Here's our summary of key economic events overnight that affect New Zealand with news Monday's equity dump is now a fading memory.
First up, the latest signals from the US labour market are that there is no rising stress. Initial jobless claims came in less than expected at 203,000 and there are now 1.9 mln people on these benefits. Both are lower than last week and -10% lower than the same week a year ago.
This was data financial markets noticed today. Along with confirmation that mortgage interest rates are falling.
It is the summer driving season in the US, so petrol prices are important there too. And they are lowish, for them, down almost -10% from year-ago levels. In some places they are under US$3/gal (NZ$1.32/L) at the pump.
US wholesale inventories were up marginally (+0.1%) in June from a year ago. However the steady rises recently have ticked up the inventory-to-sales ratio recently, although it is still lower than year-ago levels.
And there was a well-supported UST 30yr bond auction earlier today and that delivered a median yield of 4.23%, lower than the 4.33% yield at the equivalent event a month ago.
In India and as expected, their central bank's monetary policy review brought no change to their 6.5% policy rate. It has been held at that level since February 2023.
Taiwanese exports held steady at about +US$40 bln in July. But that was 'only' +3.1% higher than the same month a year ago. However it comes on top of a steady expansion since November 2023.
Later today, China will release its July CPI inflation data and it is expected to remain very low (+0.3% year-on-year). Their PPI is again expected to report deflation.
Global shipping freight rates for containerised cargoes slipped marginally again last week, down -3% from the prior week. But they remain three times higher than year-ago levels. Bulk cargo freight rates were unchanged from the prior week, up +50% from the same week a year ago (although that year-ago level was a bit of a low point).
We have noted low steel prices recently. But we should also note than both wheat and soybean prices are low too, now down near five year lows. If there is food stress it is not because the cost of basics are high.
The UST 10yr yield is now at just on 4.00% and up another +3 bps from yesterday. The key 2-10 yield curve inversion has nearly gone, now at just -4 bps. Their 1-5 curve is also less at -65 bps. And their 3 mth-10yr curve inversion is down at -134 bps. The Australian 10 year bond yield starts today at just on 4.14% and down -2 bps. The China 10 year bond rate is up +1 bp at 2.15%. The NZ Government 10 year bond rate is now just on 4.32% and down -2 bps.
Wall Street is sharply higher in Thursday trade with the S&P500 up +2.2% from yesterday. Overnight European markets were mixed, bookended by Frankfurt's +0.4% rise and London's -0.3% dip. Yesterday Tokyo fell -0.7%. Hong Kong was a little-changed +0.1%, and Shanghai was also barely changed. Singapore rose +0.4%. The ASX200 ended down -0.2% and the NZX50 fell -0.8% in Thursday trade.
The price of gold will start today up +US$31 from yesterday at US$2423/oz.
Oil prices are +US$1 USc firmer at just over US$75.50/bbl in the US while the international Brent price is just on US$79/bbl.
The Kiwi dollar starts today little-changed from this time yesterday at just over 60 USc. Against the Aussie we are back down almost -¾c at 91.1 AUc. Against the euro we are up +10 bps at 55 euro cents. That all means our TWI-5 starts today at 68.7 and down -20 bps.
The bitcoin price starts today at US$59,562 and up +6.5% from where we left it yesterday. Volatility over the past 24 hours has been very high at +/- 4.8%.
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90 Comments
TA on point with the headline. The RBNZ refusing to make moves based on forwards-looking data got us into this mess and is now making the situation worse. Is it a cultural failing that they can't be more nuanced?
https://www.oneroof.co.nz/news/tony-alexander-why-interest-rate-cuts-wo…
Banks are flush with TD's while lending demand has fallen steeply. It's understandable some are celebrating lower rates having arrived early - especially if you're paying interest on a declining asset.
If the banks have a cheaper source of cash, Spruikers should ask why the RBNZ even need to do anything with the OCR that has stayed HFL. Spruikers never envisioned the true cost of bringing inflation under control in this economy plagued by poor productivity. At risk of being labeled a DGM, they certainly never warned anyone on here by way of an insightful prediction.
It's funny what transpires given time.
You're one funny guy :) Spruikers just wanted their house values to rise forever without any consideration as to the near term cost.
It's selfishness in it's purist form. Maybe coming unstuck is the best lesson of all. Call this the timely reset of expectations we needed to have. (edit)
Yeah possibly. I guess I just don't waste the same volume of oxygen fostering malice over other members of society who are profiting in ways I don't agree with. Because I have no control, and if they're that bad often things have a way of catching up on them anyway. But the last couple years on here have been
DGM: mwa-ha-ha, these higher for longer rates are going to drop prices and wipe out the spruikers
Me: uhhhh, you realize that'll be occuring in an environment where many more regular people's jobs and livelihoods are getting wiped out, right?
DGM: *hands on ears* la la la la spruiker la la
Fair enough. Having ridden a few downturns myself, the 90s one whilst working within the banking system itself, I am fully aware of the collateral damage that comes with higher rates.
I have noticed of late resident Spruikers salivating over releases such as weak jobs data hoping it is grim enough to trigger lower rates. Now that IS sad.
The market is always underestimating the strength of the NZ economy. Almost every statistic comes in better than expected. I wonder how GDP will go?
I personally think the opposite to TA; once interest rates decrease many people will pick up spending and investing quicker than normal due to short fix terms. The only caveat is whether that causes inflation.
We still have a lower unemployment rate than at any time during the Key / English rock star economy. I know it’s a lagging indicator, but that is quite some lag. Until that unemployment rate gets out of hand I think the economy is salvageable.
And no I am not a property investor or similar. I’ve just learnt that 99% of the gloom on here ends up being incorrect.
Yep that too. Although much of that has been correct over the years, house prices have often defied gravity / logic. Only recently those guys have been wrong.
I don't think anyone's glasses were tinted enough to predict Covid would cause a massive increase in house prices and unsustainable decreases to unemployment.
I felt maybe the latter pretty early. We weren't bringing in migrants and with more people home sick/quarantined, it was going to be a tall order getting stuff done.
The houses, not so much. I naively thought that in such tumultuous, uncertain times people weren't going to fight each other buying flash pads, new cars, boats, campers etc.
Now I see we're well and truly a short sighted herd.
One might argue that much of that economic strength stems from our inspiring ability to stamp tens of thousands of visas for low-skilled workers and their families.
This pyramid scheme creates more low-skilled work that Kiwis don't want to do and so we can bring in even more workers.
An alternative opinion:
“Most traders expect we are in not only for a more volatile summer but a more volatile decade.....If your portfolio is down X amount, you’ve got to close positions because you don’t want to lose double. You get people all trying to do the same thing at the same time...Analysts at ING estimate that cross-border loans from Japan had hit $1 trillion by March 2024, rising by a fifth since 2021. As a result, it is difficult to say how much of the yen carry trade is yet to be unwound. There could well be more pain to come both in the short and long term.
https://www.telegraph.co.uk/business/2024/08/08/japan-blew-up-global-ma…
"A magnitude 7.1 earthquake struck off the coast of Miyazaki Prefecture on Thursday, Japan issues first-ever alert over risk of Nankai Trough megaquake....
And if it arrives, then what happens to the Nikkei, and the rest? Aren't portfolio managers across the globe going to be looking at their exposure to Japan right now, and wondering, "What happens to our fund if those pictures we see of Gaza on TV each night are actually what downtown Tokyo looks like this morning?"
Quite right. And most banks in the World have long-standing contingency plans. Ours was to pretty much flick a switch and parallel operations kicked in elsewhere. So it's not solely the domestic Japanese financial market. But the fund manager in, say, Zurich who will be having another look at his exposure "Should I be selling now, given all the events of this last week. And now this..."
The obsession over whether rates are going to move 25pts next week or in November is getting daft now. Unemployment has taken off, and the job loss/falling demand spiral is established. The question now is how the hell do RBNZ think that unemployment will pause obediently at around 5%?
Worth remembering that the last time a National Govt took power in late-2008, CPI was on the up and had hit 4%, unemployment was 4.1% and rising. Bill English introduced an emergency budget and went big fiscal - like COVID years big. Unemployment still rose to 6.5% but at least it didn't get any higher. Funny that Luxon (Key's apparent apprentice), and Willis (English's understudy) have chosen exactly the opposite approach - fiscal tightening. Actually, it's not funny, it's incompetent. But, hey ho.
"The question now is how the hell do RBNZ think that unemployment will pause obediently at around 5%?"
Perhaps the better question they should be asking themselves is, "How the Hell do we recalibrate the ingrained financial beliefs that New Zealanders have without breaking the whole System?". And maybe they've answered that question with what we are being given today. Is it better that we have 6.1% Unemployment but less Private Debt or 3% UE and even more PD?
That's not the trade-off. We have a Govt with a net positive financial worth. We are the only advanced economy with a trade deficit that in this position. It's stupid. We could have moderate levels of public debt, reducing levels of private debt, and full employment if we made the right changes. This is after all how we ran the economy for nearly 100 years - budget surpluses were often an accident caused by excess trade surpluses and taxation coming in on the upside.
And the whole long 19th century leading up to World War One was this revolutionary value theory that depicted land rent and monopoly rent and financial returns as being unearned income and wanting to strip it away.
And all of this seemed to be moving toward socialism. The industrialists were all in favor of government public utilities, of government enterprise, because they said, if the government doesn’t provide health care, then individuals are going to have to pay it, and it’ll cost a lot of money, like it does in the United States.
And so you had the conservative prime minister of England, Benjamin Disraeli, saying, health, all is health, we’ve got to provide public health for the people.
And it was the conservative Bismarck in Germany that said, we’ve got to provide pensions. If labor has to save up for the pensions, then it’s not going to have enough money to buy the goods and services that we Germans are producing. We have got to make pensions public.
So all of this move towards socialism was not only in favor of increasing living standards, which soared in the 19th century, but also in freeing the economy from the rentier class, from the landlords, from the bankers.
And for the classical economists, a free market was a market free from landlords, free from bankers, free from monopolists. Link
and full employment if we made the right changes.
"Full employment" probably isn't the right term. It implies a capacity by the whole population to be viable economic units.
We should have "full engagement", but that's a concept that'd need a radical re-think about how our society and economy operates.
If it's for money, then there has to be some performance required. That's not how everyone's geared.
But now an individual's worth is now tied to them being some sort of economic unit. This is a very restricted part of human experience.
Likely better would be some reversal of 5 days on 2 days off to 5 days off 2 days on. Just not sure how you'd sustain or distribute it.
So more tax cuts then
One of the problems that keeps arising though is the poor quality of public services - and with the abuse in care inquiry actually highlighting the absolute worst
but education, health (and water services) are also instructive - ideological capture has helped destroy the model
I'm not sure we ever got education right.
We can argue we used to be better at teaching basic fundamentals.
But as it was designed, the primary role of our education system isn't to foster independent thinkers, it's to institutionalize us as productive compliant workers.
Professional self hair-cut, millions viewed
> the job loss/falling demand spiral is established
What job losses? Employment is up in the latest stats. It's just that growth in the labour force was greater than the growth in employment, so the ratio has gone down. But the absolute number of people pulling a wage has gone up.
What is behind our super high electricity prices?
"…the fact that the gentailers have been incentivised to hold on to new generation consents and run generation lean to maximise profits is the root cause.”
https://www.stuff.co.nz/business/350371250/what-behind-our-super-high-electricity-prices
They wouldn't hold control of retail and generation, therefore the generation outfits would need to compete to get more retailers purchasing from them and this would drive prices down, ideally via new generation investment allowing cheaper prices to be offered, bringing in more retailers and profits. Said savings for retailers would be passed in part to households. My theory at least
Not too long ago, I used to pay up to $500 a month in cell bills.
But different thing is different. The cost to deploy wireless cell coverage is dwarfed by the costs of in ground utilities like water and power. Blasting 5g to 10,000 devices is exponentially cheaper than hooking up 10,000 water lines.
Basically, the higher the capital costs, the less desire for investment by the owner.
Our cell network is reasonably affordable and of decent performance. Obviously it's better elsewhere, due to aspects like scale and density, but still pretty good. The private sector has provided something decent, with nominal costs.
But it's also fairly clear that there's investment we need to make, that don't have a great commercial case, with long (if ever) payoffs. That creates quite complex issues.
"Our cell network is reasonably affordable and of decent performance. Obviously it's better elsewhere, due to aspects like scale and density, but still pretty good. The private sector has provided something decent, with nominal costs."
And you attribute that to privatisation?....cell technology was instigated and initially developed through public funding.
It appears common to compare that which was before the neoliberal revolution of the eighties to today and attribute 40 years of advancement solely somehow to privatisation....do we really believe that without that privatisation we would still be using rotary dial phones over copper lines today or any of the other changes that have occurred in that time?
And you attribute that to privatisation?....cell technology was instigated and initially developed through public funding.
Much of the commercial products today have manifest origins in the public sector. Can't deny that at all.
But in terms of taking something new, and potentially complex, and refining and producing it to a point where it's wildly available, it'd appear some sort of commercial model accomplishes that better than a centrally controlled apparatus. This is not to say that public and private entities can't work against that trend.
Id suggest that all the commercial model has the potential to offer over public is perhaps choice, though even that can disappear with effective monopolies....and that is both a positive and a negative.
The same resources are available to either ownership model and the public model dosn't demand a return over and above cost.
"I guess my biggest problem is a lack of faith in delivery. We can't even manage the basics, let alone future investment."
No, we cant now because we removed the capability of the state over a 40 year period, but we appeared to manage reasonably well up to that point....most of the major infrastructure we now rely on (and have failed to maintain) was developed prior to that 40 year period.
The other reason "that shall not be mentioned"
https://www.kiwiblog.co.nz/2024/08/paying_off_objectors.html
The government partly owns Mercury, Meridian and Genesis already and they are investing billions in new generation. Other private companies are investing billions more.
Are people really imagining that if this government were fully in charge, they would be stumping up 5-10 billion to really get things cranking?
The current pricing woes are the most outstanding example of a poorly structured and governed market. First of all generators were allowed to set up big retailing arms. Secondly the way pricing is stacked up during peak demand: the generator of the last resort which has the most expensive offer determines the price for all offers even if they were lower earlier. The generator of the last resort is always thermal generation which is normally scarcely used so you pay for them to be on stand by and has the highest input costs. Because of the way the pricing is determined our cheapest (hydro) generators are not interested in extending their capacity. They will always wait for the most expensive generator to come on line to make their profits. Lastly the gentailers (and other retailers) are hedging each other and that are financial instruments which also come at a cost. They need hedging because customers are not in the same location as where they generate. Example: Meridian generation is on the South Island. The majority of their customers are based on the North Island. Using the HVDC link will cause a energy loss, conversion from AC to DC and back, and therefore they have hedge arrangements with North Island generators like Mercury and Genesis.
What is the solution then? First of all generators should not be allowed to control retail arms because their retail arms underwrite high generation prices. You can't have a clean wholesale market when generators have the certainty that their retail arms subsidize high generation costs. Secondly structure the pricing stack by averaging the offers of generation as the determination of the final price and not the offer of the generator of last resort. And finally get the government out of the equation by forcing it to sell its majority stakes in the big gentailers. You can't have markets in which the majority player has two caps on!! But the last thing will be difficult because Nicola Willis needs to find a 1B NZD to compensate for the missed income of dividends every year.
How to isolate yourself from high eletricity pricing? You can still buy future contracts expiring Dec 2027 for 120$ /Mwh as of this morning but even for most of our energy extensive export businesses like woodprocessing and pulp & paper industry this is too high when they want to compete with the rest of world. Therefore I suspect most of them are only partly hedged and they are hoping for wet years like the last two when pricing is far lower than currently.
For the retail customers there are 2 options: Either solar on your roof or in your garden or buy shares in the gentailers. With the government as the majority shareholder they need the dividends to plug some other holes in their budget and, as a retail investor, you can use the dividend to lower your power bill. Because I am a little familiar with the market on the headlines, I immediately bought shares in Meridian and Mighty River, currently Mercury, as soon as John Key and Bill English floated them.
If you don't offer the required price to tease out that last bit of generation or foregone electricity use, why would they bother firing up the expensive generation or shutting down parts of the factory? Sounds like a recipe for frequent brown-outs.
Or they will just offer at twice the price so the paid price ends up the same as before.
Yeah I'm not sure about that - it's beyond my expertise to figure out how a completely separated industry would perform differently and whether it would be better. The current setup has the advantage of very stable retail prices despite swings in spot prices, as the two arms of each gentailer roughly balances out. That could of course be achieved via hedging with separated companies.
The current system also doesn't stop retailer- or generation-only companies from participating, but clearly they get knocked about by volatile conditions (as is happening now, with Prime Energy, a retailer, in default to Manawa, a generator). I'd assume mandating a separation would lead to more companies running into troubles as the market fragments, as was seen in the UK when gas price volatility crushed a bunch of companies recently. But maybe that's all good Capitalist competition?
https://newsroom.co.nz/2024/08/08/prime-energy-working-through-manawa-p…
Peter M is correct- although Govt does have the opportunity to manage the last bit of generation so that it doesnt feed into pricing - or at least feed in the same way
The big players are squealing but medium business have been getting screwed for years - and I know as my bill went from $100k to north of $200k on renewal. A large solar install mitigated the impact but not every business has that opportunity
So I think two changes would help - But I am sure smarter minds have other or better improvements that could also be made
Generators out of retailing
Govt provides/pays for reserve generation -which could be recovered via a levy
The UST 10yr yield is now at just on 4.00% and up another +3 bps from yesterday.
After yesterday's dire 10Y auction, which sent yields surging and stocks tumbling, the last thing the market needed was another debacle of an auction, but that's precisely what it got moments ago when today's 30Y auction tailed by 3.1bps, the exact same as yesterday's 10Y sale, and predictably yields spiked after both.
Stopping at a high yield of 4.314%, today's sale of $25 billion in 30Y paper saw the lowest yield since January's 4.229% and was down sharply from the 4.405% in July. And, like last month, today's auction tailed and by a substantial amount: with the When Issued trading at 4.283%, this was the biggest tail since November.
From James Lavish:
Another day, another *dismal* Treasury auction, this time in the 30YR:
- 3.1 bps tail was*largest since Nov*
- Foreign bidders *took only 65%*
- Bid to Cover *dropped to 2.31*
- and Dealers had to swallow*19% of the offer*
This auction was *even worse* than yesterday's 10YR.
How is this being reported as good in the article above!?
"For the first time in 48 years, 10y UST yields ROSE in response to a y/y decline in “World USD Liquidity”, which in our view was a warning that US debt/GDP, deficit/GDP, and NIIP/GDP are so high that US policymakers cannot overtighten USD liquidity without triggering a US debt spiral" - @LukeGromen
US signalling that Europe might end up on their own. That has always been the case. The US doesn't want to ever end up being eviscerated by Russia, by defending Europe. Europe still hasn't worked this out: Vance: US is not obliged to ensure the defence capability of European countries in case of a military threat. Link
Extraordinary interview of former Australian PM Paul Keating, accusing the current Australian government of "selling out to the United States": "The prime minister gets the dinners on the White House lawn … [and] these turkeys all fall for it." https://abc.net.au/news/2024-08-08/paul-keating-aukus-china-albanese-foreign-policy/104201388 Link
Don't mess with the military industrial complex.
Gabbard told Racket News this week that she and her husband had been subjected to extraordinarily invasive and lengthy searches before several flights in recent weeks and that their boarding passes were marked "SSSS," for "Secondary Security Screening Selection," a designation usually reserved for suspected terror threats.
...The surveillance reportedly began after Gabbard appeared on Laura Ingraham's program on Fox News last month and criticized Kamala Harris for her foreign policy inexperience. Foreign policy is being run by "unelected people in the military industrial complex who are profiting from us being in a constant state of war, and the national security state that has more power to undermine our freedoms and liberties when we are in a state of war. Kamala Harris does not have the strength to stand up to [them] so she is going to continue being a figurehead just like Joe Biden has been."
Tulsi Gabbard, the former Democratic congresswoman who has been a harsh critic of Joe Biden and Kamala Harris, has been placed under federal surveillance at airports and on planes under the "Quiet Skies" program designed to track terrorists after 9/11, whistleblowers claim.
Important thread on the oligarchic rule system in Britain, which also includes the power to hold secret court hearings & issue "D notices" to the media, controlling the discourse, while themselves being secret. Plus MI5 rewriting history by forging documents (see History Thieves) Link
A decade-long dispute between Coca-Cola and the US tax authorities has escalated that the company could owe $16bn in back taxes, enough to wipe out a year and a half of profits, rising by more than $1bn a year. The soft drink maker has been hiding “astronomical levels” of profit in low-tax countries including #Ireland to shield it from the US Internal Revenue Service, acc to a withering court judgment, which the company is planning to appeal against later this year. https://ft.com/content/cd05fb4b-8e67-4996-a5f3-bf1b8ccdf3af Link
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