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US inflation expectations ease to Fed-friendly levels; US and China struggle with climate extremes; Aussie housing lending weak; commodity prices retreat; UST 10yr 4.27%; gold and oil lower; NZ$1 = 61.3 USc; TWI-5 = 70.5

Economy / news
US inflation expectations ease to Fed-friendly levels; US and China struggle with climate extremes; Aussie housing lending weak; commodity prices retreat; UST 10yr 4.27%; gold and oil lower; NZ$1 = 61.3 USc; TWI-5 = 70.5

Here's our summary of key economic events overnight that affect New Zealand with news of little global fallout from the weekend election results.

First up today, we should note that American consumer inflation expectations for the year ahead slipped for a second consecutive month to now be +3%. That is 'progress' from 3.2% in May. The decline was broad-based over food, petrol, medical care, and rent. One year ahead earnings growth is expected to match that at +3%. Three year ahead inflation is expected to come in at 2.9% and five year ahead the expectation is now 2.8%. Both these are improvements.

Although minor, the Fed will be pleased with the shift because that means the higher rises in April and May were aberrations.

The expected rise in American consumer credit in May came through, although to be fair, even if it was more than expected its was a pretty modest +$11.4 bln rise, up at an annual rate of +2.7%.

In coastal Texas, overbuilding and climate denial is catching up with them. More than 2 mln people are without power as tropical storm Beryl lashes the region. Note it is not even classified as a hurricane anymore. Beryl has been the earliest-ever named hurricane in a season that is upcoming.

China isn't immune to climate stress either. To give perspective to their response to recent severe droughts in the north, and floods in the south, that have just added another ¥3.3 bln (NZ$750 mln) for disaster relief in the past three weeks.

A little air seems to be going out of the rising Australian housing markets - as an indication from their lending data shows. Owner-occupier loan demand fell -2.0% in May from April to now be up +12% year-on-year. This wasn't expected - a +2% rise was expected.

Overall we should note a broad-based retreat by many commodity prices today. Mineral commodities are being led by rebar steel which is down -2.8% today to be down -5.2% for the month and down -10.7% in a year. Copper and iron ore are off too today although not a sharply as construction steel. Nickel is down too, but not zinc. Aluminium is holding.

On the food side, we are seeing a sharp fall in wheat prices, and soybean prices are staying down. We get another look at dairy prices tomorrow morning at the next GDT Pulse event. The futures markets indicate WMP will hold but there is downside risk to SMP.

The UST 10yr yield is now at 4.27% and little-changed from yesterday. The key 2-10 yield curve inversion is marginally more at -35 bps. Their 1-5 curve is still at -79 bps. And their 3 mth-10yr curve inversion is still at -110 bps. The Australian 10 year bond yield starts today at 4.38% and down -3 bps. The China 10 year bond rate is now at 2.30% and up +3 bps. The NZ Government 10 year bond rate is now at 4.72% and down -5 bps from yesterday.

Wall Street has started its week little changed on the S&P500 but that is hovering at record-high levels.. Most European markets were little-changed although Paris was down -0.6%. Tokyo ended its Monday trade down -0.3%. Hong Kong dropped -1.5% yesterday. Shanghai was down-0.9%, whereas Singapore was down a lesser -0.2%/ The ASX200 fell -0.8% and the NZX50 slipped -0.4% in its Monday trade.

The price of gold will start today down -US$33 from yesterday at US$2356/oz.

Oil prices are -US$1 lower at just under US$82/bbl in the US while the international Brent price is down a bit more at just on US$85.50/bbl.

The Kiwi dollar starts today -20 bps softer from yesterday and now at 61.3 USc. Against the Aussie we are slipped to 91 AUc. Against the euro we are holding at 56.6 euro cents. That all means our TWI-5 starts today at 70.5 and down a mere -10 bps.

The bitcoin price starts today at US$56,063 and down -1.6% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.5%.

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34 Comments

Looking at the yield curves, we have been inverted for a looong time now. It also seems to me that the recessions usually occur AFTER curves normalise. Anyone smarter than me want to explain why that is? And does that mean the worst is still to come?

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Very roughly speaking it’s because the expected easing of rates starts moving towards the “very soon” part of the yield curve meaning the shorter maturities begin to outperform the longer curve which then starts thinking about the next cycle ( tightening). All very theoretical but that’s the crux.

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In layman's terms, once it goes positive again, the long-term poor outlook has moved like a rat through a snake to the short-term

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Maccy B quoting Citi that the Fed will be cutting repeatedly in the near future (September):

https://www.macrobusiness.com.au/2024/07/its-about-to-rain-rate-cuts-2/

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All its going to take is 100bps drop spread over the next 6 months. The slightest wiff of actual rate cuts and the signal of more to come and away we go again. Its all so predictable.

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"In coastal Texas, overbuilding and climate denial is catching up with them." Building record amounts of intermittent electricity generation doesn't help with Cat 1 hurricanes or name calling?

"...A remarkable thing happened in March this year. For the first time, the fossil fuel rich state of Texas generated more electricity from solar power than from coal. Perhaps even more striking, on the early afternoon of May 14, Texas briefly hit 19.1 gigawatts of energy generation from solar farms. This set a new US-wide record according to figures from Grid Status, which tracks electricity generation data across the US.

...When the latest batch of solar plants come on line, Texas will have added more solar capacity per capita in a single year than any US state and any country in the world, according to data from energy think-tank Ember. Almost overnight, a state synonymous with dirty fuels has become America’s clean energy giant, and the trend is still accelerating.

...What makes the achievement even more significant is the state that Texas pushed into second place: California. A progressive stronghold that has mandated clean energy targets for more than 20 years"

https://www.ft.com/content/ef2f6f8e-60df-4ccd-8c4f-ef5cd0eb3176

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'In coastal Texas, overbuilding and climate denial is catching up with them'

I seem to remember folk here lauding their approach to housing. 

Profile, as usual, twists. Yes, they briefly peaked solar, and are doing well uptaking it. But the housing, siting-wise, was denial (there DC is correct. The more interesting point, is that this State, long lauded hereabouts for it's laissez-faire approach - has solar incentives.

https://www.forbes.com/home-improvement/solar/texas-solar-incentives/

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The URL is too long to c&p, but if one searches; Financial Times then Martin Wolf then Cost of Climate

one gets an interesting read. 

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Speaking of Aussie housing:

"A local real estate developer with extensive links to Evergrande executives recorded a profit of more than $133 million but owes an “old friend” of the collapsed Chinese property giant’s detained former chairman almost $1.2 billion. Wang Zhongming, 62, has been providing debt finance to AW Holding Group, which owns the massive Jewel development in Surfers Paradise. The businessman, lived for some time in New Zealand....(the) developer....says it has more than $500 million in unsold units on the Gold Coast."

https://www.afr.com/property/residential/rivers-of-gold-from-surfers-pa…

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The bitcoin price starts today at US$56,063 and down -1.6% from this time yesterday.

The German govt owns ~$2bn in #Bitcoin – and it's freaking out crypto investors as Federal Criminal Police Office (BKA) simply dumps the Bitcoin on the market, thereby depressing prices. BKA sold 900 bitcoins in June – worth $52mln – from a massive haul seized from a now-defunct movie piracy website. Last week, the govt sold an additional 3,000 bitcoins worth $172mln. Then on Monday, German police sold a further 2,739 Bitcoins, or $155 million worth of the cryptocurrency. Bitcoin price plunged 22% since June high! https://cnb.cx/3LkGB9W  Link

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German MP urges government to stop ‘hasty’ Bitcoin sell-off

German member of parliament Joana Cotar said the mass Bitcoin sell-off isn’t “sensible” and “productive” as it could be used to diversify treasury assets and protect against currency devaluation.

Such a dumb move by the Germans..dumping BTC causes the price too weaken rather than selling it gradually via OTC desks ( their books must be in a bad state for such a move)?

Edit - Germanys holdings are now down to 23.8k BTC nearly half their bag sold

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Yawn its going to $20K again so it dumps all the suckers out again. Rinse and repeat, 2 years until another peak or will it kick the bucket this time ?

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Yawn..your comment - zoom out up 34.5% YTD

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Yawn..your comment - zoom out up 34.5% YTD

Should be a bigger story of 2024 so far - innovative BTC miners like IREN. 86% YTD, but 300%+ if you are scaling in and timed it buying end of Feb / March.     

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Don't forget Tesla..

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Big differences between Tesla and IREN. Best to buy emergent stocks earlier rather than later. If you buy cheap, you sleep easier and can always sell when facts change. 

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Tesla at $150...very cheap..

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Yawn its going to $20K again so it dumps all the suckers out again. Rinse and repeat, 2 years until another peak or will it kick the bucket this time ?

It's psychological and you need to learn what represents a buying opportunity. The March 2020 Covid crash you could have bought ratty for closer to USD5K and 10x'd by now and by on track for 100x by the end of the decade. Even accumulating in 2019 could see you up 15-20x now. 

Not bad for the Granddaddy of digital assets. 

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Yawn its going to $20K again so it dumps all the suckers out again. Rinse and repeat, 2 years until another peak or will it kick the bucket this time ? or perhaps Zwifter is talking about his house price?

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"Climate denial" - what an absurd term! "I deny there is a climate!"

 

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climax denial then?

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Thanks frackers.

"The US Department of Energy (DoE) forecasts that next-generation geothermal power could grow significantly in the US, due to new technology advances.

The DoE report predicts that geothermal energy production across the country could rise to 90 GW or more by 2050, a 20-fold increase.

Recent technical successes, particularly in drilling, indicate the industry is on track to an average cost of $60-70/MWh by 2030"

https://knowledge.energyinst.org/new-energy-world/article?id=138660

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Winston Peters has suggested Darleen Tana could go to Te Maori Party as the Greens go into melt down.

She still claims to be innocent of migrant exploitation despite there being two reports saying her and her husband did do it. Another big arrow as to why a migration policy to support economics is a bad idea.

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Well, as I suggested elsewhere, with reference to ex PM Muldoon, might that move not then raise the calibre of both parties?

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Heh heh!

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Swarbrick is the future - parties aside. 

We old farts need to see that. 

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Yeah, sh'e got a nice smile, that's all that matters nowadays.

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She's a tad on the spectrum, but I rate her IQ as higher than yours or mine. 

Tad optimism-biased, but...

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She has a truck more empathy for your motel guests than you do Yvil...

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I have met her a couple of times. She’s sharp, and impressive. Far from the flake that many Greens MPs are

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