Here's our summary of key economic events overnight that affect New Zealand with questions remain about whether inflation's fall can be maintained.
Today is another shadow day with mostly second-tier data released, but some of it is interesting all the same.
First in the US, retail sales at physical stores were up +5.3% last week from the same week a year earlier, a good 'real' rise above inflation. But it was a slowing from earlier weeks and is the least rise since mid April.
But things don't seem to be expanding anymore in their factory sector. More Fed district surveys are being released, the latest one from the mid-Atlantic states and that brought a slowing in June largely based on retreating new order levels.
However the Chicago Fed's National Activity Index for May was less negative, turning up after two prior down months. This was on the back of expanding production levels and new order levels held their own.
The Dallas Fed's services PMI retreated again in June, but by far less than the sharpish May level. This is a key 'red state' that is struggling.
Nationally, the widely-watched Conference Board survey of consumer sentiment dipped in June from May, but not as much as expected. The 'present conditions' aspect remains buoyant, but it is the 'future expectations' component that eased a bit.
Separately there was a US Treasury 2 year bond auction earlier today and it was strongly supported, delivering a median yield of 4.66%. A month ago at the equivalent event the median yield was 4.85%, so a -19 bps easing since then. More than US$192 bln was offered for the US$71 bln available.
Is inflation under control in the US? A key Fed official doesn't think so yet, and said she is prepared to vote to raise rates again if the disinflation trend doesn't continue.
In Canada, they got a small surprise from their May CPI data. It rose to 2.9% from its three-year low of 2.7% in April. Analysts had expected it to retreat to 2.6%. While this move is still in the Bank of Canada's expectation range of "about 3%", the halt to the disinflation trend challenged earlier bets that the central bank would continue loosening monetary policy. Bond yields fell there.
In Japan, researchers have found more than 200 million tonnes of manganese nodules, rich in battery metals, in the Pacific Ocean and inside the country’s exclusive economic zone. They say that is the deposit contains 610,000 tonnes of cobalt (equivalent to 75 years of Japan’s consumption) and 740,000 tonnes of nickel (11 years).
The latest South Korean consumer sentiment survey rose in June to its highest level since March. Sentiment regarding current living standards increased, while future outlook improved by the same margin. Expectations for future household income also rose.
Australian consumer sentiment is mired in low territory, according the June update of the Westpac-Melbourne Institute survey. Despite the improvement, consumer sentiment remains below its March level and still firmly in deeply pessimistic territory. The survey detail suggests positives from fiscal support measures are being negated by increased concerns about inflation and the outlook for interest rates.
In Europe, Denmark is set to become the first nation to impose climate taxes on their agriculture sector. They say they are doing it in part to encourage other countries to follow. Less than 2% of Denmark's GDP comes from their rural sector, but it delivers 22% of their exports.
In the UK, the sheer size of their housing crisis has been explained in a dramatic way. Since 1977, they have fallen behind other northern EU countries in building new homes, driving a severe shortage that has sent housing prices soaring and kept young Britons out of the market. A Bloomberg analysis found that the failure to keep housing production on pace has led to a massive 4.3 million missing homes - greater than the number of existing dwellings in all of London!
The UST 10yr yield is now at 4.23% and down -2 bps from this time yesterday. The key 2-10 yield curve inversion is now more at -50 bps. Their 1-5 curve is now inverted by -85 bps. And their 3 mth-10yr curve inversion is inverted more, now by -108 bps. The Australian 10 year bond yield is down -2 bps at 4.24%. The China 10 year bond rate is also down -2 bps at 2.24% and getting close again to its all-time low in April 2024. The NZ Government 10 year bond rate is now at 4.60% and down -5 bps from yesterday.
On Wall Street, the S&P500 is up +0.2% in its Tuesday session. But overnight, European markets closed about -0.6% lower on average. Yesterday Tokyo closed +0.9% higher. Hong Kong closed up +0.3%, but Shanghai closed down another +0.4%. Singapore ended up +0.4%. The ASX200 ended up a recovering +1.4% and the NZX50 was up +0.8%.
The price of gold will start today down -US$13 from yesterday at US$2319/oz.
Oil prices are down -50 USc from yesterday at US$81/bbl in the US while the international Brent price is down -US$1 at just under US$84.50/bbl.
The Kiwi dollar starts today little-changed from yesterday at just under 61.2 USc. Against the Aussie we are still at 92 AUc. Against the euro we are also still at 57.1 euro cents. That all means our TWI-5 starts today little-changed at 70.8.
The bitcoin price starts today at US$61,577 and bouncing back a partial +2.5% from this time yesterday. Volatility over the past 24 hours has high at just on +/- 3.0%.
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102 Comments
dropping rates doesnt help now... it will just prolong the pain. The pain is now inevitable and we have to reset our economy.
The key mistakes happened a long time ago:
- by the RBNZ even prior to COVID in dropping rates and causing asset bubbles
- he labour government happily imported too many of the wrong people, spent too much money on nothing useful and giving out covid cash
- the sheeple happily spent all the cheap money and cash, and borrowing way too much believing asset prices would keep rising indefinitely.
Any attempt to rebuild the economy by making NZ local money cheap again to keep leveraged entities alive is fools gold. The markets will see straight through it.
We have to sort our country and economy out and that means realising our real financial and trading position, and lack of a real economy.
Its the reason we cant actually have x2 healthcare systems, and signs in two languages and so on - not because of any specific issues with culture or race but because we simply dont have the money to do it. We have to focus now on the core very basic issues o maintaining existing infrastructure, building productive businesse, education etc.
The govt doesn't set interest rates. The rbnz does. It's designed to be independent decision making with good reason.
The rbnz can't just drop rates.. there are a ton of implications from doing that which aren't helpful.
Noone is 'giving up' by not adopting a foolish short term strategy. In fact this govt is mostly doing the right thing.
I would agree that digging up the countryside is a bad idea. But low rates too early is a bad idea too.
I agree with everything you say here and wasn't advocating for lowering interest rates at all. The last National government started their tenure mulling the idea of mining Great Barrier Island for example and backed down pretty quickly. I think this time round this sort of discussion will get more support due to the fact that more people are getting burned for longer.
agree.
if we look at the world now vs 5 years ago - when everything was booming and peaceful -> economies are now in trouble and there are lots of wars. ->people now re way less concerned about climate change and the environment and far more concerned with survival and/or protecting their wealth.
i reckon that soon - if we are told mining our national parks is the way to protect our jobs and way of life -> then the majority will happily agree to it.
Climbing the hill. Explained too as two of the RBNZ dignitaries happened to be riding a tandem bike up one. When they got to the top the front rider exclaimed - man that was a steep hill, didn’t think we were gonna make it. To which the one in the rear replied - same here, I was so frightened we would go down backwards, I kept the brakes on.
That's not my take on future rates from what I read above -
In Canada, they got a small surprise from their May CPI data. It rose to 2.9% from its three-year low of 2.7% in April. Analysts had expected it to retreat to 2.6%. While this move is still in the Bank of Canada's expectation range of "about 3%", the halt to the disinflation trend challenged earlier bets that the central bank would continue loosening monetary policy
https://www.nzherald.co.nz/business/rbnz-needs-more-timely-data-to-make…
Real time GDP tool predicted GDP at 0.2 on the 1st April, this is worth a read, very cool
EDIT:not an app a website: https://www.gdplive.net/Dashboard
Doesn't matter how fast the data turns up ... Still won't stop the RB driving to what they see in the rear view mirror. I.e. instead of being 12+ month plus late with what they must do, they'll be 9-11+ months late. And stupid nonsense like 'we must hold rates high and unmoving until inflation is back in range' will continue to dominate their backward thinking. There is a reason why we look out through the front windscreen when driving ... It allows us to predict what's coming and slow down or speed up before we crash into things.
The thing is, if it really was a direct realationship between interest rates and inflation, rather than a rough yet-to-be-proven-in-the-real-world theory. We would just have an algorithm that made sure we stayed in balance all the time.
The fact we don't sort of suggests stuff isn't as controllable as they want us to believe.
With statistics, you need to choose to prioritise timeliness or accuracy - you can't have both. A few years ago, they changed the migration stats to be more timely but less accurate and everyone complained.
There is also a matter of funding. Stats NZ budgets are being blindly slashed like all other departments.
Then there's the recent legislation changes enabling privacy compromises & political interference:
Data and Statistics Act to become law | RNZ News
How a law change six years in the making changes the way the state collects data about us | Stuff
You're making the assumption that continuing to load businesses with billions of extra debt servicing costs is going to moderate price increases in (a) a country with famously low competition, and (b) in sectors that are not demand sensitive (insurance, rates, tobacco taxes etc). RBNZ have played their only card and they have probably done more to make inflation sticky than they have to calm it down.
The businesses that can't service that debt are "Zombie companies" and should go under so their resources can be redeployed to more profitable areas. That is one of the core features of capitalism "creative destruction". We have had decades globally of propping up businesses that should not have survived and the piper is finally coming for payment as overall economic conditions have changed to the point we can't keep repeating the easy money + govt bailout methods which have been used for decades.
Low interest rates also help big companies crush competition. NZ will need more regulatory trustbusting on top of that but giving the largest companies the ability to borrow astronomical sums at rock-bottom rates to drive out competitors is not helping things either.
"The businesses that can't service that debt are "Zombie companies" and should go under so their resources can be redeployed to more profitable areas."
I love it when people show clear signs of an having overindulged in the consumption of Kool-Aid.
This nonsense that all companies that that fail in recessions do so because they "can't service that debt" is pure hockum.
There are a few. But the root cause why the vast majority fail is because customers disappear and/or can't pay their bills. Root cause analysis is your friend.
A further piece is foolishness is your statement that "their resources can be redeployed to more profitable areas" ... That's far from what happens. Very few resources are recovered - while most, often the most valuable resources, are destroyed and gone for good.
(In case you were wondering, I've done quite a bit of work for big companies in the debt recovery space both here and overseas.)
> I love it when people show clear signs of an having overindulged in the consumption of Kool-Aid.
And I love when people open with insults to reasonable disagreements. Makes it easy to know they are emotionally reasoning, not doing root cause analysis.
Clean up your comment and I'll respond.
The businesses that can't service that debt are the businesses that can't pass the extra costs onto their buyers (whether they are consumers or other businesses). Those are not 'zombie companies' - they are companies that do not have sufficient market power. That's why we are seeing wholesaler profit margin holding while retailer profits plummet. The former have market power, many of the latter don't.
If we continue down this path we end up with lots of companies with market power (as you acknowledge), which leads to stagnation, no productivity investment or impovement, and an economy that simply extracts rents from Govt deficit spending and ever-greater private debt. That, my friend, is a zombie economy. Does that sound familiar?!?
This is an odd framing. They are zombie companies. Saying they aren't is like saying that someone who has taken out more debt than they can service isn't really bankrupt, they just can't get a better job paying more. Maybe they can't get a better job and maybe these companies can't raise prices to cover the costs of their debt servicing. But this doesn't change the fact they are zombie companies.
> If we continue down this path we end up with lots of companies with market power (as you acknowledge), which leads to stagnation, no productivity investment or impovement, and an economy that simply extracts rents from Govt deficit spending and ever-greater private debt. That, my friend, is a zombie economy. Does that sound familiar?!?
Continue down this path? We are already well down this path and have been walking for quite some time. We have a zombie economy. We aren't unique in this, it is a global problem but it is only through massive debt injections we have gotten this far.
The medicine is not going to be more of the drug that gave us this problem in the first place. All that is happening now is that the piper has come for payment and can't be put off anymore. We have no good options here and many of the better options are politically unviable (at least for now).
That was kind of my point - we are well down that path, and this recession will simply take us farther. Soon all we will have left is oligolopic companies feeding off debt, finance companies creaming rent, and low paid workers in precarious service work desperate to hit their piecework targets so that they can put food on the table and keep their landlord in pinot.
Your original point was that this is a necessary recession to kill off 'zombie companies'. My point is that the recession will actually achieve the opposite.
Unless I misunderstand you, you are suggesting we lower interest rates again to stave off this recession though? Because that is what I am disputing. The recession will be harmful but compared to the alternative of lowering interest rates again for one last rodeo, it is the preferable option.
Fixing this will require leadership from the NZ govt (sigh) and a focus on smart legisilation around things like taxes (land taxes especially), trustbusting, etc. But interest rates dropping is in no way shape or form the solution here.
EDIT 1: But if you aren't proposing rate cuts, then I apologise for inferring that you were.
Appreciate the considered response. I don't advocate higher or lower rates, I think monetary policy is simply the wrong tool for maintaining price stability in a little price-taking island in the south pacific. It doesn't work like people want or need it to do and the sooner we recognise that, the sooner we can get onto some of the far smarter tools you identify above.
"Probably set appropriately currently given the level of inflationary pressure and stage of the business cycle."
Can you explain why you think that?
Perhaps mention why an OCR 5.5% was sufficient back when inflation was running at over 7%, and why the OCR is still at 5.5% but inflation has fallen by over 3.5% (and is likely to be more at this time).
Likewise, please reconcile the effects of over two years of negative growth / extremely low growth with the OCR at it's current level while inflation continues to trend down.
Feel free to comment on whether you believe there is a clear link between the OCR and inflation over a) the very short, b) short, c) medium and d) longer terms.
"I don't think the low interest rates pre-Covid are likely to return."
Nobody is saying that.
An OCR below the 'neutral rate' - the RBNZ says the 'neutral rate' is 2.75% - I think they should have stuck with 2.5% - is only required in exceptional, very exceptional, circumstances (and covid, IMO, wasn't one of them when government was doing all that was necessary to get us through).
I think we need inflation to be back in its target band for a sustained period before we start to drop the OCR
The OCR is the tool used to control inflation historically and is for most the expected mechanism. keeping it that way means businesses can plan for the the booms and busts knowing how they will be controlled and what will happen on the way up and down. Before its lowered we need to be sure habit have changed and inflation is under control. remember a lot of people have had their costs rise more than 10% with no increase in income and are living on the breadline. Also its key that everyone remembers and plans for the bust cycle and increased rates next time. We 'know' the RBNZ is always delayed in its actions and thus we need to plan with that in mind and store nuts in the winter.
we have gone through a sustained period of unsustainable growth driven in a large part by free money (covid money), cheap debt and inflation... which drove asset prices up and many borrowed too much, and/or spent from their equity to add to the boom. and hired too many people.
The correct course of action is what we are experiencing now. a prolonged period of high rates and a sustained period with inflation in its target bands (overshooting by a quarter is fine to make sure the change is sticky)
those that are hurting the most are those that overleveraged during the boom, or built businesses that were too big for the real economy... for example high end retailers have opened stores and hired staff that arent needed when the economy is back to its 'normal' level of spend. ditto real estate, construction, developers etc etc
What would be great when people reply to questions like yours is that they disclose what level interest-bearing investments they have.
I suspect that many people posting here just want rates to stay high for their own selfish reasons and will talk all sorts of nonsense about inflation being sticky, stagflation, need to reset the economy, etc. etc. just to justify their biases. The fact that NZ Inc is going down the toilet doesn't seem to factor into their thinking. I.e. dog eat dog stuff.
To get the ball rolling ... I have significant, but idle, working capital earning interest and a very low debt to asset ratio. I want that capital to be back at work building stuff, i.e. real investment - creating new stuff. But that's not going to happen while the RBNZ is driving risks up with businesses failing right, left and center, jobs being lost, and adding unnecessary cost to my projects. (See the problem with relying on a single tool to fight inflation? It kills the good spending along with the bad.)
> To get the ball rolling ... I have significant, but idle, working capital earning interest and a very low debt to asset ratio. I want that capital to be back at work building stuff, i.e. real investment - creating new stuff. But that's not going to happen while the RBNZ is driving risks up with businesses failing right, left and center, jobs being lost, and adding unnecessary cost to my projects. (See the problem with relying on a single tool to fight inflation? It kills the good spending along with the bad.)
Businesses that can't survive these rates should fail. Then their resources can be redeployed to more profitable areas. This is capitalism 101, you seem to be making the case that allowing increasingly large numbers of zombie companies to continue on is good for the health of the economy. It isn't. That is what Japan has done for 30 years post their big market crash and look where it has got them.
Money has been far too cheap for far too long which has led to the obvious outcome which is substantial malinvestment. Reversing course now will just be kicking the can down the road for an even bigger reckoning (probably within the decade).
Now is the best time to invest - stock prices are low, asset prices are dropping.
Key is to identify entities to invest in that have a rosy future. Looking like anything to do with military drones, space warfare, survival shelters, productivity and so on will be in big demand.
General AI, land, banks, retail (nice to haves)... less so.
lol
"Now is the best time to invest - stock prices are low, asset prices are dropping."
You're aware that recessions follow periods where central banks hike interest rates (supposedly to control inflation) and yield curves become inverted?
It is far from over. And I don't believe "Now is the best time to invest". It will come ... but it sure ain't now. NZ still has quite a way to go yet.
And overseas? You've no doubt heard the expression, "When Wall Street sneezes, the rest of the world catches a cold"? Quite apt at this time when the US government will need to withdraw the punchbowl very soon and US indexes have hit highs based on a small number of companies and a huge amount of 'hopium' - much like the dotcom boom - around what A.I. is perceived as being capable of doing.
[A repost from above.]
"Businesses that can't survive these rates should fail. Then their resources can be redeployed to more profitable areas."
I love it when people show clear signs of an having overindulged in the consumption of Kool-Aid.
This nonsense that all companies that that fail in recessions do so because they "can't survive these rates" is pure hockum.
There are a few. But the root cause why the vast majority fail is because customers disappear and/or can't pay their bills. Root cause analysis is your friend.
A further piece is foolishness is your statement that "their resources can be redeployed to more profitable areas" ... That's far from what happens. Very few resources are recovered - while most, often the most valuable resources, are destroyed and gone for good.
(In case you were wondering, I've done quite a bit of work for big companies in the debt recovery space both here and overseas.)
The real root cause is the link between growth (of the money supply) and interest....no growth, no ability to pay interest (in aggregate).
All the factors that determine where that pain falls are variable but first require the rate of interest to exceed the growth available.
Who controls the quantity of 'money' in our economy...technically no 'one', and certainly not the RBNZ. In an economy with the free movement of capital and funds it is left to the whims of individuals and entities.... 'sentiment.'
Highlight of this edition are the mineral reserves found in Japan.
Could this discovery turn Japanese car manufacturers more bullish on EVs? Surely Japanese companies won't be looking to extract ore and sell it raw to China. They'll try to vertically integrate the battery supply chain within the country and fast!
I see Queenstown has moved to build 'worker accommodation' for 700 . How long before other locales do the same?
'More than 700 workers in Queenstown will soon have a new place to stay, after a major accommodation complex got the tick from a fast-track consenting panel. No. 1 Hansen Road Limited applied for resource consent under the Covid-19 Recovery (Fast-track Consenting) Act 2020.' (4hrs ago Google search "Queenstown to build worker accommodation")
Nothing new in this initiative? It's been going on for decades.
"$30m worker housing fix" (An article written by the son of the owner of BONZ, 7 years ago)
Or shortly after gaining resource consent for affordable homes they may re-apply for units to be visitor accommodation even though that use wasn't mentioned in the original application or the marketing material
East coast getting hammered again
(Edit. I wonder how many of those roads that have been fixed post-Gabrielle will need repairing again? 🤔)
That instinct you are talking about is fantastic and we can all thank it for our existence. To survive and thrive!
Resilience is what it takes to read some of your down-beat posts PDK, come on friend where are you solutions? "Build back better" is a cheesy byword but the concept is still the right one, local systems (power, food production, sewerage, warehousing etc), sea-based coastal transport links, air-links to in-board transport hubs etc. Just looking on the up-side.
You’re dreaming Jonesy. A few years back when I was involved in NZ port operations we (a small consortium) put forward a proposal (to ourselves) to ramp up coastal shipping. Unfortunately wasn’t going to fly (or float). Haven’t got the population. We need to either multiply by 10 or reduce by 50%. I vote for a halving. Of the population that is, nothing to do with cryptocrazyency.
We are in a predicament rather than a problem. Problems have solutions whereas predicaments have outcomes.
A solution to a problem fixes it, returning all to its original condition. Once a suitable solution can be found and made to work, a problem can be solved. There is no solution that maintains our energy usage, population and quality of life without fossil fuels. There is also no solution that allows us to keep using fossil fuels without altering the climate for the worse.
A predicament, by contrast, has no solution and you can only work towards better outcomes. A scale down approach will lead to a better outcome than a fast crash we are accelerating towards.
Pakowhai, between the Tutaekuri and Ngaruroro rivers, was effectively abandoned for residential purposes after the cyclone, with restrictions on what can be built there in future.
Further up the East Coast you're getting into areas with very strong historical ties for iwi and hapu - this has been their homeland for centuries and is all they've ever known. There is a cultural bind that cannot be so easily dismissed.
Absolutely, everyone matters, no matter how long they've been here - I'm not advocating taking your land so I'm not sure how this relates to my comment. I'm saying it's not a simple matter to expect Maori to abandon theirs.
Many Maori, particularly in Hawke's Bay and the East Coast, do not just see land as the slab of dirt that stops their house from falling into the centre of the earth and acts as a store/source of financial wealth, it is much more than that. It sustains them and is part of them, and will hopefully exist long after they are gone to provide for their descendants. It's a much more holistic perspective than the mainstream European one.
I'd encourage people to stop thinking of Maori as some kind of hive-mind collective, and instead appreciate that they're not all like [insert your most hated public Maori figure here] but hold differing values and perspectives, same as anyone else. Some are intimately tied to their marae and rohe, others have stepped away. The Maori you see in cities do not necessarily represent those in more rural locations.
A quote from the weekly report issued by Transpower yesterday: Based on historic hydro storage data, current national hydro storage is sitting among the five lowest storage levels for this time of year since 1933. The June Electricity Risk Curves have been published and show an increased energy security of supply risk for the remainder of 2024 and 2025.
And...the winter hasn't really started yet!!
No need surely!! We have our best and brightest on the job here...
But on a serious note, I am looking forward to the Work Safe report on the tower debacle.
I would think the Exec of Transpower will be exposed to serious consequences as the PCBU. This outsourcing of work on critical infrastructure to people that need help getting dressed needs to not just stop but be seen for what it is. Blatant disregard for human life.
Winter is normally when the rain/water comes isn't it?
Don't worry, we have that pumped hydro scheme underway that will make NZ more resilient to low lake levels. Oh, wait.
Never mind, I am sure our power generation has not been sold off to private interests who will get increased profits during power shortages. Oh wait.
'Winter is normally when the rain/water comes isn't it?' Only this year it is falling in the wrong location! No substatial hydro in Gisborne and Hawke's Bay. Even the snow is not falling where it should be! See:https://www.meridianenergy.co.nz/power-stations/snow-storage
As per here.
The elite have always been the biggest landowners and landlords. They aren't in a hurry to devalue their fortunes that have been built up through generations.
Always making sure there is a shortage of anything is the best strategy to keep the price high. Just ask debeers. Thus for housing making sure we don't ever build too many is quite crucial.
https://www.thepost.co.nz/nz-news/350322037/claims-new-ferry-project-wi…
Some of the comments are spot on .
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