Here's our summary of key economic events overnight affect New Zealand, with news renewed Hormuz attacks are raising oil prices and interest rates today, not helped by a pullback in tech stocks.
But first today, there was another dairy auction overnight, a full one with new season volumes returning. But this one came in sharply lower, down -4.9% on USD terms although only a -2.5% retreat in NZD terms. Among the results, there was a notable -4.4% fall for WMP, a -7.0% fall for SMP, a -5% fall for butter and a large -12.3% fall for cheddar cheese. A few of the minor categories gained. But these falls were larger than the futures market was pricing in, so you have to say they are 'larger than expected'. While the new lower levels aren't that special in a longer perspective, the speed of the falls is concerning and analysts will be re-assessing their payout forecasts.
In the US, the RealClearMarkets/TIPP Economic Optimism Index rose in July to a better than expected level but it is still well below the average over the past year and below its long term norm.
Meanwhile, American consumer inflation expectations rose when a small dip was anticipated. It is now at 3.7%, its highest since September 2023 and is rising even though expectations for lower petrol prices are included in these results.
The weekly private jobs growth monitoring by ADP shows a smaller rise last week than they have recorded in the past 15 week, since mid-March in fact. And the trend has been down for seven straight weeks. This is consistent with the easing that the official non-farm payrolls report showed for June.
The US Logistics Managers Index rose again in June and to its highest since March 2022, driven by three factors; anticipation of more tariff action from Trump, stockpiling to get ahead of inflation, and an expectation that the end of year retail season will be 'normal'.
US exports weakened in May and imports rose in the same time in the broader trade result that includes both goods and services, delivering a sharp rise in their deficit and their highest in over a year. This result matched the recent report of merchandise trade but brings their services trade into the picture.
Meanwhile Canada reported rising exports and stable imports to give them a larger trade surplus in May.
China said its foreign exchange reserves dipped slightly in June from their unusually high May levels. Part of this was due to the retreat in the gold price. But their central bank continued its gold-buying streak for a 20th month, with reserves reaching 75.44 million troy ounces by June’s end, up from 74.96 million in May.
China’s excavator sales are rebounding, up by more than a third in June from a year ago, driven by major projects.
New data out yesterday paints a much improved picture for Japanese household spending in May as households started to get their mojo back. And don't overlook that this was in the middle of the Trump Gulf War uncertainties.
The UST 10yr yield is now just on 4.54%, up +6 bps from this time yesterday. The key 2-10 yield curve is now at +37 bps (up +1 bp). Their 1-5 curve is now at +28 bps (-1 bp) and the 3 mth-10yr curve is at +88 bps (+7 bps). The China 10 year bond rate is unchanged at 1.73%. The Japanese 10 year bond yield is now at 2.84%, up +1 bp and at new 30 year-high levels. The Australian 10 year bond yield starts today at 4.84%, up +3 bps from yesterday. And the NZ Government 10 year bond rate is at 4.46%, up +1 bp from yesterday.
Wall Street has been softish on the S&P500, down -0.6% while on the Nasdaq it is down -1.3%. Overnight, European markets were mixed between London's +0.1% and Frankfurt's large -1.4% fall. Yesterday Tokyo ended down an even larger -2.1%. Hong Kong dipper -0.5% while Shanghai was down -1.3%. Singapore was up +1.6% however. The ASX200 ended its Tuesday down -0.3%. Meanwhile the NZX50 ended essentially unchanged.
The price of gold has slipped to US$4146/oz, down -US$13/oz from yesterday. Silver is now under US$61/oz, down -US$1.50 from yesterday.
Oil prices are up +US$2 from yesterday at just under US$70.50/bbl in the US, while the international Brent price is now just on US$74/bbl. Hormuz transits have picked up sharply despite renewed uncertainties with 27 crude or product tankers exiting over the past 24 hours (4 dark with transponders off) but only 18 entering for new loads (4 dark). Interestingly. All this comes as attacks on ships in transit become daily events, so the rise in oil prices isn't surprising. Red Sea activity near Yemen has fallen again to even lower levels on added risks there too.
The Kiwi dollar is down -10 bps from this time yesterday at just on 56.9 USc. Against the Aussie we are little-changed at 82 AUc. Against the euro we are also little-changed at just on 49.8 euro cents. That all means our TWI-5 starts today at just on 60.7 which is down -10 bps from this time yesterday.
The bitcoin price starts today at US$64,063 and up +0.8% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.3%.
Please note there will be no video version today. That feature will resume in August.
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26 Comments
And in the meantime there's a whole bunch of irony going on. Trump has arrived in Turkey to the NATO summit, and is reported to be bleating about NATOs lack of support for his war against Iran. He has apparently singled out the UK.
On the other hand, Breaking Defense is reporting that in February this year, Trump signed and executive order wrapped around his America First Arms Transfer Strategy (AFATS), where he tasks the Department of Commerce "to increase foreign procurement of defense articles produced in America".
So we have on one hand Trump, proving to the world, they should not ever again trust America at any level, but especially around military support, but he's tasking is commercial infrastructure to sell their staff to the world...
That article is loaded with ironic statements; United States must remain the Arsenal of Freedom, something Vance especially but Trump too, has railed against. And then there's this paragraph: "As a businessman himself, President Trump understands something every defense executive knows instinctively: you cannot make long-term investment decisions without sustained, predictable revenue. AFATS is built on exactly that logic, and it is already delivering results." As a business man you'd probably expect that he understands he shouldn't piss his potential customers off?
And the effects are already visible. NATO is facing the same problem the US has with its E3 AWACS in that they are too old, unreliable and expensive to operate. So they've found a replacement. The options are update the Boeing 707 the E3 is based on (very unlikely), Boeing E7 Wedgetail (pretty good, the Aussies are using them and making their mark) E2D Hawkeye (US Navy, very capable) or the one they've chosen the SAAB Globaleye. This aircraft is based on the Canadian Bombardier Global 6500 with SAAB built radars and systems. It is proven and not built in America! I'd say Trump's running a pretty successful marketing campaign for SAAB products! I especially like the SAAB Gripen E. We should have a sqn or two.
Agree we need to think about defense - it's coming, whether we are ready or not.
The US is on a downward trajectory - not least because they've lost sight of the objective, which is dominance, not the making of money. The latter now reigns within their procurement system, which allows the out-pirates (Buckminster Fuller's term) to go asymmetrical. As they have.
Which is where we diverge; I think you're pining for the past (manned fighters) but I think the future is unmanned (drones etc). If we stand back and look at the trend, it is to smaller/expendable. Like torpedoes; you don't ram a ship with a submarine, you do it with a small, unmanned expendable.
Unmanned expendables however are limited for control....bodies are needed to hold and exploit territory (assuming that is the aim)
I agree that unmanned systems will be crucial to a future military structure, but manned systems will still be necessary. A defence strategy against unmanned long range systems will be hacking or jamming. Autonomous systems will still need to be able to be intercepted and Ukraine is proving that layered systems work best and manned fighters are a part of that layering. Manned systems retain a level of flexibility and adaptability that autonomous systems, even with AI, do not have.
The other part of manned systems are that a part of the development is that they are being developed into being mother ships for other unmanned systems. That is working from a level where the manned aircraft is simply controlling a fleet of drones which are either weapons carriers or effectively guided weapons themselves. At one level the drones need effective range, on another the manned systems are being developed to carry and launch shorter range unmanned drones to attack or recce specific targets. Thus those 'unmanned expendables' are still launched from crewed vessels. The US is already got unmanned subs in testing that are replenishment nodes for other vessels, and are exploring them to do their own patrols and if necessary weapons launches. But to what level can you trust an AI system if and when the politics changes to significantly alter the threat axis?
Good post.
AI onboard, may well lift drone control/reaction beyond human thinking-speed.
What could possibly go wrong...
We've see this movie before...& its sequels
Absolutely past human reaction times. The US has already tested aircraft in dogfighting where their best an brightest were pitted against an AI controlled aircraft. The AI wiped the floor with them, even with G restrictions as if there were humans on board. Initially it was done in simulators, but they've elevated it to using real aircraft. That's becoming a part of the new tech in this area. Crewed aircraft with AI partnership on board. The concept is the AI can recommend a course of action or take over, but the person always has the veto vote. Again it is a layered system where the AI can take defensive action for survival without approval, offence is a collaborative operation.
If the US are doing it and at least parts of that are in the public arena, then you can guarantee the Chinese and possibly the Russians are too. Ukraine also admit to researching the use of AI on their systems.
Possibly 10 years ago the Chinese revealed they were experimenting with a rocket powered torpedo. Ecologically devastating, virtually unavoidable for an opposing submarine as it could arrive before the sound of it's launch. Add in an AI control...?
The USA has a certain strength and offensive ability with a fleet of long range deep water nuclear powered subs that outnumber all of the rest of the world’s put together. That ability to approach and strike from any shoreline is in itself a deterrent, of sorts, actual numbers wouldn’t mean all that much if all hell broke out. Trump himself has alluded to that. Apart from the advent, under Eisenhower, don’t think any other presidents have needed to.
China has just pointed out that the US aren't the only ones.
Aye, it only needs one, to start it all up.
And despite all the above Iran won, or at least did not lose. Perhaps if US or anyone else really wants to win they need to get serious and realise their nukes are there to use.
There used to be checks and balances - but I suspect the Hegseth purge has somewhat removed that buffer. We now have (at least) two global leaders who face all kinds of legal action if they lose power, with nuke buttons not far away.
It used to be a joke - not now.
Yes despite the in depth reasoning and publications of General Douhet, and shortly thereafter application of same by the like of Goering, Harris and Le May, no nation has been forced to capitulate by conventional weapons in an aerial assault.
Big statement Foxy. The German military collapse in WW2 was due to multiple causes but hugely pivotal was the crippling of logistics by allied air power, facilitating the race to Berlin. Untested was whether conventional US bombing of Japan would have in time forced a surrender without the need for an invasion. A claim that mass civilian bombing alone is unlikely to break the will of civilians subjected to it is supported by history but there can be no doubt it remains highly effective in degrading military capability and thereby bringing about eventual capitulation.
Murray86,
What exactly would we do with these very expensive planes? Who might we use them to fight with? If not China then who?
I would suggest that we need them about as much as we need tanks. I have zero expertise but i think i can safely say that warfare is changing rapidly. I would ask why we need a defence force at all, other than to patrol our exclusive economic zone and help us and our Pacific neighbours with natural disasters.
We need our limited resources for other purposes.
Agree, its more virtue signaling to our allies (probably important). Any war NZ fought alone against major superpowers would be over in 24hrs, less if we had any sense.
Comparing them with tanks shows you don't understand. Defence is more about deterrence. Capable defence is a requirement. In any major shooting conflict we wouldn't be alone.
Warfare is changing rapidly, that was the whole point of the comments above, but the layers are still required to be able to fall back to, as well as effective projection.
No defence force is a defence strategy of surrender. There's no point to patrolling the EEZ without the capability to enforce it.
While we do employ the defence force for disaster recovery and relief, that is not their primary purpose and that could be done with civilian assets.
Finally think about the resourcing and go back to our many discussions of how money works in the modern economy and figure it out.....
USA bonds getting jippy jappy again!!
Higher DDDEBT prices are in the pipe.
Holding high Debt is now a forever tightening noose.
An X account claiming BOJ ties created a bit of a stir yesterday: https://x.com/yutokanzakireal/status/2074183366048641243
"The measures being prepared by the Bank of Japan will affect the lives of billions of people.
To the people of the Western countries, I offer my deepest apologies.
This is not a personal matter.
May God's blessings be upon you."
Pardom my ignorance but what is new seasons volume's returning in dairy land? It's the middle of winter i wouldnt have thought cows were popping out their babies just yet?
Nor is there the grass to support milk production
Dairy season runs from 1 june till end may....contracts will be timed to that
There are lambs around on the Kapiti Coast. Cows won't be far behind. Probably already calving in Northland.
A small percentage milk year round by calving two herds, one in autumn one in spring or variations on that. Either they save enough feed on hand, buy it in or have high enough winter growth rates to do it. No two farms tend to run exactly the same so there's a multitude of differing systems to cope with local conditions.
Re the comments about NZ defense, it's obvious that drones are where it's at. The best thing NZ could do would be to sign one of the drone contracts with Ukraine that Estonia, Denmark etc.. are signing now.
Buy a few interceptor drones and let the army, navy and air force get some practice using them. Encourage our own defense drone start-ups. Use Rocket Lab to set up a mini starlink satellite network to enable all the AI co-ordination that an independent drone network will require.
All this is possible using a fraction of the outlay buying new frigates or F35s would entail. A homegrown drone defense system would be a far more cost effective and useful way of actually ensuring a decent future defense than buying stuff that can be shot down or sunk by drone.
Having our own satellite network and drones would also make us of some use to our defense partners rather than a burden that is not worthwhile shouldering.
You haven't thought it through. NZ is surrounded by a very large moat. No drones anywhere in the world have the range (2000 - 3000km) to provide an adequate defensive screen that would deter a potential aggressor. Long range missiles (a form of drone) from launch platforms are needed. The P8s, while an effective patrol platform are more a target than an offensive platform for launching long range weapons. They would need additional protection. And then there is the detection capability which we also do not have. And here it become clearer that we likely can't do it on our own. But we can contribute a lot more to our own defense.
F35s would be a waste of money and an unnecessary political reliance on the US. The Aussies already have them. What we need is something that would compliment their capabilities not add to them. The SAAB Gripen E does that.
While not specifically stealthy, the Gripen is small and that is a factor of stealth. It's radar signature would be very small. SAAB learnt from the A and C models and redesigned parts to reduce the radar signature, improved the avionics capability, increased the power of the engine. Operating behind a line of Aussie F35s the mix would offer a formidable challenge to any aggressor.
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