Here's our summary of key economic events overnight that affect New Zealand with news global container freight rates are rising to ridiculous levels now, just another element that is stifling world trade.
But first up, we should note that it is a public holiday in the US; Independence Day. And it is likely that many will take tomorrow off as well to make a four-day weekend. So data from the world's largest economy is absent today.
But there will be the non-farm payrolls results for June released tomorrow.
In the US, car buyers are back despite elevated interest rates, but the June vehicles sales level probably fell to a 15.8 mln annualised rate. That is because of an industry-wide cyberattack in June that hobbled many major dealerships. The May sales level was 15.9 mln, and a year ago it was 16.1 mln. But the effect of the cyberattack is over now and there could well be a sharp catch-up in July.
We are also awaiting China vehicle sales data for June, and there are no early indications in that market - which is almost twice as large as the US one. They expect to sell more than 30 mln vehicles in the year to June, with nearly half as NEVs. But given their rush to invest in manufacturing, they still have a serious over-capacity problem even at that sales level.
And the EU says it will impose tariffs of up to 37.6% from today on their imports of electric vehicles made in China. That is expected to cost NZ$6.5 bln in lower trade between the two blocs.
In Germany, factory orders eased by -1.6% in May from April, missing market estimates of a +0.5% expansion. That puts them -8.6% lower than the same month a year ago. And that is not insignificant in an economy as large as Germany.
Of course there are elections in two European countries over the next few days. The British have voted and results are awaited. It will be a huge surprise if the opposition left-wing party doesn't win in a landslide. In France however, the expected far-right triumph looks like it isn't going to happen.
In Australia, drought in the heart of Victoria's dairy country is putting a sharp squeeze on output there. Production is down sharply, and this could not come at a worse time. Dairy farmers are facing a -15% drop in the price they get from processors too that went into effect at the start of July.
In Canada, they are suffering sharply lower real estate sales as well. In Toronto, volumes were down more than -15% in June from the same month a year ago. In Vancouver, the drop is -19%.
The rise in global container freight rates isn't easing, according to the latest data for this week. These rates were up another +10% from last week to be four times higher than year-ago levels. The same causes are still there, with the highest increases for freight from China to Atlantic ports. Bulk cargo rates are up a net +5% for the week although they have eased slightly in the past few days. These are rates are +90% higher than year-ago levels.
The UST 10yr yield is now at 4.37% and up +1 bp. The key 2-10 yield curve inversion is little-changed at -34 bps. Their 1-5 curve is also still at -74 bps. And their 3 mth-10yr curve inversion is slightly less inverted at -99 bps. The Australian 10 year bond yield starts today at 4.45% and down -1 bp. The China 10 year bond rate is now at 2.22% and down -3 bps, rarely the biggest mover of all today. The NZ Government 10 year bond rate is now at 4.80% and up +3 bps.
Wall Street is on holiday today but will be back tomorrow for a Friday session. Overnight European markets were up an average of +0.7%. Yesterday Tokyo ended its Thursday session up another solid +0.8%. Hong Kong was up +0.3%. But Shanghai ended down another -0.8%. Singapore was up +0.7%. The ASX200 ended up a strong +1.2% in its Thursday trade, but the NZX50 fell -0.4%.
The price of gold will start today virtually unchanged from yesterday at US$2357/oz and holding its higher level.
Oil prices are +50 USc firmer from this time yesterday at just over US$83.50/bbl in the US while the international Brent price is up +US$1 at US$87.50/bbl.
The Kiwi dollar starts today +¼c firmer from yesterday and back up at 61.2 USc. Against the Aussie we are still 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 and unchanged from yesterday.
The bitcoin price starts today at US$58,246 and down -3.2% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.2%.
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51 Comments
A Former Prime Minister Reveals Why the UK’s Blob Must be Destroyed
It is worth noting, as Truss does on several occasions, that the blob is a relatively recent invention. When I worked in the British civil service in the 1990s, it was seen as a matter of principle that the civil servant did the Minister’s bidding without fear or favor, even if the Minister chose to reject the servant’s advice (the clue is in the name). Yet during the Blair/Brown governments the civil service became politicized and — more importantly — vast powers were given to QUANGOs in the name of depoliticizing an issue. Thus, monetary policy was given over to the Bank of England and the naming of judges was entrusted to the Judicial Appointments Commission. At the same time, the charitable sector became more and more dependent on government grants. So did the blob feed and grow.
Mrs. Truss’ chief lament is that the successive Conservative governments of David Cameron, Theresa May, and Boris Johnson himself did nothing to dismantle this new constitutional arrangement. Indeed, one of Cameron’s first acts was one of spectacular unilateral disarmament, by effectively giving over control of fiscal policy to a QUANGO called the Office of Budget Responsibility (OBR.) With each such act, democratic accountability was removed from the process.
"The ANZ CEO & Chief Economist will be sharing the stage and "networking" with Chris Bishop..."
Now that could be interesting, give Chris' recent proclamations. Let's see if he's 'got at' just like Jessica Mutch, who looks like she was recruited out of harm way. "All men have their price, and the honest man has the highest price of all"
Plenty of people have complained about the powers of government departments here in NZ and I must say that my view of democracy is that EVERY government function MUST in the end be accountable to the people. Ordinarily this would be through the elected government. But we must be cautious of governments delegating powers. One example that springs to mind immediately aside from the RBNZ, is the Higher Salaries Commission which appears to make it's 'rulings' utter divorced from then economic and political realities in the real world.
'Higher Salaries Commission' renamed Remuneration Authority
My long retired ex civil servant mother noted a past preference to employ UK civil servants in NZ, when the FX rate was 3 NZD to a pound and demand they be paid three times their previous UK Stg 60,000 salary.
Watch the uk series 'yes minister'.
Government will always be beholden to the bureaucracy that they have to try to steer... but which has decades of poor culture and power bases built into it. Those that run government departments have developed the rules of the game, created processes designed to delay and frustrate and happily agree to everything their political masters request but over time know how to create justify the inevitable delays and cost overruns up the chain of command.
Creating real accountability in the culture is almost impossible
Doesn't mean she is wrong on this point though. As the lady being interviewed in the US on Trump said "Even a blind squirrel finds the occasional nut."
Don't dismiss the message just because you don't like the person. That shows a significant character and intellectual deficit.
Funny that they chose the BoE and impartial appointment of judges as the main examples of inappropriate QUANGOs. To me they seem the most obvious things that should be taken away from the elected officials, with clear historical (and present day) examples showing the cost of these functions being political.
I'm not sure if there's a problem or not, but these are terrible examples to try and convince me that there is a problem.
The problem is how to get "impartial appointment of judges". We just end up with dripping wet leftie dominated committees appointing their dripping wet mates and giving us home detention for multiple rapes. Another example is the unwinding debacle with the foreshore that Luxcinda is too pussy to nip in the bud.
https://www.rnz.co.nz/programmes/the-detail/story/2018863492/jayden-mey…
There is always a tendency in markets for under shooting or overshooting fair value.
But what is fair value? How long is the lag between a market developing and the arrival of new entrants, years or even decades, think about the Rymans, and the followers
If you plotted the price of one meter of 90x45 SG8 pinus radiata against the price of Fletcher shares they are almost the same. It was $5 / meter before covid, got up to $8, now down at $3, and that includes GST. The sawmills are not making money. That's the biggest indicator that something has dropped below fair value. Living off the fat from the $8 days cant last. Someone is going to go out of business.
Most plywood in NZ comes from Chile, and its price has stayed the same for years. It's still $35 a sheet for 7mm CD exterior.
Who is complaining about the cost of building materials in NZ, its not the grass roots, its the people looking for excuses for their own inefficiency
BBI get their plywood untreated from Chile, and they treat it in NZ
the import numbers show plywood and veneer together, and you are correct, we get more from china than Chile, but without a split on structural plywood and veneer, hard to say who supplied NZ more plywood
I thought the new building code increased the size of framing timber that has to be used, so no more demand for standard 90mm timber? I remember reading that was one reason why the cost of building a new house has gone up so much (along with all the other new building code changes like thermally broken windows, and restricting what you can use for kitchen floors).
Of course it is. They can't compete with china. Have a look at BYD prices here. This is Chinese manufacturing.
Now add to that Germany is sanctioned from cheap Russian energy and materials.
Due to state subsidies.
We're quite happy for the Chinese government to subsidise our cars as we don't have domestic manufacturing that would be undercut. EU and US not so.
EU has strict rules on state aid to ensure EU companies can compete fairly within the common market. It would be bonkers to ban EU governments from propping up domestic manufactures, so that VW and Renault have to compete on even footing, but then let them both be undercut by state subsidised Chinese product.
They were calculated based on estimates of how much state aid each firm received, while companies that cooperated with the probe saw the duties they were hit with cut. Based on these criteria, the European Commission has set individual duties on three Chinese EV brands - SAIC, BYD and Geely.
SAIC has been hit with the highest new tariff of 37.6%. State-owned SAIC is the Chinese partner of Volkswagen and General Motors. It also owns MG, which produces one of the top-selling EVs in Europe, the MG4.
"The price for not cooperating is a severe blow to SAIC, which gets 15.4% of its global revenues from EV sales in Europe," says Rhodium Group, an independent research firm.
For Mr Krupcala, who bought his MG4 before the tariffs hit, the EU's move does not matter much: "I don't really care about the tariffs. I have a nice car with a seven-year warranty."
For China's largest EV maker, BYD, it is a different story, as it faces an extra duty of 17.4% on the vehicles it ships from China to the EU.
That is the lowest increase and one that, according to research by Dutch bank ING will "give the automaker an advantage in the European market".
https://www.bbc.com/news/articles/cy99z53qypko
some big Chinese EV firms are planning to build production capacity in the EU, which could help shield them from the new duties.
Work on BYD's first European factory is well under way in Hungary and production is expected to begin there by the end of next year.
Chinese car maker, Chery, has recently signed a joint-venture deal with a Spanish firm that will see the two companies making EVs and other types of cars in Barcelona.
And, SAIC is looking to secure a site for its first factory in Europe.
Indeed:
These "Chinese port crane tariffs" are actually a perfect example of tariffs that make absolutely zero sense, which is why you're seeing US ports up in arms about them: https://bloomberg.com/news/newsletters/2024-07-01/supply-chain-latest-us-tariff-on-chinese-made-port-cranes Link
The major point of contention from my reading is that China refuses to implement reforms that will increase the purchasing power of Chinese consumers + give fair market access. Then subsidise domestic industries and expect the USA/EU to provide the demand for these products which undercuts local industries.
I think it's fair to say the world will be poorer due to EU/USA/China's approach but not clear that this is the wrong policy for the EU/USA to take here. Without customers it is very difficult to effectively pursue the development path China has for the last few decades. And now with geopolitical tensions rising, China is being given much less benefit of the doubt in terms of policies that will lead to further hollowing out of manufacturing industries in the West.
So you think Chinas pre-2001 100% import tax on vehicles (and ban on foreigners setting up production) which allowed them develop local manufacturing made them poorer?
And the more recent 25% import tax into china, that made their manufacturers lazy, bloated, and uncompetitive?
What's Audi got to do with it? The import tariffs were on all cars.
Can you elaborate on "supply side reform", and why import tarrifs work for China but wont work for the EU?
Incidentally in 2001 the VW Audi Group had about 75% market share in China, but the average Chinese was not buying a car at all back then.
Apparently VW Audi Group is still the biggest seller in China. I'm a bit skeptical of this data.. i thought local brands were cleaning up now? It's been a few years since I last visited.
https://www.statista.com/forecasts/750375/top-car-makes-by-volume-sales…
Because all the European car manufacturers would be dead if consumers were allowed to buy $10,000 Chinese cars. Same reason why the US is slapping tariffs on them too.
Funny though, remember the screams from the Left when Trump introduced tariffs on Chinese goods? Not only are his tariffs still in place today, but the Left have suddenly embraced his ideas whole heartedly.
Funny though, remember the screams from the Left when Trump introduced tariffs on Chinese goods?
From the left? The left being the US Republicans?
https://www.cnbc.com/2018/07/06/republicans-criticize-trump-tariff-trad…
You need to step back from the Left / Right blinkered partisan lens.
There are good policies and bad policies sometimes those policies are put forward but supposedly left parties and sometimes by supposedly right parties. Judge them on their merit, not on who put them forward.
Agreed. Isn't the Inflation Reduction Act also inherently a protectionist scheme? Companies receive a taxpayer-funded kickback for generating clean energy or producing qualifying equipment in the US but not elsewhere. The CHIPS Act too.
Much of the funding from those 2 envelopes goes directly towards capital contributions for companies looking to set up production or expanding/upgrading/retooling operations.
Imagine if the US had enacted manufacturing support back in the 90s on certain strategic goods instead of the usual no-strings-attached profit subsidisation approach? Food for thought!
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