Here's our summary of key economic events overnight that affect New Zealand with news that is second tier today ahead of a string of key data releases. But there are many interesting bits today all the same.
First in the US, a national NY Fed survey of consumer expectations in July showed medium term inflation expectations are falling. The three-year-ahead inflation expectations fell by 0.6 percentage point to 2.3%, hitting a new series low since the survey’s inception in June 2013. Median one- and five-year-ahead inflation expectations were unchanged at 3.0% and 2.8% respectively. The labour market expectations were essentially unchanged too with consumers not expecting any significant rise in unemployment.
USDA's August WASDE revealed that they will have record output and yields for both soybean and corn this season although wheat production there will be down marginally. But they expect world wheat production to be up. Climate stress is not reflected in this global assessment of food production, yet anyway, even if global rice production is seen easing, but only by -0.1%. Lower Vietnam production is the reason.
US beef production will be lower they say, made up by imports. US milk production is easing off slightly but they still expect to be active in butter and cheese exports and they think those will rise.
In Canada, building consents were expected to rise more than +5% in June from May after a sharpish -12.7% fall in May from April. But that did not happen. In fact the June fall was down almost -17% from a year ago. It is rather a grim set of data for this sector.
In China, and although never far from the surface of Beijing concerns, demographic forces have moved them to act on the long awaited raising of their retirement age. The average life expectancy is now 78 years, but local males can claim their 'pension' at 60. For women it depends on their job, but it is as low as 55 years for them. Fast-shifting demographics mean the working aged population is down to 68% and falling. Ten years ago to was near 75%. (NZ is 59% currently.) Details are awaited but they may implement a +3 or +4 month-per-year rise in their retirement age, which would be quite a fast change.
And although they are not reported locally, it appears strikes and labour unrest is on the rise in China. Raising the retirement age when there are growing labour stresses isn't going to help sentiment.
Indian consumer inflation fell rather sharply in July and by a bit more than expected. It came in at 3.5%, down from 5.1% in June. (A year ago it was running at 11.5%.) This latest level is now below their central bank's mid-point in its target range of 4%, the first time it has undershot in almost five years. The reason for the fall is essentially because of food prices, and the reason foods prices fell to 5.5% from 9.4% in June is essentially because of year-ago base effects. So this easing of inflation will probably not last.
Meanwhile, the Indian industrial production expansion eased off rather sharply in the June data released overnight. It was up 4.2% from a year ago, sharply lower than May's +5.9% rise. +4.2% is still exceptional but clearly the rapid expansion is reverting to a more sustainable pace. Pharma product growth actually shrank.
The UST 10yr yield is now at just on 3.91% and down -3 bps from yesterday. The key 2-10 yield curve inversion is still at -12 bps. Their 1-5 curve inversion is deeper at -74 bps. And their 3 mth-10yr curve inversion is now at -147 bps. The Australian 10 year bond yield starts today at 4.07% and unchanged. The China 10 year bond rate is still at 2.20%. The NZ Government 10 year bond rate is now just on 4.28% and down -2 bps from yesterday.
Defying the weekend futures market, Wall Street has started its week little-changed on the S&P500 with a whiff of softness. Overnight European markets also closed little-changed. Tokyo was closed yesterday for a public holiday. Hong Kong ended up a mere +0.1% and Shanghai down a mere -0.1%. Singapore however fell -0.8%. The ASX200 ended its Monday trading up +0.5% and the NZX50 was up +0.3%.
The price of gold will start today up +US$38 from yesterday at US$2468/oz which is closing in on its record high.
Oil prices are +US$2 firmer at just over US$78/bbl in the US while the international Brent price is now just on US$81.50/bbl. We should keep an eye on the Straits of Hormuz. Iran seems to have seized a Malaysian ship travelling through there in what could a portend flashpoint.
The Kiwi dollar starts today up +20 bps from this time yesterday at just on 60.2 USc. Against the Aussie we are also up +20 bps from yesterday at 91.4 AUc. Against the euro we are up +10 bps at 55.1 euro cents. That all means our TWI-5 starts today at 68.9 and up +20 bps.
The bitcoin price starts today at US$59,340 and down -1.6% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.
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112 Comments
From the above, it appears that NZs working age percentage is actually really bad compared to China. Especially so that our retirement age is higher than in China.
I didn't realise that NZs demographics were so bad compared to China.
Maybe China is just kicking off going really bad due to its one child policy.
China a nation of vast history, territory and population is about as different to New Zealand as you could get. Hard then to attach much relevance to comparisons in general. Hard to imagine too, that the average New Zealand person would be keen to swap places with the average Chinese person.
You got it Fox. Why is it that so many are obsessed with comparing NZ with every other god damn country? “It’s shit here I’m moving to Australia” (that is said in a high pitched whining voice). Wake up and look around you, this place is stunning (not Auckland). All this BS about what other countries are doing, who cares. Focus on the here and now, grow some kahunas and make it happen for yourself and your family (the ones you like). Jimbo is correct in his general thinking that it’s not actually all that bad in NZ. Yes there is some hurt, liquidations etc, but come on you idealists, it’s not a perfect world. If you can’t get on board and realise what you’ve got, then ok, cut a track and make sure your ticket is one way. Less people here the better.
I think if all people are doing is kicking around the same problems in their heads or on a keyboard, and not enacting any change, then they're wasting a lot of cerebral energy.
Fact is NZ is a pretty great place and should be enjoyed for what it is, rather than lamented for what it isn't. If you find somewhere else that much more awesome, then that's where you should be.
Really happy for you Frank that you are so stoked on NZ. You do realize however that for many life here has become extremely difficult, and becoming more so as time goes on. So some have chosen to move away for better opportunities or improved lifestyle, doesn't necessarily mean they are hating on NZ?
You can have an opinion without the need to refer to such people as a bunch of whiners.
Or ram-raids on a daily basis (the term didn't even exist), or 12 years olds in Police pursuits to post on tiktok, or not being able to walk the streets at night, or elderly sitting in damp freezing houses because they can't afford to heat their homes, or spending 2 years on a waiting list for a basic medical procedure, or not being able to swim at your local beach because of human shit..........but hey we live in paradise right.
Crime in general is at a multi decade low in NZ.
Do we celebrate that, or lament ram raids?
Unfortunately the human mind tends towards the negative. Useful if you're in the wild, on look out for predators. Unfortunately fairly counter-productive when you have a box in your pocket that can tell you literally every bad thing going on anywhere on the planet.
Only if you're anglo Saxon.
But complaining is the easiest option. There's a YouTube channel "soft white underbelly", and the host regularly features a trans crack whore called Rebecca.
The amount of complaints the host gets that they're exploiting Rebecca is through the roof. The amount of people offering to actually provide some sort of help for Rebecca, is 0.
Everyone who left Auckland wishes they did it 30 years ago, the problem for me was there was zero work opportunities down here in Tauranga. I used to cover the whole country in a sales role and Tauranga was simply not even worth the visit. I must say however it has got a whole lot better these days but I still recommend being self employed.
I left around 15 years ago, probably about the right time.
There weren't the abundance of jobs and salaries where I moved, but then again it's a lot cheaper not living in a city. And after a while somewhere slower, you find a lot of unmet opportunity anyway.
Also highly recommend being self employed. If you're on a wage and salary, effectively you're paying someone else a premium to find and finance work for you.
But I have big doubts if Orr has it within him to change his tune from "an OCR rise is possible" in May, to cutting in August.
I think he'll probably acknowledge the change in economic circumstances, say that inflation is almost beated, and say that an OCR cut is close, so that he can cut next time and save face.
"Third" world has certain connotations that are kind of out of the context originally intended. First world is the western aligned countries, second world is Moscow aligned countries and third world is other. It really has nothing to do with the wealth , or development status of a nation. China would be second world.
Good Morning from #Italy, where demographic trends are cruel. Population is aging & fewer babies are being born. Fertility rate – avg number of children born per woman – has steadily declined since late 1970s, dropping far below 2.1 for a stable population & causing it to shrink. This has intensified over last decade, w/a loss of over 1.36mln people since 2014. Working-age population will decline further in the next 25yrs from 37mln to 31mln by 2050. But Italy could solve its growth problems in the short term if more people participated in the labor market. Italy has the lowest female participation rate in all of Europe. Acc to Eurostat, that rate stood at 57.7% in 2023 while it was above 70% for Germany, France and Spain. (via BBG) Link
Depopulation Bomb. There are going to be some spoilt grandkids out there. They are going to be so busy working in the rest homes they won't have time to lynch profile.
"For every 100 South Korean great-grandparents, there will be 6.6 great-grandkids. At the 0.7 fertility rate predicted in South Korea by 2024, that amounts to 4.3 great-grandkids."
I am not surprised that people are no longer having kids - after all they were just a byproduct of sex and birth control has generally solved that problem
But I dont get why people replace kids with pet dogs - that can be just as noisy and demanding as any scone grabber. They could just volunteer at a school or kindy which will continually remind them of why they didnt have kids of their own :-)
In case you missed it: US debt tops $35tn as the federal budget was $1.5tn in the first 10 months of fiscal year 2024. CBO projects a federal budget deficit of $2tn in fiscal year 2024 when adjusted to exclude the efforts of shifts in the timing of certain payments. Link
Meanwhile, the Indian industrial production expansion eased off rather sharply in the June data released overnight. It was up 4.2% from a year ago, sharply lower than May's +5.9% rise. +4.2% is still exceptional but clearly the rapid expansion is reverting to a more sustainable pace. Pharma product growth actually shrank.
Nonetheless: View from Delhi: A serious crisis is brewing on India’s doorstep, and the West has a role in it
Canadian economy, like NZ, Sweden, UK etc have the same toxic mix of relatively high interest rates, high private debt as % of GDP, and short-term fixed-rate mortgages. This combo makes monetary policy highly effective at redistributing disposable income to people who save it, and, therefore, crushing the economy - particularly if Govts are tightening the purse strings in support. You can see how interest rates and private debt levels differ across countries here (a month or so out of date).
Good to see we are beating Australia on private debt and interest paid on it, especially as we are so resource poor compared to them, this is an Olympian level effort NZ! There are simply no fundamental reasons for the huge pile of mortgage debt representing 70% of bank lending, we have simply being selling houses to each other at increasing rates and living off the profits of this Ponzi.
Nothing can replace this economic engine that's produced so much debt over 20 years.
Always worth stepping back a bit, Our taxes and policy settings mean that capital gains rather than enterprise have been the kiwi path to riches for at least 50 years. So, back in the late 80s we 'liberalised' finance and set banking free. So, what did we do? Households and businesses spent 1990 - 2009 borrowing ever more bank-created money and we increased private debt from 60% to 160% of GDP. Interest rates were not low during that period really - but the property ponzi was in full flow and the borrowing was feverish.
RBNZ hiked rates to 8% through 2007 and 2008 - and with private debt high, the economy unsurprisingly tanked. RBNZ then dropped interest rates from 8.25% to 2.5% over 12 months. They HAD to drop interest rates. The economy as structured literally could not function with interest payments on debts running at 15% of GDP - the spiral down of job losses would have been never-ending and self-reinforcing. Also worth noting that Key and English turned on the spending taps in early 2009 - monetary and fiscal working together.
Since, then private debt has hovered around 150% of GDP so interest rates have had to stay low. What we should have done over the 2010 to 2020 period was restructure our economy away from the housing market with bits tacked on model - capital gains, land value tax, govt investment programme to help the private sector wind their debt down. But, instead, here we are again - in a major recession that will lead to lower interest rates and (eventually) some major Govt deficit spending. Will we learn? Nope.
Finance Minister Cullen one day lamenting that NZrs were overly dependent on property investment at the expense of such as equity markets. A few days later at the hands of protege Cunliffe, the value of Telecom was gutted thus costing thousands of NZrs thousands of dollars on what was seen as a cornerstone investment. Then think about such as, Securitibank, Broadbank, Fortex,Feltex to name just a few, and it is little wonder property has become regarded as a safe haven investment. So when interest rates are crash dived so as to make term deposits pointless but mortgages easy is it any wonder that investment switched massively into property and then catalysed the equally massive price boom of the same.
You forgot about the companies with good prospects that were gobbled up by offshore bargin hunters. The institutions holding NZ equities were literally falling over their own drool at any offer that would make the next quarter look good. Those assets aren't coming back and there's nothing to replace them. Even if there were, they'd be flicked on in an instant, once showing potential.
Jfoe "with private debt high, the economy unsurprisingly tanked (in 2008). RBNZ then dropped interest rates from 8.25% to 2.5% over 12 months. They HAD to drop interest rates."
So, what do we think is most likely to happen with interest rates over the next 12 months……?
Really depends on what happens in the USA. Figures coming out of there are fake but at some point the reality will hit and their rates will need to take a dive and then we simply follow the FED. Predictions are the FED will cut in September so we either go now or we go October. If our economy tanks there is no option than to cut rates, the RBNZ only has one lever that why I don't understand why they get paid so much, a monkey can pull the handle.
Stop for a moment and think about what drives that massive private debt.
A pub-economist will tell you it is because houses are overpriced. But that is a symptom. It's not the root cause.
For the root cause one needs to go back to why houses are so overpriced, i.e. why we need to borrow so much.
A large part of why houses are so expensive is down to Council land use policy resulting in land wastage (think single house zones) and restrictive zoning practices.
Did I hear some pennies drop?
Who knew our Councils had such a dramatic effect on NZ Inc's private debt, ay?
But shush. The banks love Councils. So let's all talk about house prices while banks get rich and everyone else gets poorer.
Nothing to see here.
It's the buyer's fault.
It's the landlord's fault.
It's foreign buyer's fault.
It's immigration's fault.
And we continue to talk nonsense. The fault lies firmly with Councils ... and the fact that Central Government really couldn't care less.
Why if MPs play their cards right ... they could end up as a bank chairman.
A taste of 'congestion charging' Tauranga proposed $2 and 15 cents per km and from a population of 200-300k expected to generate 80M a year , those thinking its a 1 off toll like NZers are traditionally used to are in for a surprise ... 'variable road pricing'... I havent established whether you pay another $2 when you enter the next zone but feedback from folk rejected the concept , clearly the regulators are not giving up on it.... Wonder what Aucklands variable pricing road map looks like....It should also be noted that Tauranga's network leaves motorists with near zero alternative routes due to the regions geography.
https://www.nzherald.co.nz/bay-of-plenty-times/news/economic-catastroph…
Tauranga - the template for a Future New Zealand - no such thing as Councils elected by rate-payers, just Commissioners appointed to run cities as directed. And they are having a go at getting an ex-rower (Mahé Drysdale) to run a new ratepayer elected new Council. Probably in the expectations that his qualifications will prove that Commissioners are the only way to go.
.."chairperson Anne Tolley noted that the new coalition government had indicated that road charging would be considered as a way of reducing congestion and improving travel reliability in metropolitan centres."
https://www.rnz.co.nz/news/national/510810/tauranga-commission-drops-bu…
Here's the rub. Our land transport system does not wash it's own face in terms of user pays (taking into account RUC, rates, petrol levy, etc) it requires the crown to top up out of general taxation.
Adding even more mega roads as the coalition is proposing needs to ba paid for.
Optimistically tolls will cover between 10 and 15% of those costs. If the tolls are set at the cost recovery rate no-one will use the roads as the legislation requires there to be a free alternative.
In order to cover the cost of the coalition's new mega roads we will need to either:
- increase income tax by approx $5000 per household per year to top up from crown accounts,
- Increase user charges (petrol tax, RUCs etc) by approximately $5000 per user per year,
- or put it on future taxpayers by borrowing (probably hidden as PPP) which will increase or govt debt to approx 98% of GDP.
Back on track.
I like the idea of selling the road system and have a company extract a profit from it, it would eliminate all sorts of anomalies. Surely these days privatisation with user pays would be quite feasible, so why not do it? ACT?
It must be worth hundreds of billions in land alone, could solve a lot of our problems.
Because it's a natural monopoly? Because if the true cost + profit margin of such infrastucture was passed on to the transit of goods and services, the economy as it currently stands would be crushed?
Might be good for relocalisation of economies though. If that was the case, it's worth a crack.
Solarb closing unprofitable roads is being considered in places but the kickback is huge
There are a number of roads in the Marlborough sounds where the maintenance and rebuild costs show that it would be cheaper to buy the few land holders out and close the road
Here in Otaki an access road to Tararua Forest Park is closed 10k's from the road end carpark and despite the rebuild costs being in the hundreds of thousands there are people clamoring for it to be reopened - ironic really given it goes to a walking track
Yes , a paper roads legal obligation is to provide walking access only . reality is , there are many paper roads that do not have vehicular access, so they are technically closed to cars. Also many that are "not maintained by council beyond this point ".( residents usually make sure the road is in better condition just beyond that point).
With todays technology , i think a good option is to make many of these roads one way , controlled for access via gps etc .
I travelled the SH35 recently , the amount of earthworks required to make a lot of that good 2 lane roadway would be staggering. but making the existing road controlled one way could speed up the journey time, and make it safer , providing people obey. Of course they have been for many years with one way bridges without too much problem.
The road works bill for many of the rural councils is huge .
i was talking more about extra lanes on the RONS, i.e the proposal to 4 lane to Whangarei when the traffic level does not justify it .
Are trucks inflating the costs of road repairs? (1 truck and trailer = 9600 cars) Should they be paying much more? Problem is that if heavy transport tolls get applied fairly costs get passed onto consumers and everything distorts. 1 truck is not going to pay 9000x what a car pays for each trip. Presently they pay 2 or 3x what a car does. I think lowering vehicle rego costs was a mistake, I think a fuel tax would be a better and cheaper method of extracting payment. Cluttering the road with toll cameras and sensors only adds to the costs. I get the move to entice private investment but likely fact is they are building hiways at cheetah speed in some countries compared to snail paced NZ.... We are taking too long to build and the extra costs such creates is likely why costs keep skyrocketing. 6 years and 300 Million for 1.7km of construction.."We are working closely with our suppliers and contractors to achieve greater efficiencies"....." wow
https://www.rnz.co.nz/news/national/493202/tauranga-s-1-point-7km-highw….
"When most 9-year-olds were playing Fortnite, or sneaking off to the skate park with their mates, Lewis Pollock was dragging his sister off to open homes."
https://www.stuff.co.nz/home-property/350375771/20-year-old-home-owner-…
Sir Ian Taylor to the 3-Clown Circus:
Gold, currently above closing ATH against both US$ and NZ$.
And guess where it will go against the NZ$ if the Kiwi falls from its current dizzying heights? Zoom! As will the price of all imported goods we need to sustain our economy.
Just one pertinent opinion:
"The boost phase of debt expansion and debt-funded spending is over, and we're in the stagnation-decline phase where adding debt generates diminishing returns.....The six one-offs that drove growth and pulled the global economy out of bubble-bust recessions for the past 30 years have all reversed or dissipated. Absent these one-off drivers, the global economy is stumbling off the cliff into a deep recession without any replacement drivers. Colloquially speaking, the global economy is toast."
https://www.oftwominds.com/blogaug24/6-drivers8-24.html
Word is that the government who scrapped the dry year project investigating a wide-range of options to deal with the high prices we experience in years like this have instead thrown a dart at the selection of options and come up "build new thermal":
https://www.thepress.co.nz/business/350375334/government-tipped-start-i…
Meanwhile, the grown-ups at Contact have acquired 3.5PJ of gas from Methanex to run their Taranaki plant for the rest of the year (an additional 350GWh of electricity)
Genesis have announced they have also acquired gas from Methanex - 3.2PJ. Enough to keep running 400MW through till October. Looks like Methanex will idle for a couple of months to help the rest of the country out (I expect they have been offered more for the gas supply than they would have made through operating).
A bunch more coal heading our way probably from Indonesia, too.
If I were the government I would look at implementing a minimum OCR mandate for the RBNZ while they can. I personally think monetary policy works well, but an OCR under ~3% is counter productive and should be prevented.
Maybe also a maximum amount of change in any 12 month period of 2%.
Good Lord, Jimbo! Comments like that will have the masses rioting in the streets!
Whatever we, The Government or the RBNZ does now is unlikely to change where we are. We had a shot at 'getting ready' as recently as 15 years ago. The GFC gave us all one last warning. But not now. It's all too late in the piece. From the above link:
"The era of low inflation has also ended. Exporting nations' wages have risen sharply, pushing their costs higher, and as noted, skilled labor in developed economies can demand higher wages as this labor cannot be automated or offshored. Offshoring is reversing to onshoring, raising production costs and diverting investment from asset bubbles to the real world...This is the problem with overproduction as a model of endless growth: it eventually overwhelms demand and the income needed to pay for it. Having reached the saturation-decline phase..., these policies have led to an extreme concentration of household wealth in real estate."
Some good points from David Cunningham about the make up of RB MPC and how it operates. Too much diplomacy and not enough of a definitive direction.
https://www.rnz.co.nz/news/business/524974/flip-flopping-reserve-bank-d…
Quote from press release from Methanex:
It said the company would get an earnings boost from shutting down production and selling the gas.
"These commercial arrangements are expected to positively impact Methanex's Q3 and Q4 2024 earnings with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production delivered to customers," it said in a statement to the Toronto stock exchange.
Quess who is going to pay for this!!!
This particular action is likely to reduce prices. Why bother obtaining the gas if it's more expensive to generate with it than current spot prices? A deal is made because it benefits both parties - a price higher than Methanex's margin and lower than alternatives to generate or forego electricity.
Customers are also heavily insulated by the gentailer's structure, and the dry year problem will resolve itself in time and prices will return to normal. Personally, my prices are locked in for 5 years.
I agree. It will reduce spotpricing in the short term due to the certainty of having the fuel available but it will push up future pricing, currently sitting at $109 MWh expiring in Dec 2027, but that $109 MWh is still economically not viable for the PanPacs, WPI's and others because of the relative weight of their energy inputcosts due to their 'Mickey Mouse' size of scale compared with the rest of the world.
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