Here's our summary of key economic events overnight with news we need to keep an eye on a large drought developing in north-east China.
But first in the US, the University of Michigan consumer sentiment fell slightly for a third straight month in June, the lowest since November, and below expectations, a preliminary result showed. Overall, consumers perceive few changes in the economy from May. Inflation expectations were broadly stable at just over 3%. (The final results of this survey will come in about two weeks, and these have often come out better than preliminary results.)
The Bank of Japan held its new slightly positive official policy interest rate at Friday's meeting. But it did confirm it is working on ways to reduce its bond purchase program. They see Japanese inflation embedding from here, rising modestly over the rest of 2024 above 2%.
Japanese industrial production slipped in April in advance data released Friday, but that was among overall business activity that rose at a modest rate.
Indian exports, which are actually modest on the world scale, rose in May to be more than +9% higher than year ago levels. (Australia's exports fell in the same month, but they are still larger than for India. You have to go back to 2018 for India's export levels to be larger than Australia's. Since, the Aussies have made far more gains than India. India may now be the world's fourth largest economy and Australia the 13th, but India is an also-ran as an exporter.)
Despite a heady push from Beijing, Chinese banks extended only ¥950 bln in new loans in May, up from the low ¥730 bln in April and well short of the expected 'recovery' analysts expected of ¥1.3 tln.
Also somewhat disappointing where May vehicle sales results in China. They were up only +1.5% from a year earlier to 2.42 million in May, slowing from a +9.3% rise in the previous month. However sales of new energy vehicles surged by a third, accounting for nearly half (47%) of all car sales and a record high share. The modest overall sales result is on the back of surging production (+25%) and the excess is being shipped to export markets, causing trade distortions and accusations of dumping.
And in a massive part of important north-east China, including Henan, Anhui, Jiangsu, Hubei and Shaanxi provinces, an emergency drought response has been triggered. This will be a very big test of their food security
The UST 10yr yield is now at 4.22% and down -2 bps from yesterday. But it is -23 bps lower than this time last week. The key 2-10 yield curve inversion is deeper at -48 bps. Their 1-5 curve is still inverted by -84 bps. And their 3 mth-10yr curve inversion is deeper at -115 bps. The Australian 10 year bond yield is down -7 bps at 4.13%. The China 10 year bond rate is down -1 bp at 2.30%. The NZ Government 10 year bond rate is now at 4.66% and down -6 bps from yesterday. A week ago it was 4.70% so relatively little change here.
Wall Street in its Friday session has the S&P500 little-changed. That means it is up +1.7% for the week. Overnight European markets were lower, some sharply, with London down -0.2%. Frankfurt down -1.4%, and Paris also down -2.7% on new political risk. That means London was down -1.2% for the week, Frankfurt down -3.0%, and Paris down -4.0% for the week. Yesterday Tokyo ended up +0.2% to be +0.3% higher for the week. But Hong Kong down -3.3% for the week and Shanghai closed down -0.7% for the week. The ASX fell -0.3% on Friday to be -1.3% lower for the week. And the NZX50 ended its Friday unchanged for both the day and the week.
The Fear & Greed index has moved back into the "fear" range as risk appetites slip.
The price of gold will start today up +US$32 from yesterday at US$2333/oz and up +US$30 from a week ago.
Oil prices are unchanged at US$78/bbl in the US while the international Brent price is still at US$82.50/bbl. These levels are about +US$3 higher than week-ago levels.
The Kiwi dollar starts today -30 bps softer at just under 61.4 USc. But it is up +30 bps from a week ago. Against the Aussie we are -20 bps softer at 92.8 AUc. Against the euro we are unchanged at 57.4 euro cents. That all means our TWI-5 starts today down -20 bps at just on 71 which in turn is up +40 bps from a week ago.
The bitcoin price starts today at US$65,440 and down another -2.2% from this time yesterday. And that is down -5.2% from the US$69,031 a week ago. Volatility over the past 24 hours has again been modest at just on +/- 1.7%.
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69 Comments
Li’s visit boosts confidence among business communities of China, New Zealand
Stable, healthy ties beneficial to economic devt of both countries
“We’re in as much trouble today as we were in 1984,” said Roger Douglas in a recent interview looking at spending patterns published in the recent Budget Link
We're a global economic shock away from the government having to put up a garage sale on mono/oligopolies (power gentailers, Air NZ, Kiwirail, etc.) for cents on the dollar.
Another point of concern is that our skilled workforce appears to be thinning out in critical sectors as we celebrate the arrival of Uber drivers, cooks and waiters.
When you deregulate your market in a country like NZ, your economy is going to tilt further towards your natural competitive advantages.
Our historical industries that used to make up a bigger slice of the pie, weren't capable of the sorts of productivity gains needed to remain internationally competitive. We were never going to make $4 t shirts, or cheap EVs or solar panels. We can't even refine many of our primary goods, because it's cheaper to ship the stuff to someone who can make it far cheaper than it is to process here.
Oh, and the whole time this has gone on, we've regulated the arse off much of the remaining industries, so that over time we end up with a small handful of larger players who can control the market.
NZ doesn't have much to offer of much more value than being a nice place to be, and wet/sunny enough for efficient agriculture.
This is also why financial services has become a booming industry in a global economy.
What you described is a resource curse and I agree with that. It has traditionally been easier to make a quick buck off tourism and bulk agricultural commodity in this country. We never bothered diversifying or moving up the value chain on our bulk food production, which is evident in our low capital formation and R&D spending compared to Western democracies.
We incur large trade deficits on financial and tech services. We also import nearly half of our core retail services (Woolies).
70% of our forests are foreign-owned, so that export income is credited in our trade account and a majority is then debited out of our current account.
We never bothered diversifying or moving up the value chain on our bulk food production
We have, where it's viable. Where the climate permits, the values of the produce grown/raised have increased often dramatically, and in those areas you have the critical mass to justify the higher capital outlay on better plant and equipment for the production, as well as processing facilities into more refined goods.
The biggest problem is the hurdle to other industries that aren't contingent on our environment - because most of them can be done cheaper or at better scales than we can hope for.
The chances for NZ to grow many new lucrative industries indigenously is unfortunately fairly low - any that do arise have a tendency to leave in order to expand. And we lack the capital and skills base. Hence, our best bet is probably to attract foreign companies to set up shop here, which obviously comes with its own downsides.
We've been in a per capita recession for several quarters running. The reason our GDP isn't dropping like a lead something is that we're jamming more net migrants into the country than ever before.
There are more filled jobs today than there were 2 years ago but we're producing less as an economy. Doing less with more means we're becoming less prosperous as a nation.
We no longer have to be unemployed to be unable to pay our bills like in 80s, we are working 40-hour weeks to be in that situation now. Yay, us!
Everyone keeps anecdotally saying there is all this unemployment for a couple of years now, but I believe stats nz more. It will obviously go up from here but we are still a mile from disaster. Not saying that disaster won’t happen, but I’d say it’s unlikely now that CPI looks under control. I doubt we’ll get to 6% unemployment.
My guess from here is that CPI surprises on the low side (esp if fuel stays down) and we see a cut next RBNZ meeting or the one after, followed by cuts at each meeting after. But I’ve been as wrong as almost everyone else so far so what would I know.
Roger is talking absolute nonsense. The Govt could, at any time, spend tens of billions of dollars. They don't need to sell anything to 'raise' funding for infra or anything else, nor beg the market for finance.
The long-term risk is our reliance on expensive imports, which is blowing out our current account deficit. This leads to offshore ownership of NZ financial assets (eg bonds) and an erosion of our monetary sovereignt (preventing us adjusting intersts rates differently from the Fed for eg). Our current account deficit can also lead to offshore ownership of our real assets, which erodes our independence and leads to even more NZD being owned offshore (adding to the current account deficit).
I was referring to the ability of govt to pay out for a disaster or other similar shock.
Govt spending = private sector income. So, yes, it's important that govt get value from that initial spend (eg paying a teacher to teach kids well), but what the private sector does with that income before it is taxed back is also important.
On the practical side what can any one of us do about the parlous state of NZ, other than vote national/act and keep beavering in our given profession/voluntry organisation
The irony is that us working hard for the country generally makes us individually better off and more insulated from economic fallout
How about the country reduces production and export income whilst raising fiscal spending on benefits etc. That wins lots of woke votes but is not "Sustainable". If thats what the electorate really want then sooner than later we will be sinking lower in self pity at the arse end of the world. At least you wont need to worry
"#China's EV sector is still in a phase of rapid growth, there is no #overcapacity", writes PKU Prof Lu Feng. Though the risk of overcapacity exists in 's emerging industries, China's main problems lie elsewhere, he argues. His views in 10 key points: Links
Good Morning from #Germany, where green stocks get hammered after the Greens' crash in the European elections. SMA Solar plunged 10.7% this week, wind turbine comp Nordex crashed 10.6%. 'Sunday’s EU election results were a shock not so much for the advance of the ‘far-right’, which was widely predicted, but for the slump in Green Party support,' SG's Edwards says. Link
Another great state of the world article from Indian Punchline. The US State Dept issues no statement saying they are working on it. BIg LOLs.
'If oil were to be priced in a currency other than the dollar, it could lead to a decline in global demand for the greenback, which, in turn, could result in higher inflation, higher interest rates, and a weaker bond market in the US.'
An excess of oil forecast...
"Total supply capacity is forecast to rise to nearly 114 million barrels a day by 2030 – a staggering 8 million barrels per day above projected global demand, the report finds"
https://www.iea.org/news/slowing-demand-growth-and-surging-supply-put-g…
Chris Trotter rips into local Govt
"The Illusion of Power: How Local Govt Bureaucrats Overawe Democratically-Elected Councillors"
https://democracyproject.substack.com/p/the-illusion-of-power-how-local…
It's always been this way.. the uk series 'yes minister' from the 70/80s explains how the process works in hilarious honesty.
Luxon and co are in the same boat.. they just haven't realized yet.. ultimately they rely on the massive admin dept to actually deliver anything.. and that's a monster that has spent decades learning how to manage its masters for its own gains. For the coalition who just fired everyone they will soon face issues delivering anything OR hiring the people they fired as consultants at x2 the price.
It's kinda funny .. funnier still if I wasn't a taxpayer paying their wages.
For the coalition who just fired everyone they will soon face issues delivering anything
I seriously doubt that. Having more doctors, teachers and policemen will make the biggest difference in improving public service quality. Not even a few million from the $11B health restructure spending went to frontline workers FYI. Poof!
Many of the roles created by Cindy & Co. in the larger ministries were several degrees separated from the services being delivered to the public.
I don't see why MoH requires scores of comms managers, advisors and also consultants on hourly rates. They are the ministry that write policies for the agency that funds public hospitals that provide the health services to Kiwis.
I don't see why MoH requires scores of comms managers, advisors and also consultants on hourly rates. They are the ministry that write policies for the agency that funds public hospitals that provide the health services to Kiwis.
Normally because if you don't have those people the the frontline staff have to do the work which takes them off the frontline. Seen it many times before in the public sector. You end up having to send engineers to meet with constituents to explain why a particular project is happening. It's not normally in the engineer's skill set and they would rather be doing engineering.
The main reason the public sector is seen to be wasteful in New Zealand is because the New Zealand public expects to be able to have a. Say on every little thing the council does. In other more efficient countries they are just allowed to get on and do their jobs with the public interfering. The politicians set the direction and overall objectives and then have to defend the actions the civil servants make to implement those policies. If the public don't like the policies, the politicians get booted out. Here you literally have politicians who get voted in because they slag off the public servants, every term, even though the civil servants are literally doing what those same politicians have directed them to do.
New Zealander's are not great at understanding governance.
I work with an engineering firm and our technical experts do all the writing and writing for private clients. Nowhere outside the public sector would you hire non-experts to speak, write or decide on behalf of experts, so there goes your quality of output.
I spent a few years on-and-off working FT and contracting in the public sector between 2015-22. So much substance gets lost in translation because people with no actual background and spent their careers jumping from ministry to ministry end up dumbing down technical reports to a point where they are not even worth the paper printed on.
Check out the MBIE industry transformation plans for example if you'd like. I had a direct contribution in writing some of that and the end result was hardly what the panel actually intended because non-experts decided to chime in after we were done.
"In other more efficient countries they are just allowed to get on and do their jobs with (out?) the public interfering."
"...the public interfering"...you mean the actual paying customers having the nerve to express their opinions on the adequacy of delivery of captured monopoly services.
(BTW I've been a Chartered Director & Trustee in multinationals & NZ corporates for ~15 years so have picked up the odd scrap on governance).
"...the public interfering"...you mean the actual paying customers having the nerve to express their opinions on the adequacy of delivery of captured monopoly services.
Nope, the members of the public are not paying customers, this is part of the problem. If you want to set up a council to be more "customer focused" you need to have loads or marketing and comms people to "sell the service" to the customer and explain why they are doing every single little thing. You then also need to hire someone to track all those customer interactions and respond to every little thing even if they are absolutely worthless. You then need to ask anybody who might have an opinion on anything you do whether they're OK with how things are being done.
If that's what you want then fine but it is the reason things are expensive and inefficient.
I'll give you two examples, an old colleague worked for a council in Germany. When the streets go too crammed with cars he would roll out a resident permit parking scheme. His decision. He would send out a letter to residents on the affected streets and then a couple of weeks later the signs went up and the application went online. Bosch, done.
AT was recently told by the council and Mayor that they needed to be more commercially focused with their parking charges and not undercut the private sector. AT took direction from the Council and sent out a letter to residents and business that they would jow be charging for parking in the city overnight (as all the private parking providers do). So they were carrying out the council's and Mayor's instructions and also trying to reduce the financial burden on ratepayers and they got absolutely slammed. Why? Because the comms weren't good enough. Why were the comms not good enough? Because the Mayor had directed AT to cut comms staff. So tell me how would a private sector provider deal with these situations where the 'customer' gets their say?
agnostium. I can be convinced that public servants in Wellington can be busy. But the systems mean nothing much useful results.
About 5000 have lost their jobs so far. More than a cost reduction it's actually shifting them from being in non productive roles into something useful, and New Zealanders will benefit.
Said it before to say it again - a bureaucracy that is opinionated, self-serving and unaccountable is a threat to society and democracy itself. The horse is running the jockey. Seen it here on our street council staffer telling our elected councillor to nuff off. You can’t tell me what to do, you are not in charge, I report to the working group, under the sub committee of the divisional management.
"Seen it here on our street council staffer telling our elected councillor to nuff off. You can’t tell me what to do, you are not in charge, I report to the working group, under the sub committee of the divisional management."
That can be 100% true and the right way to be. Being an elected member doesn't give you any sort of authority over individual staff members. Often politicians make shit political decisions (often warned by the council staff of the consequences of their decisions) and then when the shit hits the fan they blame officials who are implementing their policies. I will say that the system isn't perfect but a council officer pushing back against an elected politician who is directing them outside their remit is both healthy and democratic.
There are some absolute nutbar local councillors that go off on a tangent against the overall elected council direction and are the surprised when council staff say sorry, you need to take that back to full council if you want us to do what your asking.
Except this was just a case of commonsense to correct a state of negligence. The council had allowed the wide grass verge, their reserve land, to overgrow and then when it was eventually cut back left it mostly lying where it fell. The long grass and other debris blew into the gutters and matted and blocked under the gutter bridges and for months the street became ankle deep in water whenever it rained. Of course several residents complained through the council channels. but to no avail. Finally our local councillor came and had a look when it was like that and following that the staffer turned up. The councillor politely pointed to the blockages etc and politely said these need to be cleared away and the grass needs to be cut more regularly and taken away. The retort was as described, disrespectful going on spiteful and that included us the ratepayers present. You might well be right technically with the reporting lines and this was exactly what the individual wanted to hide behind rather than take any responsibility. For such an example of disrespect and unaccountability to occur, then surely there must be a severe deterioration in good attitude and proper application which makes it likely it is deeply inherent in the whole organisation hence reports recently of departments declining to furnish regular reporting. I have never worked in the public service but I have worked in both small and large organisations, institutions if you like, in NZ and overseas. Always there is what I would call the thin red line of those that get on with it and do an honest job with their best intentions. Seems to me though, with our council anyway, the line is getting thinner and thinner.
Sums it all up doesn’t it. Shouldn’t have to take directions from the councillors that are elected by the ratepayers anymore than they anre accountable to the ratepayers that pay their wages. Ideal world of all authority and no responsibility. No wonder the ranks are swelling.
Not only do WCC employees and consultants stand accused of pushing aggressively for the sale of the Council’s shares in Wellington Airport, but also of intimidating and threatening Councillors opposed to the proposed divestment. If these accusations are proved, then serious questions will need to be raised about the authenticity of local democracy right across New Zealand.
by Stephen Hulme | 11th Jul 16, 8:56am Link
Wellington International Airport, which is 66 per cent owned by investment group Infratil, posted a 29 per cent gain in full-year profit as growth in international passenger volumes drove revenue.
The airport paid a dividend of about $13 million to the city council and a subvention payment of $39.5 million on Infratil. Read more
Another blemish to detract from Wellington Airport's claim, ratepayers/taxpayers should fund a loss leading runway extension since it's they who will be the prime beneficiaries. I think not.
So why does Infratil appear to get a disproportionate share of the profits each year?
It comes down to tax - Wellington International Airport doesn't pay any. Chalkie has gone through several years of cashflow statements and found not a cent paid out since at least 2007.
The reason it doesn't pay tax relates to the subvention payment to Infratil. A subvention payment is a legitimate method of balancing the tax liabilities in a group of commonly owned companies - the threshold for common ownership is 66 per cent.
If company A owns companies B and C, where B makes a profit of $100 and C makes a loss of $100, A has made a balance of zero. To avoid the unfairness of B having to pay tax even though the group has made no money, B can make a subvention payment of $100 to C, so both make zero and no tax is payable.
Infratil does this with Wellington Airport, using a subvention payment to reduce the airport's profitability to negligible levels and offset losses elsewhere in its New Zealand portfolio. Since 2007 the payments have averaged $23.7m.
According to IRD tax rules, a subvention payment cannot exceed the amount of the loss-company's loss, so the $30.1m payment last year means another New Zealand company within Infratil had a loss of at least $30.1m.
Leaving aside the oddity of an Infratil subsidiary apparently losing tens of millions year after year, Chalkie reckons there's something odd about how the subvention payment is calculated.
According to Brown "the airport calculates what the net profit after tax would have been, and then the city council gets 34 per cent of that, and then the remaining share of net profit after tax, and the amount of tax would have been paid, is taken by Infratil as a subvention payment". But if the loss-making Infratil subsidiary pays no tax, and the airport pays no tax, why does Infratil get paid extra to cover tax?
Not only that, but the Commerce Commission calculates the airport's allowable returns as net of tax, even though no tax is being paid.
Admittedly, Chalkie is no sophisticate in tax matters, but he reckons Infratil is. If the airport's prices take a hit, perhaps tax benefits will be a consolation. Read more
https://www.stuff.co.nz/nz-news/350305219/gore-mayor-ben-bell-invited-a…
seems to work well in practice
NZ burp tax elimination is the lead story in Nature (Briefing Anthropocene)
"New Zealand ‘burp tax’ scrapped
New Zealand’s government has dropped plans for a tax aimed at reducing the nearly half of the country’s greenhouse-gas emissions that comes from sheep and cows. The government will remove agriculture from its greenhouse-gas emissions trading scheme. The pioneering ‘burp tax’ had been brought in by the previous government as an attempt to reach net zero by 2050, but was met with nationwide protests by farmers."
A common feeling in Wellington for as long as I can remember is that business and the public sector distrust each other to an unhelpful degree; developing unfair caricatures that paint the other as out of touch and just working for its own interests. I am optimistic that now is a time we can challenge that outdated toxicity, and instead support each other, apply the benefit of the doubt, be willing to develop confidence in each other's potential, and embody a collective spirit of wanting to succeed together.
Super relevant given the uniformed comments that are regularly trotted out here about public vs private sector.
https://www.thepost.co.nz/nz-news/350310534/where-are-new-jobs-wellingt…
NZs last 4 CPI quarters are 0.6, 0.5, 1.8 and 1.1. Assuming we get 2 more quarters of about 0.5% then we will be back to 2% this year. And from memory that 1.8 was the petrol tax reinstatement. So surely the RBNZ will be cutting rates this year, maybe faster than we think. A couple of low quarters could take them under 2%, that would be embarrassing for them having destroyed the economy way too much. They may have to battle deflation next year!
“There has never been a presidential platform so self-evidently inflationary as the one put forward by President Trump”
https://www.theatlantic.com/politics/archive/2024/06/trump-plan-superch…
Average property tax, debt servicing, and insurance in the US is now USD18k a year - 26% increase over 4 years.
The price for owning a home is rising rapidly – and we’re not just talking about mortgage payments.
US homeowners are now paying an average of $18,118 a year on property taxes, homeowners’ insurance, maintenance, energy and various other expenses linked to owning a home, according to a new Bankrate study.
That’s nearly the cost to buy a used car and represents a 26% increase from four years ago when it cost $14,428 annually to own and maintain a home.
https://edition.cnn.com/2024/06/11/business/homeownership-costs-inflati…
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