Here's our summary of key economic events overnight that affect New Zealand, with news we are looking for signs inflation is actually easing and policy interest rates can be adjusted lower.
But first, at the overnight GDT dairy auction, prices rose a bit more than +3.3% from the prior event two weeks ago. That takes the price level back to where it was in October 2022 with a nice up-trend developing now. Overall prices are now +13% higher than a year ago. Volumes offered however are at a four year low. The key WMP price was up +2.9%, SMP was up +3.5% and butter up +5.1%. Interestingly, mozzarella was up almost +10% indicating rising foodservice demand. China is back with good demand for WMP and butter, but it is the Middle East where the rising cheese demand is coming from. However we should note that the recently rising NZD capped the overall price increase at +1.9%.
In the US Redbook retail sales indicator was up +5.5% last week from the same week a year ago, handily more than inflation so they are seeing real gains still.
Not only are retail appetites high and rising, American stock ownership levels are now back to levels last seen prior to the GFC.
At an event in Germany, the US Treasury Secretary Janet Yellen called out China, the UAE, and Türkey as the main evaders of the American and European sanctions on Russia over its invasion of Ukraine.
In Canada, their CPI inflation rate eased to 2.7% in April from 2.9% in the earlier month, in line with market expectations, and is now the softest rate of consumer price growth since March 2021. Their core inflation rate is down to 1.6%. This shift lower is what their central bank said would happen. Easing food prices (from a year ago) led the shifts. The chance of rate cuts there next month have risen. Their policy rate is currently at 5%.
In China, we are awaiting the data for April on foreign direct investment flows. It is unlikely to be very positive but it will give an updated position of where the 'derisking' trend is at.
In Australia, the expanding labour force (up +2.5% in March from the same month in 2023) is behind a +7.1% rise in total labour compensation in March from the same month in 2023. That means in April 2024, total wage and salary compensation will have pushed on up above AU$100 bln in the calendar month.
Consumer sentiment in Australia, as tracked by the Westpac Melbourne Institute survey was virtually unchanged in May from April but at a low level still. It is a measure that has been in the doldrums for more than two years now; the last time it was 'positive' was in February 2022.
Join us at 2pm this afternoon when we will have full coverage of today's RBNZ Monetary Policy Review. No-one is expecting any rate change, but their outlook opinions will be very important. Financial markets currently have two OCR rate cuts penciled in for 2024 and three in 2025 and the RBNZ assessments of where they stand in the battle against inflation could well adjust that pricing - and that in turn may have echoes in current wholesale money markets.
The UST 10yr yield is now at 4.42% and down -2 bps from this time yesterday. The key 2-10 yield curve inversion is more at -42 bps. Their 1-5 curve is also more at -71 bps. And their 3 mth-10yr curve inversion is slightly more at -96 bps. The Australian 10 year bond yield is now at 4.29% and down -1 bp. The China 10 year bond rate is unchanged at 2.32%. The NZ Government 10 year bond rate is now at 4.69% and up +1 bp from yesterday.
Wall Street is ending its Tuesday trade with the S&P500 up +0.2%. European markets were mixed with London down -0.1%, Frankfurt down -0.2%, and Paris down a sharpish -0.7%. Yesterday Tokyo ended its Tuesday session down -0.3%. Hong Kong slumped -2.1% and Shanghai was down -0.4% in Tuesday trade. Singapore was down -0.2%on the day. The ASX200 also fell -0.2% yesterday but the NZX50 was down -0.5%.
The price of gold will start today down -US$14 at US$2420/oz.
Oil prices are down another -50 USc at US$78.50/bbl in the US while the international Brent price is still just under US$83/bbl.
The Kiwi dollar starts today down another -20 bps from yesterday at just over 60.9 USc. Against the Aussie we are marginally softer at 91.4 AUc. Against the euro we are also softish at 56.2 euro cents. That all means our TWI-5 starts today just on 70.1, and down -10 bps from yesterday.
The bitcoin price starts today at US$69,683 and up +1.9% from this time yesterday. Volatility over the past 24 hours has been moderate again at +/- 2.7%.
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53 Comments
https://ourfiniteworld.com/2024/05/21/reaching-the-end-of-offshored-ind…
Note 11 - vs Yellen spouting the neo-line.
We're seeing a new economic iron curtain being erected around the West in real time, so that it remains the exclusive domain of US companies with competition from China forbidden. I hope you guys enjoy Tesla and American solar panels at 10x the price... https://theguardian.com/business/artic Link
what is going to be really interesting about that will be the US response to the "Made in Australia" strategy they've talked about. This is the same strategy, essentially, that I've suggested NZ needs to adopt and I think Luxon is beginning to hint at. But will the Yanks accept stuff made by allies? Aussie and NZ cannot and never will be serious competitors to the US manufacturing capability, but if stuff can be made competitively and there is trade importing from them, will they allow competitive two way trade?
Resource rich? Yeah, the Kremlin knows that, hence the efforts at expanding its mafia culture into neighbouring states. Wee Vlad jumped too soon. The European energy crisis and his age probably motivated him, along with advisers informing him about his troops being welcomed by crowds of beautiful virgins showering them with rose petals. Oil depletion still seems on the horizon. Lucky us? Personally I'm looking forward to post peak. It's the only event that may save us from ourselves. The downside, the rise of the neo warlord era. Russian propaganda TV spouts the line that global heating will make Russia the envy of the world. Shame about the leadership.
American stock ownership levels are now back to levels last seen prior to the GFC.
Revisions to consensus 2024 EPS estimates have been better than usual due to upward guidance from the largest firms, Goldman has calculated. Bottom-up consensus since 1985 has cut annual EPS by a median of 4% each year. Analysts YTD have lowered 2024 EPS estimates for S&P 493 by 2% but lifted estimates for the Magnificent 7 by 8%, so aggregate 2024 S&P 500 EPS forecast has been flat. Link
- National promised a permitting system for offshore wind farms would be in place within a year, but that has now been pushed out to mid-2025.
Let me guess need time to get the seabed mining permits pushed through under urgency?
(Thus ruling out windfarms in the Taranaki Basin)
Statistics New Zealand to leave central Auckland office after safety concerns Link
Welcome to Auckland. We can't offer the infrastructure or high-value employment akin to an alpha city, but our crime and traffic will make sure our South Asian and South African communities don't feel homesick.
It can be grim for sure.
I had a cancelled flight a while back and wound up staying the night just off Queen St. I walked from the hotel to Maccas (about 5 mins) at 9pm at night and let's just say even if I was Mike Tyson before the stint in prison I wouldn't have felt too comfortable.
It really felt like something out of a Mad Max film.
When exponential growth is your goal, that includes exponential growth of dysfunction. We are exactly where we're meant to be. The experiment has been practiced around the planet and always ends at the same place. The political exponential growth cult are good with it.
Beat policing seems dead for sure. Literally couldn't tell you the last time I saw police on foot just wandering about in Chch CBD. You will sometimes see them come flying out of the central cop shop on foot to go to a job nearby, but nothing in the way of proactive presence building. There were also trials of eBike mounted cops but that doesn't seem to have come to anything.
Getting some feet on the beat in CBD areas would be one way to make places feel safer. Speaking to a few cop friends/family, it seems a big part of the problem is when they are on duty there is so much paperwork to do that half the shift can be spent sitting in front of the computer instead of out in the car or out walking around. They would rather be out doing the job they envisaged when they signed up, but management needs the paperwork done instead.
like all bureaucratic organisations paperwork is easier than real work - and it means you look busy
Only some of them want to be out doing real work and the rest want their existence justified so keep asking for the reports
Having recently been assisting in a couple of criminal trials my experience is that the police are part of the problem for delays in our justice system -lots of excuses as to why they havent done their job ( including not completed the paperwork yet) and unfortunately the judges let them get away with it
Reform needed big time
Well the last lot were blaming "9 long years of National neglect" for their entire 6 year term, so I'd say on that basis the new government has got plenty of deflection time up its sleeve.
Not that I necessarily think they will do much ... but fair's fair.
A huge part of the problem with the police, I suspect (based on feedback from people I know well who work from the lowest level through to commissioned rank) is that there are a lot of "managers" who - like in any organisation - have fallen upwards, and who are more interested in the politics and empire building/career development than actually achieving results.
The average cop on the street/behind the wheel wants to do the right thing, but is not necessarily getting the direction/support to enable that. Add on the systemic rot of things like endless paperwork for even the most minor interaction, and you can see where the resource is going.
It really doesn't help that the pay - at least at constable level - is just not up to par any more, especially in main centres, and so from what I can gather the standard of recruits is falling.
I have no view on the caibre of police, there will be a breadth of attitude and talent as in any organisation.
What I can say though in my limited experience is that property crime is pretty much ignored. I have had two incidents recently and both went uninvestigated.
https://thedefiant.net/budget-freezes-and-station-closures-how-the-nati…
In 2010, the administration of then-Prime Minister John Key froze the police budget for five years. The effects of the 2007-08 Global Financial Crisis is often used to rationalise this decision, but there seemed to have been enough money in their coffers at that time to fund a tax cut – in addition, that government announced an increase in the general services tax (GST) that year also.
https://www.rnz.co.nz/news/national/130450/police-station-to-close-in-c…
The plan is to close the Downtown Station in Fort Street, at the lower end of Queen Street.
They say they will move the 30 beat staff, and four support staff, to the Auckland Central Station, about a kilometre away on the edge of the city centre.
Unfortunately, this is the outcome of focusing on being politically correct and wasting limited resources in elevating our status as a welfare state. Stop racial based benefits, please learn from Singapore's approach towards law and order, and please invest in our tomorrow.
Yes, we've been too politically correct with respect to those wanting to come here instead of training and looking after our own NZ born citizens. We should have told those businesses that they need to pay higher wages and train people instead.
While I agree law and order is an issue, it's to be expected when you bring in people from overseas and give them hundreds of thousands of dollars after driving a bus for a couple of years (ie PR) rather than give a hand up to those already here that have come off the tracks yet seem quite capable of driving vehicles into specific places such as a jewelry store.
Clown show on steroids continues: EU has approved sending profits generated on frozen Russian assets to Ukraine. These imbeciles never learn the lesson, that actions have consequences. European has just signalled to the Global South that you can't trust us with your assets. What do they imagine the outcome will be? Link
This practice persists today:
Banks are more interested in the return of their money than the return on it. Furthermore:
Nobody buys securities; they borrow and claim to “own.”- Repo. The hedge fund (client) says it wants to own XYZ US Treasury issue, puts up a minimal upfront investment, enough to cover some overcollateralization requirement, and borrows for the rest of the purchase price. In many instances, the broker is the lender as well as custodian.
To make this securities funding transaction as cheap as possible, the client will agree to allow the dealer to re-pledge or rehypothecate (for our purposes here, the language is interchangeable though in a legal and regulatory sense these terms can have different meanings) the very security the client is claiming to own.
What that means is the dealer acts as an intermediary rather than lending its own cash for the purposes of the client owning this particular security. Instead, the dealer will repledge that security in the repo market or to other dealers in order to borrow the cash ultimately used to “purchase” and then fund the transaction (rolling over) to its ultimate end. Not just a securities financing transaction, a whole series of them.
And this series becomes horizontal as well vertical; the already re-pledged security posted by the client’s dealer to the next dealer in line can be re-pledged again depending upon the conditions set forth between the client’s dealer and what is now the client’s dealer’s dealer. As you may already guess, the client’s dealer’s dealer may also be able to re-pledge – the same security – to its dealer; specifically, the client’s dealer’s dealer’s dealer.
In many if not most cases, there needn’t be the original client need for this chain of re-pledging, either. What I mean is, the first link in that chain doesn’t have to originate out of the client’s need to borrow directly; if permissible, the client’s dealer may re-pledge the client’s security(ies) for its own purposes, with the client being sufficiently incentivized.
Thus, a dealer who does this kind of business with many financial clients can build up a stash of usable collateral that it doesn’t exactly own; these securities belong to other firms and vehicles, but are more than useful for the dealer to fund and carry out its dealer activities as a whole because of these peculiar usage rights.
The permissibility of these kinds of doings is, and remains, much higher in the offshore domain (the non-harmonized part of these rehypothecation regimes). The more a dealer could do re-pledging for themselves, the better terms it would offer its customers; giving Lehman Brothers International Europe a serious leg up on Lehman Brothers Inc.
Net result, Lehman Brothers as a global firm had acquired a significant pool of collateral owned by its customers and custodied at Lehman Brothers International Europe which underlay a whole range of dealer activities carried out by Lehman Brothers Inc., including securities financing transactions in its own proprietary book as well as a creating a margin collateral cushion for a whole host of derivative transactions and potential counterclaims.
So, what happens when customers start to feel a little uncertain about these arrangements? Quite naturally, they may begin to wonder about what their exposure might be given how their securities are in London. In fact, this, not subprime mortgages, is what led to Lehman’s end.
Hedge funds and dealers as Lehman clients scrambled to change these prime brokerage agreements limiting Lehman Brothers Inc. from being able to transfer assets into Lehman Brothers International Europe, or demanding they be transferred back, having the effect of stripping Lehman of a huge chunk of what had been available collateral by which to supply its global operations.
The rest was typical, traditional bank run stuff; rumors of Lehman being shaky led to the initial customer collateral “run” which then made Lehman shakier leading to more customers running in and changing their brokerage language. Soon enough, bye bye Lehman.
It was a run, but it wasn’t like one Walter Bagehot or Benjamin Strong would’ve recognized. It sure hadn’t been something Ben Bernanke or any of his kind considered too important, either. The latter group, contemporary central bankers, focused instead on the level of bank reserves, even as the federal funds effective rate had plummeted and been undershooting for a year by then.
Better than cash. Link
Just been to Europe (6 countries). People everywhere spending like there is no tomorrow. I now believe a recession is only when the wealthy aren't making absurd mounts of money off the middle and lower classes. Or the standard everyday spend is a tiny bit lower. Trucks by the thousands moving goods from A to B.
Straight up corruption on display here. I was told about this by a senior ex-Act figure. This incarnation of the Nat's is very open to cash for legislative changes.
https://www.stuff.co.nz/politics/350285938/fast-track-committee-not-und…
“When I made that donation, in my personal capacity, we had no knowledge that he was going to be in fact an MP, or whether in fact he was going to be appointed to that role. That's just something that has unfolded as time goes by,” Brown said.
Sure buddy, sure.
Whatever it is, whatever the outcome(s,) it all comes to nowt if he is re-elected as President. There he cannot be touched by litigation and he can pardon himself for anything that may have already touched him by litigation. Many consider he makes a fool of himself. Be that as it may he is certainly making a fool out of America and Americans. It’s a sorry indictment on the nation, on its stature and credibility, that this could be possible.
Ah well, the good ole US has been dumbing it's population for decades. Being pumped full of wall to wall idiots through media, with only sponsors messages for intellectual relief and you get plebs that can't tell a country from a continent, but can roll off 20 favourite brands in 5 seconds. Capitalism in it's purest form.
I post occasionally about the Betfair odds on next US President. Slightly depressed to report Trump is now clear favourite, ~52% chance of being next President vs 37% for Biden, 2% RFK, and the balance mostly made up by Democrat hopefuls like Michelle Obama, Newsom, Harris. Democratic party no longer favourite to win - 53% Reps, 45% Dem, 2% other (RFK).
Slightly depresses going on deeply worried here. Trump is manic. He is brimming with vengeance and reprisals. Last time he came to power there was no war raging in Ukraine and Palestine. He will say and believe there wouldn’t be if he had stayed in power. If he re enters office, then the various mechanisms and safeguards structured in the administration are going to be tested and the scary point is that might not be enough to prevent a catastrophic decision being enacted.
Rex Tillerson summed his president with uncommon praise while secretary of state. 😃
https://slate.com/news-and-politics/2017/10/now-we-know-why-rex-tillers…
"Last time he came to power there was no war raging in Ukraine and Palestine. He will say and believe there wouldn’t be if he had stayed in power."
Ridiculous logic. Neither started when he was in power.
Trumps record was not one of war mongering
https://www.reuters.com/article/idUSKBN2A22QR/
The USA is already run by bozos. The Clinton/Obama/Biden axis is underwritten by well known global philanthropists.
Blue states loosing people by the millions to red states with key blue state big cities crumbling before your eyes. With mid-city dead zones all over the show, the dems will be panicking a bit, me thinks, so close to the election. Biden could miss the cut if this carries on with Newsome looking the frontrunner backup, if needed. It could be the poison chalice for Newsome, who already looks like a dead man walking.
What's going on in New York is sickening & ultimately dangerous for the great USAs future. Mock justice by the dems weaponising the state infrastructure against the beast. It looks pretty ugly great from the outside. The Russians are bad. The Chinese are badder. But the dems are not far behind, sadly.
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