Here's our summary of key economic events overnight that affect New Zealand, with news natural events will likely have an increasing say in how the international economy operates.
But first in the US, mortgage applications were lower last week again, and the good rises in the first two weeks of the month are fading. Even essentially unchanged mortgage interest rates isn't stimulating new loan applications. The talk of an American housing market recovery might be a mirage.
There was another UST 7yr bond auction earlier today and that brought rising demand. Today's event delivered a median yield of 4.14% which was lower than the 4.27% at the prior equivalent event a month ago. It is only marginal, but the interest rate load on the US Federal government borrowing is easing.
China's industrial profits bounced-back in February, rising by +10.2% from the same month a year ago. They are cheering the 'strong rise'. But we must recall they were especially weak last year. Compared with 2022, the February 2024 result is down -21.2%. And it is -17.7% lower than 2021's result. So they shouldn't be too satisfied. There was almost no recovery in State-owned enterprises - all the current 'recovery' came from the private sector.
The central bank of Sweden likes what it sees locally in the track of inflation. It is currently running at 4.5% and has been sticky. But they expect it will fall soon to near 2%. That view encouraged them to signal that their current policy interest rate of 4% will be trimmed soon, starting in May or June.
In Australia, their Monthly Inflation Indicator was at 3.4% in February. This is the same rate they reported in December and January. Their core rate fell to 3.9% in February, down from 4.1% in January. Like everyone, they are finding it hard to wring out the last elements of excessive inflation. New Zealand's March quarter CPI rate will be released on Wednesday, April 17, 2024. In Q4-2023 it ran at 4.7%.
You know about the West African crisis hitting cocoa production and prices. Now you should know that a cyclone in Madagascar will roil the market for vanilla beans. Vanilla is a main source of foreign currency for the country.
And back in the US, warnings are starting to appear that their hurricane season this year could be their biggest and most damaging.
Further, we should note that a giant of psychology and a huge contributor to behavioural economics, Daniel Kahneman has died earlier today. He was a Nobel Laureate, and if you haven't read his hugely influential book Thinking, Fast and Slow, which summarises much of his research, you should take the time to do so. More here.
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The UST 10yr yield will today at 4.19% and down -5 bps from this time yesterday. The key 2-10 yield curve inversion is marginally more at -38 bps. And their 1-5 curve inversion is out to -81 bps. Their 3 mth-10yr curve inversion is now at -118 bps. The Australian 10 year bond yield is now at 3.99% and down -6 bps from yesterday. The China 10 year bond rate is unchanged at 2.31%. The NZ Government 10 year bond rate is now at 4.67% and also unchanged from yesterday.
Wall Street has opened its Wednesday session with a modest +0.3% rise. Overnight European markets were mixed with London unchanged, Paris up +0.2%, and Frankfurt up +0.5%. Yesterday Tokyo closed up +0.9%. But a late retreat saw Hong Kong closed down -1.4% and Shanghai closed down -1.3%. Singapore ended its Tuesday session up +0.6%. The ASX200 closed up +0.5% while the NZX50 closed down -0.2%.
The price of gold will start today firmer by +US$14 from yesterday at US$2191/oz.
Oil prices have fallen -US$1 to just under US$81/bbl in the US while the international Brent price is now at US$85/bbl. American crude oil stocks are running much higher than anticipated.
The Kiwi dollar starts today at just on 60 USc and marginally softer than this time yesterday. Against the Aussie we are unchanged at 91.9 AUc. Against the euro we have softened slightly to 55.4 euro cents. That all means our TWI-5 starts today just under 69.3 and again little-changed.
The bitcoin price starts today softer at US$68,998 and a full -1.0% dip since this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.4%.
Over the Easter holiday break, we will have normal weekend service, and will return with these daily briefings on Tuesday, April 2, 2024.
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108 Comments
I see the NZ Herald is running an opinion piece from Mathew Hooton where he says the Chinese attack is the first since 1985 when the French bombed the Rainbow Warrior. I suggest that this is a somewhat naive perspective and suspect that Anne Marie Brady might have a somewhat different perspective on that.
One thing is certain, geo political tensions are increasing and NZ is under increasing pressure. The political effort to try to be the Switzerland of the South Pacific since the Lange Labour government in 1984 has significant consequences and some of them are starting to come home to roost. We are getting very close to having to pick sides, and in some respects Luxon has already begun to do that. But there will be consequences to that too. I hope he's got a robust plan.
We already picked sides in the last Term.
Ardern articulation adherence to "the rules-based order".
Meaning 'our rules'. That is US-centric, the rest are CIA-thugged, IMF/World Bank screwed, on our behalf. That's our legacy - wea culpa.
Others are taking control of the game now, and we look like we're on the lose. The joke is that the board is getting exponentially smaller - we were lucky enough to be in the right echelon politically, demographically and historically. They will get the dregs.
Shifting sands since 1945. What were once allies are now the opposite and vice versa. Interestingly, critically in fact, the two main Axis partners, Germany & Japan now vie between then for third and fourth largest world economies. When I was employed in an export industry we used to apply what we called a fail safe policy. This was because many elements in the process were often unpredictable, even uncontrollable. That caused evaluations as to what might be considered as the worst case scenario. To overlay that here, then the question would be in a simplified context - would you sooner live under the flag of the West or the East as defined by the current protagonists.
Suggest during Trump’s presidency he clearly asked the question does the world need the USA more than the USA needs the world. And clearly as well, his view was the former. New Zealand has a proud international record and has truly punched above its weight militarily but at the end of the day realistically, NZ is but a sloop in the grand fleet of world affairs.
for all the parts of Trump I dislike, his business acumen is important and accurate. The USA is slipping dangerously into unrepayable debt which is a high risk for the west. a large part of that debt is the money it spends on defence to help its allies and NATO.... ]
So - the right answer is to expect the rest of the world (who want to be protected) to spend more on military equipment provided by the USA and get closer to the USA, and help reduce its debt and thus the risk to the west.
There must be consquence for countries that choose not to do so and expect a free ride- that consequence (whether part of nato or not) should be a refusal to protect them.
If NZ decides they want to remain independent and want to benefit from trading and trying to ve allies both sides, we will be sidelined rapidly with any later decision to join coming at a higher cost (rightly). Thus the only choice for us is to side with the West and USA now.
Its no different to offering kids a lolly if they do their home work and having to go to bed early if the dont.
I cant see why biden and his old gen cronies don't get it. The days when they could ignore their national debt and would be able to self fund their military and stay ahead of china/russia et al are gone.
The EEC rose out of the generosity and impetus of the Marshall plan. The common market aimed foremost to create self dependence and self reliance by the interaction of its members, Subsequently it has tripled in size, created a quagmire of contradictions through a monumental bureaucracy and arrived at being dependent on Russia for energy, China for production and the USA for defence and armaments.
I suspect we will see the start of a separation inside the EU ... where certain countries decide to pursue military decisions in smaller groups and independent of the whole.
If the war draws in some members of the Eu and not others.. and that is the only current outcome.. it will spell the end of the entire eu project one cant see how some countries in the bloc can be on one side of a war and others on the other... Unfortunately - as you say- the EU has become unable to function effectively
Very interesting times.
You better hope not.
As the threat from Russia gets taken more seriously, we should see unity.
If Ukraine is overrun by Russian troops anyone remotely female looking will be ravaged brutally and every male butchered or sent to a Russian camp in the far north.
This is real for them.
There is though I think much underlying historical tension which doesn’t take much to flare up. Recall at dinner in Germany in the 80’s two respectable business executives erupting and needing to be pulled apart. The question of Schleswig Holstein was mentioned in passing and one, who had a Danish father and had been born in Denmark was offended by the other’s attitude. Where Europe is at now, say since 1945, is history that is minuscule in time compared to the well recorded and vast history of warfare and conquest. Yes very interesting times indeed.
US Government is paying more than a trillion in interest on its debt.
https://fred.stlouisfed.org/series/A091RC1Q027SBEA
Its revenue last year was "just" 4.4 Trillion
Also 7.6 Trillion of old cheap debt is rolling over this year onto higher rates.
https://markets.businessinsider.com/news/bonds/us-debt-maturing-bond-yi…
Slightly lower yields won't cut it I think
Jfoe ..It wont take decades to prove your assertion wrong.... just a few yrs... The growth rate of American debt IS unsustainable.
I think it is wrong to compare Japan to USA.....AND ... in my view , we have had a paradigm shift from global deflationary forces to Global inflationary forces... which will impact what the "neutral interest rate " might be.
I tend to agree with Bob Elliot that the neutral interest rate is actually higher than most people think...
https://x.com/BobEUnlimited/status/1772229788737913036?s=20
"If US government debt averages 4% across the weighted duration spectrum, that would be about $1.4 trillion in annual interest expense.
At $50 trillion in debt , it’ll be $2 trillion in annual interest expense."
OK then, let's set a reminder to revisit this in 2027.
I think Japan and the US are different too - Japan's trade surplus and competent central bank allows it to tightly control its currency and set interest rates wherever it wants them. The US runs a trade deficit but can issue as many Treasuries as it likes because the world has an insatiable appetite for them (and the Govt is pumping credit money into reserve balances that can only be used to buy Treasuries or pay taxes). Also worth noting that the huge US stimulus is going to boost the tax take massively - all of that Govt debt is a private sector asset. I have every confidence that they will manage the debt and duration risk etc (as long as they don't do anything stupid).
The US runs a trade deficit but can issue as many Treasuries as it likes because the world has an insatiable appetite for them (and the Govt is pumping credit money into reserve balances that can only be used to buy Treasuries or pay taxes).
You reckon? I think the world has had a gutsful of USD hegemony, starting with China and Japan, who are the biggest hoarders of US debt. All my leftie mates seem to hate the US, yet don't understand how NZ is like a little chick in a nest supported by Mama America. They think we're somehow independent when in reality we're in a little club that most of the world is not invited to join.
I'm less convinced of the sustainability of it all, even though everything balances. With global debt 3x that of GDP, it appears that the world cannot function without near to 'free money.'
The demand for US Treasuries is driven by the US trade deficit, the credibility of the dollar, and the demand for dollarised assets that IMF loans create. I simply do not see that changing for decades.
On debt and GDP - the total net debt in the world is zero. All money is debt, debt is money etc.
Now when has the USA private sector done silly things with debt… oh right when they gave out as much of it as they could to high risk individuals, packaged the debt incorrectly labelled again and again, and on-sold it to each other and the world for profit until it all came to a head in 2008 and spread financial contagion worldwide to deal with while starting the mass scale of QE. They’ll need to get real serious on capping the greed if they want to stay relevant and to a financial plan i think.
Not debating the innovation, however the GFC was caused by frivolous lending via sub-prime mortgages, then intentional deceit and fraud in rating the packaged loans as being of far better risk-rated than was the real case. Every step of the way it was known what was happening and all those involved cared not about the inevitable end game when the house of cards collapsed. This is the working of the private sector doing silly things I referred to :-)
Its interesting observing Sweden in recent years, with my family connections. It seems to have become more and more like us ie. everything revolving around property, with a few things tacked on and some socialist niceties. They are pretty wedded to the property ponzi, too
Don't forget the broken migration policy leading to unskilled worker influx at unsustainable levels further aggravating housing shortages and income gap in both countries.
We're slightly better off in that regard having a semblance of language and character requirements in our migration system, thanks to successive governments not bending to Green's request of bringing tens of thousands of asylum seekers into the country each year.
Isn't it all just part of a general trend around the world where the wealthy and powerful are stacking the deck
Absolutely, yes. What we have is a global credit fueled asset price inflation problem. The property market is just where the rubber hits the road (or regular people). It amazes me that people still insist the main issue is with permits/regulations/supply. Those things matter, but are much less significant - hence the global part.
As to how this works in favour of the wealthy, it should be obvious. They have existing assets to borrow against. They then get to spend this new money first (i.e. before the full inflationary effect of the new money). They use this money to buy existing assets, the value of which rises as the process repeats. Works well (for them) in an environment where new money is cheap. Question is, what happens when that is no longer the case? Can they squeeze more income from these assets (in terms of property, not without wages rising imho)? Will these assets keep their value relative to say, the value of labour? I think we are about to find out. More QE anyone?
If we need to constantly grow the volume of 'money'...
And if this slows down (or god forbid, reverses) sufficiently... we find out the real value of these assets which is ultimately determined by their utility (i.e. the income they can generate). This is the fundamental thing that property speculators (as opposed to investors) ignore. They think that once interest rates stop rising property values will start going up again and things will be back to 'normal'. Wrong. Prices will rise again when yields make sense or the cost of money comes down. Three things in other words. Wages go up, interest rates come down, or prices fall to a point that aligns with current interest rates. Currently only one of those things is happening.
That's the problem. It is too much an outdated model that cannot be sustained. We do not need to continuously grow the volume of 'Money', and more; we should not. That principle is from the "perpetual growth" model that is utterly unsustainable in a finite world. It doesn't matter what the trading medium is the problem remains the same.
When the money has no cost to create, an infinite amount will be created by those who can. Ergo fiat currency is trending to zero and to maintain your purchasing power you have to buy hard assets.
Land and property are easily understandable and the most accessible and more easily leveraged, or purchased with debt.
The monetary premium on scarce goods including land/property all around the world is massive.
Money printer go Brrr, everything goes "up in value" when observed from within the fiat system. Where what is actually happening is your money is just loosing purchasing power per unit.
Bitcoin fixes this by being pure, absolutely scarce money.
We really need to stamp down on this last bit of sticky inflation with the best and only tool we have - higher interest rates. It is time for Orr to bring back the Shock - a big hike in April 2024. Now, hear me out...
Look at what is keeping our CPI up: rent, insurance costs, local Govt rates, duty on cigarettes, some upward movement on global oil prices. Now, we know that these prices are not at all sensitive to mortgagors having less disposable income, so clearly we need to dramatically reduce the price of the other things in the CPI basket - bring down the average.
So, how can we crash the price of food, construction, public transport, property maintenance etc? Easy, we hike rates and create a massive army of jobless people - then we make benefits conditional on working for nothing on farms, in supermarkets, driving buses, labouring on building sites (or wherever businesses want cheap labour). Voila - cheaper prices. Inflation squashed. Plebs in their place.
I get you point Joe. I recall when interest rates were dropped every man and his dog (including Councils) borrowed to the hilt. Most personal borrowing for buying homes or in the case of home owners, drawn down to use for spending that should have been made from income.
The mentality in this country is to buy property and borrow on it. I suspect the pill to change this behavior lies in higher rates and major tax reform. But interest rates is all the RB has.
"....we make benefits conditional on working for nothing on farms, in supermarkets, driving buses, labouring on building sites (or wherever businesses want cheap labour)...."
Yes. And also.
Crush the exploitation of the monopolies in just about everything that creates high costs. Local and central government, food, energy, banks, professional groups..... and....
I agree with your general point that raising the OCR is a poor tool for tackling inflation and actually exacerbates it in a lot of cases.
That said, you have to ask, what is the real problem here? Is it the rising cost of debt servicing or the amount of debt that has to be serviced? To my mind, too much debt is the real issue and in the long term the only way to address that is to increase the cost of money.
We all knew that this day would come. We gorged on debt in an attempt to keep up with the demands of growth at all costs. We need a paradigm shift and part of that is realising that we need to slow down. When money is cheap it goes to the wrong places anyway and actually makes productive activity more expensive because it encourages rentier behaviour - it's false growth. Had we had higher rates all along, maybe we'd have a stronger economy? By keeping rates higher, maybe that's what we'll eventually get (not to diminish the pain that that entails along the way).
how can this be anything but Apartheid?
Winston is on the money again. The Wokes not so much
https://www.stuff.co.nz/nz-news/350227767/act-accuses-university-segreg…
lol typical response of a typical voter.. can't see how small things pile up to manifest into issues that are complex and significant later on... always looking at the end result then just spewing hatred/blame at something that feels familiar like mortgage interest deductibility.. fkin hilarious how many people here seem to be making mortgage interest deductibility out to be some sort of root cause of all of NZer's issues.. :D
Why are you guys so triggered by an area for Maori and PI students to meet up? There has always been a females only space there from memory, what's the difference? This is a business school, there are virtually no Maori or PI exec's in NZ - why are you so threatened? It genuinely bemuses me.
Many of those students will not know anyone at Uni because they are from low decile schools or from regional NZ. It's a good way to meet.
Why do you continue to denigrate Maori? Plenty are doing well. Many of the ones that aren't blame their dna - as promoted by msm and lefties. Just a brief dig into their background and upbringing will show race is not the reason.
Maori are the problem for Maori. Their so called leaders promote victimisation complex's. Victims never succeed.
The rest of the world gets on with life.
Hahaha so you won't even bat an eyelid if it said "This is a designated area for white students"? Ever heard of reverse rac*sm? Also gotta call out saying sh*t like "Many of those students will not know anyone at Uni because they are from low decile schools" is a pretty rac*st thing to say :P
My sincerest apologies, I was actually agreeing with you but it looks like it didn't come off well. If anything I was expecting blowback from those who are opposed to the areas. I'm literally feeling a little sick it came across that way. I was (clearly badly) attempting to satirise those who see an issue with providing spaces such as this.
If you wish I will delete my comment to remove any further possible misconstruction.
Did Winston and Rimmer get their applications to the Auckland Club knocked back? I wonder what the Chinese Students Association would think if they had to have their meetings in the English Block - lol.
Nothin wrong with being woke - it's being a snowflake that's the issue. Does the poor down trodden anglo-saxon man want a tissue before he melts? sniff sniff
"And back in the US, warnings are starting to appear that their hurricane season this year could be their biggest and most damaging."
Climate change is the usual bogeyman. I've noticed nearly all media outlets have stopped saying human induced climate change. It's now taken as a fact.
So it should be.
You can't burn your way through 100 million barrels A DAY, and an equal gas/coal BOE, without forcing the chemistry of the atmosphere.
You have to be very ignorant indeed, to think you can indulge in such physical actions, without physical repercussions.
Those folk often, when you scratch the surface, are arguing from themselves, backwards. In other words, self-justification drives their choice of 'facts'. Quite a sad way to live, methinks.
100 million barrels A DAY
Holy hell that is a big number!
We have a long way to go to rid ourselves of this dependence.
An interesting thought experiment to put into perspective what a boon fossil fuels were for society (and incidentally why population growth took off once we started using them):
Imagine filling your car up with a litre of petrol, driving it along a flat road for as far as that will take you and then getting out and pushing it back.
Obviously not a perfect example as momentum and such play a part, but illustrates just how much energy we have been squandering.
All this energy for about the price of a bottle of water. Of course, this doesn't even take into account the real cost. How far do you think you have to travel in the average car to produce 1kg of CO2? About 5km. This means that the average car driven the average distance is responsible for about 4,000kg of CO2 per year. Really makes domestic recycling look like a token gesture when it comes to climate impact.
Don't know how true this is, but a friend studying industrial design was once told by their professor that even if all domestic waste that could be recycled was, it would still only amount to 3% once you include industrial waste.
Despite all this, when surveyed recently, kiwis rated 'recycling more' as the most effective thing they could do in terms of environmental impact. Driving less was about number 15 on the list. Just goes to show how effective 'green-washing' is.
Just look at the graphs - onwards and upwards to the moon!
https://climatereanalyzer.org/clim/t2_daily/?dm_id=world
https://climatereanalyzer.org/clim/sst_daily
"Lower interest rates getting closer, Reserve Bank Governor Adrian Orr says"
"Orr said the New Zealand economy was tracking to the RBNZ's expectations, and the bigger than expected contraction in growth at the end of the last year and dip back into recession was part of the necessary readjustment."
Well, he would say that wouldn't he
https://www.newshub.co.nz/home/money/2024/03/lower-interest-rates-getti…
Cameron Bagrie ...
"He told AM there is currently a combination of strong domestic inflation, the unemployment rate slowly ticking up, wage inflation and people predicting New Zealand's economy is going to bounce back in 2024, which means the RBNZ will be discussing whether to hike the OCR not cut it. "
https://www.newshub.co.nz/home/money/2024/02/economist-says-reserve-ban…
Yellen Warns China's Industry Ramp-Up Is Distorting World Economy
US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.
Xi Jinping: “Finance has become one of the hotly-contested realms in superpower rivalry… having a strong voice and ability to deploy its influence in the formulation of global financial rules is one of the core attributes of a financial superpower.” https://scmp.com/economy/global-economy/article/3256953/china-calls-critical-imf-reforms-mirror-economic-prowess-collective-asian-voice? Link
China’s central bank chief has reaffirmed Beijing’s desire to have more of a say in the international financial system to match its economic prowess, while also calling for a regional monetary mechanism and enhanced bilateral cooperation.
People’s Bank of China governor Pan Gongsheng told the Boao Forum for Asia on Wednesday that established international institutions like the International Monetary Fund (IMF) need to be reformed in terms of their quotas and voting power to better mirror the weight a specific economy carries.
A day earlier, IMF managing director Kristalina Georgieva had visited China’s central bank in Beijing, during which she discussed IMF quota reforms with Pan.
China holds 6.09 per cent voting power in the Washington-based fund, far lower than the 16.5 per cent share held by the United States, which effectively gives it veto power, with major decisions at the IMF requiring 85 per cent to be in favour for a motion to be approved.
Cannot imagine that USA are anyway inclined to a change in the rules that will remove their veto power.
Certainly not while China is replacing their internal property driven growth with export led growth which will clearly be detrimental to every other country.
President Xi should expect more blowback - even from his BRIC mates - over the next few years. This could be good and bad for NZ with ever cheaper Chinese goods coming here but even more reliance on China for imports and exports and also less need to reform our own economy or deal with our homegrown inflation
Don't get sucked into the ACT culture war distraction tactics.
This is the real news
Trussonomics 101
https://thekaka.substack.com/p/borrowing-15b-more-to-pay-for-149b
The Government will have to borrow between $10 billion to $15 billion more than previously expected in order to make up for a slowing economy and to pay for $14.9 billion of tax cuts, according to economists for Westpac and ANZ.
Despite growing calls from the Government’s usual supporters for delays to the tax cuts, Finance Minister Nicola Willis said Budget 2024 on May 30 would include ‘responsible and affordable’ income tax reductions.
Former ACT Party leader Richard Prebble has called on the new Government to delay tax cuts, saying “unfunded tax cuts causing inflation and increased borrowing, will be both a political and economic disaster.” NZ Herald-$$$
Willis broke the convention of committing in the Budget Policy Statement to a spending allowance, saying only it would be less than Labour’s $3.5 billion, and that the slower economy meant a Budget surplus in 2026/27 was no longer assured.
The Government rejected Auckland Mayor Wayne Brown’s demand it rebate over $415 million of GST charged on top of rates paid to Auckland Council and start paying $36 million a year of rates on Crown land in Auckland. RNZ
Auckland Council said the Government’s public transport funding cuts and its refusal to rebate GST or pay rates would force cuts to schedules and increase fares, which would worsen congestion, increase emissions and further inflate the cost of living. Some suburbs would have no public transport at all. RNZ
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