Here's our summary of key economic events over the weekend that affect New Zealand with news China is struggling, the US is pumping, and everyone else is in between.
First up, the head of the World Trade Organisation has said the Ukraine war has forced them to cut their global trade growth forecast for this year from +4.7% to +2.5% due to "the impact of the war and related policies".
But so far, such a sharp turn down isn't showing up in the granular data. March factory PMIs in the Asian region shows most expanding at moderate levels. That includes Taiwan, South Korea and Japan.
And although Indian imports rose sharply, Indian exports rose to US$40.4 bln in March, easily an all-time record high and confirming global demand remains solid - although some of this could be a switch from China.
The private sector factory PMI for China came in lower than the official version (49.5), contracting at an index value of 48.1 when a steady-state 50 was expected. It was their biggest fall in more than two years. It will only get worse for China as they stumble over their new pandemic spread that is high risk because they have key demographics with very low vaccination rates - and they have a second-class vaccine that is barely 50% effective. A widely locked-down China will have broad trade implications.
More stories are emerging of retrenchments in China. And buyers are not emerging to re-invigorate their housing markets.
Elsewhere, US non-farm payrolls grew less than expected, up +431,000 in March from February on a seasonally adjusted basis. Markets had expected a +490,000 gain. But on an actual basis, +794,000 more people were employed in the month and it is the extra earnings of these 'actual' people that will drive consumption.
Their jobless rate fell, their participation rate inched up again, its sixth consecutive rise. Average weekly earnings rose +5.8% from a year ago, but average hourly earnings rose an impressive +6.7%, suggesting that workers on average are holding their position against fast-rising inflation. It will be fuel prices that will be the main pressure point and there might be some easing on that front soon.
Meanwhile, surveys of factory conditions in the US are uniformly positive. The two main ones report good expansions. The widely-watched ISM one shows overall growth marginally less in March than February, but with new orders, production and employment growing, new export orders growing, the order backlog growing, and the deterioration on supplier performance easing. The main negative issue is that all this demand is pushing up prices faster. The internationally-benchmarked Markit one was equally positive, noting production and new orders rising steeply, and cost pressures gaining renewed momentum.
These are the best American factory conditions in decades - and maybe the de-globalisation shift because of supply-chain issues are driving it.
In Europe, their PMIs slid to a 14-month low in March amid rising inflation and geopolitical tensions. But they are still expanding and at a moderate-to-good clip.
But like China, not everyone is expanding, and some contractions are rather steep.
EU inflation remains high with the March level up to 7.5% pa, driven of course by energy costs. That is similar to, but less than American CPI inflation. We get New Zealand inflation data on Thursday, April 21, and that is sure to be elevated too. What is interesting about global inflation is that the effects haven't hit some countries yet. And up to now that has included Australia and many East Asian countries. Why that should be, given their equal exposure to energy costs, is unclear, but the March outcomes when they are released should shed some light on these differences. It may just be a timing issue.
Globally, hiring is strong, especially in the West. But American bond markets are toying with inverted yield curves, even if it is with little conviction at this stage. Inverted yield curves suggest recession is ahead. However few, but perma-bears, really believe that, and the IMF doesn't. Expanding factories and strong demand for labour aren't usual signals for recession. Perhaps the supply chain realignments are helping here and that effect won't be temporary.
The UST 10yr yield opens today at 2.39% and up +1 bp from this time Saturday. The UST 2-10 rate curve starts today inverted by -7 bps. Their 1-5 curve is however a little steeper at +87 bps. Their 30 day-10yr curve is marginally steeper at +221 bps. The Australian ten year bond is up +6 bps at 2.85%. The China Govt ten year bond is down -1 bp at 2.82%. And the New Zealand Govt ten year is unchanged at just on 3.30%. A week ago it was at 3.31%, so little net change.
The price of gold starts today at US$1926/oz and up +US$2/oz from this time Saturday, but down -US$30 from this time last week.
And oil prices are down fractionally to just under US$99/bbl in the US. And the international Brent price is now just on US$104/bbl. These falls are because the US has ordered its largest-ever release of strategic reserves. And other nations are following suit.
The Kiwi dollar will open little-changed than at this time Saturday at 69.2 USc. Against the Australian dollar we are marginally firmer at 92.3 AUc. Against the euro we are also very slightly firmer at 62.7 euro cents. That all means our TWI-5 starts today at just under 74.5 but -50 bps lower in a week.
The bitcoin price is virtually unchanged from this time Saturday to US$46,394. But from this time last week, it is up +4.9%. Volatility over the past 24 hours has been modest at +/- 1.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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Elsewhere, US non-farm payrolls grew less than expected, up +431,000 in March from February on a seasonally adjusted basis. Markets had expected a +490,000 gain.
More Americans are working, as the payroll reports show, and more earned income is being generated, yet it’s not enough to keep up with the artificial surge in prices. According to the BEA, Real Personal Income excluding Transfer Receipts has declined since…October.
A string of negative months in this same account is used by the NBER to help declare recessions.
Pay more, get less. Get paid more, it buys less.
Simple relationships which form the basis for demand destruction. And it only takes some time before the second order effects begin to overshadow those first. As the inability to keep up with especially oil prices (gasoline) wears on discretionary spending, it begins to have a psychological impact, too.
Not only do consumers as workers fall further behind, they compound the problem in macro terms by cutting back – destroying demand – as they themselves grow understandably angry and increasingly cautious. Link
Inverted yield curves suggest recession is ahead. However few, but perma-bears, really believe that
Last time it was "conspiracy-types". I don't get it. Correlation may not imply causation, but there's been a pretty consistent track record since the 70s. Not sure we should be so quick to pooh-pooh something just because the IMF doesn't happen to agree with it.
The price of gold starts today at US$1926/oz and up +US$2/oz from this time Saturday, but down -US$30 from this time last week.
The London gold and silver markets have always been beyond “opaque” without any significant reporting of transactions or positions. No data has ever been offered either on commercial banks holding accounts at the BoE, or precise technical identification of gold custodies, let alone those belonging to EU members. As Venezuela knows all too well – and EU member states could be next — who may or may not be acknowledged as a valid claimee of anything vaulted in Threadneedle Street or whereabouts is an open subject left to the entire discretion of the Canary Wharf masters, not EU politicians. Same goes for the enormous unallocated gold and silver liabilities of the so-called ´bullion banks´… or any other pertinent data. [Refs. 14+15+16] Link
The demand for a non Soverign store of wealth will only continue to increase #BitcoinFixsThis
We live in a digital world, why does anyone think we will go back to a gold standard and the crazy amount of trust that whole system requires? And has already been proven to not work.
Bitcoin is for enemys: don't trust, verify!
Isn't Germany still having problems getting all its gold out of the US Fed? I think they've received some. Texas moved its gold out of the US Fed and is storing it in Texas. Off course that doesn't mean to say Texas hasn't loaned it out or what ever other nefarious activities banks or states do with other peoples gold.
Evidently there's been no audit on Fort Knox's gold for a long time.
Not looking good for China and the CCP. Second rate vaccine, fragile economy, genocide, weak on Russia and getting off side with the wealthy West.
Just think how it could have been different if they didn’t go down the more authoritarian path that they have gone down with Xi.
Now that could be an interesting debate. Whether authoritarian regimes would be better at winding back from consumptive and population highs or highly functioning democracies?
The current mix just looks like varying tyrannies where wealth and privilege are protected, while all else is killed off. But even there the wealthy would end up fighting amongst themselves for the scraps, resulting in the ultimate tyranny. Mad Max is coming back!
PDK
You endlessly remind us that the answer to most things is "the physics". Might I be so bold as to enquire just what your background in the subject is ? Similarly, you constantly refer to the world's population growing inexorably to to doomsday while world population monitors of various stripes report rapidly calling population growth, including in tis country. Accordingly, might I also inquire as to your training or background in demographics?
Mr Mannering qualifications do not make an expert, or any other, right. they just might however give one a head start on learning. But I find many so called 'experts' blind to obvious indicators. it seems they prefer to pander to political winds than to tell blunt unvarnished truth that the evidence provides.
PDK discussion about the 'physics' is just obvious and self-evident. The perpetual growth that the 'experts' expound on cannot occur in a finite system, and the damage of such attitudes is already apparent.
I suspect that economically as well as ecologically the world is on a knife edge so things may change rapidly to a recessionary environment. Many of the likely causes of this are yet to play out 2 that come to mind is the EUs energy issues with Russia leading to a prolonged period of rationing, and China being unable to contain covid this will likely give many countries another sharp inflationary spike as shipments are delayed with the inevitable rise in pricing . Ecologically the latest recommendations from the IPCC will focus attention again on fossil fuels and the necessity of winding back their use rapidly , this will give rise to substantial pushback from vested interests and nations with conflicted interests .
Today again we hear that we have to make decisions about what next with our Covid strategy based on protecting the health system. A pathetic statement when you consider Labour has had 2 years to improve the system but has chosen to throw money at all sorts of other less critical things including substantial increased bureaucracy and consultants! Again nurses bear the brunt of the pressure and now DHBs refusing their leave applications. We need far better management skills to improve our health system.
Just back from Australia were life has largely returned to normal and from April 14th you won’t even need a negative test to enter the country. They are in desperate need of more workers and seem prepared to pay higher rates to attract them.
Watch the exodus from NZ to Aus over the next 6 months.
with all the new townhouses being finished watch the rental market slump. At best flat rents in 2022.
fuel inflation down too, and groceries won’t rise much more.
some key elements in the CPI basket looking subdued. CPI to surprise on the downside in ‘22???
Universities and business lobbies have set the stage through dozens of news articles on skill shortages for the Labour to reopen low-wage migration floodgates even wider this time around. That will help battle wage inflation and maintain rents at all-time highs.
The plan for MIQ services to return the control of our borders to low-value businesses and tertiary institutes is already underway.
The Sunday programme last night highlighted the crisis of the shortage of nurses in our hospital system. Your exodus to Aussie is going to include nurses we can ill afford to lose.
We could blame not training enough nurses, or covid restricting how many nurses we could import, but the real reason for the crisis is letting in hundreds of thousands of immigrants without the infrastructure in place to accommodate them.
No government will ever acknowledge and resolve the huge skill mismatch problem in our migration system.
On the contrary, the Labour-National coalition wish to "solve" the capacity crunch caused by too many unskilled migrants clogging our infrastructure by allowing businesses and shoddy institutions to bring in even more migrants, all the while hoping at least some of them have the skills and expertise we desperately require.
it's much deeper than that. For generations NZ have driven a low wage economy. I'm not sure where the Government mindset is driven from but there seems to be a clear ideology that both National and Labour subscribe to that stops them from paying people decent wages. A recent case in point; our Government set up MIQs by essentially taking over hotels and having their staff operation them as such. Most hospitality staff operate on or just over the minimum wage, but it seems clear that these staff were not paid any extra fro the risks they faced, the extra work and difficulties of having to work all day wearing PPE and so on. Why not? Tight miserable Government and owners. Or nurses are jumping ship to Aussie, as are a lot of others, why? because the pay and conditions are that much better over there. The fix is easy.
I've heard that the issue isn't as simple as just paying nurses more. What happens is when you pay them more is because they work so many house they choose to work less hours and be paid the same as they were being paid before.
A lot of strings need to be pulled at the same time to fix things.
As quite a (male, pale and stale) consumer of hospital system's services (cancers, botched surgeries etc) I can second that from experience, something that is backed up by my main squeeze (sitting next to me as type) who retired from a lifetime nurses's career and who has many friends still there. What she and they report is that in nearly every graduating doctor's and nurses class, half already have jobs lined up overseas, mainly in Australia. This is particularly so for the white males as they are not wanted here.
An UBER driver, I increasingly find myself driving people either planning to or about to leave for Australia. Last Friday night it was a couple going to Ponsonby for their farewell party with their friends and they will be leaving sometime this week. My GP, a young doctor not long out of university, being a white male left about a year ago as he said the environment here is "so hostile to my kind " in feminist NZ.
Similarly, young men in conversations on long rides nearly all end up asking me what they should do as they have no intention of staying. I spent half my life overseas to great effect and benefit.
We're digging our own grave.
It was extraordinary that right in the beginning, say two years ago, with the advantage of NZ observing the ever increasing & approaching drama of covid overseas, that the government could not realise that fast tracking of clinicians & other healthcare workers, to return or come to NZ, would be of vital assistance. Every New Zealander would have supported that, even if a special MIQ had to be dedicated. Instead what did they do? Table a wage freeze on the existing workforce.
We need far better management skills to improve our health system.
That's the one area we've had too much focus on, unfortunately. That we can just "manage" our way around the real issues. Perhaps put some more magical "metrics" and "ratios" on doctors and nurses.
Unfortunately the real problem is that we have been impoverishing those we hoped would provide our medical care, through our mismanagement of housing and related economic policy. Every time we have used Reserve Bank and successive governments' policy to effectively transfer wealth from wages and savings to assets, we have undermined the case for someone to be a nurse in New Zealand. Or a teacher. Or a police officer.
The wages for these jobs made sense when people in these jobs could build a viable life for themselves and their families.
You simply cannot keep living at the expense of younger generations and expect nothing untoward to come of it.
30% price increases coming for 400+ products in germany.
Thats going to hurt ontop of the massive energy cost hikes....
"What is interesting about global inflation is that the effects haven't hit some countries yet. And up to now that has included Australia and many East Asian countries"
Yes, countries with low / static interest rates appear to be experiencing lower inflation. And, many of the countries that are hiking their interest rates - or signalling that they are going to do so - appear to be experiencing the highest levels of inflation. It's almost like things don't work like the textbooks say they do. Fancy that.
Hmmm. Prices have increased whilst interest rates have been on the floor. It looks like countries that have responded to these increasing prices by hiking rates (or signaling that they are going to) have then seen higher increases in prices (i.e. more inflation). This is unsurprising given that, for example, the cost of money is a key input cost for many businesses (higher costs mean higher prices). I also suspect that higher rates and inflation stories provide cover for businesses with market power to exploit that power and increase prices.
Perhaps those countries that try to manage everything in the economy by raising and lowering interest rates can't effectively tackle supply-side inflation. With New Zealand you have a country that raises the cost of doing anything by constantly adding new layers of bureaucracy to every process and is surprised when there is misallocation of resources and structural inflation, which it then attempts to deal with it by raising interest rates. This interest rate rise then impacts demand but still leaves all the bureaucracy in place. We just get poorer and more inefficient.
As you say the cost of loans for the business becomes higher, but local customers also have their budgets restrained and buy fewer goods. As we go along I suspect fewer and fewer businesses will have the market power to pass costs along.
The powers that be are then surprised when they end up with endemic inflation embedded in structural processes that exist only to support the bureaucratic class with a stagnating economy.
I am not talking about the employment contracts act and any wage rigidities here because Labour never reversed the act. The right wing still has in place the mechanism to depress wages. I am talking about the need to get a permit to do anything. The constant call for new agencies and more paperwork that serve only to benefit the bureaucratic class. The ever increasing cost of compliance. The fees for carrying out what used to be normal routine business activities.
All the state agencies with practical capabilities were wiped away by the govts of the 1980's and 1990's only to be replaced by user pays, consultants, reports on every aspect of any process, in short a whole new private sector bureaucracy that costs our society far more than the govt depts ever did.
We are now in the situation of having a govt that hasn't yet realised that they need to take action and that they need practical tools to implement the action. Instead they are creating more bureaucracy in their endless reorganisations and giving away the tools that they still have by giving the power to effect change to vested interests while the poor old taxpayer still has to foot the bill for any stupid decisions these unelected vested interests make.
I fear bureaucracy in its modern form is by now deeply entrenched to the degree of being impenetrable. A bureaucracy that is opinionated, self-serving and unaccountable threatens both society and democracy itself. The reference to the adoption of consultants is telling. Such are employed but with a disclaimer that they are excused from any liability. Thus when things go pear shaped both bodies can blame the other, without any cost to themselves. Nice little set up. All authority, no responsibility. Public service catchcry.
...no responsibility. Public service catchcry.
Also the model of private business. Ltd.
Perhaps we need a model where - for example - the building industry stands behind the products it sells and builds, and when crap is built it is fixed by the industry. Instead of over-regulation to protect the taxpayer from the cost of the industry's mistakes, we have a measure of personal and corporate responsibility. Can't just dodge it by closing the company and spinning up another.
Could start with simplified building regulations and mandatory industry insurance. The only problem is that the industry has made itself uninsurable.
From our family experience of a rebuild following EQs, I would only trust about two or three individuals that we encountered, from architect, QA, builder, subcontractors, suppliers & council. MBIE needs to introduce a random audit system, post completion, whereby the entire process of the build is reviewed. If a builder is aware that might happen, then less skullduggery may happen. As it is they know, LBP & MBIE as exist are toothless, Master Builders a chum’s club and they won’t be sued provided they pitch the rip off below what is worth court action.
We could bring back Town Clerks. A good job for older, highly-experienced builders whose bodies can no longer let them build. They can check build sites like used to be the case.
At the heart of our building problems including the leaky buildings crisis is an absence of responsibility taking from the industry.
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