Here's our summary of key economic events overnight that affect New Zealand with news China is wrestling with how to respond to its slowdown, with the measures announced so far causing volatility.
But, first up today, and as expected, the American CPI inflation rate fell in September but by less than expected. It came in at 2.4%, down from August's 2.5%, but above the expected 2.3% rate. For three consecutive months, the month-on-month rise has been +0.2%, so it is tracking at the annual rate as well.
Rents dipped to that +0.2% month-on-month rise but from a year ago they remain +4.9% higher. But food prices were up +0.4% in September from August, the most in a year, even though the year-on-year change was only +2.3%. So one to watch.
However, the overall inflation situation remains pretty benign. No-one will be overly worried about this data. But it will reinforce to the Fed that outsized rate cuts at this time are probably not warranted.
Initial US jobless claims however spiked sharply last week, coming in at +235,000 actual (more on a seasonally adjusted basis). There are now 1.62 mln people on these benefits, and virtually no increase from the prior week. The spike probably has more to do with the Florida storm impacts, and perhaps the Boeing strike, than any meaningful slowdown in the US labour market.
In China, money flows around their surging equity markets are creating issues for policymakers. Huge amounts have flowed out of WMP (wealth management products) chasing the expected equity market gains. But foreigners and some local professionals seem to have taken the opportunity to cash out in the rising market. And as the rises haven't been sustained, there may be a lot of very disappointed local investor/speculators.
But help may be on the way. The central bank yesterday announced the start of a key operation to prop up the stock market. That put a floor under the market, embedding the Beijing 'put'.
And all eyes will be on an announced weekend briefing by Beijing authorities on their next economic policy moves.
The rise in Japanese producer prices in August matched the pace in the prior four months, and is embedding at about a +2.5% annual rate. Again, little to worry policymakers here.
German retail sales unexpectedly rose in August for a second straight month to now be +2.1% higher than year-ago levels, something few saw coming. That is actually their best year-on-year growth since April 2022. Further, this is a 'real', after inflation result. So it is quite strong. Food and travel volumes rose the strongest.
In Australia, it seems that the stage is being set for a new Federal election. One must be held before the end of September 2025 anyway, but it may well come earlier in 2025 now.
Container shipping rates fell again last week to be down another -4% from the prior week, which takes them back to levels at the start of 2024. They are still elevated because they are +135% higher than pre-pandemic levels, and the reasons still relate to Middle-East security pressures. But clearly the world, and the industry, are finding ways to adapt. All the current weaknesses are China outbound rates.
Bulk cargo rates fell a sharpish -9% last week from the week before, and are now also -9% lower than at the same time a year ago. But there is nothing special about these levels, which are similar to the long run 35 year average. However, on an inflation-adjusted basis, they are remarkably low. It isn't great for shipowners.
The UST 10yr yield is now at just on 4.10% and up another +3 bps from yesterday. The key 2-10 yield curve is more positive, now by +11 bps. Their 1-5 curve inversion is now inverted by -30 bps. And their 3 mth-10yr curve inversion is less, now at -71 bps. The Australian 10 year bond yield starts today at 4.28% and up +4 bps. The China 10 year bond rate is at 2.18% and little-changed. The NZ Government 10 year bond rate is just under 4.39% and up +6 bps from this time yesterday.
Wall Street is softer in its Thursday session, down -0.3% and just off its all-time high. Overnight European markets ended mostly -0.2% lower as well. Yesterday Tokyo ended its Thursday session up +0.3%, and Hong Kong regained +3.0% on the day. Shanghai rose +1.2%. Singapore was down -0.3%. The ASX200 rose +0.4% but the NZX50 was off -0.2% on the day, but still essentially holding its earlier gains.
The price of gold will start today at US$2621/oz and up +US$12 from this time yesterday.
Oil prices are +US$3 higher at just under US$76/bbl in the US while the international Brent price is now just over US$79/bbl.
The Kiwi dollar starts today at 60.8 USc and up +20 bps from this time yesterday. Against the Aussie we are also up +20 bps at 90.4 AUc. Against the euro we are up +30 bps at 55.7 euro cents. That all means our TWI-5 starts today now at 69.1, and up +30 bps from yesterday at this time.
The bitcoin price starts today at US$60,422 and down -2.2% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.3%.
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31 Comments
We have this big productivity conundrum in New Zealand, but how do we improve the situation. We don't actually make anything! Most Kiwi manufacturers import from China/India, wack a label on it, and send it out the door. I'm qualified to comment as I'm in the Industry. Things are simply too expensive to make here now. Personally I feel this is NZ's biggest issue (along with unaffordable housing), I guess you could make a case of linking the two.
I agree but don't believe cost is the only issue.
We have lost the knowhow/skill to produce things for more than a generation and abjectly lack the capital depth, infrastructure and supply chains to begin anything.
High cost isn't a major dealbreaker if you can match it with high productivity.
This is a wind up right?
Our train has only just left the station enroute to "declining standard of living", all aboard, tickets please...
In a net zero world we lack the scale to be anything other than a primary produce exporter and nice place to live and even those are slipping. We have outsourced our production to China and then shut our eyes to the imported carbon footprint while a handful of executives pat themselves on the back. Crime is becoming endemic as our standard of living declines. When South Africans flee the violence in SA, only to be murdered on the streets of NZ you know it's bad.
I travel a lot and I see it when I return. The mediocrity, the lack of ambition, the declining standards. As much as I don't really like them, at least Peters and Jones have some fight in them and see the magnitude of the problem.
"Things are simply too expensive to make here now."
There are a couple of issues to consider however....too expensive in relation to what is one?...how productivity is measured another.
We may be (currently) more expensive than other sources, but that is not set in stone...there are variables, including exchange rate, accessability, abilities and need.
Ultimately we can afford what we can afford so price will meet the ability to pay IF we can provide....and if we provide for ourselves we dont rely upon the whims of others (or much less so)
We have a net Productivity problem? If we stopped buying unnecessary 'wacked on label' stuff and stuck to necessities, our balance of trade should rebalance. But tens of thousands of retailers of that stuff would close down; unemployment would rise and wages plummet. Debt servicing and Asset prices would collapse, and financial ruin would stalk the land.
So we have what we have made for ourselves. A consumption reliant economy based on more Private Debt (that has replaced productive viable wages as the mean of survival),further consumption and Debt accumulation. Until, as you might be suggesting, that too fails. And maybe that's only a matter of time.
It has taken 4 decades to 'make that for ourselves'....we wont turn it around overnight, and there would be a considerable realignment of employment opportunies as you note, but isnt it better to manage such a realignment by choice than have it imposed from without?
If managed well (something we appear to struggle with) it could provide the prospects that many appear to be leaving this country to find.
It however requires political vision and a plan....so unlikely to occur.
The debt binge created many (temporary) jobs ...
The realignment of employment here is basically to no jobs
Which is why the refrain that the next generation will inherit all the Boomers wealth is a fiction. You need to inherit viable job opportunities, not abandoned castles and a growing base of maintenance dependent infrastructure
"The realignment of employment here is basically to no jobs"
That may be the current case (or jobs offshore) however it does not need to be....we have a massive infrastructure deficit, inappropriate infrastructure and a skills shortage...with investment (both financial and training) there is an opportunity to realign our economy (and productivity) for the better.
there is an opportunity to realign our economy (and productivity)
It will take significant political and human capital to achieve meaningful change.
The incumbents are interested in doubling down on debt and asset speculation as drivers of GDP growth. The opposition parties are distracted by the low-hanging fruit that is welfare increases and social justice advocacy instead of addressing the root cause of our socioeconomic problems.
We're witnessing high levels of human capital flight with no signs of slowing down. IMD's 2024 competitiveness yearbook puts NZ's brain drain at #65 out of the 66 countries on the list, considering the massive leakage in our narrow-neck skills pipeline.
well thats the hope and i dont doubt they will try sell that plan
The harsh reality our EXISTING infrastructure is creaky (eg water / roads) let alone adding more ... and despite us potentially sinking gazillions into it (which will create & maintain jobs) the productivity dial wont budge at all
We have collectively been freeloading
Councils round the country are now facing that truth
Simple answer is lifting productivity is hard & close to impossible as diminishing returns kicks in.
All the easy gains were made when we had new land to convert / plunder and sea to tap ... all with a lower population base.
After that we subdivided, imported people and built a greater fool wealth Ponzi based round leveraging up the balance sheet.
Now we are here.
And its a world wide problem
"Things are simply too expensive to make here now"
Correct. And you can even argue some of our big industries like Dairy cant actually produce cheap products anymore - ie products with prices that consumers can actually afford ... comes a time where you run out of viable customers at scale
I dunno. ... NZ could do well exporting education as some US states do.
No. ... Wait ... Three New Zealand universities drop in international rankings
... Oh well. ... They'll climb back under this govt's Austerity plan, right?
Universities began their notable slide down international rankings when they completely pivoted towards clipping tickets on migrants looking to move to NZ. Remove the working rights on student visas and extra residency points for NZ qualifications and you will witness export education dollars drop like a rock.
Speaking from personal experience, academic staff have been worked into the ground. Less resource, more work. And students more stressed and needing more pastoral support. And yet the university spends up BIG on new facilities like the massive new recreation centre. Looks good in shiny promotional material!
but end of the day, it’s the quality of teaching and research that matters. Pity that gets relegated
Our system is also pumping a disproportionate number of university grads (>40% of all school leavers) compared to the number of job-ready apprentices (~10%). To be fair, about 25% go into polytechs who may or may not also do parttime apprenticeship or work.
For a small isolated country, we need a lot more people with hands-on skills.
While I know many people are more productive working from home, some no doubt are not.
But one thing is for sure - no one, even those who can do something productive either being chauffeured around like our PM, or being chauffeured on public transport, can ever hope to be that productive on their daily commute.
So our government is ensuring less wasted hours on the daily commute, right?
Apparently not. Workers called back to the office as Census data shows a growing WFH preference
We do this in a few ways:
- Huge tax breaks for R&D done in this country (we will never have huge factories, but small R&D labs are the way)
- Invest seriously in our Universities to do research and commercialise findings
- Invest seriously in the future, that's AI, genetics, etc
- Change our tax system completely to productive enterprise
- Change our bank settings to promote lending to businesses
All in the too hard basket for the last 10 governments or so, including this one. And the results will only be realised 10-20 years out, so nobody cares in the political establishment.
"We don't actually make anything!"
As the most evangelical neoliberal state on planet Earth, why is this such a surprise? We sold our assets. We outsourced our production. We turned our population into obedient consumers.
This is the future planned for us. A hollowed out country, with an economy that relies on selling real estate to each other, at increasing prices, with lots of bank largesse and immigration greasing the pole. All Western countries are playing this game, NZ is just the most extreme.
Here's how fast households are going backwards
Sobering! Being 'back on track' feels pretty good, ay?
Were I to be honest though, other institutions deserve far more credit for this mess.
Edit: If you haven't read it yet, David's article on interest.co.nz on the same subject is here:
From the US:
‘September CPI inflation falls to 2.4%, ABOVE expectations of 2.3%.
Core CPI inflation RISES to 3.3%, above expectations of 3.2%.
For the first time since March 2023, Core CPI inflation is officially back on the rise.
Is the Fed pivot already over?
The market's reaction to the CPI inflation report has been strange.
Stocks are down, while gold is up and bonds are down.
Markets may be beginning to price-in a recession.’
https://x.com/kobeissiletter/status/1844355029328884067?s=46&t=MUwQeKa7…
Flurry of borrowers ask to break fixed home loans
Anyone here in the process of breaking their fixed term mortgage? I guess many are now on 6-month fixed and don't see the point?
In the USA, after legal cases where breakees were being rorted by banks, US govt made it clear that break fees couldn't be higher than about 3 months of the interest difference. This was based on how long it would take banks re-lend the money. (Bit more complex, but I'm not going to write a novel about how they do it.)
So, if you're breaking, please do share the numbers. I'd be fascinated.
from the article: "He said he dealt with another case recently where the break costs would have been $4500 to save $5000. "They said 'that's ok we'll chuck that on the mortgage'. But when I said you've got to actually come up with the $4500 to do it, they didn't have that so I said 'well what you've got to do is wait it out'. You realise it's only $500 we're talking about, it's not $4500."
Hmmm. Switching banks wasn't an option? i.e. that's what cash-backs can be used for.
I'll just leave this here ...
Tougher than the GFC: Why NZ’s small businesses may be in worse shape than in 2008
It explains, in a nice easy to read format, why some of us are pretty darn grumpy.
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