US inflation hits +2.3%, confidence stutters; Canada tariffs US goods; EU inflation jumps; China cuts tariffs; Aussie new house sales fall; UST 10yr at 2.85%; oil unchanged, gold stops falling; NZ$1 = 67.7 USc; TWI-5 = 71.1

US inflation hits +2.3%, confidence stutters; Canada tariffs US goods; EU inflation jumps; China cuts tariffs; Aussie new house sales fall; UST 10yr at 2.85%; oil unchanged, gold stops falling; NZ$1 = 67.7 USc; TWI-5 = 71.1

Here's our summary of key events over the weekend that affect New Zealand, with news that many tariff actions kicked in on July 1, and inflation seems to be moving higher in some key large economies.

Firstly, the US Fed's preferred measure of inflation hit +2.0% in May, up sharply from +1.8% in April, and above the +1.9% markets were expecting. The PCE non-core inflation rates was +2.3%. And this data came as personal consumption slipped noticeably. When prices start rising faster than growth, we will call it 'stagflation'. Not there yet, but US policy seems to be driving us in that direction.

Like its Conference Board rival, the University of Michigan consumer sentiment survey is also sliding on the 'expectations' front, although the main levels are holding. That same survey showed an overwhelming level of support for more trade and less tariffs.

In the trade wars, Canada struck back at the Trump administration over American steel and aluminum tariffs overnight, imposing punitive measures on C$16.6 bln worth of American goods until Washington relents.

Canada's GDP rose at the rate of +2.5% in April, slower than for March, but in line with analysts estimates. The trade war with the US is taking the gloss off their performance.

China's official June factory PMI slipped a little as the trade war dampens the outlook, but it is at a level very close to what it was a year ago. Their services PMI rose marginally.

China also had another round of tariff cuts roll out on July 1, a stark contrast to the US approach. But on the financial front, China is cracking down hard on new tech non-bank deposit takers in a bit to eliminate a huge financial stability risk.

EU inflation has also came in at +2.0% although the core rate there (without fuel, food and alcohol) was at +1.0% in May.

In Australia, regulator APRA says many super funds there are misrepresenting their 'cash' investment options by including risky credit instruments and derivatives. Such options have delivered better returns than pure 'cash' up until now, so members will get a surprise when funds are forced to comply with the new tighter guidance.

And sales of new Australian houses fell by more than -4% in May and are now more than -12% lower than the most recent cyclical high that occurred in December 2017. It's a substantial retreat.

The UST 10yr yield was marginally firmer at the market close at 2.85% and up +1 bp in New York. It's another +1 bps firmer in later trade. That American inflation data has had virtually no impact on benchmark bond rates. The Chinese 10yr is at 3.49% (down -5 bps from Friday) while the New Zealand equivalent is now at 2.88%, down -1 bp.

Gold was marginally firmer in New York but still only at just US$1,252/oz in New York which was a chunky -US$17 drop for the week.

US oil prices remain high, and now just over US$74/bbl. The Brent benchmark is now just under US$79.50/bbl. These both represent about a +US$5 rise in the past week. Locally, don't forget we had our own big tariff increase as Auckland motorists were hit with a +11.5c/ltr new fuel excise tax starting in July. Expect considerable cost flow-through to everything transported, and the impact to be national. That will have the same effect as the crude price rising from US$79.50/bbl to US$90/bbl.

The Kiwi dollar starts the week unchanged at 67.7 USc. On the cross rates we are at 91.4 AUc and at 58 euro cents. That puts the TWI-5 at 71.1.

Bitcoin is now at US$6,327 and almost +8% higher than where we left it on Saturday.

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49 Comments

Shale fail. “U.S. oil exports reached a record 3 million barrels a day last week— a greater amount than is pumped each day by all but three OPEC countries.
When combined with fuel products, like diesel and gasoline, U.S. oil and related products exports totaled 8.5 million barrels a day last week, the most ever, according to U.S. Energy Information Administration weekly data.”

They only need to increase production another 8 million barrels per day and then they'll be free from having to import crude oil. Any time soon...

Make that 2 Pluto. Will be net exporters by 2020. Not bad for a country that produces 20% of global industrial output. Already net gas exporters.

“The United States exported more natural gas than it imported in 2017, marking the first time since 1957 that the United States has been a net natural gas exporter. The transition to net exporter occurred as natural gas production in the United States continued to grow, reducing pipeline imports from Canada and increasing exports, both by pipeline and as liquefied natural gas (LNG).

U.S. LNG exports increased dramatically over the past two years as new liquefaction capacity has come online. The only liquefaction terminal previously operating in the United States—the Kenai LNG terminal in Alaska—ceased operations in 2015. In 2016, as the Sabine Pass LNG terminal in Louisiana began to ramp up operations, U.S. LNG exports increased. Sabine Pass now has four operating liquefaction units, with a fifth currently under construction.
The Cove Point LNG facility in Maryland exported its first LNG cargo on March 1, 2018. Cove Point is the second currently operating LNG export facility in the United States, after Sabine Pass. Four other LNG projects are under construction and expected to increase U.S. liquefaction capacity from 3.6 Bcf/d to 9.6 Bcf/d by the end of 2019, further increasing U.S. natural gas exports.

Where are all the rabid Peak Oilers we had to put up with on this site for years ?

Technology to the rescue as always !

well theres more than a few links here if you want to clue yourself up
https://imgur.com/a/rBtIrfg
https://srsroccoreport.com/the-energy-cliff-approaches-world-oil-gas-dis...
presume you are are aware fracking has been around as a supposed technology since the 40s ... makes you wonder why its only being used now...
And Its peak debt you should be worried about - thats what gets Oil out of the ground.

Fuel in NZ is mostly tax. The fuel industry is a vehicle for government revenue. The oil reserves will last long enough for us and our children and probably our grandchildren.

Well I guess someone has to pay for all the roads. Privatise them?

Nope. See Venezuela. Reserves huge. Oil production plummeting. Reserves /Oil is useless unless someones burning it. Its a functioning / solvent debt system that enables the burning.... Debt is a promise to burn resources in the future...
http://money.cnn.com/2018/05/09/news/companies/venezuela-oil-industry/in...

I'm sure you're aware I was taking specifically about oil, not natural gas. I know the fact they still import 8 million barrels per day contrasts the narrative you're pushing though.

Sorry not sure what your point is Pluto? They have a massive refinery and petroleum import and export industry industry. They will have a net zero position by 2020 - something thought impossible by the peak oil hand wringers.

That's Ok I'll clue you in.

You said in your first post US oil exports reached a 'record 3 million barrels per day', I pointed out they're still importing 8.2 millions barrels of oil per day, you then posted something slightly off-topic about natural gas, I tried to remind you we were talking about oil, you replied appearing confused about the discussion.

Also, I didn't realize 'peak oil' referred to natural gas, coal, refined petroleum products and probably every other source you like to clump in with oil.

I was under the impression the US was a net exporter of oil.

Nah, it's a narrative pushed buy the mainstream to help their markets and keep people feeling optimistic. Last month they imported 8.2 million barrels per day. They do however export a small amount of light oil (1.7 million barrels per day) that their refineries can't process and some refined petroleum products which often the MSM or posts like profile's twist to make it sound like they're 'energy independent' in terms of oil. They're not.

Table:
https://www.eia.gov/petroleum/supply/monthly/pdf/table3.pdf
Graph:
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUS2&f=M

They export 8.5 million barrels per day, 3 of which is crude. Never said they were energy independent (they are running at about 91% independent and producing 20% of global industrial output). I said they would net oil exporters by 2020.

Oil is following a similar trajectory to gas which was very recently a net importer. Cheers.

http://www.aei.org/wp-content/uploads/2016/03/usenergy.png

Have a look at the first column in the table I linked to above which refers to 'crude oil'. Other liquids are broken down in the subsequent rows.

Oil:
- Production 10467kb/d
- Imports 8244 kb/d
- Exports 1756kb/d

Surely this is not too hard for you to wrap your head around. So you believe they will increase oil production by over 6 million barrels per day over the next two years!? You're having me on right?

Oil is currently bottle-necked by the Permian pipeline issue and I do expect they'll be able to increase production somewhat once that has been resolved, however I doubt they'll get anywhere close to becoming 'oil independent'. Energy independence is nebulous as I don't see their vehicle fleets running on nat gas yet and until they no longer rely on imported crude it's a real stretch to claim this. It does have a 'feel good' ring to it though doesn't it.

"Last fall the International Energy Agency declared in its World Energy Outlook 2017 that the U.S. could be a net exporter of oil within a decade. On the current trajectory, net imports could indeed turn into net exports in 2020."
https://www.forbes.com/sites/rrapier/2018/03/21/u-s-net-petroleum-import...

With travel times on the northwestern back to pre-widening levels already, good to see the fuel tax come in to fund some desperately needed, long lasting, scalable transport improvements

Um, I don't know how to put this gently, but this delightful clip from The Castle might help:
https://www.youtube.com/watch?v=dik_wnOE4dk

Yeah let’s hobble exporters and raise food prices so Jacinda can feel good and the NW motorway will/might have less traffic.

You don't think congestion costs the export industry?

Everyone accepts fuel tax is a temporary measure. Long term it will be a congestion charge that will be primarily about making it unaffordable for some people to drive their cars. There is a bit of dishonesty in the discussion (by all parties including Nats) - there is no scenario where we keep building roads so everyone can drive. The end game is forcing a significant number of people to use public transport.

If we can get autonomous cars to drop off/pick up from the train/bus station that would help a lot. For me this is the logical end game. Autos getting people to and from train/bus stations.

I don't accept any tax as being temporary, they have a nasty habit of sticking around.

Income tax was introduced as a temporary tax following the Napoleonic wars. Taxes seem to be pretty much forever.

When you look at what governments used taxation for pre 1800 you can see why the tax base was a bit narrower.

I didn’t say it was temporary, I said the means of levying it was temporary. I expect the will move it to a congestion charge but the amount levied will continue to increase.

My apologies Hardly, I misread. I agree if it goes it will only be transferred into something else, kind of like the law of energy - "Energy (taxes) can not be destroyed; rather, they can only be transformed from one form to another."

The tax its replacing (Auckland Council transport levy on rates) was temporary.
This tax will be replaced by congestion charging one day.

Auckland..city of Cars, roadwordks, trucks, and Wilson Carparks

I wonder if we need some kind of minimum profit enforced on companies. Assume 5% profit on revenue minimum. Way too many established companies are making a 'loss'
Or maybe just tax revenue instead of profit like us PAYE earners currently endure.

I don’t think that would work, what would they do? Just go out of business?

Yes it's a motorway mayhem this morning - Thousands of motorists affected by fatal crash on Northwestern Motorway... https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12081462

Welcome to Christchurch...

Can’t believe that people love Auckland as much as they do!
Thing is that many haven’t travelled much outside of Auckland and the blinkers are on.
Christchurch offers you a far more affordable and relaxed lifestyle, but it is your loss if you don’t check it out.
Christchurch the most liveable place in NZ!

TM2,

And you have evidence "that many haven't travelled much outside of Auckland"? No? I thought not,just another of your uninformed comments/drivel. I don't live there,nor do I wish to.

TM2, I lived in Chch for 18 years, lost my house to the EQ moved to Auckland 2 years later when I got paid out. I far, far prefer Auckland and I don't miss Chch whatsoever (I do miss Sumner where a lived a bit, as it's a special place). The only thing I'm still passionate about in Chch are the Crusaders...

TM2, I lived in Chch for 18 years, lost my house to the EQ moved to Auckland 2 years later when I got paid out. I far, far prefer Auckland and I don't miss Chch whatsoever (I do miss Sumner where a lived a bit, as it's a special place). The only thing I'm still passionate about in Chch are the Crusaders...

I would say that investors in Oz will be very pleased not to have credit instruments buried in their "cash" funds. Its all well and good having these things while markets are on the rise but....
If they are such a good thing why not have another fund with only them in it for those who want them: Transparency.

Thoughts:

• Those high oil prices are going to be great for US shale. Also going to be good for electric cars.

• Those inflation figures are going to keep the fed moving upwards. Question though, will they be conflicted regarding growth versus inflation? Or will they focus on inflation. If the later then it looks like US will keep increasing rates or even go faster which must have implications for Nz rates.

In alternative news:

Canada stamps foot. Threatens US with a tariff on Canadian Maple Syrup exported to US. US promotes High Fructose Corn Syrup as healthier alternative.

Canada and Mexico threaten tariffs on cocaine and cannabis exports to the US. US considers military response.

Chinese Communist Party clamps down on subversive new tech non-bank deposit takers in hard line purge to prevent unpatriotic capital flight. House prices in Australia and Auckland continue falling.

Government confirms that the latest petrol tax increase means future government can reduce the effective price of petrol by the equivalent of $10 a barrel should petrol overshoot it's target price of $5 a litre. The latest treasury forecast update shows this target being achieved by 2020 (previously 2023 under National inflation policy). Labour now expects to achieve majority in next election based on this outstanding track record.

(Disclaimer, none of these opinions or facts are representative of anything at all really.)

it will be interesting to see if they can maintain it and go cashflow positive

Exactly. Lets build a tent and put a third production line in it to hit the target we already missed twice. I'm sure all the labour on that line isn't helping with the cashflow.

i said this would happen, trucking companies have instructed their line haul drivers to top off the tanks before they come into Auckland and refill once they leave.
also they have now added an Auckland fuel levy to there charges, so expect all goods to start to rise in cost in Auckland
some examples below of new rates flooding in today

"At this early stage we envisage a need for a new regional fuel levy affecting any consignment which originates, terminates or travels through the Auckland Regional Boundaries."
"will apply a 2.2% RFT levy to all consignments within the Auckland
region"
."The above rates include the new Regional Fuel Tax (RFT) that was applied as of 01/07/2018"

esy to add a scanners to the motorway and just charge the trucks more milage tax like the rest of the world.

Yeah trucks and the rest of us were always going to top us before going into Auckland. You will always get this with a tax and geographical boundary. It's not news, nor a gamechanger.

will it spike inflation next quarter , the Auckland region is a big chunk of NZ

Perhaps it could form the new basis of government Inflation Policy - increase petrol taxes when inflation is below target. It makes sense (from a certain point of view).

So moving some money to the regions and creating some much needed inflation - win-win?