Here's our summary of key economic events overnight that affect New Zealand with news food price signals belie talk of impending trouble.
But first, US mortgage applications were virtually unchanged last week (+0.8%) from the week before, taking them to -13% lower than the same week a year ago. But at least it was a third week of rises, even if small. Mortgage interest rates edged lower last week.
But new home sales in the US sank -11.3% in May from April, to be -16% lower than the same month a year ago as high prices and those still-high mortgage rates continued to weigh on buyers' decisions. It is the lowest reading in six months and well below what was expected. Still the April data was revised sharply higher.
Slightly elevated bidding (+2.5%) for the US Treasury 5 year Note pushed the median yield down to 4.27%, compared to the 4.48% at the equivalent event a month ago.
In Japan, the current focus is on the yen's falling exchange rate, especially to the USD. But while policymakers there say they are watching with concern, interventions so far have been modest and ineffective.
In India, their currency is unusually stable and not something we have seen for more than 15 years.
In China, the Beijing officials controlling the yuan have allowed it to sink a bit faster recently and it is almost back to its modern 'most weakest' levels of mid-2023.
In Australia, their monthly inflation indicator for May edged up to 4% from 3.6% in April, boosting the chance of another RBA rate rise as underlying price pressures clearly remain entrenched. Australian government bond yields leapt almost +20 bps on the news, and to their highest in 2024. The AUD rose +50 bps. The ASX200 tumbled sharply. Markets may have reacted sharply and pulled back somewhat later but economists had a much more measured view preferring to see the relatively small month-on-month change as 'not much'. Meanwhile, an RBA boss said their policy positions are on the right track and will get inflation under control.
We should perhaps note that prices for some of the world's key agricultural commodities are struggling, mainly because good growing conditions are delivering strong supply. The corn price is down to where it first was in 1996 and the bubble that started in 2020 is now all erased. Similarly for oats which are now below 1988 levels. The rice price is still highish, but below 2008 levels still. And canola is also a major-traded food export that has extinguished its recent bubble. Wheat is in the same boat, back to price levels it first hit in 1996. The world's food supply and price is currently no threat of availability or affordability issues. However, despite all this some still see "food wars" as a future risk, but that may just be a Singaporean trader talking his own book.
The UST 10yr yield is now at 4.32% and up +9 bps from this time yesterday. The key 2-10 yield curve inversion is now much less at -43 bps. Their 1-5 curve is now less inverted, by -81 bps. And their 3 mth-10yr curve inversion is also less, now by -102 bps. The Australian 10 year bond yield is up +18 bps at 4.42% on the Aussie CPI result. The China 10 year bond rate is unchanged at 2.24%. The NZ Government 10 year bond rate is now at 4.65% and back up +5 bps from yesterday.
On Wall Street, the S&P500 is down -0.1% in its Wednesday session. But overnight, European markets closed about -0.3% lower on average. Yesterday Tokyo closed +1.3% higher. Hong Kong closed up +0.1%, and Shanghai closed with a +0.8% recovery. Singapore ended up +0.2%. The ASX200 closed down -0.7% but the NZX50 was up a full +1.0%.
The price of gold will start today down -US$18 from yesterday at US$2301/oz.
Oil prices are little-changed from yesterday at just over US$81/bbl in the US while the international Brent price is now just under US$85/bbl.
The Kiwi dollar starts today down nearly -½c from yesterday at just under 60.8 USc. Against the Aussie we are down even more at 91.4 AUc. Against the euro we are down -¼c at 56.9 euro cents. That all means our TWI-5 starts today down -30 bps at 70.5.
The bitcoin price starts today at US$60,974 and down -1.0% from this time yesterday. Volatility over the past 24 hours has modest at just on +/- 1.3%.
Tomorrow is a public holiday in New Zealand (Matariki). We will be publishing on our normal weekend schedule on Saturday and Sunday.
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95 Comments
GST ... NZ is one of the only countries worldwide to have GST on basic foods.
(And politicians love it. JK's National ramped up GST rates to give high income groups big tax cuts and all parties love the fact that GST goes up when inflation goes up which means there is no impetus to reform our woefully unfair tax system that favors the wealthy rentier class.)
So let's just all overlook how much wealthy people benefit by a regressive tax like GST (which ensures the poorer pay more tax)?
If we want to rebalance our tax system to provide many more choices about how we Kiwis choose to spend, save and invest ... Then a total overhaul of our tax system is required.
Part and parcel of that overhaul would see the distortionary effects of WFF, the accommodation supplement, etc. reduced or removed.
(And a note to KKNZ, spare us your b.s. about who pays the most tax or the least tax.)
"which ensures the poorer pay more tax" - not true, I think you mean they pay a greater percentage of their income. The people who spend the most pay the most GST, that would be the rich.
We have a progressive income tax system to make up for it. Unfortunately it is getting less progressive by the year. National's tax cuts will make it a bit fairer to the poor.
Bring back the 'good old days' where each area had their own bakery, ay?
Sadly, land use rules set by our Councils make this difficult while the LL wants a huge chunk of the profits, and Councils continue to fail to provide enough walking/cycling routes through estates, and people have been conditioned to drive to a supermarket. Other big cities do it better.
There was never ever any threat of restricting movement. It was message conspiracy/theory that was seeded by big oil and the car lobby. 15 minute cities undermine their business model (new cars and more driving).
I've worked in urban planning for over 20 years and 15 minute cities are nothing new, the thing that change was that climate change mitigation and the unsustainable high maintenance costs of roads meant that council's and governments stated looking at ways to reduce vehicle kilometres travelled.
It coincided with a new tactical urbanist approach to trialling road layout changes which meant people had the opportunity to quickly experience all the benefits of lower traffic and better walking, safety, cycling and public transport. Previously the roading lobby was comfortable things wouldn't change as they had managed to make sure a whole bunch of status quo policies and processes held up any sort of progress.
As soon as the oil / road lobby saw there was a possibility concrete steps might be taken to support better more sustainable transport outcomes suddenly this idea that people's movements would be restricted started "appearing" on local Facebook pages. The usual gullible people sucked it up and created a whole imaginary secret cabal that was planning to stop people leaving their neighbourhoods.
Tasmania - The cost of port infrastructure for the new Spirit of Tasmania ferries has ballooned, from $90 million to $375 million, after a scramble to secure a new contractor.
Along with the port cost blow out, the new ships are already late — with one estimate being that for every 12 months of delay, the Tasmanian economy takes a hit of $350 million.
Gee -I wonder if they will cancel their new ferry as well? Of course not - they are not that stupid (or vindictive).
"...recommended that the ferries be smaller than the proposed iRex ferries and not rail-enabled, although rail would still be able to be shunted onto the vessels as often happened now."
In other words, ferries that would not require $2 billion to be spent on new ports, would not be banned from the Tory Channel as being too big, and would have the same capacity as present.
https://www.1news.co.nz/2024/06/23/govt-advised-to-replace-cook-strait-…
Definitely more independent than Kiwirail.
To respond to your original comment re the ferry size:
Its been well reported, Google is your friend. The propsed ferries were 40m longer than current
https://www.rnz.co.nz/news/national/511412/maximum-ship-size-set-for-ve…
https://thespinoff.co.nz/society/07-04-2023/the-battle-over-the-interis…
Yes Google is your friend
"It means that companies with vessels over this length will use the Northern Entrance to dock at Picton or Shakespeare Bay, just like some heavy vessels are required to now, or work with us on safety management plans for using Tory Channel."
Did you actually think Kiwirail would order ferries that were banned from accessing Picton?
Bring back SAFE Air and their Bristol Freighters and Argosy's?
Fond memories there of cadging a lift on a Bristol Freighter across to Wellington as a young sprog in the Airforce, and then hitchhiking to Whangavegas. Sad that I didn't have a camera to record it....
I would go further and suggest selling the current vessels and not replacing them at all. We don’t need them. If you think you need to travel by sea between the North and South islands sort it out yourself. Re visit a major expansion of coastal shipping and you could catch a ride from several ports rather than just Wellington or Picton. We took ourselves and a vehicle from Onehunga to Christchurch years ago. Easy as. And don’t go at me about the freight. What freight? What is it we need so desperately to get back and forth? Nothing really. #4states.
Yes its rail roll on/off that makes the land side infrastructure so expensive. Blue Bridge seems to operate well with no rail. Its Clearly the rail that's the issue.
So we as a country need to have a discussion about the importance of rail across the cook straight.
I would like to see a good analysis of the Pro's and Con's. I am on the right, I do not hate rail.
Interest Editors, how about an article on Rail across the Cook Straight.?
And then there is the little problem in that non rail capable ferries mean locomotives and rolling stock will not be able to be transferred from one island to the other. South Island locomotives cannot be overhauled in the South Island - no facilities. Hillside is now only a wagon facility. In earlier days before rail enabled RoRo ferries there was sufficient coastal shipping capacity and larger capable overseas ships moving between NZ ports to transfer locomotives. Looks like the thin end of the wedge for South Island rail unless maintenance capacity is enhanced. I'm continually amazed that out lords and masters have no idea of the lack of infrastructure repair capability in this country. You would think the Fat Controller would know better.
Bluebridge has two 2nd hand vessels (27 years old & 17 years old) with the same basic design limitations as interislanders fleet (lack of extra safety redundancies). They purchased their ships for low tens of millions, so I have no idea how they are going to fund the required replacements of their fleet when the time comes (unless the current government is going to lease them one of the new ferries at a significant discount).
The issue with rail with the new ferries was it took longer strings, so needed longer marshaling yards. In wellington there's a large creek in the way. Then it was decided the creek crossing needing up grading for the ferry, despite it already going under the 4 track railway, the motorway, Hutt road and shops.
Easy solution is to load in 2 strings, but double the time. One of the advantages of rail is they can load it fast, a whole string of wagons at once, vs a truck at a time. I think back in the last century, when rail was allowed to compete with road, they did rail only crossings which allowed an extra return trip per 24 hour rotation.
"However, despite all this some still see "food wars" as a future risk, but that may just be a Singaporean trader talking his own book." C'mon David. You indicate he is seeing it as a 'future risk'. It is and always has been a risk. throughout history the primary resource shortage that has lead to wars is food. Just because the risk is not immediate, that doesn't mean it is not a risk. The fact that right now the risk is low is great. During the cold war one of the primary scenarios that NATO believed would drive the Soviet hordes across the borders into Europe was significant crop failures across the Soviet Union.
Wars of any nature pose a huge risk of poisoning the land and destroying the ability to produce food for significant periods. More reason to avoid them.
Scarfie was just telling me about power and grain shortages in Zambia
https://disasterphilanthropy.org/disasters/horn-of-africa-hunger-crisis/
Sigh. DC has never acknowledged the energy thing, but modern agriculture is the process of turning fossil calories into food ones. In energy terms, we'd be much better off finding a way to eat the oil directly.
But beyond the carbon pulse, we're back to direct solar only, and that's food shortage, for at least half of humanity (via removal of Haber Bosch).
Also food might be affordable to 1-2 billion at the top end (us) currently, but that omits the bottom 2-3 billion who aren't even going to have our purchasing power.
Remember the issue in Russia & China was not land and climate causing food shortages, but instead Communist Policies and Central Planning. Hopefully that stupidity is for the most part behind us. I can well remember the rice bowls on the Sister's desk all through Lent back in the 50's when millions upon millions of pennys were collected from Catholic Schools and sent to China to relieve hunger caused by the diabolical Mao Zedong.
I just finished a book on the history of China. The conclusion seems to be that views of him are quite mixed - a complex legacy. But yes it seems tilted more towards reverence than hatred.
A common view seems to be that some awful things happened, but overall he did more good than bad…
Agreed. For those unfamiliar, it covers the (non-fictional) history of four generations of the same family from pre-revolution China through to modern times. Very enlightening and paints a complex picture of the dramatic changes that China has been through. Some of the events that happened prior to the revolution were exceptionally barbaric (e.g. the behaviour of ruling warlords and the Japanese invasion). It makes it easy to appreciate why so many welcomed and supported the communist regime once it arrived and the frustrations and disappointments that followed.
It's easy for us in the relatively liberal west to dismiss the current political system in China as oppressive, but without knowing the history you'll never appreciate why so many Chinese still support the regime and consider it a great success.
After reading it, I have a new found respect for those older generations of Chinese knowing what many of them have likely experienced in their lifetimes.
It seems very strange to me that a country like NZ cannot afford a few new planes and ferries.... when the old ones are now clearly dangerous. My last trip across was 40 knots southerly, I dread to think what a steering failure would have caused.
Time to man up and borrow some money for these assets. All waiting does is increase the change of a disaster.
At least our power grid is solid, it was stupidity not lack of maintenance.
Looks like the labour was imported with 5 weeks training. No quality control, no supervision. If it was labour how we used to do it. Provide apprenticeships under the watchful eye of a journeyman they’d learn hands on common sense and skills over a long period of time, but that’s not how a lot of business operate these days. Profit is king.
Unlikely.
Most contracts specifically mention the contractor must be insured at all times; and the type of cover and limits. Most companies regularly check their contractors are adequately insured. If you take on a subbie - best check this too - or check your own policy to ensure you're covered should the subbie inadvertently burn the place down. (Yes. This does happen.)
public liability insurance? ... Which doesn't come cheap. But no worries, just pass the cost through to hapless consumers, ay?
But no problem really. Make enough mistakes and the costs get reflected in rising premiums for the whole industry. Great for enriching insurance companies too, ay?
Borrowing money for this would be the opposite of "manning up".
It's time we got rentiers and asset holders to actually pay for something for once. Start by bringing back land tax. A return to a higher top income tax rate is also overdue - the 30 year experiment with lower tax on top earners has shown that it just encourages profit to be channeled into executive salaries, rather that reinvested in the business operation. A bad outcome for growth, an even worse outcome for wealth equality and social cohesion.
Some countries with great transport systems heavily tax car sales and use, sometimes over 100%. This reflects the high public subsidy that car travel gets and has 2 effects:
- Provides funds that can be invested in better alternatives
- Discourages the most inefficient and costly type of transport (car travel) for discretionary trips
Or you can do what National are proposing and defund all other types of travel other that car travel and borrow (hidden borrowing via PPP) to build MOAR roads.
A very well attended event early in the week " Electrify Queenstown".
Was it mentioned there is only one Transpower line supplying the whole of Queenstown and the Wakatipu basin. Over some difficult mountains.
Then all of Gisborne and the east coast some time back. Several days of zero electricity, when a plane took out the single line.
Now, Northland.
Many, many years ago I designed a software 'component' for a utility to record their entire network.
One of the functions was to identify single points of failure. The number of times some manager said, "No - that can't be right", was astounding. The guys one the ground - geographically spread around the entire network - knew where many of the single points of failure were. But those risks never filtered up. (In fact, they had filtered up to some degree, but the "It's only a problem if we tell someone" mentality ensured informational 'blockage'.)
"Probably better with ours for a short time than theirs for a long time..."
Is that a 'reckons'?
I've heard the reverse, i.e. a small amounts over a longer period does less damage.
But I've never actually back tested it. (Hmm. A task for the next week ... Or when I get round to it.)
Anyone know for sure?
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