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OPEC sees sharply lower demand; US retail demand strong; China exports growth surprises; Aussie sentiment falls; UST 10yr 3.64%; gold up and oil down sharply; NZ$1 = 61.5; TWI = 69.6

Economy / news
OPEC sees sharply lower demand; US retail demand strong; China exports growth surprises; Aussie sentiment falls; UST 10yr 3.64%; gold up and oil down sharply; NZ$1 = 61.5; TWI = 69.6

Here's our summary of key economic events overnight that affect New Zealand with news that while oil producers see sharply lower demand, the world's largest economy shows rising retail demand.

But first, the overnight dairy Pulse auction saw SMP dart higher than expected to US$2800/tonne, its highest level since February 2023. The WMP component however slightly undershot expectations at US$3438/tonne, but holding its level of four weeks ago. It is not a serious weakness in a series of auction events where the WMP price has been a little volatile.

And staying with commodities, OPEC cut its demand forecast - for the second time in two months. That suddenly dropped the price of crude in all markets by almost -5%.

So it might be a surprise to know that US retail demand at physical stores rose last week by +6.5% than in the same week a year ago, far outpacing inflation, and to it's fastest growth since the end of 2022 when it was recovering from the weak pandemic base. Prior to that anomaly, it is its highest growth rate since 2006 !

Away from the business community and the Masters of the Universe crowd, a comprehensive review of US incomes for 2023 revealed a +4.0% rise in the year, and no-change in their poverty rates, which stand at income levels below US$30,900 (NZ$50,000). Their poverty rate was marginally lower at 11.1%.

The NFIB Business optimism index slipped in August, but only off a very high level in the prior month. Even after this slip it is still near its highest since the end of 2022.

There was another very well supported US Treasury bond tender today, this one for their 3 year Note. It brought a 3.40% yield. That is much lower than the 3.75% yield at the prior equivalent event a month ago.

In China, foreign demand for their exports was strong in August. They increased by +8.7% in August from the same month a year ago, the most since March 2023, and to a 23-month high of US$309 bln. That was more than the expected rise of +6.5% and more than July's growth of +7.0%. It was the fifth straight month of expansion. The Chinese factory sector is being held up by international demand, not domestic demand.

New Zealand and Australian demand for Chinese exports is falling however Ditto the EU, Japan and South Korea. Demand from the US is up but only by +2.8%. The countries with the largest demand increases are Brazil, South East Asia, and interestingly, Taiwan.

In China, they are about to require basic military training for high school and university students, part of a broader push by Beijing to place a greater emphasis on national security in education.

Outside their borders, China will help to train 3,000 foreign law enforcement officials over the next year to tackle global security issues and better protect Chinese interests beyond its borders, the country’s public security minister said.

Australia's Westpac-Melbourne Institute Consumer Sentiment index dipped by +0.5% in September from August, the sixth time of decline in 2024. Consumers are still concerned their economy is heading for a harder landing. They are less fearful of interest rate rises, but more fearful of losing their jobs.

The drop in business sentiment in Australia was a surprise, an outsized slump to a nine-month low and the weakest August since 2021.

Aussie prudential regulator APRA has started the process to have banks cull their hybrid capital issues. They say these won't work as intended in a crisis. They are learning the lessons from the 2023 US and EU bank fizzes. Banks who need more capital will have to raise it directly, as full loss-absorbing shareholder support.

The UST 10yr yield is now at just on 3.64% and down -6 bps from yesterday. The key 2-10 yield curve is now a positive +5 bps. Their 1-5 curve inversion is little-changed at -64 bps. And their 3 mth-10yr curve inversion is also little-changed at -142 bps. The Australian 10 year bond yield starts today at 3.95% and down -2 bps. The China 10 year bond rate is at 2.13%, inching -1 bps lower. The NZ Government 10 year bond rate is now just on 4.24% and down -2 bps.

Wall Street is up a mere +0.4% on the S&P500, adding to yesterday's big rise. Overnight, European markets mostly fell about -1.0% except Paris which was only down -0.2%. Tokyo ended yesterday also down -0.2%. Hong Kong was up +0.2% and Shanghai was up +0.3%. Singapore rose +0.5%. The ASX200 ended its Tuesday session up +0.3%. The NZX50 ended virtually unchanged again (+0.1%).

The price of gold will start today up +US$11 from yesterday at US$2513/oz.

Oil prices are down -US$2.50 at just under US$66/bbl in the US while the international Brent price is now just over US$69/bbl and these levels are a three year low.

The Kiwi dollar starts today at 61.5 USc and marginally softer from this time yesterday. Against the Aussie we are +10 bps firmer at 92.4 AUc. Against the euro we are also +10 bps firmer at 55.8 euro cents. That all means our TWI-5 starts today at 69.6, and little-changed from yesterday.

The bitcoin price starts today at US$57,169 and up +1.3% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.5%.

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72 Comments

We have passed peak oil. IE, demand has peaked and supply remains plentiful. 

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That was always my prediction. Electrification will only increase from here, and even if it doesn’t ICE engines are becoming so much more efficient, and hybrids are now almost the default for new cars. 
OPEC were pretty stupid to limit supply the last few years, it will only make the glut worse. 

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EV manufacturers seem to be having a difficult time at the moment actually moving cars.

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Even so, its almost a certainty that there will be more EVs on the roads each year from now. Especially once EV prices are competitive with ICE prices. 

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There may be an increase of electric vehicles, but the government seem hell bent on reducing demand for them. I get the fact that RUCs had to be introduced, but they are set at a level that is far too high currently to support demand. By way of example, a recent comparison of running costs of a Hyundai Kona BEV, charging at 17c per kwh and including RUC makes it the equivalent of paying 4.08 ltrs/ 100km, assuming fuel cost at $2.50 per litre. You can get an equivalent vehicle type in a toyota yaris cross SUV for a fraction of the cost and use a claimed 3.6ltrs/100km.

The uptake of electric vehicles will be severely stunted until fuel cost goes up, or RUC comes down.

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They're just being treated like every other vehicle.

If it stacks up for consumers, they'll buy them, if it doesn't, they won't.

Most car manufacturers that aren't Chinese or Tesla have seriously rolled back their EV targets in favour of ICE/Hybrids, because after the initial wave of uptake, demand has significantly dropped off, even in the face of heavy price reductions.

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resale is sh.te

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In its current iteration its more like joining a church than a financial position.

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I think EVs may have peaked.

 

Dual fuel will grow. Until the new battery technology goes to this .

https://m.economictimes.com/news/international/business/china-introduce…

One charge lasts 50 years.

 

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"I think EVs may have peaked"

Ha I would bet against that every day of the week

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More than half of new passenger cars sales in China are electric, and their truck fleet is shifting from diesel to LNG.

You may be right.

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And their economy/ population are going backwards 

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Sales of cars with internal combustion engines peaked in 2017. That's highlighted by Bloomberg New Energy Finance, who track such things in ...

Simeon Brown must me gutted...

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On what measure?

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Donations from his oil overload's

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I thought the Green Party line from 10 years ago was that peak oil was a peak in supply and we needed green tech because oil would be impossible to afford

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I'd have thought more likely price will become increasingly erratic as demand drops and supply naturally dwindles, with less and less incentive to invest in new production. I'm picturing someone at a fairground trying to pass the electrified hoop along the twisted wire without touching the sides - tricky to match a decline in production precisely to a decline in demand. 

At the moment we are heavily reliant on OPEC to stabilise prices (for better or worse). 

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exactly right.

Opec are trying to hold the price up in a weak world economy

The Price can never spike too high because of the ever increasing debt load/burden in the Ponzi .... it then saw tooths to a new low

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You dont run out of Oil. You run out of viable customers

If demand has peaked that says something about economic growth from here....

Eventually weak demand/affordability will push the price to the point where it becomes uneconomic to continue production.

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That rapidly falling oil price is going to have significant disinflationary effects. We might see inflation heading back under 2 very quickly. 

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We could be there already. If the September quarter CPI comes out at a similar rate as the last 3 quarters, the annual will be around 2%. The RBNZ will still have their foot rammed down on the brake, with the OCR embarrassingly more than 2% above neutral. 
All will be revealed on the 16th October. 

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Sep quarter is often higher than the other quarters because it has price increases that take affect 1 Jul, like rates. In a 'normal' year it is often around 0.8%. Will be very interesting to see the result.

 

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Agree, but fuel has decreased dramatically, particularly in Auckland with the fuel surcharge gone. The last tank I bought was around $2.30, probably about 50c less than last quarters price. If the average household gets 50l a week, that’s a saving of $1300 a year, more than offsetting the rates increases. 

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I thought you have an EV and take public transport and cycle

Or do you not walk the talk?

 

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I don't have an EV, I don't use the car enough to justify the cost. 

I'll probably pick up a second hand Leaf next time I need a car, but that hopefully won't be necessary for a few years. 

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Yes, however fuel could easily go back up in the next month. Rates do not go back down. Anyway, Sep inflation will be very interesting.

I think it is bizarre how poorly aligned the CPI releases and OCR reviews are. OCR on 9 Oct then CPI on 16 Oct - its just asking to be embarrassed as some point. Surely you would want the CPI figure then closely follow with the OCR review.

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Yes it is very bizarre. Maybe they don't want to be seen as reactive. 

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If rates are the main driver for a higher cpi o. The set quarter then they can do some calculations based on the council data. It isn’t that difficult. I’m thinking it is going to get to about 2% and stay for a while. Companies will be restoring margin rather than passing it on in many cases. I don’t see it going much below 2% any time soon. The next 2 qtrs to drop out are 0.5 and 0.6.

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If it comes out as 0.8 then the cpi will be 2.3 for the last 4 qtrs.  Anything less than 1.5 will have it back in the band. 

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The RBNZ are predicting 2.3% annual, and I believe fuel has gone down since. 2.2% or 2.1% are quite possible from here, 2.0% slight chance. 1.9% would be very embarrassing for the RBNZ who still have the OCR set to battle severe inflation at the expense of the economy. 

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Farmlands card at the truck stop gives me diesel at $1.55.  (it's only a RAV4).Same price nationwide.

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Still $1.599 at Farmlands Whakatu as of an hour ago. Boo.

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Ouch.   What is Farmlands Whakatu ?  

Farmlands deal is changed on Tuesday mornings.   It's at Z and Caltex truckstops.   If they change it, it's done Tuesday mornings.  Published on their website.   Everybody has a different deal at truckstops.  I am sure those who pull up and put in 500 litres pay a lot less than me.

Farmlands:  "Diesel pricing effective from Tuesday 10th Sep 2024 for seven days at Z and Caltex Truck Stops.   The National Price for Diesel: $1.549/litre (NZD/litre incl. GST)."

Or 12 cents off the headline price at Z or Caltex service stations.

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Oh right. I was referring to the Farmlands depot in Whakatu (near Hastings), not sure who supplies it. Allied, maybe? It's interesting if a better deal is available through a Z truck stop using a Farmlands card. I keep meaning to pick up a 400 litre tray tank but that may have to wait until the cropping payout turns up in January.

Side note: Six days after seeding and barely a drop of moisture since. Could really do with a few mm of rain right now.

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I paid $1.44 for diesel last night (with a 6 cent grocery receipt voucher)...that headline number is going to be entertaining to watch over the next 12 months! 

Surely its possible for the Dec '24 and March '25 quarters to look a bit hairy on the downside...tradable inflation was already -0.5% at that last print, rates and insurance will continue upwards but maybe with not as aggressive leaps, rent is already heading downwards, net migration slowing (dropping?), we've got a f**ked local economy with low demand...now add in falling oil prices (that was meant to spike on the back of conflict in the Middle East)...I wonder if super A is starting to sweat a wee bit that he might steer the ship into dreaded deflationary waters 😂

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NZ Inflation is already close to 0% on the tradeable side thanks to this.

Its only non-tradeables causing issues - aka government spending and council spending

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Petrol and diesel make up less than 4% of the CPI basket (about the same as Local Govt rates). Yet, there is no better predictor of changes in CPI than oil prices (diesel in particular). Why? Because our economy runs on oil - it provides two-thirds of our energy and lot of other key products (plastics, chemicals) are oil-price related. If we see sustained low oil prices, that will flow into 2025Q1 CPI in particular - the lag is usually 3 - 6 months. 

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Not a word here about the closure of the Ruapehu mills? surely that is an economic event that has a significant impact?

Our government is prepared to sign a power supply agreement with a foreign owned aluminium processor in Southland but not locally owned mills that are vital to the economics of the central NI region? Where's the logic in that?

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We discussed in the Tuesday 4pm . 

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I don't think the government was involved in the Tiwai Point deal, was just Rio, Meridian and Contact. Government/Transpower investment in lines probably helped the negotiation along though, providing a genuine alternative for the electricity supply. 

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The smelter is, according to experts, costing ordinary Kiwis $200 a year in higher power costs. Add to that the Commerce Commission’s recommendations that we have a $15 a month increase in power prices next year and the consumer is getting screwed. 

If we then consider the $30 million the Key government gave to the smelter, you have a liability, not an asset. As a taxpayer I was humbled by the then government’s largesse.

Rio Tinto, the owner of NZAS, is a US$113bn company. Why did we subsidise them to the tune of a $30m handout?

In addition we’re told that the smelter gets its power for one-sixth of the price paid by other users.

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  murray86 Transpower gets to bilk $70million a year for the Tiwai lines - Tangiwai has no such cash cow that needs to be protected.

"At issue are high energy costs - in particular transmission costs.

As all transmission costs are averaged out over the country, in effect NZAS, as a massive user, is subsidising the rest of the country.

Last year Pacific Aluminium (NZ), which holds Rio Tinto's 79% stake in Tiwai, reportedly paid $66million in transmission costs alone, three times its earnings of $22million off production of 340,000 tonnes of aluminium.

Southland's former Chamber of Commerce president Carla Forbes believes the smelter has been ''quietly overcharged'' nearly $200million for grid upgrades in the North Island over the past 10 years, during which time overall transmission costs have been hiked by 61% on the South Island.

...''Since 2004 more than $1.3billion has been invested in the grid in the upper North Island but only 39% of that is being paid for by the upper north"

https://www.odt.co.nz/business/power-politics-aluminium-smelting

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Those of us in the South Island are getting used to funding infrastructure up North. It's getting much worse under this government. 

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How?

 

🙄 Say hi to Karen for me Chris🙄😜

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Take a quick look at the $30+ billion recently allocated to roading and count up the proportion that will be spent in the South Island. 

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Locally owned? Did someone buy it back from the Malaysian rich-listers who bought it back in the 90's? It trades in USD, and used to lose money hand-over-fist when the exchange rate was above ~60c. (My dad was a fitter there for almost a decade, I lived only 2kms away opposite the Bates' homestead past the sawmill - which was also marginal and has been closed before).

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I suspect that power prices are only a part of the picture and may even be a red herring. Power prices fluctuate and have dropped now that the lakes are full again. If their business can't stand a couple of months elevated prices then its probably not the cause of the closure

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Where’s bw? I thought Iran was gonna invade Israel and spike oil prices/inflation to the moon…

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Almost guarantee a middle east conflict soon to push prices back up . 

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correction: I HOPE a Middle East conflict breaks out pushing oil prices back up*

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bw lives in the land of delusion and whatifism. 

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Delusion?...not what I'm seeing on the streets dooogg

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We aren’t talking about you Baywatch, there is another bw here with just those two letters as their handle

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Word to the mother

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Oil prices are down -US$2.50 at just under US$66/bbl in the US while the international Brent price is now just over US$69/bbl and these levels are a three year low.

At least someone is doing something to help struggling families reduce their cost of living. Thank you oil drillers!

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"and no-change in their poverty rates, which stand at income levels below US$30,900 (NZ$50,000)."  Wild to think this is now considered to be in poverty.

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Not to mention that cost of living is lower there as well.

We are pretty poor cousins here :)

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The US state with the lowest median income is Mississippi at US$48,610 (NZ$79,062.) New Zealands median income is NZ$61,692.

 

The US is a far wealthier country than New Zealand, even the most impoverished areas of that vast country are better off economically than New Zealand.

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Are you sure you aren't confusing individual income vs household income there? 

 

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Better medical care in NZ (for the average joe) and you will probably live longer here than USA.

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Aussie . Ct calcium score of test Scan $190. See you in 2 days.  NZ $600 see you in 3 months 

PD brain Scan $250 Aud. 1 week, NZ $750. Next year.

Medicare bulk funds most medical practitioners. And the prices, service and speed is fantastic.

Blue inhaler.. 5 bucks over the counter. NZ requires doctors prescription then 25 bucks

Petrol $1.48 per liter E10

 

NZ..  👎👎👎

 

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Cheaper in NZ and faster. But NZ is a cot case compared to most of the world.

US is great if you're rich .

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NZ median household income is $122,500 as per MBIE, or roughly $US75,300. According to this site that would put NZ 15th as a US state, ahead of New York and behind Minnesota.

However, their cost of living is generally lower, so we lose more on the swings than we make on the roundabouts.

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There are over 1 million Tesla's in California alone.

That's a lot of batteries to be changed soon... 

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Business idea: electricity production using lithium battery fires to drive a steam turbine.  

"Fuel pellets" for Huntly? :D

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Small stuff, in the grand scheme of things, but it pays to check bills from the likes of telco providers to ensure you aren't being ripped off.

I recently spent some time overseas. Came home to a $80 additional bill from Spark for roaming (that was outside of/exceeded the roaming pack I had purchased).

Asked for a breakdown of the charges, and after umpteen back-and-forth emails with their useless support people (who must be told to parrot the line "we've investigated and our assessment is correct") I discovered I had been billed for roaming spend in a country I never visited.

Maybe it was a bit on the nose of me to point out that Singapore ceased being part of Malaysia in 1965, but after pointing out that if their system cannot tell the difference between two geographically and legally distinct countries, how can it be trusted, I then found myself with the entire sum credited ... $80 saved with a few emails.

Seeing as it's the likes of telcos, insurance companies etc who are "powerful" and seem to be driving inflation at the moment, it pays to cross every t and dot every i when dealing with them. 

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Had a $100 bill come from Spark not that long ago when I'd taken out a data plan on an iPad. The default setting they apply, without telling their customer, to the Casual NZ data limit is $100 rather than nothing. ($0.30MB). So anytime you run over, in my case, 10GB they start charging. Apparently they text when data used is at 80% and 100% but the iPad doesn't receive texts and they wouldn't link my Spark cell number to the notification. I had a go saying who in their right mind would pay that sort of money when additional data can be bought a lot cheaper. $25 for 2GB vs $100 for 0.33GB. (They also have an unlimited $$ option). 

A few months later I've swapped the account into my business account and they reset the setting and again another $100 bill. At neither time were they that keen to waive the cost but got there in the end. A pretty cynical thing for them to do I thought and I've wondered how many people have been wacked with those costs without realising. 

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One particularly good use for ChatGPT I've found is arguing the point on these kinds of matters. Usually they'll give in after a while - I simply wasn't going to tolerate being charged for data in a country I've never set foot in.

I used it to extremely good effect when a car warranty company tried to get out of paying out for a $4000 repair bill on a minor technicality. 

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If it's the customer service team of a large corporate you are having trouble getting satisfaction from, I Google who the CFO is then drop their name into the conversation. Something like "...I know your CFO John Smith, do I have to ring him to get this sorted or are you and your supervisor going to sort it right now?".  Never failed me.

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25gb data per month 5g Vodafone AU. @$30. 

NZ are being ripped off 

Malaysia, $10 for 5g and 10gb

Euro sim from sim corner 25gb per month $30.

NZ is a greedy country.

Aussies can use their Vodafone Aussie Sim in NZ now. 

Prices should have fallen now the majority of infrastructure is in place and fairly reliable.

Star Link will soon be cheaper than 5g NZ rates.

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Malaysia is 81 % reliant on oil (their own) for electricity.

 

Very few EVs.

For cars it's 95%. 

17% of electricity is Hydro 

Petrol is $0.48c per liter NZD

No worries with Green parties, policies, or protests.

Pollution ...  Nothing to see there😉🙄

Cheap living, happy people. 

 

Now take NZ....

 

 

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Air pollution has been an ongoing problem in many countries in the Southeast Asia region, and Malaysia is one of the worst affected.

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