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US second-tier data weak; China struggles to suppress negative economic sentiment; Taiwan retail rises; Singapore factories weaker; UST 10yr 3.72%; gold and oil firmer; NZ$1 = 61.7 USc; TWI-5 = 70.1

Economy / news
US second-tier data weak; China struggles to suppress negative economic sentiment; Taiwan retail rises; Singapore factories weaker; UST 10yr 3.72%; gold and oil firmer; NZ$1 = 61.7 USc; TWI-5 = 70.1

Here's our summary of key economic events overnight that affect New Zealand, with news China is struggling to regain its economic momentum.

And perhaps the US is as well. Although not as weak as the May result, the June factory survey by the Dallas Fed in America's oil patch remains weak. Shrinking new orders are the key feature. Loan demand is weak. (And although it has a reputation for 'low taxes' at the state level, it turns out they are higher for middle-class households in Texas than its political rival California.)

Factory sales rose in Canada in May in data released overnight. That is their third consecutive rise, and their seventh rise in the past nine months.

In China, complaints against banks are rising, and sharply. Most seem to revolve around banks not letting borrowers repay their mortgages early. Chinese households are prioritising savings over consumption as economic uncertainty rises. On the other hand banks stand to lose a lot if large numbers of borrowers repay early. And Beijing is clearly worried about excessive saving and what it is doing to economic activity. In this context, the apparent block against repaying loans early is frustrating borrowers and in some way making the negative sentiment worse.

And staying in China, we should note that a new article in the People’s Daily, the official newspaper of the ruling Communist Party, vows to build efforts to unleash the potential of artificial general intelligence. It wants to lead the "new wave of tech revolution ... industrial transformation" it says.

The recent holiday trading was notable for its lacklusterness. Authorities are worried about the growing spread of pessimism.

Meanwhile, China’s currency depreciated as much as -0.9% to 7.2380 per US dollar in Shanghai yesterday, and well worse that the official central bank setting as pessimism over the economic recovery continues to weigh on sentiment. That adds to a full -4% devaluation since the start of 2023.

Taiwanese retail sales rose in May. It was a modest rise from April, but a big surge from a year ago, but that was because the base was weak in 2022. But it was the inverse for their industrial production which recorded a sharpish fall from a year ago, again due to base effects. The month-on-month they recorded a rare rise.

Singapore's industrial production was also expected to rise month-on-month, but it didn't which would have disappointed them. Their year-on-year retreat was worse than expected.

Also disappointing was the latest German sentiment survey which came in less optimistic than expected. Europe's largest economy is struggling again after rising sentiment about future prospects from October through to April.

The UST 10yr yield will start today at 3.72% and down -2 bps. Their key 2-10 yield curve inversion is unchanged at -102 bps. Their 1-5 curve is more inverted at -131 bps. And their 3 mth-10yr curve is inverted by -140 bps. The Australian 10 year bond yield is now at 3.90% and down -4 bps. The China 10 year bond rate is little-changed at 2.71%. And the NZ Government 10 year bond rate is also down -4 bps at 4.56%.

Wall Street has opened its Monday trade with a -0.1% dip in the S&P500 today. Overnight, European markets were mixed with London down -0.1% and Paris up +0.3%. Yesterday, Tokyo ended its Monday trade down -0.3%. Hong Kong fell -0.5%, and Shanghai fell a much sharper -1.5%. The ASX200 ended its session also down -0.3%. But the NZX50 fell away sharpish at the end to be down -0.8%.

The price of gold will start today at US$1925/oz and that's up a minor +US$5/oz from yesterday.

And oil prices are marginally firmer from yesterday to now be just under US$70/bbl in the US. The international Brent price is little-changed at just over US$74.50/bbl.

The Kiwi dollar starts today at 61.7 USc and up +¼c from yesterday. Against the Aussie we are also +¼c firmer at 92.4 AUc. Against the euro we are firmer too at 56.6 euro cents. That means the TWI-5 is still just on 70.1 and up +30 bps since this time yesterday.

The bitcoin price has eased again from this time yesterday and now is at US$30,081 with another dip of -1.5%. Volatility over the past 24 hours has been modest at just under +/- 1.2%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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45 Comments

Another insurance bill in the inbox this morning. 14.6% increase. I wonder what happens to the producer price index here, as similar and other costs sweep across local business balance sheets? A lower CPI = OCR doesn't look like it.

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Yep not a good start to the day. I got 50% increase on just my car insurance.

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Get third party only. I have had that forever.

There is the added incentive to not drive stupidly and crash.

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Yep got 3rd party here and with no claims for over 5 years its now down to $9 a month. Got a quote for a brand new car I'm getting its $11 a month. When it comes to house and contents insurance, forget the contents part and the bill could be half. When you add up the real cost of the contents its nothing close to what the house is worth so in most cases its not even worth insuring.

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I don't bother with contents either. I have a fireproof safe bolted to the floor where we keep all our real valuable stuff. Sort of figure if we get robbed will just take the hit. Don't know what they will take though.

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I agree with you about contents insurance.  My wife and I had really high contents insurance pre EQ in ChCh.  Although our house was destroyed, the only real damage was to glassware, china, pictures and of course a TVs which weren't secured to the wall.  The major items, like sofas, beds, tools, chairs, etc all survived.  We now have low contents insurance, knowing that our only real loss will be if we have a fire.

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Or flood? 

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Car insurance is the one area where I think our household has come out on top. It doesn't matter how good your driving is, it just takes one idiot to hit you, last time it happened to me I was stopped at the lights, nothing I could do about it. 

Contents is a rort these days, what do you really have worth stealing, its not like the old days where the TV was worth about 10k in todays money. House insurance is also debateable depending on the value of your house minus land. 

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And fuel subsidies coming of, just another reason for the next uptick of inflation. 

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Buy those RUC's asap!

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Two mates now have been contacted by nzta after getting their wof. They have been told to resell the excess ruc back to them and rebuy it. Seems if you have a wof due and have overbought big brother is on to you. 

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What happens if you say no?

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They were warned. it was well advertised.

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Or just buy an EV

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Also public transport. Transport component of  CPI release after the next one (edited) likely to be quite high

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The timing is perfect - the next CPI data release won't reflect the higher petrol prices. The one after will... it comes out just after the election!  

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Exactly. Plus it didn't push this years super adjustment higher. Labour govt.... phrrrrt.

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Now that the timing of CPI release is not an issue, the government will be writing lots of cheques in attempt to garner more favour.

Acting PM teases details of multimillion-dollar university rescue package | Jun 27 2023 | The Spinoff

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So the opposition benches will be haranguing the NACT coalition for their shocking mismanagement of the economy as CPI persists higher?

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Bloody smart don't you think?

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And rents apparently about to shoot up, also CPI

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Ours went up 8.4% back in April. We pay yearly with state.

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Central banks have raised interest rates at a brisk pace over the past year-and-a-half to fight off a historic surge in prices, but they have persistently underestimated inflationary pressures. Describing what she called uncomfortable truths, (IMF's) Gita Gopinath argued that the financial community may be too optimistic about the cost and difficulty of taming inflation, which then raises the sort of stability risk central banks might not be equipped to handle....central banks need to keep policy tight, despite an obvious cost to growth...Once the reality hits, asset prices could reprice...Monetary policy should continue to tighten and then remain in restrictive territory

https://www.devdiscourse.com/article/business/2501854-investors-overly-…

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I prefer this comment from a central banker... In the Euro area they are finally working out that hiking rates to the moon is not the answer to high prices caused by imported price shocks and profiteering. The first country to get inflation back into target range (Denmark) barely raised rates at all.

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(From one of those links) "The standard response: “looking through”. The orthodox monetary policy response to a global shock to (prices) is to “look through” them." and that hasn't gone well. Or why are we here?

At the risk of repetition - it doesn't matter what should happen, it's what's going to happen that matters.

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So my liquid ammo is nearly out of bullets for investing (which has all gone into US stocks and crypto).  

$500k left in the tank but in term deposits expiring Jan 2024 (5.3%).  

What do we think, hold it in the deposits and get into funds etc January next year?  Looks like a bit of risk still for assets for H2 this year

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TD's could quite easily hit the 6% by January and its as safe an investment as it gets. Just staying with a TD here, money rolls in every month like a pay cheque. If I have $500K in at 6% I could easily live on that.

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$500k at 6% = $30k pa, minus tax of 19.5% if lucky = $24k pa = $2,000/month, that's not much to live on...

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NZ Super single rate $25745 pa

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NZ super goes up with wages and inflation. Your TD wont keep up with inflation even if you reinvest the interest let alone if you spend the interest.

You are essentially eating into the deposit, just via inflation rather than spending it directly. You actually would have been better off 3 years ago with low interest rates and inflation. 

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Wrong but if you cannot see all possible scenario's like the one I'm living I'm not going to bother to explain it to you. 3 years ago rates were like 0.5% at one point. Essentially doesn't matter even if I eat into the TD slightly, when I turn 65 my income will potentially double.

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Its pretty well known that TDs do not keep up with inflation (most of the time, including currently), so they are indeed dropping in real value. 

To say JJ is wrong "but i'm not going to bother to explain it to you" is pretty rude.  Just say you are hyper risk-adverse and you are happy with the real losses to avoid the volatility risks of other investment types.

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When rates where 0.5% you needed to actually spend the term deposit to live off it. Now you don’t need to spend it but it is still worth less and less each year so the net effect is the same. Except now you are also paying much more tax. 
If inflation went up to 100% and interest rates went up to 97% you also wouldn’t be better off, pretty soon your term deposit is worthless. 

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Inflation only hits you when you spend it. How many years do you think $500k will take to become "Worthless", I think I will have long since departed. You need to think outside the box, everyone's personal situation and their skills in life are totally different. If I had $500K now then I would still have $500K when I turn 65 at which point my income would double, potentially triple it would all depend on interest rates between now and then and if super keeps up with inflation or if it even exists in the future. Nothing is guaranteed but for now its all good, you can only control the important stuff.

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“How many years do you think $500k will take to become "Worthless",” - less years than it would under a lower interest / inflation rate scenario where you just spent the deposit. Ask someone from Zimbabwe if you don’t believe me. 

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Okay here is something I have always thought about. Say you are in Zim and you bought a house 10 years ago for say "$10,000" on a mortgage, fast forward to today after 1000% inflation and the notes you are getting paid with are now "$1,000" each or have more zeros on than you can count, how does that work out ? I guess you just paid off the mortgage pretty fast ? But seriously NZ is not Zim and it never will be, the level of corruption there is unbelievable. There will be more and more countries in the world that are totally gone burger, Zim, Haiti, Afghanistan its going to be a long list that will only get longer.

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Give it plenty of time, no rush. Jan 24 is too early, as trump has a good chance and he wants to crap all over america.

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BREAKING: UK inflation is running so high that the government is considering blocking pay rises for millions of public workers amid concern they could push prices higher, the Times reported. Link

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That's going to be well received by the public workers, NOT !   Imagine the huge demonstrations if their wages get frozen at a time of massive inflation.  I don't think the government will carry this crazy idea through.

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I guess it depends on whether they think all those public workers are necessary. Some definitely will be!

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The majority of public pay increases in the UK this year are going to frontline workers - police and correction officers, doctors, nurses, dentists and teachers.

Pay review bodies in the UK have published numbers claiming workers have had to accept pay settlements well-behind inflation for the past 15 years and recent inflation-highs are just the last straw. BBC even looked into the legitimacy of those figures and somewhat agrees with them.

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And this is why inflation is the absolute curse of all economies, the main reason why we have a central bank. The central banks got lazy, they thought inflation was never going to happen again, they laughed in its face with their stupidly low interest rates for no good reason. 

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Never underestimate the stupidity of Govt.  Don't forget ours has already done this back in the 70s/80s.  Wage and price freezes, and not just for govt employees.

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Inflation dropping like a stone in the UK..down to 11%

https://truflation.com/

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"...the ruling Communist Party, vows to build efforts to unleash the potential of artificial general intelligence. It wants to lead the .."

Yesterday's export was COVID, tomorrows is an AI monster.

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