Here's our summary of key economic events over the weekend that affect New Zealand with news we may now be much closer to rate cuts in some major economies.
But first, this week we are looking at some big set-piece data and policy items from the US, mainly at the end of the week. The week will end with their non-farm payrolls and another +185,000 gain is expected there. Before that, Thursday's (NZT) US Fed decision will no doubt give some greater clarity as to when their rate cut is coming. Inflation and labour-market developments should allow them to signal that a cut is very possible at their following meeting, in September. And the upcoming third week of their Q2 earnings season will be full of majors reporting.
Elsewhere there will be important data coming too. Japan, Brazil and England will deliver central bank rate reviews. CPI data will come from Australia, the EU and South Korea. And Q2-GDP will come from the EU. And there will be a wider set of PMIs for July released, including from China.
And over the weekend, China said profits earned by their industrial firms rose by +5.6% in June from the same month a year ago. But that was a weak base. From June 2022 they were actually down -8.4%. These latest figures came amid a fragile economic recovery in the face of sluggish domestic demand, deflation risks, and a persistent property weakness. Profits in state-owned enterprises rose a mere +0.3% while those in private sector continued to rise, up +6.8%.
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 applied. Export rebar will also be unusually cheap at present. All this is coming while their general economy is 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” they said.
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?
In the US, their annual PCE inflation rate released over the weekend eased 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 higher than the overall rates, but trending lower. Markets are assuming the US Fed will like this data, and reacted accordingly.
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 the 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.
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.
The UST 10yr yield is now at just on 4.20% and unchanged from Saturday. The key 2-10 yield curve inversion is still at -19 bps. Their 1-5 curve is still at -73 bps. And their 3 mth-10yr curve inversion is little-changed at -118 bps. The Australian 10 year bond yield starts today at just under4.31%. The China 10 year bond rate is just under 2.20%. The NZ Government 10 year bond rate is now just under 4.41%, and little-changed from a week ago.
Week two of the Wall Street earnings season shows that more companies are delivering earnings results above analyst estimates, but investors are rewarding that out-performance less than they usually do.
The price of gold will start today with a small +US$3 shift up from Saturday at US$2386/oz.
Oil prices are 50 USc softer at just over US$76/bbl in the US while the international Brent price is just over US$79.50/bbl. These are the lowest levels since early June.
The Kiwi dollar starts today marginally softer 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 holding at 89.9 AUc. Against the euro we are softish at 54.2 euro cents. That all means our TWI-5 starts today at 67.9 and unchanged from Saturday and near a two year low. This is down -110 bps from the start of last week.
The bitcoin price starts today at US$67,772 and up a +0.4% from this time Saturday. A week ago this price was US$66,552 so up +1.8% since then. Volatility over the past 24 hours has been modest, at +/- 1.8%.
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67 Comments
Anybody notice two items re Northland?
They're gonna pay, as are we all, for a 4-lane highway to Whangarei, right? But they can no longer attract staff to their hospitals.
When are we going to realise that people are more important than money? More importantly, when are we going to realise that the making of the money, is by a cohort for whom the hospital issue can be bypassed, due to them being the ones with the money?
Interesting to note the increasing stridency of the elite mouthpieces, and the effect on the bottom end of society. Taken too far, it always ends in social disruption; you cannot gate things away.
Re the link at the bottom of your link:
https://scheerpost.com/2024/07/26/europes-path-to-war-and-self-destruct…
We are heading for a global show-down, and methinks we might be on the losing side...
German/EU industrial electricity prices 2-3 times more expensive than China and the US. It is almost like the windmill solar fad hobbles industry competitiveness.
https://www.iea.org/data-and-statistics/charts/industry-end-user-prices…
- Had Germany spent $580 billion on nuclear instead of renewables, and the fossil plant upgrades and grid expansions they require, it would have had enough energy to both replace all fossil fuels and biomass in its electricity sector and replace all of the petroleum it uses for cars and light trucks.
https://www.forbes.com/sites/michaelshellenberger/2018/09/11/had-they-b…
Yep, now China has the jump on them in that department too.
"The reactor began commercial operation only in December 2023. To demonstrate that it could cool itself down without an external source, the team shut down both modules when it was running at full power and began tracking temperature movements inside the reactor.
As expected, the reactors cooled down naturally and reached a stable temperature 35 hours after they were shut down.
...Luckily, the reactors do not have to be built on-site and can be rapidly deployed worldwide."
https://interestingengineering.com/energy/meltdown-proof-nuclear-reactor
Russia has long made it clear the only end to the war is Ukraine's surrender. A stopgap outcome might be the surrender of Donetsk, but ultimately Russia has made it clear it wants all of Ukraine. The NATO concerns are a false flag as NATO countries have always bordered Russia, and now there are more. And NATO countries border Ukraine, so if Russia controls Ukraine, NATO is effectively closer to Russia. There is a bigger design behind Putin's plan and I am beginning to suspect it is more than his resurrection of the Russian empire.
To be on the losing side, Europe and NATO will need to repeat the mistakes of the Vietnam war and restrain their forces from winning, which to all extents they are doing now with the restrictions on the use of supplied weapons. The only way this war will end with any form of acceptable conclusion (no surrender to Russia at any level) requires Putin be met head on and his forces obliterated. NATO is capable of this, but as time goes on that capability may decline. From Europe and NATO's perspective this war is much better fought in Ukraine than on European and NATO soils.
Putin has no intention of stopping at Donetsk. His objectives and strategies provide all the hallmarks of the re- occupation of the Rhineland 1936, and seizing Sudetenland 1938. The soon to be Allies had then the ability to call the bluff but failed to do so. The Europeans today are similarly placed with the UK, Germany, France having far greater economies than Russia, Italy about the same, before you count in the rest of them. Industrial might wins wars. As evidenced the North over the South in the American civil war and the Allies over the Adis WW2. It is well recorded history, too recent to ignore.
Disagree with you both.
I suggest Putin would be absolutely fine with a cessation on the current front-line.
He wants a buffer, not acreage. Russia has more natural resources than all of Europe combined - crucially energy resources. Amazing that two entirely intelligent comment-makers can totally overlook the European need for resources and energy, to maintain its level of activity (which, by the way, is falling ).
Don’t think the Donetsk region will provide Putin the requisite buffer you suggest which is why I ventured he would not rest at that. You have gone somewhat beyond the context of my comment but are entirely correct in that Ukraine, as a buffer if you like, has historically been the determinant territory as a battleground as demonstrated unsuccessfully by Napoleon and Adolf but in between times, by dint of the treaty of Brest-Litovisk, Wilhelm did get a hold of Ukraine for a while. Ukraine is a vast nation and the Ukrainians will not surrender as their history with Russia is hard evidence of what lies in store.
The war would have been over in weeks had the West not stepped in to finance it. The war will be over when the money stops and/or they simply run out of men. Its a war of attrition, Putin is one smart guy he is just walking the tightrope between just crushing Ukraine and all out war with the West.
That's so funny mate, Russia is pumping energy into China, the two of them are like two peas in s pod. BRICS is slowly gaining momentum the USD will fail and will no longer be the worlds reserve currency. Big changes on the world stage within the next 10 years, the USA will probably go to war with China to stop them taking the top spot after they finally work out they cannot be stopped by other means.
It is difficult to accept that through this invasion Russia has not been weakened, militarily, socially and economically. Every particle of that weakening has strengthened China. The two nations have not always been on the best of terms. It remains to be seen as to how exactly China will play its role as the dominant partner.
Not to mention demographically. They were already aging fast before throwing away hundreds of thousands of young men. They can't wage this kind of war for long, they will simply be too old.
Speculation is that Putin made his move now because even without these mass casualties, the country will soon age out of being able to sustain a large army.
China and India are taking advantage of Russia.
- they're buying fuel at a decent discount off the global price.
- that's also suppressing global fuel costs (because the Chinese and Indians are buying less fuel elsewhere)
- China and India are giving Russia money, which Russia is using to buy goods from China and India (because most other countries won't accept said money).
At the current pace of conflict, Russia will be out of hardware in around 3-4 years, it's only able to keep going because it had massive Soviet era stockpiles in storage. The storage areas are now empty. So everything they have is either on the front, or in stages of refurbishment.
China can't be seen to be giving military support to Russia, nor would they probably want to.
North Koreas military hardware has an average age almost as old as Joe Biden.
With China it's a case of my enemy's enemy is my friend. With India, it is a little more complex, but essentially opportunistic and they are leveraging the situation to be taken more seriously at the big boys table. They aren't really aligned with Russia but they will try to rinse the situation for all it's worth. Similar strategy as Turkey with EU.
Putin wants a cessation to give him time to form a better army.
The chances of a regime that has undertaken as many direct expansionary actions into it's neighbors in the past few decades, and stopping on their own accord, is extremely slim.
Russia is well resourced, but without decent leadership, it's potential is even less realised than the West. It is very rare for a hermit kleptocratic kingdom to out perform unified rivals.
Expand your reading beyond your FF centric resources.
President Clinton apparently said its about the economy stupid - or words to that effect.
18% inflation as reported in Russia says that money still talks and the runaway inflation train in Russia will be the end of Putin's expansionists plans and likely him as well
Mother in Law's family comes from a no longer in existence village south of Lviv. The Russians destroyed it. They were railed via cattle cart to Siberia by the Russian's along with 1.3 million others during second world war - the majority never escaped and remained enslaved or died there including her parents. We know and understand very well what the Russians are like and what a Putin victory would mean for people who have already spent 60 plus years effectively enslaved by Russia
We disagree. Putin wants ALL of Ukraine! His manifesto clearly states Ukraine is Russia! He may want a pause, on his terms, which should be absolutely ignored until his forces are withdrawn and reparations made. The second army is done. Reparations which will require generations of Russians paying from exploitation of their natural resource abundance.
PDK, I think you misunderstand what Putin sees as being the threat to his regime. The threat is spread of democratic/free market ideology amongst the Russian population.
You and I may be both disenchanted with the 'western democratic model' but given the choice most populations end up choosing it. This is the threat that Putin fears.
Putin didn't invade to gain a territorial buffer to prevent an overland invasion, that doesn't make sense in any version of events. Russia is a nuclear power, nobody invades a nuclear power. Russian defense's are strongest and designed to protect the existing Russian border.
This was a straight up Russian war of aggression. He invaded to warn countries in his border what could happen if they do not align with him and to try to unite the country behind a common enemy. It's been a common strategy for empires since time immemorial.
He completely miscalculated the West's commitment to pushing back.
"Vast resources" may be overstating Ukraine's remaining reserves. Ukrainian proven reserves of oil are 4 years of internal consumption
https://www.worldometers.info/oil/ukraine-oil/#:~:text=Oil%20Reserves%2….
Ukraine has 36 years worth of proven gas reserves.
https://www.worldometers.info/gas/ukraine-natural-gas/
Ukraine has a lot of coal which can only be burnt by a lemming like species.
Ukraine's most valuable resource is it's topsoil, a good proportion of which is now contaminated with toxic heavy metal.
Perhaps we have a different definition of abundant? Russia is a demographically dying country. The resource Putin most wanted was 40 million Kremlin puppets. Although Ukraine is dying also, sped up by Putin.
BS. The 'buffer that Ukraine would provide is countered by the lack of buffer along the rest of NATOs borders.
Yes Europe has a need for resources, but they would never have invaded Russia to secure them. Instead there would have been a market for those resources that Russia could have fed into equally with the other players. If Putin hadn't invaded Ukraine Russia would be far wealthier today than it is now. But politics is a fickle beast. Before the invasion Europe, politically may have been close to fracturing as differences bubbled within the union, but thanks to Putin, those diffence get pushed back somewhat as they feel safer together. Putin has reminded Europe why NATO exists.
The difference is democratic v autocratic countries. Russia may well have faced a threat from China for those resources. China will struggle to secure what it needs from the South China Sea.
Where on earth do you get this absurd information? Every Ukrainian speaks Russian. Moscow/ St Petersburg has spent centuries trying to Russify the territory of Ukraine! https://www.theguardian.com/world/2022/jul/16/russia-stole-our-history-…
Putin DOES want all of Ukraine! His manifesto specifically states Ukraine is Russia! The dress uniforms found in burnt out military vehicles on their way to Kiev were hundreds of kilometres from your definition of "Russian speaking parts" .
http://www.en.kremlin.ru/events/president/news/66181
The brotherhood between Russia and Ukraine has to be enforced by killing those "brothers" not wishing to join the Kremlin mobster family.
Bigger design by Putin? Unlike the west, Putin is not energy blind, and he hates western liberal democracy. He wants to recreate Peter the great #2, but at the same time end western domination of global affairs. Old KGB ideology dies hard, especially buried in your COVID isolation bunker for an extended period with nothing but history revisionism for entertainment.
The average westerner isn't taking the Russian invasion, or it's potential consequences seriously. Vlad is sitting on an energy trump card and believes global heating will open up vast wealth for his mafia clan. His climate sweet spot seems to be elusive though, considering the fires, heat waves and flooding that stretch shaky infrastructure past breaking point and the government budget solidly spent bribing Russian men to kill their neighbouring "brethren".
https://kyivindependent.com/moscow-authorities-will-begin-paying-city-r…
Nothing more important that getting that Crown revenue spending below 30% of GDP. Capital projects get a bit of a pass. But, damn, we have to keep a lid on those public services we all need.
I am interested in your opinion of this; I suggest critical infrastructure can be fully funded with deficit funding. In other words the government creates the funds to provide for them. There are huge fish hooks. This is not debt funding. The issue that follows is taxation to balance the funds available in the economy. Background requirements I should like to see would be only NZ owned and operated companies get the contracts. Where foreign expertise is required it is only permitted to build the skills in Kiwis. There is a level of complexity that cannot be adequately dealt with here, but it can be done if they have the will.
Govt could spend $10bn - $20bn tomorrow without breaking a sweat. The balance of the Crown Settlement Account is about $30bn. Cabinet would of course have to adjust the budget they have just agreed. As ever, it is the votes that set the spending level not the availability of the money.
If Govt did spend that extra $10bn, the private sector would immediately be $10bn better off. Govt would then tax some or all of that $10bn back again. Once you understand this basic reality, you will never look at Govt spending / investment in the same way again. There are however two major constraints that remain...
Firstly, Govt can only buy what is available. If Govt gets into a bidding war with the private sector for limited amounts of plant and equipment (for example) they risk cost blowouts, delays, and inflation. That's why it is important how Govt tax back their spending. The taxes should ideally release the real resources that Govt needs. For example, if Govt needed massive amounts of concrete to build stuff, then they might levy a tax on concrete for private use until production picked up enough to meet demand.
Secondly, Govt can't tax back their investment if the spending flows offshore. When Govt spent billions supporting households and businesses during C*VID. What did everyone do with the money they accummulated? They bought a lot of imported stuff, which meant ownership of NZ dollars and bonds moving offshore. Hence, as per you point above, you need to design the investment programme to minimise offshore accummulation of NZ financial and non-financial assets.
"Hence, as per you point above, you need to design the investment programme to minimise offshore accummulation of NZ financial and non-financial assets."
Exactly...as was done with the original state housing programmes...local contracts that used local resources. Sadly many of those resources are no longer available locally and reestablishing (or expanding) the industries takes time and political commitment....and public acceptance that the transition will mean considerable change to current expectations for a longer term benefit.
And there lies the nub.
How about multiple hospitals and schools as capital projects?
The primary issue with our health and education is staff, low pay compared to cost of living (housing in particular). It's a human resources issue primarily. North shore built a new wing and couldn't staff it.
In terms of infrastructure spend, I would suggest the issues with health and education would be much better addressed by building state housing to address the housing affordability issue. Basically what KO had started to do and which the coalition just cancelled.
From someone who travels over the Brynderwyns regularly. This road is on its last legs. The alternative routes are goat tracks and no suitable for freight. Previous governments have been kicking the can down the road too long, a detour is paramount for Northlands economic future.
The answer to all that ails us is clear - More, cheaper Debt..."..England will deliver central bank rate reviews."
And the wages/prices spiral will save us all.
"...it would be a grave mistake to think that the inflation danger is well and truly over. Pay inflation remains a significant issue and it needs to come substantially lower. To make 2pc price inflation secure, pay inflation needs to be down to about 3pc, compared with 5.7pc now. Yet the Government is apparently going to give teachers and NHS staff a 5.5pc pay rise. Although it would cover just under 2m workers...if similar increases were awarded to the other 4m public sector workers.... that increase the total cost to about £8bn, but it would also act as a marker for workers in the private sector."
https://www.telegraph.co.uk/business/2024/07/28/rachel-reeves-about-rei…
I am guessing UK is similar to here. Prices have shifted more quickly than wages, so real wages have reduced. Wages need to catch-up. In NZ, private sector wages nearly kept up with the shift in the cost of living, but public sector wages fell behind because of collective deals, capped budgets etc.
The wage / price spiral thing is generally over-egged. It was of course a kiwi (Bill Phillips) who coined the phrase in his seminal 1958 paper on wages and inflation. Bill's view was that if a country experienced an external price shock (like a sudden increase in the price of imported energy or food) then there would be a shift in the price level and wages would move to adjust. However, Bill correctly predicted that if the imported price shock subsided, wages would quickly settle and a wage-price spiral would be avoided.
That comment from a person who needs to twist the narrative to suit self?
She is the future (and I haven't voted Green, longer than she has been around, just saying).
They are about a better world, albeit through the healthy forum of debate. You, on the other hand, are representative of the biggest destined-to-fail ideology our species has ever come up with'Bernays has a lot to answer for.
The young are rebelling - they're pi--ed. Understandably. I apologised to my offspring, on behalf of your (and my) echelon; I did that 20 years ago, give or take. If you have offspring, or they do, do you think they'll thank you for raping their chances?
I have always appreciated how the Greens have at least drawn light on issues most parties ignore.
I do sometimes question their priorities though. They are now leaning towards fringe left concerns, at the detriment of being environmentally focused.
There probably needs to be a counter green party that's moderately right biased. Ultimately you need to have feasible plans you can pay for.
Otherwise you're like Sri Lanka, who went organic, to look green and reduce dependence on imported farm inputs (fertiliser, fuel and machinery, etc). And then the country almost self destructed.
Was that the sole cause painter or one of many - like
Sri Lanka accumulated a significant amount of external debt over the years, borrowing heavily for infrastructure projects. Many of these projects, often funded by China under the Belt and Road Initiative, did not generate expected returns.
Poor Fiscal Management: Successive governments failed to manage the country's finances effectively. There were high levels of public spending and tax cuts that reduced government revenue, leading to budget deficits.
They were already in trouble, yeah.
But it was exemplar of well intended policy, that isn't realistic or feasible.
We are probably too small for nuclear energy, but a stance against it in perpetuity might be short sighted.
Should we still be anti-gmo, or should we lead there?
These are all complex subjects, but information is always being updated.
Right wing is all about reducing regulation and taxation.
Parties from any end of the spectrum will add and remove regulation to suit their aims.
If it's a right wing libertarian party they will tend towards small government and less taxation. But such a Green party doesn't need to be that far right.
The current Green party is too divisive to garnish enough support. Someone could be all about the environment, but not about much of their other interests.
Its the green party rules that cause this, the MPs are not allowed to use the Waka jumping laws without the members vote.
If the greens stuck to green issues, they may well be in power, they are a logical partner to national. If the social side of green policy was a stand alone party, they may well have more support ....
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