Here's our summary of key economic events overnight that affect New Zealand with news inflation isn't going away in some large economies.
Markets are awaiting the June US CPI data due tomorrow and a number close to 5% is expected, but first up today, inflation expectations in the US are still rising and fast. They jumped to +4% in May, and gave now jumped higher again to +4.8% in June as the expectation of prices in one year. And that is a series high for data that started in 2013. Expectations of house price gains in one year rose to +6.2% and also a new series high.
The US Treasury tendered a 10 year bond overnight and that brought lower yield bids. The US$44 bln tender brought $97 bln in bids (of which US$6 was taken by the Fed) and the median yield was 1.31%, down from the 1.44% at the equivalent tender a month ago.
In China, there is increasing concern even in official channels of a slowing economy.
In India, their June inflation rate was released overnight, coming in at +6.3% and well above the RBI target (of 4%). Food prices (+5.2%) helped keep it high but it was fuel (+12%) that was the monthly driver.
Japanese machine tool orders made a very strong recovery in June, up +6.6% from a strong May and their best post-pandemic level by far. From June 2019 this latest data is an impressive +34% higher, so this sector is in fully back, and more.
The overall level of Japanese machinery orders in May also rose far above expectations, a surge that took them up to almost ¥2.8 tln and +20% higher than for May 2019.
In Australia, regulator APRA said banks should develop tactical fixes to IT systems to make sure they can process negative interest rates, and failing to do so creates a material risk. APRA is far behind the RBNZ who pushed through that requirement in 2020.
Yesterday, NSW reported +112 new locally acquired cases, taking the current known infection level to 626. 63 are in hospital, 18 are in ICU. High numbers are expected today.
Wall Street has opened marginally higher with the S&P500 up a modest +0.2%. Overnight European markets were all up about +0.6% although London was flat. Yesterday, the very large Tokyo market ended with a very strong +2.3% jump, Hong Kong ended with a +0.6% rise and Shanghai ended with a similar +0.7% gain. The ASX200 was up +0.8% despite the Sydney lockdown. And the NZX50 Capital Index ended its Monday session up +0.6%.
The UST 10yr yield starts today at 1.36% and unchanged. The US 2-10 rate curve slightly flatter at +1.13 bps. Their 1-5 curve is little-changed at +73 bps, while their 3m-10 year curve is unchanged at +131 bps. The Australian Govt ten year benchmark rate starts today at 1.33% and down -5 bps from this time yesterday. The China Govt ten year bond is at 2.97% and down an unusually sharp -7 bps. The New Zealand Govt ten year is now at 1.54% and little-changed from this time yesterday.
The price of gold is now just over US$1805/oz which is down -US$3/oz from this time yesterday.
Oil prices have fallen -US$1.50/bbl and in the US they are now just over US$72.50/bbl, while the international Brent price is now just over US$74.50/bbl.
The Kiwi dollar opens today just under 69.8 USc and marginally softer than where we left it on yesterday. Against the Australian dollar we are softer at 93.3 AUc. Against the euro we are also softer at 58.8 euro cents. That means our TWI-5 starts today down slightly at 72.5.
The bitcoin price is now at US$33,088 and down -2.4% from this time on yesterday. Volatility in the past 24 hours has been moderate at +/- 2.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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53 Comments
https://www.nzherald.co.nz/business/inflation-expected-to-hit-fastest-r…
Somehow, Mr Orr will justify it to suit his narrative.
Problem with reserve bank is that it does not analysis the data to take action accordingly but action / inaction is pre decided and than the data is interpreted in a way to justify their pre determine act.
"The RBNZ have noted an increase in the CPI for the June Quarter however we we believe that this increase in CPI is transitional in nature. It is largely the result of supply constraints that have manifested themselves in the post COVID19 global economic recovery. These supply constraints have put upward pressure on commodities, which have in turn been passed on to businesses. To date businesses have been largely absorbing these costs however as business confidence increases we are starting to see these costs passed onto consumers. Another factor not to be overlooked is the increase in consumer spending & the lowering of savings rates to normal levels. In 2020 the savings rates increased significantly as consumers adopted a "wait & see" mentality in response to the pandemic. With the population being vaccinated & the end of the pandemic is sight saving rates are returning to more normal levels. This process of savings rates returning to more normal levels is putting temporary upward pressure on the CPI".
Yep I hope history does not repeat here but can't see how it won't. Those with assets get the undeserved, unearned value appreciation and those without get the desperation and frustration. The only bright spot might be some good wage increases but these are not evenly spread. "In the year to June 2020, the annual wage rate increase was 3.0% for the public sector and 1.7% for the private sector." Good time to live in Wellington.
Always a good time to own a house in inner Wellington too. It's a win/win scenario. National government = country wide open for business = price rises. Labour government = burgeoning public sector = price rises.
Trying to actually buy a house in inner Wellington though...that's the kicker.
You won’t be getting a wage rise. For the last 20 years the west has gone hell for leather importing low wage immigration, thinking it’s the bees knees in keeping costs down. Having hyperinflation in the cost of living, not wages (created by the plonkers themselves), is the nightmare the RBNZ doesn’t want. They’ll be forced to hike rates.
No, small privately owned company with no public service ties at all.
The public sector wage freeze is about to be put on defrost, i'll be surprised if there no announcement before this time next month, probably starts with the nurses, then the other public service departments will jam a wedge into the crack and break it wide open.
For inflation to be temporary, they don't have to drop prices back to where they were, they just have to not raise them again. Inflation is the change of prices, not the absolute level.
The question for the RBNZ isn't whether prices will fall back to where they were, it's whether there is an ongoing cycle of price rises.
This is a machine with momentum, and I'd say it has been just starting to get a visible roll going for the last 12 months. It probably will take another 12-24 months for that set in and become widely acknowledged. After which, maybe it peters out.
So I just wonder at what point does it become an ongoing cycle that the RBNZ would attempt to influence?
Yes it is, but the RBNZ are concerned about ongoing inflation. It doesn't matter what's already baked in, it matters what else is coming. If inflation rises to 5% then drops to. 2%, no problem. If prices continue to rise at 5%, problem. They're in the unfortunately difficult business of predicting the future.
Hit by a wave or dragged into it in the wake of the big global economies? to put it figuratively, NZ is but a picket boat in the fleet riding the waves in the wake of the battleships. Like flotsam & jetsam on the tide. Keeping it nautical, previous minister such as Cullen & English have navigated NZ pretty well through situations, never too high, never too low. Remains to be seen if same security blanket is there now.
Cullen did what all politicians do, even when challenged
http://www.oilcrash.com/articles/powr_007.htm
Here's a demolition-job on all pollies:
https://www.resilience.org/stories/2021-07-12/the-show-is-over/
"You can and will continue to pretend. But nature and physics will not fall for it. Nature and physics are not entertained nor distracted by your theatre."
Keep that comment in your head, every time you hear the talking heads. And those who regurgitate their outpourings.....
No need to coach me there son. Hard pressed to find a critic of politicians more jaundiced and cynical than I. If anything perhaps David Lange’s pre departure quote something like “ will be leaving just a fly speck on the myriad wallpaper of world history” is as succinct as it gets relatively. I was at school with Michael Cullen where he finished dux by a country mile. It is widely accepted he is of considerable intellect, but amongst that there are twists and turns whereby that talent seems to need to resort to some pretty base gutter sniping from time to time.
Oh inflation is only 5%! Dont worry guys its only transitory! Its not like the government isnt stealing 5% of your time every year.
https://www.rl360.com/row/tools/inflation-calculator.htm?Currency=1&Amt…
Oh you had $50k, kept it for 5 years? Great now you only have $39k and the government is happy for you :D
Many prices are increasing as a result of supply chain bottleneck issues, some wages might go up a bit (good), some money will be redistributed (that’s what inflation does), prices will mostly adjust back down, and we will be back to 1-2% inflation at the most by the end of the year. Apart from house prices obviously - but speculative financial investments are not included in inflation!!
Yes this is the Fed's view as well, that inflation is transitory. I think it will be longer than a year, particularly if the consumer psychology is triggered, FOMO on assets (supply chain issues feed into this) build new price floors that take time and good information to have fall back down.
Inflation might settle back down...but I think most of the price rises wont adjust back down that much....and are here to stay..
And....if we continue with money printing and ultra low interest rates at some point prices will rise again .
When Central Banks talk about "transitory inflation" do they mean the rate of growth in prices or that prices will come back down to where they were before..??
Back in the 1940s the CPi rate had peaks and troughs.. High CPI inflation , then low inflation and then high inflation
In that time Central Banks kept interest lows ...
https://www.dropbox.com/s/bmg7d2wesscurgu/1940s%20inflation.png?dl=0
Low wages are now stubborn and held up by minimum wage regulation rather than market forces. The workforce is also increasingly uber-ised. In this environment, you simply cannot get the wage / price spirals that used to support inflationary events (e.g. oil price / wage spiral in the 70s).
Low interest rates enable people to borrow more to buy houses - the key driver of increased house prices. But the effect on the prices of goods and services is tiny - in fact I think an increase in the OCR is as likely to cause inflation as it is to reduce it.
Why Bernard Hickey is correct that rise in interest rate will not stress housing market......did tax changes made any difference to investor demand ?
No government and reserve bank has any intent to stop the party instead if fear of it even slowing will go all out to support and promote the ponzi - Universal truth.
https://thekaka.substack.com/p/dawn-chorus-why-rate-hikes-wont-stress?t…
The banks stress test your mortgage application at 6-7% so there is plenty of room to move the OCR up to 2% or so.
Wage inflation will have to be pretty spectacular to do anything to general housing affordability but I have hopes that with the borders closed for another 18mths or so we can get wages maintain station with inflation .
Yes that is worth watching, we are seeing it turn due to supply meeting demand but have a fair way to go. "Kiwibank senior economist Jeremy Couchman says the surplus of 13,000 homes only nibbles around the edges of the huge shortage which the bank estimates to be about 67,000 houses."
If we keep the borders closed for another couple of years then I think we will see the supply catch up.
https://www.stuff.co.nz/life-style/homed/real-estate/125026169/five-to-…
Of course if there was the global poitical will to rebalance the distribution of power away from capital and back to labour we would have had inflation a long time ago.
Instead we have the dead-end street of CB market manipulation. There are no good outcomes from loading the world up with non-productive debt and pretending it's growth. Inflation or deflation - given where we are now neither will be good.
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