Here's our summary of key economic events overnight that affect New Zealand, with news New Zealand is claiming free trade wins in a deal with the EU.
But first, American jobless claims inched higher last week although the rise was less than analysts had expected. There are now 1.3 mln American on these benefits now, also a small rise. We are clearly past the bottom, past the all-time low.
Their PCE measure of inflation dipped a little in May from April, a pullback that wasn't expected. Core PCE is now running at 4.7%, the full PCE at 6.3%. The personal spending rise was much more modest in May that expected (up +0.2%) and may point to a weak Q2 GDP growth result, while the personal income gain was at +0.5% as expected.
The widely watched Chicago PMI fell back to the levels of the last few months, but the main concern in this report was the sharpish retreat in new order level growth. A
quarter of firms saw fewer new orders received in June.
Japanese industrial production slumped in May, the second straight month of decrease and the steepest pace since May 2020. However, it probably recovered in June. But from a year ago it will still be lower.
China was expecting its factory PMI to expand in June after contracting in the prior three months - and it did. But only just and by less than expected. The sudden shift in their services PMI from contraction to expansion was more impressive however. But these are the official data. We should wait for the private surveys before getting too carried away. And all countries got a bounce after lockdowns, bounces that have been hard to sustain.
Elsewhere in China, several regions have announced plans to increase coal production, as part of the country's efforts to ensure energy supply and stabilise prices. Full-year coal output is expected to increase by 200 million tonnes this year. That will be tough on the climate, already reeling from new restrictions imposed by the US Supreme Court on how Washington can regulate climate emissions.
Yesterday we reported a topping out in the German inflation rate. Today we can reports their retail sales rose in May more than expected (from April), and their employment levels rose, dipping their jobless rate to just 2.8%.
That fed in to an overall EU jobless rate of 6.1% which ranges between Spain's very high levels and Czechia's very low levels. Germany is near the lowest, France and Italy highish.
In Europe, New Zealand has secured a new Free Trade deal. It is claimed it will increase the value of New Zealand’s exports to the EU by up to NZ$1.8 bln per year but we have to wait 13 years for that level of benefit to kick in. Still it is a "better deal" that we got with the UK. This latest deal with the EU will benefit kiwifruit and seafood, and there will be an eightfold increase in the volume of beef we could export to the EU. Butter and cheese will now be able to be trade with the EU for the first time in many years.
But to be realistic, the gains are all very minor, and the EU gave way on nothing of real advantage to us, certainly not on their bully-claims on labelling. But it does come with a MFN clause, so the tiny gains we won won't be trumped.
In Australia, CBA, Australia’s largest bank (and parent of ASB), has hiked fixed mortgage rates for customers by +1.4% ahead of next Tuesday's RBA rate review, as analysts say larger hikes are on the way for homeowners there. CBA no longer has any comparison fixed rates lower than 5% now.
There was a sharper fall in containerised shipping rates last week, with prices falling hardest in the China to US routes. These costs are now -16% lower than a year ago after falling -3% this past week alone. On no routes are they rising anymore. Bulk cargo rates are now at a two-month low, and falling.
Today is the end of the month in the world's major markets so we should be wary of shifts in the indicators because portfolio managers will be squaring away positions there and that can twist the daily movements in a way that doesn't really reflect today's sentiment.
The UST 10yr yield starts today -12 bps lower from this time yesterday at 2.98% and it is ending the month in New York about where it started. The UST 2-10 rate curve is little-changed at just +4 bps and their 1-5 curve is also little-changed at +23 bps. Their 30 day-10yr curve is flatter at +1.94 bps. The Australian ten year bond is -11 bps lower at 3.58%. The China Govt ten year bond is down -1 bp at 2.84%. And the New Zealand Govt ten year will start today down -6 bps at 3.88%.
On Wall Street the S&P500 is a little lower in their Thursday session, down -0.2% and heading for a net -7.8% retreat for June. Overnight, European markets were all quite negative with London dropping the most, down -2.0%. Yesterday Tokyo ended down -1.5% for a monthly loss of -3.9%, Hong Kong was down -0.6% but booked a monthly gain of +2.7%, and Shanghai rose +1.1% for a monthly rise of +6.8%. The ASX200 ended its Thursday session down -2.0% for a monthly from of -9.2% while the NZX50 ended its day down -0.8% to take the monthly retreat to -4.4%.
The price of gold is at US$1809/oz in New York and down -US$9 from this time yesterday.
And oil prices are -US$5/bbl lower at just over US$105/bbl in the US, while the international Brent price is just over US$109/bbl. The falling American demand for petrol we noted yesterday is undermining the oil price.
The Kiwi dollar will open today a little firmer at 62.5 USc. Against the Australian dollar we are unchanged at 90.4 AUc. Against the euro we are also unchanged at 59.6 euro cents. That means our TWI-5 starts today at just on 70.5 and up fractionally.
The bitcoin price has moved down again since this time yesterday and is now at US$19,124 and down another -4.4%. Volatility over the past 24 hours has been very high at +/- 4.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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75 Comments
A trilling of a thrilling FTA with the EU by our PM. Something a bit Clayton’s about it though as per above paras. Still something is better than nothing I guess. Dairy & meat organisations remain disappointed and that would have been the most important sector in need.
The Australian Spectator details the issue: How we bet the house on Ukraine... and lost Ted Dwyer
The infamous Snake Island is now fortified with Russian missile and air defence systems, including their famous SM400, giving them full control of the sea, land and air in the north-west part of the Black Sea and in south Ukraine.
Except that the Russians have just been forced out of snake Island. The SM400 was no match for Ukrainian aerial attacks
Too small to build anything on it The outcomes of this war will not be determined by this island.
Fundamentally because the Ukrainians could reach out and touch Russian navy units further from the shore. it is of course a two edged blade. The Russian withdrawal is essentially a stalemate as far as the island is concerned. Still a very attractive outpost for the Ukrainian's.
I could not afford to be on anyone's payroll -- it is beneath my dignity to be in receipt of fiat money for services rendered - I have not done so since 1998.
To go back to the points raised in the above article, this is notable:
Russia ready to meet fertilizer demand of friendly states — Putin
"We are ready to fully satisfy the demand of agricultural producers from Indonesia and other friendly states for nitrogen, phosphate, potash fertilizers and raw materials for their production," the Russian leader stressed
Yep, that article hasn't aged well. I don't think there is any hope of Russia taking Odessa.
"Russia is now close to achieving the goals set out by Putin just prior to the military operation."
Lol, Putin thought he was going to take all of Ukraine, until he had a little whoopsie around Kyiv.
The invasion to the north east of Ukraine failed. In WW2 the Wehrmacht took Kharkov twice, each time in a matter of weeks, with a hugely extended supply line depending largely on horse drawn. The Russians right next door couldn’t do it once. Still that is covered as being diversionary to the main campaign down south. Suck it and see you might say. Down south though progress has hardly been a blitzreig has it. Odesa is now key because it blocks any connection to the similar enclave of insurgency in Transnistria & thence Moldova. Odessa is a natural fortress, vast underground tunnels and extensive waterways surrounding.The Germans thought they had securely defended against the Russian advance but the Red Army and their then superb soldiers defeated them by surprise, the old fashioned and simple means of swimming and floating across in the stealth of darkness and infiltrating the lines.,The Ukrainians have had ample time to set the defences, they won’t be taken by the surprise, and the legend of that WW2 Russian soldier no longer exists. They are by now a tired, disillusioned, ill equipped force lacking any of the morale of their predecessors. Russia will continue to blockade Odesa and the West needs to find a way pronto for Ukraine’s grain to be railed to the Baltic ports.
Have to agree the irony of that as described here not that long ago by one of our commenters. That was visiting one of the ex USSR states to the east was startled to note the gas ring being kept alight after the kettle had boiled. Answer being that was to save the cost of a match. You see the gas is free. Only in whatever “……….nia” it was!
Turkmenistan it was https://chrisanddan.travellerspoint.com/co/209/
A telling quote from O'Connor
We've got to see the exporters fill the opportunities that we've negotiated now before we start asking for more and that was a point made by the Europeans to us.
Translation:
"butter and cheese producers pay ruinously high tariffs up to the quota for the next 7-14 years and maybe we'll let you ask for some more quota"
The market's worst first half in 50 years has all come down to one thing: inflation.
Easy come, easy go. The West clearly undermined Putin by foolishly believing that our fossil fuel dependence was a thing of the past.
Biden spent the first year of his presidential term trying to kill off American oil production and refining, and the last 4 months have been all about urging American supermajors and OPEC leaders to drill more and increase capacity.
Two years ago, oil is negative $38 a barrel. Do you think oil comes out of the ground by just turning on a tap? What do you think oil companies did at negative $38 a barrel. Drill more? There are plenty of drilling permits here in the US. The USA produces 12 million barrels of oil a day yet consumes 19 million barrels per day just to operate. And that will not go down, no matter how many windmills, electric cars and solar panels you produce. It will only accelerate. Bottom line, Americans are not going to stop consuming oil and will use the military industrial complex to make sure they met the deficit.
It would be interesting to see some analysis of this, and the same analysis might be interesting in regards to house prices here.
The market gains have been historical on the way into this period, I wonder where the volume average position is, that is the amount of people invested at an earlier index level to whom these losses are just paper losses.
When losses eat into the original equity position things get real.
Australia’s largest bank (and parent of ASB), has hiked fixed mortgage rates for customers by +1.4%...
Hell of a hike!
Eurodollar Futures Interpretation Is Everywhere
When consumer prices rebounded December and after, consumers weren’t yet so downtrodden. They are now, and then some. And not just consumers, business expectations are falling fast, too, which only threatens the labor market Europe-wide; planet-wide.
To that end, Germany’s deStatis put the preliminary June year-over-year CPI gain at 7.6% compared to 7.9% during May. That was the other “shock”, an actual decelerating annual rate which had been widely expected (consensus was 8.0%) to further rise. This despite a god-awful, economy-crushing 38% year-over-year increase and contribution from energy (and 12.7% y/y for food).
I am not smart enough to understand the impact of Eurodollars on demand, I hold my hand up to that. However those graphs would suggest a wider set of drivers, the tailing of demand for retail and exports could only have this effect (as well?).
What will be interesting is if the ECB does not raise their rates particularly due to an inflation driven economic recession, will the effect on the Euro defeat the objective anyway? It is always a balancing act I guess.
The claimed headline benefits of $1.8 billion deriving from the EU trade agreement do not pass the sniff test. As is so often the case with such claims, the PR team at MFAT has had a field day.
They cover themselves by saying 'could', but knowing that such caveats are quickly lost.
As a starting point, It seems that they have assumed any increase in exports to the EU as being a net benefit without recognising that most of it will be achieved from diverting trade from elsewhere.
They also seem to be assuming that all benefits of tariff reduction flow to NZ whereas the tariffs are often paid by the importer.
Some of the new quotas will not be filled for the simple reason that the tariffs remain prohibitive. For example, we do not sell butter to the EU because the tariffs are prohibitive. Once the tariff is reduced it will still be prohibitive.
Despite all of these issues, the trade agreement does represent a significant step forward. But just like the UK agreement, it is a step forward, not a leap into a new world.
KeithW
I well remember in the 1980s standing in the plant of a German meat and processor viewing a 500 tonne freezer facility built and paid for by the EEC to store EEC beef, some of what was known then as the mountain. As it was the processor’s land they received rent but the beauty was if they operated the store for five years they would then assume ownership. As always once the mountain became too obviously ridiculous too hide, it duly disappeared on the cheap as protein for the Soviet Union and similar. As always subsidies are a evil self defeating curse that end up disappearing down their own vortex. Never have forgotten Rufus Dawes description in seventies speak “ratfink thinking.”
Subsidies happened because of food shortages during war times, didn't they? All about food security...
You watch the Auckland Council now pushing housing to be built over our most fertile food production land instead of allowing inner suburb intensification, and it certainly seems a little more thought and regard for food security might be in order, rather than thick-headed support for NIMBYism.
Auckland Council set to appeal against go-ahead for new town 'the size of Napier'
https://www.nzherald.co.nz/business/auckland-council-set-to-appeal-agai…
Reality check indeed. I was in the primary production industry when Jack Marshall returned from negotiations with the EEC after the UK had joined. He was considered as being successful in achieving quotas that would hold the line sufficiently to allow NZ producers time and opportunity to diversify from the long dependence on the UK, the home country. He was though, entirely modest about it but he did receive a standing ovation in parliament from all sides of the house. Different today though isn’t it. A whole lot of fuss and feathers, much ado about nothing much!
Agreed (this is getting to be a habit lol).
However I thought Trump was going to be held to account here, in my opinion he should be censured for his stirring his more radical element into criminal action. The cluster the Dem's are making of it, bringing in one lame duck after another are generally going to make this end without any meaningful action.
Not really the Dems are doing a good job of making it impossible for that clown to run for president ever again. If the Americans are stupid enough to put that guy in again they deserve everything they get. Don't get me wrong Biden is no good either he is way to old. You would think that with 330 million people and some of the world's best and brightest people they could come up with something better.
As if it's about the puppet at the press conference. Trumps administration was a turgid mess of resignations, yes men and kleptomaniacs. At least Biden's Dems are getting on with scalping the federal tax base with relative unity. Not sure which is better for the US taxpayer but at least it's a stable government without theatre and bullshit spraying all over the place.
President Trump’s “A Team” turnover is 92% as of January 20, 2021
President Biden’s “A-Team” turnover is 26% as of June 16, 2022
Michelle Wolf was sadly correct on the Democrats...
“Democrats are harder to make fun of, because you guys don’t do anything. People might think you might flip the House and Senate this November, but you guys always find a way to mess it up. You’re somehow gonna lose by 12 points to a guy named Jeff Pedophile Nazi Doctor.”
Trump (whether you like him or not), has a cult like following in the conservative (rural productive areas), as witnessed in Casper Wyoming a couple of weeks ago. Elon Musk is just an extension of the public-private partnership of government and Big business that is killing the 'real' economy.
"Today is the end of the month in the world's major markets so we should be wary of shifts in the indicators because portfolio managers will be squaring away positions there and that can twist the daily movements in a way that doesn't really reflect today's sentiment."
Will be interesting to see how the NZX, ASX moves.
Did nobody else notice Jacinda's brilliant political astuteness? Give stuff to help out Ukraine, ditch the CHOGM for the NATO speech, and Hey Presto, a free trade agreement with the EU. Absolutely brilliant, and a real boon for NZ exporters. I am not joking. Right up there with the governing agreement with NZ First in her first term. Crikey, I am having to reassess my obviously premature judgements of her. But I couldn't help but notice the complete sidelining of Ms Mahuta. Probably too busy with her family business. As much of a juggle as Joe Biden's kid's hooker bill.
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