Here's our summary of key economic events overnight that affect New Zealand with news Fed boss Powell said the time has come for US rate cuts.
In his widely anticipated Jackson Hole speech, Powell gave the financial markets clear signals, and they reacted accordingly. He indicated the central bank will cut its interest rate in the September 19 meeting (NZT) noting that the US labour market is cooling quickly following the softer jobs report in July and the downward revision to payrolls this week. He also said the FOMC has gained further confidence that inflation is slowing to their 2% target, warranting a clear view that it is time to adjust monetary policy to less restrictive conditions.
The USD sank, equities rose, and bond yields eased a bit more than was already priced in.
Part of that normalisation will be the shrinking of the Fed's balance sheet, and in fact they did that a bit more aggressively last week, shedding -US$38 bln last week alone, taking the monthly reduction of -US$68 bln to a balance sheet level of US$7.14 tln. They may need to pick up the pace however because at this rate it would take almost four years to return to pre-pandemic levels. Maybe that is their plan, but clearly they could do it faster, building back more capacity in case another shock hits.
Meanwhile American new home sales surged +10.6% in July from the previous month to an annualised rate of 739,000, well above market expectations of a +1% increase. It was the sharpest increase in sales since August of 2022 and the highest number of homes since May 2023 and the July level is +5.6% higher than the same month in 2023.
In commercial property markets things are getting decidedly tough. A big-money-backed commercial property fund has suffered another fierce ratings downgrade, by Moody's, in fact to the lowest junk rating possible, 'C', a fast downgrade from an earlier August re-rating.
And staying with American property investors, the Department of Justice has claimed RealPage's software algorithm meant rival landlords were sharing what would otherwise be private information, allegedly allowing them to illegally co-ordinate and raise rents.
Canada's rail lockout has ended quickly with an Ottawa central government intervention to block the employer action. But just as they did the union filed notices of strike action on their part, to start Monday (Canadian time).
Meanwhile after two months of dips in May and June, Canadian retail sales rose in July in a +0.6% month-on-month jump, but to be only +0.2% higher than a year ago.
Canadian manufacturing sales also rose in June, better than expected.
Taiwanese retail sales rose +3.4% in July from a year ago, a slight slowing of the pace of increase from June. Meanwhile their industrial production rose a very strong +12.3% in July on the sale basis, much of it due to strong international demand. This is a big turnaround because you might recall that a year ago it was contracting under election uncertainty and PRC pressure.
Globally, China's BYD overtook both Honda and Nissan in Q2-2024 to become the world's seventh-largest carmaker by number of cars sold, boosted by demand for its affordable range of EVs.
Japanese CPI inflation was at 2.8% in July from a year ago, holding steady for the third straight month while remaining at its highest level since February. Electricity prices jumped, and other fuel costs rose too after the full end of energy subsidies in May. However costs fell for education and communication. Meanwhile, their core inflation rate hit a five-month high of 2.7% in July. Monthly, the CPI rose by +0.2% in July, the least in three months, after a +0.3% gain in June.
In his testimony to the Japanese Parliament, the central bank boss kept future rate hikes in play this year by turning a potentially messy parliamentary hearing into a relatively straightforward reiteration of policy. These were his first public remarks following recent high volatility on equity markets. Since, things have settled nicely in his favour.
In Australia, their prudential regulator APRA has added another AU$250 mln to its existing AU$500 mln operational risk add-on to ANZ's capital requirements as a penalty for deficiencies in its culture and risk governance at the bank.
The UST 10yr yield is now at just on 3.80% and down -6 bps from this time yesterday, down -9 bps for the week The key 2-10 yield curve inversion is less at -10 bps and much flatter than last week's -17 bps. Their 1-5 curve inversion is little-changed however at -74 bps. And their 3 mth-10yr curve inversion is now deeper at -153 bps. The Australian 10 year bond yield starts today at 3.95% and up +1 bp. The China 10 year bond rate is unchanged at 2.16%. The NZ Government 10 year bond rate is now just on 4.23% and up +2 bps from yesterday and up +7 bps from this time a week ago.
Wall Street is ending the week firmer with the S&P500 up +1.2% in its Friday trade. That gives it a +1.4% weekly gain. Overnight European markets were all up about +0.7%. Yesterday Tokyo closed its Friday session up +0.4% capping a +1.3% weekly gain. But Hong Kong was down -0.2% for a modest +0.2% weekly rise, with Shanghai up +0.2% on Friday for a -0.8% weekly retreat. Singapore rose +0.4%. The ASX ended its Friday session little-changed and was up +0.7% for the week. But the NZX50 was up +0.5% on Friday to end down -1.6% for the week.
The Fear & Greed Index ends the week in the 'neutral' range, easing back from last week's 'fear' range.
The price of gold will start today back up +US$28 from yesterday at US$2510/oz. A week ago it was US$2507, so little net change.
Oil prices are up + US$2 from yesterday, now just under US$75/bbl in the US while the international Brent price is now just under US$78.50/bbl. A week ago these prices were US$75.50 and US$79 respectively, so little change over the past seven days.
The Kiwi dollar starts today up a full +1c from yesterday at 62.3 USc. Against the Aussie we are up +20 bps at 91.7 AUc. Against the euro we are up +40 bps at 55.7 euro cents. That all means our TWI-5 starts today at 69.9 and up +50 bps from yesterday, up +100 bps in a week and up a full +2% from the start of the month.
The bitcoin price starts today at US$60,305 and up +0.7% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.6%.
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35 Comments
At best, it might stay steady. If the US$ falls, the price of any counter currency or commodity rises. Oil up 2.64% at the moment, for instance. But US$/NZ$ up only 1.55%.
If the US$ falls, doesn't the price of oil rise?
Pretty safe to say by now that the relational values of anything is influenced by a great deal more than just these sorts of equations.
We are now at the point where expectation of price movements is probably having more impact on values in markets than the actual supply and demand dynamic.
You could be right. I suffer for the past practical knowledge of how Oil is manipulated.
How on a Friday night, a customer from the Zurich office called up, just before market close, and asked us to "Sell some cable (sterling) for me please" How much? Hit any bid you get. So we sold 100 million pounds at way out of market prices for accounts associated with the royal family. That same Sunday night, OPEC ramped up production (what a surprise!) and the price of oil and the pound, reliant on North Sea oils, dropped like a stone.
You could be right
The value of most things doesn't seem to correlate to these sorts of fairly basic principles.
War in Ukraine = supply disruption, higher oil prices (it's doing the opposite)
Lower OCR = lower dollar (also doing the opposite)
So things are now too complex for this line of thinking, or values are now hugely influenced by what people hope will happen. Maybe a bit of both.
Generally if the US is cutting rates it’s because the USeconomy is tanking (and the rest of world goes with it).
Investors then go risk off and move money away from the likes of NZD and into USD.
So it’s quite possible we see the NZD fall as the US start cutting rates (have a look at what happened during GFC and initial stages of 2020).
Not a certainty of course!
"APRA has added another AU$250 mln to its existing AU$500 mln operational risk add-on to ANZ's capital requirements'
So why aren't we doing that here - to all The Big 4? Not as a punitive measure, but one to restrict the amount of new Debt that goes into the wrong areas. Besides. How do we make Kiwibank stronger? Make the competition weaker.
"That will drive the Aussie banks out of the country!" is what they have so repeatedly threatened at any suggestion like that. And just like Rio Tinto at Tiwai point - who have threatened the same - they aint goin' nowhere.
Westpac New Zealand Limited (Westpac) has had its minimum regulatory capital requirements increased after it failed to comply with regulatory obligations relating to its status as an internal models bank.
Internal models banks are accredited by the Reserve Bank to use approved risk models to calculate how much regulatory capital they need to hold. Westpac used a number of models that had not been approved by the Reserve Bank, and materially failed to meet requirements around model governance, processes, and documentation.
“This is very disappointing. Operating as an internal models bank is a privilege that requires high standards and comes with considerable responsibilities. Westpac has not met our expectations in this regard,” Reserve Bank Deputy Governor and Head of Financial Stability Geoff Bascand said.
The Reserve Bank required Westpac to commission an independent report into its compliance with internal models regulatory requirements. The report found that Westpac:
- currently operates 17 (out of 35) unapproved capital models;
- has used 21 (out of 32) additional unapproved capital models since it was accredited as an internal models bank in 2008; and
- failed to put in place the systems and controls an internal models bank is required to have under its conditions of registration.
hearing gossip that there is more of this stuff to come across the banking landscape, its way easier for this to happen then prove a criminal case in courts
Check you laundry powder before slagging off a farmer.
"Our meta-analysis on U.S. and European river water concentrations and additional information presented show that the dominant source for glyphosate in Europe cannot be herbicide application but is wastewater"
Glyphosate contamination in European rivers not from herbicide application?
https://www.sciencedirect.com/science/article/pii/S004313542401039X
Part of that normalisation will be the shrinking of the Fed's balance sheet, and in fact they did that a bit more aggressively last week, shedding -US$38 bln last week alone, taking the monthly reduction of -US$68 bln to a balance sheet level of US$7.14 tln.
Hmmm... the part that is in receipt of ongoing interest payments to banks - reserve balances - has risen since Feb 23.
I'm hardly a screaming lefty but NAct screwed the pooch on that one, cancelling the boats before they had a viable alternative sorted was A grade stupidity. Ditto with Auckland light rail, killing the stupidly priced underground plan was the right thing to do, but killing the entire project was again stupid as shit.
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