Here's our summary of key economic events overnight that affect New Zealand with news the economies of most major powers are in good shape and their companies are prospering.
But for those who follow such things, we should note that President Biden has decided not to run in the Presidential election in November, stepping aside. The race for the Democratic nomination is now open at their convention in Chicago starting on Tuesday August 20 (NZT) even though Biden endorsed Kamala Harris.
Well before then and ahead this week will be some early PMIs for July released for many key economies. Although there are no major June CPI due for release, the US's important PCE inflation data is due on Saturday NZT and that will be keenly awaited. The US will also release its first estimate of Q2 GDP on Friday and markets expect real growth there to be +2% from Q1. Good recent data might well see it above that.
Canada is reviewing its policy rate on Thursday, and market now expect a -25 bps cut to 4.5%
China is set to announce its policy interest rate decision this week, and it should be releasing its troubled FDI update soon, both possibly later today.
Over the weekend, the big overnight news was that a "faulty channel file" from CrowdStrike took down Windows computers everywhere, including in New Zealand. Outages were widespread, including for many bank services. It was a spectacular own-goal and not a malicious strike. We have more details here. And our review shows how you can recover if you were affected.. But be careful; within hours scammers had launched new domains hoping to trick users into 'response scams'. CrowdStrike made its name fixing tech problems. Now it has caused a doozy. The echoes are lingering and may do for some time yet.
And the situation isn't going to do anything for tech company valuations generally. US$13 bln CrowdStrike's share price was down -11% on Friday alone, down -18% for the week.
Interestingly, China seems to have escaped the issue, largely due to its self-sufficiency policies. But it has hit Hong Kong.
A new research note by the New York Fed is pointing out that since the GFC, American factory productivity improvements have stalled. Tech has been no saviour to this sector. Prior to that, large firms built innovative advances. But since even the leading firms haven't got productivity gains. They call the change a 'mystery'. Even shifting low-wage production offshore didn't have the effect of raising it. Nor competition, it seems. And all this come as their employed workforce hit record highs.
In Canada, their expected May retreat in retail sales after the strong April gain came in deeper than expected. If it wasn't for good car sales, it would have been much worse. June is expected to be -0.3% lower too. Now their year-on-year gain is only +1.0%, much less than their inflation of +2.7%.
Canadian producer prices rose +2.8% in the year to June, the same as for the year to May.
Japanese inflation stayed at 2.8% in June, well above their central bank's upper target range. It has been consistently above 2% since April 2022. Food prices rose 3.6% in June although that was lower than the May 4.1% rate. Energy prices were up 2.4% but that is somewhat artificially high because fuel subsidies ended in May. These levels are marginally lower than analyst expectations.
China has ended its internal policy meetings, the Third Plenum. As suspected, little real economic reform seems to have been on their agenda. Just more of a 'security is everything' attitude, more excessive adverbs, and a seeming turn inward. Those hoping for 'reform' and 'opening up' will have been disappointed.
The UST 10yr yield is now at 4.24% and unchanged from Saturday. The key 2-10 yield curve inversion is also little-changed at -27 bps. Their 1-5 curve is still at -72 bps. And their 3 mth-10yr curve inversion is holding at -113 bps. The Australian 10 year bond yield starts today at 4.24% and down a very sharp -13 bps from where we left it Saturday. The China 10 year bond rate is little-changed at -2.27%, still locked down by Beijing. The NZ Government 10 year bond rate is now at 4.40%, and unchanged. For the week it is down -15 bps however.
On Wall Street, earnings season will hit a crescendo this week with over thirty companies boasting market caps exceeding US$100 bln are set to unveil their Q2 financial reports. So far, only one in seven of S&P500 companies have reported Q2 results but they have been strong. Of those most are reporting earnings growth, and more than anticipated by analysts.
The price of gold will start today up just +US$3 from Saturday at US$2401/oz after Friday night's big drop.
Oil prices are holding lower at just on US$78.50/bbl in the US while the international Brent price is just under US$82/bbl.
The Kiwi dollar starts today little-changed at 60.1 USc but more than -1c over the past week. Against the Aussie we are still at 89.9 AUc. Against the euro we are also still at 55.2 euro cents. That all means our TWI-5 starts today at 69 but down -90 bps for the week.
The bitcoin price starts today at US$66,720 and up a minor +0.3% from this time Saturday. Volatility over the past 24 hours has been low at just on +/- 0.8%.
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55 Comments
If this quote is real then Trump needs to go and if he doesnt and he wins the presidency, americans (and others) will be screaming at him
"We’ve endorsed J.P. — right? J.D. Mandel, and he’s doing great. They’re all doing good,” the former president told thousands of rallygoers."
Trump has already won. This is a last ditch effort to save the Senate majority and possibly regain the Lower House which would offer some hope as opposed to a completely unbridled Trump. Harris is as good as anybody to take the fall but the next 6 months will be a concern as Biden will now collapse like a badly cooked vanilla sponge cake and the Dems will need to keep him off camera. Meanwhile, the whole world watches and wonders.
Yeah I wonder if the Democrats realise that it's better not to 'sacrifice' a potential 2028 candidate. Chuck Harris under the bus instead, and then regroup.
Of course a week is a long time in politics (in fact, as Trump proved the other day, a nanosecond is bloody long time in politics!!)
You might wish to ponder on how National was almost sleepwalking to victory…….and then at last minute labour found Jacinda to enter the race.
Trump assassination euphoria will not last forever…… a decent opponent could change everything.
How long before his repetitive and detail,lacking mockery speeches just become boring?
Possibly. Over the weekend the old Trump started to resurface. The PTSD will still be there. (Drop something loud behind him and watch his reaction) He will likely need a reminder, that he is still vulnerable. He peddles division and hate. And too many of the wrong sort feed of that.
The US manufacturing productivity mystery isn't really that mysterious. Take a look at it here. Now compare it to NZ labour productivity over the same time period.
Can you see what happened? Pre-GFC, most advanced economies liberated finance and ran private debt up to the moon. Banks pumped billions of dollars of freshly created money into the economy and this surplus was gathered up as profits by companies and then shareholders. This, by definition, increased their measured productivity (because surplus is the numerator). Here's private debt as % of GDP vs labour productivity for NZ for example.
After the GFC, the private debt-fuelled Ponzi was maxed out and the party stalled.
In NZ, we have reduced private debt to just under 140% of GDP over the last couple of years (from 150% in 2020 and 160% in 2010). This should give us the headroom to have another short cycle of property Ponzi goodness in 2025 or 2026.
I doubt it. Higher costs of living (rates, energy, insurance etc) & falling real wages mean that house buyers have less money to spend on mortgage payments. So, I would expect this to play out like 2008 - 2010 when it took 12 - 24 months after crashing the OCR to see any real house price growth. As a general rule of thumb, you need house sales of around 100,000 / year to get house price increases running at 10%. Here's the historic trend.
Yes, house prices rose around 5% year-on-year to 2010 but then fell back slightly before taking off in late 2012. Here's the index and change.
The Ponzi kicked back into gear last Friday.
It only takes one house in one street to sell into the current market, and all the rest with a "For Sale'" sign strapped to the front fence will have their prices recalibrated. FOMO is alive and well. Decades of conditioning have shown us there is only one thing to do.
I suspect the FOMO won't come back so easily given how many friends and associates of the FHB's who bought 2000-2022 will have seen how hard they are doing it now and likely discussed real costs of these financial decisions. The borders aren't shut any more, there's many other viable places to go and thrive overseas, prices are still excessive and banks aren't throwing $1m+ at FHB's like they were when the FOMO was around, limiting FHB's ability to buy.
Complete garbage of course. Trump hasnt won an election (popular vote), he's a failed politician and a failed businessman. As a politician he is even surpassed by 'fabulous' ardern!
Of the 44 individuals who served with trump in his cabinet 40 would not endorse him including his VP
Maybe other's see it differently, but it seems like the US has regained its economic powerhouse status under Biden, they have weathered this cost of living crisis better than most. I would have thought the Dem's would be a shoo-in regardless of who is in charge, especially when the opposition is Trump. Strange place...
I hadn't caught up with Michael Reddell for some time so it was reassuring to see that he's still as robust as ever
Reserve Bank excess: "There was the 20 per cent planned increase in spending on staff salaries ..., and the really extraordinary $35 million planned spending on “engagement with the public and other stakeholders”
Public sector bloat: Reserve Bank edition | croaking cassandra
Reserve bank MPC flip flops:
Flip flop flip flop | croaking cassandra
Still avoiding responsibility | croaking cassandra
40th anniversary of the 1984 election: a detailed case made for "New Zealand was not then (and is not now) on “the brink of bankruptcy”
Also this for The Warehouse this morning:
The Warehouse Group Limited (NZX: WHS) ("Company") advises its shareholders and other stakeholders that it has received an approach from Sir Stephen Tindall and private equity firm, Adamantem Capital Partners in relation to potential interest in acquiring its shares.
Obviously a decent chance for bag holders to hopefully make an escape ... but I fail to see what taking the Warehouse private is going to do to its performance from a retail perspective (unless it's just the usual PE playbook of plucking the meat from the carcass?)
Big ego's move in, rewrite a company to their view of the world, and get the immediate sugar hit as it spikes but long term, they drift too far from the founder's aspirations and model and it starts to collapse as immediate, short term profits take precedence? Founder who sold out at a good price, gets to buy back at a bargain price to fix up their foul ups.
Car insurance is coming up for renewal later this week for the "family wagon". Values of beat up old Subaru Outbacks are falling out of bed price-wise, so paying $1500 per year in comprehensive insurance on a car we'd struggle to get $5000 for as a private sale (and maybe get $3k as a trade in) seems extreme.
Had been with AA and was offered $600 per year 3rd party fire and theft. The same cover incl. windscreen etc from State comes in at $350 per year.
Have had no issues with AA in the past so asked if they'd be able to come anywhere near close - the agent said no and disconnected the call.
Have another policy coming up for a different vehicle and similar savings appear to be available. Same deal, will be going from comprehensive to third party as the car is probably worth even less than the Outback.
I worked out that we'd paid 2/3 the cost of our vehicle again in insurance over a few years so downgraded to 3rd party. With Panelbeaters now charging $100+/hr, insurance companies write off cars very easily unless they are [at a guess] $15k+ in value. Good time to get a written-off car for cheap 2nd hand though if you know how to fix them, however wreckers charge an arm and a leg for an ignition of a highly stolen model XD
I weighed up insurance options earlier this year on an old Nissan 4wd (worth about the same as your Subaru) which had been on comprehensive for 7 years with just one windscreen claim & facing a 60+% premium increase over the last 2 years.
In the end i decided to just go with just 3rd party $149pa Tower) without the fire&theft which $ was additional halfway to comprehensive. I know peoples circumstances vary however I decided that the risk was negligible (eg vehicle is parked on private property & use is ~80% off road which isn't insured anyway).
"Imports plunge, New Zealand records $669 million goods trade surplus for June"
- much less EVs & petrol...
Imports plunge, New Zealand records $669 million goods trade surplus for June - NZ Herald
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