By Jason Wong*
US Treasury yields are slightly higher after an upward revision to US GDP, driven by consumer spending, and this has helped support the US dollar, with added support as the euro weakened following weaker German CPI inflation. Most US equities are higher, with a fall of 6% for Nvidia a drag on the S&P500. A stronger ANZ business outlook survey supported the NZ dollar on Thursday, although it has slipped modestly overnight to US62.60c.
After all the hype Nvidia’s earnings report, released after yesterday’s market close, beat analyst estimates across key metrics but didn’t meet the lofty expectations built into the share price and it is currently down about 6%. There has been no spillover into the wider market with the rest of the “magnificent seven” stocks all higher and the S&P500 is currently flat, weighed down by Nvidia.
While investors seem to be embracing the soft-landing economic narrative, discount store Dollar General sent a warning sign about the state of play for lower-income households, with management noting their deteriorating finances as a factor in its earnings results, which sent its share price down 30%. In Europe, the Euro Stoxx 600 index closed up 0.8%, to within a whisker of a record high.
Economic data releases have had some impact on bond and currency markets. German CPI inflation was two-tenths weaker than expected, falling from 2.6% year-on-year to 2.0% year-on-year in August, the weakest annual reading in over three years. Spain’s CPI fell from 2.9% to 2.4%, slightly weaker than expected at the headline level although the core CPI fell slightly less than expected to 2.7%. Slower inflation and recent data showing reduced wage inflation have paved the way for a second European Central Bank rate cut in September, which is fully priced. Euro area CPI data due tonight is expected to show a fall to 2.2%, with the core rate slipping to 2.8%.
Germany’s 10-year rate fell 6 basis points after the release before higher US rates dragged it higher and it closed up 1 basis point at 2.27%. The euro sustained a fall after the release and is down 0.4% on the day to 1.1080. There was some negative spillover effect on the British pound, which erased earlier gains to trade lower at 1.3170.
US Q2 (second quarter) GDP was revised up two-tenths to an annualised 3.0%, driven by an upward revision to consumer spending from 2.3% to 2.9% more than offsetting downward revisions to investment. The first release of the real GDI measure showed a 1.3% annualised gain, unchanged from Q1, highlighting that the income-based measure of GDP conveys a relatively softer economy. The core PCE (Personal consumption expenditures) deflator was revised down one-tenth, running at an annual pace of 2.8%. Timelier data for July are released tonight.
In other US economic releases, initial jobless claims were close to expectations slipping a touch to 231k and consistent with a flat trend recently; pending home sales plunged 5.5%; and the trade deficit widened to -$102.7b in July, driven by imports, supporting the case that net exports will make a negative contribution to Q3 GDP.
US Treasury yields jumped modestly higher after the GDP release and the move has been sustained, with 2 and 10 year rates up in the order of 3 basis points. Signs of solid consumer spending saw a slight paring of rate cut expectations but 100 basis points is still priced over the three meetings for the rest of the year.
While the US dollar is broadly stronger overnight, over a 24-hour period the NZ dollar and Australian dollar have outperformed. The stronger NZ dollar was supported by higher rates following the release of the ANZ business outlook survey, some rare positive news after the recent barrage of woeful data. The survey showed a further broadly based lift in confidence and activity indicators, supported by the Reserve Bank’s dovish pivot in July. Headline business confidence was the highest in a decade, with businesses likely embracing the direction of government policy in addition to the lower interest rate backdrop. “Reported” activity remained very weak, but the survey gave some hope that NZ will be out of recession later in the year.
The NZ dollar met some resistance just under US63c – a level not seen since the first trading day of the year – and has slipped overnight to US62.60c. NZD/AUD jumped to as high as AU92.60c but the gain has been fully eroded. The AUD also reached its highest level since the first trading day of the year, above US68c, and NZD/AUD has slipped back down to just over AU92c. Other NZD crosses are all higher.
Domestic rates were higher across the curve in the lead up to, and following, the ANZ survey. Although there was little paring of near-term rate cut expectations – the market still pricing in 75 basis points of cuts over the next two meetings – the 2-year swap rate rose 5 basis points to 3.93%, while the 10-year rate rose 4 basis points to 4.0%. NZ Government Bond yields were up 2-4 basis points across the curve. The bond tender showed only modest demand, particularly for the longer dated bonds.
The economic calendar is heavy as the week draws to a close. During local trading hours we’ll see NZ consumer confidence, building consents, Tokyo CPI and Australian retail sales. Tonight sees euro area CPI, Canadian GDP and the US PCE deflators for July. For the latter, the consensus is for a 0.2% rise in the core PCE deflator, with a clear risk of it being only 0.1%. China PMI data are released over the weekend.
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*Jason Wong is BNZ's Senior Markets Strategist. David Chaston will return on Monday.
123 Comments
The RBNZ have a well defined multipoint decision for intervention, the NZD must meet all criteria before they will even consider it. I will find a power point I have somewhere.
The NZD does not stand still in time, there was an expectation that we where going to cut , the market had placed bets, and sure enough Kiwi fell from 62 town to 59, then we cut, job done, now the market is focused on the US cutting and everyone is selling USD on that basis, as I said above the move will get overdone and the USD will rise a touch, with a long period of range trading quite likely as everyone cuts, BUT if things suddenly get worse we go risk off and USD strengthens on a flight to safety. RBNZ cut, seemingly knowing the FED was going to cut shortly afterwards, well played that man from an inflation perspective.
A currency trader that expects things to go one way (like housing) will soon be broke, its constantly moving, with different themes. You can buy some immunity to US positioning via crosses like NZDAUD, but they can be a tough nut to crack short term
And sometimes all the Central Bank has to do is make a call on the direct line to a dealing room, and before the phone has even been picked up, the dealers have reacted and are flat out buying/selling, because they know what sentiment is built into the Banks' policy settings. They don't wait for the words from them of "Spot Kiwi in 50 please"
They often transact for internal flows etc, but the way they ask for a kiwi price when intervening is different , and they do a trade and wait about 60 seconds for the room to clear their spec positions, will not comment if the spot boys then load up but word gets out by hoot lines and chat instantly across trading floors. They can get a lot of bang for their buck in the short term, but longer term probably depends on them timing the intervention. WGTN is a small place, most of the spot boys know each other quite well.
"Petrol cars could be hit with road user charges from 2027...
...Transport Minister Simeon Brown announced a roadmap for moving all light vehicles to the RUC system and away from fuel tax."
"Automobile Association policy director Martin Glynn told RNZ the existing petrol tax approach penalised people with less fuel-efficient vehicles, meaning the new system should be fairer."
"People from relatively underprivileged backgrounds, poorer backgrounds, they often drive cars that use a lot more fuel, because they are often driving older cars that are less fuel efficient. So in effect, you're asking them to pay more under the current system, whereas in the future, they might actually pay less."
Are there some unintended consequences with this cost levelling change?
Approx half the petrol pump price is tax, mostly for roads (some minor taxes such as ACC levy's will presumably remain unless incorporated in RUCs). However with a very significant amount of tax coming off the pump price the financial incentive for more fuel efficient vehicles would be lessened as the RUCs are a common kilometer charge independent of vehicles economy (eg. up to 3.5T GVM a V8 Landcruiser will pay the same RUC as a hybrid Aqua).
The obvious bright spot is that powerboat owners won't still be paying for the roads !
The other consequence given kiwis propensity for tax avoidance is that the odometers on many vehicles will be tampered with.I personally know of people now who tamper to avoid diesel RUCs,one by 100,000kms.Unfortunately,they only way to eliminate this is to adopt Singapore style transponders,the unintended consequence of that will be an increase in the divorce rate lol...
So the new rate of charging will be compensated by a reduction in the government tax on petrol paid at the pump. That sets off a bit of an alarm bell in so much that historically such compensations are not sustained. For instance the compensation for income tax at the time of the introduction and increases in GST were subsequently reinstated by successive governments. As a temptation, PAYE offers just too much of an accessible, easy target and so too likely will be petrol bowser.
Actually maintenance makes up 42% roading expenditure in the GPS, and given fuel taxes only cover half of GPS expenditure, i think you could say close to 100% of fuel tax is needed just to maintain existing roads
https://www.transport.govt.nz/assets/Uploads/Government-Policy-Statemen…
If people can't get to where they must work - because their transport has been 'confiscated' - are you ready to pay higher taxes to support them and their families while they sit on the dole or must take lower paying jobs because they can't get to higher paying ones? (I really wish people would think through their 'solutions' before claiming to have the answers.)
" (I really wish people would think through their 'solutions' before claiming to have the answers.)" #Metoo.
If they can't afford the RUCs they certainly can't afford the petrol let alone a car. So, they can cycle, motorcycle &/or use public transport - as we used to.
I recall a couple of friends back in the high school/uni days with odo 'kill switches' on their diesel 4x4s. Hidden away under the dashboard or something. One of them would do about 30,000km a year but only clock up 5000km in mileage.
I wonder if modern cars are harder to do this though as probably have some electronic log of mileage that can be read through the data scanning port.
If you want to help the working poor, the very easy way to do it is to tax income less - especially below 50k - and tax assets more. Cutting fuel tax is a terrible idea. What about those who can't even afford a car, how do they benefit from that? Why do wealthy SUV drivers need a tax cut?
More to the point, why do we want to incentivise choices that worsen our trade balance so much?
whether the full switch to RUC happens before or after the 12/litre rise is neither here nor there. The point is road taxes are not getting cut, they are going up by 12c/litre or equivalent.
The equivalent RUC increase is not a probability, it's already announced. They always increase RUC at the same time as petrol tax, otherwise everyone would switch to diesel vehicles.
If they don't use a car do they use the bus or footpaths because road charges pay for infrastructure for those too. In fact those people who don't use private transport are getting a free ride paying significantly proportionally less even though they use the same network & rely on it to deliver living needs. The only way they would not rely on the transport network is if they lived on one of the much more remote islands, never brought in supplies and never left home. The reason why most people cannot avoid road taxes as well is they often are forced to use private transport with no choices in their transport journeys or abilities. You cannot magically have everyone WFH and be fully able bodied. Even with lockdown we still needed road access for medical, trade & food needs, and essential roles.
Use a map, many cities in NZ have footpaths and footbridges on state highways, in fact most of them do. Protip look outside sometime. Even the motorways have walking facilities in the same space paid for. But I get it, you don't walk or live around main population centers either.
Except parking is over paid by those using it, most of it is directly for accessibility needs for basic equity with others, and PT is extremely over subsidized to the point most of it is not user paid but paid by those not using or even able to access PT for their journeys. But sure. No homes, medical center or business should allow access to the elderly, families or those with different abilities. Lets just ban those people from living and accessing communities eh.
I agree, to frame it as a tax break for the working poor is disingenuous. Sure, those with less money can't afford the latest tech, but they sure as hell have an incentive to buy more efficient, smaller, vehicles. I see a lot of the wealthy driving Range Rovers, BMW, Audi etc; I'd hate to know how much those consume relative to a small, cheap Toyota.
More short-sighted Fuckery. At a certain point it is going to seriously impact our ability to function as a sovereign nation. We are so reliant on a relatively fragile global trade network, the geopolitically strategic thing to do would be to minimise our fuel requirements in order to be more resilient to external shocks. But, once again, our moment of collective wealth is being squandered...
"People from relatively underprivileged backgrounds, poorer backgrounds, they often drive cars that use a lot more fuel, because they are often driving older cars that are less fuel efficient. So in effect, you're asking them to pay more under the current system, whereas in the future, they might actually pay less."
In other words "Lets incentivise polluting old gas guzzlers and pretend we are doing it for the poor". You can use this kind of argument for almost anything, for example the poor have much worse diets than the rich, so lets take GST off Coke, KFC, etc, and somehow society will be better off.
Or it's actual, genuine concern for people who are most impacted by these changes and who aren't prepared to act like there's some higher or noble justification for putting the knackers on people who are already on the bones of their arse:
https://www.nzherald.co.nz/nz/climate-change-elitism-equity-and-why-cam…
But if you want to tell me Efeso Collins was doing this because he really just wanted to incentivise SUV usage and uptake, then fill your boots.
the thing that sticks out for me here is that for years it has been known that in excess of 90% of the damage to roads is done by heavy trucks. and this was before John Key's National Government increased the tare weight allowance, which led to most bridges having to be reinforced. Will Minister Brown be seeking to allocate costs to those who cause them? As it is now every other road user subsidises the heavy trucking industry to a considerable amount. that needs to change!
The trucking debate is a difficult one murray. The problem being if more charges are put on trucks the cost is only passed on to consumers , construction, primary producers etc.
How does produce get to ports and processing plants at a reasonable cost. Exporting is our core business.
Except the main customers of logging trucks per say (above a certain weight) are overseas and the NZ consumer would not see cost increases as they don't factor in the export market and the imports are through different industries that would still have the same prices. It would mean though that NZ bargain basement selling off of goods is slightly more expensive to their overseas customers & manufacturers... perhaps that would mean that they might need to look for more local customers as well or diversify their customer base.
Costs are allocated to those that cause them.
For 2020/21 about $512 million of pavement wear costs were allocated to heavy RUC vehicles, 93 percent of total pavement wear costs ($552 million). The category of pavement
wear costs includes pavement maintenance, resurfacing and rehabilitation. It also includes
the estimated costs of adding wear resistance to pavements intended to carry heavy traffic."
Most of the cost of roading is not damage caused by heavy vehicles, that's less than half the costs of providing roads.
Common costs (referred to in the model
as “Powered Vehicle” (PV) costs) are shared
equally between all on-road powered vehicles.
Powered vehicles include both petrol and non-
petrol vehicles, but not pedal cycles, for example.
Costs are allocated to all RUC vehicle types at the same rate per kilometre travelled. Common costs are costs that are not related to road wear, vehicle weight, or vehicle size. They include public
transport subsidies, general road policing (not the specific heavy vehicle enforcement (HV costs) noted above), road signs and marking,
emergency works, and most routine road maintenance. They also include 45 percent of the Costs of building new State highways and 68 percent of the costs of new local roads.
For 2021 they were $4.49billion., which dwarfs the $552m of pavement wear costs and an even smaller structural strengthening costs for bridges.
So can we now please stop it with the "but the trucks" BS.
I don't have the latest figures, but it'll be similar since the RUC rates are still the same.
Google ruc-cam.pdf, it explains the RUC Cost allocation model which is what (in theory) is used to calculate ruc rates. This will piss you off, if they actually adjusted RUC according to the CAM heavy vehicle RUCs would drop, and light vehicles RUCs would go up to about $85/1000kms, and petrol excise should rise to match. And that's still with new road construction heavily subsidized by general tax funds.
thanks for that. I'll look it up when I get a chance.
May piss me off, but what is worse is that the pollies don't understand that due to the economic significance of roading infrastructure, they could fully deficit fund all roading (within reason) without having to charge most users.
They already to that to some degree,
Check out table 1 in the GPS, funding sources:
- 62% from FED, RUC and motor vehicle registration and licensing fees
- 38% from direct Crown funding in the form of grants and loans.
https://www.transport.govt.nz/assets/Uploads/Government-Policy-Statemen…
So the ones that don’t bother to warrant their car will skip paying fuel tax altogether unless they happen to get caught by the police which is pretty rare in rural areas. I’m not punching down on the poor, and see it’s merits with petrol users who aren’t on the road (boats/lawnmowers etc) however there will definitely be less of a tax take with this format.
There will be no avoiders with a GPS tracker....and any vehicle found without a tracker will be severely dealt with. The current penalties for unpaid RUC are 3 x tax plus the original tax and costs. What we are likely to discover is the revenue gathered will exceed that collected by excise as the opportunity to increase revenue will not be foregone....and its worth noting that this was always likely to happen regardless of which party was implementing it.
any vehicle found without a tracker will be severely dealt with ... Remember we might have another Labour government one day...
Do our government departments even have the resources to "severely deal with" offenders? It takes a fair bit of bureaucratic power to actually carry things like this (courts, enforcement teams, etc). We also have the highest rate of car ownership in the developed world.
"There will be no avoiders with a GPS tracker....and any vehicle found without a tracker will be severely dealt with."
Your naivete is quite endearing.
GPS trackers - like any digital tech - can be hacked. And without special equipment to verify the software on the device, extremely hard to know its been done. Which leads me neatly to my next point, to severely deal with cheats, first you must catch them. And given the financial inducements for cheating, there will be lots. The costs of policing will be significant and will simply drive up the cost.
First rule of tax design? Keep It Simple.
Fuel taxes are extremely simple. RUCs are NOT!
Naive?...perhaps but you do realise that that RUCs have applied to diesel vehicles for decades and while there have been plenty of incidences of avoidance in the past it is increasingly difficult (though not impossible) for that to continue with the tech available to enforcement today....as many are finding out.
The fact is tech is making it possible for Governments to interfere/ monitor everyones behaviour whether we like it or not, and short of a collapse of tech or widespread anarchy I doubt there is much you can do to stop that....but perhaps thats a naive view as well.
Perhaps you can back up those assertions, because I don't believe you for a second. The NZ police have no way to detect wind backs of modern cars in service in NZ. Plug in the box, reset the odo, and how would the police detect it? not like there is a switch wired into the speedo circuit to be found like the older cars had.
There are cases of importers winding back cars at importation, but that relies on records from overseas, or exceedingly stupid levels of windback, like a 30,000km car with 160,000km floor mats and driver's seat.
If you are so confident it is so easy to wind back the odo undetected then go for it....remembering that the number of cameras etc on our roads grows by the day..... and when the time comes that in vehicle GPS tracking is required Im sure that you will seek a way to by pass that too....good luck.
The cost of building and maintaining the roads will be funded by revenue from (largely) the users....that is as it has been and how it will be.
Rage all you like.....the fact that we cannot afford the cost of that construction/maintenance wont stop the attempt by any means, and likely the method that facilitates the least avoidance.
It's going to be really interesting how this is policed (or not). It's not like wof and rego checks where police can just run the number plate. I can imagine people employing devices to tamper with odometer sensors, either pausing them intermittently or having them read at half speed. I wonder if this will also lead to some cars accruing huge overdue RUCs and then being dumped. The use of vehicle weight is misleading too - example a ute or van can be quite light unladen, but in terms of damage to roads does a lot more when it is driven around with a trailer and few hundred kg of gear.
I think the first question to ask is how to do you get the population to agree to installing GPS trackers on their cars? Putting them on for toll road use in one thing, it is another to have people adopt it en masse. How do you detect people who aren't using them at all? If they are to be retrofitted to all cars, including older ones, it should be easy to remove them too.
The law on WOF, Registration and RUCs already is passed and some choose not to obey it. What makes a new law any different if the majority don't want their every move tracked by a government agency? In a world where information is gold, and new ways are being discovered to gather more of it from each and every person, why would we want the government tracking us. I feel for the kids, they will grow up in even a more predatory world than their parents did, as everything around them wants to milk their attention, wallets, and information however possible.
Do you drive a diesel or electric vehicle that require RUCs?
Do you send profane letters to your MP everytime you put petrol in your car/boat/lawnmower?
Do you raise your middle finger everytime you drive on a public road in NZ (or many other countries)?
Whether you like it or not you are paying a tax when you drive anything anywhere and in many instances your whereabouts is able to be detected.
Does installing a GPS tracker for RUC (or tolls or congestion charges) change anything?
https://www.linktgo.com.au/how-it-works
And what idiot?....any idiot who carries a cell phone around.
Cars are not government mandated either....you can leave them at home too. The link TGO is optional (currently)....but all vehicles are detected by camera linked to numberplate readers in any case and one way or another your road use is recorded.
As said above, if you think your view is in the majority then vote for a party that dosnt want digital monitoring of road use....I suspect you will struggle to find one....especially that also dosnt want the revenue not to mention the ability to monitor and record.
Most of those who would go to the effort of avoiding the RUCs, WOFs and swap out identifying and recording details normally find stealing a car or number plates is easier. Sure the vehicle might be short term use but in general actual penalties for doing this really only count if they are caught. Even then there really is no real penalties save for some advice to stay home a little more that can be broadly ignored and foiled.
IIRC a few years ago the ANZ business confidence poll used to be a self selected survey amongst only their own customers with around 300 respondents.
Not sure if that's still the case however there's approx 600000 registered businesses in NZ so ANZ are not a very useful result.
A reminder that we are currently in the longest yield curve inversion since 1929 - anything could happen in the next 24 months when the curve normalises.
https://x.com/gameoftrades_/status/1829167142706762094?s=46&t=MUwQeKa7M…
Interesting to see the "solutions" proposed here
They dont understand the predicament - there is simply less to go around now and discretionary spend isnt coming back (for long ... if ever). All these solutions require a lower cost base which is gone
"A campaign to lower sky-high rents, reducing public transport costs, investing in arts and events, temporary tax breaks and, even, embracing a tipping culture.
These are just a few of the ideas from industry behemoths to save our hospitality and retail sectors from crisis."
https://www.stuff.co.nz/politics/350396810/fashion-icon-kate-sylvester-…
Seems a number of big NZ businesses are facing big headwinds:
https://www.nzherald.co.nz/business/media-insider-tvnz-posts-85-million…
Cheaper to just raise the fuel tax .... trying to pretend ruc charges will save those on lower incomes is a bad joke... enforcement will be problematic... Good Luck with dumb ideas...toll charges all of it... nobody will be saving zippity... Whack the price for all of it on fuel and call it done and dusted...cant afford the fuel , vehicle sits in the drive no enforcement required... Keep it simple . I am astonished business confidence is so high ,good luck with that proposition.
Trouble in the UK...
https://alexkrainer.substack.com/p/the-coming-collapse-of-britain
Just one opinion, of course.
"What is clear from this and from the BOE’s language is that the bank is now anxious about Britain’s financial system collapsing, and it has resolved to avert the collapse in the worst possible way: by loosening its credit standards and accepting junk quality collateral in exchange for cash. This is the clearest possible sign that the system came to the verge of collapsing....the BOE has estimated it will require the Treasury to transfer a total of £150 billion by 2033 to cover expected losses on the central bank’s quantitative easing program. So how much is £150 billion?....this sum represents nearly £10,000 per employee working in the private sector.... When businesses are losing sales to poverty, rather than competition, we know that the parasite is killing the host. The parasite, of course, is the banking cartel, and it doesn’t care about the plight of the ordinary British people.
It remains to be seen whether the British people will find the strength and determination to fight back and win a better future for the coming generations. I sincerely hope that they will fight back. The same fight is gathering for all of us in the Western world."
$1000.00/MWh to $0.01/MWh in three weeks.
That's some volatile electricity prices!
https://www.emi.ea.govt.nz/Wholesale/Reports/W_P_C?_rsdr=L4W&DateFrom=2…
I fear this is these wild price fluctuations are the future without enough energy storage. Right now the wind is blowing, the sun is shining, $0.07 /MWh. Tomorrow, cloudy, no wind $700/MWh
Coal is shutdown but gas still running at 1/4 capacity. If this keeps up contact and genesis are going to rue that gas purchase from methanex
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