Here's our summary of key economic events overnight that affect New Zealand, with news the Trump Administration has been unnerved by the rising yield investors are demanding for their long-dated bonds. Thy have now moved to "provide liquidity support" for the UST 30 year bond, effectively spending deficit dollars to bid the yield down and the price up on secondary markets. They didn't like the free-market signals, so they are using resources to twist them. Bond professionals are sceptical today's move is anything but a short-term salve because they are still raising huge new funds to support their deficit spending, more than US$½ tln in just the past 60 days.
It is a move that has seen the USD fall, gold rise, and pushed up the price of commodities including crude oil. Bitcoin sparked back into life with a sharpish rise too.
Elsewhere today, the minutes of the July Fed meeting were released today, the one where there were three dissenters all who wanted to raise rates to counter inflation threats. And it also revealed many non-voting members supported hiking rates too. But to be fair subsequent data has shown that their labour market is cooling rather faster than they anticipated, and that inflation has dipped slightly. It is still well above their policy target however. Today's Treasury interventions and the related inflation-inducing market reactions will be being watched by the twelve voting members closely.
Meanwhile, US mortgage applications fell slightly last week, staying weak, and back to levels they were at in the first half of 2025.
And US commercial crude oil stocks rose sharply last week taking the rising run to three straight weeks. However, their strategic reserves fell again and is now a levels so low that there are concerns about the physical infrastructure.
The USMCA renegotiation deadline with Canada has been pushed back a few days. The Americans say it is because a deal is close. The Canadians say there is still details to be agreed although a deal is close and one far different to the "50%" threat. It will be interesting to see how the Canadian dairy sector fares in all this.
The exchange rate market reaction to the US Treasury move has taken the pressure right off the Japanese yen.
Japanese machinery orders continued their yo-yo pattern in June, now up +16.9% from a year ago (excluding volatile items). Export orders were particularly strong.
In Australia, Big Tech is raising bond financing to support their global AI rollout ambitions. Google raised more than AU$5 bln yesterday after being flooded with more than AU$18 bln in market offers. This is a honeypot sure to attract more Big Tech borrowers.
The UST 10yr yield is now just on 4.65%, down -6 bps from this time yesterday. The 30 year yield is at 5.20% and down -8 bps. The key 2-10 yield curve is now at +47 bps (down -6 bps). Their 1-5 curve is now at +37 bps (-1 bp) and the 3 mth-10yr curve is at +98 bps (-4 bps). The China 10 year bond rate is up +1 bp to 1.68%. The Japanese 10 year bond yield is now at 2.90%, down -5 bps. The Australian 10 year bond yield starts today at 5.02%, down -3 bps. The NZ Government 10 year bond rate is at 4.74%, down -3 bps.
Wall Street has stopped falling today with the S&P500 now up +0.3% and the Nasdaq also up +0.3%. Overnight, European markets were little-changed between London's +0.1% and Frankfurt's -0.1%. However Tokyo ended its Wednesday session down another very sharp +3.2%. But Hong Kong was flat again (+0.1%). Shanghai fell an outsized 2.4%. Singapore ended down -0.1%. The ASX200 ended its Wednesday session down -0.2%. But the NZX50 rose +0.5% in its session.
The price of gold is up sharply, now at US$4503/oz, up +US$150 from yesterday at this time. Silver has risen +US$2 to just over US$66.
Oil prices are up another +50 USc from yesterday at just over US$85.50/bbl in the US, while the international Brent price is now just over US$91.50/bbl. Hormuz transits have stayed very low although there is a bit more activity with four crude tankers and 5 cargo ship exiting over the past 24 hours (2 dark with transponders off) and six entering for new loads (4 dark), again all Iran-linked. The Red Sea activity is still only about 20 exits at the Yemen chokepoint, little-change.
The Kiwi dollar is up +50 bps from yesterday at just under 59.3 USc. Against the Aussie we have risen +40 bps to 83.3 AUc. Against the euro we are little-changed at 50.8 euro cents. That all means our TWI-5 starts today at just under 62.8, up +50 bps from this time yesterday.
The bitcoin price starts today at US$68,163 and up a sharp +5.4% from yesterday. Volatility over the past 24 hours has also been high at just on +/-3.7%.
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6 Comments
David, a suggestion from me is to report also the 3-2-1 crack spread. This gives a better relation with what New Zealanders have to pay for their Diesel and Petrol (Gasoline). It is currently at a 10yr high!
Great link Peter.
Before we all lose it and accuse the refineries of profiteering, scroll down to read this bit; "Crucially, the spread is set by the market, not by refiners. It is the difference between freely traded crude and product prices. Refiners take what the market gives them; they don't dictate it."
This smacks of desperation on the part of the buyers of refined product. It is perhaps justified, but also emphasises the refusal or perhaps denial about the research into alternatives, including the acceptance of what they will cost, and really stresses the down stream consequences of Trump's screw up in the ME.
This follows on from a thread yesterday. There is a lot of confusion when energy and price are conflated (reflecting a wider confusion).
Firstly, low-entropy energy is what modernity requires. Secondly, energy cannot be created (or 'generated') so must be tapped into. Thirdly, energy is degraded every time work is done - the result being low-grade heat.
Our digital-proxy system is entirely dependent on the energy-tapping-into, for its underwrite. Our so-called renewable energy-tapping systems (really rebuildable, meaning dams would have to build replacement dams) require the low-entropy of fossil energy to be both built and maintained.
And the fossil energy is finite. And the best is gone, already. And entropy never sleeps (therefore the energy demand from maintenance goes ever up). And Climate Change is accelerating, setting record after record on its way to disrupting modernity on its own.
Being finite, fossil energy should be nearing priceless, the more depleted it becomes. But the reassuring narrative is that 'renewables' are 'getting cheaper' and will take over - just some time in the unclear-but-far-enough-away future that we can continue burning the fossil stocks. Thus Burnham visiting a wildfire site, wittering on about opening up exploration of a couple of unlikely North Sea dregs, while attempting to assert that it is a transitional move (he didn't even sound sincere). Outside of hype politics, the growing understanding is that FF are like-for-like irreplaceable - meaning that modernity, as configured, is doomed (not so our species, maybe, depending on how the cards fall, but modernity is a goner). Yet we're still building FF aircraft, tractors, ships...
Long story short; society as formatted increasingly cannot 'afford' itself - for energy/physics reasons. That is being amplified as the pressure comes on - both population/demand and dreg-bound-ness - and is showing up as increased indebtedness. Which is increasingly unrepayable - dure to reduction of said net energy-input.
So those demanding 'cheaper' energy, are barking up the wrong tree. As for those blaming this or that group/cabal for the 'price'; as a total society we are undervaluing the (finite and irreplaceable) resource-stock. Blaming others misses the point.
Spot on!
The level of denial in the politics is huge as aspiring politicians lust for power and influence. That denial hits crisis when and event like the ME upsets the proverbial apple cart. We should be looking for politicians trying to reset the energy debate. the whole spectrum, but we need to accept that FFs will by necessity be a part of the picture. I also think there is too much emotion involved. Debate and discuss the facts. My view is that there is a need for FFs, hydrogen, electric including all the diverse means of generating it as well as nuclear. Dependence on too few options increases risk and vulnerability, not to mention cost.
Russia has had to research alternatives. NZ should pull finger and build a topping plant in Taranaki or ditched the ETS to keep Marsden running.
Aug 17 Reuters - At least one cargo of gasoline from India has entered Russia's domestic market as Moscow seeks to ease fuel shortages caused by Ukrainian drone attacks on refineries, three industry sources told Reuters and LSEG shipping data showed.
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