday. Against the Aussie we are also down -10 bps at 88.8 AUc. Against the euro we are down -20 bps at 49.8 euro cents. That all means our TWI-5 starts today at just over 65.7, down -20 bps.
The bitcoin price starts today at US$111,974 and down -0.4% from this time yesterday. Volatility over the past 24 hours has been modest at just over +/- 1.0%.
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23 Comments
On US forums both shares and gold are mooning as people hedge against loss of fiat buying power. Meanwhile USD money supply has increased by a trillion or so this side of Christmas
All that so say... How does the USD stay so strong against the NZD when their money supply increases by about 5% PA?
Or stated another way... Why isn't the NZD appreciating against USD?
Good question. The way I see it is exchange rates go beyond just the money supply. They’re also shaped by sentiment, interest rates and strength of each economy. NZ is facing similar headwinds to the US with inflation pressures, weak labour market, and the need for rate cuts.
The NZD is a high-beta currency. It strengthens when global risk appetite is strong, and sells off when sentiment sours.
Demand for the kiwi peso seems to be softening at a similar rate to the USD
Pretty good summary I think. there is a high emotional quotient apparent in a lot of currency valuations, but the big thing to always remember is the US$ is still used as the reserve currency for better than 50% of international trade, so it is largely external demand that holds it up. Trump is doing his best though.....
I'm not sure what traders see in the NZ$.
Yes, even as de-dollarisation plays out the USD still remains the global reserve currency. It still has plenty of global safe haven demand attached to it. On top of that, markets might be pricing in the RBNZ cutting rates deeper than the fed. We already started moving before them..
So USD is generally losing buying power through inflation of money supply and general inflation, and NZD going down with it?
Time for one to renegotiate future payments to be made in Swiss Francs, share options, bullion and Bitcoin? 😅
It is an interesting point. The Reserve currency is just that due to common consensus, not any law or treaty. So any country could negotiate the currency of exchange with a trading partner. I would suggest that the US$ was chosen due to it's relative stability, although that choice was before Nixon tossed the gold standard into touch in 1971. Much has changed since then. Without the gold standard the value becomes more volatile, throw in political instability and a rogue president and the volatility escalates. The size of their internal economy (and market) are still factors though. If the US fractures, then it all goes to the wind....
"How does the USD stay so strong against the NZD when their money supply increases by about 5% PA?"
This is worth discussing. In short, the US is an economic powerhouse and we are largely irrelevant. US energy prices are by order of magnitude lower than ours. For example, Texas industrial electricity is NZ10c per kw/h, petrol is around NZ$1.10 per litre compared to ours at nearly $3. The big 6 US tech stocks alone have a market cap greater than every bourse in Europe.
We are in recession, have low growth prospects, high energy prices, export talent/import unskilled, high welfare, low discretionary wages.
Cynical but accurate too.
We export Kiwifruit, they are at the forefront of changing the world with AI and technology.
Hey, you're really doing us down here...didn't you see the new red Kiwifruit?
With five gold stars appropriately arced?
We should say we made it for Trump, they may drop the tariff on it!
Maybe we can push the Science to create one that is orange on the inside with wispy blonde fluff in a combover on the outside.
We live on agricultural exports. Some portray that as a problem. I see it to be prized and congratulated. We are very good at it. But we do need to keep ownership of it.
This ignores the subject of price management - the price of precious metals and some other commodities like oil are managed to maintain the strength of fiat currencies. If interested see the (long) link below, and the section starting with Central banks are engaged in a desperate battle on two fronts. This price management has been occurring for decades.
Some commentators are suggesting that the 'powers that be' are having less success managing the price of the precious metals because more large buyers eg central banks etc, are taking delivery of the physical metal. Fewer participants are interested in paper trades on the futures markets.
Some commentators suggest the $US index is also being actively managed however I've never seen an article about it so take that with a grain of salt.
The Brazilian approach is winning in South America. Throwing your political opponents in jail and censoring the population is winning?!
Brazil's largest paper, @folha
-- the NYT of Brazil -- publishes a lead editorial. Headline: BOLSONARO HAS THE RIGHT OF FREE SPEECH - Moraes errs in ordering arrest of former president. The court should reinstate his rights. - Can't use tyranny to save democracy.
Isn't Bolsonaro accused (and convicted?) of plotting a coup to hold his presidency if he lost the election?
Strange. It looked a whole lot more like legal/judicial process than tyranny.
But then it depends on whether you're on the side of the election loser who tried a coup to retain the Presidency.
What a world when you can say "the election loser who tried a coup to retain the Presidency" and more than one person comes to mind immediately.
Legal/judicial process? Perhaps the Supreme Court is cost cutting and only using five judges instead of eleven? The biggest newspaper in Brazil is perhaps more over the subject than your good self? If you are on the side of the election winner tyranny is all good?
"The verdict in Bolsonaro's case -- for allegedly plotting an attempted coup -- is expected this week. Brazil's Supreme Court has 11 justices. But the case will be judged only by 5 of them. His conviction is 100% guaranteed. Meet the 5 judges the case went to:"
https://x.com/ggreenwald/status/1965438581381771442
https://pbs.twimg.com/media/G0agGefXEAAa0y4?format=jpg&name=900x900
"But Fux's vote could bolster the argument of Bolsonaro's defense that the case should be decided by the high court's full bench of 11 justices, including two who were appointed by the former president.
...Fux voted on Wednesday to acquit Bolsonaro of all the crimes Bolsonaro has been charged with by the office of Brazil's Prosecutor General.
"There was surprise at the breadth of the dissent, which went beyond procedural issues and questioned the very existence of the alleged crimes," Madeira said."
https://www.reuters.com/world/americas/brazilian-judge-votes-acquit-bol…
"The media said the case against Brazil's former President Bolsonaro for supposedly plotting a coup was a slam dunk. It wasn't. A Supreme Court Justice appointed by the ruling Left-wing Workers Party just annihilated the prosecution as fraudulent.
"And I say, Mr. President, because it is important, and only for this historical reason, that the guarantee of adversarial proceedings and a full defense, incorporated into Western law long ago, was already emphasized in the work of the Stoic philosopher Seneca, who stated that, 'Whoever decides anything... without hearing the other side, even if they decide fairly, is not truly just.' "This has been reiterated over the years in the Universal Declaration of Human Rights, adopted in 1948 by the UN General Assembly. Article 11: Everyone charged with a criminal offense has the right to be presumed innocent until proven guilty according to law in a public trial at which they have had all the guarantees necessary for their defense."
https://x.com/shellenberger/status/1965818373742206982
There were some military types lined up to kill the incoming winner of the election. Just saying.
It is said that the UK economy is on a hiding to nothing. The Labour govt there is scratching for new forms of revenue, ie tax. The UK has CGT, stamp duty (wasn't aware of that until there was an article on Angela Raynor, ex deputy PM and Housing Minister, from a working class background, Basic Instinct enthusiast and 4th sexiest woman in the UK seeking financial advise on how to minimise stamp duty) , inheritance tax, high VAT, NHS tax and heaven knows what other taxes. The GBP to NZD is hovering around 0.435GBP/NZD. 3-5 years ago it was about 0.51GBP/NZD. Based on this the NZ economy has tanked.
Te Kooti said... "the US is an economic powerhouse".
Is it really, when it is a financial economy with a public debt of more than $321k per taxpayer, but with total debt, including unfunded liabilities of more than 600% of GDP?
Although NZ's public debt is only ~36% of the US as a percentage of GDP (45% against 124%), our total debt is right up there with that of the US. Admittedly, NZ have a much healthier GDP profile, but we are caught in a debt trap too.
Given that the U$ economy is so financialised, this has effectively placed them in a debt doom loop that is mathematically inescapable without outright debt default, or hyperinflation, which is technically default anyway.
Hyperinflation would be the death knell for their economy, currency, and their reserve currency status as well. As risk is priced in, particularly at the long end, US Treasuries will become increasingly more difficult to sell, and so the cost of the US financing its own debt climbs - this, in turn, feeds into the debt doom loop.
As this cycle compounds, bond-holders will be hammered in multiple ways...
#1 Their true yield (inflation-adjusted) on their coupon will be revealed as a net loss.
#2 Their capital investment, particularly if they hold longer-dated treasuries to maturity, may only leave them with pennies on the pound when they finally redeem them.
#3 As interest rates on the treasuries rise, which is inevitable as risk and losses from inflation become factored in, bailing out before maturity will incur considerable capital losses as well.
Note too that since the 1980s, the US has adjusted the way in which they calculate inflation, more than thirty times. This is how they obfuscate the fact that their claimed official rate is often only one 1/3rd of the true rate.
As this dawns on bond buyers, it becomes more of a problem for the US being able to sell its debt, and particularly now that China is moving to hard back its currency, which is the cue for other well prepared BRICS nations to follow suit.
This could quickly morph into a train wreck as more and more countries realise that the 54-year fiat experiment simply didn't work. Countries that are late in detaching themselves from the US dollar will go down with the ship - particularly if they, like NZ, have made zero plans for the paradigm global shift away from the broken fiat system
This is a problem for the world and the entire fiat facade, as the entire system has been built on the back of the US bond market - as the demand for bonds slides, so too by definition, does the demand for the dollar - holding USTs, particularly at the long end of the yield curve, is like holding a hot potato when you know that the longer you hold, the less your asset will be worth.
The world's central banks need to routinely hold dollars as reserves for trade was an integral component of the demand for the US dollar, but this is being increasingly eroded now as Trump has effectively declared a trade war with the entire planet - not to mention the fact that the dollar has been weaponised, and used as a hegemonic battering ram.
These CBs now have a multitude of choices in the componentry of their individual reserve portfolios, including physically allocated gold, other PMs, many different durable commodities, and also the local currencies of their trading partners. In fact, collectively they have been net sellers of USTs since 2014 - if we factored in inflation, this is a massive divestment.
The problem for the US is that the economy is so financialised that PGDP (Productive GDP) is minuscule in relation to PPPGDP or the original GDP. It is real (productive) PGDP that services this debt, not the Wall Street jiggery-pokery, which contributes nothing of substance in addressing the US's habitual twin deficits.
What does it tell us when the largest holder of USTs, if you include the UK at $899B and the Cayman Islands (British Territory) at $438B, at a grand total of $1.168 trillion? Britain is in a debt doom loop too, and is faced with having to go to the IMF for another ruinous loan, and yet they hold all this US debt, which in the future could be essentially worthless.
The UK needs to divest out of USTs, not just because of the potential losses, but more immediately because they need to finance their fiscal and current account deficits. Their economy is in decline, just as the US is too.
These countries ramp up their nominal GDP 'growth' by throwing more debt at the problem to finance the govt deficit. Given that the US budget deficit is ~6.7-7.0% of GDP, the nominal GDP of a claimed 4.25% has to be adjusted by the deficit amount, which means a contraction of 2-3%
Japan holds the second largest book of USTs at $1.151 trillion, and yet they have the highest percentage of total debt to GDP on the planet. Belgium is only just below the Cayman's at $438 billion - there is a very alarming pattern here.
CB's aside, the other UST holders, private individuals, institutions, and pension funds, don't hold them for any other reason than yield - as these yields turn more negative, they will turn to the short end or bail out altogether.
This is all extremely precarious as the only real value of a fiat currency is the faith in it, and look out when users suddenly question that - plus, the petrodollar backing has effectively gone up in smoke. According to the US Treasury's own figures, UST foreign-owned debt is in the order of $16 trillion, and now we all find ourselves in the largest debt/credit bubble in financial history.
The Smoot-Hawley tariffs of the early 1930s were minor in comparison to Trump's idiocy, but they most definitely contributed to the 89.2% crash in the Dow Jones index, which didn't return to its peak close of September 3, 1929, for 25 years - not until November 23, 1954.
The fundamentals and overall debt levels of today make the roaring twenties look relatively restrained by comparison, and the leaders of the most indebted countries look like geniuses compared the Goldfinger #47 Admin, which appears be doing everything they possibly can to destroy the US economy - this is the multi-trillion question - as the saying goes - "is this simply too stupid to be stupid?".
Regards
Col
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