Here's our summary of key economic events overnight that affect New Zealand with news the rise of the US economy and the slowdown in China that Beijing can't seem to arrest is twisting a vast cast of supporting economies and their currencies. The NZD and AUD are devaluing faster now.
First up today, the giant American economy grew much more than expected as reported by their 'advance' Q2-2024 release. It was up +2.8% when +2.0% rise was expected after the Q1-2024 +1.4% expansion. This was driven by strong consumer spending which broadly confirms the weekly retail impetus that we track. Consumers are acting 'positively'. Growth of +2.8% is 'moderate' in the grand scheme of things - until you realise that it is a +US$360 bln (nominal) expansion from Q1, almost +US1.6 tln from the same period a year ago. Nowhere else has expanded like that (and more than double China's +US$784 bln equivalent expansion). The American economy had economic activity of US$28.6 tln in the past year.
Prices (PCE) were up +2.6% in Q2, a lesser rise than the +3.4% rise in Q1. Getting there, but not there yet.
Meanwhile, US initial jobless claims fell more than expected last week at 225,000 from the 281,000 of the prior week. These levels are nearly back to where they were a year ago. There are now 1.9 mln workers on these benefits, a tiny slice of their 364 mln workforce.
But new orders for durable goods slumped -6.6% in June from May, after four consecutive monthly increases and missing market expectations of a +0.3% rise. Transportation equipment drove the decrease. From a year ago, these durable goods orders were down a startling -11%. Orders for capital goods were worse, down -27% on the year-ago basis. (However, excluding aircraft, there was little change.)
The next July regional factory survey is from the Kansas City Fed, and they reported little-change from June. Basically it mirrors the national durable goods order data.
Earlier today there was a well-supported UST 7yr bond auction and that brought a 4.11% median yield. That is slightly lower than the 4.22% yield at the prior equivalent event a month ago.
China's central bank unexpectedly cut the rate at which it lends to financial institutions, the first such cut in nearly a year. It lowered the one-year medium-term lending facility (MLF) rate to 2.3%, from 2.5%. The bank issued ¥200 bln in loans to banks at this rate.
This rate cut is part of Beijing's attempts to spur a sluggish economic growth. This was just a part of actions taken yesterday. It is also expanding a subsidy program to get more people buying cars and consumer electronics. This will cost them ¥300 bln, paid for out of their issue of ultralong special treasury bonds. The subsidies for those trading in their passenger cars for new energy vehicles will double to ¥20,000, compared to the ¥10,000 subsidy announced in April. Trade-ins for petrol vehicles will rise to ¥15,000 from ¥7,000 per vehicle.
Global container shipping rates stayed very high last week, but they did slip a small -2% from the week before and are just off their peak. That makes them +268% higher than a year ago. There seems no relief in sight yet. Bulk cargo rates were little-changed last week to be +24% higher than year-ago levels.
The UST 10yr yield is now at just on 4.27% and down -2 bps from this time yesterday. The key 2-10 yield curve inversion is now at -18 bps. Their 1-5 curve is slightly less at -70 bps. And their 3 mth-10yr curve inversion is holding at -112 bps. The Australian 10 year bond yield starts today at 4.33% and down -4 bps from yesterday. The China 10 year bond rate is softish at 2.23%. The NZ Government 10 year bond rate is now at 4.46%, and up +2 bps from yesterday.
On Wall Street, the S&P500 has rebounded somewhat in Thursday trade, up +0.2%. Overnight, European markets were quite mixed with Paris down -1.2% while London was rose +0.4%. Yesterday, Tokyo closed down an eye-watering -3.3% and Hong Kong fell another -1.8%. Shanghai was down another -0.5% in its Thursday trade. Singapore was down -0.9%. The ASX200 fell -1.3% in Thursday trade and the NZX50 was down -1.1%.
The price of gold will start today down a very sharp -US$60 from yesterday at US$2352/oz. That is down -2.5% on the day.
Oil prices are +50 USc firmer at just over US$78/bbl in the US while the international Brent price is just on US$81.50/bbl.
The Kiwi dollar starts today weaker, down another -40 bps at just under 59 USc. That is a -3.4% devaluation since the start of the month. Against the Aussie we are down -10 bps at 90 AUc. Against the euro we are down a full -½c at 54.3 euro cents. That all means our TWI-5 starts today at 68 and down -40 bps from yesterday and that is near a two year low.
The bitcoin price starts today at US$64,827 and down -2.6% from this time yesterday. Volatility over the past 24 hours has been moderate, also at +/- 2.6%.
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22 Comments
The US economy is outperforming the NZ economy. For the people claiming that the reserve bank should wait for the fed to cut the FFR before we cut our OCR, please consider that a currency doesn’t derive strength solely from its central bank rate. The Mexican peso has a central bank rate of 11% just as an example.
This will cost them ¥300 bln, paid for out of their issue of ultralong special treasury bonds
It won't actually 'cost' China anything at all of course - other than the real resources that the spending will call on. Govt bonds are just interest-paying term deposit accounts at the Treasury (or equivalent) that can be traded on financial markets. When countries like China run a major trade surplus, they have total control over monetary policy and can run deficits to the moon.
So you're saying we should let the NZD fall ... So imported goods rise in price ... So we import less and buy more local ... So we end up with a trade surplus which pumps new money into the economy ... So we stop getting further and further into debt (both public and private) ... So the rot stops and our standard of living slowly improves?
Whether we like it or not, I see the first parts as inevitable, and inflation be damned.
Good to see all of 'Bidenomics will create hyperinflation' economists licking their wounds. High rates in the US are suppressing the real estate market, but with existing mortgagors unaffected, and Govt crediting the private sector with hundreds of billions of dollars, the economy is powering on and the increased productive capacity means inflation is evaporating.
The US could of course use targeted taxation to pull more of the money they are spending out of the economy - focusing on taxing the hell out of the rentier class and oligopolies. Then they'd get the twin-benefits of low unemployment and reducing inequality. There are people in the White House who are pushing for this, which is why the rentier billionaries in silicon valley are getting in behind Trump.
It defies belief that Trump is the favourite. Economy going comparatively great in the US, it should be a landslide for the Dems.
They are so insular that they don’t realise the rest of the world are struggling and they are doing spectacular well. Or maybe they attribute that to Trump’s policies 4 years ago, which might be fair I guess.
It's the Dukes Of MAGA.
Past time to eliminate overhead costs of rent extraction from national GDP accounting.
Whereas formal economic models explicitly state their assumptions (whether realistic or not), national accounting frameworks feature various implicit boundaries, which are not shown along with the data but are rather buried in technical notes on ‘methodology’. For example, the interest- based financial services mentioned above were originally considered mere transfers and thus outside the production boundary before 1968 (Christophers 2011). The 1968 System of National Accounts (1968 SNA) moved the production boundary by representing these services as inputs to an imaginary sector (thus making the assumption that they were ‘implicitly’ productive), whereas the 1993 SNA moved it further by considering such services to be the final consumption of households (and thus explicitly productive). The 2008 SNA went even further by stipulating that even the lending of banks’ own funds was a productive activity (dropping the pretense of ‘intermediation’ between savers and borrowers originally used to portray banking as a productive activity). In each of these cases the assumption of the level of productiveness of interest-based financial services was not explicit in the data, but rather implicit in the location of the boundary. Similarly, R&D expenditures by firms, governments and non-profit organizations were previously assumed to be intermediate inputs (or costs) of these entities, and thus deducted from GDP, but have been reclassified by SNA 2008 as investments in fixed assets, and are thus now counted in GDP. This adjustment added around $560 billion to US GDP in 2013 (when the country adopted SNA 2008) - more than Sweden’s entire output that year - and conveniently reinforced “America’s status as the world’s largest economy and [opened] up a bit more breathing space over fast-closing China” (EIU 2013). Different boundaries in the national accounts are thus based on different assumptions and lead to different results, but less explicitly than formal economic models. This contrast with explicit models is thus the second reason why MMT had not yet affected national accounting. Most economists do not even learn the details of national accounting in their professional training, and the measurement (or rather construction) of macroeconomic aggregates such as GDP is outsourced to official statisticians. It is simply not considered part of the conversation, neither in mainstream nor in heterodox circles. Link
"The Kiwi dollar starts today weaker... a -3.4% devaluation since the start of the month. TWI-5 ...is near a two-year low."
Cool!
Best we slash interest rates, right now, so we can help New Zealanders borrow more to pay for the increasing price for all those goods we import. And of course to enable all that new Debt we'll need the collateral underpinning it to rise to allow that. (and the worst of this madness is yet to come).
bw: "Best we slash interest rates, right now, so we can help New Zealanders borrow more to pay for the increasing price for all those goods we import. "
If you think about what you just wrote, and play that scenario over and over again, surely you can see it becomes a doom loop where the NZD just tracks lower and lower and lower regardless?
It's probably better over the longer term to let the NZD go down. Imports will cost more - so we'll immediately consume less of the discretionary stuff but the essential stuff, while we learn to consume less (and seek alternatives!), will result in temporarily inflation. Meanwhile, exporters will get better prices and trade balance might be returned ... which means we can stop exporting government and private debt to make up the shortfall ... And stop paying huge sums of interest to lenders from overseas.
Meanwhile, US initial jobless claims fell more than expected last week at 225,000 from the 281,000 of the prior week. These levels are nearly back to where they were a year ago. There are now 1.9 mln workers on these benefits, a tiny slice of their 364 mln workforce.
Their workforce is larger than their population?
The United States had an official estimated resident population of 334,914,895 on July 1, 2023, according to the U.S. Census Bureau.
Edit: i see Antz beat me to it. The latest official estimate is civilian workforce size is 168mln. https://fred.stlouisfed.org/series/CLF16OV
(From Oz this morning). If just one of these goes through, what do we think will happen to all the rest? And what would our sparkies do, apart from get on the next plane to Sydney?
"Five months of industrial action by workers... has delayed the construction of 1600 homes and a slew of warehouses .... adding millions of dollars in extra costs. As part of an ambitious push for a 24 per cent pay rise (workers) have refused to show up at appointments.."
https://www.afr.com/work-and-careers/workplace/pay-dispute-delays-const…
"Renewable energy promise side-tracked by fast-track work"
https://newsroom.co.nz/2024/07/25/renewable-energy-promise-side-tracked…
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