What happened Tuesday

A review of things you need to know before you go home Tuesday; grocery prices stir, Aussie business confidence holds, Kiwis tire of an Aussie visit, China yields invert again, swaps and NZD stable

13th Jun 17, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
Nothing to report today.

DEPOSIT RATE CHANGES
Nothing here either.

CANARY
Our regular weekly monitoring of a healthy grocery shopping list now shows that prices are now +3.4% higher than in the same week a year ago. They are +3.4% higher than two years ago, so all the rise have come in the past year. A longer term look at the trend shows a +6.4% rise over five years. That is only about a +1.2% rise per year on average. So the rise on the past 12 months may actually signal the stirring of grocery price inflation. (Aussie-owned Countdown is facing impending pressure back home from Aldi and about to be launched AmazonFresh.. We will be keeping an eye on their Australian prices to see whether Kiwis are to be used to bolster profits under pressure at home.)

UPBEAT
In Australia, the NAB business confidence survey was out today. Business conditions eased slightly in May, but are holding up at elevated levels. The business conditions index fell 1 point, to +12 index points, which is well above the long-run average (+5). The May NAB Monthly Business Survey again pointed to an upbeat business sector, indicating an apparent disconnect with a seemingly disheartened household sector. Despite easing modestly in May, business conditions are still at very elevated levels.

AUSSIE TOURISM ON THE MOVE
The number of tourists arriving in Australia was up strongly in April, +14.8% above the level in the same month a year ago. That was boosted by big jumps from the UK (+21.6%) and the USA (+28.1%). But the rises were very modest from China (+3.6% after a long run of double-digit growth) and there was virtually no growth from New Zealand (+1.8%). Australia is also getting a surge in permanent migrant arrivals. They are up +13.2% in April, and the annualised trend is rising too.

WATCH THEM CANUKS
We don't keep much of an eye on what is going on in Canada (housing policy excepted), but perhaps we should. Employment growth is strong, industrial production is up, and their trade deficit is falling. Their economy is trucking along well, and there is talk that interest rate rises are a real prospect.

WARNING SIGN - AGAIN
After it happened a week or so ago, things quickly reverted to normal - as the Chinese authorities moved to cancel out the worrying market signal. But today, things have inverted again. The yield on their 10yr Govt stock is 3.56%, but it is 3.57% for 5 years and 3.61% for 2 years. Inverted yield curves are a market signal that a recession is on the way.

WHOLESALE RATES UNCHANGED
There are few changes again today. But the 90 day bank bill rate is lower by -1 bp at 1.93% and that is an all-time low.

NZ DOLLAR REMAINS STABLE
NZD is slightly firmer at 72.2 USc. On the cross rates, against the Aussie we are at 95.5 AUc, and we are at 64.5 euro cents. The TWI-5 is stable at 76.4. And bitcoin is now at US$2,694, which is -11.4% below the high it reached yesterday. Daily movements of +/-10% seem to be common for this cryptocurrency.

You can now see an animation of this chart. Click on it, or click here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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13 Comments

by Cowpat | 13th Jun 17, 4:22pm 1497327742

David are you sure someone from the office is not putting an extra chocolate bar or two in the grocery shopping, as it was getting a little schizoid on a weekly basis.

by David Chaston | 13th Jun 17, 4:29pm 1497328164

Actually, its more to do with more aggressive tactics with short term price specials for some key elements.

by dictator | 13th Jun 17, 4:24pm 1497327893

In the past the big bitcoin price movements were because the market orders were typically very thin. Someone buying or selling $250k worth would easily generate large price movements.

by JetLiner | 13th Jun 17, 4:49pm 1497329373

Here's an interesting one. SumoSalad, a food franchise in Australia, has put two companies into administration because Westfield refused to negotiate mall rentals (http://www.afr.com/brand/chanticleer/sumosalad-uses-insolvency-laws-to-…):

"Sumo has been working with landlords over the past few months to negotiate more realistic food court leases for our stores, with no success," Baylis said in a statement. "Regrettably, landlords have opened the door to more and more food businesses in recent times, as well as opening whole new eating areas within the same precinct, which has essentially cannibalised existing tenants.

Whether you think this is a justified move or a manipulation of insolvency law, it'll be very interesting to see how Westfield responds. Perhaps part of a larger pattern of stress on shopping malls and a flow-on to retail REITs?

by J.C. | 13th Jun 17, 5:44pm 1497332663

Thanks for posting.

Baylis said the expansion of the choice of eating venues over the past couple of years had badly affected the SumoSalad outlet in the centre. He says the lease payments must be cut by 30 per cent.

Nice qualitative insight into what's going on in the world of small business trying to get a piece of consumer spend.

by Stephen Hulme | 13th Jun 17, 5:04pm 1497330245

The yield on their 10yr Govt stock is 3.56%, but it is 3.57% for 5 years and 3.61% for 2 years. Inverted yield curves are a market signal that a recession is on the way.

Yes, but others have postulated reach for yield, for longer traders have had an undue influence shaping sovereign yield curves. Read more Pension fund managers can fall into this category. Could the PBOC enforce the same aims as those declared by Bernanke when he announced QE? That is lower longer term bond yields with benefits, as I recall. Certainly for bond traders.

by Boatman | 13th Jun 17, 5:34pm 1497332092

You know , when China finally does go into recession and we are all "surprised " , don't say you were not warned , or you did not see the signals .

They have been in plain sight for some time now

by J.C. | 13th Jun 17, 5:45pm 1497332748

Go into recession? How do you know that isn't the case right now?

by Stephen Hulme | 13th Jun 17, 5:50pm 1497333011

Is China not already in a deflationary spiral inconsistent with that which prevailed six years ago and more?

It isn’t just US inflation that has, for authorities anyway, disappointed. Last Friday, Chinese government sources reported that country’s CPI at 1.5% year-over-year also for May 2017. That is half the rate specified by government decree, an explicit target set by political officials for the PBOC to hit via monetary policy means. Though 1.5% is slightly above 0.8% estimated for February, it is still more like early 2016 than global or domestic “reflation.” Read more

by MikeM | 13th Jun 17, 7:45pm 1497339930

If the Fed and the bond market continue to disagree there will be an inverted curve in the US sooner or later.

by Fritz | 13th Jun 17, 5:49pm 1497332980

yeah a China recession is hardly Black Swan territory
People with long memories might remember what happened to Gold Coast property when Japan's bubble popped...

by Advisor | 13th Jun 17, 5:07pm 1497330430

The Canadians are receiving the good end of the migration bargain. Hospitality, tourism and retail hire a large chunk of migrant workers in New Zealand; Stats Canada reports confirm that most of their migrants join IT, professional services and construction sector. The Canadian economy saw a 3.8% GDP growth in real terms on a a net population growth of 1.9% on the backs of these high value sectors.

by Boatman | 13th Jun 17, 5:24pm 1497331495

Yes I noticed the grocery bill has gone up over the last 10 weeks and I assumed it was winter fresh produce prices , but not by much , maybe around $10 to $15 .

The basics like milk , butter , bread and beer are still the same , but fish eggs and fresh fruit and veggies were up

I have not done a year on year comparison