sign up log in
Want to go ad-free? Find out how, here.

US retail sales stutter; US sentiment hit by inflation; Hong Kong in a vice; commodity prices stay high, except for food; China opens carbon trading market; UST 10yr 1.29%, oil and gold retreat; NZ$1 = 70.1 USc; TWI-5 = 73

US retail sales stutter; US sentiment hit by inflation; Hong Kong in a vice; commodity prices stay high, except for food; China opens carbon trading market; UST 10yr 1.29%, oil and gold retreat; NZ$1 = 70.1 USc; TWI-5 = 73

Here's our summary of key economic events overnight that affect New Zealand with news the week is ending with economic gloss fading.

US retail sales data for June was much better than expected but the May decline was revised worse, so much of the gloss was taken off the June outcome.

And the shine was well and truly dulled by the University of Michigan consumer sentiment reading for July. To be fair, this survey reported good gains in employment, but these were overwhelmed by sharply rising concerns about consumer inflation.

The US treasury reported that foreigners decreased their holdings of long-term US securities in May; net sales were -US$40.3 bln. And the same data showed that US residents also decreased their holdings of long-term foreign securities, with net sales of -$10.1 bln. While these are very small amounts, they do represent a sharp turnaround of gains exceeding +US$100 mln in April.

Hong Kong is facing a two way vice. The US is warning its firms that the CPC takeover of the city is a serious security risk for them. And Beijing is pushing ahead with trying to make Shanghai its main investment and innovation center - at the expense of Hong Kong. Beijing is giving up on it in the face of the international pressure and just going all-in on Shanghai.

And as we have noted previously, China and other countries 'encouraged' to adopt its Sinovac vaccine, are now backtracking fast. Efficacy of Sinovac is low, and not effective against the Delta variant. China's vaccine diplomacy is collapsing in the Asian and African regions.

There were 97 new cases in NSW yesterday and another 6 in Victoria. Neither levels give confidence the Trans-Tasman travel bubble will re-open anytime soon. The COVID crisis in Indonesia is getting really bad. And sadly, it is a spreading problem in all of South East Asia. (Malaysia, Philippines, Thailand, etc.)

EU inflation data was out for June, and because we had the German and French data already, it was no surprise that the +2.2% year-on-year level was as expected. But when it comes, the July levels might show what the rest of the world is showing. Still, +2.2% is relatively high for them.

The iron ore price is staying at the top of its 2021 range (Aussie supply issues may be behind that), and steel making coal is up there as well. Demand for thermal coal is rising for electricity production and to keep prices under control, China is releasing supplies from its strategic reserves. Corn and rice prices are falling modestly, but soybean prices are staying very elevated. There is another dairy auction coming up this week, and more declines look like they are ahead with WMP possibly down -3.1% and SMP down -1.0%.

The Baltic Dry Index is still high but it isn't pushing any higher.

China has opened its carbon market with the first trades at NZ$11.50/tonne. (The NZU price is NZ$47.50/tonne and the EU price is NZ$82/tonne.) But it is a start towards their net zero by 2050 goal. In contract, the coalition partner of the Australian government has declared there is a "net zero chance" Australia will adopt a net zero carbon goal.

And it is probably worth noting that nothing of substance happened at the APEC 2021 virtual meeting hosted "in Auckland". Everyone showed up virtually, but the contributions were perfunctory and meaningless. It was perhaps a good job the pandemic intervened and derailed the costly actual event.

Wall Street is lower and increasingly so as their session wears on with the S&P500 now down another -0.6%. For the week it is down -0.9%. Overnight European markets all ended about -0.5% lower in an across-the-board selloff, although the fall in London was a bit less. Yesterday, the very large Tokyo market fell another -1.0% and booked a weekly loss of -1.4%. But Hong Kong ended flat for a weekly gain of +1.2%. Shanghai ended with a -0.7% fall and making it a weekly loss of -0.2%. The ASX200 booked a small +0.2% daily rise, and a +1.0% weekly gain. On the other hand, the NZX50 Capital Index ended its Friday session flat to record a tiny -0.1% weekly dip.

The UST 10yr yield starts today at just over 1.29% and down -1 bp from this time yesterday. The US 2-10 rate curve has stayed flatter at +108 bps. Their 1-5 curve is also unchanged at +70 bps, while their 3m-10 year curve is also still at +126 bps. The Australian Govt ten year benchmark rate starts today at 1.28% and unchanged from this time yesterday. The China Govt ten year bond is at 2.97% and unchanged. The New Zealand Govt ten year is now at 1.65% and also unchanged.

The price of gold is now just on US$1811/oz which is down -US$18/oz from this time yesterday.

Oil prices have fallen back again today, again by about -US$0.50 so in the US they are now just under US$71.50/bbl, while the international Brent price is now just on US$73/bbl.

The Kiwi dollar opens today just under 70.1 USc and small rise this time yesterday. Against the Australian dollar we are +¾c higher at 94.7 AUc. Against the euro we are a little firmer at 59.3 euro cents. That means our TWI-5 starts today up at 73 and a +40 bps gain where it was a week ago.

The bitcoin price is now at US$32,018 and up +2.3% from this time on yesterday. Volatility in the past 24 hours has been low at +/- 1.9%.

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

Daily exchange rates

Select chart tabs

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
Source: CoinDesk

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.

47 Comments

Great that NZ is going Gung-ho with interest rate hikes pushing the NZD up towards parity with the AUD.

Up
0

In a week where every bank economist penciled in multiple OCR hikes, the NZD flatlined against the USD and fell against the JPY.

Up
0

But 94.7 against AUD, up quite a bit from 3 weeks ago

Up
0

A move to safer haven more stable currencies away from the Nz Peso.

Up
0

... the good news is that if the NZD rises , it may mitigate some of the price increases of all that dirty coal we're importing from Indonesia to produce the electricity to keep our subsidised EV's charged up .... Yay !

Up
0

Because not one prominent bank macro-economist picked the extent of the rise in transitory inflation

Up
0

Are we still calling inflation transitory?

Up
0

A five year expectation by 'consumers' is kind of a nonsense. Who really thinks anyone, let alone consumers, base spending decisions on what they think inflation will be in five years and ignore the in-between?  One year, it makes bush sense. Two years is a bit of a stretch. Five years I don't buy (for consumers at least). The US one year expectation is 4.6%. The New Zealand one year is 2.2%.

Up
0

We are discussing the transitory nature of inflation expectations - note iconoclast's comment above .

Many professional market commentators reference 10 year government securities yields in reference to inflation expectations near or far term. Furthermore, consumers do not price bond markets and their opinions are subject to glaring estimation errors in hindsight. .

You might want to take the issue up with the St Louis Fed if you feel this strongly about a statistic which has been in circulation in professional discussion for decades.

The calculation is based on the following formula:
This series is constructed as:
(((((1+((BC_10YEAR-TC_10YEAR)/100))^10)/((1+((BC_5YEAR-TC_5YEAR)/100))^5))^0.2)-1)*100

where BC10_YEAR, TC_10YEAR, BC_5YEAR, and TC_5YEAR are the 10 year and 5 year nominal and inflation adjusted Treasury securities

Up
0

"Many professional market commentators"

Haha

Have you seen any of the bank economists preceding their comments with a statement "our views are based on 10 year security yields"

Up
0

Bank economists admittedly sat on the periphery of my London dealing premises with little interaction with the proprietary dealing desks, which in reality despised economist research costs imposed on their budgets.

Up
0

Four or maybe the five largest US banks have taken a $3.17 trillion position in government backed securities in preference to risky Commercial and Industrial loan assets.

Up
0

I'm not interested in what the major US banks do
The US Majors are also merchant banks
I'm only interested in what NZ banks are doing
And it seems the NZ banks are not well served - see yesterday's CPI 3.3%

Up
0

Check out the bottom of this RBNZ C5 statistics release:

Annual bank housing loan growth +11.4%
Annual bank business loan growth -3.9%
Annual bank agriculture loan growth -1.2%

Syndicate for Launch of 15 May 2032 Nominal Bond Announced

Up
0

Are Term Deposits shifting out to purchase of property together with a loan NETTED-OFF or treated as raw growth

Up
0

The seller of a property to a previously long term deposit holder accepts the deposit as payment into his own bank account.

The loan portion is included and constitutes separate monetary growth.

Up
0

This would be correct in a conventional monetary environment. Where the govt sells bonds which are then traded on the secondary market between willing buyers & sellers. However the RBNZ's LSAP programme have heavily distorted yields on the secondary market. Without this programme I imagine yields would be pushing 5%. Will be a very interesting couple of months as the RBNZ trys to ween itself of its LSAP programme & raise interest rates. I think bond prices will tank without the RBNZ support triggering a minor financial crisis of sorts. They will then have to recommence quantities easing. Money printing is like heroin, it is great at the start but will destroy you in the long term & is an impossible addiction to escape from.

Up
0

Banks price government securities long before central banks get in on the act.

Up
0

?? I don't get what you are trying to say. The RBNZ buying of bonds on the secondary market is driving up bond prices up & yields down. Banks hold some bonds as collateral but this isn't really a factor with current pricing.

Up
0

The recent NZ Government 10 year bond yield low was 0.50% around 13 May 2020. Approximately $50 billion RBNZ LSAP (QE) later it's around 1.65%

Up
0

I read into your comment the NZBA have been challenging the RBNZ for some time - to no avail - until the RBNZ dould'nt bluff anymore

Up
0

This is the market's implied inflation expectations based on the pricing of nominal vs inflation protected government bonds. I understand that these are the most accurate predictors of inflation (better than economists or surveys) but obviously still imperfect

Up
0

Very interesting report, and something that surprised me. I am convinced/worried that inflation is not going to be a transitory phenomenon, but when I look at what the bond markets are doing it looks like I might be on the pessimistic side, also considering that usually the most clever guys in the room are generally the bond traders.
I will be very happy to be proven wrong, but I think that there is a very serious risk that inflation will become entrenched, and rates will go higher than many expect.

Up
0

Bond yields are where they are due to the LSAP programme, the RBNZ is monetizing debt & driving yields down below where they would be on the free market. Therefore the bond market is not reflective of anything other than quantitive easing.

Up
0

The more a lie (read economic forecast) is repeated doesn't necessarily make it so as has been the case here over covid.

House prices were going to crash and economic decisions made against a backdrop of 80000 NZ deaths.

Despite all the experts and their forecasts they're still right probably 50% of the time same chances as anyone.

Up
0

Those forecasts were made on the basis of NZ doing nothing and letting the free market & Covid run amok. Guess what, that's not what we did. We locked down and got rid of Covid.

Up
0

Yesterday someone pointed out Diesel had risen from $1.00 L to $1.499 L, an increase of 50% in 1 year
You can guarantee the next reading will not be 50%
The next print will be no more than 25%
That means there is a transitory element to it
Anyway thats what is meant by transitory

Up
0

So, the previous increase was +50c. And you are predicting the next increas eto be 25% above $1.50. That is +31c to $1.80/L. Hardly 'transitory'. Transitory would be if it went back close to $1/L. Transitory means not permanent, come-and-go. There needs to be some 'go' to make it transitory.

Up
0

A scarcity of currency leads to abundance everywhere. An abundance of currency leads to a scarcity everywhere.

Up
0

Hanging on to what you have more important than return

Up
0

Wall Street is lower and increasingly so as their session wears on with the S&P500 now down another -0.6%.

At some point, enough investors stop basing their expectations for future returns on the mindless extrapolation of past returns, in a market where prices have become detached from fundamentals. At some point, investors discover a basic fact of equilibrium: it is impossible, in aggregate, for investors to “exit” the market. Every single share of stock that has been issued has to be held by some investor, at every moment in time, until it is retired.

Lost in the incoherent blather about “cash on the sidelines,” “money flowing into the market,” and liquidity needing to “find a home,” there is a basic fact of equilibrium: once a security has been issued, it has to be held by someone, exactly in the form it was issued, until it is retired. Every dollar bill. Every share of stock. Every bond certificate. All of them are already home. They can’t magically turn into something else. Not a single dollar comes “into” the stock market that does not simultaneously come “out.” Not a single share is purchased that is not simultaneously sold. Every eager buyer must find a seller. Every eager seller must find a buyer. Either way, the buying always equals the selling. It’s not “money flow” that moves prices around. It’s eagerness.

With valuations at the most extreme level in history, the one thing that the market simply cannot tolerate is the eager attempt of a substantial number of investors to exit. When the walls come down, investors will scavenge the news for “catalysts.” Don’t fall into this trap. Undoubtedly, some “catalyst” will be found, but the mistake will be in believing that the collapse is caused by that piece of “bad” news. The important question to ask is “What drove the bubble?” That’s where the lessons are. The root causes of a crash are always the factors that nurtured and encouraged the “happy” period of carefree and irresponsible speculation that led to the bubble extreme. Link

Up
0

Or, investors see higher interest rates ahead and the cap rate will need adjusting resulting in lower prices. We could be in the period just before that happens.

Up
0

... the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..
The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. Link

Up
0

But first, let me just start out by saying that I am very aware that I am no financial expert; but do you really need to be one to know that if you print money out of thin air and offer nothing else but “trust” to back that, you are simply playing a game of financial Jenga with global implications. They will tell you otherwise, of course, just like they did in 2008 when they sold those sub prime CDO’s and passed it off as prime rib; but the nice thing about math is, unlike propaganda, the numbers themselves speak their own truth.

So let’s just start with the basics, shall we? It is no secret that around 40 percent of US dollars in existence right now were printed in the last 12 months. If this is news to you, I’ll give you a minute for that to marinate. Actually, let’s make that two so that it gets both sides. Because it’s a lot to absorb. In fact, if that little factoid doesn’t send a 1921 Weimar shiver down your spine, then you need your schnitzel examined
https://mb.com.ph/2021/06/29/is-the-us-dollar-headed-for-hyperinflation/

Up
0

Yes. And just over the last week there seems to be a pick up in reports from the US of all that currency backing up in reserves (rather than more being lent out) because financial institutions are tightening credit (eg Wells Fargo) and want the Fed to hold more of that dodgy fiat. George Gammon is reporting more stress getting pristine collateral in the Repo market.
People who seem to understand this stuff way better than me are using terms like "knife edge". It's as if the host just can't absorb any more heroine. Not a good state to be in as we stagger towards the next Black Swan event.

Up
0

"We got fresh evidence from the REINZ this week that house price inflation is still running too hot, and that the level of prices is unsustainable, let alone unaffordable...................The numbers are shocking in some places. The House Price index for Wellington City rose 46.2% in the last year to June. The index for Palmerston North rose 61.3% in the last year. The average compounding house price inflation rate out of Auckland in the last five years has been 12.3%. That rate means a doubling of house prices every six years."

Still Robertson and Aunty Jacinda silent on housing crisis...the very issue that they were voted to solve instead promoted x 10

Up
0

I know a couple in their late 20s who both worked their b's off full time in difficult jobs in the last 12 months and saved 70k.
They are depressed and angry to see they are now 130k worse off towards buying a house after a years hard work and saving.
I also have a family member with 3 rentals that have gone up about 500k in 1 year, tax free.
Is this a good scenario, I dont think so.
The consequences of untargeted printed money being released should have been fenced by DTIs for investors.

Up
0

Should have been DTIs in place for all borrowers 6.5 max

Up
0

The problem with the young couple was that they had the expectation of owning their own property. Ah the folly of youth.

Up
0

Property has simply become a vehicle to feed and enrich the troughs closest to the lending-into-existence mechanism / monetary regimen. Most young people don't understand that. Neither do most of the old farts.

Up
0

The old farts made some moronic self serving voting decisions back in the 1970s, didn't want to chip in for their retirement instead believing the Government (future generations) would fund their lifestyles past 65. They've discovered the maths just doesn't stack up. "If we can't screw the young for their taxes, we'll screw them for a roof over their head".

Up
0

The old farts made some moronic self serving voting decisions back in the 1970s

That's different to what I was suggesting about the old farts (and young people) and their understanding of asset bubbles, housing, and monetary expansion. To be honest, I think many young people are likely to be knowledgeable about what's been going on. Not all, but the majority of the old farts don't really want to listen; stopped learning a long time ago; and trust the status quo much more than younger people.

Up
0

They are hoodwinked into the erroneous notion that four walls and a roof satisfies one of Maslow's basic needs,and is also a space to raise a family. A tired cliche existing only in a parallel universe or country where the authorities uphold family values over those of predatory finance.

Up
0

alittle
A little selective and exaggerated use of statistics there.
You refer to REINZ data indicating that house price inflation is still rampant by solely quoting annual figures.
The reality is - that as the interest.co article pointed out regarding the REINZ data - over the past few months the market has been cooling.
Given the delay between agreements being signed and going unconditional as well as the onset of winter, the next few months will show a greater slowing as Government’s March announcements and RBNZ LVR impositions fully kick in.
The tide is turning and talk of significant increases that you refer belong to BBQ reminiscing.
However; yes, I expect RBNZ will still have to act

Up
0

It's unlikely NZ OCR can sustain a divergence with AU CRT.

Up
0