US and China economies suffer momentum backtracks; Canada data solid, EU growth inches up; equities up on car tariff delay; broad tax cut bonus near in Australia; UST 10yr 2.38%; oil up and gold unchanged; NZ$1 = 65.6 USc; TWI-5 = 70.5

US and China economies suffer momentum backtracks; Canada data solid, EU growth inches up; equities up on car tariff delay; broad tax cut bonus near in Australia; UST 10yr 2.38%; oil up and gold unchanged; NZ$1 = 65.6 USc; TWI-5 = 70.5

Here's our summary of key events overnight that affect New Zealand, with news of an Aussie tax cut that has flown under the radar.

First, in the US, retail sales unexpectedly fell in April as households cut back on purchases of cars and a range of other goods, pointing to a slowdown in economic growth. In addition to weak retail, American industrial output was also weak in April, and data for business inventories in March show a rise, +5% higher than in March 2018. None of this paints a picture of an economic drive with momentum.

It is not all weak however, The NY Fed's May update to its factory survey shows that region with a "significant pickup" after four or five months in the doldrums. However, it is not yet back to levels considered 'normal' in the 2017 to 2018 period.

In Canada, they released April CPI data overnight which has inflation rising to +2.0%. There was also house sales data out for April and that came in surprising strong. Volumes were up more than +4% year-on-year although prices were little-changed on an annual basis. Unlike the rest of the country however, Vancouver is doing it tough. And a recent official report into money-laundering through the Vancouver real estate market is being called 'alarming'.

In China, updated data for April shows that their economy was also losing some momentum even before the latest hike in tariffs by the Americans. Data for industrial production, retail sales and fixed asset formation all came in substantially lower in April than March, and all well below expectations. Those retail sales are actually a 16 year low.

New Q1 GDP data out of Europe has growth inching higher. And Germany is the core to that, although their contribution was pretty tepid.

Yesterday, the Shanghai equity market had a very good day, up +1.9% as the 'home team' came out in support, and clearly bolstered by others. Hong Kong was also higher, up +0.6% with Tokyo was up +0.5%. Overnight, European equity markets were up solidly as well. And this morning, Wall Street is chiming in with its own solid gains, with the S&P500 up its own +0.7% in late afternoon trade.

The Wall Street rise may be because Bloomberg is reporting that the US Administration will delay a decision by up to six months to impose car tariffs to avoid blowing up negotiations with the EU and Japan as they struggle to get leverage in their fight with China. Maybe some near the centre of power in Washington actually understand tariffs are essentially costs imposed on yourself.

In Australia, new analysis has uncovered a 2019 budget tax feature that may help explain why the RBA resists cutting their official interest rate benchmark. Already in place, the tax cut will apply to 10 mln Aussies from mid-July, with almost half of them getting AU$1,080 back as soon as they lodge their 2018/19 tax return. A slightly larger group will get back somewhere between AU$250 and $1,000. All this adds up to a cash stimulus of over AU$7.5 bln and is said to be worth -0.5% in rate cuts. The RBA will hold off to see what this fiscal stimulation does before it acts with monetary stimulus of its own. The tax cuts are reminiscent of the Rudd cash handout during the GFC.

The UST 10yr yield is sinking, now at 2.38%, and that is a -4 bps fall and taking this key benchmark rate back to levels we last saw at the end of 2017. Their 2-10 curve however is still at +21 bps but their negative 1-5 curve is widening and now at -16 bps. The Aussie Govt 10yr is at 1.69% and down -1 bp overnight. The China Govt 10yr is up +2 bps to 3.32%, while the NZ Govt 10 yr is also up +2 bps at 1.83%.

Gold is little-changed, up +US$1 at US$1,296/oz.

US oil prices are higher today, now just over US$62/bbl while the Brent benchmark is just over US$72/bbl. The American government is sending home all non-essential personnel from Iraq as Gulf tensions rise dangerously.

The Kiwi dollar is marginally softer today at 65.6 USc. On the cross rates we are unchanged at 94.7 AUc. Against the euro we are still at 58.6 euro cents. That puts the TWI-5 little-changed at 70.5.

Bitcoin however is still rising. It is currently at US$8,101 which is +1.3% higher than this time yesterday. This rate is charted in the exchange rate set below.

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Two words, can we have banned please? One is "unexpected" which is only ever applied to things falling (oh, sorry then it is the second word - "soft". Things going up are not seen as "hard" so why, when they go down, do we get told they are "soft". This sort of euphemistic writing is almost as tiresome as when we have piano soundtrack to elicit emotion in those who do need emotive direction. Things that go down are always "unexpected" by economists because they never see or forecast anything to go DOWN. Things are always going to be better in 6m or 12m. Never worse, perish the thought. How often are these forecasts wheeled out and held to the light of what in fact happened. When forecast to improve or go up, we are never told WHY things are going to improve later. Jam tomorrow

> Things going up are not seen as "hard"

An indicator that has risen has "firmed." I guess "strengthened" could also imply hardening, though I guess it stands against "weakening."

As for the unexpected, that doesn't fit my perception. I can't think or point to specific memorable examples, but an "unexpectedly strong" reading of some indicator in one of these reports wouldn't surprise me. (And *not* remembering any could be evidence of it not being a memorable or unusual turn of phrase.) I think a "surprise" is typically positive, too, which is a lovely convention.

This is one scary graph, interesting was the steps taken to hide this information.

This fascinating! Question - could this be considered to be a criminal conspiracy where global environmental harm is subordinated to organisational profits? The costs of that harm are extreme in every area. This is a solid proof that robust regulation and oversight is required of commercial activities.

made to look scary by the time scale.

The sub-title says its unprecedented levels

but if you look at the historic going back to the Cambrian explosion where CO2 was at close up to 7000ppm, and complex life on earth first flourished, I think you dont need to worry too much.

While I take on your point about challenging this sort of data, if the report wasn't important then why was it hidden? I also find the biggest failing in people is a lack of understanding rates of change. It isn't the quantity of atmospheric CO2, it is the rate that it accumulates that is the problem. There are natural buffers in nature that permit slow change to higher levels, not so fast change. A good example is rising levels in the ocean. In past periods there was buffering action from waves washing out minerals from rocks on the coastline. Today the rate of rise is too fast for the mineral delivery by that action.

IMO when information is kept hidden to 2 main reasons is fear of exposure and money.

Im not too sure what your concerns are with the ocean? yes they are rising slowly as the planet warms. Are you saying that the chemicals from erosion are required for keeping the PH balance?

The oceans have a PH level averages around 8.1 which is very much on the Alkaline side of the scale, generally marine prefer 7.5 - 8.5, so 8.1 is right in the good zone. That PH cant be changed quickly, the average over the last 300million years is estimated to be 8.2

You may want to check on the ocean levels rising in history. Since the last ice age they have averaged 4x the current level. And between 15000 years ago and 8000 years ago the rise averaged 70mm per year, 35 times the current rate.

Your're right Scarfie - few people realise the rate of change in inter-glacial warming is slower now than pre-WW2 - when the industrial CO2 output was 1/7th what it is now. The global warming hypothesis predicted the opposite result.

"“almost half of the warming observed in the twentieth century came about in the first half of the century, before carbon-dioxide emissions became large.” Natural factors thus had to be the cause. None of the climate models used by scientists now working for the United Nations can explain this older trend. Nor can these models explain why the climate suddenly cooled between 1950 and 1970"

“Sea level is rising, but this has been gradually happening since the 1860s; we don’t yet observe any significant acceleration of this process in our time.”

97% of scientists are part of a global conspiracy to redistribute income!

Granted that PPM is only one part of the picture, but I take issue with the author's immediate leap to the idea that all concern over anthropogenic climate change is a big conspiracy to create a global communist utopia.

Moreover, the first comment provides an effective counterpoint to the post itself. Always read the comments.

There is a way to test their theory.

Right Wing Climate Change Policy (RWCCP).
1) The state sector emits a massive amount of carbon and therefore we reduce state sector spending by 50%.
2) A carbon (poll) tax on breathing and a carbon consumption tax, whilst eliminating all environmentally distorting income taxes.

Observe time between implementation of a RWCCP and a Green becoming a climate change denialist.

Things getting interesting in the UK. Interesting that the control of the media seems to be losing its grip. I mean Trump is a good example of how the masses went against the narrative.


Crikey, go Aussie. Tax cuts are just such a great way to leave money in the pockets of ordinary people, to spend or save or repay debt as they each see fit. No wonder they are so much better off than us.

Does that mean, on the other hand, that lowering interest rates to ground zero, encourages borrowing/debt and lessens society’s spending abilities from investments? Still when ever has a NZ Labour government reduced taxes, except to buy chewing gum, I suppose. Yes agree Roger, great tick for Aussie boldness.


The 2% inflation target has worked. It has inflated house prices by 2% per annum since 1992.

Median house price of $170,000 and median hourly income of $14.50 in 1999.
9 years of Labour and 9 of National.
Hourly income in 2018 was $26.15 and house price $550,000 in 2018.
So a house in 1999 equaled 11724 hours work, in 2018 it equaled 21032 hours.
Put another way, NZ wages have gone down by 44%, on this measure, or house price inflation has been 2.1% per annum.

A classic example of central planning, diligent experts carrying out a stupid plan.

Normalising nominal house prices by hourly rate is not a real wage figure.
If you normalise them by the period obligation (i.e. repayments), there is, essentially very little erosion of real wages over this period.

The issue arises in the initial obligation (deposit) substantially increasing as a result of nominal house price increases. This doesn't have the effect of locking out households; it has the effect of disproportionately locking out individuals.

So, when you say "lies, damn lies and statistics" be especially careful with your own...

k-s - apples with apples is always good.

Exactly. And normalising nominal house prices by (median) wages while ignoring interest rates is not an apples with apples comparison.

The proposition that the bond price varies inversely with the rate of interest is uncontroversial and universally accepted by friend and foe alike. It describes the effect from the point of view of the creditor. Curiously, people find it hard to comprehend the equivalent proposition describing the very same effect from the point of view of the debtor, namely, that the liquidation value of debt also varies inversely with the rate of interest. In particular, a rate cut increases the cost of liquidating debt before maturity. Liquidation value is what the debtor must pay if he wants to retire his debt ahead of schedule. As this liquidation value is now higher, falling interest rates make the burden of debt increase. For example, if the rate of interest is cut in half, then according to the rule of thumb the liquidation value of long term debt is doubled (that is, to liquidate the debt will cost twice as much as it did before the cut).

An example is NZGS 6.0% 15/05/21 notes currently priced at ~108.97, given the current yield is ~1.405%

The NPV cost of funding future liabilities such as pensions and salaries also rise inversely as interest rates fall.

Thank you for that. Exactly. Your understanding of the mechanics is deeper than mine, but that is where I am coming from. The hours worked to actually buy a house outright seemed a more easily grasped way of putting it.

The idea actually derived from reading Marchetti, who found that mathematical relationships like the production function often revealed themselves when dealing with physical quantities, whereas they are often hidden by $$$.

Roger that.....(I often agree with Roger)......But...I believe that rise was aided by a degree of munny laundering......and it seems our degrees can be bought and paid for, by overseas interests and buying a degree is so easy, it hurts.....Other Students.....just like when they 'Buy"....our Houses.....

It is a crime after all.....and some Politicians have been past masters....for many a year. ....they learn't so quick, it hurts.

No. Tax-cuts favour the relatively well-off. But - incompetent administration aside, but that happens in the private sector just as often - if society at large wants something, why can't it choose to have it? And the problem with the neo-lib 'everything commodified' attitude, is that some things are beyond worrying about whether they 'make a profit'. They are entirely legitimate as a 'social service'.Indeed, a well-run civic service has the trump-card of not having to charge profit, and therefore has the ability to be 'cheaper'.

We have been running a narrative which avoids the fact that some have commandeered ever-more of the Commons at the expense of others. The joke is that the overarching regime was temporary, and I cannot find a historical example of the Elite surviving Empirical decline/collapse.

What do you mean?
Tax cuts do not necessarily disproportionately affect the well off, if they are structured correctly across the board. This is evident in both progressive and, especially, regressive taxation. Actually, hence why we have these two terms in economics; the latter explicitly referring to the way in which taxes burden the poor (by symmetry benefit the poor).

I don't know the exact policy but if the maximum tax credit is capped at $1k, it is more than likely disproportionately advantaging the poor, in relative terms...

It takes hours of someones life, to 'pay off' a piece of shelter. It's a real world out there. Maybe it takes more if 'interest rates' go up, less if they go down, but the trend for wage-workers has been for it to take more of the hours of your life, to acquire shelter. If we're going to take that one any further, we get into the rort that is debt-issuance, and we start a discussion that ends with eliminating usury. On a finite planet, we'll have to anyway.

Taxes? Yes, you can structure them to favour the poor in instant $ terms. But take roads - the taxes pay for them. The wealthy own the trucks which get the benefit, and the weight inside the trucks which destroys the surface, requiring more taxes to pay for repair. Sure, the waged driver benefits in that his/her wage wouldn't have existed, but I'd argue that the tax supporting that road should come from the profit generated by those using it, with a small across-the-board top-up representing the minor damage done by domestic vehicles. It's essentially a case of privatising the gains and socialising the debts, via tax. King Salmon recently tried it on, same thing.

Yes, historically there were things (national parks for instance) where the reverse could be argued - the rich tramper had contributed more tax than the poor one, for the same amenity. But even that has been steadily eroded since 1984 in the country. Now, the poor pay taxes which support infrastructure (like walks) which a few - a rich few - profit from. More and more, that is the trend - that taxed 'money' goes to support/facilitate the activities of the rich. We did that here mapping/charting our mineral stocks, giving the tax-funded information free to oil Co's. The minerals, intact. are the real wealth (money is only a proxy, worth nothing without energy and resources) and they were communally-owned - straight Garrett Hardin stuff - but the poor contributed taxed hours of their lives to facilitate someone else getting their hands on the stock..

I think you have gone off on a tangent, here.
A reduction in roading taxes disproportionately advantages the poor. Why? Because the elasticity of demand is much higher for poor road users than rich road users. I don't know where you are going with the trucking analogy, but a drop in taxation isn't fully capitalised into profit for the owner of the capital.

As for your third point - that's exactly why a reduction of regressive taxes benefits the poor more than it benefits the rich.

What I think you are conflating here is the notion of tax cuts in general with tax cuts to the higher levels of progressive taxation tranches.
Cutting any regressive tax represents a benefit to poor over rich. Increasing lower tax brackets on progressive taxes favors the poor, and increasing tax brackets at the top end favors the rich.
Tax cuts do not universally favor the rich, as you suppose.

You made me think - no bad thing.

As I acknowledged, yes, just looking at tax alone you can argue that it is possible to advantage the poor.

But I note it hasn't been done this thirty years.. My other point is that a growing portion of the taxed 'money' - is actually re-directed to aiding the rich in their wealth-accrual.. This cynically so during the previous tenure.

But I'm one who sees wealth vis-a-vis the real planet. What economics lost when it forgot about 'land'. I see 'Child Poverty' as 'Child lack of access to energy/resources. I see poor 'poverty' in the same way. And I see all economic activity - including taxation, as jostling for who will clip how much of the ticket.

And I can tell you that there isn't enough wealth left (future planetary resources) for the currently-held tickets to all be redeemed. Just where that puts the 'worked until it didn't' taxation format, I don't know. Even if you advantaged the 'poor' to full societal equality, t'would be a very temporary thing. The system collapses within the next decade, for certain. Then what do we do about our 'poor'? Or do our current rich become the relative poor through lack of useful skill-sets?

As I commented further down Australia did this in the GFC and it worked. The cash injection is larger this time with spending or paying debt being the priority the whole economy ends up better off.

The crucial difference to me is whether you trust people to make their own decisions or think you can spend their money better than they.

The cash injection is larger this time with spending or paying debt being the priority the whole economy ends up better off.

Paying off debt? Wouldn't consumer spending be a higher priority? See this is the thing about dumb bubbles. The wealth effect encourages consumer spending, but h'hold debt usually skyrockets during bubbles. Any attempt for h'holds to hold less debt means that debt needs to be extinguished and spending is foregone. Less consumer spending is not conducive for bubbles as it is the primary driver of jobs and incomes.

So any attempt to reduce h'hold debt is probably going to spell trouble for Australia. The architects of this mess only have themselves to blame.

Hamilton City Council is an interesting case-study.

We are in the process of leaving a false narrative behind, and constructing another.

The false one was that you could grow forever within a bounded system.

The interface will cause ructions, but ultimately the new will win. Which means the majority of the City Council are simply 'of the past'. How long the incumbents can keep the lid on the narrative is an interesting question. My guess is 'not long' due to 'being overtaken by events'.

Are you referring to the eco group's controversial report?

Yep. Ultimately, this and the like are coal-face expression of the paradigm shift. I've been watching the debate from an LTG (Limits to Growth) perspective for 40 years, knowing change was inevitable.

The wealthy made a play to keep the game going to their advantage (mid-70's on) but the game was on the upper deck and the whole ship is sinking now, alway was. Sometime you can see it in the economic numbers -through a glass darkly though they are - with the trends of 'productivity' and interest-rates inexorably downwards.

But I sense that it's all coming apart now - from why Trump was elected to why Brexit to why the increasing refugee streams, even to why the escalation of terrorism. And the increasingly unserviceable pile of debt. Mostly, I see a rise of understanding of what they're being handed, from the young-and-intelligent. Gen Zero are one NZ such. This report was obviously another. Of course it's anathema to the old-guard - so was environmentalism post Rachel Carson. Interesting times we live in.

I love watching the paradigm shift as well. I've long been cynical regarding neoliberalism's tenet regarding voluntarism and philanthropy. DOC has gone all out implementing this voluntary ideological premise.

I'd rather we had a Conservation Corps programme whereby NZers between the ages of 18-24 years old could enlist to work for DOC in paid service for up to 3 years between those ages. The full time salary would be well above the minimum wage, making it one of the most attractive jobs for school leavers. At the same time scrap all state funded tertiary education, and divert the savings to part-fund the Corps programme. The idea being that one can choose to join the Corps in order to save for a tertiary education.

Those few years of work experience would also make a big difference to the performance at and benefits of tertiary education as well.

Great idea but don't you worry about all the unemployed university academics?

Those I know have skill sets easily transferred to other endeavors. But I doubt it would really make all that much difference to tertiary numbers here in NZ - the start of study might be delayed for school leavers, which is a good thing to my mind.

Last time Australia sent everyone money with instructions to spend the money. Some of my friends said "if you insist". It was a welcome cash injection of a few hundred dollars each. This tax cut is larger, so hopefully that is the shot in the arm that their economy needs.

...might work fine it it wasn't funded by more debt.


Extent of money laundering in the Vancouver property market is "alarming"...I'm sure Auckland is completely different. Perhaps one reason why Key dragged his feet on AML legislation though, as it benefited those already in the market?

A fine art, is still a Fine art.......had it down to a T. ......Thousands and justice..