Here's our summary of key economic events over night that affect New Zealand, with news some central banks have started to cut policy rates, others are contemplating long holds or even rises.
But first, US mortgage applications fell a sharpish -5.2% in the last week of May from the prior week to be -13% lower than the same week a year ago, itself a weak level.
And the US ADP employment report disappointed too, indicating private payrolls rose +152,000 in May, and less than the +175,000 expected and the +188,000 rise in April. This is the precursor report for this weekend's May non-farm payrolls report when a +188,000 increase is anticipated. There may be downside expectations growing now. The ADP report said pay was up +5.0% over the past year indicating American workers are staying well ahead of inflation's rise.
US vehicle sales rose in May to an annual rate of 15.9 mln which is +2.5% higher than year-ago levels and that was better than expected, and higher than in April.
But the news that dominated markets overnight was the unexpectedly strong rise in the US ISM services PMI. The expansion it recorded was strong (53.8) and a sharp rebound from the minor contraction they reported in April. Further, this survey was backed-up, and more, by the S&P/Markit services sector survey which came in even stronger (54.8). New order growth in both surveys drove the expansions. And these new readings completely overshadowed the ISM factory survey hiccup (which you may recall was not matched in the S&P/Markit factory survey which was actually showing a positive expansion).
Markets reacted to the ISM services sector gains reported, especially Wall Street equities. They liked that the expansion is apparently broad-based.
Also worth a note is that a major carmaker is now building hydrogen fuel-cell vehicles in the US, as a hybrid with an electric battery. It's only emission is water vapour. Generally Americans have been reluctant to buy fast-depreciating EVs. It will be a test now for the appetite for fuel-cell cars.
Meanwhile in Canada, their services sector returned to a modest expansion and away from the prior contraction.
And the Canadian central bank came through with its expected rate cut, a -25 bps reduction to 4.75%. Markets expect the ECB will make similar signals, and also a -25 bps rate cut to 4.25%. We'll see. If so, these signal a new trend of major central bank rate cuts, led by this Canadian one. But will the US move? And Japan may increase, and possibly Australia too. So the trend isn't broad yet. The US decides on June 13 (NZT) and markets expect no cut presently. Japan decides on June 14, and Australia next on June 18.
Interestingly, the Canadian rate cut has not brought expectations it will revive their housing markets.
The private Caixin services PMI for China came in better than expected for May and a bit better than the official services PMI. Meanwhile the Japanese services PMI has risen in its final version from its flash result. It too is a similar and good expansion.
Meanwhile, Japanese pay rose +2.1% in April from a year ago, and well above the expected +1.7% gain.
In India, their PMIs for May (factory, services) both revealed slowdowns in their expansions on weaker order levels. But to be fair, both are still strong expansions, just less so.
And perhaps we should note that Prime Minister Modi's embrace of Indian billionaires prior to the election actually ended badly for him at the polls - and unexpectedly so. Other populist politicians who embrace billionaires should probably take note - but of course they won't.
In Australia, yesterday's release of quite weak Q1 GDP growth has brought fears of stagnation there. GDP per capita has fallen by -1.6% since mid-2022. But financial market traders pushed back the timing of rate cuts to July next year after “material” revisions in GDP data indicated household finances were actually stronger than many feared.
The UST 10yr yield is now at 4.29% and down another -4 bps from yesterday. The key 2-10 yield curve inversion is unchanged at -44 bps. Their 1-5 curve is also little-changed at -79 bps. But their 3 mth-10yr curve inversion is deeper at -108 bps. The Australian 10 year bond yield is now at 4.26% and down -1 bp from yesterday. The China 10 year bond rate is unchanged at 2.32%. The NZ Government 10 year bond rate is now at 4.74% and down -6 bps from this time yesterday.
Wall Street is up almost +1.1% in Wednesday trade on the S&P500. This is a record high triggered by the strong services PMI. European markets are up +0.9% except London which was up +0.2% in overnight trade. Tokyo ended its Wednesday trade down -0.9%. Hong Kong was down -0.1% and Shanghai down -0.8%. Singapore fell -0.3%. The ASX200 ended its Wednesday trade up +0.4% and the NZX50 ended up a strong +1.0%.
The price of gold will start today up +US$23 from yesterday at US$2353/oz.
Oil prices are up +50 USc at just on US$74/bbl in the US while the international Brent price is now just under US$78.50/bbl and a slightly larger rise.
The Kiwi dollar starts today marginally firmer from yesterday at just under 61.9 USc. Against the Aussie we are almost another +¼c firmer at 93.1 AUc. Against the euro we are marginally firmer at 56.9 euro cents. That all means our TWI-5 starts today at just under 71.2, up more than +20 bps from yesterday and its highest since late February.
The bitcoin price starts today at US$71,624 and up almost +1.4% from this time yesterday. Volatility over the past 24 hours has been modest however at just on +/- 1.2%.
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62 Comments
They're getting the same FOMO impact as NZ albeit with a more immediate effect of hikes in mortgage rates. I suspect the impact of immigration there on housing is greater than NZ however given the lower house prices in relative terms and higher wages. Arguably they don't need to hike so fart and hard as they see more rapid response in the market due to the level of floating mortgages vs NZ who fix. I'm pondering on how long it will be until things come crashing downwards over there as well. They have mineral wealth and higher wages to keep the flow of money more consistent, but the ozzys also ask the hard questions and stand up if things get too much, whereas Kiwis less so unless the situation is beyond dire.
Why is it interesting that the Canadian rate cut has not raised expectations that their housing market will be revived?
As I have said before WRT to NZ multiple cuts will be required, probably in excess of 1-1.5%, before any life at all is breathed into markets. The same applies to Canada and other markets.
Agreed.
0.25% is more about signaling and in and of itself is neither here nor there.
It's the signal that's the most important thing. It is far to small too have any affect on households.
But businesses are a different story. To them it comes as a signal to think about expansion and to start planning for it. Like building a house, a new 'project' at a business takes time, 6 months to 2 years. The cash drain in the early planning stages isn't huge but in seeking the information to complete a plan it sends messages to all potential suppliers that more sales are in the pipeline. The effect snowballs.
Like I've said, the correct time for our RBNZ to cut by 0.25% was back in November 2023. But no! Instead they're talking nonsense by saying middle/late 2025! By then it'll be a mess. NZ needs capital investment. Especially the small ones that employ the bulk of NZ employees but don't have the in-house economic and forward planning expertise that the larger businesses utilise - and this group need a signal that is loud and very very clear.
The RBNZ needs to wise up.
So you're highlighting the problem we have in NZ?
i.e. tax rules that reward un-productive investments, a central bank (RBNZ) with inadequate tools to direct capital investment, and extremely poor investment decisions by too many people with spare cash?
Yes. I'd agree.
My view is the RBNZ adheres to a strange and perverted view on how they think "free markets" behave. I.e. a weird and outdated version of neo-liberalism that believes all decision making with regards capital allocation should be left in the hands of private interests as they'll do it "best".
No country has ever been successful without the guiding hand of central authorities. And most recently successful ones, e.g. Singapore, Japan, Korea, Scandinavian, Eire, and even the USA have had considerable direction provided by central authorities.
But with the RBNZ is sticking to it's "hands off" approach to directing capital - we'll just keep bumbling slowly backwards as we have for the last 30 years. (And it's not just the RBNZ. NZ governments do likewise. Our muribund taxation system is a great example.)
We don’t have the correct controls in place to avoid further speculation in property which is leading to a societal decline
While this is a big part of the problem, we also have other contributors such as an outdated way of measuring productivity as JFoe has pointed out on numerous occasions, highlighting business practices over the last 20-30years of deferring maintenance on infrastructure to bolster profit and dividens, thus overinflating our productivity metrics as a nation. We now have a large cohort retiring and adding pressure to the budget, losing a large skill base from the workforce, and somehow we seem to want to upgrade all the dilapidated infrastructure AND build more at the same time while all of this is going on. I feel that the infrastructure catch up is a bit aspirational given our current financial state, and although new roads etc will provide a temporary relief, it isn't thinking long enough into the future, only the next election. Anyone else seeing a potential link between shorter attention spans due to social media etc flow through into shorter thinking in govt?
Our infrastructure requires a great deal of financial and human capital in "not-so-sexy" area such as 3-waters, power transmission & distribution, climate resilience, etc.
Neither political faction appears interested in plugging the exodus of skilled Kiwis, in fact their policy positions are aggravating the outflow, and will not fund those projects because of the limited photo opportunity that comes along.
A fail to reconcile "Neither political faction [...] will not fund those projects [3-waters, power transmission & distribution, climate resilience] because of the limited photo opportunity that comes along"
With the amount of political capital Labour put into three waters (and to a lesser extent transmission upgrades, dry year storage, and climate recilience)
Has the NZ public got any returns on Labour's political capital? Let's see:
- tens of millions wasted on setting up 3-waters bureaucracy without a single pipe being put into the ground and trying to pull a fast one with the co-governance model
- wasted millions in getting consultants to write business cases on a project that was never going to stack up on economically, despite forewarnings from energy experts across the board
- millions spent on consultants writing reports for transmission & distribution upgrades without contributing a single dollar towards the capital costs. The entire initiative is now being funded out of consumers' bills
The previous govt can be compared to a comms major being hired to run a big corporation. They spent all their valuable time attending meetings with consultants, PR agents and HR, i.e., grabbing every photo opportunity in pretending to do great things while actually achieving f-all.
you didn't talk about returns. You said no one was willing to invest. You can't blame Labour on National cancelling everything. Transmission upgrades have been going on for years.
I suspect calling Rio Tintos bluff and upgrading of the lines from Manapouri probably had allot to do with the new 20 year supply deal they just signed, instead of doing the usual and announcing they "might" have to shut down just as the 3 yearly election campaign starts.
https://www.odt.co.nz/regions/central-otago/100-million-line-upgrade-up….
This is why #newzealand tax is so high & we are broke we have people on benefits taking home as much as someone on a $140,000 salary how did this happen? When you are rewarded for living off the system #socialist #breedingVictims #nzpol Link
Is the the ~2% inflation target a legacy now world debt is too high.and in need of deflation?
The Bank of Canada today cut its policy interest rate. With core inflation already back in the range, the output gap estimated to be quite deeply negative, & allowing for the lags in how mon pol works, there is a chance they will be proved to have started easing rather too late. Link
Here's a question then. This comment sort of provides some reason for US$ weakness (NZ$ rising) recently, but what would happen if and possibly when China owns most of the worlds gold?
The 'Barbarous metal' comment sound a little like PDK but apart from being pretty and maybe useful in some electronics (but replaced by other more suitable metals?) what is it used for?
Bullish. Mining ratty and AI data center hosting are converging. Iris Energy as being a prime candidate to benefit from all this.
GPU cloud provider CoreWeave has reportedly made a $1 billion bid to acquire cryptomine and HPC hosting firm Core Scientific. The offer comes the same week the companies signed a multi-billion-dollar, 200MW hosting agreement.
https://www.datacenterdynamics.com/en/news/gpu-cloud-provider-coreweave…
Yes indeed. Read about it here.
https://corescientific.com/energy-grid-support/
As for Iris Energy, their operations run on 100% renewable energy.
Honestly, that page you linked "oh we are doing the world a favour by consuming all this electricity. It's going to save the planet!" The world would be better off if they just stopped mining and avoided the need for more grid supply to be built out.
If you want demand response, just mandate a standard on EV charges like AU is looking to do.
The world would be better off if they just stopped mining and avoided the need for more grid supply to be built out.
I assume you're referring to mining BTC, not data storage, right? Iris in particular is using 100% renewable energy. That's a positive thing.
If you want demand response, just mandate a standard on EV charges like AU is looking to do.
All organizations that consume power are responsible for paying for it and the relevant taxes.
Iris in particular is using 100% renewable energy. That's a positive thing.
It would be better if they shutdown and left that renewable energy to be consumed by productive enterprises. That would either allow fossil generation to be turned down, or avoid the need to build out more renewables.
If i install solar panels and then use all the solar power to run an oil column heater in my backyard while i'm at the office, is that a positive thing?
All organizations that consumer power are responsible for paying for it and the relevant taxes.
yes likewise all organisation that consume cheese are responsible for paying for it, but whats that got to do with grid demand response?
Is Iris Energy and IREN the same thing? I thought you were talking about Iris the crypto miners, but the link to IREN appears to be something different? Same business with different hats on?
@ Person, I think our missing the point, they go to areas where the use case is too expensive to setup power generation and offer to buy the power on a contract, this provides the money to purchase the equipment and provide power. They have added bitcoin miners in areas where there is power being unused and this has lead to a reduction in cost to the people of the area. Bincoin mining can be shut down in minutes when there are demand spikes, no so with traditional datacenters. Also probably two thirds of AI will be a failed experiment and therefore a waste of power, once a bitcoin has been created it exists forever, I dont see that as wasted.
Bitcoin miners go where the power generation is cheap, not expensive. It's the main operating cost.
Is Rio Tinto doing us a favour consuming all the electricity at Manapouri? Is that lowering the cost of electricity for the rest of us? Or would the cost of power go down if they shut up shop?
The correlation between luxury car sales and house prices in Aussie is strong. Article from 2019 but explains well.
https://www.afr.com/policy/economy/luxury-cars-following-rising-house-p…
This is a REALLY Bad Sign For the Economy
As more weak data pours in on the US economy, the more clarity it offers on the future path of ST interest rates. As that clears up, market rates are moving lower. But why? Mainstream theory demands we consider rates as entirely supply or demand factors (like QE). Yet, the past couple years have thoroughly disproven the idea. Rates are going lower because that's where and what the fundamentals are.
Interesting India election commentary - and closer to home StatsNZ send in the dripping wet bus conductor.
https://www.rnz.co.nz/news/political/518713/stats-nz-appoints-doug-crai…
No less than the (failed) SFO charges for New Zealand First, brilliantly timed two weeks out from the 2020 election, but just doesn't seem to be the same enthusiasm for TPM.
a hybrid with an electric battery. It's only emission is water vapour.
Incorrect.
From an urban pollution perspective perhaps.
But from an energy system perspective, you have to include the emissions from hydrogen production, distribution, and storage. (And anyone that thinks we can fuel the NZ vehicle fleet on hydrogen produced from renewables needs to do the maths.)
More headline nonsense: "Townhouses, new builds: What's hurting Auckland's housing market?"
When supply increases and house price drop a fraction from "massively overvalued", that is a good thing, it's something the council and government have been working toward for decades.
The only one "hurting" are property speculators.
https://www.rnz.co.nz/news/business/518768/townhouses-new-builds-what-s…
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