Here's our summary of key economic events overnight that affect New Zealand with news that while the world's politics are getting messier and more partisan, the world's big economies are basically doing ok.
First up today, the US Fed released the minutes of its June 13 (NZT) meeting and those show it is in no hurry to cut its policy rate. But they do seem to be on alert for signs of labour-market deterioration.
US mortgage applications fell -2.5% last week from the week before to be -12% lower than last year's weak level. The benchmark 30yr fixed mortgage rate blipped up over 7% again which won't have helped. So, no signs the hibernating American housing market is waking up yet.
Reports of job layoffs among major companies remained very low in June, and noted strong hiring in the month.
But the pre-cursor ADP Employment Report for June said American the private sector added 'only' +150,000 new jobs in the month, less than +160,000 expected. Analysts now expect the June non-farm payrolls to have expanded by +190,000 and we get that data on Saturday (NZT).
There was a minor uptick in the weekly initial jobless claims last week taking them to 238,000 and lifting the number of people on these benefits to 1.8 mln but still well below where they started the year.
US exports of goods and services dipped slightly in May from April but remain +4.3% higher than for the same month a year ago. The overall trade deficit was about US$9 bln more on that basis, insignificant for an economy as large as theirs.
In something of a surprise, the widely-watched local ISM services PMI reported a contraction in June when a similar expansion to May was expected. This was suddenly its worst result since 2020. This garnered headlines. But the internationally benchmarked S&P Global/Markit version did report a rising expansion and at the fastest pace in a year. Again, take your pick depending on your inbuilt bias.
Their May report for new factory orders revealed a small retreat from the prior month after a similar rise in April. Year-on-year they remain almost +1% higher however.
In India, their service sector is on a real spurt higher. Sharp rises in sales and business activity were the main feature in June. International orders increased at a record pace, and they had their fastest upturn in employment for 22 months.
But that is in sharp contrast to China. Although its June factory PMI was stronger than the official NBS version, the Caixin services PMI was weaker, and by quite a bit. But at least it is still expanding, although the rate is at its slowest pace since October 2023.
And it wasn't too different in Japan. Their service sector stalled in June, according to the latest PMI data. The volume of new business was broadly unchanged from May.
In Europe, perhaps we should note that Greece is introducing a six day/48 hour working week for some industries. But it only applies to businesses which operate on a 24-hour basis and is optional for workers.
Meanwhile, Australian retail sales in May rose far less than inflation, a situation they have had for a long time now - since the beginning of 2023. What improvements there are coming from 'chasing bargains'.
There was a small rise in May for dwelling building permits in Australia, and a helicopter view of these trends suggests they may have passed their tough.
There were two PMIs out for Australia yesterday. The internationally-benchmarked Markit version shows their service sector growth was sustained in June. New business and activity both continued to rise, albeit at slower rates. But the AiG version for their factory sector isn't flash at all, even if it 'improved' from May.
The UST 10yr yield is now at 4.36% and down -7 bps. The key 2-10 yield curve inversion is a bit deeper at -35 bps. Their 1-5 curve is also deeper, now at -74 bps. And their 3 mth-10yr curve inversion is slightly more inverted at -100 bps. The Australian 10 year bond yield starts today at 4.46% and up +1 bp. The China 10 year bond rate is now at 2.25% and unchanged. The NZ Government 10 year bond rate is now at 4.77% and up +4 bps.
Wall Street is positive with the S&P500 up +0.5% in its Wednesday session. Overnight European markets were up +1.2% except London where the gain was half that. Yesterday Tokyo ended its Wednesday session up another strong +1.3%. Hong Kong was up +1.2%. Shanghai ended down -0.5%. Singapore was up +1.4%. The ASX200 however ended up +0.3% in its Wednesday trade, but the NZX50 only rose +0.1%.
The price of gold will start today up +US$32 from yesterday at US$2356/oz, up +1.4% in a day.
Oil prices are little-changed from this time yesterday at just under US$83/bbl in the US while the international Brent price is still at US$86.50/bbl. And perhaps we should note that ahead of the American summer 'driving season' petrol prices there are marginally less than a year ago at this time.
The Kiwi dollar starts today +¼c firmer from yesterday and back up at 61 USc. Against the Aussie we are -20 bps softer at 91 AUc. Against the euro we are also holding at 56.6 euro cents. That all means our TWI-5 starts today at 70.4 with a +10 bps gain.
The bitcoin price starts today at US$60,198 and down -2.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.2%.
Daily exchange rates
Select chart tabs
The easiest place to stay up with event risk is by following our Economic Calendar here ».
31 Comments
Dream on Baywatch. Or face realities.
https://www.odt.co.nz/opinion/unrealistic-surmises-and-real-world
Our economy is tanking not because of monetary policy, but because
-We have state facilitated cartels & oligopoly's which impoverish the nation and create a virtual subsistence economy, forcing our young talent abroad.
-A lack of capital gains tax on property has created one of the largest wealth distribution inequalities in the world
-We have some of the highest petrol prices in the Western world, up to 50% higher than Australia
-We are a primary produce export economy increasingly imposing restrictions that make it less profitable and given away any IP we had.
-We have failed to invest in the infrastructure required for population growth, prioritising benefits and state super, leading to productivity falling.
‘US economy is yet to experience the full impact of rate hikes
High rates point to economic weakness until June 2025
Something is bound to break’
https://x.com/gameoftrades_/status/1808526260827816165?s=46&t=MUwQeKa7M…
"This Cannot Go On Forever": Explaining The U.S. Debt Crisis In Simple Terms
And then he lays out the case bare: "We can walk through the numbers, but the bottom line is that the US government and the Treasury have entered a debt spiral. We now have $34.7 trillion of debt, which is over 120% of GDP. If you're a country with debt over 120% of GDP, your fiat currency fails. This is where we're at, and we're just spending and spending and spending.”
“What happens if you get into a recession? Your tax revenues drop precipitously, and your spending rises at a similar rate because of all your social programs like unemployment and wage security. You could wind up having a deficit that's not $2 trillion but could be $3, $4, $5, or even $6 trillion if it gets bad enough. Just imagine that. Suddenly, we are adding over 10% to our debt in a year, maybe 20% in a year. That is the debt spiral.”
He continues: “We can't do that because the rest of the world will turn around and look at our bonds and say, 'Why would I buy those bonds if they have to keep issuing new bonds to pay me for my bond?' We are in a situation where we have to continually issue more and more debt. This is rising exponentially, and there really is no way out. That's the problem.”
“Modern monetary theory proponents think it's just driving the economy; there's no big deal. However, when the music stops and people stop having confidence in the U.S. Treasury, that feeds into the US dollar. That's when you get into a problem. Why does that happen? It happens because of inflation. It all goes back to this central problem: this constant and relentless manipulation of the monetary system through central banks that create inflation.”
“That is a soft default on that debt every single day because the dollars you're getting paid back in the future are worth less than when you lent them out to the government initially. So, who wants to lend the U.S. Treasury dollars for 30 years when they know that inflation only has to go up to continue the charade?"
"They get into what's called a debt spiral. They can't get out of it. And this is where we are. So what is the option for the U.S. government if they continue to borrow? What does that mean? Well, that means that they must have inflation. There absolutely is no way around it. That inflation allows GDP to grow nominally. Remember that $28.5 trillion number? That has to go up. Nominally meaning just in terms of dollars, not inflation-adjusted.”
“When you have more dollars in the system, it creates more GDP because there's more dollars. And so that GDP number goes up. The productivity number goes up. But it's fake. It's not more stuff. It's just stuff that's more expensive. So there are more dollars in the system. And when you go to pay down that debt in the future, you're paying it down with dollars that are cheaper, that are worth less. This is called the debasement of the U.S. dollar. The U.S. dollar gets worth less and less and less every single year.”
He concludes: “And so this is the challenge. The U.S. government absolutely must have negative real rates. What do I mean by that? That means they must have coupons on their treasuries that are lower than the inflation rate, and they have to have this in perpetuity. That's the only way they can keep this charade going. It won't go on forever. Make no mistake, this cannot go on forever."
Yes was trying to convey elements of this the other day during the daily wrap up - especially in terms of the risk to the US as a reserve currency and the potential of it not remaining so over the coming decades.
My view is that unless the US have a massive pullback in military spending, they risk doing exactly what all previous global powers have done..over extend internationally while neglecting their domestic economy. The result is political and financial turmoil. And a loss of credibility of their debt obligations Ie higher premiums required due to risk of default so funding the forever wars just becomes too expensive.
https://www.jameslavish.com/p/-whats-a-debt-spiral-and-is-the-us
Fantastic article with great images.
Opt out with an undebasable store of value, Bitcoin.
Government to ‘flood’ cities with more housing by liberalising planning rules
Housing Minister Chris Bishop will announce sweeping planning changes today. Photo / Mark Mitchell
- Housing Minister Chris Bishop will announce plans to increase land for development to tackle the housing crisis.
- Bishop’s reforms will remove council powers over urban boundaries and development standards.
- The Government will require councils to plan for 30 years of housing growth.
Housing Minister Chris Bishop will today unveil the Government’s plan to “flood the market’ with land for development in a bid to end New Zealand’s housing crisis.
Bishop will use a speech to the Real Estate Institute of New Zealand today to announce a slew of changes to New Zealand’s planning laws recently agreed by Cabinet. He will argue the changes will flood the market with affordable land to develop and make it easier and cheaper to develop that land into housing.
Some of the changes are bound to be controversial; the Government will abolish councils’ ability to set fixed urban-rural boundaries and will abolish powers that let councils mandate balconies or minimum floor area sizes for developments.
This means the market, and not councils, will set the minimum size of new apartments. This could be controversial, but Bishop will defend his changes in his speech, noting the rules “can significantly increase the cost of new apartments, and limit the supply of lower cost apartments”.
re urban boundries
He dismissed the Auckland Council research as "complete drivel" and questioned Norman's independence.
"They'd have to use arithmetical gymnastics to come up with that conclusion."
Pavletich said the numbers were simple. Raw undeveloped land in rural areas several kilometres outside the RUB was worth $30,000 to $50,000 per hectare. Inside the RUB such land was $2m to $3m or more.
"It is really that simple. Most laymen could understand it but it appears some economists are baffled by it all."
After coming to power in 2017, the Labour government vowed to axe "highly restrictive planning rules like the urban growth boundary" to address house prices.
I personally think its more likely that we don't loose much rather then make a massive profit , relative to many just inside the boundary in Dairy Flat , Coatesville, Riverhead... etc...
They paid a big margin to be future urban.....now we may all be future urban.
This is going to be a massive fight between Auckland Council and central Gov IMHO, may take years, but if it happens things will be better for Aucklanders.
Assumedly, as there would not appear to be any council in any sizeable urban locality exactly flush with cash, land that becomes available will be purchased by private, let’s say enterprise which will also create and install the requisite infrastructure. For example nearby to Christchurch in Lincoln as recently approved to go ahead.
Last year I had to visit Auckland to take my wife up there for eye surgery and was shocked to see the urban leakage south of the Bombays (it had been a while since I was last up there). All I could think of was Trump's call that we, the rest of NZ need to build a wall!
It sort of always has been. Auckland expects the rest of the country to subsidise it's infrastructure, but for decades Aucklanders have refused to pay the rates they need to to maintain their own services. They con the rest of the country with the BS argument that if Auckland fails, NZ fails.
Sir Dove-Meyer Robinson was a mayor there from 68 to 80 and he told Aucklanders how it was repeatedly and what needed to happen, but he lost his seat because they didn't want to know or pay. Now it is all coming home to roost. Current generations of Aucklanders can thank their parents and grandparents for that gift!
The question for Aucklanders is that while the rest of the country has to stump up for what they need, who pays for their infrastructure?
Interesting indeed, but most of this had been well signalled in advance, so not really shocking. I also don’t think it is as impactful as it first seems. For example, Auckland already has enough ‘live zoned’ land for 30 years of growth. So this won’t create a compelling argument to free up a lot more land for sprawl. Although getting rid of the Rural Urban Boundary will certainly make it easier, no doubt.
I like getting rid of minimum floor areas for apartments though
‘This is an enormous opportunity. It will likely be followed by another enormous opportunity.
The alternative is to lock into equities now, at record valuations, stay locked in, and enjoy a long, volatile, interesting, but needless 10-20 year trip to nowhere relative to T-bills.’
https://x.com/hussmanjp/status/1808516345056661870?s=46&t=MUwQeKa7MkEJ7…
First up today, the US Fed released the minutes of its June 13 (NZT) meeting and those show it is in no hurry to cut its policy rate.
Powell expressed concerns about a large deficit being run at a time of full employment. “The level of debt we have is not unsustainable, but the path that we’re on is unsustainable,” Powell stated.
He urged policymakers to prioritize fiscal sustainability, warning that running large deficits during good economic times cannot continue indefinitely. “In the longer run, we’ll have to do something sooner or later, and sooner will be better than later,” he added.
‘The CBO has raised the US government's deficit forecast for Fiscal Year 2024 from $1.5 trillion to $1.9 trillion, or 6.7% of GDP.
This would be the highest deficit since 2021 when the deficit hit $2.8 trillion in response to pandemic lockdowns.
By 2034, the deficit is expected to reach $2.9 trillion or 6.9% of GDP, totaling a whopping $22.1 trillion over the 2025-2034 period.
The CBO projection also assumes that net interest will reflect over 50% of the budget deficit over the next decade.
These numbers all assume no recessions and lower interest rates.
What happens if rate cuts are delayed and a recession hits?’
https://x.com/kobeissiletter/status/1805224314620235814?s=46&t=MUwQeKa7…
Interesting data from RNZ this morning showing the correlation between rates rises and rising rents.
https://www.rnz.co.nz/news/national/521220/council-rates-rises-blamed-f…
Feedback loop could get nasty..
1. Rates rise
2. Landlords increase rents to cover increased costs.
3. Tenants demand higher wages to pay for higher rents.
4. Businesses increase prices of goods and services to cover increase wage costs.
5. RBNZ receives higher CPI reading so they increase OCR.
6. Mortgage rates rise and landlords expenses increase again..(and continue back to point 2 again).
Spending data out, we are staring down a massive recession as bad as 1987:
https://www.rnz.co.nz/news/business/521229/retail-spending-slump-nearly…
Don't worry though, RBNZ is working off last years data to define what happens going forward. All this "short term noise" of what is actually happening now will surprise them in a years time when its too late to act. Hold on to your hats...
And the government will cut a few more thousand jobs and do more austerity. That will definitely help things.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.