Here's our summary of key economic events overnight that affect New Zealand, with news we should be watching what is going on in the northern hemisphere summer with some alarm and getting ready for our our summer test.
But first on the economic front, in the US there has been a surprisingly positive shift in consumer sentiment. The widely-respected University of Michigan survey improved for a second month in July to its highest level since September 2021, and well above the anticipated outcome. Both current economic conditions and consumer expectations improved, largely because of the slowdown in inflation along with stability in their jobs markets. To be fair the overall level is still low, but it is well off the mat now.
Investors aren't worried about the future either. The Fear & Greed index is still hard over on the 'greed' side. But that is about to be tested with corporate earnings results to be released for many majors. We will get big bank earnings results first. Then those from IBM, Netflix, Tesla, and Johnson & Johnson will all help set the tone. Already JPMorgan announced a stellar result, helped by its purchase of the regional First Republic Bank. And Wells Fargo also reported sharply better earnings too. There doesn't seem to be a profit recession, so the underlying economic strength points to a 'soft landing' for the world's number one economy.
Singapore’s GDP grew by +0.7% in Q2-2023 from year-ago levels, quite tepid levels again for an 'Asian Tiger' economy but it was stronger than a final +0.4% growth in Q1. This was the 10th consecutive quarter of increase however, but the second smallest. On a quarter-on-quarter seasonally adjusted basis, their GDP grew +0.3%, reversing a -0.4% contraction in the first quarter. So no recession there either.
Also in Singapore, their anti-corruption body has moved against a minister and a major property/hotel tycoon. Both have been arrested. It is their most serious graft case to be prosecuted in more than 35 years.
In Europe, their heat wave is getting worse and it is deadly serious for the people involved (Athens hit 39oC earlier today for example, Rome might hit 42oC early next week, Madrid too). And about a third of Americans are also facing deadly heat extremes (Dallas is touching 40oC now as well). These follow the heat dome that hurt northern China last week but hasn't really gone away; Beijing is expected to swelter in 37oC+ heat for most of next week. We would be wise to start preparing for high summer temperatures here as well.
And one consequence may come from the insurance industry. In the US major insurers are pulling back on homeowner policies from California to Florida, in many cases declining to renew existing policies. Climate change consequences may become uninsurable. And with reinsurance companies doing the same, agencies like our EQC and other government-supported programs could find their long-term futures threatened. In the US, high premiums aren't enough to entice insurers to offer any coverage in many places.
In Australia, their government named Michele Bullock as governor of the Reserve Bank of Australia, making her the first woman to take the role. Treasurer Jim Chalmers announced that Bullock, currently deputy governor, would head the central bank for a seven-year period starting in mid September, a day after incumbent Philip Lowe's term ends. In the end Lowe was sacrificed in the name of 'change', but Bullock isn't expected to change monetary policy direction. Her initial focus will be on internal reorganisation that has been earlier flagged (and making it a bit more like the RBNZ).
The UST 10yr yield will start today at 3.83% and up +7 bps from this time yesterday. A week ago this rate was 4.07%. Their key 2-10 yield curve inversion is deeper at -93 bps. Their 1-5 curve is however less inverted at -127 bps. And their 3 mth-10yr curve is little-changed at -149 bps. The Australian 10 year bond yield is now at 3.99% and up +2 bps from yesterday. The China 10 year bond rate is holding at 2.69%. The NZ Government 10 year bond rate is unchanged too from yesterday to 4.62%. A week ago it was 4.90% so a -28 bps shift lower.
On Wall Street, the S&P500 is down a mere -0.1% in Friday trade, but up +2.5% for the week. Overnight, European markets were each little-changed on the day too. But that capped a good week for all the main markets; London was up +2.5% for the week, Frankfurt was up +3.3%, and the star was Paris up +4.1% for the week. Yesterday, Tokyo ended it Friday session little-changed and it was also little-changed for the week. Hong Kong was up another +0.3% on the days and up +3.6% for the week. Shanghai however was unchanged on the day to be up +0.9% for the week. The ASX200 finished with a +0.8% gain on the day for a weekly rise of +3.7%. But the NZX50 missed out on all these advances, ending Friday with a +0.9% gain but a weekly rise of only +0.4%.
The price of gold will start today at US$1959/oz and down a mere -US$1 from yesterday. But that is +US$33/oz higher for the week.
And oil prices have fallen away by about -US$2 at now just over US$75/bbl in the US. The international Brent price is now at just over US$79.50/bbl. These levels are +US$1.50 higher for the week.
The Kiwi dollar starts today little-changed at just under 63.8 USc. A week ago it was at 62.1 USc so a +2.7% appreciation since then. Against the Aussie we are nearly +½c higher at 93.2 AUc. Against the euro we are lower at 56.7 euro cents. That all means the TWI-5 is now still at 71 but up +70 bps from a week ago.
The bitcoin price has fallen back from this time yesterday and now is at US$30,180 and that is a -3.5% shift lower. A week ago this price was US$30,316 so even a fall from then. Volatility over the past 24 hours has also been moderate at just on +/- 2.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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20 Comments
"If it's not hurting, it's not working"
If there is a Soft Landing; Inflation is tamed and the expected unemployment tightening doesn't happen, then perhaps it tells us that Risk has not been returned to Debt rates. If so, expect increased Wage Demands and rampant borrowing to resume, and anything that isn't nailed down to be bought before prices soar. That might have to give us another shot at returning Risk to interest rates; seeing them much higher than we got to this time. It all look spookily like it did before Volker had to take out the Big Stick.
Says it all. And NZ is no different.
"In China, the government is directly involved in the operation of the economy, which means that it subsidizes those industries that enhance growth and spur development. In contrast, American capitalism is a savage free-for-all in which private owners are able to divert great sums of money into unproductive stock buybacks and other scams that do nothing to create jobs or strengthen the economy. Since 2009 US corporations have spent more than $7 trillion on stock buybacks which is an activity that boosts payouts to rich shareholders but fails to produce anything of material value.
In New Zealand the wealthiest tenth own one-quarter of the country’s assets, while the poorest half of the country has just 2 per cent.
This disparity will only grow further as fewer income opportunities are available for working class Kiwis where they don't have to cook meals, make lattes or wipe backsides of the weathy.
Interestingly China's high-speed rail showcases both the best and worst of decision-making in regard to infrastructure. The first phase of HSR has been very effective, linking major population centres and promoting economic growth - and done at a time when there was a risk of an economic downturn from the 2008 global recession. It's also a big part of their climate reduction plan and keeping emissions down.
The second phase, in contrast, contained decisions so dubious that the Railways Minister received a suspended death sentence for them.
The upside of this style of governance is that if something needs to be built the government will build it. The downside is that if something doesn't need to be built, the government will build it.
Though not surprising, it is still amazing how quickly bond buying renewed. Unfortunately, stocks are reading lower rates as a positive at least until everyone realizes the reason rates markets have steadfastly resisted rate hikes and QT this whole time. It isn't a soft landing. Link
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