Here's our summary of key economic events over the weekend that affect New Zealand, with news events in Russia are something of a gawkish sideline for us. It is China we should be watching.
But first this week, in the US the spotlight will be on the Fed's big bank stress test results out Thursday, NZT. There will also be data released on May personal income and spending, as well as the PCE price indexes. Additionally, we will be following durable goods orders this week, and among other things May's new and pending home sales.
Elsewhere, CPI inflation data for Canada, the EU, Germany, Italy, France, and Spain are all due. And in China, the official factory and services PMIs will be released on Friday, while locally we get both consumer and business confidence data, also on Friday.
In Western financial markets, Greed trumps Fear at the moment. Investors seem bullish, even if equity markets took a bit of a reversal last week.
Over the weekend in the US the first of their PMIs for June has become available and it told the tale of slowing growth, but a continuing expansion nonetheless. The factory sector is still contracting however and at a faster clip than in May. But their service sector is still expanding although that too is at a slower pace than for May even if it is still a good moderate expansion. New order growth eased, but was still the second-fastest in just over a year, while the pace of job creation slipped to its slowest since January.
Perhaps we should also note that China isn't the only place where commercial property is in trouble. The rise and rise of interest rates along with growing vacancy rates is depressing the value of retail and office buildings globally. A value-quake is close.
Internationally, there does seem to be a thaw in US-Chinese relations. Blinken broke the ice, and now Janet Yellen has been meeting senior Chinese leaders. Both are announcing broader cooperation deals. It is a good time for the NZ Prime Minister to visit. China's economic stumbles are making them more open to trying to build back trade with Western nations. It is very early days and it may only be tactical rather than strategic, but it seems both parties are willing to see what they can make of a thaw.
China needs a thaw. On Friday, yet another large real estate developer, Central China Real Estate Limited, told the stock exchange that it could not pay interest on a bond even after the grace period. They are not the only one this week, also CIFI Holdings. It has been estimated that total Chinese developer debt is 12% of Chinese GDP which is a huge burden. This type of news is driving down their whole equity markets. Only a big redirection can weight against such drags.
The Hang Seng China Enterprises Index of Hong Kong-listed Chinese companies gauge slumped more than -6% last week, its steepest weekly drop since March. The CSI 300 Index of mainland shares fell -2.5% through Wednesday before markets closed for holidays. The yuan also fell to the weakest since November, with analysts bracing for more declines.
And around the world, China is having to face up to its aggressive funding of third-world infrastructure projects gone-wrong with a growing list of debt writeoffs.
China might have been on the long Dragon Boat Festival break, but in northern China it is no fun at present. A temperature of over 41oC was recorded in Beijing late last week, its second highest on record (the highest was in July 1999). And it is expected to hit those same highs again at the end of this coming week. And it is not just Beijing being hit. The same heatwave is sweeping across vast areas of northern China. Officials are being exhorted to save farmland.
Maybe that was a reason travel spending during the holiday fell short of pre-Covid levels, but the shortfall does underscore the slowdown in consumption.
In Japan, the June PMI story is similar to the US except perhaps things are still running higher/better there.
Japanese inflation ran at 3.2% in May, now the 14th straight month it has been over the Bank of Japan's 2% target. But there was no change in May from April, leading to suggestions it might be topping out. But the yen slid anyway.
Singapore's CPI inflation rate dipped to 5.1% in May from 5.7% in April. The April-to-May pace was running lower than the annual levels. Food and energy prices are keeping it up, services are lower than the average.
In Europe, their flash PMIs also record a contracting factory sector and an expanding services sector, but they are underperforming both the US and Japan.
The Australian factory sector is still contracting too. But the retreat was less so in June than in the prior two months amid improvements in supply conditions. However, new orders are still retreating which isn't a good sign. And their services sector is no longer expanding, even if it is yet to contract.
Local observers are starting to see more cracks opening up in the Australian economy. Apparently AirBNB reservations are sliding, the number of home builders going bust is rising, and about half of small businesses are concerned about their financial future, according to a survey there by Xero. It isn't helping that the RBA's official cash rate at 4.1% is lagging most other central banks by at least 100 bps and that is keeping the Aussie dollar weak and importing inflation. (And for many people, this won't be helping either.)
There is much talk that RBA Governor Lowe is about to be replaced in July. It is hard to know if that will turn confidence around or push more instability. Certainly, Lowe's defenders are now out saying now would be a bad time to make a change.
The UST 10yr yield will start today still at 3.74% and unchanged for the week. Their key 2-10 yield curve inversion is unchanged at -101 bps. Their 1-5 curve is slightly less inverted at -126 bps. And their 3 mth-10yr curve is still at -137 bps. The Australian 10 year bond yield is now at 3.94% and unchanged. The China 10 year bond rate is down -2 bps at 2.70%. But the NZ Government 10 year bond rate is holding up at 4.60%.
The price of gold will start today at US$1920/oz, but down -US$37/oz or -1.9% for the week.
And oil prices are staying low although +50 USc firmer from Saturday to now be just over US$69.50/bbl in the US. The international Brent price is now just on US$74.50/bbl. That is a -US$2.50 drop for the week.
The Kiwi dollar starts today at 61.4 USc and unchanged from Saturday. But that is a full -1c lower than this time last week. Against the Aussie we are firm at 92.1 AUc and up more than +1c in a week. Against the euro we have changed little at 56.4 euro cents. That means the TWI-5 is still just on 69.8, also little-changed, but down a minor -20 bps for the week.
The bitcoin price has eased from this time Saturday and now is at US$30,536 with dip of -1.4%. It actually didn't close on any day at NZ$50,000, falling fractionally short. Volatility over the past 24 hours has been low at just under +/- 1.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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71 Comments
A Chinese fellow reassured me in the weekend that China’s development over the past 20 years has been ‘terrible’. Far too much inequality.
In his eyes Xi is very much on the right path.
Is equality good if everyone is equally poor (eg. North Korea)?
Anyway, as the guy firmly reminded me, it’s their country. Fair enough.
I would say everyone should get the same facilities and opportunities no matter they are rich or poor, more to the growing up kids than the adults.
Inequality increases when we stop sharing the resources and create boundaries and borders. The inequality is increasing every day in the world now as we are closing in on ourselves and have stopped sharing. We don't have to go far, just ask ourselves as to how many have talked to their neighbour for more than 5 minutes at a stretch.
Inequalities also begin and increase when structures and processes are put in place that effectively remove or deny access to resources. Economic policies are generally very good examples of how Governments have achieved this over decades. Mostly it is done passively, but in earlier years it was often done actively.
Luckily in NZ, everyone gets the same opportunities. What makes the difference is what one does with their opportunities.
Until you need an operation
You mean this:
Several surgeons say they are upset by the policy, which was introduced in Auckland in February and gave priority to Māori and Pacific Island patients.
Not equal, shocking!
Actually, my post above is inaccurate, people of Maori descent often get privileges over other New Zealanders. Interestingly, despite the favorable rules for Maori people, they generally seem to struggle with poverty more than other ethnic groups.
Only recently. The inequality of the past is now entrenched and it could take a number of generations to improve. Your parenting shapes your life much more than the state does.
I remember the racism in regional NZ when I grew up 30+ years ago, to say Maori got equal opportunity back then would be a blatant lie.
"Your parenting shapes your life much more than the state does"
Well said JJ !
In many ways people of Maori descent still get less privileges over other New Zealanders. For example they have to learn English to be able to read a road sign, yet we only need to learn one language.
you shouldn't need to learn English to be able to read a road sign;
The Convention on Road Signs and Signals, commonly known as the Vienna Convention on Road Signs and Signals, is a multilateral treaty designed to increase road safety and aid international road traffic by standardising the signing system for road traffic (road signs, traffic lights and road markings) in use internationally. Wikipedia
Inequality takes several forms:
- You are probably right that everyone gets the same opportunity from the state
- We are starting to get to the point where everyone gets the same opportunity from the private sector (although I still do hear people say things like 'I would never employ a ...'
- We are miles away from people getting equal opportunity from their parents
Yvil, you know for fact that is absolute bollocks. No-one in any country ever gets the same opportunities. Is NZ reasonably good on the scale of opportunities available to all? Yes. But the trend is moving in the wrong direction and not because Maori are being advantaged over others. It is because wealth is becoming more unevenly distributed, inequality is rising and wealth enables those with it to get more access to opportunities that those that do not have it. So again you are wrong, it's becoming your defining feature.
agnostium, as per second post above, I agree with you, we do not all get even treatment in NZ. The Labour government has ensured that people of Maori and Pacific descent get preferential treatment, latest example:
Several surgeons say they are upset by the policy, which was introduced in Auckland in February and gave priority to Māori and Pacific Island patients.
Poverty and poor outcomes are concentrated very heavily amongst the Maori and Pasifika population, so they need the most support. They benefit more greatly if the support is provided in a way that is informed by their cultural context. We will all benefit if their outcomes improve.
You also don't appear to understand the difference between equality and equity.
Haha, you're a funny man agnostium!
Equality is not making different rules based upon race
Equity is what you have left, when you subtract your liabilities from your assets, did you know that?
Good on you for showing off your newly acquired understanding from today's article https://www.interest.co.nz/public-policy/122688/chris-trotter-says-only…
Hadn't read Chris Trotter's article, I don't really enjoy them.
I work in transport and my firm specialists in equity. Have a very good grasp of it.
You actually remind me of the know it all old guys who turn up at the drop-in events telling experts how to fix the transport system by *choose any uninformed clickbait rant you want here
He is good with weather forecasts and providing housing to beneficiaries oh wait..
Chopping down trees?
It got to the point where only kids of connected famillies got good state jobs, this is the cause of revolution, I doubt Xi wants things to be totally fair, but the cost of schooling and tuition was crippling china, and house prices.
I think your misinformed. If you view lifting 100s of millions out of poverty as a negative you must have a tortured world view. I have been to China, they look happier and safer than we do. We have great beaches, more greenery, lousy politicians and a bad attitude.
NZ in a dozen words. Perfect.
commercial property is in trouble. The rise and rise of interest rates along with growing vacancy rates is depressing the value of retail and office buildings globally. A value-quake is close.
The big REITs have low vacancies, rents rising
Edit: should have "saved" my position before HOUSEMOUSE got in first 🤣🤣🧐
There is plenty of commentary in the US that secondary (and some prime) office has fallen of a cliff.
I doubt NZ has built enough to have issues of the same scale.
The US is grappling with the work at home trend. They have multiple metros all a lot bigger than our 1.
It's slowly happening in Auckland Prime spaces also, as leases come up most big org's are compressing floors to reflect hybrid work/lower occupancy.
It will be a slow burn, but noone/very few taking on new floors, and plenty 'rightsizing' for a workforce that is there 20-50% of the time.
Indeed: As recession problems deepen, commercial real estate "debt time bomb" everyone knows about but won't want to talk about just gets worse. Property owners have already said they're going to walk away from loans, neither cash flows nor financing conditions make it worth keeping up. Link
2023-2030: Artifice Vs. Doom-Loops
A current example of a doom-loop is the collapse of commercial real estate in downtowns emptied by remote work. The loop is the decline of the commuting workforce feeds the decline of demand for office space and the decline of small business that served the workforce and paid rent. As the area decays, fewer people seek office space or are willing to start a new business. The decay feeds on itself.
This confidence can only be maintained by refusing to look at the doom-loops gathering momentum behind the facade.
Yep - those ‘green shoots’ are nothing more than a confidence trick.
Doom loop to kick off here in 24/25 then?
I thought it would be happening by now but the pain doesn’t seem to be hitting and I’m surprised how strong the economy still is…. everywhere is still busy so the vast majority seem to be able to handle the 4.5-5% average rate they are currently on.
Even allowing for the lag as people roll onto new rates it seems the OCR is going to need to go higher still
"I’m surprised how strong the economy still is" "the vast majority seem to be able to handle the 4.5-5%"
Patience, it takes time to deplete the reserves built up over Covid, I think it will all unravel in the second half of 2023 and well into 2024.
Always worth remembering how thoroughly Japan thoroughly debunks QE and QQE. There is no relationship whatsoever btw BoJ asset purchases and any economic variable. Not just CPI, anything. BoJ buys stuff and nothing happens except media reports of "stimulus." Link
I had to smile when DC suggests Blinken broke the ice with Xi and China. Watching the news reports the body language from both spoke much to the opposite. Neither appeared happy, but were just going through the motions. Time will tell is China backs off its aggressive stance towards Taiwan and the South China Sea. Somehow I doubt it.
As an investor you need to pay attention to geopolitics but it’s a very niche field with tons of “tourist” and few real experts.H/T Alf
The One China Policy, is still official US policy. Go ahead, look it up.
So that being said, I would like your thoughts on how exactly, China backs off its aggressive stance towards Taiwan ?
I know the "One china" policy is still the official line in the US. But that was a sop to China put in place by Nixon at China's demand. Read Nicholas Khoo's article here. China should recognise Taiwan as an independent democratically elected and governed nation. From that basis both China and Taiwan would prosper much more than either would if China succeeded in subjugating Taiwan. China's aggressive claims over Taiwan should cease immediately.
Good link M86, but a Red Herring followed by an Appeal To Authority, are two logical fallacies in a row. I do admire Nicholas Khoo though.
Ok, lets address them separately. You advocate, correctly that Nixon confirmed this USofA policy, many Great Leaders ago, and therefore you must admit this policy is consistent, from China's point of view. Therefore the inclusion of Xi in your argument is spurious.
You appeal to an authority , the respectable Nicholas Khoo, who in the link you profur, is talking about what some person said about another person, not at all related to the One China Policy. What the?
How much is China paying you to spout this garbage? What is consistent is that the CCP seized power by force in a civil war and refuses to let the losers in that war live in peace even generations after the last of the fighters died. Let it go. If your nation is as great as you claim it to be Taiwan will never be a threat either to your existence or your prestige. Others view of you is based on your actions. Your words are lies, proven by your actions. You appear weak because you are apparently threatened by a small independent island nation off your coast that is functioning as a successful democracy. You want to save face? Stop acting like a spoilt child who doesn't want to share their toys. Stop acting like the neighbourhood bully. Be greater than that. Acknowledge Taiwan's success and independence and take on the mantle of being a responsible planetary citizen, not a greedy lustful bully.
Of course Xi is not happy about it but it is the only option open to him. He's just seen the results of a war or conquest to distract from internal economic pressures play out in Russia.
Alan Laurie Forestry Monthly Reports – June 2023
https://www.laurieforestry.co.nz/news/monthly-reports-june-2023-6/
What a relief foresters can fall back on carbon prices to make their 30+ year investment worth something. Oh wait, vested interests are f...ing up that revenue stream too. Foresters should just put a match to their "asset" and repasture Let the taxpayer and government find another sucker to subsidise their efforts to fry the planet!
So we now have an anointed successor to Lukashenko - Yevgeny Prigozhin. A chilling thought.
Hmmmmm...
This is not a coup by Prigozhin. This is an inner war between the St Petersburg gang of Putin and the Moscow gang of Gerasimov and Shoigu. This is the beginning of Putin‘s election campaign to become reelected on March 17, 2024. His lapdog Prigozhin is masquerading a coup to put the blame on Gerasimov and Shoigu for losing the war against Ukraine. Prigozhin can always be scapegoated if he fails like this has happened in the past. #geopolitics #Velsig Link
There is definitely more to it.
That angle may give Putin an exit from Ukraine blunder. But it creates a bigger issue in that a rebellion occurred. With Lukashenko further adding to the mess Putin is in. I mean a tinpot dictator of the "country" next door essentially resolved Russia's civil war?
No matter how many permutations you look at, none make Putin look good, and there are still so many questions? Did Putin play the nuclear card on his own Mercs?
My thought was actually that YP might be the attack dog that gets loosed to finish the war, and not as 'peacefully' might be hoped for. Let's be honest, Wagner isn't known for being kind, and with +25,000 battle hardened combatants, they are hardly likely to take to play-war, exercises at home again, are they?
Well who knows what Wagner "acquired" during their time in Rostov?
And yet another view:
Before the Prigozhin interruption, General Staff, Putin, Lavrov redefined Russia’s end-of-war outcomes – no Ukrainian army, no NATO weapons in store, no state in Kiev. https://johnhelmer.net/putin-orders-r Link
Hopefully acquired disabling STDs
Part of me also thinks there is more to it, and then part of me thinks it could be a bit like the chimpanzee exhibit at the zoo - sometimes the chimps, who typically get along ok, start flinging faeces at each other, fighting, and banging on the glass, only to stop as soon as they start. There's no real rhyme or reason to it, just chimps indulging in their primate instincts, before moving on to the bananas and cut fruit.
My thoughts too. What hold does Putin have over YP? The ramifications of this are both complex and intriguing.
"What hold does Putin have over YP?"
Money! That's how YP got rich, he did the dirty work in Africa for Putin and he and his mercenaries got paid handsomely.
Yes He got rich that way, but if he's already got the money, what hold does Putin have? YPs international reputation is already in the gutter, so he doesn't care about that. His wealth will be in international banks that are somewhere not Russia, and probably multiple different ones for protection. All of which means he can probably go to ground somewhere and not be found if he didn't want to be. So what else is there? Some reports indicate Putin gapped it to Belarus. Interesting that he'd leave Russia rather than go somewhere like Siberia or to a military base where one would think he could be protected? Maybe he is not as secure as he would like us to think? Could Putin have threatened to nuke Moscow or somewhere else special to YP?
Will I not be the only one not surprised when Ukraine is attacked from Belarus? They just put on a big show and mobilised troops there unopposed, while the Western world thinks 'look how weak Putin is'.
[this was just my wife and I's thoughts over the weekend's news].
No you will not be the only one who expects it as a likelyhood, but we all hope not.
Perhaps something about "Keep your friends close, and your enemies closer". Time will tell.
"His lapdog Prigozhin is masquerading a coup to put the blame on Gerasimov and Shoigu for losing the war against Ukraine."
1 - OK so we now agree that Russia is losing the war, big turnaround for you Audaxes.
2 - Putin must be pretty desperate to resort to this. It means he has to admit he was hoodwinked by his generals, I thought he was supposed to be a master strategist, all knowing?
3 - This leaves Shoigu and Gerasimov (the scapegoats he is going to try to blame the war on) in Russia controlling the army and his ally (Bald October) in Belarus. Great strategy
China real estate value $72 trillion US dollars
Deflating acceleration
Debt is now biggest problem in world and its cost is hurtling a brick across the table at us, which had been taut in a rubber band. The band has now snapped.
History might just repeat itself with a massive debt implosion in the Chinese economy, much like in Latin America in the 80s and Japan in the 90s.
Why this trainwreck should be a grave concern to all is that the world was much less reliant on a single point of failure when those previous debt crises hit. China today makes up a disproportionately large share of global manufacturing with nearly 30% of all goods by value in 2021 originating in Chinese factory.
I believe governments and central bankers are well-aware of the hyperinflationary impact this could have on the world and could soon begin responding with policy easing to prop up demand in their countries for imported goods that could help the Chinese roll over their huge debt pile.
Yikes
‘Fat dog on wet Lino’ would describe the impact a default train wreck like that would have
(credit to IT Guy for the market analogy)
Interesting to see a relatively small KS provider mobilising fixed-income capital for the long-term wellbeing of our community. Would be nice if ACC and NZ Super put more of their money into such initiatives.
Michael Reddell has written multiple pieces on Auckland's agglomeration problems being a drag on NZ's productivity, so bringing more 'organised' private capital into the mix should help. Ruminating on Auckland | croaking cassandra.
Community Scoop » Simplicity Living Begins Third Build To Rent Residence In Auckland
Landlords. An interesting nest of articles over the past week from Crux News in Queenstown. It's been raised here before that tax might be a driver.
https://crux.org.nz/crux-news/truong-slumlord-case-who-is-shai-hung-tan/
Talking of bitcoin, a reminder that if you had bought some BTC last year at the time of this article in early Dec 2022 - you would have made nearly a 100% return. Worth looking at the comments :)
https://www.interest.co.nz/currencies/118728/amid-widespread-fallout-cr…
Likewise good to look back and see what some people were talking about bitcoin in October 2021. To the moon, HODL, you cant lose, store of value, I put my house on it, etc.
The price of Bitcoin has halved since then, so it would have quartered at the time of that article you mentioned. Just imagine the online commentary if house or stock prices as a whole went to 25% of peak value?
Just imagine the online commentary if house or stock prices as a whole went to 25% of peak value?
Depression. Not in technical terms. Emotional and spiritual.
Trick to get rich is to reverse psychology. I buy fear and (usually) sell greed. Time to sell when your hair dressor is forming a bitcoin club
Fear and greed indicator was almost perfect to pick the buy.
Fear and greed indicator was almost perfect to pick the buy.
Works like clockwork.
Bitcoin Cash up 87% over past 7 days with Bitcoin up 15% over same period.
Perhaps this is a retail pump with mormies thinking they're gonna buy "the cheap bitcoin"
Lol that is nothing - I bought a meme coin called Harrypotterobamasonic10inu with the trade ticker bitcoin on uniswap - its up 60% today
Shame Prigozhin stopped his attack on Moscow, personally I would have loved to see the two crazies (Putin and Prigozhin) destroy each other.
"Internationally, there does seem to be a thaw in US-Chinese relations"
Not unexpected, the bravado was to provide encouragement to Putin to stick his neck out and challenge thge US. They have seen Russia weakened and can pivot back.
People keep thinking that America has been fighting Russia in the Ukraine. A few years ago, the American planners realized that there was no way that they can keep up with Eurasia’s development. How can they maintain American living standards a little longer while we’re not a manufacturing country anymore? The answer is, at least we can control Europe and make Europe into a colony, just as Europe made Africa and Latin America into colonies. The effect of this war has been America against Germany and Europe.
Russia has been the beneficiary so far. The sanctions have forced it to become much more self-sufficient, not only in food but in manufactures. Apparently, there is a flood of foreign investment into Russia to begin making the consumer goods and industrial products that were imported from Europe before. Russia is a beneficiary. Link
Lordy, you do find some rabbit-holes Audaxes.
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