Here's our summary of key economic events overnight that affect New Zealand with news inflation's pressures seem to be cooling in all the world's major economies.
But first, in seasonally-adjusted terms, the number of people claiming American unemployment benefits fell last week by -17,000 from the prior week and a 5-week low, and below market expectations of 236,000. In actual terms, there was little-change. Either way the levels are low and not indicating impending labour market stress.
The all-important American consumer inflation rate fell to 3.0% in June, and lower than the expected 3.1%. Their core inflation rate fell too. Food costs rose just 2.2% and energy costs just 1.0%. Petrol prices actually fell -2.5%. Keeping it up were airfares (+9.4%) and rent (+5.2%).
Clearly the conditions for a US Fed rate cut are getting closer. Financial markets however displayed mixed and muted reactions after the release. Bond yields fell, and the USD had a small move lower. And Equity markets decided they might have over-priced future rate cut effects so pulled back from its record-high pricing.
The UST 30yr bond auction today was reasonably well supported at a median yield of 4.33%. This is very similar to the 4.35% at the equally well-supported prior equivalent event of a month ago.
The US Federal government had a monthly deficit of -US$66 bln in June, which takes its full deficit to -$1.57 tln for the past twelve months. That makes it now equivalent to -5.5% of GDP. As large as these levels seem, they record a remarkable improvement. At the end of the Trump term, the annual deficit was running at US$2.7 tln or -9.3% of their GDP. They have clearly made progress cleaning up some of their mess. But overall levels of Federal debt to third parties is still growing, although no longer as fast as economic activity.
In Japan, machinery orders fell in May from April when a small rise was anticipated. Japan's core machinery orders, which exclude those for ships and electric power companies, fell -3.2% month-on-month. This also missed market expectations for a +0.8% gain. The decrease in capital spending was driven by a sharp decline in the non-manufacturing sector, although machinery orders from manufacturers rose +1% from April to be +10.8% higher than year-ago levels. Orders including the big lumpy items rose sharply, however.
By the way, the very weak Japanese yen recovered somewhat (+2%) after the June US CPI data was released. Markets think the Bank of Japan intervened to generate the rally.
Meanwhile, Germany said its CPI inflation rate fell to 2.2% in June
Australian consumer inflation expectations barely edged lower to 4.3% in July from 4.4% in June. This is no progress because they averaged less than 4% from 2012 to 2019. They seem stuck at over 4%, well above the RBA's target range.
And staying in Australia, mining giant BHP is mothballing its Western Australia nickel mines, including the country's only smelter for the key battery metal. They said the move was due to a global oversupply that has crashed nickel prices over the past year. The glut has been driven by a surge in production from Indonesia, where many operations are bankrolled by Chinese investors. Thousands of Aussie jobs are at risk.
Global container freight rates may be reaching their peak. They rose just +1% last week from the prior week, staying in the stratosphere. But at least the impetus seems to have stopped. But when will they fall back to reasonable levels? Canal pressures are the key to that. Bulk cargo freight rates eased slightly.
The UST 10yr yield is now at 4.19% and down -9 bps from yesterday. The key 2-10 yield curve inversion is less at -32 bps. Their 1-5 curve is still at -77 bps. And their 3 mth-10yr curve inversion is deeper at -115 bps. The Australian 10 year bond yield starts today at 4.35% and down -3 bps. The China 10 year bond rate is holding unchanged at 2.28%. The NZ Government 10 year bond rate is now at 4.62% and down -2 bps from yesterday.
Wall Street has ended its Thursday session with the S&P500 down -0.8% and off its record-high of Wednesday. European markets were mostly up +0.7%. Tokyo ended its Thursday trade up +0.9%. Hong Kong ended yesterday streaking up +2.1%. Shanghai was up +1.1%, but Singapore only managed a +0.4% gain. The ASX200 rose +0.9% and the NZX50 rose its own +1.0% rise in Thursday trade.
The price of gold will start today up +US$41 from yesterday at US$2413/oz. The last, and only, time it was over US$2400 was in mid-May. It record high is US$2,450/oz.
Oil prices are still at just under US$81.50/bbl in the US while the international Brent price is up +50 USc at just on US$85/bbl.
The Kiwi dollar starts today little-changed from yesterday and now at 60.9 USc. Against the Aussie we are still at 90.2 AUc. Against the euro we are marginally lower at 56.1 euro cents. That all means our TWI-5 starts today down -10 bps at 69.8.
The bitcoin price starts today at US$57,888 and again, virtually unchanged from this time yesterday (+0.3%). Volatility over the past 24 hours has stayed modest at just under +/- 2.0%.
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43 Comments
By the way, the very weak Japanese yen recovered somewhat (+2%) after the June US CPI data was released. Markets think the Bank of Japan intervened to generate the rally.
Is this the complete disaster I think it could be? Yellen cannot allow Japan to sell USDT. And even if they could sell, what chaos would ensue if the carry trade unwound? We're in the Twilight Zone.
Japan situation is the most significant event in global economy as a macro-economic indicator currently.
The fact this is the 2nd time the MoF has intervened in the currency markets in the last few months is worrying. Indicates the BoJ feels they can't raise interest rates due to the sky-high government debt load so the yen decline will continue until something breaks. Worst part is the overall debt is still increasing as the govt has to run deficits to fund the budget. And interest payments on the debt are already around 25% of expenditures iirc so imagine if rates rise from here. And the only buyer of Japanese bonds atm is the BoJ, further compounding the problem.
Japan have to choose between the sword and the cliff here and neither option will be pretty (and who knows what contagion will occur).
What we're really looking for out of the 5s10s (or the 2s10s, 3m10s, etc) is the decisive move. But that can take some time like everything else. In 2000, 5s10s steepened in Nov before rate cuts and recession. It was the big move that left no doubt. https://youtu.be/9xxr_oy3FYE Link
This week TEC wrote to Te Pukenga, naming the organisations it must engage with - Volte Consulting, PricewaterhouseCoopers, Calibre Partners, and Deloitte - and the people within those organisations who would be doing the work. Link
Turns out the specific instructions came straight from Minister Simmonds' office. No conflicts of interest here [sarc].
The Tertiary Education Commission has told the national institute of skills and technology it did not believe it had the capability to make the necessary changes.
Well there's a cost saving right there. If the people on the Commission do not have capabilities, little need for them. Best they move to a space where they do have relevance.
Everything in this article is clown world.
Looks pretty, but only appearances.
I saw a quote along the lines "Diversity is being invited to the party, inclusion is being asked to dance".
In government departments I've seen many a meeting where the message was "You're here because you have to be. Don't expect to be allowed to contribute!" to some attendees, including myself on occasion.
You do start to wonder if in some cases the model no longer works. For instance TVNZ has brought home a large loss, $29 mill. Yet the personnel there appear to consider that is acceptable because their employment is sacrosanct in relation to a function essential to all New Zealanders. Now there are obvious good reasons why the state should operate broadcasting nationally provided it is up to standard and independent. But has the “corporatisation” of the function distorted that basic tenet in so far that it is profit driven and have governments sucked out dividends that would have been better re-invested into the services. In the old days folk paid annually for radio/tv licenses which was cumbersome to say the least but now that stream of funding comes out of general taxation, have the old strategies of funding just become lost in the soup.
"have governments sucked out dividends that would have been better re-invested into the services" In that comment I think you touched on the fly in the ointment for all state owned enterprises Foxy. The power companies are a classic case in point where the dividends they are made to pay has hobbled the industry. As SOEs I would suggest they should be directed to not run at a loss while supplying tax payers with a resilient and affordable product. that clearly has not been the case. They are expected to make a profit and the level of profit is essentially set bey the level of dividend they have to pay to the government. It's capitalism and 'free market' BS wrapped up to rip the tax payer off.
Like I've said many times before. The current NACTNZF will just result in more money for consultants and we will further erode the public sector. These consultants will recommend disestablishing roles. The. In a few months time the new org will realise they do not know what they have to do as they have lost all their skilled people, guess who they will go to for advice on what to do next next ... perhaps consultants?
Happens everytime. We get shafted every time some clown comes into power saying they are going to make cuts in order to make cost savings. We've been doing this for 40 years and still haven't learnt. And people still hark back to the good old days when the public sector worked for the public.
The reason why is doesn't anymore is because it is the private sector running things and they are running it for their own interests and profits. The fools that believe the public sector = inefficient and the private sector = efficient are the reason why we're in this position.
Poll published this morning has National regaining more favour & so too PM Luxon in contrast to the poll back in May that Ms Sherman of TVNZ gushed as being the harbinger of the present coalition’s downfall. That’s just in two months. David Lange muttered those that rely on polling are little more than fruitcakes and you do have to wonder why there is so much of this activity which is largely meaningless in terms of an election, most likely two and a half years distant. A heck of a lot can happen to and in New Zealand than would turn today’s status into dishwater.
Improvements? I have a few relations & friends ex teachers primary & high schools, who are in sync with the approach of Erica Stanford as Minister of Education. (Ironically though, they were decidedly out of sync with her National predecessor Hekia Parata.)There are reports too of similar favourable progress in the immigration portfolio. Appreciate Erica Stanford is for want of a better word, a protege of former National Minister, Murray McCully. He was a wily and well versed politician and that may suggest, with the backing of that experience, such progress has been able to circumvent resistance to change by the relative bureaucrats.
Worth noting that the US Fed is also running a deficit of nearly 1% of GDP - the interest they pay on reserve balances doesn't count as part of the US Govt deficit because the Fed just park the loss on their balance sheet until they return to profitability (they typically make $100 billion a year for the US Treasury). So, total deficit spending is about 6.5%.
More importantly... high deficit spending, consumer spending strong, job growth etc. What happened to all the economists who said that this was a recipe for runaway inflation?
Global reserve currency can export a large amount of their inflation. Pays for exports with dollars which stay overseas as they can be used to trade with other international partners, not just the USA.
Downside is global reserve currency experiences the "Triffin dilemma" and pretty much has no choice but to run persistent trade deficits to supply global dollars the world demands. And global reserve currency would likely experience inflation in a non-linear fashion. Can export a lot of inflation while inflation is tolerable and the dollars will stay offshore. But if there is ever doubt about ability of USG to settle debts and globe starts looking elsewhere for a settlement currency, dollars could return home rapidly all at once in a hyperinflation scenario.
EDIT: And to be clear, I'm not making a prediction on whether or not the USD will experience this dynamic. USD could retain global reserve status for decades to come. But just pointing out that while the USD is the global reserve currency it gives the USA privileges (and obligations) that the rest of the world's currencies do not have.
The US Federal government had a monthly deficit of -US$66 bln in June, which takes its full deficit to -$1.57 tln for the past twelve months. That makes it now equivalent to -5.5% of GDP. As large as these levels seem, they record a remarkable improvement.
US Spent A Record $140 Billion On Debt Interest In June, 30% Of All Tax Revenues
The price of gold will start today up +US$41 from yesterday at US$2413/oz. The last, and only, time it was over US$2400 was in mid-May. It record high is US$2,450/oz.
JPM on the other side of this.
"At the forefront of this speculative wave is Zhongcai Futures, a firm that has transitioned from manufacturing PVC pipes to futures trading. Founded by Bian Ximing, who is also a minority investor in notable film projects through Alibaba Pictures, Zhongcai has become synonymous with aggressive market strategies in gold trading.
Bian’s foresight in 2022, amid high inflation and global unrest due to the war in Ukraine, to lock in the firm’s position in highly leveraged Shanghai-traded gold has proven prescient. A fund managed by Zhongcai reported a return of more than 160% in 2024, highlighting the lucrative nature of timely and strategic gold investments."
https://bullionexchanges.com/blog/chinese-speculators-catalyze-record-g…
Decidedly lower US real yields ignites gold demand in anticipation of something bad happening.
A big picture macro chart to always bear in mind. As total economic debt increases over time, the level of real yields at which the economy can remain functional becomes lower and lower. Link
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