Here's our summary of key economic events over the weekend that affect New Zealand with news the rise in long term benchmark rates is echoing everywhere, including in New Zealand.
But first, if you are just back from your summer break, welcome back to work. Those benchmark interest rates have been on the move up while you have been away.
The week ahead will be focused locally on early indications of Q4-2024 inflation. We get the 'selected price indicators' for December this week on Thursday, to be followed by the full Q4 CPI next week on Wednesday. In Australia, their December labour market report is also due out Thursday. In the US the main focus will be on earnings reports from the big banks.
And the US will be releasing their CPI data, and given rising inflation fears and rising interest rates, that could well be a significant market mover. Currently markets expect it to run at 2.8% (from 2.7% in November), but you have to say there are upside risks here and financial markets are pricing those in now. They will release their influential inflation expectations survey on Wednesday NZT.
China is set to release a suite of economic indicators this coming week, including Q4 GDP growth figures, as well as data on exports, imports, industrial production, and retail sales. Later today we expect their new yuan loan data for December, anticipated to be weak again.
But first over the weekend, the US economy added +256,000 jobs in December, much more than the +212,000 in November, and way more than the market expectations of +160,000. Their jobless rate fell. These are the headline rates. The actual change was a tiny fall to 160.5 mln employed workers, but actually a much less reduction than seasonal factors would have indicated.
For all of 2024, they had a rise of +2.2 mln payroll jobs and for the four years of the Biden presidency a rise of +16.9 mln new jobs. In the prior four years, there was a loss of -2.6 mln jobs.
The wider employed labour force only grew by +11.7 mln in the past four years as many people transitioned from unincorporated self-employment back on to company payrolls. In the prior four years, the wider employed labour force shrank by -2.2 mln people. Any way you cut it, the past four years has been a golden period for American employment.
Average weekly earnings rose +3.5% in 2024, up +20.0% over the past four years. In the prior four years they rose +18.0%.
But Americans are increasingly fearful of the year ahead. The latest University of Michigan consumer sentiment survey in January dropped because of surging worries over the future path of inflation. Year-ahead inflation expectations jumped to 3.3%, the highest in eight months, from 2.8% in December. This is only the third time in the last four years that long-run expectations have shown such a large one-month rise. Consumers know they will be paying much more if tariffs are jerked higher soon.
The financial markets also reacted to the jobs data and the impending impact of tariffs. Wall Street equities were -1.5% lower on Friday, bond yields have jumped, and a risk-off defensive tone spread which saw the USD rise. That's all because the strong jobs data argues for a Fed rate cut pause. Their bar for rate cuts has risen noticeably with this data. The Fed next meets on January 30 (NZT).
Prior to this jobs data release, the latest Atlanta Fed Q4-2024 economic growth estimate was +2.7%. The subsequent strong labour market data may see some upside to that.
Canada also reported their December labour force data over the weekend and that was strong too. Employment there rose +90,900 with more than half that as full-time jobs. Their jobs growth was far higher than the +25,000 expected and the +50,700 in November. This surge also calls into question whether the Bank of Canada will actually cut rates when they next meet, also on January 30 (NZT).
The latest Japanese household spending survey indicated another fall in November, part of a pattern of monthly falls since early 2023. But this one was a little different because it was the smallest surveyed fall in the series and a much 'improved' result that from both prior months and from what was expected. Some see a turning point.
In China, in a surprise move, their central bank said it would suspend treasury bond purchases in the open market due to a supply shortage, effective immediately. They will "resume purchases at an appropriate time based on market conditions". The move comes amid repeated warnings from them about bubble risks in their overheated bond market, where long-term yields have plummeted to record lows. Over the past year, yields on key bonds, including the benchmark 10-year government bond, have reached unprecedented lows as investors flock to safe-haven assets. This shift is largely driven by ongoing economic uncertainties linked to a prolonged property market slump. In December, Chinese leaders signaled further rate cuts, fueling another surge in bond market activity. This pushed the 10-year treasury bond yield to an all-time low of 1.6% earlier this month, exacerbating concerns over market exuberance.
Their yields recovered after this move but the recovery didn't hold. But at least they arrested the decline and the day ended unchanged.
Chinese analysts are expecting bad news coming from the series of large zombie property developers that have been holding on with government funding support. But most of them seem to have reached the end of the line, and a series of default-into-administration events are now anticipated. Investors will take a bath. None of this will help the economic mood.
In India, their industrial production showed a small improvement in November, up +5.2% from a year ago with manufacturing up +5.8%. Both results were better than October and better than expected.
In Australia, their Federal Government accounts for the five months to November show that tax receipts are surging. That is cutting into their budget deficit for the year quickly. At the current rate the full year budget deficit may halve. If the trend continues, they even have a chance of posting a surplus. The reason for the improved outlook is twofold: their jobs market is buoyant generating higher income tax deductions than expected. And their currency is falling vs the USD, and as their mineral exports are sold in USD that is generating an unexpected rise in royalty receipts (and higher corporate income tax receipts).
And we should probably note that coal prices are falling still, now down to a three year low and where they were in May 2021. And that is despite a very cold spell in the Northern Hemisphere at present.
The UST 10yr yield is still at just on 4.76%, and up +7 bps from Friday in the jobs-data reaction. A week ago it was at 4.59% so a +16 bps rise from then. The key 2-10 yield curve is still positive by +39 bps. Their 1-5 curve is more positive at +36 bps. And their 3 mth-10yr curve is much more positive, now by +45 bps. The Australian 10 year bond yield starts today at 4.53% and back down -11 bps. The China 10 year bond rate is now at 1.62% and little-changed. The NZ Government 10 year bond rate is now at 4.65% and also unchanged.
The price of gold will start today at US$2690/oz and up +US$1 from Saturday and up +US$50 from a week ago.
Oil prices are unchanged from Saturday at just on US$76.50/bbl in the US while the international Brent price is now just over US$79.50. That is the same as the weekly gain. The recent rise comes from fear of the effect of new sanctions activity.
The Kiwi dollar starts today just on 55.6 USc and unchanged from Saturday but down -50 bps for the week. Against the Aussie we are still at 90.4 AUc. Against the euro we are also little-changed at 54.3 euro cents. That all means our TWI-5 starts today at just under 66.7 and up +10 bps from Saturday.
The bitcoin price starts today at US$94,909 and up +1.4% from this time Saturday. Volatility over the past 24 hours has been low at +/- 0.9%.
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94 Comments
Got a newsletter this weekend from NZTE on its new India trade strategy and where business opportunities for NZ lie.
Within the technology and manufacturing space, areas of opportunity include IT services, software as a service, digital transformation
Not sure where they are getting this garbage advice from but India is much further on all those technological fronts compared to NZ. I wonder what unique services do we have to offer?
FYI India exported more tech goods and services in 2023 than NZ's entire GDP.
Regardless, their IT scene is far more developed than ours.
It is not all cheap lower skilled work anymore with India rapidly moving up the value chain on their talent and tech ecosystem. Many of the world's largest companies actually have offshored a good portion of their tech and engineering innovation to India as well.
The population is massive, so it does not reflect in their macroeconomic stats.
They have great concentrations of wealth financing some weird anomalies, not reflected in the average day to day lived experience. Much of their population still burns cow shit for cooking and heating. But yes, it's another blow to myths around Western superiority and the bedtime story that we'll only export low paid functions and continue a steady climb into more advanced and lucrative endeavours.
The average Indian won't be affected as much, but due to the sheer size and scale, the average Westerner will feel the loss as significant portions of our function and tech development get relocated.
We can't really stop this, just watch it happen and get miffed. And maybe focus on tasks you can't migrate as easily.
Lol obviously haven't seen the huge pay growth in IT/SW sectors in India as well... doesn't make any sense for anyone remotely productive to move to NZ so NZ just keeps importing nurses and healthcare workers from SEA, that'll get the country out of the hole and jumpstart the export sector XD
I work in Manufacturing. I can tell you right now that India is more of a threat to our Manufacturing than a positive. We need to start talking real incentives to keep manufacturing local. Covid was a real ray of hope for Kiwi engineering, but then the accountants get involved again, and everything goes back to China/India.
Can anyone explain to me why the LA fires are expected to have such a powerful effect on insurance worldwide (as per yesterday's briefing)? Last count about 12,000 homes have been damaged or destroyed, which is about 0.0005% of the global housing stock. Even if we assume those are all total losses, and throw in some very pessimistic assumptions about how this changes future expectations of fire events, I find it hard to make the numbers check out on anything more than a few dollars per year being added to households insurance premiums globally. So am I missing something, or is this just another case of the FIRE industries being all over any signal to grow their take?
Yep. Cat bond yield chart.
under the climate change narrative
This almost sounds like you doubt there is climate change?
Of course, insurance companies will use any excuse to protect and increase their profits!
Looking at the magnitude and frequency of climate change driven events, the insurance business will soon be inviable.
There's literally no-go areas for insurers (eg. Florida) where the risks outweigh any profits one could make.
This almost sounds like you doubt there is climate change?
I tried thinking of a better word than "narrative". I don't doubt there is climate change, but I also feel there's a tendency to try and stack as many weather events and natural disasters under that umbrella as possible, for self serving reasons.
You are making the mistake in thinking that if somehow every insured house on the planet suffered simultaneous damage the insurance companies could afford to pay every single claim. Insurance is a game of smoke and mirrors, in which the insurance company used to work within a framework of relatively predictable losses each year (allowing them to build financial models which allowed them to payout claims AND enrich their shareholders). Climate change is now destroying that entire system as it has introduced the concept of ever increasing damage (stability has gone out of the window). An ever steepening risk profile sinks the whole concept of insurance as eventually one reaches the point that customers cannot/won't pay the premiums and so the industry is destroyed - and when insurance goes, so goes the valuations of the RE industry. The state will attempt to step in (and has done already - see for example the FloodRe system in the UK), but long term there is no way that the debt that this involves can be shouldered by the state (and ultimately the tax payer). I find it astonishing that so few can see this critical danger to the entire financial system that this represents when it is hiding in plain sight.
The irony is the 2025 fires are a result of too much rain in 2024 rather than not enough of it.
The 2024 fire year in California was marked by significant wildfire activity, exacerbated by a hotter-than-normal June and an abundance of fine fuels resulting from unusually wet winter and spring seasons. This combination rendered vegetation more susceptible to ignition and rapid fire spread, particularly in areas below 3,000 feet where dense growth was observed.
No-one knows which way inflation is heading in 2025
If the last 5 years have taught us much, it's that the field/discipline of economics is great and measuring things once they've happened, and absolutely dreadful at predicting what'll happen.
The last 80 or so years has been fairly linear, making economics relatively simple. In the future, it'll require much different skillsets and data interpretation.
Share markets around the world are highly corelated, ever since dot com crash perhaps even earlier, central banks have moved together in almost lockstep, most of peoples assets have been in these and the bond markets.
Now we have different bubbles, NZ Property has not fully collapsed but the USA did after the GFC, we are all out of step and sync. The risk that FED has to hike to NZ is incredibly high. NZers are too highly invested in property and thus have high exposure to a decline that would become self fanning, much like a big bushfire. The asset allocation is all wrong. Lets be honest its due to the TAX FREE profits of this strategy.
The RBNZ is setup to limit and control domestic inflation against an international background.
The NZ Property bubble is a massive risk to NZ financial stability, it will burst as all bubbles do.
and then... we will take a bath.
Yes the one rule, that has proven to play out completely, over thousands of years.....
Boom and Overshoots all Bust and they Bust completely. It is, as sure as gravity.
- Higher interest rates just increase the force of gravity to the still lofty NZ valuations.
We are by any objective measure, just 1/2 way into the already fastest, NZ Property Bust, in the last 100 years.
While I am exposed to both property and shares - they are sooo overvalued!
Huge shift in business confidence from this time last year.
"Datacom's latest Business Outlook Survey said economic uncertainty was the primary business concern for more than three quarters (77 percent) of a survey of more than 200 business leaders heading into the new year, compared with 13 percent a year ago."
I walked through Newmarket Broadway yesterday and couldn't believe the number of vacant shops for lease, at least 50%, maybe as high as 66%. What is going on there, is it being demoed, is it Westfield or are things really this dire? The shops that were tenanted were very down market. I get that Westfield is the goto for brands but really, Broadway is downright ugly and depressing.
The whole country is going to go the same way not just Tauranga. Retail has changed, first it was the move to Malls and now its a move to online shopping I can get what I want out of AliExpress and have it delivered for less than the price of just the parking in the Auckland CBD. Tauranga still has plenty of Restaurants and cafes etc and they are always pretty busy if I go into the CBD but you cannot convert every shop to eateries. If we have a massive downturn and the discretionary spend goes out the window, the CBD will be a ghost town.
People have stopped shopping there due to the nightmare traffic. Blame Auckland Transport. Just another example of the Left not understanding that when you reduce cars on the road, you also reduce the number of humans with wallets of cash to spend. They will simply shop elsewhere - maybe Sylvia Park if NZ is lucky, maybe offshore at Temu if its not.
https://www.nzherald.co.nz/nz/westfield-newmarket-mall-parking-chaos-pr…
Nothing to do with the design of the cul-de-sac that is the Westfield parking building all emptying onto one of the busiest through roads in Auckland? It was a cluster back in the 90's with just 277 and they've just added in thousands of car parks to a dead end street with another set of traffic lights. Only stupid lemmings who blame everyone else for their idiocy would go there in a car during peak.
As for the shops - everyone's in their cars at the mall - who walks along Broadway anymore? Certainly not entitled wankers in their SUV's.
The Kent St precinct is quite good for noodles and dumplings though.
Because its the Left that is running anti-car policies. From Councils to national Govt levels. If you want a vibrant shopping community you have to facilitate it with policy. Otherwise these places end up as ghost towns, occupied only by the homeless sleeping in doorways. Vote better.
That makes no sense. The only thing that causes traffic is other cars. Simply put you are the traffic.
The only way to reduce that is to give people genuine choice in transportation options to get from A to B. Thus making it easier for those that dont have to drive and reducing number of cars on the road for those do at the same time.
When you deliberately engineer roading changes to increase congestion and frustrate motorists, in the naive belief that this will prompt them all to start cycling everywhere, then that is what causes traffic problems. People solve that problem, not by buying bicycles, but by driving to other locations. Eventually you get to claim that you have solved the traffic problem because soon all the shops are empty, businesses have closed down, therefore nobody bothers to travel there at all. See Wellington.
I honestly think taking away a traffic lane (down Khyber Pass) for a dedicated bus lane caused a lot of ills here. Combined with a massive increase in the number of cars makes it a horrible mess of congestion with terrible parking options.
I very much doubt those busses carry more people than the cars they displaced (outside of rush hour).
One also wonders if there's been a demographic change in Epsom/Remuera now that the teens have grown up and left, leaving the locals elderly and less likely to frequent the strip?
I have no evidence either way, this is just musings.
Its exactly the same in Christchurch. When they implemented the Northern Motorway corridor, traffic down Main North Road dwindled to hardly anything. It was lovely. Then the Council decided to make Main North Road a single lane highway at its busiest point (despite being a major arterial road into town) in order to create permanent bus lanes on each side of the road. Now traffic congestion is as bad as it was before the new Motorway opened. The number of cars havent increased at all - just that now they are all stuck in jams caused by stupid road management decisions.
"No-one knows which way inflation is heading in 2025", If the start of 2025 is anything to go by inflation ahead. If the DXY remains above 100 (currently 109) and and everything is priced in USD seems like inflation for the rest of the world other than maybe China who has a demographics issue. If the US is expecting inflation with a strong dollar, what hope does the rest of the world have?
A few key inflation prints this week for the US and UK. Keeping an eye on those.
Edit: And the DXY is about to hit 110.
If you keep on issuing debt, while you deplete the physical resources of a physically-defined planet, then you can, indeed, predict inflation rising.
It may be an oscillatory path, but if depletion is the trend-driver, and banks keep issuing ever-more tokens...
Curtailment of scope - be it inflation, 2025 or GDP - may reassure, but hardly informs.
As the US 10y yield is sent to smash the 5% soon, fixing as long as you can tolerate quickly, may not be a bad move.
Each will have their own circumstances of course and get professional, non-vest interest advice. (Dont ask anyone related to the compromised, REA/FIRE industry!)
I am in two minds about this, the UST 3mth is still on a downwards path, with the 10yr-3mth only un-inverting in Dec 24. Recession usually follows within 6mths of this happening.
Do you refix longer, expecting inflation and high interest rates to stick around? Or do you go short, expecting things to blow up in the next year and the Reserve Banks to trot out the usual playbook?
Hard to know isn’t it. Definitely a possibility of the US doing well with some inflation pressures and higher interest rates, with the rest of the world including NZ doing badly with low interest rates. Whether we can manage to avoid US inflation and have much lower interest rates than them without the NZD plummeting is the question.
Some suspicion exists about the US jobs numbers .. how much of these vast increases in aggregate are actually government non-jobs (as opposed to productive private sector ones), which would tend to signify weakness in their economy rather than strength? Curious about what's under the bonnet there..
https://fred.stlouisfed.org/series/LNS12500000
The graph attached informs best on what has happened with "good jobs" over the past 2 Administrations in the US. In January 2017 Full time Employment stood at just over 124 million and by February 2020 it topped out at 130,000,000 before the job killing Covid Pandemic struck when many employees were let go so they could claim Unemployment benefits. But then those full time workers returned to work in quick order as the graph points out, but over the next 4 years to the end of Biden term only 3 million full time jobs were added --since February 2020. Thus the middle class voters took note of the difference. Part time work accounts for the lion's share of Biden's jobs.
Back in August, Nicola Willis enthusiastically declared, "the era of extreme price increases is over," in what seemed like a rush to celebrate something largely beyond her control.
Since then, that statement feels increasingly premature, especially when comparing the macro-economic statistics to what households are actually experiencing.
For my household at least, grocery bills have been steadily climbing again since early December, after remaining relatively stable for about a year. Petrol prices are also soaring, and while we’re still waiting to see the impact on our power bill, i'm bracing for a significant increase. Meanwhile, Christchurch rates are set for another large rise.
I understand this is just my household’s experience and may not yet be reflected in official data. But if others are feeling the same pinch, this could be the kind of issue that sways elections. Nicola Willis should take note—by tying the government so closely to inflation control, she has risked creating an oversized target for criticism squarely on the National Party.
Great point. I think they are betting on inflation and economy both improving before the election, with National taking credit for something they didn’t actually fix. But it could backfire dramatically. Of course they will quickly change the narrative next year if they have to, probably sack Orr and lay all the blame on RBNZ.
After receiving record profits for a year or two thanks to preferential treatment from the govt by means of lockdowns, the supermarkets need to be rigorously assessed. They were handed record profits, now they can afford to eat some of the supply side increases. A good opportunity however for locals to open butchers, fruit and veg shops etc if they can get a profit from it and take from the supermarket duopoly.
Supermarkets acted as price-makers for we consumers, and the knock-on is farming/agriculture which is has become, in a word, unsustainable.
For food to be produced sustainably - in a long-term-viable manner - it would be much more 'expensive' (money is the wrong measure, really: food is energy and is being underwritten by fossil energy). A proper reflection of 'cost' would render local and small, more viable.
Interesting comment. The reason people don't shop at the dairy? Largely price. Price because small venders are treated like dirt by wholesalers and must buy through a middleman with another layer of margins to pump.
Add in mob mentality. The huge car parks attract cars, which attracts more cars, sort of like flies to a t.... Then there's the mind control of advertising industry. As collective memory of the time before mega corp fades with every funeral, human behaviour becomes more concentrated in the status quo. It's a vicious cycle for small business. Can't really make an adequate return to reinvest, so the premises slide towards looking derelict, which turns away higher value customers.
Interesting comment. The reason people don't shop at the dairy? Largely price. Price because small venders are treated like dirt by wholesalers and must buy through a middleman with another layer of margins to pump.
Economies of scale is interesting.
You just can't compete on purchasing power against another entity buying 100s or 1000s times as much as you.
Then the middlemen come, because a supplier or manufacturer only wants to deal with a handful of large clients, as dealing with scores of small value customers with small orders, and varying procurement methods, is expensive.
Then a smaller store, likely won't have all you need, necessitating multiple trips to a fruit and veg, butchers, etc. add up the extra time and travel to do that, and supermarkets start looking cheap by comparison (hence their continued popularity).
Small independent grocers don't have many competitive advantages, outside of maybe distance.
Agree, our supermarket chains are small by world standards, breaking them up will not fix this.
The real reason NZ supermarkets are dearer is because they have to charge 15% GST on basic foods while the Aussies and UK don’t. But the government don’t want people to realise this.
"You just can't compete on purchasing power against another entity buying 100s or 1000s times as much as you."
Legislate all retailers treated equally by wholesalers. Then we'll see which businesses are actually profitable. At the moment favouritism is drowning efficiency.
Local only works in certain latitudes. In many parts of the Northern Hemisphere occupied hundreds of millions of households the growing season is only about 4 to 5 months long-and as you get into Northern US and Prairie Provinces of Canada the growing season is only 3 months long. Fresh Foods arrive all winter long by truck from points south in 24 to 48 hours from field to stores.
People are time-constrained and/or lazy and are apparently willing to pay more to get everything in one shop.
There's a few butchers near me in Chch, and independent veggie shops, fishmongers, Asian and Middle-Eastern supermarkets etc, mostly offering better range and quality at comparable or better prices than the supermarkets.
Where I am, outside of maybe a vege shop buying a cheap bulk lot direct from a grower, there's almost nothing in it. Low price vege stores are such because they're usually buying lower grade produce. The few remaining butchers survive off better quality, or being an arm of a meatworks.
As you said though, most people will struggle justifying another hour or two a week hunting out bargains. Probably pays less than minimum wage.
What profits?
Food price inflation might’ve helped Foodstuffs North Island make $9.2 billion dollars in statutory revenue during its 2024 financial year but despite its record high revenue, Foodstuffs North Island (FSNI) reported an annual net loss after tax of $3.2 million.
Asia Pacific yields all leaping today, notably Japan in the last few days, who see the rare animal: inflation - is a now a risk that raising rates must control.
We are living in interesting times!
https://www.bloomberg.com/markets/rates-bonds
https://www.bloomberg.com/news/articles/2025-01-10/treasuries-tumble-as…
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