Here's our summary of key economic events overnight that affect New Zealand with news the US Fed is setting the scene for rate cuts down the track. When remains uncertain but financial markets have priced one in fully by November. The next big piece of relevant US data is Friday's CPI release.
But first up today, even though futures markets indicated WMP would hold in this week's GDP Pulse event but there would be downside risk to SMP, in fact both fell. In the event, WMP slipped -1.2% from last week's full auction, and SMP fell -1.4%. That puts both back to late April levels. The lack of gains might worry some of the analysts who forecast next season's farmgate payout levels.
American retail sales are rising faster now. The weekly Redbook report on sales activity at physical stores was up an impressive +6.3% from the same week a year ago. Obviously that is a way faster rise than inflation. We haven't seen a surge since more than that since the end of 2022 when the base was very weak.
And that is reflected in SME business attitudes. The NFIB Small Business Optimism Index rose in June to its highest level of the year, although to be fair it is only back to 2023 levels again, and in a longer context current levels are not high.
In his semi-annual monetary policy report to Congress, Fed boss Powell told the Senate Banking committee that the central bank does not expect it will be appropriate to reduce interest rates until it has gained greater confidence that inflation is moving sustainably toward 2%. He said data in the first quarter did not support a rate cut. But he did note that the more recent inflation readings have shown some modest progress. He said reducing policy restraint too late or too little could unduly weaken economic activity and employment while doing it too soon or too much could stall or even reverse inflation progress to date. His core message was however that the US economy is no longer overheated.
Today's UST 3yr bond auction was very well supported again, delivering a median yield of 4.35%. That compares with the prior equivalent event a month ago at 4.59%.
Taiwan reported surging exports overnight, up more than +23% from the same month a year ago. It was their strongest growth in export demand since 2022, on the back of technology products. Analysts had expected an +11% rise which itself would have been strong. Twice that is something special.
China might also be about to report a surge in exports, but that will be more about trying to get ahead of new American tariffs - after which a shadow will follow.
In China, giant property developer Vanke warned that its losses grew sharply in Q2-2024, saying that investment in some projects “has been over-optimistic.”
In Australia, the Westpac-Melbourne Institute Consumer Sentiment survey index fell in July from June. That leaves it broadly in line with the very low levels that started in July 2022. Pre-pandemic these levels were generally +20% higher. So far their 'stage 3' tax cuts have done little to improve sentiment. The biggest declines were among middle income earners, Victorians, and hospitality and construction workers. About 60% of those surveyed now expect the RBA to raise its policy rate, a big rise from 41% expecting that in the June survey.
According to the widely-watched NAB business sentiment survey, business conditions ease further in June, but business confidence bounced up. It is surprising that business confident is now back into positive territory and at its highest level since early 2023 when conditions continue to deteriorate. What business owners see to justify that is uncertain but to be fair the rise is hardly out of the margin for error.
India is about to overtake China as the top driver of global food demand over the next decade, according to recent estimates from the FAO. Southeast Asian nations are on the rise too. The fading of China, due in part to demographic shifts and an about-to-fall population, is a key global trend.
Global food prices were low and stable in June, and lower than any of the past three years. Given inflation over that period, the real cost of food is back to levels it first reached in 2007. For meat it is back to levels first reached ten years ago; for dairy back to levels first reached in 2010. Food prices are no longer a global stress point. By just about any measure, farmers should be paid more.
The UST 10yr yield is now at 4.30% and up +3 bps from yesterday. The key 2-10 yield curve inversion is marginally less at -33 bps. Their 1-5 curve is still at -80 bps. And their 3 mth-10yr curve inversion is much less at -102 bps. The Australian 10 year bond yield starts today at 4.39% and up +1 bp. The China 10 year bond rate is now at 2.28% and down -2 bps. The NZ Government 10 year bond rate is now at 4.69% and down -3 bps from yesterday.
Wall Street has ended its Tuesday session with the S&P500 up a minor +0.1% but still hovering at record-high levels.. Most European markets were down more than -1%. Tokyo ended its Tuesday trade up a very strong +2.0%. Hong Kong ended yesterday little-changed. Shanghai was up +1.3%, and Singapore was up +0.6%. The ASX200 rose +0.9% and the NZX50 matched that with its own +0.9% rise in Tuesday trade.
The price of gold will start today up a minor +US$5 from yesterday at US$2351/oz.
Oil prices are -US$1 lower at just under US$81/bbl in the US while the international Brent price is down at just on US$84.50/bbl.
The Kiwi dollar starts today -10 bps softer from yesterday and now at 61.2 USc. Against the Aussie we are slipped to 90.9 AUc. Against the euro we are holding at 56.7 euro cents. That all means our TWI-5 starts today just under 70.5 and little-changed overall.
The bitcoin price starts today at US$57,435 and up +2.4% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.
Join us at 2pm later today for the RBNZ's Monetary Policy review. No change is expected but a tone change could move markets. We will have full coverage.
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76 Comments
'By just about any measure, farmers should be paid more.'
By whom?
The Precariat? (of whom there are ever-more?)
The rentiers (who piggy-back on the precariat?
Farmers have been 'price takers' for decades - that's why small-farmers have merged into conglomerates/corporates. But how many supermarket shoppers could handle a 50% increase in their bill?
The model is broke - not just the model, come to think of it.
Some of us have worked the problem out, and have looked for solutions.
Some of us grow our own food
And some aim for change: https://www.ourfoodnetwork.org.nz/
Everyone has made changes whether you think you need to or not. However the changes that are insisted upon cost money, lots and lots of money. As a food producer you can kiss it bon voyage
The woke are/were in charge and so the pendulum swings back a little. Hooray
I've always questioned the wisdom in outsourcing something you can't live without, that you can produce yourself for practically no outlay but your time.
If your job can't afford a decent cooked meal we should be questioning whether jobs are still a viable concept.
It is kind of darwinism.
I would say if you aren't constantly upskilling to get a better job and keeping an eye on the future you will get left behind financially and socially.
If the elite get their way more and more jobs will disappear to AI and automation. It's already starting and attracting the lion share of investment (in fact if you are listed and arent investing jn using AI your business value will suffer) . And the elite will not take pity and fund the poor who get left behind regardless all the talk if a UBI (just look at how we treat the third world countries now.. do the wealthy give them handouts?).
My advice to the next generation is to work harder than most and choose their inital skills and career carefully so as to stay ahead of the pack.
I have some time for Scott Galloway in calling out issues, personally I disagree with some of his ideas on tertiary education.
Be in the top 10% of performers in that industry.
This just isn't possible for 90%, so it makes no sense from a society wide perspective. You're not fixing anything if your advice will only work for 10% of those in a given industry.
Police have 100% uptime, should the other 90% take up a side hustle? Police newsletter offers advice on side hustles as staff await outcome of pay negotiations | The Press
My experience is 10% are going to be high producing, 50-60% are going to be holding their own, and 30-40% are costing money to come to work.
Ideally people should have a job paid on output. The market rate is set by the least productive workers, so anyone capable of high output should do pretty well.
The land's available.
Just not where most people choose to live.
Roman Empire analogies are a bit overdone these days (or just becoming more apt). Rome itself could go from 50,000 to a million people in decades, and empty out even more quickly. People would flock to the cities for the perceived stability and opportunity, then return to sustainable lifestyles in the sticks when it became apparent they weren't capable of providing that.
If all the supermarkets were empty and money wasn’t worth the plastic it’s printed on, then you saying it’s your land wouldn't stop people from mobbing it for food out of necessity if you were a farmer. We are likely only a few weeks from this scenario at all times if the world turned to custard, and it’s best to always remember this when making decisions.
Well the taxpayers can now concertante on funding their new stadium - rather than supporting Sir Coutts's travelling roadshow (Like Larry needs the money).
It also termporarily relocated a cruise ship berth. Meanwhile, $2.05m was paid towards the SailGP event from the government's Major Events Fund and Christchurch's economic development agency, ChristchurchNZ - which is partly funded by the city council.
As to the fading of China, what are the odds that they will go gently into their good night? Apologies to Dylan Thomas.
Unlikely I think as nations that have gone stale tend to thrash more violently in trying to stave off the fate they create for themselves. China, the US, Russia........
"American retail sales are rising faster now. ... sales activity at physical stores was up an impressive +6.3% from the same week a year ago. Obviously, that is a way faster rise than inflation."
Way faster than 'Inflation', at the moment. As consumers remember that what they want/need is going to be more expensive next year, they'll convert their today's cash; available Debt capacity, into tomorrow's goods and 'Inflation' will accelerate. And the same will happen, everywhere. So feel free to cut the OCR or whatever your local Cash Rate benchmark is. But don't be surprised when that Retail Sales figure is surpassed by the 'Inflation' figure and Cash Rates have to do a might fast catch-up as 'Inflation' gets out of control, again.
That we've been around this buoy before, and are now doing the same again, would be laughable if it wasn't so dangerous.
"New Zealand has the highest auto-theft rate for any fairly large country in the world, at 1172.0 per 100,000 residents in 2018. "
https://en.m.wikipedia.org/wiki/Motor_vehicle_theft#:~:text=New%20Zeala….
Canada doesn't know how lucky they are at less than a quarter NZs rate: bollards in driveways indeed!
"How Canada became a car theft capital of the world"
Yup, NZ has double the car theft rate of Queensland, and TRIPLE the car theft rate of New South Wales. Every other crime statistic is also significantly higher than in Queensland, which is considered the "crime capital" of Australia. NZ statistics are shameful. Another Jacinda Ardern "legacy".
QLD had 289,657 victims of crime.
NZ: hold my beer! 380,452 victims of crime in 2023. That's 31% more crime than the "crime capital" of Australia.
QLD: 49,490 unlawful break ins. NZ: 71,520
QLD: 151,501 victims of theft. NZ: 243,989
QLD: 58,479 assault victims. NZ: 83,438
QLD: 3,235 robbery victims. NZ: 5,982
QLD: 18,000 vehicles stolen. NZ: 36,241.
But these statistics were similar to what was in place before Labour came to power in 2017 - so shouldn’t you be pointing the finger at the 9 years of John Key’s National party governance for this imbalance? You know, the time when they starved the police of adequate funding increases? (Just like they are doing again now)
What a crock of lies. Are you a Labour Govt plant or something? Here's the same stats (from the same source) for 2016
223,684 total victims of crime - thats a 70% increase in 2023
114,076 victims of theft - that's a 97% increase in 2023
41,447 victims of assault - that's an 85% increase in 2023
Turns out prisons work.
Meet the next Green MP
https://www.kiwiblog.co.nz/2024/07/meet_the_next_green_mp.html
Many disparage, often out of fear.
But the real question (unasked by most, including the MSM) is: WHY?
If they have no chance to obtain a nest (buy a house) and precarious chances of bread-winning, how can we expect the young to follow in our (buy a house, get a partner, raise young) footsteps? We closed the door on that.
So they're inventing narratives and personas to fit their reality. That's why I wrote yesterday that Swarbrick is the future. It's not our future; we are the past. Given the Limits to Growth and humanity's position on that trajectory, the change may have been somewhat inevitable. Too often folk comment through pre-coloured lenses.
US Govt still deficit spending at around 7% of GDP - in part because massive tax breaks are eating into revenue (which has been flat for a while now). So... is it any wonder their economy is still growing and people are still spending?
Incredibly, nearly half of that Govt deficit spending is interest payments on debt - driven by high US Govt debt moving increasingly onto higher interest rates. Now, what happens when the Fed starts to reduce those interest rates? Yep, Govt deficit spending will reduce. So, will that heat up or cool down the economy? If you want to hear a great debate on this topic - the latest odd lots podcast is well worth a listen.
For context, here's NZ Govt deficit spending (core crown residual cash) for the last 20 years or so, with bank credit stimulus thrown in too. We only hit 7% govt deficit spending in 2011 (Chch), 2020 (Cvid), and 2022 (capital projects).
The Rise of Britain's Rentier Regime
And this is our problem, as well.
"The fundamental transformation in the British economy since the 1980s is the movement away from an economy that made things to an economy that made money."
Where has the vast majority of 'our wealth' come from? Not from productive enterprise but from speculative gain. And here's the problem. That speculative gain; our wealth, can be wiped out at the tap of a revaluation key.
Deserves some air:
Margaret Hodge, the former head of the UK’s Public Accounts Committee, named Britain as “the country of choice for every kleptocrat, crook and despot in the world”. In one high profile case that demonstrated this role London now serves, the city was at the centre of a massive Russian money-laundering scheme where Russian insiders laundered as much as $80 billion in dirty money, passing it through fictitious companies registered in London.
But first up today, even though futures markets indicated WMP would hold in this week's GDP Pulse event but there would be downside risk to SMP, in fact both fell. In the event, WMP slipped -1.2% from last week's full auction, and SMP fell -1.4%.
Good Morning from #Germany, where prices for refrigerated dairy products are skyrocketing. A 250g packet of butter now costs €1.99, a third more than at the start of the year and just 30 cents short of the record €2.29 set in Dec 2022. Butter is a very emotional topic for Germans. In the past, they traveled abroad to buy cheaper butter, giving rise to the term "butter trip." Link
The RBs 5% unemployment peak is about to be tested. I'm picking the Auckland construction industry will be a big contributor over the next 12 months.
https://www.rnz.co.nz/news/business/521728/thousands-sign-up-for-benefi…
Australia has a massive infrastructure and residential build programme rolling out, and QLD has the Olympics to prepare for. There are plenty of jobs going over on West Island. Its never been easier to make the move. Just need to look at the wage increases the construction industry is getting over the next few years -
The CFMEU NSW deal represents a 22 per cent increase in base rates over four years, topping John Setka’s Victorian branch’s 20 per cent increase over four years and the Queensland branch’s 26 per cent over five years.
For useless Govt paper pushers, not so much. They should learn how to code. Or make a coffee.
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