Here's our summary of key economic events overnight that affect New Zealand with news inflation's bite is getting worse, and the policy pushbacks are ramping up now. The stagflation risk is now very real.
American producer prices were up 11.2% in March from the same month a year ago, the biggest increase since the data started being collected twelve years ago and topping estimates. The increase from February was +1.4%, so recent rises are now running faster than the annual average. This will cement the Fed's inflation-fighting drive and probably lock in an outsized rate hike when they meet in early May.
The US Treasury had a small 30 year bond auction today for $25 bln, one that was well supported garnering US$50 bln in bids. The median yield achieved was 2.73%, up only modestly from the 2.32% pa for the same event a month ago.
As expected, the Canadian central bank raised its policy rate overnight by +50 bps taking it to 1.0% and explicitly started a monetary tightening phase. Canada's headline inflation rate is 5.7% and its economic expansion is running at +3.3% real.
Yesterday we reported a sharp jump in machine tool orders in Japan in March. Today we should note that February overall machinery orders were weak and much weaker than expected. Machine tool orders tend to be export focused, whereas overall machinery orders have a larger local component, and that is the part that was weak in February. But perhaps there was a bounce-back in March?
China's export growth slipped in March, although not by quite what was expected, and came in +15% higher than the year-ago level. But eye-catching in this data was the absolute decline in imports, down -0.1% when an +8% rise was expected, itself a drop from the February +16% rise. It is a massive negative turnaround, indicating very weak local demand. It is more stark when you note that energy imports were up +39% by value in March. The sharp divergence between exports and imports juiced their trade surplus up to +US$47 bln in the month, with their US surplus nearly touching +US$60 bln. But none of these March results are records, far from it. In March, they ran a -US$9.5 bln trade deficit with Australia and a -US$1.8 bln deficit with New Zealand which was unusually large.
China has signaled that a reserve ratio cut is in the works to help keep their economy from slipping back amid heavy domestic economic headwinds. They also have their banks raising vast amounts of new bond funding. With all this liquidity being readied, you do have to wonder what the quality of the projects that are to be funded will be.
In Australia, the respected Westpac/Melbourne Institute consumer confidence survey posted a modest fall in April from March, but it now sits at its lowest level since September 2020 when pandemic fears were dominating. Now they are worried about geopolitics, floods, inflation, and interest rates. These fears are not enough to overcome the juicy election Budget, further strength in the labour market and a significant recent fall in petrol prices there. It is also not good news for the incumbent government which is suffering from serious distrust issues by the electorate.
The UST 10yr yield has slipped today, down -3 bps to 2.69%. The UST 2-10 rate curve starts today a tad steeper at +33 bps. Their 1-5 curve is steeper at +97 bps. Their 30 day-10yr curve is unchanged at +248 bps. The Australian ten year bond is now at 2.98% and and down -3 bps. The China Govt ten year bond is down -1 bp at 2.82%. And the New Zealand Govt ten year starts today at just on 3.48%, down -10 bps and re-rated after yesterday's OCR jump.
Wall Street is having a positive session today with the S&P500 up +0.8% in afternoon Wednesday trade. Overnight, European markets were mixed with Paris and London booking minor gains while Frankfurt slipped -0.3%. Yesterday, Tokyo recovered all of its prior day's big loss, up +1.9%, Hong Kong ended up +0.3% but Shanghai was down -0.8%. The ASX200 ended its Wednesday session up +0.3% but the NZX50 slipped -0.1%.
The price of gold starts today at US$1979/oz and up another +US$8 from this time yesterday.
And oil prices are up +US$3.50 today at just over US$103.50/bbl in the US while the international Brent price is now just on US$108/bbl.
The Kiwi dollar will open today almost -1c weaker at 67.9 USc. Against the Australian dollar we are -¾c softer at 91.2 AUc. Against the euro we have sunk a full -1c to 62.4 euro cents. That all means our TWI-5 starts today at just 73.7 and its lowest in a month.
The bitcoin price is up 2.7% from this time yesterday at US$40,988. Volatility over the past 24 hours has been moderate at +/- 2.5%.
And finally we should note that although our offices will be closed for the long 4-day Easter holiday weekend, we will be releasing interesting economic content over this period. And that includes a Weekend Briefing on Saturday.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
52 Comments
OCR up, NZD down?
Sinking against AUD for a while already but today is a big shift
Australia is a "commodity currency". The AUD will fare better than the NZD during a period of rising commodity prices.
Lets hope NZ can find other ways of stimulating growth now that many wont be able to use their houses as ATM's and migration is set to stay low levels for a while yet.
Why? What has “growth” given us? More congestion, plastic on the beach, sewers overflowing, mass immigration, fields being turned into suburbs, water pollution, higher rates, more water from the Waikato….
Diversity!
Diversity has probably been the best thing about growth. New ideas, new skills and new foods. Yum Char and Indian food rather than fish and chips and a soggy pie. One of my local towns Pukekohe wouldn't be the successful place that it is without the hard work and significant investment of kiwi growers of Indian and Chinese descent. Unfortunately uncontrolled urban growth is now covering this vital food producing area in concrete.
I quite enjoy the new business practices that have been bought into the real estate industry.
You have not enjoyed the delights of a Sangas Pie in Cromwell.
You are right there are some great pies in NZ. I just had a bad one recently. Some of the best pies near us are from Korean bakeries, once again a benefit of diversity.
You can think NIMBYism preventing intensification for the loss of vital food producing areas, ultimately. And for sky-high rates to cover maintenance of sprawling infrastructure.
Whatever you want to say about Auckland, I can assure you that is not uncontrolled urban growth. Land supply is very controlled in Auckland, one reason why land costs so much here. Auckland actively chooses to cover vital food producing areas in concrete so they can avoid unproductive lifestyle blocks close to the city.
Auckland Council operates to a simple set of urban planning rules to fully supply land to all areas except existing Auckland suburban sprawl. Hence Pukekohe, Drury South, Patumahoe, Paerata, Huapai, Silverdale, Beachlands have massive expansion while Auckland City has only a slow expansion. This is done to align with Directive 1 of our Auckland Plan - develop a compact urban form. Urban planners pretend all the exurbs are a completely separate concern and proclaim Auckland to be a low sprawl city.
In America the cities with dense city populations (Chicago, San Francisco, Detroit, etc) are losing population while Houston and Austin continue their urban sprawl. People are voting with their feet.
Other countries manage diversity by going overseas and bringing ideas back. Just watch Korean or Chinese TV dramas to see plenty of western culture - especially western steaks, pizza and fried chicken but they do not need Europeans to prepare the food and be waiters, checkout operators and cleaners to achieve this diversity. Don't Kiwis notice things are different when they go overseas?
Or does diversity merely aim to defeat Christianity - I prefer my atheism to a hodgepodge of conflicting beliefs.
You are over thinking it. Have you tried talking to someone of a different race or religion to yourself? You will find you have more in common than you think. What are people so scared of?
Yeah good point. This 'Continuous Growth' model we live by is the cause of most of our problems and will need to stop sooner or later, maybe we are currently at that point with the pandemic challenging globalisation. The obvious example is the millions of tonnes of useless crap we import from the likes of China every year that just ends up in our landfills, waterways and oceans.
Companies demanding exponential 'growth' regardless of our economic situation whereby the consumer just forks out more and more for a product that is continually watered down and inferior.
Population growth that is poorly thought through that just continues to put pressure on a crumbling infrastructure and limited resources.
And the mother of all 'growth models', the NZ Housing Ponzi, need I say more!
https://www.resilience.org/stories/2022-04-12/the-failure-of-global-eli…
"some ire might be justifiably directed at economists—who aren’t all themselves super-elites, but who deserve a special “award” for being the legitimizers of the elites in the policy arena. They are our modern priesthood, setting the rules of the game and creating justifications for growth-at-any-cost. They call themselves scientists, when in fact they mostly just cram data into unexamined and untested models.
But economists’ follies don’t absolve the media, politicians, or corporate leaders—indeed, everyone in the top, say, ten percent of global income earners. Why couldn’t these people have seen for themselves what was happening? After all, it doesn’t take genius-level intelligence or higher math skills to foresee that the exponential growth of population and consumption on a finite planet will inevitably lead to disaster. I’m reminded of Upton Sinclair’s pithy saying: “It is difficult to get a man to understand something when his salary depends on his not understanding it."
Well dang me, PDK can retire...
Actually, it's time we addressed whither finance, whither debt and whither society. I'd like to see a serious journalistic piece linking the physical Limits to Growth, with 'supply chain issues' and inflation; then asking whether interest-rate rises can solve the problem.
I think a big part of the problem is that some how the theorists seem to think they can separate out human psychology from the market or economy operation. But this is a very flawed premise as both of those, the market and the economy, are human constructs not figments of nature, and are therefore utterly influenced by human psychology and therefore emotions, which in the end are as a group entirely unpredictable.
That's where behavioural economics comes in - they replace homo economicus with homo something else
I agree, behavioural research shows us that actually, human behaviour is quite predictable.
The obstacle for behavioural economists though is the vast numbers of variables to control for. Economies are complex systems so overall, they are less predictable than the more statistically reliable features that behavioural economics allows us to use for prediction (loss aversion bias, sunk cost bias, law of reciprocity etc).
I’ve inclined more recently to using Evolutionary Psychology to contextualise Behavioural Economic research. When we can understand the deeply wired mental heuristics of a particular statistical phenomenon, it aids prediction IMO.
Human behaviour predictable? It is classic chaos theory.
There are plenty of statistically relevant behaviours that have show up in human behaviour, to the extent that we have instinctual responses like all other animals do. We are simply more complex, so controlling variables makes us appear unpredictable but there are multiple areas where we are not chaotic at all. We are a group species, evolved with mental shortcuts, like other species.
After all, it doesn’t take genius-level intelligence or higher math skills to foresee that the exponential growth of population and consumption on a finite planet will inevitably lead to disaster.
Why the artificial constraint, we haven't been limited to a finite planet since 1961. An economic model of infinite expansion is reasonable for a society with the ability to venture off planet and into the infinite.
lol - the moon is a very finite distance away - maybe Elon can tow a few asteroids back and make us all rich
You mean like when Scrooge McDuck mined the 24 carat moon.
https://scrooge-mcduck.fandom.com/wiki/The_Twenty-Four_Carat_Moon
Totally agree - “stagflation risk is now very real” - more pressure is needed on government to reign in spending - their “ideological agenda” for co-governance will cost far too much for this country - I feel sorry for renters & others struggling to make ends meet - Labour’s base supporters are being forced to leave this country to find better wages & cheaper housing - Labour’s actions are a “gift” to the other parties.
Yes, probably the worst time possible to have a govern alone Labour Govt in power. Loose spending and ideological policies with little understanding of their consequences combined with global instability, war in Europe, a squeeze on global supply chains and a pandemic is a recipe for disaster that is currently unfolding in front of us. Its going to be one hell of a mess for someone to clean up!
Dont worry Luxon has a plan..roll everything back and then....open the floodgates
Genius ! And masses will love him for it :)
The biggest problem with Labour at this time is that they have become National on housing, living costs, and wages. Austerity for healthcare workers, just like National. Wanting to keep house prices going up, however far they've already risen - just like National.
People are delusional if they think young people are leaving because everything was hunky dory until Labour got in and overspent (where, exactly?) and caused these problems. The biggest problem is they carried on the same tacks previous governments had taken. Kicking the can down the road.
In fairness, they've at least done some things on housing, but the base belief that house prices are only allowed to go up was a problem.
Perhaps the best time possible to have a govern alone Labour Govt in power. The empress has no clothes & no excuses.
As The Who said: "We won't get fooled again" - will we ?
'We" will pay the price and "We" will get fooled again.
Yes lots of inflation and now adding to the pain, interest rate rises, wage rises will not keep up, government spending is out of control, and spent on ideological agendas which will not benefit the majority of the country
A lot of confusion & uncertainty on all points of the compass undeniably but you are correct this Labour Government has not been uncertain at all about spending copious dollops of other peoples’ money on projects neither necessary nor productive.
Can you name one of these projects? Not a fan of either red or blue but I did not hear any protests from the large amount of taxpayer money (thats me and you) forked out over the last 2 years to prop up businesses (some more zombie like). Now that tap is turned off we get the pain...and the bill
Quality Facebook take - but yes, which projects? 90%+ of roading projects were consistent across both parties, for example.
Part of me agrees with Tony Alexander. If our businesses can't handle labour shortages, unmotivated, lazy, unfocussed workers, and decent pay, then maybe they shouldn't exist. We just have to learn to live in such a society. The vast majority of voters are workers, not owners, so one would think the political parties would be pushing that line a bit.
Bysit - I fully agreed with what Tony Alexander was saying and to his credit in his latest two newsletters he actually supported big wage rises for workers and told employers they need to pay up, or go out of business. At least he embraces the logic of the free market (creative destruction of inefficient firms etc) whereas many so called free marketeers just look to the government to intervene (eg bring in more overseas labour, stop increasing the minimum wage) to make their inefficient, low-wage business models work.
And I’m not supporting those who argue workers here are lazy, unmotivated etc. Many people I know have been actively discriminated against by employers and landlords etc on the basis of their colour, so that type of reasoning just gets me wondering to what extent they are justifying casual racism.
One of the flaws of the current labour models is that business owners/managers have had some rights eroded as to hiring and firing. I agree we need to be paying better wages across the board, and there needs to be a significant difference between the benefit and the lowest wages. But people need to realise they go to work to just that - work.
While employers need to maintain a standard they also need to be able to get rid of dead wood.
Breakfast briefing; Stagflation risk jumps
Is it something new and not expecting, WHY be surprised.
Just like expecting to see inflation at 7% plus and more than 8% or in double digit in this year, so when it happens, should one be surprised.
China has signaled that a reserve ratio cut is in the works to help keep their economy from slipping back amid heavy domestic economic headwinds. They also have their banks raising vast amounts of new bond funding. With all this liquidity being readied, you do have to wonder what the quality of the projects that are to be funded will be.
But before one gets too bearish on the yuan, it’s worth pointing out that Chinese exporters haven’t converted all their dollar receipts into local currency since the pandemic started two years ago. Far from it. Foreign-currency deposits have swelled to $1 trillion -- a whopping 39% increase from the end of 2019. These extra dollar savings may come in handy if the yuan starts to depreciate Link
I see a lot of commenters talking about stagflation. If anyone is happy to, I would appreciate a post explaining how this is a topic of discussion at this stage. It seems too premature for it with some of the lowest unemployment rates in ages in the key countries, or are people just speculating / talking about the "risk" of stagflation, a bit like people talk a lot about scenarios for where interest rates might go? Good to talk about it and be prepared for scenarios but no-one really has any particular certainty?
I get that if inflation is unbridled it creates an environment too unstable for some businesses to handle, so in turn could cause unemployment. Is that all there is to it?
Genuine question. My knowledge on international economics is developing.
I always like this explanation from investopedia
https://www.investopedia.com/terms/s/stagflation.asp
In summary - too high inflation means that smaller more vulnerable businesses cant afford rising prices and to pay increasing salaries (which are increasing to keep up with inflation) and they run out of cash and collapse (go into liquidation)
If too many companies end up doing this and it becomes disorderly ie lots collapsing at once or the contagion effect- then you get rising unemployment from the collapsed businesses and the economy starts to stagnate- failing businesses, people our of jobs with inflation. Hence stagflation.
You are right it hasnt set in yet because at the moment companies are not collapsing en masse - there are some teetering on the brink. The concern for the NZ economy is business confidence is quite low at the moment and there are a number of businesses saying they have revenue problems.
In the past NZ had a Ministry of Works that kept many being trained and stably employed through these crises, and kept infrastructure being built. This also ensured a stable supply of skilled builders over time, something that private industry has not managed as it was cheaper to import than invest in people. Perhaps Kainga Ora and a new Ministry of Works can be brought to the fore through the crisis.
But what government would be ready to invest in New Zealanders like that?
As a civil engineer I would LOVE to see a ministry of works type organisation instated.
I went to work in QLD to experience the last all singing civil works department (DTMR) within shouting distance and although it has been cut off at the knees a bit with successive right wing governments, they still had ridiculous amounts more capacity and ability to influence the market than any of our disabled public services.
Thanks. Sounds like it is that simple, and is more of an impending possibility than a certainty.
Yesterday was a funny old day- looser traffic light changes, commentary on people leaving NZ and then the tighter monetary policy stance - it felt like a road trip back in time
Government: Lets party like it's 1999
RBNZ: It's back to the good old days of 2008
Immigration and Every Economist in NZ: Looks like 2012 and the Brain Drain is back
And oil prices are up +US$3.50 today at just over US$103.50/bbl in the US while the international Brent price is now just on US$108/bbl.
Saudi Arabia leads OPEC decision to drop IEA data as US ties fray
... Louisa Wall gives her valedictory speech in parliament today ... she made some achievements in her 14 years , most notably with same sex marriage legislation ...
Granted , she can be controversial at times , but equally so someone with ideas worth debate ...
... Jacinda Ardern let Louisa's abilities wither , clearly not wanting her in the cabinet ... what a waste of talent ... typical of the current government , you must toe the line , be " one of us " ... Mavericks not wanted !
Politics is more often about personalities than ideas. Political leaders tend to surround themselves with sycophants who in the end are less doers, than brown nosers, and then like to show themselves as leaders rather than dictators. A smart leader though is one who can take the individual who can be discordant or is just less popular, and use their skills and ideas to the best. I think Ms Wall's comments re our Prime minister is a rare glimpse of the realities of governmental politics. Lange for all his flaws identified that what he did best was bring a disparate team together into a cohesive whole. I think he was probably the best speaker we have ever seen in the role too.
Although I wasn't a fan of Helen Clark's political ideals .... she did include in her cabinet " enemies " , if they were talented enough ... indeed , the way to stop them agitating foment was to keep them busy with big meaningful portfolios ...
... we need diversity of opinion & viewpoint ... not a cabinet full of toadying " yes " MPs ...
But a flaw was failing to mentor someone to take her place. Too dangerous to do in the political arena?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.