Here's our summary of key economic events that affect New Zealand, with news significant cracks are showing in US economic policies and direction. Those at the top may profit, but everyone else may be left holding the consequences.
First, the US merchandise trade balance worsened in May. Imports rose +3.6% while exports fell -5.4%. These were much larger shifts than were anticipated. Clearly tariffs aren't working other than making imports more expensive and hurting exports. The net result was a -US$103.5 bln deficit for May, the largest in a year. And their largest May deficit ever.
And we should also note that US inventories are rising and quite quickly. In May, wholesale inventories were up +4.4% from a year ago, retail inventories up +3.1%. The stockpiling we noted in their PMI activity is adding deadweight to their logistics systems
Meanwhile, Trump is going into bat again for his billionaire tech supporters so that they don't have to pay tax on their operations in other countries, threatening 100% tariffs on any country that imposes a digital services tax.
The University of Michigan Consumer Sentiment index was revised up to 49.5 in June, although that was less of a revision higher than expected. Still, sentiment improved from May which was the lowest level on record, supported in part by a moderation in petrol prices. And that is despite the fact they remain -31% higher than at the start of Trump's failed Iran adventure.
The latest update of the US Fed's balance sheet shows that they have completely paused the quantitative tightening selldown program of bonds and other financial instrument built up during the pandemic crisis. If anything, they have been growing it (minorly) in 2026.
The epicenter of artificial intelligence research and commercialisation, California, is also home to millions of workers who could potentially be AI victims. So yesterday it launched an "AI Job Loss Tracker". It is going to be instructive to watch. Their June data, based on their jobless/benefit data activity, hasn't yet picked up any surge, but it is early days.
In China, they say artificial intelligence is reshaping the global labour market not by triggering mass layoffs of existing workers but by causing employers to pull back on hirings for new, entry-level positions.
In the EU, an ECB survey revealed that median year-ahead inflation expectations eased to 3.5% in May, the lowest level in three months, down from 4.0% in each of the previous two months which were the highest readings since 2023. Longer-term inflation expectations were steady, at 2.9% for three years ahead. Consumers also expect house prices to rise by 3.6% over the next year, slightly below 3.7% in April. Expectations for mortgage interest rates were unchanged at 4.9%.
Greenland said on Friday it has rejected an application from Greenland Minerals, a unit of Australia’s Energy Transition Minerals, to renew its exploration license for the Kuannersuit rare earths project.
In Australia, their competition regulator has been armed with new powers to monitor the pricing policies of the Coles and Woolworths supermarket chains. What is being prohibited is "excessive pricing". But there is no fixed threshold for what is an excessive price for a grocery product. Instead, the ACCC will monitor supermarket pricing information and consider all relevant circumstances, including the cost to supply the product to consumers and what is a reasonable margin for the supermarket, to determine if a grocery product was excessively priced.
The UST 10yr yield is now just on 4.37%, down -2 bps from this time yesterday, down -12 bps for the week. The key 2-10 yield curve is now at +28 bps (up +1 bp). Their 1-5 curve is now at +20 bps (-1 bp) and the 3 mth-10yr curve is at +69 bps (down -6 bps). The China 10 year bond rate is unchanged at 1.73%, down -2 bps for the week. The Japanese 10 year bond yield is down -2 bp at 2.61%, down -4 bps for the week. The Australian 10 year bond yield starts today at 4.76%, up +3 bps from yesterday but down -7 bps for the week. And the NZ Government 10 year bond rate is at 4.39% to be up +2 bps, down -7 bps for the week.
Wall Street is holding soft today, just -0.1% lower on the S&P500 to be down -2.1% for the week, while the Nasdaq is down -0.2% today for a -4.6% weekly retreat. Overnight, European markets were lower between Frankfurt's -1.3% and London's -0.2%. Yesterday Tokyo closed down -4.2% to end its week -2.4% lower. Hong Kong closed down -1.8% for a -4.8% weekly drop while Shanghai fell -2.3% on Friday for a weekly -1.6% easing. Singapore ended down -0.5%. The ASX200 ended its Friday session up +0.2% to cap a weekly -0.4% dip. The NZX50 closed little-changed for a weekly -0.1% easing.
The Fear & Greed index has moved over to be just in the 'extreme fear' zone from the 'fear' zone a week ago.
We have previously noted how the SpaceX IPO's frenzy has given way to losses for early investors (-5.1% so far). But the institutional investors in their recent US$25 bln bond issue have been taking a large bath too so far. And investors in Oracle's bonds are taking even larger losses.
The price of gold has risen to US$4074/oz, up a net +US$42/oz from yesterday. That is down -US$81/oz from a week ago. Silver is just on US$59/oz, up +US$1 from yesterday but down -US$5.50 for the week.
Oil prices are down -US$2.50 from yesterday at just on US$69/bbl in the US, while the international Brent price is now just under US$72/bbl. A week ago these prices were US$77.50 and US$80.50 respectively. Hormuz transits have picked up with 45 crude or product tankers exiting over the past 24 hours (5 dark with transponders off) and 18 entering for new loads (0 dark). Two thirds of the exiting vessels were headed to China, 10% were Russian-linked, 5% headed for Singapore 4% to South Korea. There are still hundreds yet to try their luck, no doubt inhibited by insurance issues.
The Kiwi dollar is down -10 bps from this time yesterday at just on 56.4 USc, down -100 bps from a week ago. Against the Aussie we are up +10 bps at 81.8 AUc. Against the euro we are down -20 bps at just on 49.5 euro cents. That all means our TWI-5 starts today at just over 60.3 which is down -10 bps from yesterday, down -110 bps for the week, and its lowest since the GFC in 2009.
The bitcoin price starts today at US$59,771 and up +0.7% from this time yesterday., but down -5.1% from this time last week Volatility over the past 24 hours has again been modest at just over +/- 1.9%.
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13 Comments
"...our TWI-5 starts today at just over 60.3 which is down -10 bps from yesterday, down -110 bps for the week, and its lowest since the GFC in 2009"
What drives the TWI - is it purely the level of the OCR, or is there more to it than that?
TWI means Trade Weighted Index. It is to do with the exchange rates of currency between NZ and our trading partners. It tracks up or down movements as an aggregate.
Yes but what drives it higher or lower? Is it purely the interest rate overseas NZD purchasers can earn in NZ, or does import/export activity impact it as well?
My take is that it is a combination of 'Interest Rate Parity' theory (https://www.investopedia.com/terms/i/interestrateparity.asp) and risk on/risk off market behaviour.
During risk on market conditions more investors are willing to buy/hold the NZD. When the market shifts to risk off (as US stocks fall) investors sell NZD and buy USD/gold.
So recently the falls in the NZD are perhaps more because of risk off sentiment (US equities appear weak this month), rather than an imbalance in the Interest Rate Parity of the NZD vs the TWI/USD and the associated inflation and interest rates in those economies/currencies.
Is it simply the supply demand of NZD available to the international market?...Id suggest there are two money markets...domestic and international, seperate but influenced.
I wonder if Fontera is buying forward cover for the season at these currency values. Got to be a winner somewhere, for importers paying for summer season, Christmas stock it'll be rough.
Fonterra buys forward cover all the time as they need it. They do not try and time the market because if you get it wrong the payout could be a dollar or 2 below the other companies.
This is interesting in relation to the new capital gains tax rules in Aussie.
Become a foreign tax resident for even "one day", you will lose all the cumulative benefits of years of indexation for capital gains purposes.
Indexation is not available to foreign or temporary residents, and existing CGT settings continue to apply for companies, superannuation funds and life insurance companies. Importantly, the Bill provides that an individual that is a foreign resident for even one day during the period that they hold an asset that would otherwise be eligible for indexation from 1 July 2027, will not qualify for indexation. This differs from the existing policy that allows individuals to apportion their access to the CGT discount based on the number of days they are an Australian resident compared to the total days the asset is held. The Explanatory Memorandum (EM) to the Bill notes that future amendments may be considered in relation to how entities that are resident for only part of the period they hold a CGT asset may access indexation.
https://www.pwc.com.au/tax/tax-alerts/cgt-and-housing-tax-reform.html
Energiewende job tracker
Germany's Chancellor Merz: "At the moment, Germany is losing between 300 and 500 jobs every single day. Every day, a double-digit number of companies file for insolvency."
Volkswagen to axe up to 100,000 jobs in sweeping cost-cutting drive
Restructuring would remove close to one in six workers and rank among biggest corporate lay-offs of all time
https://www.ft.com/content/d0760eaf-d345-4964-b2ae-f55f6dfd9a4a?syn-25a…
Feels like the start of a global recession
Germany is caught in the pincer of batshit crazy energy policy and China's export policy.
"‘The Tsunami Is Coming’: China’s Global Exports Are Just Getting Started
…Five years ago, before a housing bubble burst, cranes putting up apartment towers dotted practically every city in China. Today, many of those cranes are gone and the ones that are left seldom move. At Beijing’s behest, banks have rapidly shifted their lending from real estate to industry. Recent data from China’s central bank shows that state-controlled banks lent an extra $1.9 trillion to industrial borrowers over the past four years. As new factories come online, China’s exports are rapidly accelerating. They rose 13.3 percent in 2023 and then another 17.3 percent last year.
…China is exporting so much partly because its own people are buying so little. A housing market crash since 2021 has wiped out much of the savings of the middle class and ruined many wealthy families.
…China has offset its housing debacle instead with its export campaign, creating millions of jobs to build, outfit and operate factories."
https://www.nytimes.com/2025/04/07/business/china-manufacturing-exports…
https://robinjbrooks.substack.com/p/how-us-tariffs-are-hurting-china
Re the TWI falling lower.... and lower
https://www.stuff.co.nz/nz-news/360997328/why-default-inevitable-under-…
Ardern/Robertson solved the immediate problem of the day with no regard to the payback consequences.
But at 45% debt-to-GDP we are still reasonably placed in comparison to many of those we would like to regard as peers.
But the upcoming bills - climate change, managed retreat, superannuation, defence, health, energy...hard to see where the moolah is coming from unless taxes increase accordingly and substantially
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