Here's our summary of key economic events overnight that affect New Zealand with news policymakers are still struggling with the last-mile gains in their war on inflation.
But first, the number of Americans making initial jobless claims rose last week and by slightly more than expected. That takes them back to early June levels and while not high, it does arrest the recent reduction trend. And there were less claims in the same week a year ago. It is too early to say if this is a labour market turning point, or an outlier. There are now just under 2 mln people on these benefits.
The Philly Fed factory survey rose sharply to its best level in four months driven by new orders. The outlook for the next year was especially positive.
Japanese exports rose to a three month high in June, a much better outcome than anticipated. While not a record, these exports are at an historically high level and only bested by two previous months in the past year. They are up more than +5% year-on-year and delivered a surprise trade surplus. That is mainly because energy costs no longer swell their import bill.
India's central bank is turning its attention away from supporting breakneck economic growth, to controlling inflation. They signaled this in a Bulletin released yesterday - and a return to the policies of Raghuram Rajan, the ones he got removed by Modi for.
The ECB monetary policy review overnight delivered no change to their official interest rate settings. They are holding their restrictive policies because inflation pressures remain and wage gains seem to be driving those. European companies are suffering decreased profitability because they are unable to pass on these elevated costs, they say. But they reckon the pressures will be temporary until inflation is beaten. Still they seem very unsure when rate cuts will happen again.
In Australia, their employed workforce expanded by +50,100 in June to 14.4 mln. +43,300 of those new jobs were full-time, +6,800 were part-time. Their jobless rate rose marginally to 4.1% and their participation rate is still hovering around 67%. Their employment rate of their working-age population is 64.2%. (In New Zealand, these metrics came in at 4.3%, 71.5%, and 68.4% as at March 2024. Our June levels will be released on August 7, 2024.)
Container freight rates were little-changed last week but that is of no comfort because they are staying +286% higher than year-ago levels. The usual factors remain in play although the Panama Canal water levels are recovering and back to the 5-year average. July is when levels usually start to recover. Bulk cargo rates are little-changed from a week ago, although they did rise modestly in between before retreating yesterday.
And we should probably note - again - that the copper price is still retreating hard, down -7.5% in the past week alone. The reason relates to demand out of the stuttering Chinese economy. Nickel, cobalt and lithium are all suffering too, all components of the 'green transition'.
The UST 10yr yield is now at 4.19% and up +5 bps from yesterday. The key 2-10 yield curve inversion is little-changed at -27 bps. Their 1-5 curve is still at -76 bps. But their 3 mth-10yr curve inversion is less at -116 bps. The Australian 10 year bond yield starts today at 4.29% and little-changed. The China 10 year bond rate is little-changed at -2.27%. The NZ Government 10 year bond rate is now at 4.40%, and down -4 bps.
Wall Street is down -0.9% on the S&P500 in Thursday trade and backing off further from its record high. (Instability from a prospective Trump Administration is behind this one.) Overnight, European markets closed mixed in their Thursday trade with Paris and London up +0.2% and Frankfurt down -0.4%. Yesterday Tokyo also ended down a very sharpish -2.4%, Hong Kong ended up +0.2% and Shanghai was up +0.5%. Singapore fell -0.5%. The ASX200 fell -0.3% and the NZX50 ended Thursday up +0.3% and again one the best of the markets we follow.
The price of gold will start today up +US$2 from yesterday at US$2455/oz and still hovering near its all-time highs.
Oil prices are up +50 USc at just on US$82/bbl in the US while the international Brent price is just over US$84.50/bbl.
The Kiwi dollar starts today little-changed at 60.6 USc. Against the Aussie we are also little-changed at 90.2 AUc. Against the euro we are still at 55.6 euro cents. That all means our TWI-5 starts today at 69.4 and essentially unchanged from this time yesterday.
The bitcoin price starts today at US$63,799 and down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.4%.
Daily exchange rates
Select chart tabs
The easiest place to stay up with event risk is by following our Economic Calendar here ».
97 Comments
Yes it will probably be more like 0.8% at a guess. Also remember 1/3 of the country got an 11.5c tax reduction on fuel this quarter so that may counter some of the rates rises. It will still be pretty close to 2%.
Of course knowing the RBNZ they will probably say a higher sept quarter means inflation isn’t beaten yet and we need to wait another 3 months.
Yes, however, based on recent RBNZ "logic" a sep quarter higher than 0.5% will mean:
1. High non-tradeables (driven by rates, which is to a reasonable extent driven by higher interest rates)
2. Annual inflation more likely to stay above 2% for another year until sep 2024 drops off the calculation
3. Therefore not the time for rate cuts yet
Don't get me wrong, I personally think rates should start to decrease, I just think the RBNZ will be too slow to respond again.
That was my maths too. 0.5% would mean 2% target achieved and it also happens to be 2% annualised going forward. Nothing less than 1.4% would mean the target range has been achieved. Given that most of the inflation lately has basically made up of taxes and insurance which the ocr won’t affect much we are at risk of suppressing demand too much. It will take time for any cuts to filter through 6-12 months for most people. There is a little more pain in the pipeline as people who fixed longer before the increases roll over.
In yesterday's breakfast brief I mentioned Biden was 50/50 to run for the Dems and another commenter replied a week is a long time in politics.
Seems they were right and actually a day is a long time in politics - Biden down to ~25% this morning and Harris now the strong favourite to run for President.
Trump still has a ~65% chance to win vs ~70% yesterday. Too little too late?
I think the Nats would have done much the same but unlocked earlier after witnessing international events, I think there would have been less social spending $15bil the auditor general does not know if spent well or not. (Could have been spent on planes and ferries and roads etc)
I suggest that inflation would have come anyways, maybe a tad less in NZ but I think this recession was overdue before Covid hit. Then supply line issues and cheap money caused inflation in every country.
I am not sure life would be much different, I sadly think they would also have left immigration go nuts. Agree better economic governance, no Maori health board wastage.
I am not sure where housing would be as I think interest rates drove the covid spike.
"Trump isn't a blip in Republican party history. He's the correction, the new normal for the GOP — and perhaps America"
https://www.abc.net.au/news/2024-07-19/trump-blip-republican-national-c…
Trump was winning before being wounded. Now the Republican party is likely to gain control of both houses. Trump will resume “America First.” That is America does not need the world as much as the world needs America. Europe will soon very clearly know they need to confront Russia over Ukraine mostly with their own resources. This they should manage. Germany, France, UK have larger economies than Russia with Italy about the same. Count in the remaining EU members and the industrial strength is enormously greater. Industry wins wars. For instance the North over the South the American civil war, the Allies over the Axis WW2.
Europe must know a repeat of the 1938 partition of Sudetenland being forced onto Ukraine will not be an end to the conflict. Russia will simply pause, regather and start in again when it suits them. The only end can be either a regime & policy change in Russia itself or boots on the ground forcing the Russian military back to the original borders where they started and Ukrainian troops cannot possibly achieve that on their own. That question is what the EU/NATO nations will have to answer.
Something I have been mulling over is what would NATO boots on the ground mean for Putin?
Firstly, I think it’s unlikely politically - do NATO member states really want to commit their soldiers to this? With all the death that will come from that? And Ukraine is not a NATO state.
However, assuming they did… what’s Putin’s response?
Is it then the existential threat to Russia that he talks of? Really, it’s not. It’s a defensive initiative, to push Russia back to the pre-war state. *If* Putin accepted this ( a big *if* - he might well view NATO troops in Ukraine as an existential threat to Russia), then it’s a war that he will ultimately lose, and possibly quite quickly, given NATO’s military superiority. Does he then justify nukes when defeat is looking likely? It seems very hard to justify if NATO are not invading Russia, but it’s Putin we are talking about here.
Anyway, I think NATO troops on the ground is unlikely.
So then what? A drawn out battle, that no one wins? And that eventually might reach an agreement? But as has been widely traversed, it’s very hard to see an agreement that is acceptable to both parties
You have to take some note of the rhetoric coming out of Putin’s office. He lays claim to the empire once encompassed in the days of Peter the Great. He openly has vilified both Lenin & Stalin for giving up territory, Finland, the Baltic States, Poland and more. So on that form, Ukraine s just the start. As I have said often here the invasion was badly misjudged. The Dnieper river running north from the Black Sea is a historical and formidable natural barrier and as well the industrial and built up urban belt, west to east in the Donetsk region is very difficult to advance through town by town as Russia is currently demonstrating. Any advance westwards into Ukraine is therefore best positioned in the North around the top of the Dnieper. To do that Kharkov needs to be occupied and that is why the Wehrmacht and Red Army fought four very brutal battles there. If the Europeans know their history they know if Russia does overcome Kharkov then Ukraine is wide open. They should also work out if Russia eventually occupies Ukraine that is not the last page and if they are to fight Russia then it is best done in Ukraine rather than their own land.
NATO are never going to put boots on the ground in Ukraine, that's basically WW3, you would have to be plain stupid. Ukraine is toast come November when Trump gets in, they will be forced into peace negotiations and a large chunk of Ukraine will be lost. The war was a total waste of men and money. The economies in Europe cannot afford an on going war and the political landscape if changing very fast.
I agree that NATO troops in Ukraine is unlikely, for a host of reasons. I don’t agree with your comments on Trump though. Despite his rhetoric, there are many compelling reasons why the USA will keep supplying Ukraine. Regardless of whether Trump is in power or not, the USA will not tolerate Russia gobbling up large parts of the Ukraine and extending its reach westwards.
The USA has many cultural and economic reasons to want Nato to remain strong and Russia to be weaker.
If they negotiate peace on Russias terms, all of Ukraine will be lost, not just 'a large chunk'. Putins terms are demilitarisation and denazification, i.e. removal of their democratically elected government, you know that Jewish guy Zelenskyy, well apparently he's a closet Nazi.
The western half might be left with it's own government, but it will be a puppet government forced to do what Russia wants, just as the Eastern Bloc was under the USSR.
And you think he'll stop at Ukraine? He'll be after the baltic states and poland next. All NATO members, so surrender wont save Europe it's war.\
Just as Trumps dementia means he truly believes he lost the 2020 election, Putin truly believes the former Russian empire belongs to Russia.
Some interesting musing HM.
It possibly comes down to what Putin is being told, and what he believes/thinks of it. He has spoken as if Ukraine being NATO was an existential threat due to the proximity, but there are other NATO nations who have bordered Russia, and now there are more. Why doesn't he see them as a threat, then and now?
I think the likelihood of NATO troops was remote in the beginning (although I still believe that NATO should have acted more aggressively then) but is increasing with time. Politically Putin is building an axis of autocratic nations, all of whom collectively present a real threat to democratic ones.
It is possible that Putin might see NATO troops on the ground as an opportunity to escalate and seize the day. But I would suggest that would depend very much on the European and US posture with respect to nukes, and their defensive systems. Massing huge numbers of ground troops on the ground in Ukraine would be an extreme, high risk strategy. But NATO very much has the capability to reach out and destroy Russian support structure and reserves before any troops are committed, as well as giving Ukrainian forces the technological capability to dominate. But that will mean reaching inside Russia which will be seen as an escalation. Might be restrained if the only targets are places from which attacks are launched, plus military and political command structures.
Interesting thoughts.
That would mean Russia is winning the war of attrition. They've apparently brought in troops from Iran, and North Korea (or at least negotiating for them) and possibly other places, while Ukraine stands virtually on it's own. It would be very late, but that might be the tipping point, but also the trap.
Is Putin trying to get the west to expend it's resources as part of a larger grand strategy?
The longer it takes for others to step in and stop the war, the harder and more expensive it will be.
The something in the woodpile is Belarus. Ukraine is over occupied in the Sth East and wide open and vulnerable to an attack from the north. A stab in the back if you like. At present it seems Lukashenko is playing the role of Lord Stanley at the battle of Bosworth- I’ll decide to intervene when I’m sure of the winner.
the other day I postulated on the stream from Chris Trotters article that the assassination attempt may make Trump 'grow up'. I was fascinated to observe his body language in the news footage from the RNC. Up front he appears terrified. His body language is entirely different (who can blame him). He has fronted the crowds without saying anything, and where in the past he would have been glad handing spectators, now he is standing well back from them. This is an entirely different person now. I would suggest this time around he will be an entirely different President. What that looks like is anyone's guess but I hope it is for the better.
A skinny mixed up kid with a gun might well have changed the man himself, if not history. Eerily, in its function, it’s not dissimilar to the event in 1981 in Dunedin, Queen Elizabeth herself. The odd shot that echoes round the world is always in the offing isn’t it.
He could have torn Biden a new one during the debates, it didn't happen, that was before the shooting. I think he knows he has his base, whatever he does, so he's trying to get the swing voters by playing nice. I think he's received good advice and has taken it. I think he's learned his lesson after losing, he's not stupid.
An hour long, but it highlights what many rarely touch on; the stock market has become a giant ponzi:
To put the current valuation extreme in perspective, the chart below shows our estimate of 12-year S&P 500 total returns over and above Treasury yields. This is the most reliable estimate of the “equity risk premium” that we have examined or developed, and is better correlated with actual subsequent outcomes than the “Fed Model” (S&P 500 operating earnings yield – 10 year Treasury yield), the “Excess CAPE Yield” of Shiller, Black, and Jirav, and annual estimates produced by Aswath Damodaran, all whose work I admire even when I might disagree. Link
Market capitalization isn’t “wealth.” It’s the latest price, times shares outstanding. Blotches of ink on paper. Flashing pixels on a screen. If a dentist in Poughkeepsie buys a single share of Apple at a price that’s 10 cents higher than the previous trade, $1.6 billion in market capitalization emerges from thin air. If a single share trades 10 cents lower, $1.6 billion evaporates just as quickly. Whatever happens, every security in existence has to be held by someone until it is retired. Ultimately, the wealth inherent in a security is the future stream of cash flows it will deliver to its holder(s) over time. Price fluctuations don’t change those underlying cash flows. They just provide opportunities for the transfer of savings between investors. High valuations favor the sellers. Low valuations favor the buyers. Investors have never paid higher prices for those future cash flows, or accepted prospective returns so low.
Put simply, the bubble hasn’t changed the wealth, and a collapse won’t change the wealth. What will change is the market cap. I suspect that the erasure of market cap in the coming years, and possibly the coming quarters, may be brutal. Still, no forecasts are required, and our own attention will remain on observable valuations, market internals, and other factors. Meanwhile, even if an investor sells at these extremes, the only thing that will change is who holds the bag. Link
Sort of optimistic view; "Ultimately, the wealth inherent in a security is the future stream of cash flows it will deliver to its holder(s) over time." In reality the 'wealth inherent in a security' is 90% hope and 10% 'the future stream of cash flows it will deliver to its holder(s) over time.' for most US shares.
Share prices in the US are crazy, Boeing is in big trouble, probably only kept afloat because of it's military contracts, but the share price is still US$180 odd. The emotional component of share prices needs to be understood when investing.
Instructions one should use for all securities holdings (see text below recommended by Trump Media) as 1) otherwise you help those betting against you & 2) you are reducing the ranking of your claim on your assets in case of a systemic crisis (or "Great Taking", see David Webb) Link
Ex-New Jersey Governor Jon Corzine to Pay $5M Penalty to Resolve MF Global Case
A federal court in Manhattan on Thursday granted the order against Corzine to the U.S. Commodity Futures Trading Commission, which brought civil charges against him in 2013. Following the stunning collapse of the big Wall Street firm in late 2011, the CFTC alleged that MF Global misused customer funds in a vain attempt to remain solvent. Corzine failed to closely supervise the handling of customer money by the firm's employees, according to the order.
Clients buying securities through Lehman Brothers Inc. may or may not have been aware that the end result was those securities actually being custodied with Lehman Brothers International Europe across the Atlantic. In most cases, they wouldn’t have cared anyway; the latter dealer offered much better terms, funding arrangements and other perks that cheapened the costs of doing financial business. All a form of leverage.
This leverage extended to Lehman, too. Because in the world of securities lending, and what today is called securities funding transactions, to get the best terms mostly means letting your broker secure them on your behalf.
Nobody buys securities; they borrow and claim to “own.” Repo. The hedge fund (client) says it wants to own XYZ US Treasury issue, puts up a minimal upfront investment, enough to cover some overcollateralization requirement, and borrows for the rest of the purchase price. In many instances, the broker is the lender as well as custodian.
To make this securities funding transaction as cheap as possible, the client will agree to allow the dealer to re-pledge or rehypothecate (for our purposes here, the language is interchangeable though in a legal and regulatory sense these terms can have different meanings) the very security the client is claiming to own. Link
'SPQR owes the IRD $1,484,423 in payroll taxes and GST.' 'The IRD had served a statutory demand on SPQR for tax arrears'.
It appears that SPQR was feeding Auckland's upper ten by not paying their taxes. It seems to me that the majority of the New Zealand tax arrears, almost $5 billion in personal tax, payroll and GST, will be uncollectable.
This x 100
I run what I'd consider to be a moderately successful small business. Every time I make a GST payment, or prov/terminal tax payment to the IRD I sweat that I've made some kind of cock up in Xero (even though I've got a good accountant) and that I'll wake up one morning to the sound of a helicopter on the front lawn with some IRD SWAT enforcement team knocking down the door, waiting to send me off for some serious porridge. Ok maybe a bit extreme, but I don't like the idea of not paying my dues.
Then you see businesses stack up 5, 6, 7 figures of tax debt and realise you're probably not one of the 'bad guys'.
Just the other day I saw the place where I occasionally get my hair cut has gone into liquidation owing the IRD best part of $250k in GST and unpaid PAYE: https://www.pressreader.com/new-zealand/the-press/20240715/281612425627…
In fact, I walked in there only a couple of weeks ago for a haircut, and you'd never have guessed the proprietor owed a small fortune to the IRD (and much more to other creditors).
And right on cue:
https://www.nzherald.co.nz/business/housing-construction-couple-jailed-…
The covid loans still have 12 months to run on the schedule (they were required to be cleared within 5 years, and subject to interest for the final 3 years) assuming SPQR had loans, and hadnt paid them before requirement, which given their position seems unlikely...and then there are likely arrears should they have taken the option.
Isn’t it well overdue that Police were excused / legally removed from having anything to do with liquor licensing legislation, application & monitoring to enable them to maintain much more value added focus on their primary serious crime purpose / responsibilities.
We have a Commerce Commission, Advertising Stds Authority etc. We don’t need every additional wowsers opinions.
I have no preference on what government organisation enforces the various trading laws in NZ, so long as the work is correctly provisioned for. I don't think the Police are creating the alcohol policy, like you suggest. So long as an organisation is funded and staffed well, there is no inherent limit to the overall 'concentration' of an organisation. That limit is more likely in the understanding of those outside of the organisation.
I was just pointing out that alcohol is probably the largest single contributor to the crime and accidents that the Police have to deal with on a daily basis (including car crashes and domestic violence). So I can understand why it has historically ended up with them.
OK, argue away.
https://www.police.govt.nz/news/release/2357
"Overseas studies suggest that between 50 - 70 per cent of all police work is associated in some way with dealing with alcohol-fuelled incidents," said Mr Broad.
Whilst I am heavily invested in my day drinking on a daily basis, you are right. If there was no alcohol the Police would have very little to do. I always thought we’ve got it round the wrong way. Swap it out for cannabis. Alcohol creates aggressive behaviour, cannabis creates calm behaviour. I’m not sure though how cannabis would affect my day trading.
“We put together a world database of demographic transitions and document that the falls in fertility across the world are becoming faster, i.e., once fertility starts dropping, the speed is much higher than in the past. Recent evidence in countries in Asia and Latin America (Latam) is quite astonishing. In fact, I am writing a follow up paper about the fertility collapse in Latam. At this moment, nearly all Latam has a fertility rate BELOW the US, with extreme cases like Chile at 1.1 (and likely to be below 1 in 2024). I wonder how many people in the US is aware that Brazil or El Salvador have lower fertility rates than California.”
“Fernández-Villaverde also argues under the dynamics of a demographic transition that GDP becomes less useful as an indicator of economic performance:
We argue that GDP is becoming an increasingly misleading indicator of economic performance as populations age and hence the age composition of the population. The most striking case is Japan. if you measure GDP per working-age adult or GDP per hour worked, Japan has outperformed all advanced economies in the world since 1999. There is no "Japanese stagnation," just fewer Japanese workers. Not great news to pay back public debt, but monetary policy or absence of aggressive economic reforms are not the reason for anything bad in Japan.”
https://rogerpielkejr.substack.com/p/birth-dearth-or-baby-boom
A lot of talk about what is keeping (allegedly) non-tradable inflation up, but it is worth remembering that the allegedly domestic side of the CPI basket has contributed around 170 basis points to Annual CPI for years (pre-c*vid). The question to ask is not what prices are pushing hardest per se, but which items in the basket are contributing more than they usually do? There is a breakdown of the difference in contribution relative to norms in this graph. You can also see the plain old contribution by item here.
Note that a lot of the big contributors to CPI are locked into whatever CPI was the year before - creating a feedback loop that keeps our non-tradable CPI ticking along. For example:
- Rents typically contribute around 260 basis points because rents track wage growth, which tracks CPI (well, Household Living Costs, which include mortgage costs)
- Cigarettes and tobacco typically contributes around 300 basis points - because excise taxes etc are set based on CPI
- Insurance is always going to rise by at least CPI because it is based in large part on the replacement cost of things in the basket
- Ditto Local Govt rates (plus whatever Councils can put on top)
So, when CPI goes up, it is always going to be very slow to come down because it is mutually reinforcing. So, rather than crushing jobs and businesses to tackle inflation, maybe we should instead try a couple of circuit breakers? What if central Govt had funded local Govt to freeze rates this year? Or, what if the Green Party proposal from 2023 to limit rent rises to 3% has been implemented - even temporarily (as it was in lots of other countries). This would have dampened CPI and stopped those feedback loops keeping things elevated.
Don't get me started on how interest rates feedback into CPI btw.
Have you any idea how expensive recessions and high interest rates are for Govt? Govt is paying $7m per day interest on bank settlement balances, and benefit payments are already running millions of dollars per week above the forecasts that Govt used to set the budget in May! A billion spent on short-circuiting inflation would repay billions to Govt and, more importantly, the rest of us.
So, rather than crushing jobs and businesses to tackle inflation, maybe we should instead try a couple of circuit breakers?
I guess the problem may arise that if industry knows central governments will intervene when inflation spikes, and smooth over price hikes, that may disincentivize actually correcting prices/slowing rises.
That an you're effectively putting inflation on tick.
Ultimately if the things we want get more expensive to make we either pay more for them or use less of them.
We are dealing with the secondary / tertiary impacts of imported price shocks, and as feedback loops keep going we will get prices nudging up. My simple suggestion is that we directly interrupt these feedback loops rather than trying to make everyone too poor to buy things.
"What if central Govt had funded local Govt to freeze rates this year?"
(1) Where does that Central Government funding come from to do that? I know! Let's increase our National Debt to fund it, and
(2) What happens 'next year', when the Local Governments have spent what they didn't have this year and assumed that the same will happen next year (and the year after)? "Never stand between a Local Government Councillor and Free Money. You'll get trampled to death!"
(PS: I've recounted the story here before of witnessing a Local Councillor waving his arms about in front of a group of developers/architects, and loudly insisting "I don't care how much it costs, I just want it to look good!"
Have you any idea how expensive recessions and high interest rates are for Govt? Govt is paying $7m per day interest on bank settlement balances, and benefit payments are already running millions of dollars per week above the forecasts that Govt used to set the budget in May! A billion spent on short-circuiting inflation would repay billions to Govt and, more importantly, the rest of us.
On local Govt more generally, there is zero chance of us having 21st century infrastucture if we leave Local Govt to raise money through rates and user pays. It ain't happening.
'Catastrophic' - Universities plead for more government subsidies | RNZ News
"Go Woke, Go Broke"
if the government does not renew a one-off funding boost made by its predecessor
What part of one-off did they not understand. Seems like they made financial decisions on the expectation that it would be more than that, and those decisions are coming home to roost.
https://www.rnz.co.nz/news/business/522526/property-investors-rake-in-5…
Investors have reaped a $500 billion windfall for providing shitty houses for their tenants over the last 30 or so years.
Meanwhile our standard of living has declined. Gareth Kiernan talking sense re the poor allocation of capital in this country.
MSM and its go-to opinion leaders do not have the gonads to explain to the sheeple the how and why credit creation is allocated to non-productive purposes (the Ponzi, consumption) over productive purposes and the implications (inflation, boom / bust cycles).
You can learn about these things through interest dot co.
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.