Here's our summary of key economic events overnight that affect New Zealand, with news bond curves are steepening again as progress in the fight against inflation shows some promise.
American producer prices actually fell in July from June, an unexpected dip. They are now +9.8% higher than the same month a year ago, and that is much less than the +11.3% rise recorded in June. This is more evidence the current inflationary surge has topped out. The July dip in their PPI is their first in more than 2 years.
American petrol prices have fallen again, now below US$4/gallon on a national basis for the first time since March. It follows effective action from the federal administration. These falls are now showing up in both consumer price monitoring as well as today's producer price data.
US jobless claims rose to +204,000 last week (actual) and there are still only 1.454 mln people on these benefits, unchanged in a week and still near a record low. But note that the seasonally-adjusted rise was to +262,000 last week, so other media are reporting this is a nine-month high.
In a sign that recession fears may be waning, American high-yield bond funds are attracting heavy investments, a turnaround from the selloffs of the first half of this year. Investors are essentially betting that the Fed will limit future interest rate hikes to try to avert an economic slowdown. But one prominent Fed voter, Mary Daly, is saying it is too early to declare victory against inflation's pressures.
The Mexican central bank has pushed through a +75 bps official interest rate increase to 8.5% in the face of 8.2% inflation. Their new policy rate is their highest ever.
But it is conservative compared with Argentina's new rate, up +950 bps to 69.5% where they are battling inflation running at over +5.3% per month, 64% per year.
Turkey is also battling very high inflation with theirs running at +80% still, in their case partly cause by running an excessively low policy interest rate of just 14%.
In China, passenger car sales surged 30% in July from a year earlier to 2.42 million units in the month, extending a recovery that began in June with the help of eased COVID curbs and government incentives. Sales of new energy vehicles, which include pure electric vehicles, plug-in hybrids and hydrogen fuel-cell vehicles, accounted for much of the recovery. China's car market is the world's largest.
Reflecting an uptick in Chinese industry, the price of copper is back rising again and is at a six week high.
The Singapore economy grew by +4.4% on a year-on-year basis in the second quarter, faster than the +3.8% growth recorded in the first quarter. On a quarter-on-quarter seasonally-adjusted basis however, their economy contracted slightly by -0.2%, a reversal from the +0.8% expansion in the March quarter.
Inflation expectations in Australia are slipping. The respected Melbourne Institute's August survey pegs the one year expectation at 5.9% now, down from 6.3% in July and 6.7% in June (which was a 14 year high).
And staying in Australia, regulator ASIC says "there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted. There is a strong case for regulation of crypto-assets to better protect investors." ASIC is Australia's integrated corporate, markets, financial services and consumer credit regulator.
Global container shipping freight rates fell faster last week, down -3% in a week, and the 24th consecutive weekly decrease. These freight rates have now dropped by -32% when compared with the same week last year. The rates to and from China are falling the fastest. Bulk cargo rates are lowish and stable. Tanker rates are rising.
The UST 10yr yield starts today at 2.88% and +10 bps higher than this time yesterday. The UST 2-10 rate curve is much less inverted today, now at -34 bps and their 1-5 curve is also much less inverted at -26 bps. Their 30 day-10yr curve is now at +70 bps and much steeper from this time yesterday. The Australian ten year bond is up +13 bps at 3.40%. The China Govt ten year bond is little-changed at 2.75%. And the New Zealand Govt ten year will start today down at 3.42% and up another +7 bps from this time yesterday.
Wall Street is firm in its late Thursday trade with the S&P500 up a minor +0.3% from this time yesterday. Overnight, European markets were mixed with Paris up +0.3% while London was down -0.6%. Yesterday, Tokyo was closed for a national holiday, Hong Kong was back up +2.4%, and Shanghai was up +1.6%. The ASX200 ended its trade yesterday up +1.1% while the NZX50 ended up a mere +0.1%.
The price of gold will open today at US$1789/oz which is down -US$7/oz from this time yesterday.
And oil prices start up +US$2.50bbl from this time yesterday at just under US$94/bbl in the US, while the international Brent price is now just over US$99/bbl.
The Kiwi dollar will open today at 64.3 USc which is holding yesterday's jump. Against the Australian dollar we are holding higher at 90.5 AUc. Against the euro we still up at 62.3 euro cents. That all means our TWI-5 starts today still just on 72.3, our highest in more than three months. A higher exchange rate will help in our fight against imported inflation.
The bitcoin price is essentially unchanged from this time yesterday at US$24,332. Volatility over the past 24 hours has been high at just under +/-3.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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71 Comments
"The Mexican central bank has pushed through a +75 bps official interest rate increase to 8.5% in the face of 8.2% inflation."
The way it's supposed to be?
Mexico was one of the only major global economies that did not substantially increase spending to mitigate the pandemic’s toll, emphasizing a balanced budget over taking on debt to support the country’s most vulnerable.
But the pandemic’s effects coupled with a lack of government support led an additional 3.8 million Mexicans to fall into poverty at the end of 2020. Today, 44 percent of Mexicans — nearly 56 million people — are destitute, according to the most recent government data available.
So no big handouts and money-go-round, but higher inflation and much more poverty anyway?
They can be comforted by much lower house price increases.
Indeed, and Mexico ended the fuel subsidies that were holding their CPI down. Watching dozens of countries across the world hiking rates to counter the impact of high international oil and commodity prices is crazy. The challenge that South American countries in particular have is how exposed they are to debt in US dollars - they have to hike rates to attract US dollars. Argentina have $260bn of debt in US dollars!
Yeah so that parts weirds me out too. The theory is that money printing devalues the dollar, and the US have done so much of it.
But that seems to be irrelevant, as their currency has gained against so many.
But perhaps that is the rub, the money printing has allowed for better economic performance over the past 24 months, more confidence, and having continuity is of high value.
All I know is the system has so many moving parts so splitting out one element may not tell you much.
"The theory is that money printing devalues the dollar" This is outdated, made obsolete when Nixon dumped the gold standard at Bretton Woods. However there remains an element of truth to it. A currency's value is now established by a complex range of things which frustratingly, includes an emotional element just like shares. The major contributors will be governmental stability and reliability, and supported economic activity (producing some degree of return through investment in the currency), and the total amount of money in the system. Other factors that may be included will be assets or resources behind the Government/currency and this will significantly overlap the economic activity aspect. None of this will be rigidly fixed, and a lot of it will be based on perception rather than hard data.
i would suggest that it is not 'better economic performance' that has supported the US dollar recently despite their large amounts of money 'printing', but rather the economic impacts of the pandemic have highlighted the flaws and risks associated with globalisation and a lot of US companies are now focused on bringing their manufacturing back home, or moving it to friendlier, safer places. Thus you're getting increased 'economic activity'. I would suggest that if this process continues, and it will take a while for the production to establish and ramp up, the US dollar will get a lot stronger as investment in the US will offer higher returns, than offshoring manufacturing. If the Fed wants to manage the value of the US dollar, then money printing will likely need to continue.
This is still an over simplification.
The rules for the USD are different than for every other currency. This is because by default the USD has become the global reserve currency. As a consequence, the inflationary impact of US 'money printing' (via quantitative easing) does flow right through the global economy.
KeithW
How has it become the global reserve? Sure winning WWII and the Bretton Woods agreement have a lot to do with it, but making sure energy could only be transacted in their currency, backed by the strongest military and threatening foreign policy, is the thing that has really ensured it.
Soon this is likely to change IMO with some sort of BRICS currency.
I think it is bigger than that Keith. I don't disagree that it is seen as the default global reserve currency, but as Blobbles asks, why? I suggest it is because the US is the single largest economy in the world. For all it's problems the US is singularly focused on monetary wealth. The EU was formed at least in part to provide an alternative, but a bunch of different countries is not the same as one country with a bunch of states. The whole problem is slowly deteriorating as the mega wealthy seek to find ways to further entrench their wealth, power and privilege and the people at the bottom increasingly suffer under extreme inequity. But the US is still recognised over any other country as the one place in the world where a hard working, entrepreneurial person can become filthy rich. The realities are much harder of course, but that doesn't stop the dream.
USD is the reserve currency 'by design' rather than 'by default' to be fair. The US have always controlled the key institutions needed to maintain power.
I know you have got a QE grudge Keith, but what is hurting developing countries is the US Fed increasing the cost of USD denominated credit (directly through the Fed rate & indirectly through QT). A lot of countries will be thinking twice about getting IMF loans in US dollars from hereonin - many are already looking to alternative providers of capital in the East.
You are correct that the US has ( for the last 75 years) controlled the key institutions. And when it comes to a reserve currency, the world has to a large extent accepted the USD as the least unsatisfactory alternative. Where else was there to go?
But I do not have a 'grudge' against 'QE'. Rather, I accept it for what it is, which is an increase in the money supply, which is exactly what the term 'quantitative easing' says. QE allows Governments to be funded for their activities without any net borrowings from the private sector. In times of recession, when there are unused labour resources, then QE can bring that labour into productive use. Keynes understood that potential. But the use of QE has in recent years gone well beyond that. And hence the current painful situation that we face.
KeithW
" Where else was there to go?"
Turkey month-on-month inflation rate is a shade over 2% and on the way down, Argentina MoM inflation is over 7% and on the way up. Once a country has to offer ever higher yielding bonds to attract foreign currency (US dollars), it is the start of a doom spiral that feeds itself.
It is third world tier to engage in what the FBI has engaged in. They are the Secret Police of the US at a federal level, they were highly involved both in fabricating the evidence for and investigating the Russiagate hoax, they gave the bureaucrat's veto to performing their job under the Trump admin and now are raiding a political opponent (who will likely run again in 2024).
I think the FBI is a total rogue organization. If the SIS had behaved similarly, the next government here would disband them. Secret police behaving as a praetorian guard to attack a former president is very dangerous. Not only has the FBI become completely discredited on the Right Wing, meaning they will not work with, talk to or trust them, they are increasingly a terror force for the US population.
As has been getting a lot of media attention lately from both sides is the realisation that the single biggest threat to America's 'democracy' in recent times has been a rogue president who had little respect for any thing other than his own right to do what ever he felt like with impunity. The US Government is faced with a significant quandary in that there seems to be somewhat of a grey area over exactly what the 'executive' powers of the president are. Trump has proven that the common belief that even the president has to obey the laws of the nation is not necessarily true as the authorities seem reluctant to actually charge him with a crime even when it is evident that any other citizen would not only be charged but may have lost their passport or even been in custody for doing the same things he has done.
I expect these convulsions will continue for a while as it is also clear that at least one major political party appears to believe that it has the right to actively undermine democracy with impunity. What is fascinating to me is that it has become very clear just how easy it would be for the US to become a fascist state, as the psychopaths and fringe elements are empowered by what is happening.
Out of curiosity, how did you feel when Comey reopened the FBI's investigation into Clinton's e-mails just before the 2016 election?
I think if an organisation is pissing off both sides of the Political debate that may be a sign they are impartial and actually just trying to do their jobs.
I'd also say, a much more ominous sign would be if no one was willing to investigate the wrongdoing of a President/ex-President.
It is dangerous because it politicizes justice. The appropriate way to deal with that is to just ask for any classified documents that remain in his possession. Pretty sure presidents maintain the highest security clearance for life, I don't know why he would lose his clearance and thus access to those documents.
Comey btw, had been closely involved with Hillary Clinton since the (White)Watergate scandal, I don't personally know what the purpose of the email investigation was but I would hypothesize it was done to clear her of guilt for anything related to those emails.
The real interesting point with Clinton regarding those emails was that Wikileaks confirmed that the US State Department had been working with various Jihadist factions include Al Qaeda factions to fight the Syrian government.
Edit: WhiteWatergate not Watergate.
It was reinvestigated during the early phase of the Clinton Presidency in a largely sham effort by the republicans to drag down the Clinton admin. That was when Comey came into the scene. It was WhiteWatergate, my bad
https://www.theatlantic.com/politics/archive/2016/11/tracking-the-clint…
Perhaps they did ask him first, but that seems like a risky approach that would likely give him a heads up to destroy incriminating evidence before the Feds show up. Besides, we know that Trump refused to answer questions in deposition this week so can hardly be seen as cooperative.
As I understand it one issue is he is not allowed to remove classified documents or retain them at an unauthorized location, according to a law that Trump signed in 2016:
https://www.washingtonpost.com/politics/2022/08/10/trump-fbi-search-sur…
Really this does sound pretty minor and you'd hope that they are building a case more along the lines of Treason, for his attempt to destroy the American political system and replace it with mob rule. How do you investigate that a-politically?
V M,
your post sounds like a trashy novel. The FBI raid was authorised by the Attorney General. Is he also part of this conspiracy? Would it bother you if it was established that Trump had indeed taken documents from he White House illegally or would you just write that off as more lies from the "deep state"?
Depressingly, I think you would.
Yeah, the politicized FBI most definitely would do so. You don't even need to pretend it isn't a conspiracy. Which agency lead and pushed the Russiagate scandal, despite it being known to be utter nonsense which is now quietly dropped?
You can talk about the fact an obviously politicized secret police (If someone comes to your door dressed in plain clothes and performs police work, they are secret police), then uses their powers consistently to attack a Presidential Candidate, then doesn't even stop during the Presidency and now engage in Third World tier raids for documents, it is incredibly obvious that Institution is engaged in 'conspiracy'.
You are totally making up implications of what I believe, I don't even care for or like Trump, but I can see what is in front of my eyes.
When two Chinese MPs for our two major parties were forced to resign from parliament three months and within days of each other before the election, both accused of strange underhanded dealings with the CCP, was there a conspiracy?
It is incredibly stupid to pretend conspiracies don't happen, literally open any history book. The Communist revolution in Russia was a 'conspiracy', the French Revolution during the removal of the Monarch and the rise of Napoleon, the rise of the National Socialists, the attempt to overthrow the Roman Republic by Caesar etc, all of these were 'conspiracies'. In fact, all of them were performed by legally elected, high ranking members of the state who used partisan factions of the government to achieve various ends.
The RBNZ should stop it’s OCR hiking now - but it won’t.
All the signs are that inflation is massively subsiding.
All that will happen if they keep hiking to 3.5 or 4% is that we will enter a deep recession and unemployment will raise significantly. Then they will have to even more aggressively cut the OCR, and we are back to where we started - another property boom
HM, I'm not following you. Correct me if I'm wrong, but if the RB say, that's it, no more OCR hiking, swaps will reduce, mortgage rates will reduce, house prices may start increasing again pretty soon. Is that what you want? Or does this just fit you narrative? Also, you say, if they keep increasing rates we will enter a deep recession with high unemployment. I would think, if that happens, and they then reduce the OCR, house prices won't increase any time soon. I think they need to keep increasing the OCR until we have a sustained reduction in the CPI, not just one data point (same with the USA). Also unemployment needs to, at least, start increasing in a sustained way, as the employment market is way too tight (inflationary).
Norm, we are already seeing mortgagee sales. This is a sign of financial distress. Our economy is so overindebted and housing-dependent that mortgagee sales present a massive danger signal.
You have to understand that the financial system is interconnected. For example, in the US, where the 2008 crisis began with a housing market correction in 2007, it was Fannie Mae and Freddie Mac that tumbled first, then Lehman Brothers, then Citigroup (almost), then the entire world. This was in the US, where the economy is much less property-dependent, and the house price to income ratio was lower than here.
I agree very much with you, HouseMouse, the RBNZ should stop its OCR hiking now, otherwise we will enter a deep recession. In any case, I don't think another property boom is likely, though. I think the sentiment has shifted. More reasons to stop hiking the OCR, I fail to understand why the RBNZ cannot see the writing on the wall that we are about to see the most drastic economic crisis in the history of NZ.
Another article today in Stuff about how you need a fortune to retire. Apparently a single person needs $726 a week for a no frills lifestyle and $1029 if they want a few luxuries and treats.
What I want to know is, what the hell are people spending their money on to need over a grand a week net to afford 'a few treats'? I've looked at my expenditure over the last 18 months since I moved into the house I'm living in now, and aside from my mortgage I spent 670 a week averaged out. That includes paying someone to mow my lawns, mulltpile domestic trips, unlimited internet, Netflix etc., takeaways multiple times a week, dinners out, dentistry, new clothes, a load of stuff for the house and garden - including paying for a new roof.
... dare I ask how much for your rates ? ... ours in the Waimakariri reached $ 3500 ... but it jumped $ 120 because we now have a rubbish wheelie bin ...
So , around $ 70 pw ... plus house & contents insurance ... it takes a big bite out , before those pesky luxuries , food plus electricity ...
I can confirm that those numbers are complete rubbish. If your single so you have complete control over your outgoings, are handy so you can fix and repair anything, own your own home and retire with a new car you don't need anything like that. FFS that up there with the minimum wage, image how "No Frills" that is for people with bills to pay.
$726.00 per month? I know I am grateful I have a little in savings as I couldn't survive on that. My rates are now well over $4000, which means my rates per month = $333.00; electricity $350 per month (and that's if I really keep my house cool); petrol $80 per month (if I don't make too many trips in that month) and that doesn't include my home insurance, contents insurance, vehicle insurance/WOFs/registration, any odd medical costs or food. Certainly no room for household purchases, paid streaming or clothes.
It's my last week in NZ. In the interest of moving on with my life, I won't frequent Interest.co.nz anymore (though I'm sure I won't be able to resist a cheeky peep once in a while). Just wanted to say bye and all the best. As much as I love the articles, and I came here to learn and be financially savvy, it was the bants in the comments from the regulars (yes - even CWBW) that kept me coming back.
And whatever you do... be quick!
BlackRock (BLK) announced Thursday the launch of a private trust that will hold bitcoin and seek to track the asset’s performance, with Coinbase (COIN) serving as the trust's custodian.
The announcement comes one week after Coinbase disclosed a partnership with BlackRock to provide direct access to crypto starting with bitcoin on BlackRock’s investment platform, Aladdin.
https://finance.yahoo.com/news/blackrock-bitcoin-trust-august-2022-1758…
Here you go...
The nakedly QAnon conspiracy theorists got in on the act, too. "New Zealand's pro-tyranny PM Jacinda Ardern is filmed coming out of the globalist Death Star financial headquarters at BlackRock," gurgled one prominent QAnon account on Gab, the social network beloved by the far-right. Endless comment threads filled with the usual screeds of invective, dystopian fantasy, casual comparisons to Nazism and a big serving of misogyny. Naturally, New Zealand's own disinformation groups eagerly shared it.
https://www.youtube.com/watch?v=Sv5iEK-IEzw
Friday funny
Among those who shared it was Steve Bannon, the former Trump adviser who received a pardon from the then president over charges including conspiracy to commit wire fraud. He declared that the “most ‘WOKE’ of any country head” had “gone to genuflect” at BlackRock.
https://thespinoff.co.nz/politics/08-06-2022/conspiracy-theorists-are-l…
enjoy
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