90 seconds at 9 am: US job growth decline

Chinese military to protect "overseas interests"; Sweden slashes interest rates; new IMF report adds fuel to Greek fire; job growth slows in US; UST 10yr yield 2.38%; NZ$1 = 67.2 US¢, TWI-5 = 71.3

3rd Jul 15, 7:54am by Jenée Tibshraeny

Here's my summary of the key issues from overnight that affect New Zealand, with news job growth is slowing in the US.

Americans left the labour force in droves last month, tempering expectations for a September interest rate hike from the Federal Reserve. Nonfarm payrolls rose 223,000, a smaller rise than in May, with construction and government employment unchanged, and the mining sector purging more jobs.

The unemployment rate fell to 5.3%, the lowest in seven years, but that was driven largely by 432,000 people leaving the work force, rather than more Americans finding work. Markets were most concerned the average hourly earnings declined.

Sweden’s central bank has taken its main policy rate deeper into negative and uncharted territory, citing growing economic uncertainty and worries about Greece. The Riksbank has cut its main interest rate by 10bp to -0.35%, in an attempt to stop deflation. Denmark and Switzerland also have negative rates.

China's military is expected to expand its offshore presence. The National People's Congress has passed a law that highlights the country's need to protect its "overseas interests" through military action if necessary.

A Chinese naval expert has told media Beijing is determined to protect its oil lifeline at sea, hinting that it will continue to set up a network of offshore military supply depots at strategic ports around the world.

The IMF has released a report that's expected to increase tensions between Athens and its creditors, ahead of Sunday's referendum over whether Greece should accept a debt-relief package. The Greek prime minister says the report, which underlines the scale of Greece's problems, is blackmail from the IMF and EU.

Back in New York, the UST 10yr benchmark yield has fallen sharply today to 2.38%.

There have also been some big falls in New Zealand swap rates overnight, especially in the 1 to 4-year terms, which are down 6 to 8bp.

ASB also pushed its1-year mortgage rate down to a new cycle low of 4.89% yesterday.

The price of oil remains low at US$57/barrel, while Brent crude has stayed at US$62/barrel.

The gold price has fallen to US$1,163/oz.

The New Zealand dollar remains weak following yesterday's dire dairy price announcement. While the dollar's down from this time yesterday, it's rebounded slightly from yesterday afternoon's lows. It's at 67.2 US¢, 88.2 AU¢ and 60.6 euro cents. The TWI-5 is 71.3.

The easiest place to stay up with event risk today is by following our Economic Calendar here »If you want to catch up with all the local changes yesterday, we have an update here.

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15 Comments

by skudiv | 3rd Jul 15, 8:34am 1435869245

Just about time to convert some USD into NZD, it was pretty obvious back in February when we were being told to hedge at 75c, that the NZD had a lot further to fall. As I said at the time, wait 6 months because Greece will cause the USD to rise, (and then it is Spain's turn) and the lower dairy prices were really going to drive the NZD down. By Christmas time we should have a better idea of how bad things are going to get.

by bw | 3rd Jul 15, 8:45am 1435869931

" The Riksbank has cut its main interest rate by 10bp to -0.35%, in an attempt to stop deflation." That...IS deflation, never mind about stopping it! The lower interest rates go, the more it confirms and encourages deflation. As rates fall, more debt is extinguished (mathematically, borrowers have to pay back less than they borrowed at negative interest rates) and then rates fall further. That asset prices haven't succumbed yet is the only surprise to many. But when that finally happens, it won't be "Greece" or any other distraction that will have caused it. It will have been...artificially lowered interest rates.

by scarfie | 3rd Jul 15, 8:56am 1435870579

I don't agree that central banks control long term interest rates, they respond and really only tinker at the edges. It is engineered into the money supply from the outset, interest rates are going to keep going down until something breaks.

by Stephen Hulme | 3rd Jul 15, 9:13am 1435871631

I think it's already broken in the so called premier economy, despite effective Fed Funds trading ~ 12bps.

You don’t see factory orders contract by 8% in a given month and expect that there is some “isolated” weakness somewhere which is easy to ignore, as economists have been telling. An 8% decline is altogether more sinister, which is why factory orders are far more significant than the overly adjusted, heavily subjective “employment” report – even when those payroll figures aren’t exactly all that great themselves. Read more

We will just have to eat our ever more expensive houses as the Swedes intend. Read more

by Andrewj | 3rd Jul 15, 10:27am 1435876048

http://wallstreetexaminer.com/2015/07/truthiness-meter-chart-o-da-month…

by rastus1 | 3rd Jul 15, 9:13am 1435871589

...and might the break be that if these bank rates are too low, combined with the likes of OBR locally (and whatever is in place elsewhere to snaffle one's deposits), a point could be reached where no one would bother with the risk and low return to leave any money in a bank account?

by scarfie | 3rd Jul 15, 9:53am 1435873991

It breaks when a big enough player doesn't get delivery of their future promise. Notice they are trying to reword the Greek default so that everyone can keep their books looking good.

This isn't a new problem btw, the Saudi's understood the connundrum in the early 1970's, but still chose to play the game instead of taking what would have been a much smaller loss back then.

by scarfie | 3rd Jul 15, 9:01am 1435870903

The investment world has become a game of musical chairs. A bit more complex than that for sure, but ultimately those expecting income from their investments in the future will increasingly find the future has an inability to pay. The game is about when to get out with something, and before everyone else does and nothing is left at all.

by bw | 3rd Jul 15, 9:08am 1435871327

Two thoughts in agreement.
(1) " Do not let the media misled the investment direction.... it is the “bricks change to paper” time." (Investing in Chinese Stocks) and
(2) "The other structural headwind is low investment returns in a zero-interest rate global economy. The only way to increase yields is to take on more risk, a strategy that has potentially catastrophic consequences. The core problem.... is that the promises were issued without regard for the revenues needed to pay the promises. Lulled by 60 years of global growth since 1945, those in charge of entitlements...assumed that "growth"--of GDP, tax revenues, employment and everything else--would always rise faster than the costs of the promised.... entitlements.But due to demographics and a structurally stagnant economy, entitlements.... are rising at a much faster rate than the revenues needed to pay the promised benefits." http://charleshughsmith.blogspot.co.nz/

by cowboy | 3rd Jul 15, 10:10am 1435875049

Part of the question is; where is the goal posts?

Do we want lower population and thus enjoy New Zealand old style freedoms and space?
Or do we want Tokyo style action and compactness?

Personally I would like to see Equaab Towers(sorry bout the spelling) offered by councils or private investors in the center of town. Not super priced condos (with swimming pools etc) nor human hutches (like in student hostels).
Many young people, young couples, or even mature people don't want to bother with acres of lawn and gardens, nor do they want to "go on holidays" which they don't have the savings to pay for (and which they will fly and use public transport) rather than put the money they're saving for their careers or paying down student debts or family Trust savings, into chunks of gas guzzling rusting steel boxes.

Perhaps such apartments would be rentals. Perhaps for sale.

Likewise I hate to see NZ's native bush and wild areas lost to farms and urban sprawl. Such places have a feel and spiritual connection for many people which isn't present in your cities and towns.

But we can't have suburban sprawl NZ style AND super dense population under our current system.
And NZ is leading the world in legal transparency and plain-speaking legal-eese in such matters.

Clearly from Swedens economic challenges, that their export driven socialism has hidden their problems for many years.

But without an agreed design philosophy or marketing target (product) any plan is a failure from the outset.

And to paraphrase the Cat "If you don't know where you want to go then it doesn't matter which path you take"

by Caleb | 3rd Jul 15, 9:09am 1435871386

But what is worth something?

by cowboy | 3rd Jul 15, 9:17am 1435871849

That Chinese miltarisation is normal.
Does the government realise that includes New Zealand if they try to seize or restrict Chinese ex-pats or their property? China runs on a once born in China (or of Chinese blood), always Chinese policy. And has done for thousands of years. Many wars with it's neighbours were started to "protect" Chinese merchants, traders, and exported property owners. It's policy of "protection" is punative and preventative. This is why neighbouring countries and China itself are historically suspicious of foreigners owning property or businesses in their territory - trade yes, rights, no.

by scarfie | 3rd Jul 15, 9:37am 1435873060

If things really get that bad China will have its hands for on its land border with India. When push comes to shove India is better equipped demographically, and has plenty of real world resources (gold) and in the right place (private hands).

by cowboy | 3rd Jul 15, 10:38am 1435876697

While both have the extra population to make such a thing possible, India is constantly busy with Pakistan, and there is a huge range of difficult mountain passes between China and India.
What generally happens is that China (historically) involves itself in a policing action, protecting assets it already owns and its people, and hardening there merchants trading routes against interference. No declaration of war or even intention of it, "protection" and "removal of threats".

by OnwardsUpwards | 3rd Jul 15, 10:37am 1435876646

You've described the Japanese not the Chinese.
EDIT: Come to think of it, you may have also described the Americans, except for the whole thousand years rant thingy.