Here's our summary of key economic events overnight that affect New Zealand, with news cold winds are blowing downunder, and in Sweden, but Americans are feeling better about themselves.
The latest update of consumer sentiment in the US, this one from the University of Michigan survey, delivered a bounce that wasn't expected. June sentiment rose to its highest in four months reflecting greater optimism as inflation eased and policymakers resolved the immediate debt ceiling crisis. In fact that caps a year of rising sentiment, with this index up +27% from a year ago.
Despite getting a new Governor who was thought to be ready to declare victory over deflation, the Bank of Japan under its new leader late yesterday kept its key short-term interest rate unchanged at -0.1% and that of 10-year bond yields at around 0% by a unanimous vote. It said it didn't move because of the high risks it sees in international economies.
Singapore's exports slumped in May, and crashing very much more than expected. They have had a good run over the past two years but from July 2022 there has been a steady and now increasing retreat. This data is kind of a regional canary.
We should note that Sweden is in a full-blown property crisis. Residential housing values have fallen about -20% from their peak, and commercial property firms are falling over, weighed down with debt in a rising interest rate market that is crushing values. The OECD is warning of financial stability risks in the country and their government has said it will act if the risks expand further than the property sectors. Germany has some of these pressures as well.
In Australia, the pressure in not coming from their housing market, rather it is coming in retail sales. At its monthly review, the RBA noted a "substantial slowing in household spending" and this past week many key retailers have been reporting retreating sales levels, some quite sharp. New data from BNPL operator Zip shows a -7.4% slide in spending in fashion and clothing in the first two weeks of June compared to the first two weeks in May. Some major retailers are signaling sales are down -20% recently. Discounting is being turbocharged and the retailing industry is worried.
And China retail is starting to show some similar signs.
Oddly, New Zealand may not actually be in a real recession despite the dodgy "two quarters rule" that is more media hype than an actual economic measure. But it has unnerved the Aussies, and they seem to be more likely to have a real recession ahead in 2023 than us.
The UST 10yr yield will start today at 3.74% and up +4 bps but exactly where they were a week ago. The Fed update came and went with little net change in this key benchmark. Their key 2-10 yield curve is more inverted at -94 bps. Their 1-5 curve is less inverted at -125 bps. And their 3 mth-10yr curve is less inverted at -135 bps. The Australian 10 year bond yield is now at 4.03% and up +4 bps. The China 10 year bond rate has risen +2 bps to 2.71%. But the NZ Government 10 year bond rate is down -2 bps at 4.56%.
Wall Street dipped on the S&P500 in Friday trade, down -0.4%, but ended the week up a strong +2.4%. Overnight European markets were mixed with London up +0.2% and Paris roared back and more, up +1.3% on the day and a +1.9% weekly rise. Yesterday Tokyo closed up +0.7% in Friday trade to end the week up an impressive +4.0%. Hong Kong rose a strong +1.1% for a weekly rise of +3.1% and Shanghai was up +0.6% for a +1.5% weekly gain. The ASX200 ended its Friday session up +1.1 for a +2.1% weekly rise. But the NZX50 could only manage a +1.0% daily gain on Friday taking the weekly rise to +0.9%.
The price of gold will start today down -US$3 at US$1957/oz and down -US$4 for the week.
Oil prices are up another +US$1 today to now be just under US$72/bbl in the US. The international Brent price is now up at just over US$76.50/bbl. A week ago these two prices were US$70 and US$75 respectively.
The Kiwi dollar starts today up at 62.3 USc and unchanged from yesterday. But it is up more than +1c in a week. Against the Aussie we are unchanged at 90.6 AUc. Against the euro we are unchanged as well at 56.9 euro cents. That means the TWI-5 is little-changed at 69.9 but up +50 bps in a week.
The bitcoin price is much higher since this time yesterday at US$26,286 and up almost +5% from yesterday at this time. A week ago it was at US$26,446, so little net change since then. Volatility over the past 24 hours has been moderate at just on +/- 2.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
38 Comments
What interest rate are nz student loans currently for those who choose to work in aussie where it is not interest free?
Had been low, but can only assume it will or already has ramped up alongside the increased cost of money globally.
Together with the increased costs of fees at uni's where a 20k loan 20 years ago will likely be 50k plus today for an average 3-4 years and the fact the NZ threshold for repayments has barely moved from around the 20k income level and that squeeze is going on NZ student loan holders too.
US economy booming (with the exception of a few interest rate sensitive sectors). Why?
- Because around two-thirds of their mortgages are still on rates lower than 4% and 80% are lower than 5% - all below the Fed interest rate! The typical 30-year fixed rate mortgage stops monetary policy making most mortgagors poorer.
- The US Govt is investing in infrastructure and manufacturing capacity - this gives businesses confidence that there will be growth
- The Fed is paying out billions of dollars in interest per week on reserves and, unlike in NZ, this is mostly going to banks and investors who invest onshore
Now, one would have thought that the US economy laughing in the face of monetary policy would lead to runaway inflation - after all, the very serious economists all said interest rates and unemployment needed to go up a lot to tame inflation Nope. Why? Because they're clueless - they diagnose problems and identify solutions by sitting in their condos playing with dumb models instead of looking at what's happening in the real world.
Sadly, in NZ, none of the three factors above are neutering the effects of RBNZ's destruction of the economy, and even tempting tens of thousands of migrants over with the (empty) promise of the good life hasn't prevented the economy being pushed to the brink. Whilst a couple of quarters of negative growth don't make a recession, history would suggest that increases in unemployment lag GDP declines by 3 - 6 months. If the jobs start falling away, and our downturn picks up momentum, we will be in real trouble. When we are, let's hope RBNZ get given the year off so they can't do any further damage with their destabilising stabiliser!
If the jobs start falling away..
And therein lies the problem. Jobs may fall away, but so will the workers that currently occupy them, as they age and leave the workforce at an ever-increasing rates from now until 2030. We are in the middle of the fastest decline; retirement, in working age citizens the World has even seen. And we haven't either bred or trained their replacements.
Unemployment isn't going to rise dramatically. But retirement is. And that will lead to increased wage demand from a shrinking workforce, and the only solution we have to deal with that is - higher interest rates. The alternative answer is a lower price of everything to dampen wage demands, but in that can't happen in a Debt soaked; Debt reliant financial system - or, it breaks. And a Depression will be a mild outcome. A severe one doesn't bear thinking about.
I think the latest commentary from rbnz speaks of fear they may have already overcooked it and done irreversible damage.
When businesses close those jobs are lost forever.
Completely in the face of subsidizing them all to polyfill over the dead air of covid so permanent damage wasn't done.
Seems so long as the damage is rbnz made they have a false sense of control over things.
Cuts by Xmas or I'll hand my 15 year interest.co.nz membership in.
Here's the OECD's take on Sweden's energy crisis, from the PDF linked in the article:
Russia's war of aggression against Ukraine is taking a toll on the Swedish economy. Elevated energy and
food prices continue to put a strain on activity.
Note that it's "Russia's war of aggression" causing the increase in energy prices, not Western sanctions, and no mention of "someone" sabotaging the Nordstream pipeline which runs right off the Swedish coast.
RNZ have been dragged over the proverbial coals over even daring to mention the Crimean referendum, yet we're apparently happy to accept half-truths when they make the other side look bad. Whatever you think about what's happening in Europe, and whoever is to blame, we need to understand that there is zero objectivity in reporting on it by either Russian or Western media.
“The first casualty of war is truth.” Aye true, but right behind it, out the window, is the Geneva Convention. And whilst contemplating the foulness of war full stop, let’s all have a minutes silence in remembrance of the late, great and courageous Daniel Ellsberg.
Superior?
Sweden, population 10.4 mln, covid cases = 2.712 mln, deaths so far = 24,489
New Zealand, population 5.1 mln, covid cases = 2.397 mln, deaths so far = 4,448
Not unfair, in fact that's exactly the point. Closing the borders and snuffing out outbreaks bought time to vaccinate and luckily a more gentle variant was dominant by then
Measured purely by covid impact, our response was world class. Low death count despite an old, obese population. There were certainly side effects to the response though.
It was an advantage in that it allowed the government to put into place effective policies but the effective policies were key. Labour smashed the response by any objective measure. I would also give Simon Bridges credit for supporting the government response early on.
Its pretty simple and you allude to it, scroll down on the daily number of confirmed deaths here: https://ourworldindata.org/coronavirus/country/sweden
Then compare this to us here: https://ourworldindata.org/coronavirus/country/new-zealand
Earlier variants were more deadly with a combination of vaccinated population. It's damn obvious from the data. But I am sure the local anti-everything/conspiracy theory brigade will be on here in no time muddying the data with opinions and their cherry picked "facts".
In 1974, the US economist Julius Shiskin described a recession as `two consecutive quarters of declining growth’. That definition has gained traction since because it is simple enough for anyone to understand. But even Shiskin realised there is a lot more to to it than that simplified shorthand. You can only really tell after the event if there has been a recession. The US doesn't use the Shiskin rule. It uses a much more broad set of data to decide as part of its monitoring of business cycles.
The easiest way to understand the issue is to realise that announcements of GDP are estimates, estimates that get progressively revised. In New Zealand those revisions happen continuously and can span 5 to 10 quarters (obviously less invasive as time goes on).
Almost certainly the announced Q1-2023 -0.1% dip will be revised, just as the Q4-2022 drop was revised last week. (The Q4-2022 fall was revised to be smaller in the Q1-2023 release.) If the same happens in the Q2-2023 GDP data (as some think it will), the -0.1% could easily become a positive. So then it won't be two quarters of decline. This is a pretty crude way of deciding. In NZ neither Stats NZ nor the RBNZ use the two-quarters definition. We will only really know a year or so down the track whether the shifts in employment, output, consumption, exports and imports, etc. really caused our economy to shrink in real terms.
A 'real recession' won't be known for some time yet. And the data released so far is far from conclusive we are in one on a national economy basis. Some regions? yes, probably. Some industries? yes probably. But overall? I have my doubts.
All reported GDP growth numbers are inflation-adjusted (so, 'real'). You have to deep into the data to find the nominal numbers. You really only need nominal numbers when you use GDP as the comparison base to unadjusted data (like debt).
Per capita is the better version for some things.
Accepting the difficulties, or even the wisdom of tying "depression" to somewhat marginal, even dodgy figures of GDP, I wonder why our NZ $ has been so stable, especially given our continuing trade deficit.
Is it global speculation favouring relatively stable societies such as ours as a parking place for funds?
Definitions of recession aside, it seems pretty obvious that better economic indicators than GDP, .....falling educational achievement, increasing crime, lacklustre productivity, ineffective government spending, susceptibility to climate events,...etc., would surely indicate a steadily falling exchange rate?
Any opinions?
German gov't cabinet approved that the gov't is to pass a law of de-industrialisation & Soviet-style rationing: Compared to 2008, the gov't will impose, by 2030, an almost 30% reduction in total energy use & an almost 40% reduction in primary energy use. GDP contraction required Link
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.