US wages rise, bolsters rate hike case; TPP talks break down; Russia cuts rates; iron ore price falls; UST 10yr yield down to 2.19%; oil lower, gold higher; NZ$1 = 65.9 US¢, TWI-5 = 70.8

Here's my summary of the key events over the weekend that affect New Zealand, with news the TPP negotiations failed in Hawaii, for now at least.

But firstly, in the US we had important payroll data released over the weekend. Wages and salaries increased +2.1% in the year to June, while benefit costs increased +1.8% in the same period. While no faster than in the March quarter (and this disappointed some and gained the headlines), these levels are at a rate that will encourage the Fed to hike. Barring an outlier result in the non-farm payrolls report due at the end of this week, a September rate hike looks more likely now.

But the big news is the ending of the TPP negotiations in Hawaii, without any agreement.

The deal now seem to hang on three issues, two of which affect New Zealand. There is a car industry issue and Canada and Mexico seem to be the holdouts.

There is a drug patent-protections issue. Reconciling how long patents apply between countries has not been resolved. The US has a 12 year law. Australia a 5 year law. NZ and Japan have eight years. For the TPP to work there needs to be a common period that allows research to get a payback before generics become available. (Everyone wants the research, "no one" seems to want to pay.) Late in the day, the US said it will compromise.

And there is dairy, the hold outs are Canada, Mexico, Japan and the US. Most everything else seems agreed. Negotiators did agree to resume at the end of August for what will be one last effort.

Over the weekend, Russia cut its official interest rate by 0.5% to 11%. They have tough choices to make. High interest rates hold back investment they desperately need. But lower rates drive down their currency making inflation even higher and painful. 

On Friday, the iron ore was down sharply by more than -3%, reflecting soft commodity prices everywhere. At US$52.90/tonne that will be a tough place for Australian miners.

In New York, the UST 10yr yield benchmark is sharply lower at 2.19%. Local swap rates will also open very much lower, possibly fueling more mortgage rate cuts along with falling term deposit offers.

The US oil price is also lower at US$47/barrel, and Brent crude is at US$52/barrel.

The gold price is a bit stronger today at US$1,095/oz.

The New Zealand dollar starts the week at 65.9 US¢, at 90.4 AU¢, and at 60.1 euro cents. The TWI-5 is at 70.8.

If you want to catch up with all the local changes on Friday, we have an update here.

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

Daily exchange rates

Select chart tabs »
The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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

"... It is the simple fact that the old playbook – Australian iron ore, French leather, fried chicken (and New Zealand milk??) and Bavarian engineering – doesn’t work anymore.....it is over….and arguably over forever.

http://ftalphaville.ft.com/2015/07/31/2136075/the-whatever-china-needs-t...?

We have company, we don't stand alone when it comes to self made hazard zones predicated on expensive quick fixes.

Three Years Ago This Coal Mine Was Worth $624 Million. Now It Sold for $1 Read more

up
32

So New Zealand doesn’t have the influence it expected with the US, Canada, Japan, other TPP-negotiating countries? Maybe there’s an overlooked answer.

The instincts of John Key and this government are to ‘wing it’ and hope that nobody is paying attention. This seems to work well in New Zealand, where a largely supine media (excepting National Radio) ensures no serious policy questions are asked.

But, the fact is, people elsewhere in the world do pay attention. They see that late last year New Zealand entered a ‘Comprehensive Strategic Partnership’ (that’s exactly what it’s called) with China.

Why would we do this? Every toadying New Zealand economist, every empire-builder in Fonterra, every political flunkey, every industry hanger-on, could parrot the answer. China would take all the dairy products New Zealand could ever produce, and pay premium prices for the privilege. And all for as far ahead as you could see. Our country would never have to look elsewhere. Together, China and unrestrained dairy expansion would pretty much solve our economic future once and for all.

And was there ever a greater national misjudgement than this?

Our dairy strategy having turned to custard (though the ‘Comprehensive Strategic Partnership’ with China is very much in place) we now turn ever-more urgent attention to attempting to curry favour with the US, Canada, Japan and other TPP-inclined nations. Our fervent hope – whatever the accompanying TPP strictures - is that they’ll throw our floundering dairy industry a life buoy.

It might be worth considering that the TPP has been established essentially as a vehicle for those nations which are not, or don’t wish to be, subsumed by China. Its conception and purpose is to provide a political and economic counterweight to Chinese power and its possible exercise and expansion. In addition, some of these nations, astonishingly, want to protect their own industries, the well-being of their own citizens, even their own food security. (The points are in no way intended to justify the anti-sovereign provisions apparently embedded in the TPPA. These are another issue entirely.)

The fact is, foreign affairs are larger than our government’s one-eyed focus on the well-being of Fonterra and the expansion of our dairy industry.

There’s an expression for what we’re doing. It’s attempting ‘to run with the hares and hunt with the hounds’. It doesn’t work long in the real world.

What New Zealand wants from the TPPA is nothing less than rescue from its own political and economic folly. It would appear too that our government is prepared to go to almost any length to secure some sort of rescue.

Is it a problem for the US, Canada and Japan that New Zealand decided to settle its future on an easily-replicated global commodity? Is it their problem that our dairy farms are up to their armpits in debt? That bank loan books and many of our farmers are circling the drain? Or are these problems of our own making?

Does New Zealand truly expect to have much leverage with the US, Canada and Japan having entered a ‘Comprehensive Strategic Partnership’ with China? Perhaps they’ll feel sorry for us. After all, it’s plain that this government doesn’t understand you can’t wing things on a world stage.

WE need negotiators with a better sense of history rather than finance.

Even if they'd just read some Asterix comic books on their flight over that would have been a good start.

Wonderful post Workingman.

"Without the dairy industry New Zealand would be desperately poor" - Sir Paul Callaghan in this TED talk that is on old link that has been done before. At about the 8:30 mark he talks about keeping the current GDP per capita and the type of jobs required to maintain this. Tourism doesn't cut it, Fonterra is has been well out in front at $350,000 per job.

https://www.youtube.com/watch?v=OhCAyIllnXY

That dairy industry, took a lot of debt to get there.

Great video.

Except if its GDP generated by over charging NZ consumers its really partially a con. Then there is the profit, it goes into financing over-valued farms with the hope of a tax free gain on retirement, so again other NZers are paying more tax as a result . Plus the real profit is taken out and paid to the money lenders most of which are overseas?

Yes you and Andrew make good points. Guys like this have great knowledge, but seem to always fall short of full understanding.

If TPPA was there to oppose China, then it would open Trade routes - but it does NOT.

That's the sugar coating on the pill. What TPPA does is say "China is the big scary takeover threatening you" so we're going to be the big safe Crocodile's mouth for you to hide in.

TPPA is about realising that if one major competitor is playing hard in the market it is a perfect time to put the squeeze on and offer nothing, pretty much the figurative rock and hard place.

Thus TPPA is nothing to help NZ or other minor countries and everything to help US - or more accurate it's mega corporates (since small business and individial US folks get nothing from it either)

Great post workingman!

As a bonus I'd recommend people watch this video of Mike Hosking (National lacky) getting schooled by Jane Kesley over the the TPPA. Shows the intellectual light-weight he is!

https://www.youtube.com/watch?v=MblZU5nMZIE

http://www.metromag.co.nz/current-affairs/how-bizarre/

In a nutshell, the Europeans bought the souls of Maori with trinkets. Now the Chinese do the same and we move closer to the edge with no treaty, just the imminent TPP...

Great post from workingman. I was pleased to give it the thumbs up (18 so far and rising). Thats a pretty good vote on interest.co

..this should be an editorial.

" It’s attempting ‘to run with the hares and hunt with the hounds’." More like whitebait swimming with great white sharks.

Absolutely stupid post. The TPPA exists solely to serve American corporate interest. It's an abhorrent treaty that spits in the eye of democracy. Unfortunately there is not shortage of useful idiots to fall inane and support the U.S. As evidenced by the clowns liking your lightweight post.

Well written working man , clever bugger

Damm fine post working man!

Over the weekend, Russia cut its official interest rate by 0.5% to 11%. They have tough choices to make. High interest rates hold back investment they desperately need. But lower rates drive down their currency making inflation even higher and painful.

Tough choices like this would be welcome in New Zealand.

Wintershall said it plans to join the new gas pipeline project led by Russia’s Gazprom that’ll deliver up to 55 billion cubic meters of gas annually to Germany via the Baltic Sea.

A memorandum of understanding was signed by BASF/Wintershall and Gazprom Friday. Read more

Patents on medicines. A longer period does not neccessarily promote research. Despite the self promotion much of the research spend by big pharma companies is not to find new therapies. They research to produce drugs that are the same as existing, but just different enough to avoid a patent conflict. Such 'research' produces no benefit for users, just a commercial angle for the companies. Often we end up with a new product that is just the same as from the other company, and often less useful.
New research is a minor part of the research spend. Extending the patent period will just divert more of the spend into this substitution research.

Also Pharmac wasn't a deal breaker in the TPPA because it benefitted NZ, it was a deal breaker because our politicians consider it "the envy of all other countries". :( ego wins out of good political progress every time. (fortunately for us (but not for US..see what I did there :p ) this time NZ wins on the break)

yep.

up
12

Key and Groser talking up the future of TPP this morning. But hopefully it's dead. And they were saying 'trust us' and 'don't be difficult' Sorry chaps, we don't trust you, and please understand democracy is difficult.

"please understand democracy is difficult." That's why they prefer being an oligarchy.

Anyone else wondering how many perfectly good bi-lateral agreements we could have struck with other countries, including most of those in the TPPA now, in all the time, effort and money that has gone into the disaster that is the TPPA.

Japan in Depth / Japan, U.S. misjudge N.Z. stance on TPP
http://the-japan-news.com/news/article/0002329596

Harsh, but nonetheless, realistic analysis - do we get the same domestically?

I'm impressed with news from Japan, its possible to actually learn something. I think NZ media could be as good as Japans but that would depend on officials telling the truth rather than trying to hide stuff.

Not so sure its a terribly fair piece. Seems to almost paint NZ as not an easy rollover assumed so the others were miffed. Good thing there is so much vocal opposition here in NZ to the TPPA IMHO. National must know its going to get caned if it doesnt get a fair deal for NZ, good.

Yes, I agree @steven, the US and Japan thought we were an easy rollover. Its good to know what really went on in the talks though.
I don't like the TPP because I think it could affect NZ in many unforeseen ways.
For instance you can get really cheap electrical goods in AliExpress because they(ChinaPost) subsidises the postage. Under TPP an American company could say, no, thats not fair, stop it or we sue the Government.

Free shipping to NZ
http://www.aliexpress.com/item/In-stock-made-in-United-Kingdom-2015-New-...

Interesting as I am currently looking to buy a Pi 2, but the NZ price is $48~52NZ, Ali's price is $35US converts to $53NZ. I also dont believe its a genuine UK made Pi.

Hmm, not a biggee if its a problem, also it isnt NZ its china, whos to say the true cost.. Also when we look at shipping from the USA for instance i buy stuff from Amazon it seems quite a low price for shipping for amazon delivered bits, so is there a subsidy going on?

I am interested in this board from Korea but its $20 shipping not tracked, uninsured.
Aliexpress would be much cheaper if not free but they don't stock this Korean board.
I think Aiexpress and e-commerce sites like it will change retail. Its cheaper to get stuff on some of these sites than it is to go to the warehouse.
http://www.cnx-software.com/2015/07/14/odroid-xu4-board-is-a-smaller-and...

If its for a specific use, OK but for me I want to run a proper Pi one as a small low power web/email server and a second to tinker with with controllers so i want a std unit so I know its not going to be an issue of compatibility. There is an orange Pi that has more features but its too much of an unknown variable for me.

Would be interested in getting a batch in? whats the 10up?

about $1 off each, not worth bothering with.

Australia walks away from TPP on Dairy and Sugar

Robb faces a tussle at home over the deal, with Nationals MPs demanding a decent deal for sugar farmers. Half a dozen federal Nationals indicated they would cross the floor when the agreement comes before the parliament if only a token result is achieved.

The US allows sugar imports based on a quota system, with Australian cane farmers now allowed to send about 100,000 tonnes there a year. The farmers would like to raise this to more than 500,000 tonnes but the Americans are holding out

http://www.theguardian.com/business/2015/aug/01/australia-walks-away-fro...

What USA is protecting - IP and Big Pharma

Michael West on tax avoidance by big US Corporates and the tax they wont pay on increased profits that will then be shuffled away with magic

http://www.smh.com.au/business/comment-and-analysis/focus-on-tax-avoidan...

Malcom Fraser was good value when he was still alive. He used to say things like Rules don't apply to America, they only apply to other Countries.
Unfortunately I thought he was too radical for the OZ press so he used to get ignored by the media a lot.

Sure, the dairy industry is important to New Zealand. It has, however, become very important, not because it’s a success, but because it’s in a mess, teetering on top of a debt mountain. Productivity is out of kilter with grossly inflated land values. In 'good' times, it used to be called ‘farming for capital gain’. Yes, some are making money in the sector, but the industry as a whole has been swallowing banknotes as fast as you can print them.

Employment? A couple of years ago (googled this) Federated Farmers estimated that about a fifth of all dairy workers in New Zealand were from overseas. Presumably these numbers will be higher now, not lower, and their wages – by all reports - are bouncing along the bottom, and too often beneath the minimum wage.

Criticizing the dairy industry is almost seen as unpatriotic. Mike Joy, pointing out the appalling and increasing environmental degradation, is called traitorous, for heaven’s sake. No-one here wants to see New Zealand go down the drain. But the dairy industry would deserve greater respect if it was a high-value or premium producer, and one genuinely managing our environment. It’s neither of these.

Expanding a commodity outfit at huge capital cost (leaving the environmental consequences and costs out of it) is a pretty good way to come unstuck. The money is being made by others further up the food chain, and Fonterra’s evident inability to operate satisfactorily at a high professional level was well exposed when Danone – one of its largest customers – decided to walk. Maybe they thought China would be altogether an easier market, but choosing easy with nothing more than a handful of commodities is choosing failure.

On the TPPA, there’s no denying the US and other influential countries are throwing their political and corporate weight around. And being asked to trust John Key, Groser, etc, doesn’t cut it. Good on Jane Kelsey for keeping her teeth around their ankles.

There is, like it or not, a contest of values with China, and the TPP is on one side of the wrestling ring. For those countries keen to join, it’s about trade, business, etc, but also about (vaguely) common political and social values – things like international law, property rights, an independent judiciary, freedom of speech, freedom of assembly, freedom of religion, democratic elections, etc. These are not China’s strong points. True, they’re pretty uneven country by country elsewhere, but the rights they have are a darn sight better than their absence. For many Asian and Pacific rim countries, maintenance of these rights - in effect, their political and social structures - are real concerns.

On the other side, where TPPA stands, under US dominance, corporate and financial interests are pushing for whatever winnings they can get. So we need our eyes wide open when the small print is shoved across at us. Thanks again Jane Kelsey.

New Zealand seems to have decided to get into bed with China and somehow keep its marriage going too. And suddenly, with dairying in its deep malaise, the old marriage is crucial. But there’s a risk with playing a double game. John Key’s habit of ‘winging it’ isn’t an answer.

Professor Jane Kelsey for NZer of the decade

You can guarantee the government will prevent her from getting any further airtime on the MSM after she dispatched Hosking. I'm sure they were hoping he'd be able to shut down the debate with his diversionary tactics, rhetoric and frequent use of logical fallacies.

I have been dismissive of Kelsey up until now. But after having seen her waste Hosking I decided to swot up. Just bought her book on Amazon.

I'll expect everybody to come along to the Anti TPPA walks, some of those are on this Saturday, the one in Auckland is on the 15th.
If our 'media' is only starting to report on this now, and internationally we're being seen as 'for' it, it would pay to come out en masse to show both Key and Groser, and the rest of the world, that we're not happy with it, at all.
.
Had to snigger at Groser in the herald this morning: he'll win the war, because those who oppose it do so for ideological reasons.
The way this government has been pursuing a trade deal which is not in our best interest, smacks of cultish ideology to me...

All of the above relies upon the NZ Governments being legal.......so I cannot see how any TPPA, FTA or any other agreement for that matter is actually going to stand up anywhere!!!