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Beige Book positive; Fed speakers float tapering; iron ore and coal prices stay high; German retail stutters; Aussie GDP growth good; OECD sees higher inflation; UST 10yr slips to 1.59%; gold and oil firm; NZ$1 = 72.3 USc; TWI-5 = 73.8

Beige Book positive; Fed speakers float tapering; iron ore and coal prices stay high; German retail stutters; Aussie GDP growth good; OECD sees higher inflation; UST 10yr slips to 1.59%; gold and oil firm; NZ$1 = 72.3 USc; TWI-5 = 73.8

Here's our summary of key economic events overnight that affect New Zealand with news the steady rise in the US economy continues.

But investors seem ambivalent about the progress, and are not convinced the inflationary pressures will last and result in higher interest rates.

The US Fed has released its latest update of economic conditions across all its regions in its Beige Book. Their overall economy was said to be expanding at a faster rate than a month ago, and now at a "moderate pace". This was helped by increased vaccination rates and relaxed social distancing measures, while they also noted the adverse impacts of supply chain disruptions.

Selling prices rose moderately they said, while input costs rose more briskly. Continuing supply chain disruptions intensified cost pressures. Strong demand, however, allowed some businesses, particularly manufacturers, builders, and freight companies, to pass through much of the cost increases to their customers. Looking forward, the survey did see more cost increases and higher prices in coming months.

Meanwhile, Fed speakers are floating the idea that tapering is on its agenda.

The steady decrease in US mortgage applications continued last week, and it is becoming quite the trend. And it is not due to mortgage rates rising recently. It is "rapidly rising home prices" that are holding back buyers, apparently. Fear of a sudden house price correction looms large in the US.

In China, hopes that iron ore prices will tend lower seem to be in vain. Coal prices are staying high as well, and there is new demand for thermal coal.

This is China's rainy season and flooding is severe in many parts, especially in the Yangtze and Pearl River basins.

Retail sales levels in Germany took an unexpectedly large turn lower in April. A -2% fall was expected from March in the seasonal pattern. But the actual fall was -5.5%. True, March was strong and was revised higher, but still, this April result has been a head-turner.

The Australian GDP result for Q1-2021 was a good one. Their economy is transitioning strongly from recovery to expansion, supported by still-high levels of fiscal and monetary stimulus. GDP is now +1.1% above pre-pandemic levels. The strength is consistent with the ongoing improvement in their labour markets, while leading indicators point to further strength over the coming year. (The New Zealand GDP result for the same period will not be released until Thursday in two weeks.)

And the Victorian lockdown has been extended for another week. And now risks are growing in southern coastal NSW.

The OECD is reporting that inflation among its members jumped to +3.3% in April, and that is the highest rate since 2008.

And the ILO says the labour market crisis created by the pandemic is far from over, and employment growth will be insufficient to make up for the losses suffered until at least 2023.

Wall Street opened today's session strongly again but like yesterday all those gains have slipped away by early afternoon trade. European markets closed about +0.4% higher. Yesterday, Tokyo closed yesterday +0.5% higher, Hong Kong closed -0.6% lower and Shanghai closed down -0.8%. The ASX200 ended its session up +1.1% but the NZX50 Capital Index ended down -0.2%.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 171,323,000 people have been infected at some point, up +486,000 in one day. Global deaths reported now exceed 3,683,000 and up +31,000 in one day (Peru upgraded their death toll significantly). Vaccinations in the world are still rising but at a slower pace, now up to 1.976 bln. In the US half of their population (51.3%) have had at least one dose. More than 40% of Americans have been fully vaccinated (137.8 mln people). The number of active cases there has fallen to 5,585,000 with fewer new infections than recoveries recently and steady progress.

The UST 10yr yield starts today down -3 bps at 1.59% as the 10-year break-even rate, a key measure of inflation expectations, has slipped in recent days, stirring debate over whether it has finally peaked after this year’s near-relentless climb. The US 2-10 rate curve is little-changed at +145 bps. Their 1-5 curve is still at +76 bps, while their 3m-10 year curve is similar at +159 bps The Australian Govt ten year benchmark rate is down -6 bps at 1.62%. The China Govt ten year bond is little-changed at 3.11%. However, the New Zealand Govt ten year is up +4 bps at 1.79%.

The price of gold starts today at US$1908/oz, a bounceback of +US$6 from this time yesterday.

Oil prices start today another +US$1 firmer at just over US$68.50/bbl in the US, while the international Brent price is now just over US$71/bbl, and that is a two year high.

The Kiwi dollar opens today at 72.3 USc and another small softening overnight. Against the Australian dollar we are down to 93.3 AUc. Against the euro we are slightly softer at 59.2 euro cents. That means our TWI-5 starts today at 73.8.

The bitcoin price is now at US$38,001 and a large +5.1% jump from this time yesterday. Volatility in the past 24 hours has still been high again at +/- 3.4%.

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

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34 Comments

"Meanwhile, Fed speakers are floating the idea that tapering is on its agenda"..good luck with that, the ship has so many holes to fix but stuffing them with fiat paper might work?

Tapering? We've made our financial system game with excess liquidity and it's hilarious. Meme stocks are flying.

https://www.bloomberg.com/news/articles/2021-06-02/amc-extends-advance-i...

Meme stocks have had a good few days. AMC up 100% today. The amount of volume in AMC and BlackBerry show there’s some big players in, rather than being all redditors.

A few sharks out looking to eat the small fry for breakfast?

Fiat has no value anymore. The future claim that debt has on people, capital and resources (the most important being energy) is bankrupt. The world just hasn't realised it yet.

Sold my AMC at close today. Quite the tidy gains. 400% up in a couple of months. Noice!

LOL and no mention of GME, which almost broke $300. The US media are playing this down.

Hard to play down really, it's not a particularly interesting story. If 'stock price goes up' was worth a headline there'd be no space to report anything else.

All very exciting for those involved I'm sure, and nice when gambles pay off, but not really a significant event.

GME went up 13%, which is great. But AMC went up over 100% in a day, and 250% for the week. It caused trading to halt. It's no wonder it's getting the most attention.

A sure sign the end is near

Normally I would agree, the whole "shoe-shine effect" but actually, this seems to be more a new, technologically driven financial spur. Meme stocks are better seen as a gambling game, you get better odds the earlier you jump on board (short term ponzi). Northman has played the game well and won big - hats off :).

I wonder if profile will be along soon to applaud 'strong lockdown' Australia's GDP recovery? He was very pleased with Sweden achieving the same.

The 9.1% quarterly increase in spending on plant, machinery and equipment is what caught my eye; a 7.1% increase among private non-mining businesses for the March quarter.

That soil map looks odd. How can it still be below field capacity south and west of Chch?!

been in Dunedin over weekend -- just up to Oamuru now -- it was not really wet here at all over teh weekend -- and green but nor overly so - also that ground was rock hard with drought before -- so most of the water ran straight off --- will only know in a weeks time how much soaked in and how much just ran straight off

Yep it’s been dry here in the Dunedin area for quite a while. Finally got some good rain, 3 and a quarter inches over the weekend.

Yeah the hydro lakes didn't get anything significant either which is a real shame. We are still going hard on diesel and coal for generation at the moment.

I wondered that too. Basically SMD represents a reservoir of the top 150mm, which is presumably not yet full to capacity. This is NIWA's definition: https://niwa.co.nz/climate/nz-drought-monitor/droughtindicatormaps/soil-...)%20of%20150%20mm. More information would be useful.

Had 180mm at my place in South Canterbury. The gullies are oozing water. The knobs are wet on top, but not down into the subsoil. We probably had a 200mm deficit before the rain. Soil was bone dry right through the profile. Only thing keeping things a little green was dew.

https://www.oneroof.co.nz/news/if-there-was-no-foreign-buyer-ban-nz-woul...

When FBB was put in place, were saying that it will not have any impact and are now cursing the ban.

Similarly, if and a BIG IF Mr Orr had acted on Interest Only Loan after few years, the same group would be cursing despite now potraying that stopping IO loan, will not have any effect on housing price.

We are into third month after housing policy announcement and reintroduction of LVR, still no actual data suggesting that housing ponzi under control, still wait and watch on hope as no intent to curb for vested biased reasons.

If Investors interest at stake = least regret policy applies AND when FHB interest than are asked to be .........wait and wat approach. This exposes the mindset and .......

2% Rise in just one month of May after 30% to 50% rise.

Jacinda Arden Government and Mr Orr, empathy towards FHB is missing as delay from both, each week is taking FHB away from even dreaming of having a house of there own.

https://www.nzherald.co.nz/business/barfoot-thompson-data-auckland-house...

Reading any of the drivel from 'OneRoof' is like deliberately injecting your brain with cancer.

A good news story for our economy.

New Zealand has joined an international arrangement to co-operate with NASA on peaceful exploration and activity in outer space. Our space sector is worth over $1.7 billion and our space manufacturing industry generates around $247 million per annum in revenue.

https://www.miragenews.com/space-exploration-soars-with-artemis-accords-...

I wonder if Rocket lab is happy about that - their military satellite business must be lucrative?

Do you also have a problem with NZ receiving the intelligence gathered from that military tech or are you happy to assume a moral high ground only in investing in it?

1. Yes
2. What investments - Kiwisaver or NZ Super?

This can hardly be a collaborative project open to all countries, including China and Russia space agencies - more like a competition involving a doubling down on resource costs by two different geo-political factions. Hard to see a "peaceful" global conclusion.

China and Russia have agreed to jointly construct a lunar space station that will be "open to all countries," the China National Space Administration said in a statement on Tuesday. The leaders of the two countries' respective space agencies signed a memorandum of understanding on behalf of their national governments.Link

Furthermore,

China surpassing the US as the global research & development leader, eye opening (BofA) Link

Fascinating insight into thinking that is forming policy.
The reporting by RNZ.

https://www.newshub.co.nz/home/new-zealand/2021/06/white-supremacy-very-...

New Zealanders need to understand how dangerous white supremacy is since it's become "very normalised" here, an expert on Māori and indigenous rights says.

Reference much to UN.

Absent any discussions of the Treaty:
The Court of Appeal has referred to the Treaty relationship as “akin to a partnership”, and therefore uses the concept as an analogy, emphasizing a duty on the parties to act reasonably, honourably, and in good faith. The Waitangi Tribunal has also emphasized the obligation on both parties to act reasonably, honourably, and in good faith, but derives these duties from the principle of reciprocity and the principle of mutual benefit.
The Tribunal has also emphasized the equal status of the Treaty partners, and the need for accountability
and compromise in the relationship.
The Courts on the other hand have not commented on the relative status of the parties to the partnership, other than to note that the Treaty partnership does not necessarily describe a relationship where the partners are equal. Both
bodies have identified fiduciary duties as an aspect of partnership, and these discussions are addressed in the previous section of this guide.

https://www.tpk.govt.nz/en/a-matou-mohiotanga/crownmaori-relations/he-ti...

Question Henry - do you view the Treat of Waitangi as a "partnership”? Be interested in your views on this.

Due to mixed marriage/blood...how do you have a partnership with yourself?

What you do is you conveniently exclude one part of your blood line so you can claim victim status on the other.

Given the increasing advantages of doing so and Ardern's stridently vocal support of 50/50 power sharing with Maori in the future you'd do exactly the same if you could. Young family friend is at med school and relates the diligent searching by pale skinned aspiring applicant friends of their whakapapa in the hope of finding a smidgen of the right DNA.

Govt can choose to express some of its application of the Waitangi treaty contract in a manner consistent with it being 'in the nature of' a partnership but it's a legal impossibility for the crown to actually enter into an enforceable partnership agreement with its subjects.