Here's our summary of key economic events over the weekend that affect New Zealand with news the focus is turning to Q1-2025 now and the twists & turns the world's largest economy will deliver. It is probably no coincidence that post-election, Warren Buffett is selling.
But first, in the week ahead we will get data on our producer price inflation, and an update on our population, not to forget a full GDT dairy auction on Wednesday which should confirm the recent higher USD prices are extending. And remember, in a week from Wednesday, the RBNZ will review the OCR for the final time in 2025. This review has to hold them until February 19, 2025, so the look ahead will dominate.
We have had a 4% one year swap rate, essentially unchanged, for seven straight weeks now. The 90 day bank bill rate has been stable at about 4.5% for three straight weeks. On one hand OIS pricing sees a -50 bps OCR cut coming. On the other, some short markets aren't flagging any change. Our longer rates have been rising (in response to expected Trump inflation), so our 1-5 swap curve is suddenly no longer inverted. And our 1-5 NZGB curve has also turned positive for the first time since 2022. It isn't known what the RBNZ thinks of the ending of inverted rate curves although it is unlikely they will be disappointed.
In Australia, expect their 'flash' November PMI on Friday, but not much light is expected in that.
This week will also deliver more US regional activity updates. China will review its official interest rate benchmarks. Japan will get some flash PMI data too, as well as its export data. And there will be a range of rather meaningless European data out too.
And financial markets will continue digesting what Trump 2.0 will mean for them. They seemed to have a reality check on Friday; coming inflation, sharp job losses, and a capture of the regulatory rules for a few in their favoured elite isn't a recipe for the current healthy American economy to continue.
And in the US, it seems the Fed is in no hurry to cut interest rates. “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said on Friday in Dallas. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” And NY Fed boss Williams said essentially the same thing.
Retail sales in the US rose +4.6% (actual) in October from year-ago levels, following a +0.2% rise in September. Reported seasonally adjusted levels were less that these. Rising car sales (+6.6% actual) were a large part of this gain.
But US industrial production actually decreased -0.3% in the same year to October. This is a volume-based survey. The Boeing strike got most of the blame for this, and was expected in the data.
In the New York region, the Empire State factory survey surprised analysts with strong new order flows, and rising optimism, far greater than expected. Factory activity rose sharply too.
In Canada they also released factory data but it was for September and the Boeing strike squished its data too. But Canadian car sales rose +2.6% in volume and +5.7% in value in the same period.
In an economy that faces slowly rising central bank interest rates, Japan reported Q3-2024 GDP growth of just +0.9% and down from a +2.2% annualised rate in the previous quarter, which was itself revised down from the previous +2.9%.
In China, average house prices for new homes fell -5.9% in the year to October. That's this official data's largest drop in nine years. But for the first time in a while there were a few cities where they actually rose. For used house sale transactions the October price change was -8.8% lower from a year ago. Interim November data indicates sales volumes will be lower than October. Construction of housing is still deeply negative, even if marginally less so in October.
China reported slightly lower industrial production growth for October, but it was still good at +5.3% even if it was less than the expected improvement from September. However, electricity production only rose +2.1% in October from a year ago, undercutting the veracity of the industrial production data. They reported better than expected retail sales growth at +4.8% from a year ago, suggesting some of their stimulus moves are working. But much of this is the previously noted rise in car sales (which involved incentives).
Aluminium prices surged on Friday after China said it would cancel export tax rebates on this and other commodities, raising the prospect that their heavy flow of subsidised export shipments abroad may quickly fade. But falling were copper, zinc, nickel (to a 4 year low), and tin. Aussie mining shares tumbled too, its largest one-week fall in a year. Layoffs are underway and some mines are closing. None of this would be happening if the view was that the US economy will still be booming in 2025.
The UST 10yr yield is now at just on 4.44% and up +2 bps from Saturday, up +17 bps for the past week. The key 2-10 yield curve is still positive by +14 bps. Their 1-5 curve inversion is now inverted by only -2 bps. And their 3 mth-10yr curve inversion is little-changed, still by -15 bps. The Australian 10 year bond yield starts today at 4.64% and down -2 bps. The China 10 year bond rate is down -1 bp at 2.09%. The NZ Government 10 year bond rate is unchanged from Saturday at 4.78%. A week ago it was at 4.67% so an +11 bps rise since then.
The price of gold will start today at US$2562/oz and down another -US$4 from Saturday. But that is down more than -US$120 or -4.5% from a week ago.
Oil prices are -50 USc lower at US$67/bbl in the US while the international Brent price is now just on US$71/bbl. These levels are about -US$2.50 lower than week-ago levels.
The Kiwi dollar starts today at 58.6 USc and down -10 bps from Saturday. A week ago it was at 59.7 USc so a full -1c drop since then. Against the Aussie we are little-changed at 90.8 AUc. Against the euro we unchanged at 55.6 euro cents. That all means our TWI-5 starts today at just over 68.4, and down -10 bps from Saturday, but down -40 bps in a week.
The bitcoin price starts today at US$90,296 and up +0.7% from this time Saturday. A week ago it was at US$76,099, so a sharp +18% rise since then. Volatility over the past 24 hours has been modest at +/- 1.1%.
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58 Comments
JH.. JH.. JH.. JH..
Rates are going to be Just Higher for the foreseeable future..
We now move into FORNS (Fear of regretting not selling)
I disagree.
our economy is a sick dog and the OCR will continue to be cut. Perhaps it won’t go as low next year as it might have done ie. it might stop at 3% rather than 2.5% or lower
I think you’re right HM, RBNZ painted themselves into a corner by not making smaller cuts a lot earlier.
Cutting the OCR will make us sicker. Counterproductive, but looks like " something is being done"
Yeah. Dropping the ocr is a short term fix. In the mid to long term it just makes things worse. Hopefully Orr and co will have the courage to hold it higher (small drops we do need.. but setting expectations for a higher floor) and point to government and businesses to have to wake up and sort their own problems. We need urgently to demolish any excess bureaucracy and prioritise building our productivity and export biz over property investment.. or we will be too late to the party. We also need to change our government investment to meet our needs in 30 years time.. now tommorow (less roads..)
The US is quite an interesting case at the moment.. as they are actually the only country trying to fix the causes of their problems rather than patching the symptoms.
Sigh - you haven't been listening (not that you're alone in thst!)
They cannot fix the 'cause of their problems'. An exponentially-increasing regime of extract-use-discard never can.
The Easton thread is a classic example of dogged refusal (inability?) to think. (I could have lengthened that sentence, but it stands). No amount of financial manipulation can solve that dilemma - Orr and Rennie are being asked to shift several tons uphill using a piece of limp spaghetti.
I agree HM, I'm expecting another cut this month, probably 50bps.
My pick is 0.25 - we will see soon enough!
I disagree. Let the stupidly in debt take their medicine. Rates hold.
Is that what you want to happen or what you think will happen?
@tokyo well articulated
With dropping energy price, gold, commodities there’s going to be inflation?
and electricity dirt cheap too.
Expensive electricity is deliberate. Coal and hydro are cheap. Windmills are expensive and don’t work.
You realise that you can look the actual real data up so you don't have to resort to obviously wrong reckons like 'windmills don't work' and 'coal is cheap' etc?
It is not "actual real data" is it though. LCOE has some obvious flaws and is a great way to use assumptions to push for the answer you want - especially when comparing base load to intermittents.
From the first sentence on your link - "This tool calculates an estimate of the levelised cost of electricity generation (LCOE)"
Coal isn't cheap generation at all
The currency has dropped close to 10% in a month.that’s going to cost importers when reordering and would be a concern it falls more.
We have to buy that energy in USD, so it really depends what happens with the NZD. If we cut while the US holds, the NZD could go into free fall.
It won't, it will decline relative to the size of the cut and then settle at a new band.
Importers might go into free fall however.
Disagree. There is no basis to infer even a linear relationship let alone a proportional one.
Yip. We debated this only a few months ago and the FX impact when NZ cut was far less than many on here predicted.
Yep. And any inflationary impact will be largely negated by the fall in commodity prices. We can see that right now with petrol at the pump.
As stated above it isn’t linear or even predictable. But the bigger the difference between our interest rates and theirs, the bigger the chance that it goes into freefall.
It seemed to me that it didn't fall due to the markets pricing in US Fed cuts. So, both USD and NZD were perceived to be heading in the same direction. Perception of the USD direction has changed, and now the NZD has fallen significantly
One of my friends was vocally onboard the Trump bandwagon, very meaningful as a kiwi I know, because they just want the left to lose.
When I asked what they were looking forward to in the economy to come they didn't have a clue. They own properties and were looking forward to rates staying down for many years.
Karma sucks, I guess.
People used to vote for what was best for them, now it’s almost like a revenge vote. The left don’t help themselves, they don’t want anything to do with the average Joe these days.
People aren’t voting for economics any more. The republicans are hardly a conservative party under trump, the democrats are probably more economically conservative.
It's grievance politics - people will cut their nose off to spite their face. I found this over the weekend by the Onion
Conservative Man Proudly Frightened Of Everything
https://www.youtube.com/watch?v=sfvtky4o5YI
The best comment was "The LGBT+ Mafia have traumatized me so much, I'm terrified to eat a vegetable over 2 inches in length."
While poking fun at conservatives what is really being said is that the world is / has changed and that is what scares conservatives. People are looking to the conservatives / right to solve their problems but the right doesn't have any solutions as the economic system is broken. Started by Reagan America has been hollowed out ( I would argue NZ has as well).
The main culprit is consumerism. You don't own stuff - it owns you.
My take is that the average person believes in equal opportunity, but the left believes in equal outcomes (which often requires unequal opportunities). When the white/straight/male finds they are being treated unequally, they will then vote for anyone that will correct that, or overcorrect it.
That begs a few questions. Who is actually pushing this narrative? Do they have an agenda? Do the "white/straight/male" actually take advantage of the opportunities that are presented or do they have a sense of entitlement and believe that they should just be given those opportunities. I've previously pointed out that on Reddit that there are males (and females) who say they are 19 and behind in life. Their back story includes I spent the last 5 years playing video games in my spare time (and they wonder why they are behind in life - sorry but they need to look in the mirror). On the flip side you have those who are studying , doing extra curriculum activities all to try and impress some ivy league school to accept them - insanity. While the left woke stuff is nuts - equal outcomes doesn't really improve society my argument is that this is not a critical issue.
I don't believe it is either the left or the right that is at fault. They only tinker around the edges. The main cause is corporate America and it's competitive culture. Loyalty is out, only the bottom line matters. Until the corporate culture changes (and that is a big ask) the grievances will continue no matter who is in power. It is a society thing not a left or right thing.
Good comment @BadRobot, but instead of trying to change "corporate culture", we might have more luck changing the rules of the game:
Not surprised when I see what average Joe says on this forum.
'isn't a recipe for the current healthy American economy to continue.'
The voting-out of the incumbency, suggests it is not 'healthy' for a majority. Maybe someone is using the wrong metric?
Since 2020 has not been good for incumbents with 40 of 54 elections in Western democracies seeing incumbents removed from office.
Wow. Is that actually happening? Disconnect between ourselves and the 'elite' methinks.
Disconnect between ourselves I reckon. Less people are centre these days, and the centre parties are becoming less centre and more extreme. So the people who are still centre that do determine the outcome are left flipping between one disappointing party to the next.
Take NZ for example; the previous Labour party were more extreme than Clark/Cullen, and the current National party are more extreme than Key/English.
Pretty wild week on the crypto front. So much happening and no time for an essay. But short overview:
- One of the most hated cryptos - XRP - went on a run up completely out of the blue ending up 88.7% for the week. Well north of 100% over the weekend. Now one of the most traded cryptos after BTC and ETH.
- 18 state attorneys general filed a lawsuit against the Securities and Exchange Commission (SEC) over its regulatory approach to cryptocurrencies and digital assets. The lawsuit alleges that the SEC, under Chairman Gary Gensler's leadership, has overstepped its constitutional authority and unfairly targeted the $3 trillion cryptocurrency industry.
Gensler is an alumni of the Vampire Squid and an alleged puppet of Pocahontas Warren (leader of the anti-crypto army but who is now backtracking fast to protect her own skin).
- Trumpty Dumpty has pledged to eliminate capital gains taxes on Bitcoin and U.S.-linked cryptocurrencies. This move is aimed at encouraging the wider use of digital currencies for everyday transactions and bolstering crypto firms based in the US.
Yeah that was wild about XRP, I thought it was on a perennial downward spiral. What kick started the revival? That's the challenge with crypto...how to pick the winners!!
Reading some comments are making me doubt myself a bit here, however on the ground NZ's back is broken 0.75 is my call it certainly would not be less than .5....... Orr setting himself up for a nice 4% OCR, its restrictive however it should stop getting people leaving the country. or entering it for that matter
You have to remember that Orr’s job is inflation and financial stability. Recessions, unemployment, people leaving the country, not his problem. If he feels like inflation is a risk, I reckon he will hold back a bit on rate cuts. Probably still 0.5% next review, but as others have said it gets a bit murky after that.
@JJ - agree ie Orr's job even in isolation we agree that inflation is his job however it drives behaviour which influence wider community and economy.... throwing a rock in a pond (was going to say pebble ) however I feel we need a rock in the pond :)
November stats data showing inflation for the TTM at 2.2%.
While the New Zealand dollar against the USD has weakened even further off the back of US inflation data shows our market has an RBNZ cut well and truly priced it in.
The Ghost - so you saying no cut?
My understanding is that "Priced in" usually means they are already prepared for another cut.
@Zwifter - thank you - pls may i have your prediction (which I value) thanks
I have banked (Literally) on another 50bps cut. I think most people switched over to a 6 month fixed knowing that come February 2025 rates with be down.
I'm saying the market is expecting a cut, it's priced in to the point where it's having an impact on the strength of our dollar already, a week and a bit out from the event.
The only question that remains is the size of the cut, could be anywhere from 25 to 75 bps.
He cuts 50bps here and now, the trump effect is middle to longer term and will not impact the immediate need to stimulate the NZ Economy over Xmas.... what 70% of retail sales about to happen... we all need a slightly better economy going into year end, 50bps a done deal.
agreed, we need retail spending to be pumping this Christmas, its sentiment and positivity that drives the market. February will be a little late to kick it off.
january sales will be massive then when stock fails to sell
which is all a bit sad given its imported - and lots is junk
Nice to get the NZ yield curve reported on for once.
I'm waiting for the January CPI because that will be the main driver of what the RB does next year, not Donald Trump or the Fed.
@iMike M - under 1.5%?
0.25 on the 27th
It will be 0.5% cut.
Yvil ever hear of steel balls the guy who bet on the ABs losing to the french in the World Cup back in 2007. He philosophy is bet on who you dont want to win. If the ABs had won he would of felt good but by having a bet on the french winning and they did he was happy about that. Whereby most people bet on who they support. If ithe OCR drops by .25 i will be happy and made to look like i know what I am talking about. If it drops by .5 then even better.
$2 Trillion being cut from Govt spending. Deregulation. Lower taxes. Cheap energy. Whats not to like?
https://www.afr.com/markets/equity-markets/trump-unifies-top-investors-…
"Donald Trump has unified the world’s biggest investors with his plan to slash red tape and taxes, setting the US economy up for what Oaktree Capital’s Howard Marks described as a decade of peerless returns.
“Warren Buffett said it: don’t bet against the United States. He’s probably right about that,” the Wall Street veteran told the Sohn Hearts & Minds investment conference in Adelaide on Friday.
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