Here's our summary of key economic events over the weekend that affect New Zealand, with news the imminent deal Trump talked up on Saturday seems to have faded, mainly because Israeli attacks on Beirut have undermined the situation. But if there was to be a deal, it is sure to dominate financial markets. In the meantime, war is the standard situation.
These same markets are also contending the implications of the wildly successful SpaceX float. It was full of animal spirits, FOMO, and gambling fever, and more than a few observers are seeing this as evidence of a gigantic bubble. After all it values SpaceX at 100 times its current revenues, and the business operates at a loss. At a US$2 tln 'value', to be sustainable it would need to generate after-tax profits of at least 10% or US$200 bln per year. And that is about double what Aramco-plus-Google do now, #1 and #2 combined.
In the real world, Thursday will bring the next US Fed policy meeting result, the first chaired by Kevin Warsh, Trump's replacement of Jerome Powell. Powell will still have a vote however. Most observers see them holding their key rate at 3.75%. The Fed has an inflation target of 2% for the PCE measure of inflation which is currently running at 3.8% with the CPI running at 4.2%, a three year high, with both rising sharply last time they were released. There will need to be some policy gymnastics to ignore those signals, but they may hope the fuel component reverses soon to save them. That is probably why markets think there will be no change on Thursday.
The US Fed won't be the only central bank in action this week. We will get reviews from the Bank of Japan (+25 bps to 1.00% expected), Sweden's Riskbank, Norway's Norges Bank, the Swiss National Bank, the English central bank, even in Brazil.
More importantly for us is that we will get the RBA's latest update on Tuesday, where no change from the current 4.35% is expected.
And the New Zealand Q1-2026 GDP result will drop this week and it will be a surprise it it isn't a year-on-year growth rate of +1.1%. Of course, this will be very dated data. In fact the RBNZ's own Nowcast suggests GDP will drop -0.2% in Q2-2026 from the prior quarter after rising +0.6% in the March quarter. Markets see a March quarterly rise of +0.9%.
In Japan, attention will focus on the Bank of Japan's policy meeting, where it is widely expected to raise the benchmark interest rate by 25 basis points to 1% amid persistent inflation and yen weakness. If delivered, it would mark the first rate increase since December last year and the highest policy rate since 1995. The country is also set to publish trade, inflation, and machinery orders data.
In India, producer inflation is projected to rise to 9.1% in May from 8.3% in April, driven by rising energy costs. Other major releases include trade, unemployment, and passenger vehicle sales figures.
In China, investors will monitor a series of key economic releases next week, including house prices, industrial production, retail sales, fixed asset investment, and their jobless data.
After April's surprise decline, China's May new yuan loans resumed their growth in data out over the weekend, up +5.5% from a year ago with a modest +¥520 bln rise, about what was expected (+¥550 bln). Still, at that level it is the weakest May increase in eighteen years, as the usual suspect - the property market - continues to drag on bank lending.
Across the Pacific, American consumers felt the cost of living pressure ease slightly in June as petrol prices came back off their recent war highs. The University of Michigan’s Consumer Sentiment Index rose in early June, up from May’s all-time low and a better than expected recovery. It was a modest recovery all the same with improvements seen across all age, education, and political groups. Lower-income consumers, for whom fuel represents a larger share of budgets, showed a particularly strong rebound even if it is still deeply negative and its second lowest of all time.
And in Europe, Switzerland had another set of national referendums. One proposal, to cap its population at 10 mln, has been voted down.
The UST 10yr yield is now just on 4.49%, up +1 bps from Saturday, down -5 bps for the week. The key 2-10 yield curve is now at +40 bps (unchanged). Their 1-5 curve is now at +35 bps (unchanged) and the 3 mth-10yr curve is at +82 bps (+1 bp). The China 10 year bond rate little-changed at 1.74%. The Japanese 10 year bond yield is up +2 bps at 2.64%. The Australian 10 year bond yield starts today at 4.82%, up +1 bp from Saturday, down -13 bps for the week. And the NZ Government 10 year bond rate is unchanged at 4.50%, down -6 bps for the week.
The price of gold has recovered a very minor +US$4 from Saturday to US$4222/oz but down -US$102 for the week. Silver is little-changed US$67.50/oz and the same as last week at this time.
Oil prices are up +50 USc from Saturday at just under US$85/bbl in the US, while the international Brent price is now just on US$87.50/bbl. A week ago these two prices were US$90.50 and US$93/bbl respectively. Hormuz transits have dried up again. And global oil reserves are draining into uncharted territory.
The Kiwi dollar is down -10 bps from this time Saturday at just on 58.3 USc, up +30 bps for the week. Against the Aussie we are unchanged at 82.8 AUc. Against the euro we are holding at just on 50.4 euro cents. That all means our TWI-5 starts today at just under 62 which is unchanged from Saturday, up +30 bps for the week.
The bitcoin price starts today at US$63,655 and down a minor -0.3% from this time Saturday. That is a +5.8% rise from this time last week. Volatility over the past 24 hours has been low at just over +/- 0.8%.
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12 Comments
After all it values SpaceX at 100 times its current revenues, and the business operates at a loss.
Could this take the cake as the worst speculative asset ever? We think houses are overvalued when they yield ~4%!
From memory I think it was Amazon which had never made a profit when it floated, sold it's stocks at ridiculous prices. It's not unusual. Tesla performance speaks to stock price too.
Agree, I remember thinking the same thing about Facebook. Even YouTube seemed like a crazy valuation when goggle bought it. But this seems to blow them out the water.
Re bubble - well called.
Not only that, but it's also atop a bubble that has been re-blown since 2008.
That's what GROWTH requires - the last doubling-time beats you every time.
We need to stop reporting in artificially-issued proxy, and start reporting in real numbers. Money is no longer a 'store of wealth' - it is clearly forward betting on increasingly unbelievable schemes (try living in the middle of the Sahara - with an atmosphere and gravity we've evolved to fit - nobody does it). Let alone the energy required to exit Earth's gravity.
Central banks seem more reluctant to raise rates now than before the war despite the obvious effects on inflation. Even in NZ it looks like we will get less OCR rises now than the markets had priced before the war. It’s a strange world we live in.
Not strange; different.
We lived through the Great Acceleration - say 1945 to present - that was the 'strange' event, but because that's all we have known, most folk call it 'normal'. Hindsight will call it an aberration.
But everyone - wannbe's and wouldbe's and promising politicians and banks - were part of a growing/inflating-debt-away era. Which we are passing.
it won't be an 'aberration' PDK. It'll be a 'phase'. One from which there are many lessons to be learned, most of which will be ignored, as with all phases of human history.
Will be interesting whether reduced supply (energy) or reduced demand (population decline) is the bigger problem. I suspect the latter, although PDK obviously thinks the former. Also the ageing population means less workers and more dependents.
Either way it doesn’t look great for the economic growth we’ve been accustomed to. And we’re stupid enough to enter this phase with debt instead of savings. Too busy spending during the good times, never thought it could rain even though it was bloody obvious.
Disagree - it will be seen as a one-off. An anomaly. We will never rise to that rate of throughput, again.
But yes, the question is whether we learn from it.
Lessons from past readjustments suggest that some folk, sometimes, can learn from the experience.
Deeply, deeply embedded for centuries. The South Seas bubble, Wall St 1927 and a multitude of let’s say GFCs and domestic collapses, simply identify the inherent and habitual attempts by masses of humans, where capacity exists, to venture into the art of making money, for want of a better description. As such, with the relative items of interest being discussed here, those venturers are simply acting as prophets of profit, hoping to be more right than wrong. In contrast I would suggest Kipling, something like - for animals in nature, there is no right or wrong, just life and death.
If you think about it PDK, it was the adoption of technological advances that lead to the advances. Those advances included the ability to increase production significantly (learnt during WW2) reducing the cost per item. Translating this led to many items being available to consumers at levels never before seen. That changed expectations of a public promised many things by their politicians which further added to it. A lot of what was offered made day to day living easier, places more accessible than they used to be, and each added to the others and what came next. Even economics changed and adapted to the consumerist attitudes. The exponential growth was a phase underpinned by the acceptance and adoption of new technologies and scientific advances.
Historically new technologies were often view with a degree of skepticism (Jarred Diamond talks about that), but WW2 changed all that.
Swiss "cap its population at 10 mln, has been voted down."
Interesting reading the comments on this story. They seem to fall into two camps. Those wanting a cap are concened about the quality of the living environment. Those not wanting a cap are concerned about making less money. The deal breaker was possibly the two million immigrants moving to Switzerland over the past 25 years?
This is why NZ will never be able to protect itself from becoming an overcrowded slum. Shame. Nobody wins. Except bankers, developers, corrupt polies, those moving to a slightly better slum and various other industrialists, although ultimately they'll still be drinking the same recycled sewerage and choking on the same smog.
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