Here's our summary of key economic events overnight that affect New Zealand with news reality of how far the US labour market has to go may be setting in.
American non-farm payrolls beat most expectations, rising +850,000 in June from May when a +700,000 rise was expected and the May rise was a revised-up +583,000. But as regular readers will know, these are seasonally adjusted numbers. The raw number has been far more favourable in the prior two months, basically gaining +1 mln each month with payrolls rising from 143.3 mln in March to 144.4 mln in April to 145.4 mln in May. In June they actually rose to 146.5 mln, another gain of +1.1 mln. These are all far better than the statistically adjusted levels. In a year, US non farm payrolls have risen more than +8 mln. However, compared to June 2019 they are still more than -5 mln lower. So while recent trends may actually be better than generally reported, they still have a very long way to go to recover the pandemic losses. It is this overall gap that has bond investors thinking the US Fed is probably a long way off raising their policy rate, further than what analysts had previously assumed.
US factory orders in May also came in better than expected with a +1.7% rise vs a -0.1% slip in April.
Canadian building permit data wasn't so positive. After four consecutive months of reaching new highs, the total value of building permits dropped an unexpcted -15% in May. Every component was down, with multi-family dwellings in Toronto accounting for almost 60% of the overall national decline.
Internationally, we got CPI data from South Korea and India yesterday. The South Korean index was essentially unchanged in June but remains well above their central bank's 2% target at 2.4% pa. In India, price data was for May and it was up over +6% pa with the drivers being much more than lockdown-related.
In Australia, bank mortgage lending to investors hit a six year high in May, up a startling +13% from April, and up +90% above May 2019 (May 2020 was pandemic affected). This is its strongest rise in six years. Falling vacancy rates and improvements in their labour market (which generally leads to more demand for rental property) are both green-light signs for investors. Overall housing lending was up +4.9% in May from April, and up +97% from May 2019.
Staying in Australia, the energy regulator reported that wholesale electricity prices fell below zero a record 3662 times last year as solar power generation surged, threatening the profitability of coal power plants. (see page 9) This situation also drove fast-tracked new rules to prevent wind and solar generators deciding to switch off to curb losses.
In Sydney, they have recorded 31 new locally acquired cases of COVID-19 and 13 of those people were active in the community for all or part of their infectious period. Five had not been linked to other outbreaks. Their lockdown is almost certain to be extended and tougher conditions applied.
Back in 2017, there was a 'scandal' about how much insurers and bankers were paid to meet sales targets. It resulted in the Sedgwick Review and institutions dramatically changed their compensation schemes as a result, cutting back sales targets sharply. However, in the third and final review published mid-week, the Commissioner found that although banks had made significant progress there were pockets of the industry resistant to change. “One significant bank continues to offer a maximum variable pay opportunity that exceeds 50 percent of fixed pay for a small proportion of its home lenders,” the report said (page 38.). That bank is CBA. (But while that may be true, its market share has slipped from 26.3% in May 2017 to 25.9% in May 2021.)
The Baltic Dry index ended the week at 3338 and its highest weekly close since May 2010. The iron ore price continues to defy Beijing, holding its high level this week. Ditto metallurgical coal. However, Beijing is successful depressing the prices of other semi-precious metals. Corm prices are remaining high but prices for rice and soybean as slipping significantly.
Wall Street is continuing its positive run with the S&P500 up another +0.7% so far an a new all-time high. This is a +1.5% gain in a week, capping a +17.5% rise for all of 2021. Overnight European markets ended basically flat except Frankfurt gained +0.3%. Yesterday Tokyo closed up +0.3%. But Hong Kong was down another -1.8% and Shanghai both closed down a full -2.0%. That means Hong Kong is down -2.4% for the week and only up +3.0% so far in 2021. Shanghai is down -2.6% for the week and basically at the same level it started in 2021. Tokyo however is now up +5.6% in 2021. Yesterday, The ASX200 closed up +0.6% for a flat weekly result. For all of 2021 it is up +9.3%. The NZX50 Capital Index was up another +0.2% yesterday for a weekly rise of +0.7% and a 2021 retreat of -6.0% and the weakest market we follow.
The UST 10yr yield starts today at 1.43% and down -5 bps from yesterday and down -11 bps in a week. Bond investors are not showing any confidence in the recovery. The US 2-10 rate curve is flatter at +1.19 bps. Their 1-5 curve is also also flatter at +79 bps, while their 3m-10 year curve is a lot flatter at +138 bps. The Australian Govt ten year benchmark rate starts today at 1.43% and down another -3 bps. The China Govt ten year bond is down -1 bp at 3.11%. And the New Zealand Govt ten year is now at 1.71% and down a sharpish -6 bps.
The price of gold is now at US$1791/oz which is up +US$17/oz from this time yesterday. But compared to this time last week we are now only +US$4 higher.
Oil prices are up less than +US$0.50 again today. In the US they are now at just under US$75/bbl, while the international Brent price is still just over US$76/bbl. However at these levels they now exceed the 2018 peak and are back to 2014 levels. More drilling rigs are being brought back into production.
The Kiwi dollar opens today just on 70.3 and a +¾c recovery since this time yesterday as the US dollar fades. But compared with this time last week this is still -30 bps lower. Against the Australian dollar we are unchanged from yesterday at 93.4 AUc. Against the euro we are much firmer at 59.3 euro cents. That means our TWI-5 starts today unchanged at 73 but that is still -50 bps lower than this time last week.
The bitcoin price is now at US$33,399 and down a trivial -0.3% from this time yesterday. Volatility in the past 24 hours has turned lower at +/- 1.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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