Here's our summary of key economic events over the weekend that affect New Zealand with news about the start of a tariff trade war, a reprise of a 1930s effort, also started by the US, and one that ended badly for everyone.
The week ahead was supposed to be basically about jobs, both here and in the US with our HLFS data for December out on Thursday, and the US non-farm payrolls report out for January on Saturday. But Trump's imposition of 25% tariffs on Canada and Mexico, and 10% tariffs on China will no doubt dominate the news with its consequences.
However there will be other economic data news coming, including key Wall Street earnings reports, January PMIs, central bank decisions from India and the UK, and China's financial markets will return to work after their CNY break on Wednesday. Also, Chinese buyers may be back at Wednesday's GDT dairy auction on Wednesday, which will be an important event after last week's sharp run-up in the WMP price at the Pulse event.
And don't forget, this will be an interrupted week with a public holiday in New Zealand on Thursday, Waitangi Day. So Friday is likely to be a day many people also take off to get a four-day weekend. (But not us, of course.)
The big news over the weekend was the US imposing 25% tariffs on its neighbours Canada and Mexico. Worryingly, these mean the US has unilaterally broken its (Trump-imposed) CUSMA (or NAFTA 2.0) trade treaty obligations. And more of an issue for any country contemplating making a treaty with the new US Administration is that the basis for these new tariffs are essentially jingoistic and trumped-up, that pretend anecdotes are "common sense" when they are just raw self-servicing prejudice.
Mexico and Canada hit back immediately. Canada also imposed a 10% tariff on their oil exports to the US. China is going through the WTO dispute process.
An easy way to keep an eye on US inflation is to watch the daily US petrol price. As at today it is US$3.10/gal. We will check back regularly to watch how tariffs impact that. Of course demand will impact that too.
How will this affect New Zealand? Here are some early thoughts.
Earlier the alternate US inflation measure, "the one the Fed watches", their personal consumption expenditures price index, rose +0.3% in December from November, the highest gain in eight months, but it was the rise expected. That means their year-on-year PCE inflation came in at 2.6% and its highest in seven months by this measure. The new tariffs are likely to mean higher inflation, something Trump acknowledged in a Fox interview.
There were no surprises in any of the income, consumption, or savings data in the PCE release. This may turn out to be the low point in their inflation cycle.
The January Chicago PMI recovered from the weak December result on the back of better new order inflows and higher production levels. But it remains in deep contraction territory. The outlook responses in this regional survey weren't very bright.
In Canada, apart from the new tariffs from the US, they are wrestling with what the 25 year 'extreme' difference means between their policy interest rate, 3.00% and the US Fed's "4.25% to 4.50%". In market terms that is a 140 bps discount the Canadians carry. It has been thought that +/-100 bps is in the comfort zone for financial markets, so we may start to see reactions and implications. There could be lessons for other economies, although Canada may be facing extra pressures from the tariffs.
Japanese industrial production rose in December from November and that limited the year-on-year decrease to less than expected.
Japanese retail sales rose +3.7% in December from the same month in 2023, up from a +2.8% gain in November, and better than market expectations of a +3.2% rise. This is the 33rd straight month of expansion in retail sales and the fastest growth since June 2024. Rising pay levels are getting the credit for the expansion.
In India, a new Union (national) Budget has cut income taxes (see pages 28 and 29), in the hope it will arrest the cooling of their economic activity by enhancing domestic demand. Those earning about NZ$24,000 pa will pay no tax, and the tax bands above that have been indexed higher. They will still run a deficit of -4.4% of GDP if they can maintain a +6.8% growth rate. They will pay for the tax cuts by restraining their spend on updating their infrastructure. India also cut tariffs.
In Argentina, their central bank cut its policy interest rate by -300 bps to 29% on Friday NZT, as inflation eased again. But annual inflation in Argentina was still at 118% in December, the softest increase since July 2023, down from 166% in November.
EU inflation expectations rose to 2.8% in the ECB's December survey, taking it back to early 2024 levels. In the ECB MPS, they noted there is still more work to do to quash these expectations. Actual EU inflation ended 2024 at 2.7% and it too is rising.
Aussie producer prices rose +3.7% in December from a year ago, but even if that is high, it was their slowest rise since early 2021.
The UST 10yr yield is at 4.54%, up +3 bps from Saturday at this time. The key 2-10 yield curve is steeper at +34 bps. Their 1-5 curve is also slightly steeper at +18 bps. And their 3 mth-10yr curve is now at +22 bps and steeper than Saturday. The Australian 10 year bond yield starts today over 4.43% and down -2 bps. The China 10 year bond rate is unchanged (while they are on holiday) at 1.64%. The NZ Government 10 year bond rate is now at 4.59%, unchanged from Saturday.
The price of gold will start today at US$2799/oz and down -US$10 from Saturday and off its all-time high.
Oil prices are virtually unchanged at just on US$72.50/bbl in the US and the international Brent price is now US$75.50/bbl and holding the Saturday retreat.
The Kiwi dollar is now at 56.4 USc and down -40 bps from this time Saturday. Against the Aussie we are down -10 bps at 90.7 AUc. Against the euro we are little-changed at just under 54.4 euro cents. That all means our TWI-5 starts today just on 67.1, and down -10 bps from Saturday.
The bitcoin price starts today at US$98,142 and down a sharp -6.5% from this time Saturday. Apparently isolationism and tariffs are not good for crypto. Volatility over the past 24 hours has been moderate at +/- 2.1%.
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54 Comments
American people were expecting Trump to deliver on his promise that he would make them better off. And soon too. Majority of commentators know these measures will take everyday money out of everyday pockets. That’s Joe Blow’s family, not Richie Rich’s. Inflation was already doing that and Biden’s lot got blamed and booted. Trump has put “things” on a tightrope over a canyon and a big wind is building.
'essentially jingoistic and trumped-up, that pretend anecdotes are "common sense" when they are just raw self-servicing prejudice.'
When was the US anything else?
Monroe Doctrine on, smiling face gloved fist. Admittedly, there was the presumption that there was a brain behind it...
As you say, growth.Imperialism is imperative. The USA didn’t really feature that much internationally until post WW1. But there were harbingers. 1812, invasion of Canada. Secretary of State Seward wanted to invade a Sth American location as distraction to prevent the civil war but anyway after that, he got Alaska and in a more favourable political wind would have got Greenland & Iceland. Imperialism really didn’t start in earnest until under McKinley with the undeserved declaration of war on Spain, hence Cuba, the Philippines and before that of course the dubious takeover of Hawaii. Based on that, under the new captain, it looks like full steam ahead doesn’t it.
Here's an interesting question; while Trump is busy imposing tariffs on imports, how much of the raw resources his rejuvenated manufacturing will need are actually available from US controlled territories? I note the aluminium from the bluff smelter mostly goes to the US, although Rio Tinto is British - Australian.
In off shoring a great bulk of its manufacturing the USA has long lost industrial plant and skill. That is showing up in the like of Boeing and naval dockyards. As well there are minerals and componentry that they never have had. Based on that the success of the great internal rebuild looks highly shaky and certainly not fast.
Please explain to me like I'm a 5 year old how tariffs across the board stop fentanyl use ? Sure if you put a 50% tariff directly on fentanyl or the precursors, sure. They are putting tariffs on to try and get businesses worldwide to move back to the USA, but as pointed out it takes a minimum of 24 months to build a large plant and then staff it so Trump will be gone and so will the tariffs by then.
Yep, and that just got turned around here too. I note on the weekend media reports that cocaine is finding it's way back in in large quantities to undercut meth. They've clearly found a new way past Customs. Until we find out what it is and how to stop it, cocaine will still rank highly.
The whole world is going to struggle to get back to peaceful cooperation where invasion of your neighbour is considered a 'no-go'.
Long term this means much, much higher military budgets as countries need to protect themselves without a world order to do so. That means less spending on the things that actually make life good.
Krugman on Bloomberg says it will be worldwide:
Krugman says Trump's tariffs are like "throwing sand in the gears of international commerce and manufacturing."
It will be comical (kind of) to watch central banks and the commentariat dealing with rising prices while their economies are demonstrably running with ample spare capacity. Maybe we will take another step away from the idiocy of 'prices can't rise if we hike rates, bankrupt more businesses and throw another stadium full of people on the dole'.
'prices can't rise if we hike rates, bankrupt more businesses and throw another stadium full of people on the dole'.
I don't think that's the mantra, just that cash rates are one of only few tools central banks have to influence (not control) inflation. Obviously, if a natural disaster wiped out say, China, central banks are incapable of countering the cost implications.
That's not your mantra, no. But, I regularly have this debate with self-celebrating, investopedia-educated, know-littles who genuinely believe that there is no inflationary pressure that monetary policy can't cure. If we see CPI-measured inflation creeping back up in the next few months, we will no doubt see comments to that effect on this very website (above and within the comments section).
The price of gold will start today at US$2799/oz and down -US$10 from Saturday and off its all-time high.
Thanks to the crypto space, gold has been trading when traditional markets are shut down for the weekend. At present, the PAXGOLD price is USD2,911. JPM said that gold 'might' hit this price until 2026. Looks like something has potentially broken. But probably nothing.
Imagine what could happen if they reprice gold reserves to handle debt. It could be announced late on a Friday and people could 10x on a weekend.
Would never happen in the climate change industry.
"...The entrenchment of the amyloid hypothesis has fostered a kind of groupthink where grants, corporate riches, career advancement and professional reputations often depend on a central idea largely accepted by institutional authorities on faith. It’s unsurprising, then, that most of the fraudulent or questionable papers uncovered during my reporting have involved aspects of the amyloid hypothesis. It’s easier to publish dubious science that aligns with conventional wisdom.
...That phenomenon is not isolated to Alzheimer’s research. The broader incentive structures in science — where pressure to publish, secure funding and achieve breakthroughs is immense — can lead even well-meaning scientists to make shocking choices."
https://www.nytimes.com/2025/01/24/opinion/alzheimers-fraud-cure.html?u…
I have argued similarly in the past. 'Conventional wisdom' has often been based on the charisma, political clout and connections of the proponents rather than evidence. And people who choose to challenge that 'wisdom' can face some serious negative consequences. Scientific research is only one area. Much of the discussion on this site, and my own experience, identifies that this attitude is rife through government departments too.
Good to see the role of peer sites such as PubPeer, "where scholars and sleuths challenge scientific papers".
One of the best things about the scientific approach is the publishing of workings and data, the opportunity for others to raise issues - along with the field being one where the easiest and fastest way to get attention is to disprove existing wisdom. AI should be quite useful for helping detect image manipulation too.
Of course, we've seen the corruption of science before - by the tobacco industry (paid men vs. the wider scientific community), pharma, supplements, oil and gas.
The bitcoin price starts today at US$98,142 and down a sharp -6.5% from this time Saturday. Apparently isolationism and tariffs are not good for crypto.
Crypto markets in turmoil as we speak, except for rat poison, which is holding up comparatively speaking.
Many of the altcoins that the hardcore degenerates play with are being absolutely slaughtered. Will be plenty of younger traders wiped out so don't be surprised if they go to the bank of Mum and Dad for a $10K loan to get back in the game. Plenty of disappointment as we're supposed to be in a bull market.
Team Trump on the attack against USAID. While it may be difficult to understand, this is a good thing as most governments don’t want USAID funds flowing into their countries because they understand where much of that money actually ends up. While marketed as support for development, democracy, and human rights, the majority of these funds are funneled into opposition groups, NGOs with political agendas, and destabilizing movements.
At best, maybe 10% of the money reaches real projects that help people in need, but the rest is used to fuel dissent, finance protests, and undermine administrations that refuse to align with the globalist agenda. Cutting this so-called aid isn’t just beneficial for the United States; it’s also a big win for the rest of the world.
https://edition.cnn.com/2025/02/01/politics/usaid-website-offline-freez…
Potentially not a regular orphanage.
Examples of projects assisted by missions' Health and Family Planning offices are projects for the eradication of communicable diseases, strengthening of public health systems focusing on maternal-child health including family planning services, HIV-AIDS monitoring, delivery of medical supplies including contraceptives, and coordination of Demographic and Health Surveys. This assistance is primarily targeted to the poor majority of the population and corresponds to USAID's poverty relief objective, as well as strengthening the basis for socio-economic development.
I have worked for a few big and small NGOs in this space, overseas who have received USAID money. We used to track exactly what percentage of money was used for frontline work vs back office/project support work, in fact its part of the accounting demanded by almost every donor, often with targets around what percentages are used.
Your reckons of "At best, maybe 10%" are laughably low. Most of the places I worked were around a 60/40 to 80/20 split, with 60-80% going to frontline actions. The ones that were 60/40 often were lower because the extra administration/security/logistics of getting into areas of need.
The rest of the globalist agenda stuff is great conspiracy theory reading though, keep it up.
If tariff's are a tax paid by the importer and passed on to consumer (ie US customers), then why do countries respond by imposing their own tariff's i.e a tax on their own citizens.
Seems to be the best response would be no response. i.e if Trump wants to send prices higher for US then go for it, but we aint doing the same for our people.
I don't get the logic of the retaliatory response tariffs.
If you're the US Govt, you deficit spend to offset your current account deficit (at least). This means that your population gets loads of stuff from the rest of the world, and the rest of the world gets your dollars (debt), which they typically convert into US Treasuries (also debt). You could argue that the flow of cheap stuff into the US is a 'tax' on the rest of the world.
The US is able to maintain a strong dollar because US dollars and Treasuries are a highly valued US export - the rest of the world needs and wants those dollars / Treasuries.
Before we get too sniffy about this, we should note that we have run current account deficits with the rest of the world for over 50 years. Our dollar has not crashed because our institutions are trusted - we are good for our debts and offshore investors are happy to hold and trade them. Last year we exported around $27bn of debt. Indeed, our debt exports are bigger than dairy!
.Our dollar has not crashed because our institutions are trusted - we are good for our debts and offshore investors are happy to hold and trade them.
NZD/USD fell 37.5% during the GFC.
NZD/JPY fell >50% over same time.
NZD and AUD are risk currencies whether we like it or not. Mainly because we live beyond our means.
You can pick some random drops and crashes by time or currency, or you can look at the trade-weighted index over the long-term. What do you see?
I chose the GFC because it represents a period of carry trade unwinding. AUD and NZD were punished more than any other OECD currencies during the GFC, particularly relative to JPY.
The TWI is relatively stable not volatile. The TWI overlooks the significant impact of capital flows on exchange rates. Because of financial globalization, the TWI doesn't necessarily represent a currency's actual strength.
https://www.rbnz.govt.nz/statistics/series/exchange-and-interest-rates/…
@Jfoe
The US is able to maintain a strong dollar because US dollars and Treasuries are a highly valued US export
"...highly valued US export". Historically, yes. Why have Japan and China, the two biggest holders of US debt, been aggressively selling Treasuries in recent years? China since 2018 and Japan since 2022.
Our dollar has not crashed because our institutions are trusted
If Japan and China are net sellers of US debt, do they still trust US institutions like the Treasury?
I’d appreciate a response from Jfoe.
In India, a new Union (national) Budget has cut income taxes (see pages 28 and 29), in the hope it will arrest the cooling of their economic activity by enhancing domestic demand. Those earning about NZ$24,000 pa will pay no tax, and the tax bands above that have been indexed higher.
Can someone offer some context here, what would the mean and median worker earn in India?
"This may turn out to be the low point in [the USA's] inflation cycle."
That depends on how long this goes on for. Yes, an initial burst of inflation is likely.
But as economic contraction sets in and people start getting laid off, inflation falls real fast, cash becomes king, and people get real cautious about spending.
In the US, businesses have been preparing for this, evidence: we saw "investment" fall about 1%. I expect globally, businesses have likewise been nervous about investing in new plant, machinery and/or business growth initiatives.
It all comes down to how long this lasts.
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