Here's my summary of the key events overnight that affect New Zealand, with news economic growth seems to be happening at a good level worldwide.
In the US, sales volumes of new single-family home unexpectedly fell in July, dropping to their lowest in seven months while prices rose more than expected at +6.3% pa matching the rise in prices we saw in existing home sales, and raising concerns of a slowdown in their housing markets. New home sales activity there represents a bit over 9% of total housing market sales activity.
Also out today is the flash US PMI data. That shows a slowdown in expansion in their factory sector in August, but a rise in expansion in the much larger services sector, in fact to a 28 month high. (Good expansion in the Eurozone is also being reported. Even EU consumers are feeling more confident.)
On their borders, the renegotiation of NAFTA is now well underway. But today, both Mexico and Canada dismissed the American threat to scrap the trade agreement as a shallow negotiating tactic.
And speaking of borders, monitoring of sea trade at the US port system shows volumes rose to near record levels in July.
Indonesia’s central bank surprised most economists yesterday by lowering interest rates, reflecting its relative comfort with the currency and inflation outlook. The benchmark rate was cut by a quarter point to 4.5%.
In New York, the UST 10yr yield is sharply lower today, now at 2.18% and dropping. Markets are increasingly spooked by the comments coming out of the White House, especially the cavalier ones regarding the debt ceiling and the prospect of a Government shutdown.
The price of oil is up again today and now just over US$48.50 a barrel, while the Brent benchmark is at US$52.50.
The price of gold is up +US$3 to US$1,289/oz. And we should note that Germany has repatriated half its gold, all from France, the rest from New York where it was while there was a threat from the Soviet Union. This offshore holding has long been a source of conspiracy theories, but the German authorities say the volume and purity repatriated is perfect.
And the Kiwi dollar will start lower again today at 72.2 US. On the cross rates we are also lower at 91.4 AU¢, and at 61.1 euro cents. As a result that puts the TWI-5 index at 74.7 and that is its lowest level since May.
If you want to catch up with all the changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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A big drop in marketing spending from some of the world’s largest consumer products companies forced leading ad agency WPP to issue its second sales warning of the year on Wednesday, sending its shares sharply lower and spooking investors in the sector.
WPP stock fell more than 13 per cent in early London trading before paring some of its losses to close down 11.2 per cent at £14.15, the largest one-day drop for the FTSE 100 company since 1998. Read more
Hmmmm....
Companies especially in America are being pressed by revenues that won’t grow no matter how many times Janet Yellen says the word “transitory” or one similar. Because companies can’t get topline growth, the only way to try to maintain profit growth is to over-manage their cost structure. That means a lid on labor growth, but also a lot of other big ticket expenses.
WPP now expects revenue in constant currency terms to be negative.
This year, 2017, is already one of huge disappointment in many ways. Though it is often eerily similar to 2014, there are a number of capacities in which it has been different. For a great number of things, 2017 doesn’t even come close to the ersatz improvement in 2014 (including, importantly, retail sales here and elsewhere).
WPP adds to the fears that this is actually true. The year 2014 was itself a huge letdown, so what might that make 2017? It’s not a perfectly clear issue like it might be in looming recession, but that just underscores the true nature of stagnation (dare I write depression?). A recession is easy to see and figure; a lost decade is a tangled web or gray haze of questions and seemingly intractable problems. Read more
A large British-based ad agency stumbles? It is a sector that is being disintermediated by the internet. It is a sector facing huge challenges doing business the same old way. It is a very long bow to tie their issues to those of the global economy.
WPP is not really an "ad agency". It's a conglomeration of advertising, marcom, media planning, marketing activation, and research companies. It is also very connected to the FMCG space in that its individual companies are all suppliers to that space. WPP companies such as Kantar (TNS, Millward Brown, Worldpanel) are fighting tooth and nail for survival because the Unilevers of this world are finding growth hard to come by and slashing marketing spend. If you knew anyone that works for WPP agencies, I think you will have quite a good understanding of what's going on in the consumer economy, particularly if you're working on the research side of their business.
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