sign up log in
Want to go ad-free? Find out how, here.

A review of things you need to know before you sign off on Wednesday; CPI inflation eases more than expected, rents top out, dairy prices surprise, Synlait surprises again, swaps uncertain, NZD firms, & more

Economy / news
A review of things you need to know before you sign off on Wednesday; CPI inflation eases more than expected, rents top out, dairy prices surprise, Synlait surprises again, swaps uncertain, NZD firms, & more

Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).

MORTGAGE/LOAN RATE CHANGES
No changes to report. All rates are here.

TERM DEPOSIT/SAVINGS RATE CHANGES
No changes today here either, so far. All rates less than 1 year are here, for 1-5 years, they are here. But we should remind readers that the 6.15% BNZ 6 month TD special expires today.

BELOW FORECAST
Overall inflation fell to a three year low at 3.3% in the June quarter. Falling transport costs and flat food prices dragged annual inflation down to just above the 1% to 3% target band during the June quarter. But, and it is a big 'but', tradable inflation fell to +0.3% pa its lowest since Q4-2020 but non-tradable inflation held high at 5.4%, and has now been over 5% continuously for almost three years. The gap between tradable and non-tradable inflation is its most in 20 years.

WHEN WILL RATE CUTS COME?
Analysts and the financial markets are divided on this question. We may have to wait a little while longer. Still-'sticky' domestic inflation may convince the Reserve Bank to sit tight on the Official Cash Rate at least for now.

FINANCIAL MARKET REACTIONS
Financial market reacted after the data release with the NZD rising +30 bps on the news. NZGB yields rose marginally, less than +5 bps. The equity market rose after the data release (+0.5% at time of writing). But don't forget, data like this isn't the only influence on market pricing. We have eyes on how the swap rates will change today. Those key changes will be reflected in the chart below because they will come after this story is published.

BUT WHEN? GIVE ME A DATE
Some banks, notably ANZ and Westpac, have changed their view on when the OCR will next be cut. Signals that are tricky to read from the RBNZ make this a difficult forecast to make. ANZ now says -25 bps in November. Kiwibank agrees, Westpac says November as well. BNZ has always said November. Infometrics isn't so sure and suggests it could be later than that (and if it is, it would be a mistake, they say). Bank analysts seem unsure, but when forced to choose, think the first rate cut will be in November. They seem united in this guess.

HOLDING HIGH
May's national median weekly rent for newly tenanted properties was up $30 from a year ago, now at $600/week. However it was first at this level in December 2023, and apart from one brief tick higher, it has flattened out at this level since.

POLITICS IS KEEPING INFLATION STICKY
While we worry about New Zealand's sticky and high non-tradable inflation, the IMF issued a warning about service sector inflation in the major economies. It's a global problem. A globalised world delivers inflationary relief, but the insulated sectors haven't so far. And that is a broad public policy problem (one that will be made worse - much worse - if a Trump 2.0 closes the US borders because it can't handle ordinary competition. Essentially billionaires don't like to lose their pricing power. All of us will suffer as a result.)

DAIRY SURPRISE
Somewhat surprisingly, dairy prices rose at today's auction, up +0.4% in USD. In NZD they were up +0.9%. The rise was because the milk powers didn't fall as much as feared, and Cheddar cheese and butter (and AMF) all rose, cheese by more than +6%. It was a result that defied recent trends and futures market pricing. USDA price monitoring didn't signal the rise in 'fats' either. Today's results probably don't change farm gate payout prospects.

SYNLAIT 'SURPRISE'
Although Synlait won almost unanimous shareholder approval for a major fundraising (to replace bank funding, because their banks seem to have lost faith in the company) today they told those shareholder that their stripped-down profit guidance will most likely not be achieved. So they have withdrawn the low "lower end of the $45 million to $60 million range" guidance they told shareholders in early June. There will be some pissed-off shareholders.

PICKUP?
Homebuilding is at a low ebb in Australia - bit the March results released today suggest it picked up in Q1.

PATCHY
In Japan, the Reuters/Tankan sentiment index for the factory sector jumped to +11 in July from +6 in June. It was the first rise in 4 months. Meanwhile, the index for the service sector cooled, reflecting a patchy economic outlook. The latest survey comes two weeks before the Bank of Japan’s July policy meeting where it could raise interest rates again and announce its bond purchase tapering plans. (The monthly Reuters/Tankan survey is a key indicator for the Bank of Japan's quarterly tankan survey.)

SWAP RATES HOLD? AGAINST INTERNATIONAL PRESSURE
Wholesale swap rates are likely to be marginally firmer today. Our chart below will record the final positions. The 90 day bank bill rate was down -2 bps at 5.53%. The Australian 10 year bond yield is down -3 bps from this time yesterday at 4.27%. The China 10 year bond rate is little-changed at 2.27%. The NZ Government 10 year bond rate is down just -1 bp at 4.45% and the earlier RBNZ fix was at 4.37% and down another -4 bps from yesterday. The UST 10yr yield is down -6 bps at 4.16%. Their 2yr is now at 4.43%, so that curve is now a bit more inverted, by -27 bps.

EQUITIES MOST HIGHER
The NZX50 is up +0.5% from yesterday in late trade. The ASX200 is a full +1.0% in afternoon trade. Tokyo has opened its Wednesday trade up a mere +0.1%. Hong Kong is down -0.1% however in another dip. Shanghai is down -0.5%, and Singapore is unchanged. Earlier, Wall Street rose +0.6% on the S&P500 and that is an all-time high for this icon index.

OIL LOWER AGAIN
The oil price is down a bit more than -US$1 at just under US$80/bbl in the US, and now just on US$83/bbl for the international Brent price.

GOLD HITS RECORD HIGH
In early Asian trade, gold is up +US$49 from this time yesterday at US$2475/oz and a new all-time high.

NZD TURNS UP
After the CPI result, the Kiwi dollar is up +30 bps from this time yesterday, now at 60.8 USc. Against the Aussie we are up +40 bps at 90.2 AUc. Against the euro we are only up +10 bps at 55.7 euro cents. This all means the TWI-5 is now just on 69.5 and up +20 bps.

BITCOIN RISES AGAIN
The bitcoin price is up +1.7% from this time yesterday at US$65,770. Volatility of the past 24 hours has been moderate at just on +/- 2.9%.

Daily exchange rates

Select chart tabs

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
Source: CoinDesk

Daily swap rates

Select chart tabs

Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA

This soil moisture chart is animated here.

Keep abreast of upcoming events by following our Economic Calendar here ».

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.

34 Comments

Any one else a bit surprised at the NZ$ strengthening after the lower than expected C.P.I. read?

Up
8

Yep I literally just asked this question as you were typing! 

Up
4

Probably because of the non-tradeables at 5.4. The next quarter is going to pick up the average NZ council rates increase of 14% too which wont help.

Up
5

Where does this number come from? Auckland has a rates increase of 6.8% (residential), and for Christchurch it's 9.95% (ECan increase is higher, but that's only about 20% of a typical bill). If our 2 biggest councils are under 14% it seems unlikely the average household will have a 14% increase.

Up
1
Up
1

Average council might be 14 but average household will be much less because the bigger councils have much lower increases (although still very high!) 

Up
0

So the average council may be thay high, but the CPI is concerned with the average household, so bigger councils like Auckland and Christchurch will be weighted higher. Probably still about a 10% increase though

Up
0

Maybe the market was expecting a lower CPI Print

this means if we need to see another Quarter CPI print its nov first chance cut

makes the FED more likely to cut first now?

Up
4

Donald Trump warns US Fed chair not to cut rates before the election

"Ex-president says he would let Jay Powell finish term at central bank if he was ‘doing the right thing’ "

Up
4

I hear you but the Market is telling it thinks the US cuts rates before NZ does, that's why it went up...

 

Up
1

Yes I also believe Orr is likely to wait for the fed to move first. Just adding that nugget to the picture from a few hours ago.

If the data is still marginal in the US to cut before elections, will Powell’s job security cause a final delay to rate cuts? There’s a potential domino effect for NZ rate cuts..

Up
3

Agreed, if the US cut in Sept/Oct that makes it easy for Orr. Interesting comment you posted re Trumps call not to cut.

Up
4

We basically have the "emergency kill inflation" OCR setting deployed right now despite being almost within target and with 1.8% inflation falling out this quarter. 

Up
1

Any one else a bit surprised at the NZ$ strengthening after the lower than expected C.P.I. read?

Relative to rat poison, purchasing power of NZD down 90%+ since March 2020. Why is that start period important? Look at all FX, equity, commods prices and work it out for yourself. 

Relative to gold, purchasing power of NZD down approx 50% over same time period. 

Up
2

Can any FX gurus explain to me why the NZD went up despite the super low CPI read?  I'll assume interest rates likely to fall faster now (and yes I appreciate it has already been falling for a days already)

Up
4

"Sell the rumour; buy the fact". If every man and their dog expected what we got, or 'better', then who was going to be long? And now it's over for a while, who wants to stay short, given all sorts of other uncertainties?

Up
3

Could also be due to the 'stickiness' of the Non-Tradables inflation component, will be hard to get this below 5% (OCR seems to have minimal impact on this element).

Up
1

" Bond-market recession signal (inverted yield curve) has been flashing since 2022, with no downturn"- the longest it has done that in history.

At some stage, the cost-of-carry of 'borrowing short' is going to hurt - whoever it is that's decided that short durations is the way to go. And if they all decide to 'go long' at the same time, well....

https://www.marketwatch.com/story/this-bond-market-recession-signal-has…

Up
4

'Essentially billionaires don't like to lose their pricing power. All of us will suffer as a result'

David, I believe this is the statement of the year! Sad but true!

Up
5

DC starts from a false base-line posit. That means that if he get thing right, it's possibly random chance. 

His dislike of Trump - indeed blaming of same - is right in that he is narcissistic, and probably psychopathic. And it's true that the Musk money alone is very useful, and no doubt expects a backsheesh. 

But the puppeteers who have their hand up the Biden cadaver are worse; a bigger threat to us all. Read Kagan/Kagan 'While America Sleeps' - and be very afraid. The US - with these neocons in charge - has been the biggest thug on the planet for 70 years, and we have been lucky to have hung on her coattails. To deny that, requires denial of the resource-rape of others (Iraq, South America, you name it) which in turn, requires a denial of there being limits (that would acknowledge we're screwing someone else out of something). 

Trump is symptom, not a cause. So was Brexit. So too is the collapsing of German infrastructure, indeed the whole western world is in the same boat. Those who have been disenfranchised - US rust-belt, South Auckland, British midlands - are voting incumbents out. And mavericks in. Happened in the 1930's too - for the same reasons, except there was a fuller planet in resource terms, and an emptier on population-wise. 

Globalisation is on a permanent downward trajectory - regardless of who is in 'power'. The reasons are physical, not political. The latter is a 'taker', not a 'maker'. 

Up
9

The crazy thing is that the "US rust-belt, South Auckland, British midlands" will probably suffer the most from the mavericks. The rich can survive anything, the poor get shafted by a bad economy. I feel like that is already playing out in England. 

Up
2

The likes of Soros and Zuckerberg have been funnelling billions to the Democrats for years.  Google set up a secretive company to "manage" Hilary Clintons election campaign in 2016.  Facebook and LinkedIn (Microsoft owned) censored and cancelled all Conservative voices on their platforms over the last decade.  Google censored and deleted search results that werent conforming to their narrative.  

Up
3

Really? There are no conservatives on Facebook? Because they have all been cancelled? And people upvote this comment? Let's try and be factual on here.

Up
1

https://www.npr.org/2020/10/05/918520692/facebook-keeps-data-secret-let…

"When Republicans claim Facebook is "biased," they often collapse two distinct complaints into one. First, that the social network deliberately scrubs right-leaning content from its site. There is no proof to back this up. Secondly, Republicans suggest that conservative news and perspectives are being throttled by Facebook, that the social network is preventing the content from finding a large audience. That claim is not only unproven, but publicly available data on Facebook shows the exact opposite to be true: conservative news regularly ranks among some of the popular content on the site."

Up
1

Yep, one dollar one vote

Elon Musk intends to allocate $45 million a month to support Trump's election campaign, The Wall Street Journal reports, citing sources. The money will go to America PAC, which was created in June to support Trump and has already hired hundreds of people to register voters, persuade them to vote early, and request mail-in ballots in swing states. Among the committee's sponsors are other large businesses: Palantir Technologies, entrepreneurs twin brothers Tyler and Cameron Winklevoss, former US Ambassador to Canada Kelly Craft and her husband Joe Craft, CEO of the coal mining company Alliance Resource Partners. - ISZ reports   Link

Up
0

ASB brought forward their forecasted first cut to October after seeing the RBNZ core inflation data that came out at 3pm.

Up
0

Are they going to bring forward some interest rate cuts too? 

Up
2

Feather and rocket I think the fuel companies call it.

Rise like a rocket and fall like a feather  

Up
5

And that is a broad public policy problem (one that will be made worse - much worse - if a Trump 2.0 closes the US borders because it can't handle ordinary competition. Essentially billionaires don't like to lose their pricing power. All of us will suffer as a result.)

The US is already one of the most closed economies, trade-to-GDP is 27% (China is 38%, India 49%, New Zealand would be 54% by comparison.) They have most of the commodities they need and a mix of industries from agriculture to manufacturing that meets internal demand.

 

They are in a position to go it alone and have put a lot of effort into maintaining that independence.

Up
2

Gold and silver prices in China today.

Gold - USD2,540

Silver - USD35.75

We're looking at breakout. Jamie Dimon is positioning his rooks now.  

Up
0

Market has decided that Trump is going to win the election.... buying safety

Up
2

Anybody who thinks Trump will not win the election is deluded. Almost in fact, as the man himself often seems to convey.

Up
1

Market has decided that Trump is going to win the election.... buying safety

Think I will push back here IT. I don't think the prices of gold / silver are dictated by whether or not Orange is top of the pile. Similar with Sleepy Joe.   

Up
0