Here's our summary of key economic events overnight that affect New Zealand, with news American data has been quite upbeat overnight. And along with a lower likelihood of an historic +1% Fed rate hike later in the month, Wall Street is rallying.
Upbeat Q2 earnings reports are helping as well.
US June retail sales came in better than expected as our weekly monitoring had suggested. They were up +1.0% from May and up +8.9% from year-ago levels on an actual basis. Much will be price increases however.
Business inventories rose +1.4% in May from April to be almost +18% higher than year-ago levels. The Inventory/Sales ratio is creeping up now to be higher than year-ago levels, so you can see why managers are taking action on that front.
Still, factory data can still surprise on the positive side, and that is what we got from the New York factory survey for July. It bounced back unexpectedly, with increases in new orders, production activity, and employment. But even after those gains, firms grew more pessimistic, thinking it is down from here.
A more broad, national industrial production measure, this one for June, recorded a +4.2% gain year on year but that was lower than for May.
Businesses may be a little less optimistic, but somewhat surprisingly, consumers are picking themselves off the mat. The widely-watched national University of Michigan consumer sentiment survey rose in July from June. It is still very low, but an improvement was not anticipated.
Also still negative, but improving more than expected, was the Canadian senior loan officer survey.
And that is despite a retreating housing market there.
China has reported bad economic activity levels for the June quarter, worse than the poor ones expected. And remember, these are the official data. GDP fell -2.6% in the June quarter from the March quarter, and that undermined the year-on-year expansion to just +0.4%, well below the expected +1.0% and miles lower than the March level of +4.8%. China's goal of a 2022 expansion of "about 5½%" is now lost. The upcoming Party Congress is likely to be a dour affair with a dark economic shadow hanging over it (the date for this Congress hasn't been set yet).
China's weak GDP result is after they reported a surprise rise in retail sales for June. the +3.1% year-on-year increase for June easily beat market estimates of a flat reading and shifting from a -6.7% drop in May. The latest figure marked the first increase in retail trade since February, as consumption recovered following a drop in pandemic lockdown restrictions.
After sliding all year, China says its electricity production rose sharply in June, up +1.5% from year ago levels after May was down -3.3% on the same basis. June's coal production, used mainly to fire up electricity generators, was up +15%. China is said to be considering swallowing its pride and start buying Australian coal again - mainly because local production is unsustainable at current levels. China's climate goals are a massive case of greenwashing - ditto Australia.
China is scrubbing social media of any references to the growing mortgage boycott there. No one is suggesting this movement is enough to undermine their banking system yet, but it is a rare indication of widespread discontent over how their economy is putting pressure on homeowners. It does have a chance of being big - China's middle class has more than 70% of its personal wealth tied up in housing. (Equivalent New Zealand data out earlier this week shows our level is less than 30%.) Only 22 of their 70 major urban areas didn't see house price declines from a year ago, and that is is the official data.
Hong Kong business confidence is improving in an official survey out overnight. But given their equity market signals (see below) you do need to be a bit sceptical of these results.
A review of some key commodity prices shows inflation isn't likely to be driven higher from these. Copper is down -28% since the start of the year with most of the fall since early June, nickel has now lost all its 2022 gains, iron ore is now lower than its 2022 start. Aluminium is similar. The oil price is still higher than when Russia invaded Ukraine, but is back a lot since early June. Even the wheat price is retreating and has given up all its invasion premium. If inflation stay high, it won't be because of these core commodities. "Transitory" still has a chance of being right.
The UST 10yr yield starts today down at 2.93% and a -3 bps fall from yesterday. A week ago it was at 3.08%. The UST 2-10 rate curve is more negative today, now at -21 bps. But their 1-5 curve is less negative at -5 bps. Their 30 day-10yr curve is significantly flatter at +97 bps. The Australian ten year bond is up +4 bps at 3.49%. The China Govt ten year bond is unchanged at 2.81%. And the New Zealand Govt ten year will start today up a mere +1 bp at 3.71%.
Wall Street is ended its Friday trade with the S&P500 up +1.9% and limiting the weekly loss to -0.5%. Overnight, European markets were all up strongly led by Frankfurt's +2.8% and trailed by London's +1.8%. That left Frankfurt +0.7% higher for the week, Paris +2.0% higher for the week, and London -0.4% lower for the week. Yesterday, Tokyo ended its Friday session up +0.5% to limit its weekly loss to -0.4%. Hong Kong fell a sharp -2.2% yesterday to be -5.5% lower for the week, and Shanghai was down -1.6% to end its week -3.4% lower. The ASX200 ended down -0.7% on Friday and down -1.1% for the week. And the NZX50 ended down -0.6% for a net -0.4% loss for the week.
The price of gold will open today at US$1705/oz which is -US$6 lower than this time yesterday. And that is -US$38 lower than this time last week.
And oil prices are +US$2/bbl firmer at just on US$95/bbl in the US, while the international Brent price is just on US$99/bbl. A week ago these prices were US$103 and US$106/bbl respectively.
The Kiwi dollar will open today +½c firmer from this time yesterday at 61.6 USc. A week ago it was at 61.9 USc. Against the Australian dollar we are little-changed at 90.7 AUc. Against the euro we are also little-changed at 61.2 euro cents. That means our TWI-5 starts today at just on 70.8 and up a mere +20 bps from this time last week.
The bitcoin price rose from this time yesterday by +2.0% to US$20,961. A week ago it was at US$ 21,598. Volatility over the past 24 hours however has been modest at +/-1.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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They sold units that don't exist and the banks wrote mortgages on them. Imagine the scope of what likely happened under those conditions.
Some residential projects are running years behind schedule as many of China's top developers grapple with huge debt loads and financing problems.
Construction has been halted on about 13 million apartments in China during the past year, suggesting that over 4 trillion yuan ($590 billion) in mortgage debt could be linked to unfinished projects, according to research house Capital Economics.
ANZ estimated that 1.5 trillion yuan worth of mortgage loans could be affected by the movement, while Nomura said developers have only delivered around 60% of the homes they presold between 2013 and 2020.
On Friday morning, at least 18 Chinese banks issued statements, with the majority describing their exposure to the mortgage-payment threat as "manageable." Most said at-risk loans amounted to less than 0.1% of their outstanding mortgages.
US June retail sales came in better than expected as our weekly monitoring had suggested. They were up +1.0% from May and up +8.9% from year-ago levels on an actual basis. Much will be price increases however.
Finally, as a reminder, retail sales are notional, not 'real'. While adjusting the headline retail sales print for inflation (via CPI) is rough, it gives us some idea of the 'real' state of the American consumer's appetite for buying more stuff (or less). This is the second straight month of contraction in real retail sales (and 3rd of the last 4 months)...
The 'Control Group' retail sales print - which feeds GDP - rose 0.8% MoM (almost triple the +0.3% expected).
As Alex Pelle, US economist at Mizuho Financial Group Inc., said in a note last month, “the report implies a very negative inflation-adjusted number on goods consumption, and the real-time GDP nowcasts are likely to be marked down significantly." Link
Italy still a basket case.....
It would receive vast subsidies from its neighbours. A technocratic PM would reform its moribund economy. And Italy would finally break free of the low growth, high debt cycle it has been trapped in since the euro was created back at the start of the century.
When Mario Draghi was installed as Prime Minister back in 2020, the European Union committed huge sums to making sure its economy was finally brought up to German or French levels of competitiveness. In fairness, it was a plan, and if everything had fallen into place, there was at least a chance of it working.
But hold on. Right now, it is falling apart. Draghi is about to be evicted from power, and the political system is returning to the squabbling deadlock that has plagued it for decades. Inflation is soaring, growth has collapsed, bond yields are rising, and with the country almost as dependent on Russian gas as Germany, it is going to get a lot worse over the rest of the year.
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In truth, Draghi’s €200bn gamble has failed. And in the wake of that, the markets will go right back to posing the same question they have for the last decade or more. Can this country really survive in a monetary union with Germany, France and the Netherlands?
Italian politics is about to get as messy as the British version (okay, okay, perhaps not quite that bonkers). Over this weekend, Mario Draghi’s government is teetering on the brink of collapse. The former President of the European Central Bank has already submitted his resignation.
So far that has been refused by Italy’s President. But without a majority in Parliament for his plans to combat inflation, and amid demands for taking on more debt to subsidise struggling households, it is hard to see how he can cling on much longer. At best, he will limp on until elections next year, but only as a lame duck, shorn of any real power.
True, Italian politics is often chaotic. But step back, and look at the bigger picture, and it was clear that the Draghi project was meant to bring about a transformation of the country’s economy, and finally secure its place in the single currency. After installing Draghi in power in February last year, the European Union finally summoned the political will to give the country the help it needed to break out of the low-growth, high-debt trap it has been locked into for twenty years.
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Out of the massive Coronavirus Recovery Fund, funded in large part by the EU's first commonly issued debt, Italy was given by far the largest share. It received €220bn, even though it is only the zone’s third largest country, and wasn’t hit much harder by the virus than anyone else.
The purpose was clear. Draghi would use the money to rebuild Italy’s economy, and create the higher growth that would make its debts manageable. It “is the largest recovery package in EU history and Italy is receiving the largest share’ tweeted the EU’s President Ursula von der Leyen as the deal was struck. “We are putting our Union’s strength at the service of Italy’s recovery’.
It was not a completely crazy idea. At the turn of the century, Italy locked itself into a monetary union with Germany and France at an uncompetitive exchange rate, and with debts of over a 100pc of GDP. It was trapped in permanent austerity, killing the possibility of reform, and condemning it to sluggish growth which only increased the debt load. It was the most vicious of vicious cycles. With some money to play with, Draghi planned to streamline a bloated public sector, invest in technology, and dismantle the barriers to business. The result? Italy would have permanently higher growth, steadily bringing down debt as a percentage of GDP.
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And yet right now the results are dismal. Inflation has rocketed upwards, as it has across the continent. Growth has stalled, and a recession now looks inevitable as the entire global economy slows down. Even worse, Italy is the one country after Germany most dependent on Russian gas to keep the lights switched on (it accounted for 40pc of its energy before the Ukraine war started).
If the gas pipelines get switched off over the winter, as they well might, it will have to start rationing power, and even if they don’t higher energy prices will kill off the competitiveness of Italian industries that were hardly in great shape to begin with.
On top of all that, rising interest rates in Europe, with the ECB expected to start hiking later this month, will send the cost of servicing its massive debts even higher. Add it all up, and instead of embarking on a transformation of its economy, Italy is stumbling straight into another crisis. The €220bn gamble paid for by its partners in the EU has effectively already failed.
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Italy now has far higher debt as a percentage of GDP than it did during the last euro-zone crisis a decade ago: 150pc against 125pc. It is stuck with the same miserable growth, and the same dysfunctional political system that stymies growth and blocks reform.
The ECB is about to launch a weirdly titled ‘transmission protection mechanism’ to prevent Italian bond yields soaring too high. But whether it works in practice, or even in theory, no one has any real idea, and even if it does it is simply throwing more printed money at preventing a breakdown in Europe’s dysfunctional monetary union.
In reality, Draghi’s master plan was Italy’s last chance to break free of its debts and put the country’s economy back on track. It was backed with huge sums of money from Brussels. Now that it is lying in tatters, the markets will keep pressing the same question as a decade ago. Can this country stay in a monetary union that does not work? We will find out the answer over the next few turbulent months.
EU goods trade deficit was highest on record in first five months of 22 Imported €113bn more goods than it exported in five months to May, marking largest trade deficit since records began in 1989 This compares with an €84bn goods trade surplus in corresponding period in 21 Link
Bit of advice for the Germans. Don't give/lend money to lazy thieves. They have stolen it every time so far, so why would things change with EU puppet SuperMario in charge of the donations? To think the EU can possibly blend the Mediterraneans in with the Northern Europeans into one Brussels controlled homogenous people is just delusional. Luckily, it is awfully entertaining for the rest of us.
As an IT Guy, you should know that verbose copying and pasting of other articles into comments is bad etiquette. Hell, you couldn't even be bothered getting rid of the advertisement placeholders.
“A Break in the Clouds.” Some caption. Couldn’t but recall words from my late father, RNZAF pilot early days, bi-planes Baffins, Vincent’s and on, something like approaching cumulonimbus cloud formations you flew around them, under them even over them if possible, but you never tried to fly through a break in them.
We're getting a stadium ! ... what , that was yesterday's news you say ? .... C'mon , I've waited 12 years already , I'm happy ... in another 4 years we'll have that stadium , & who knows , the AB's may have a team & a coach who know how to win matches by then , too ... Joy !
You guys haven't got the dosh required to procure the naming rights. The naming rights committee will use the same agency that the Americas' Cup committee used to find a place to host their competition. It will probably be named after some dodgy foreign owned financial entity. Bit like Wellington's one.
They'll do what Dunedin did - bury it in a corporate entity, the books of which stay closed.
It's still the same thing; a last throw of the growth-at-all-costs mantra, coupled with the need for upward migration of wealth (ratepayers to elite).
A plague on all their (empty) houses.
Aye it’s already begun. No undertaking from CCC that extra rates charged for this project will be ring fenced and dedicated solely to this project. You are dead right it will end up in labyrinth of bureaucratic reporting groups, consultants and hidden by commercial sensitivity in an information dead end. In other words, just like Tarras airport bearing in mind disclosure of which was only made due to good sleuthing by ODT journalists.
When the Aurora ( Dunedin City Council owned electrical assets provider and maintainer to most of Otago, and part of Southland) bloke was complained to about all the powercuts in -3 degree temperatures caused by no maintenance for many years, he said, referring to the massive stadium debt covering dividends forced out of Aurora by the DCC, " Don't worry, you got a new stadium out of it!". Chch Council will just do the equivalent.
The Atlanta Fed GDP forward indicator is pointing to back to back falls in US GDP. That would be most other nations definition of recession (not in the US with their panel which calls recession): https://www.atlantafed.org/cqer/research/gdpnow
On another note the foot and mouth disease outbreak in Indonesia is very concerning. Australia are going into panic mode, and rightly so. In my lifetime I remember the devastation in the UK caused by an outbreak decvades ago. I hope our government is responding as astutely as the Australians.
I was shearing in the UK at the time of the Foot & mouth out break, 2001 I think. Many farmers were lining up hoping they had the disease in their animals as the compensation was massive. When I went back the following year many had made a fortune and were looking to buy more land.
I doubt our economy could afford such a senario.
If foot & mouth hit our shores-probably all exports of meat,dairy,sheep,beef,goat deer, shutdown for at least 6 months- until we prove we have eradicated it.Aussies are talking 80 billion dollar hit to their agriculture sector -but they have other industries to fall back on.for the last 2 years the Agriculture sector of NZ saw our economy through - don't underestimate the enormity of this disease to our standard of living . Regards
MPI triggered a foot and mouth disease outbreak simulation with all the entities involved about 3 months ago. They run them every now and again but don't talk about it much, here is one from 2016: https://www.mpi.govt.nz/news/media-releases/mpi-ready-to-handle-foot-an…
There are a lot of learnings every time. The biggest of which: non NAIT/ASD compliant farmers. Not that I blame them about non compliance so much, given the processes involved are both tedious and difficult. But there's a big reason to have it, if an outbreak was to occur, we would have a very small window of oppourtunity to address it. The window has fallen off it's hinges however if there is non compliance in the areas affected.
Biden signs a non binding paper preventing Iran from getting Nuclear Weapons.
Iran supplying Russia with drones and are friends with China.They will get their hands on Nuclear weapons at their discretion.
He then spends about 10 seconds in the West Bank and like so many others has achieved nothing.
He and the US Got know what the problems are but continually fail to address them.
China's climate goals are a massive case of greenwashing - ditto Australia.
You could say that about any energy exporting country though. I mean New Zealand stopped offshore drilling but imports more energy, including coal, to meet our needs.
China produces about half the GHG per capita of New Zealand and, due to demographic decline, will likely be able to easily manage its future commitments. High energy use countries with bloating populations, like New Zealand, are in far deeper than China is.
From stats nz link in article
In the March 2022 quarter compared with the December 2021 quarter
- household saving decreased from $2.4 billion to $19 million
The increase in spending led to reduced household saving of $19 million, down from $2.4 billion in December 2021. This represents households spending nearly as much as they are earning.
Seems a huge shift... average kiwi saved 4 dollars or so over 3 months... not a lot of wiggle room there!
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