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Bond and equity markets can't agree; US factories expanding slower; Japan inflation up; China struggles with extreme weather; container freight rates fall; UST 10yr 3.13%; gold and oil down; NZ$1 = 63.2 USc; TWI-5 = 71.1

Business / news
Bond and equity markets can't agree; US factories expanding slower; Japan inflation up; China struggles with extreme weather; container freight rates fall; UST 10yr 3.13%; gold and oil down; NZ$1 = 63.2 USc; TWI-5 = 71.1
Queenstown from the Remarkables
Queenstown from the Remarkables

Here's our summary of key economic events overnight that affect New Zealand, with news the S&P500 has found wings today.

But first we should note that globally, government bond prices are rallying (yields falling) on fears of a worldwide economic slowdown. There has been disappointing eurozone business activity data, and comments that US Federal Reserve members are still looking at another +75 bps rate hike is adding to the uncertain outlook.

However today equity markets think they can smell a change coming in the inflation fight, and those rate hikes may have to be scaled back. This has turbocharged equity price rises.

Separately, the early PMI readings for the US are out, and they suggest that factory activity is slowing now, although still expanding modestly. The same is true of their services sector, although that expansion is a little stronger still. But not so hot is that new order levels are now lower than previously, the first contraction in new orders since July 2020.

The Kansas City Fed's factory survey for June showed activity slowed further but remained positive. Expectations for future activity also moderated slightly but were also still at solid levels overall. Supply chain pressures seemed to be easing for these businesses.

In its latest updated review, the US Fed released the results of its annual bank stress tests, which showed that banks continue to have strong capital levels, enough in the regulator's judgment to allow them to continue lending to households and businesses even in a severe recession.

Sales of new American single-family houses in May were at an annual rate of 696,000. This is almost +11% above the revised April level and comes after a string of slowing months. Still, this latest level is still almost -6% lower than for May 2021.

Here's an inflation-fighting idea. Driverless trucks, something that has been talked about for a while, but now in active, on-road testing.

The annual inflation rate in Japan was at at +2.5% in May, unchanged from April's 7½-year high but in line with market expectations. This was also their 9th straight month of rises in consumer prices, with food inflation hitting its highest in over 7 years, now topping +4%. The Bank of Japan has shown not signs of changing course from its ultra-easy money policies designed to raise inflation, but some sort of change must be getting closer.

In China, we noticed a change that may not be anything, or it might be. China's aggressive senior deputy and negotiator with Russia, who had been riding high on the relationship has been suddenly demoted sharply. Perhaps China knows that this relationship isn't going to help it, and they need to repair the economic relationship with the US in some way to restart their faltering economy. Who knows, but it is worth watching because a thaw in the China-US relationship is about the only thing that can move their needle.

Keep an eye on flooding in the vast Pearl River system. It has been worse than prior years and isn't over yet. Officials are calling the situation 'grim'. And in other parts of the country, excessive heat seems to be a big issue too.

Singaporean industrial production took off in May, rising much faster than anyone expected, especially after the dour prospects that were reported in April. The May recovery was broad-based.

And in Singapore, Sun Cable said Infrastructure Australia has affirmed the economic merit of its NZ$33 bln Australia-Asia Power Link project to supply solar power to Singapore and eventually Indonesia through the world's longest undersea high voltage cable. Its a project backed by the Fortescue Minerals billionaire owner and the Atlassian billionaire. It could start delivering power down its cable as early as 2027 rising to full output by 2029.

Container shipping rates fell -3% last week alone for trans-pacific cargoes out of China. This is their biggest fall since when they came off their peak in September last year. Interestingly, rates from the US back to China are actually rising, against the trend. American imports seem to be shifting away from China, to a variety of ASEAN countries, especially Vietnam.

The UST 10yr yield starts today down -2 bps at 3.13% although it had been much lower in between. The UST 2-10 rate curve is marginally flatter at +7 bps and their 1-5 curve is flatter at +33 bps. Their 30 day-10yr curve is also flatter at +194 bps. The Australian ten year bond is down a further -11 bps at 3.70%, a continuing big retreat. The China Govt ten year bond is +2 bps firmer at 2.82%. And the New Zealand Govt ten year will start today -16 bps lower at 4.01%, mirroring the Aussie retreat.

On Wall Street, the S&P500 is powering higher, up +2.9% in late Friday trade and heading for a startling +6.6% weekly gain, its best since March. But despite will still be -19% lower that its all-time peak, so just edging out of bear territory. European markets all rose very strongly too. Tokyo ended its Friday up +1.2% for a weekly rise of +1.3%. Hong King ended its week with a +2.1% daily rise and a +3.7% weekly rise. Shanghai ended Friday up a more modest +0.9% for a weekly gain on +1.0%. The ASX200 rose +0.8% in its Friday session for a +1.6% weekly gain. Of course, the NZX50 didn't trade yesterday but its 4-day week gain was a creditable +2.6%.

The price of gold is now at US$1831/oz in New York and down -US$10, down from US$1842 at the afternoon London fix on Thursday.

And oil prices are -50 USc/bbl lower from this time yesterday at just under US$106.50/bbl in the US, while the international Brent price is now just over US$109.50/bbl. The North American rig count is rising much faster and now back to pre-pandemic levels. The international rig counts are rising too except in Europe and Latin America (mainly Venezuela).

The Kiwi dollar will open today at just under 63.2 USc and +20 bps firmer than this time Thursday. Against the Australian dollar we firmer 91 AUc. Against the euro we are also firmer at 59.9 euro cents. That all means our TWI-5 starts today at just under 71.1, and up +30 bps over the holiday break.

The bitcoin price has moved up from this time Thursday and is now at US$20942, up +3.5%. Volatility over the past 24 hours has been moderate at +/- 2.6%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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54 Comments

Really nice photo but I don't think that I would want to stand in that spot given how steep the cliffs are in that area!

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Nothing like a little dash of vertigo with your morning cuppa is there.

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is that the view over the ridge at the Remarkables? RHS lift

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Looks like it.

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Yep, RHS of Shadow Basin chairlift on the 'Homeward Bound' run I'd say.

 

I climbed to the top of the Remarks mid winter some 20 years ago, will never forget that trip..

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Be photo shopped!

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I wonder if the Roe vrs Wade reversal will result in more people emigrating away from the USA?

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i simply do not understand US politics, this is a move backwards......

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When ideology and the lust for absolute power takes over...

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It's so ironic. The whole place was founded on escape from the shackles of ideology and power that was controlled by the crown.

 

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So many of the population sound like the Israelites in the book of Judges, clamouring now for a king to rule over them, a strong-man they can worship.

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Trumpy ! ... the  modern day equivalent of King Herod ...

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Salome, Salome, keep the veils a go go, anything you want is yours. Nobody tell Melania I was here though.

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Over 2/3 of the adult population support abortion rights & will hold the Supreme Court judges in contempt.

I see that Judge Thomas has now expressed his opinion that reversals of previous "erroneous" decisions supporting rights to contraception & homosexuality should be next.

The response to the ongoing political gerrymandering of the Supreme Court may be extremely divisive.

Supreme Court Abortion Ruling In Dobbs Is Institutional Suicide - Bloomberg

 

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It's a storm over nothing. All it does is returns abortion to the legislature where it should have been decided in the first place.

It's a massive stretch to read abortion rights into the constitution.

Whether or not you agree with abortion, Roe vs Wade was never the supreme court's decision to make.

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It's a storm over nothing

unless you happen to have been raped and fallen pregnant in one of the states where abortion will be banned in those cases (or simply want to exercise control over your own body)

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Then it's up to the voters to decide isn't it, as it should be.

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Couldn't you use that argument for other parts of the constitution?

shouldn't voters get a say in gun rights? 

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Where are abortion rights in the constitution?

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It's implied in14th amendment according to Roe vs Wade. https://en.wikipedia.org/wiki/Roe_v._Wade

https://www.u-s-history.com/pages/h232.html

nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. 

 

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So which of these is abortion: life, liberty, or property?

Like I say, a massive stretch to somehow find it in there.

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Liberty.  Look up the definition of Liberty if you're unsure.  

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Well, agree to disagree.

Even RBG had significant reservations: https://scholarship.law.unc.edu/cgi/viewcontent.cgi?referer=https://sch…

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Absolute bollocks. Apologies for the language but that level of ignorance merits nothing more. 

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Who would you like to make the laws if not elected representatives?

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You have a very poor understanding of the law. Look up common law and learn something. 

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I am familiar with common law.

You may want to look into statute, and what it does to common law.

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Uhhhhhhh how about its up to the individual….

What you are saying comes across as very Handsmaid Tale’ish. 

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Which one?

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Patriarchal self serving power & control BS. If men could have kids abortion wouldn’t even be a question

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Says who?

There's perfectly legitimate and difficult questions about when a foetus becomes a human.

Screaming "patriarchy" doesn't answer them.

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Deleted my comment as it was written in anger and that will get us nowhere. 

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All the wealthy conservatives will still easily get abortions, because it's different when it's them. The law changes will be primarily for the poorer folk in conservative states. 

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Unlikely. Frankly I think the US is over covered by our media, we have our own problems. Australia and the UK have closer ties and far more Kiwis live in those countries than the US.

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“a thaw in the China - USA relationship is about the only thing that can move their needle.” The globe’s two greatest economies, both of which are in the doldrums, floundering along. So they need each other? Finally get to learn why I was taught in algebra, that two minuses make a plus.

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David will never acknowledge that we are across the plateau and staring down the other side.

Despite the weekend pic...

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The shipping rates sure need to drop. I was told by someone in the industry that container rates ex Shanghai increased over 10 fold.

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Only a 2,200 MW cable. One big new thermal power station would generate that.

The economics of this solar, plus cable project must require subsidies.

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Or a tax on less green alternatives. 

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I wonder if Singapore have some cast iron guarantees on supply and price. The latter could be heavily dependent how much the new  Ozzy govt would like to extract green royalties from any new or existing coal fired power stations.

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Anyone got comments on whether pressure on supply lines may ease quicker than expected, and therefore inflation pressure?

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It'll ease in a staggered fashion, but there should be enough cases of oversupply to highlight some price flattening and drops.

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2s10s treasuries show long end falling, market is anticipating a recession, once it happens short end rates will fall, by then the damage is done. Inflation will be down and so will the economy.   

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If/when supply lines catch up will there be corresponding deflation in consumer prices or are the higher prices locked in? 

We're taught that compounding interest is an amazing phenomenon for "growing" our "money" and "wealth". How amazing is compounding inflation?

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In its latest updated review, the US Fed released the results of its annual bank stress tests, which showed that banks continue to have strong capital levels, enough in the regulator's judgment to allow them to continue lending to households and businesses even in a severe recession.

All 33 Banks Pass Fed Stress-Test, Setting Stage For Billions In Buybacks

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On Wall Street, the S&P500 is powering higher, up +2.9% in late Friday trade and heading for a startling +6.6% weekly gain, its best since March.

Stocks Emerge From Bear Market As End Of Fed Rate Hikes Priced In With Recession Looming

The Biggest Risk, No Surprise, Collateral

Cash rich investors chasing pristine collateral: Overnight Reverse Repurchase Agreements: Treasury Securities Sold by the Federal Reserve in the Temporary Open Market Operations

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In China, we noticed a change that may not be anything, or it might be. China's aggressive senior deputy and negotiator with Russia, who had been riding high on the relationship has been suddenly demoted sharply. Perhaps China knows that this relationship isn't going to help it, and they need to repair the economic relationship with the US in some way to restart their faltering economy.

You may wish to listen to what this chap has to say and read the referenced article.

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very informative. possibly a little too general but not too far off the mark. All the EU/UK politicians put on a good public face but I wonder if behind closed doors they are suggesting to Zelensky he sacrifice some territory. I still think Russia wants to take Odessa and all the associated coast line along it for more leverage but do not have the resources to do it the next three to six months. The blockade is already having an additional influence on cereal supply but I doubt whether the Euoroean govts and even the US care too much about a few million Africans and others dying from starvation. It won't worry Russia and maybe Russia supplying some grain to the affected countries could even buy them some influence.

Evidently India is making money hand over fist buying discounted Russian oil, refining it and on selling to the US and others.

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The North American rig count is rising much faster and now back to pre-pandemic levels.

Dallas Fed: Surging Costs Hamper US Shale Growth

In comments to the survey, an E&P executive said:

“We are experiencing significant delays in obtaining materials and services, and costs are substantially increasing. We will shortly be ceasing investment in any new operations owing to the combination of rising costs, supply-chain slowness and our view that a recession is coming that will drop oil and natural gas prices significantly.”

“Huge service cost increases, regulatory uncertainty and mixed messages from Washington are keeping me on the sidelines,” another executive noted.

One executive at an oilfield service firm commented: “The supply chain seems stretched to the max in the Permian Basin. There really is not much ability to increase drilling activity.”

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I was really impressed with the Mercedes-Benz EQXX sedan concept testbed which recently managed 1200km from a single charge using a 100KwH battery (that's comparable to a high end Tesla) at an average of 83km/h between Germany and the UK. It looks like their "secret" is to squeeze the frontal areas and drag coefficient right down (Cd 0.16) while also using active spoilers to optimise the cars shape for the speed it's travelling at.

This hunt for efficiency will substantially improve all types of vehicle. I hope eventually Quadricycles will be allowed in New Zealand such that people don't need an expensive EV to go to the shop and buy milk or nip to the office.

 

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Only needs 3 wheels, the fourth is an inefficiency. I ride a fully-independently-suspended trike; most comfortable ride ever.

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Do you have a link you can share? I'm interested in trikes.

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I actually rode a velocycle when I was in Europe recently. Downhill it was rapid, easily getting up to the open road speed limit...and beyond! With a 3 or 4kw motor it'd easily be able to exceed the speed limit. Even with a wheezy old git like me just pedalling on the flat it could do 30km/h constantly.

We probably concentrate a lot on EVs without asking if an EV is the right answer. Consequently I suggest quadricycles.

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