Here's our summary of key economic events overnight that affect New Zealand with news China seems to have varying types of 'flooding' problems.
First today, the annual PCE inflation rate in the US decreased to 2.5% in June from 2.6% in May, in line with market forecasts. The month-on-month change was minor. The core PCE rates are marginally high, than the overall rates, but also trending lower. Markets are assuming the US Fed will like this data, and reacted accordingly.
In its weekly update, the US Fed said its balance sheet is still shrinking, (down to US$7.2 tln) but not as fast as earlier, and it is still not down to its pre-pandemic levels (of US$4.2 tln). The RBNZ balance sheet is also on a slow shrink, and also far, far larger still ($84.5 bln) than pre-pandemic ($31 bln).
Although we should note that steel rebar prices have sunk to their lowest level in over seven years, amid poor demand and ample supply in China, we also need to know that the Chinese government mandated fresh quality standards for steel rebar to start in late September, driving mills and traders to flood their market with old stockpiles before the new standards for the metal are enacted. Export rebar will also be unusually cheap at present. All this is coming while the general economy is also weak.
Staying in China, they have some other rather serious flooding problems. We haven't made a big deal about this because it happens every year. But this year is extreme even for them, and it has come earlier. Beijing is worried and had a special meeting about these risks. Also unusual is that they issued a statement after the meeting. “China's climate conditions are abnormal, with frequent and prolonged heavy rainfall, early and rapid development of river floods, and some areas repeatedly hit by heavy rains, making the flood control situation severe and complex”.
And this is a guess on our part, but the Chinese data on foreign direct investment is unusually late for June. Perhaps it doesn't look good?
The Russian central bank hiked its policy rate +200 bps to 18%. This was not unexpected however. They are seeing domestic demand outstripping the limited supply capacity that the Russian economy is able to offer, triggering aggressive inflationary pressures and warranting higher borrowing costs. Besides the pressure on supply capacity from Western sanctions, they also noted that labour shortages are building fast in the fallout from the military mobilisation and the resulting sharp diaspora of working-age men.
Inflation expectations In the Euro Area remained unchanged at 2.8% in June. (A year ago, these inflation expectations were running at 3.5%.) Inflation Expectations in Euro area have averaged 3.4% from 2020 until 2024, reaching an all time high of 5.8% in October 2022 - and a record low of 1.9% in October 2020.
Most covered bond programmes are sufficiently strong to withstand the economic consequences from a sovereign default, Fitch Ratings said in its latest Covered Bonds Snapshot report. A majority of rated covered bonds programmes have higher ratings than their relevant sovereigns. Overall, covered bonds programmes are on average rated almost two notches above the sovereign Local Currency Issuer Default Rating.
The UST 10yr yield is now at just on 4.20% and down -7 bps from this time yesterday, down -4 bps from a week ago. The key 2-10 yield curve inversion is now at -19 bps and little-changed from yesterday but down from -27 bps a week ago. Their 1-5 curve is slightly more at -73 bps. And their 3 mth-10yr curve inversion is out at -117 bps. The Australian 10 year bond yield starts today at 4.31% and down -2 bps from yesterday. The China 10 year bond rate is down -2 bps at 2.20%. The NZ Government 10 year bond rate is now at 4.41%, and down -5 bps from yesterday, unchanged from a week ago.
On Wall Street, the S&P500 has rebounded again in Friday trade, up +1.1% but it is down -1.6% for the week. Overnight, European markets were higher, Paris and London up +1.2%, Frankfurt up +0.6%. Yesterday, Tokyo closed down -0.5% to be -5.7% lower for the week. Hong Kong was unchanged but down -2.5% for the week. Shanghai was up marginally in its Friday trade to be down -2.9% for its week. Singapore was little-changed yesterday. The ASX200 rose +0.8% in Friday trade to recover prior losses and ended its week little-changed. The NZX50 was down -0.4% in daily Friday trade to end the week up +0.2%.
In India, their stock market hit a record high at the close of trade on Friday.
The Fear & Greed Index ends the week just in a 'neutral' range, a small improvement from the weak 'fear' reading last week.
The price of gold will start today with a +US$31 recovery from yesterday at US$2383/oz. But that is a -US$15 easing for the week.
Oil prices are -US$1.50 lower at just on US$76.50/bbl in the US while the international Brent price is just under US$80/bbl. These are the lowest levels since early June. From a week ago they are -US$2/bbl lower.
The Kiwi dollar starts today weaker, down another -10 bps at just under 58.9 USc. A week ago it was at 60.1 USc so -1¼c lower since. That is a -3.4% devaluation since the start of the month. Against the Aussie we are down -10 bps at 89.9 AUc. Against the euro we are unchanged at 54.3 euro cents. That all means our TWI-5 starts today at 67.9 and down -10 bps from yesterday and near a two year low. This is down -110 bps from the start of the week.
The bitcoin price starts today at US$67,495 and up a sharp +4.1% from this time yesterday. A week ago this price was US$66,552 so up +1.4% since then. Volatility over the past 24 hours has been moderate, at +/- 2.8%.
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32 Comments
The Russian central bank hiked its policy rate +200 bps to 18%. This was not unexpected however.
This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:
[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link
"the Government announced that it was accelerating a four-lane highway between Auckland and Whangārei – including an alternative route over the Brynderwyns "
Good stuff!
"Transport Minister Simeon Brown said planning for a new bypass was in the early stages and work would begin within 10 years."
Hopeless. And why can't we do it earlier? Because the Debt we need to incur to do it is trapped in another part of our economy. "Indicative costs of the project are being determined as part of a detailed business case which is being developed ".
If the RBNZ cut the OCR in a few days time, then expect that 10 year timeframe to blow out to between 35 years and never, as all our new borrowing capacity goes into one preordained asset class.
The estimated toll that would be required to pay back the cost of a 4 lane highway was around $54 per vehicle.
The traffic level does not justify a 4 lane highway all the way to Whangarei.
There is no doubt the road needs improving , but less money would go further , if they dint go with the political vote buying 4 lanes .
Because the Debt we need to incur to do it is trapped in another part of our economy.
Which part? Outstanding mortgages are some $360 billion.
The shopping list of NZ Infra nice to haves would be well in excess of that.
Not to mention you'd always be up for some sort of debt for housing. Building houses isn't a cheap endeavour anymore.
It's a shit gold-plated, mega-expensive low value project. There are arterial roads in Auckland that carry more freight/vehicles than this road ever will.
It will probably never get built anyway, unless we triple out population to pay for these mega road projects (hmmmm, maybe that's National's plan).
The relationship between the NZD and NZ interest rates is vastly overstated. (Ditto house prices but that's another story.)
The NZD is like a share (stock) in NZ Inc.
With NZ Inc. in recession / near zero growth for about 2 years, with government tax receipts down and issuing debt to balance the books, unemployment rising, companies going bust, and the overall outlook pretty negative for another 18 months, who'd be buying shares in NZ Inc? I wouldn't.
Like a company share, until the company starts making 'profits' you're best holding something else. The NZD really has only one way to go at this time (all other things staying as they are).
I've no doubt that when the OCR is reduced, people will claim further drops in the NZD are because of that. A better way to look at it is that the OCR has to be dropped because NZ Inc. is in real trouble. And real trouble means an even weaker NZD. (Like I've been say, the RBNZ, like too many poorly managed central banks, has held too high for far too long.)
To take just one example, what happened to the children of Lake Alice was worse than what happened to prisoners in Abu Ghraib prison Iraq during the American occupation. Children weren’t just electrocuted on their hands and sexually humiliated as the adult civilian detainees were in Iraq. They were given electric shocks as punishment – torture – to their heads, hands, limbs and genitals. This was done to them when they didn’t have any medical reason to even be in Lake Alice. They were illegally detained.
Gang whānau survivors spoke about the abuse they experienced in care, how they were not believed, and that they had no one to stand up for them. Many described how, when they were children, they were treated as though they were already criminals. Some gang whānau survivors explained that their parents and other whānau members were themselves survivors of abuse and neglect in state or faith-based care, and that the impacts of this abuse had intergenerational consequences. A recurring theme for gang whānau was the failure to be given opportunities. They said that they wanted to break the cycle, so their children would not go through the same experience.
I’m not calling it lies, don’t put words in my mouth. This is a financial and economic website. I don’t think it’s appropriate to bring up genital electrocution when the article makes no mention of child abuse. Possibly you’re desensitised to such graphic atrocities but I don't believe this is the platform to share your provided information.
The Macquarie Model, still at work in all of its hideous glory.
"Australian investment giant Macquarie is to buy the 20pc of Britain’s National Gas that it does not already own, handing it full control of a piece of critical national infrastructure. Macquarie is best known in the UK for buying Thames Water in 2006...(and)...loading up the water company with debt during its ownership. Under Macquarie’s watch, Thames’ debts rose four-fold from £2.3bn to £10bn in 2017. At the same time, £2.7bn in dividends were paid out to shareholders. The company’s debts currently stand at more than £18bn."
https://www.telegraph.co.uk/business/2024/07/26/ftse-100-markets-latest…
https://www.nzherald.co.nz/nz/port-waikato-homes-at-real-risk-from-coas…
Sad but scientists have been warning for decades that human induced climate change will result in rising sea levels, stronger storms and more coastal erosion.
WTF is anyone doing buying a coastal property and then calling for other ratepayers to bail them out for the entirely predicted consequences of their decisions?
30 years obviously isn't long enough for these Port Waikato individuals to learn any facts I guess? Not unusual. Plenty of "Interest" commenters are really slow learners also. Perhaps those with disappearing property should advertise for sale on "Interest"? Surely there's someone here willing to back up their physics denial with hard cash?
It is NZ having such a short history.
Human caused climate warming is causing sea level to increase by an average of maybe a couple of millimetres per year; in my grandchildren's lifetime that may be a metre or two. But I was born in East Anglia, UK and their old maps show towns 500 years ago that are now 20 miles out to sea. Arriving in NZ 20 years ago I carefully bought my house well above sea level but since then the average sea level has risen maybe 10mm - not a noticeable difference where I swim. Meanwhile Kaikoura had an earthquake with the land jumping up 400mm in minutes.
The high tide mark changes dramatically irrespective of human caused climate warming. Any sane buyer should think carefully when buying coastal properties and that applies even if they resolve all CO2 emissions tomorrow.
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