Here's our summary of key economic events over the weekend that affect New Zealand with news it seems the global soft landing has been achieved.
But first, the week ahead will feature some chunky economic data from the world's largest economies but no first-tier data. This seems befitting of the final week of the summer break in the northern hemisphere which will end the week with long weekends in both the US and Canada (Labor Day). Then after a northern summer of fickle markets, it will be back to normal market trading. That often sets the tone for the rest of the year.
In the US it will be headlined with durable goods orders, another Q2 GDP estimate which is expected to show an improvement, and some sentiment indexes. In China, it is industrial profits data and August PMIs at the end of the week India chimes in with Q2 GDP. And Australia with its monthly inflation indicator.
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.
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.
In China, they have suddenly closed its process for approving new steel plants. That comes after widespread negative global reactions to dumped steel products after a deep slump in local demand. In the past required Beijing authorities required the elimination of existing capacity before approving new plants. Those rules no longer apply. No new steel capacity will be approved.
China's economic stumbles are having no global impact.
In the US 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 at 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 last 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.
This week's upcoming PCE inflation gauge (expect 2.6%, down from 3.4%) is widely expected to confirm the Fed's expectation that inflation is tracking as they need it.
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 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 in the US. 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.
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.
In Australia, their "right to disconnect" law comes into effect today. Employees can ignore contact from the boss outside business hours, except where that is unreasonable. The problem is, the law is silent on what is "unreasonable". So its going to be messy until that is clarified, and that will probably require expensive litigation.
The UST 10yr yield is still at just on 3.80% and unchanged from Saturday. The key 2-10 yield curve inversion is still at -11 bps and much flatter than last week's -17 bps. Their 1-5 curve inversion is unchanged however at -74 bps. And their 3 mth-10yr curve inversion is little-changed at -154 bps. The Australian 10 year bond yield starts today at 3.92% and down -3 bps. The China 10 year bond rate is unchanged at 2.16%. The NZ Government 10 year bond rate is now at 4.23% and also unchanged from Saturday.
The price of gold will start today up +US$2 from Saturday at US$2512/oz. That is below its August 23 record high of US$2514/oz.
Oil prices are holding just under US$75/bbl in the US while the international Brent price is now just under US$78.50/bbl.
The Kiwi dollar starts today still up after its Saturday jump at 62.3 USc. Against the Aussie we are still at 91.7 AUc. Against the euro we are still at 55.7 euro cents. That all means our TWI-5 starts today at 69.9.
The bitcoin price starts today at US$64,173 and up a sharpish +6.4% from this time Saturday. Volatility over the past 24 hours has been low however at just on +/- 0.7%.
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59 Comments
China's economic stumbles are having no global impact. And Yet:
How four U.S. presidents unleashed economic warfare across the globe And:
#WolffBites: The evidence of an economy that is definitely NOT "good" or "strong" is this: declining US factory activity. Don't let corporate, academic, and media hype fool you. https://bloomberg.com/news/videos/20 Link
China filled the gap:
China exports to US smash records, along with hopes for reshoring, nearshoring, and friendshoring
NZ ranked 14th in the world (out of 81) in latest PISA maths, science, and reading league tables
https://factsmaps.com/pisa-2022-worldwide-ranking-average-score-of-math…
And we're 4th in the creative thinking rankings, not sure what that will be like after we go back to basics
https://www.oecd.org/en/publications/pisa-results-2022-volume-iii-facts…
Creative thinking arguably the secret sauce, especially with Ai supporting numeracy and literacy.
Anecdotally, a friend of mine runs a fintech startup in Singapore and simply cannot hire locally-educated staff or the really challenging aspects as they can't grasp/address ambiguous elements
Back to basics is just a branding exercise to appease the grumpy old men who think everything was better back in the day and make them feel a little less inadequate about all the stuff they can't get their head around.
The skills kids need these days are interpersonal and creative thinking. A small minority will always be attracted to the learn by rote complicated subjects but solving complex problems rather than complicated ones is where a successful future lies.
Not accurate.
Kids these days aren't understanding (orr being taught) some very important mathematics concepts.
Being able to grasp for example positive and negative numbers is quite important for example for simple budgeting. A lot of kids struggle with that... now we need kids who can check AI output for accuracy... lol
I don't buy the EQ is more important than Iq arguement..it's based on wrong hypothesis.
The creatives are smashing it income wise. finance is almost purely creative, law, coding, marketing, data analysis, big4 consultancy. It involves creatively applying knowledge and skills to solve problems and normally working as part of a high-performing team.
I think you're assuming creative means painting or writing or pottery on your own in a studio or something.
To be successful in harder sciences (whatever that means) you need to be creative and work with others. Learning by rote will just mean you're good at remembering stuff, not solving problems.
Hard sciences generally involve natural sciences. Physics, botany, chemistry, that sort of thing - will include anything in the tech sphere. Vs soft science, usually a social science.
Edit: it sounds like you're more espousing the virtues of lateral thinking, regardless of the field. Which is definitely of benefit, but only on top of a foundational knowledge in whatever you're dealing with. You have to have a valid point of reference to bounce off.
The PISA creative thinking test that NZ is top 4:
PISA defines creative thinking as the ability to generate, evaluate and improve ideas to produce original and effective solutions, advance knowledge and create impactful expressions of imagination”.
The test explores how well students can generate diverse and creative ideas, and how well they can evaluate and improve others’ ideas to reach creative outcomes. Tasks in the test are situated in four domain contexts: written expression, visual expression, social problem solving and scientific problem solving
As I said above, it's to appease the oldies to make them think kids are getting dumber.
We have more broadly transitioned to a knowledge economy and the metrics used to determine educational success are not really fit for purpose. It like the pseudo-productivity measures useless managers impose on knowledge workers (hrs online, in the office, articles published, meetings held, etc...) knowledge outputs are really hard to measure, they aren't like factory outputs.
We have always had jobs with no definable output. It's only recently that we have tried to measure (unsuccessfully) everything.
An academic scientist used to just do science. Now they must publish papers and give talks and are measured on those outputs. Pretty sure those outputs do not in any way relate to how far you have advanced knowledge in science subject, science doesn't work that way. It progresses through trial and error and sometimes you may spend your whole life trialling a hypothesis and it turning out to be wrong. That doesn't mean your efforts have been in vain, you have progressed knowledge in the subject.
Fickle markets accept a global soft landing has been achieved
All calm on the Western front. As long as the money supply keeps increasing USD1 trillion every 100 days. no worries.
Noticed that Powell's grand pooh bah was at Jackson Hole. Amazing place. High salaries and USD100-300K pa entirely possible. Average house price of USD7 million.
Understanding the average American net worth
Edit: $192,000 is the median. The mean is much higher
So if that huge negative number is true, you would have to go pretty high up the percentages before you crossed the zero line. The link is broken by the way. Got to be careful on here anything anti American doesn't go down well, them being the world police and everything.
What is even considered a hard landing anyways? How bad does it have to get? Seems like economy spruik if you ask me. From what we're seeing here in NZ the economy is pretty f%8king cooked. Spark laying off hundreds more in the headlines this AM. I mean have we even landed yet? . I guess our rockstar economy can just fire up the money printing again to give the delusion of ease. Hey ho then, let's go.
What is even considered a hard landing anyways?
When asset prices fall to levels that bury people's expectations. Difficult to quantify without measuring the sentiment across society.
Most people suffer from Recency bias and urban myths like house prices double every 7-10 years. The myth makes sense really when looking at the correlations with money supply and credit growth. The Ponzi is starting to look epic.
If we debate the 'house prices double every 10 years' arguement. It's probably valid for say 100 years max (with a lot of ups and downs that broke some people).
And that period is a relatively short era where we had global peace, fairlyn slow developing tech and relative stability (to now and what's coming).
During this historically short period events that would potentially impact the doubling price hypotheses were called 'black swan events' .
Now we are entering a period where the black swan events are becoming normalized (war in europe/Asia, pandemics, gfc, climate change, huge debt defaults).
I would definitely take into account that those black swan events will affect both land and house prices negatively I the next few years through decades... far more than before... and investment decisions should account for that.
And that period is a relatively short era where we had global peace, fairlyn slow developing tech and relative stability (to now and what's coming).
The main characteristic of the era you talk about is abundant and cheap fossil energy. It's all based on energy, which going forward will no longer be cheap or abundant.
I don’t think we will get a soft landing in NZ, more of a medium landing. The floods didn’t help, they pushed up food and insurance prices at the worst possible time. Although unemployment is still very low in NZ, so it’s really not as bad as the commentators here keep implying (yet).
Many here said central banks never create a soft landing, yet the US have landed with barely a bump.
When you are on a plane and it lands and the person next to you says “that was a good landing”, do you say “I have no capability to answer that or agree with anything” or do you say “yeah considering the turbulence the pilot did bloody well”.
Look at US GDP and unemployment charts (the big two IMO) and see how bumpy it wasn’t.
While there are truisms there, they're only in aggregate.
The wider issue is that even though unemployment is low, many people are continually worse off.
As Audaxes average negative American net worth shows, despite there being a lot of really wealthy people in America, that only amplifies how many people are going to be worth bugger all.
Yes, the impact of higher rates was felt almost exclusively by real estate companies and a few other companies that didn't re-fix their debt low when they had the chance. When 99% of your mortgagors are (still) on 3% mortgage rates, Govt has been deficit spending at 7% of GDP, and the Fed is providing liquidity and loss-protection left, right and centre, what impact can interest rates have on the real economy? The US are playing monetary policy in cheat mode - the Fed can claim that they have 'tamed inflation', yet there is no channel by which they could have reasonably done so. What was it, voodoo?
Meanwhile in NZ, where demand and supply has far, far less impact on prices, we have gone full-on medieval monetary policy - with macho crashed rates, then hiked rates, with disastrous de-stabilising results. Our CPI might have been 40 or 50pts higher (or lower) if RBNZ had done nothing at all. Yet, here we are dropping into a deep recession, throwing tens of thousands of kiwis onto the dole, killing companies, and with a Govt that seems hell bent on speeding up our descent.
My view is that the US economy will slow down from here as Govt spending slows (a bit) and lower interest rates reduce the amount of Govt dollars going to the private sector. The trouble with the US economy (like ours) is that the fresh new money that banks / Govt print doesn't do much stimulatory work in the economy any more - it gets channeled with ruthless efficiency into rich peoples' savings.
You might find this interesting
https://ourfiniteworld.com/2024/08/21/todays-economy-is-like-that-of-th…
"The lower the interest rates, the more the concentration of wealth among a very small portion of the population. The higher the interest rates, the more evenly wage and wealth is divided."
"It takes much less energy to supply an economy of a few rich people and many poor people than it takes to support an economy with relatively equal incomes. The vast majority of the supposed wealth of the rich exists as promises that can only be fulfilled in the future if there is enough energy of the right kinds to fulfill these promises. Their promised future wealth does not affect today’s energy use. While the energy use of rich people is somewhat higher than that of poor people, much of the difference disappears when a person considers the fact that much of their wealth is essentially “paper wealth” that may or may not actually be present as the future actually unfolds."
Which bit do you not agree with, the lack of bumps or the fact they have landed?
USA is holding up on the back of a stock market which is well overpriced and has been steadily amassing most of it's value n 5 or so companies to keep it from being in the red. Considering the scope of how much the likes o Blackrock and Vanguard own on the S&P500 the question remains if they will actually allow any catastrophe, or simply exert their huge influence in every way possible to prevent it, and to favour their books. Watch and see.
EDIT: Or will they bet on the collapse and reap the profit from it after planning it all along?
Was the RBNZ aiming for some “least qualified attendee” participation award by sending Silk to Jackson Hole? It remains almost beyond belief that someone so unqualified is responsible for the key core functions of macro and mon pol. Only at the Orr/Quiglry RBNZ. Reddell
The right to disconnect starts today, giving Australians legal cover to stop responding to emails and calls after hours
https://www.abc.net.au/news/2024-08-26/what-right-to-disconnect-from-wo…
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