Here's our summary of key economic events overnight that affect New Zealand, with news today is Budget Day. Join us at 2pm for full coverage of the new government's first full Budget.
More broadly, US mortgage applications sank -5.7% last week from the previous week, the most since mid-February, and ending three consecutive rises. The retreat follows a fresh rise in benchmark mortgage rates, above 7% and following the rise in long-date Treasury yields.
Meanwhile, American retail sales continue to expand. The Redbook index of physical locations was up +6.3% last week from the prior week, the fastest week-on-week gain of 2024, and far better than can be explained by inflation. It is actually quite impressive because a year ago these sales were also expanding.
There was another US Treasury bond auction earlier today, this one for seven year notes was equally well supported as the previous ones. The median yield today was 4.59%, down marginally from the 4.66% at the prior equivalent event a month ago. Financing their swelling deficits isn't facing market pushback yet, and probably won't so long as their economy continues to expand at a healthy clip. (News reports of 'weak demand' just aren't in these result sheets.)
But the May Beige Book survey by the US Fed regions paints a more restrained picture of their expansion.
In China, the yuan is trading at a six-month low against the dollar, at 7.25, highlighting the divergent monetary policies of the world's two biggest economies. Authorities in Beijing are trying to speed things up from a weak base. In the US they are trying to slow things down from a very long expansion that just won't give in.
And staying in China, the IMF revised their GDP growth outlook to 5% for 2024 and 4.5% for 2025, both 0.4 of a percentage point higher than its April projections. The upgrades reflect stronger first-quarter results and recent policy measures. In the first quarter, GDP grew 5.3%, keeping China on track to meet its growth target of "around 5%" this year.
In Hong Kong, their important tourism industry is in trouble, principally because of negative perceptions over their heavy-handed security laws imposed by Beijing.
Japanese consumer confidence stumbled in May, slipping when a small improvement was expected. This will be a disappointing result for them because the stumble was across the board. But help may be on the way, with pay rises expanding everywhere.
However German consumer confidence is recovering. In May consumers' economic outlook increased significantly, their income expectations rose moderately and their propensity to save decreased noticeably. However, the propensity to buy increased only minimally. But these are building trends of turnaround in consumer attitudes there.
The German CPI inflation rate edged higher in May to 2.4%, a marginal increase from their 2.2% April rate. But there are no surprises here; this is what was expected and inflation rising in the low 2% range seems to be their immediate future.
In April 2023, Australia's monthly inflation indicator was rising at a 6.7% rate. One year later it is down to just 3.6%. But the headlines feature its rise from March when it was at 3.5% and the three prior months at 3.4%. Insurance and foods costs are the main culprits. An up-trend is being sensed and that probably means the RBA may have to double-down on its inflation-fighting pressure. This just adds to the international sense that getting inflation back to the mid-point of the various target rates is hard, and keeping it there even harder. Don't expect central banks to throw in the towel on their core mandate.
Meanwhile, construction completed in Australia is sagging, and in some sectors quite fast. In the March quarter total construction work done fell -2.9% to AU$64 bln to be just +1.2% higher than a year ago. In the quarter building work done fell -3.7% and engineering work done fell -2.1%.
And staying in Australia, mining giant BHP has walked away from a proposed AU$75 bln takeover of Anglo-American after the British miner rejected a last-ditch request to extend talks. The key sticking point was how Anglo's South African assets were to be included.
Meanwhile, South Africa has gone to the polls, ending a fractious and dangerous election campaign period. Voter turnout is high.
The UST 10yr yield is now at 4.63% and up another +9 bps from yesterday. The key 2-10 yield curve inversion is less at -37 bps. Their 1-5 curve is also less at -59 bps. And their 3 mth-10yr curve inversion is much less at -76 bps. The Australian 10 year bond yield is now at 4.50% and up +11 bps. The China 10 year bond rate is unchanged at 2.31%. The NZ Government 10 year bond rate is up +6 bps at 4.94%.
Wall Street has slipped again today as rates rise further with the S&P500 down another -0.7% in late Wednesday trade. Overnight European markets were all down, London by -0.9%, Frankfurt by -1.1% and Paris by -1.5%. Yesterday Tokyo ended down -0.8%. Hong Kong was down -1.8%, but Shanghai ended little-changed. Singapore fell -0.2%. The ASX200 ended its Wednesday session down -1.3% while the NZX50 was essentially unchanged at the end.
The price of gold will start today down -US$15 from yesterday at US$2343/oz.
Oil prices are softish but really, little-changed at just under US$79.50/bbl in the US while the international Brent price is now under US$83.50/bbl.
The Kiwi dollar starts today down more than -¼c from yesterday at just under 61.2 USc. Against the Aussie we are firmish at 92.5 AUc. Against the euro we are also marginally firmer too at 56.6 euro cents. That all means our TWI-5 starts today at 70.6 and down a mere -10 bps.
The bitcoin price starts today at US$67,441 and down -0.5% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.3%.
Daily exchange rates
Select chart tabs
The easiest place to stay up with event risk is by following our Economic Calendar here ».
39 Comments
"In Hong Kong, their important tourism industry is in trouble, principally because of negative perceptions over their heavy-handed security laws imposed by Beijing."
Inevitable really, as another commenter states not so long ago that China has changed it to just another large Chinese city. But DC's comment is correct i think, that tourists are turning off due to the Chinese jackboots stomping on Hong Kong. It is becoming increasingly clear that China is little different from other authoritarian regimes (USSR, Germany late 1930s) where you have to be a member of the ruling political party, wearing their logo as a badge (often a flag variation), just to get by without being looked on with suspicion. China has demonstrated several times recently that they are prepared to use visitors as a political weapon against other countries, so there is always the chance a visitor will end up in one of their prisons on trumped up charges.
Natural historical intervention remould to your mould, what works for you. Thus Taiwan, Seoul, Ulaanbaatar know full well what lies in store should China embark on and succeed in reclamation of once was great empire as has been precedented by Putin in Russia. Of course some ironic conflict in that tas the Yuan empire itself reached as far west as north east Ukraine.
when has china ruled over korea for any significant period of time? any period has been fleeting, and you could make the case for the mongol period by that was ghengis khan. any chinese dynasty has been a course been a case of expansion and replacement. you might as well just say that chinese history has been one of a change in guard based on the different dynasties.
It depends on how the potential invaders makes up their mind as to what can be justified by even the thinnest of a historical connection. William 1 and Henry 7 are examples. Saddam Hussein is an example of failure even though his claim on the territory of Kuwait had very real support historically, and up until then quite recently. If the invader decides to have a go, the lack of any legitimate claim to territory can be easily be overcome by its fabrication even then it might just be simpler resort to the ruse of provocation per Adolf’s textbook or the Bush/Blair party.
Perhaps then study a map of the Yuan Dynasty. Commenced by Genghis Khan, completed by grandson Kublai. That contained all of present day China and stretched across all of south Asia and into eastern Europe. Thus the Khans begat , became annd expanded China.There is the precedent if you wish for reclamation of massive size. Out of respect undoubtedly, and with no particular hint of latent ambition the Chinese currency of to day, coincidentally is the Yuan.
This is a very interesting study by King's College London on the coverage of China in British media. https://kcl.ac.uk/news/british-media-china No surprise, it found that coverage of China is systematically negative across all mainstream media outlets, with an "almost total lack of any positive coverage of China in the British media". Link
On this Memorial Day observance that pays homage to those who have died defending our freedoms, a national poll, commissioned by Gatestone Foundation Trustee Lawrence Kadish of Old Westbury, Long Island, reveals that China has emerged as the nation considered the biggest national security threat to the United States. An overwhelming majority of Americans questioned believed that China will seek to dominate the remaining 21st Century at the expense of the United States. Link
In the US they are trying to slow things down from a very long expansion that just won't give in.
Hilarious watching the Fed trying to slow the economy as Govt deficit spends at around 6% of GDP (NZ has spent at this level once... in 2020!)
The economists are confused because they think Govt borrows / taxes the money from the private sector and then spends it. That's not how it works chumps! Treasuries are as liquid as cash and Govt creates the money to buy Treasuries when it spends.
"Treasuries are as liquid as cash "
They certainly are!
I suspect many (most?) think they are like term deposits where a person takes out a TD and holds it until maturity. Whereas with a treasury, bond, etc. the original 'purchaser' is more likely to have sold it somewhere along the way, and the new 'owner' likewise.
One of the first papers you do in Economics 100. Treasuries, government bonds, corporate bond, etc (in fact just about any debt object, including debtors!) ... can be bought and sold at any time and their 'face value' goes up and down as prevailing interest rates go up and down, (and in the case of debtors, how likely it is the new owner will get their money back).
MMT becomes easier to understand (and accept) if this concept is firmly understood. (NZ schools should be teaching this stuff to students at 15 ... as many countries do overseas. Why isn't it? Lobbyists! Like reproduction, too many believe finance / economics should be taught at home. Is it any wonder then that Kiwis aren't that bright?)
Been seeing a number of properties in Miramar dropping their asking prices lately, in some cases over 10%. One in particular asking 41% under CV. Not awful either.
Explain where the free lunch is. Was it that 67% markup? Trying to eat someone elses lunch today which they needed for the next 30 years?
MMT covers fiscal and monetary policy. We don't earn money into existence, we promise it. I will produce something next year at 106.39% of todays value. Up until 2021 that promise was backed by the bank ensuring the value of all property would increase tomorrow to pay back the debt of today.
That free lunch is now disappearing, quick.
"We don't earn money into existence, we promise it."
We do in fact 'earn it into existence'.
Our time and expertise (Labor) creates stuff of value. In return for this new stuff of value we get money. Were the money supply not constantly increasing, i.e. it was fixed, then we'd have the situation where money itself - due to constant Production, which includes Labor, would become more and more valuable. I.e. One year you'd get paid $100,000 per year but in 30 years that'd have gone down to (say) $50,000. But 30 years ago a house might have cost $1,000,000 but 30 years after that the same house in the same condition would cost 'only' $500,000. Weird, huh?
But stuff eventually wears out. Indeed it does. And some stuff is consumed immediately. E.g. food, oil. But overall there is a net increase in stuff of value. So the convention is to increase the money supply so that the 'price' remains largely the same in money terms with a slight increase due 'desirable' inflation.
This was one of the problems with using the gold standard to back money. Money, backed by gold, became more and more valuable and people took to hoarding it, rather than spending it, and the flow and supply of money contracted. Which obviously brought it own problems, especially as it was hoarded by a small number of people and governments.
Anyway, the short story is: We do in fact 'earn it into existence'.
Kiwis, like everyone in the First World, are taught that money is a store of wealth.
That doesn't make them stupid; it makes them ill-informed.
Debt can be, and is, issued unbacked. It's not only interest-rates which drive variation; ultimate resource scarcity will/does too. That is the inflection which is currently outflanking the central banks. The attempts to paper-over a widening gap - massaging data; shifting goal-posts - become unbelievable at some point.
MMT does not solve physical resource scarcity. No artificial construct does.
"Kiwis, like everyone in the First World, are taught that money is a store of wealth. "
Funny that when I did high school economics way back in the 80s we were taught money was primarily a 'medium of exchange' and also a 'temporary store of wealth' (i.e. savings that would eventually be spent).
Where did you go to school, PDK? Did you study economics back then?
Define temporary.
And - luckily - I only got around to studying economics, post GFC. Until then, I assumed economists knew what they were talking about. I know enough now, to be very sure they don't.
And, by your comment, neither do you.
If there's nothing to be spent on - resource depletion - then there's no 'temporary'; it's permanent.
Oh, and exchange of WHAT? Did any of your classmates ask the logical question? I know that they were taught about taking in each other's washing - so that's the service industry put in it's zero-sum place. That leaves? Real consumption.
Glad I didn't waste my time - nowadays I read Steve Keen, Georgescu-Roegen, Soddy....
https://profstevekeen.substack.com/?utm_source=substack&utm_medium=email
Treasuries are as liquid as cash and Govt creates the money to buy Treasuries when it spends.
Banks do not purchase government issued debt at syndication and tender events with bank reserves. They credit the Crown settlement account with what they owe the government for the bonds, which we call deposits. Bank reserves are simultaneously debited from bank settlement accounts since they are immediately in receipt of coupon bond interest and have yet to pay interest to beneficiary bank accounts. When the government enacts transfer payments to banks, an equal amount of reserves are credited to bank settlement accounts at the RBNZ
In response to Jfoes' assertion....
To the best of my knowledge ...that is how it works.. The Govt essentially borrows and then spends. Any "mismatch" , in regards to spending/borrowing is provided by the FED ( liquidity provider), by way of what is , essentially, an "overdraft facility"...so to speak.
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Anyway.... The FED IS influencing what its tools allow it to influence.... and that is , the demand for credit... and the money supply
https://fred.stlouisfed.org/graph/?g=1ohSO
https://fred.stlouisfed.org/graph/?g=1ohSO
https://fred.stlouisfed.org/graph/?g=1ohUp
As to why the economy has not weakened as much as expected. Its not just deficit spending . Peter Warburton has written a piece that touches on why a "leveraged World" has not reacted more negatively to much higher interest rates. ...and that these influences are waning.
https://economicperspectives.co.uk/2024/05/is-the-world-on-a-tilt/
just my view...
What about this guy's version (page 21-22 of 45 pdf), referenced by Paul Krugman?
In terms of taxation and spending the US Treasury must settle all transactions in its account at the Federal Reserve (which settles in outside money or bank reserves). In this regard, the Fed is the banker to the US government. But the US Treasury can only settle funds in its reserve account by first procuring funds from the private sector (taxing) in the form of inside money (the US Treasury cannot legally run an overdraft in its Fed account). It is best to think of this process whereby the government can only spend from its account at the Fed if it has already obtained credits via inside money transactions involving taxes or bond sales. This procurement of funds allows the government to then redistribute pre-existing inside money back into the banking system completing the flow of funds that starts with the banking system’s creation of inside money (in the form of loans which create deposits) and ending in a private bank account user being credit with the government’s spending.
Said differently, when the US government taxes Paul, Paul pays with bank deposits or inside money. This inside money provides a credit to the Treasury’s Treasury Tax & Loan account at a commercial bank. The Treasury will settle this payment by having the Fed credit its account in what is called the Treasury General Account (the Treasury’s account at the Fed). This flow of funds from Paul allows the Treasury to then spend a bank deposit into Peter’s account. From start to finish, this process results in inside money in (taxation) and inside money out (government spending).
by Audaxes | 9th Jan 21, 12:30pm
We (RBNZ) increased the Crown overdraft facility to assist with the potential for larger-than-usual fluctuations in Crown cash flows
We provide a Crown overdraft facility to help the Government manage short-term fluctuations in its cash flows. We temporarily increased the overdraft from $5bn to $10bn for a three month period to 1 July, to assist with the potential for some larger-than-usual changes in cash flows. The overdraft facility was utilised for a short period coinciding with the Government’s April 2020 bond maturity, and the account has since been replenished following the issuance of additional bonds and Treasury bills. Link
“I received information from contacts that hundreds of people were receiving social benefits from the United Kingdom using the weaknesses in the British social system.
“When I received that information I started to check myself and began my own investigation. I eventually concluded that we were talking about maybe £200 million every year from the UK."
https://www.telegraph.co.uk/news/2024/05/28/bulgarian-town-boomed-from-…
There was another US Treasury bond auction earlier today, this one for seven year notes was equally well supported as the previous ones. Hmmmmm...
According to the Congressional Budget Office (CBO) baseline, which does not assume a single year of recession and already counts with record tax revenues, the 2025 primary deficit will reach $851 billion, while net interest outlays will rise to $951 billion. Furthermore, the minimum expected primary deficit from 2025 to 2034 will be a staggering $676 billion with $1.2 trillion of net interest outlays, while the average annual deficit will likely be above $700 billion. The accumulated figures are even more concerning. The CBO estimates that the aggregate primary deficit in the 2025–2034 period will reach a brutal $7.4 trillion, with accumulated interest expenses of $12.4 trillion. We must remember that the CBO baseline estimates no recession and constantly rising tax receipts above the record 2024 level. Link
Instead of being proactive and health conscious the council would rather label and name-call genuinely concerned residents. Fk these greenies buggering the council with their own agendas
https://www.nzherald.co.nz/nz/auckland-couple-furious-after-tree-falls-…
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.