Here's our summary of key economic events overnight that affect New Zealand with news it remains unclear what happens next after the chaotic round of US tariffs on their closest trade partners, and then their unexpected suspension.
But first up this morning, we can report a strong dairy auction result, with prices up +3.7% in USD terms and up +4.0% in NZD terms. The key WMP price was up +4.1% in USD terms and is now sitting much higher than the anticipated US$4000 level. There were a couple of key factors at play today. First, despite rising NZ production, the volume of product on offer was down, and along with lower US and Australian milk production, there is a supply squeeze. And secondly, there was strong pre-Ramadan buying although not so much from China as anticipated. Where each component has landed can be checked in our dual-currency charts that also interleave the Pulse results for SMP and WMP as well. There are some new high benchmarks achieved today, especially the WMP price in NZD.
And, yes, the strength of this auction will have analysts reassessing their payout forecasts. But they will probably hold back because of where we are in the season. However, the base is now quite strong.
US job openings fell by -556,000 to 7.6 million in December, to a lot less than anticipated and indicating a definite cooling of the American labour market. Clearly employers were uncertain about how the post-election landscape would play out. And this came well before the aggressive purging of Federal government jobs now underway.
Perhaps worse, new orders for manufactured goods sank -0.9% in December from November, extending the revised -0.8% drop in the previous month, and firmly below market expectations of a lesser decline. It was the sharpest monthly drop since June.
But retail sales were up +5.7% last week from the same week a year ago on a same-store basis and that was an improvement. However you have to wonder whether this rise was motivated by buying ahead of expected price rises flowing from the signaled tariff increases.
Surging inventory levels has seen the US Logistics Manager’s Index jump in January from December to its fastest expansion of the logistics since June 2022. Underlying growth and the uncertainty surrounding trade regulations, particularly the tariffs on Mexico, Canada, and China, drove the defensive inventory moves.
On the trade war front, the US delayed its tariff imposition in both Mexico and Canada by a month, but China set in motion is retaliation, a mixture of its own countervailing tariffs especially on coal, oil and natural gas, plus major 'investigations' of Google, Nvidia and Intel. It also banned exports of some key minerals. But analysts think there is more symbolism here than hard penalties. They are being saved for later in the game.
In Canada, consumer boycotts may have a bigger effect than official retaliation. Other major economies are also readying their retaliation, including Japan and the EU. If all of them act in unison, the impact of just these five big trading blocs will be substantial for the US (and themselves of course).
China thinks it can win the trade war with the US just by letting the yuan sink. In fact, all currencies vs the USD are falling. That way imports become cheaper for US buyers, and US exports become more expensive (and less attractive) to overseas customers. It is lose-lose for the US. Trump is fighting natural market forces with unnatural tariffs.
Join us at 10:45am this morning when we will report the Q4-2024 unemployment rate. Markets expect it to have risen to 5.1% from the Q3 4.8%. Any variance from that will have implications for the February OCR review due on the 18th of this month.
The UST 10yr yield is at 4.52%, unchanged from yesterday at this time. The key 2-10 yield curve is a little steeper at +31 bps. Their 1-5 curve is little-changed at +15 bps. And their 3 mth-10yr curve is now at +22 bps and marginally steeper than yesterday. The Australian 10 year bond yield starts today over 4.48% and up +5 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 4.55%, up +1 bp from yesterday.
Wall Street has opened its Tuesday trade with a +0.5% recovery on the S&P500 after the tariff deferrals. Overnight European markets were all up about +0.7% except London which was up half that. Yesterday Tokyo closed up +0.7%, But Hong Kong jumped +2.8%. Shanghai was closed but will open again today. Singapore ended down -0.1%. The ASX200 ended its Tuesday session also down -0.1% but the NZX50 was up +0.7%.
The price of gold will start today at US$2840/oz and up +US$23 from yesterday and another new record high.
Oil prices are virtually unchanged again at just on US$72.50/bbl in the US and the international Brent price is now US$76/bbl and a tad firmer.
The Kiwi dollar is now at 56.2 USc and up +20 bps from this time yesterday. Against the Aussie we are down -20 bps at 90.3 AUc. Against the euro we are up +10 bps at just on 54.4 euro cents. That all means our TWI-5 starts today just on 66.9, and up +20 bps from yesterday.
The bitcoin price starts today at US$99,502 and up another minor +0.6% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.2%.
We should finally note that tomorrow (Thursday, February 6, 2025) is a public holiday in New Zealand and there won't be a Breakfast Briefing edition. It will return on Friday.
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69 Comments
Another bank CEO seeing a scenario where rates remain HFL:
"I can see inflationary pressure coming out of tariff, tariff war and that in turn would mean that central banks would need to stop their easing path, potentially even reverse something that is not priced in the market." - UBS CEO Sergio Ermotti
"Tariffs: Markets Don't Price in Inflation Risk, UBS CEO Sergio Ermotti Says"
https://youtu.be/nMVx-VTEwmQ?t=363
Would not China’s import of oil & gas in the main depend on friends such as Russia, Iran, Iraq and also coal from Australia. Therefore as suggested here, these tariffs on the USA are a token retaliation. More telling will be such as soy beans. The thing is though, if tariffs are thought to impact mostly on the country of import, rather than export, then costs and inflation are driven up relatively. Perhaps Trump & Co believe the USA can withstand inflationary pressures easily enough which of course is entirely opposite to what the population indicated in their rejection of the Biden lot.
Trying to second guess what a person like Trump is thinking is fraught with issues. We assume he applies regular person rationale to his thought process.
Imagine playing a game of poker against Trump and Biden. Quite different techniques I imagine.
Pretty sure Trump would beat Biden at Snap! Would be good viewing. SNL take note.
Trump is a poor negotiator and business man. You are being fooled (as most) by the role he played in a TV programme!
Not fooled. Just, to spell it out, relishing the prospect of Alec Baldwin (Trump) and Dana Carvey (Biden) playing a card game of Snap on Saturday Night Live
"You went full retard, man. Never go full retard" - Robert Downey Jr. in Tropic Thunder
Stable genius at work
https://edition.cnn.com/2025/02/03/climate/trump-california-water-dams-…
I'm at a bit of loss to understand why individuals even follow his stupid declarations.
Yeh just don't understand.
For the US Army Corps of Engineers, maybe they are still following the McNamara's Morons practice of recruiting.
Here's a link: McNamara's Morons : LOW IQ Soldiers in Vietnam | 5 Minute History
If soldiers aren't too bright, they are less likely to question orders.
The reality is tariffs are really about protecting, or creating, industry at home. If there is any 'punishing' happening it is the threat of competition.
As I indicated yesterday in a comment stream, globalisation was an American creation and a subset of the "Free Market" policies of Milton Friedman. COVID demonstrated the flaws in those policies, but any good logistics manager could have explained those. I wonder what, if any, feedback Trump is getting from his major corporations. Some billionaires income streams are going to be looking somewhat pale for a while.
I have indicated in the past that NZ needed to learn the lessons from COVID about national resilience, and it seems President Trump is the teacher. Whether our Government is receptive though is an entirely different matter, although it seems NZF may understand the issue.
Let’s get some unemployment predictions from the interest.co.nz pundits
I’m going to say it’s got to be worse than predicted. Having my boots on the ground in construction leads me to lock in a 5.2% rate. Even with Australia absorbing a lot of our unemployed.
I’ll go 5.1
4.9 people finding living tough but most still employed, just.
Unemployment in the 5s for 2025, 6s for 2026, 7s for 2027. Full unemployment by 2100 when the robots take over.
Edit: I should've said full unemployment by 2120 to keep it linear, 1% increase per year.
100% employment by 2100. The robots won’t pay us though.
I see nothing in NAct plans to turn things around, its impossible to restart Housing, and if the fire turns into an inferno we have a lost decade on our hands...
5.1%
I made my prediction earlier this week - bang on 5.0%. What will decide whether it is 5.0 or 5.1 (or 5.2 at a stretch) is how many people respond to the labour force survey and say they they are not in work nor looking for work. This group are not counted as unemployed as they are 'not in the labour force'. There are 1.25 million working-age people in this group and the annual growth rate is running at around 5%.
Except the reality is that the actual number is way higher. The official numbers are smoke and mirrors, has been ever since they came up with new categories and called it "Job Seeker"
Jfoe's point is that the official unemployment figures aren't how many people are receiving a benefit, but those who want to work and can't get it (based on the HLFS). The smoke and mirrors of different benefit categories aren't relevant.
Are you saying there are 1.25m working age people 'not looking for work'? That seems crazy high.
How does this relate to the underutilization rate? Stats nz has that as 11.6% or 367k people.
Also factor the massive increase of people on ACC. There’s a huge percentage of them that are milking the system that would otherwise be unemployed. Like you say, the actual rate is far higher.
ACC used to be a massive swindle, I personally knew someone on it for like 6 years while still physically capable. Like I said there are multiple categories now to shift people out of the old "Unemployment benefit" that just distorts the numbers. Real unemployment is like double. They have cracked down on ACC these days.
Wellington RVs released today. Ours is down 26% from the stupidly overblown August 2021 RV - I'd predicted about 25-30% so I'll take that as a win. Being on the greater side of the devaluations our rates won't go up as much as most. Good times.
ETA: For those playing the "property doubles every 10 years" game, the RV is triple what we paid in 2004.
Miramar 21% drop
The drop reflects recent sales - so the market was responding already.
Those that will be impacted the most by the devaluations are those that borrowed up to the max available to them based on the 2021 valuations - whether that was new borrowing or refinancing (for renovations, for example).
Gotta love that Dairy auction. Although ytd has seen a rise in production the soil moisture map shows a potential different story going forward.
2.1mm of rain over night.
edit
Realized I got it wrong, 1.2mm
Just heard SH2 between Matata and Paengaroa closed due to flooding.
Long range forecasts looking grim..and no cyclones in sight for now (well sliding past us)
Maybe we need Yvil to do a rain dance for the farmers?
0.2mm here in Hawkes Bay overnight. I could smell more rain than I could feel. I had to clean out the rain gauge a few days ago because spiders had taken up residence due to it being a nice dry spot.
The ghost of Muldoon resonates. In opposition listening grumpily to the government trumpeting the great progress of cheddar in the UK he sang out “ oh what a friend we have in cheeses.” Not wrong actually.
Its very dry where I am, the rain keeps skirting around us. I see Niwa think we might get some tropical action later in the month. great hay making weather.
The low pressure in the tropics has woken up. NZ is dominated by blocking high pressure for the forseeable future. Only 7 or so more weeks of water temp being high enough for cyclones to make there way down here. Might be another cyclone free summer.
Wait, I was told cyclones spinning down to NZ from the tropics were due to climate change.
The cyclones will be bigger and stronger due to climate change. It doesn’t mean we have an increased chance in them hitting us.
Thanks, it's never clear.
The IPCC has always made it very clear - been a field day for politicians and troughing activists.
"The climate system is a coupled non-linear chaotic system, and therefore the long-term prediction of future climate states is not possible."
Again the old climate/weather canard cut and paste from our resident reality denier.
"The word "climate" refers to the range of expected weather conditions, including temperature and precipitation levels. Conversely, "climate states" refers to the presence or absence of relatively discrete weather events like a rainstorm."
Profile deliberately, "fundamentally misinterprets the 2001 IPCC statement says Zeke Hausfather, a research scientist at Berkley Earth and IPCC author. The statement correctly indicates that climate models cannot predict exact "climate states," such as a particular weather event, on a given day in the distant future."
https://www.usatoday.com/story/news/factcheck/2022/05/23/fact-check-cli…
You really are a lowlife sometimes Profile, deliberately distorting truth to promote your personal wacko ideology.
Why the ad hom?
Zeke Hausfather makes a living from the climate panic and is contradicted in your "fact check". Can you find anyone who has ever said climate state is the weather some day in the future? Here I will halp you.
"Climate state describes a state of climate on Earth and similar terrestrial planets based on a thermal energy budget, such as the greenhouse or icehouse climate state."
Hausfather is a respected researcher and being an IPCC author probably has a better idea about the intent of the passage than anonymous poster named "profile".
"Based on our research, we rate MISSING CONTEXT the claim that the IPCC said "long-term prediction of future climate states is not possible," because without additional information the claim is misleading. The IPCC statement accurately asserts that "climate states" such as weather events or the occurrence of an El Niño cannot be predicted very far in advance. However, this does not mean that climate models are unreliable, according to IPCC researchers"
The bottom of the refered article contains several scientific sources.
Why don't you quote the conclusions of the IPCC instead of just cherry picked spin?
"human-induced climate change is already causing widespread and significant impacts across the globe"
Why the ad hom? The IPCC statement is not discussing weather events or weather on discrete days in the future so why pretend it is? If the models are so great why do the need an ensemble and why, as Zeke admits, does a volcano throw them out? Here is the wider framing for you straight from the horses mouth. Note the word dautning - they can't even model clouds yet.
"Executive Summary
Further work is required to improve the ability to detect, attribute, and understand climate change, to reduce uncertainties, and to project future climate changes. In particular, there is a need for additional systematic observations, modelling and process studies. A serious concern is the decline of observational networks. Further work is needed in eight broad areas:
The climate system is a coupled non-linear chaotic system, and therefore the long-term prediction of future climate states is not possible. Rather the focus must be upon the prediction of the probability distribution of the system�s future possible states by the generation of ensembles of model solutions. Addressing adequately the statistical nature of climate is computationally intensive and requires the application of new methods of model diagnosis, but such statistical information is essential.
- Improve the integrated hierarchy of global and regional climate models with a focus on the simulation of climate variability, regional climate changes, and extreme events. There is the potential for increased understanding of extremes events by employing regional climate models; however, there are also challenges in realising this potential. It will require improvements in the understanding of the coupling between the major atmospheric, oceanic, and terrestrial systems, and extensive diagnostic modelling and observational studies that evaluate and improve simulation performance. A particularly important issue is the adequacy of data needed to attack the question of changes in extreme events.
- Link models of the physical climate and the biogeochemical system more effectively, and in turn improve coupling with descriptions of human activities. At present, human influences generally are treated only through emission scenarios that provide external forcings to the climate system. In future more comprehensive models, human activities need to begin to interact with the dynamics of physical, chemical, and biological sub-systems through a diverse set of contributing activities, feedbacks, and responses.
...The challenges to understanding the Earth system, including the human component, are daunting, but these challenges simply must be met.
https://archive.ipcc.ch/ipccreports/tar/wg1/index.php?idp=501
It is very clear.
No, this year it's cyclones not coming down is due to climate change.
OK heavy dew..
Back to the future
https://www.youtube.com/watch?v=fhJoMI4tMpQ
Will you and yours be in the 'winning team'?
Could some more knowledgeable than me please explain how tariffs on imports are fundamentally different from GST. Obviously, gst applies to everything, but if you had a blanket import tariff, couldn't that be used to offset GST?
Trump didn't want to put tax up, so he's trying to use tariffs - a tax. The other 'hidden' tax is inflation, but they've played that card.
Ask, why would a country respond to tariffs with tariffs? Makes no sense to respond by putting prices up for your own citizens. But hey...what an opportunity to hide another tax hike in disguise as a retaliatory response!
It's not the hard to understand. The US is a domestic consumption driven economy and has one of the lowest export as a % of GDP ratio's.
The world needs the US more than the US needs the world. For all his faults, Trump has grasped this most simple piece of macroeconomic information and run with it. Like a kid with a new toy, he is going to threaten everyone with Tarrifs until he gets the US in trade balance with it's major exporters. He wants US firms to onshore their supply chains.
It's an interesting point; relatively few industries have a production capacity to feed an export demand. Those who have, off-shored their manufacturing years ago. Will Apple or M'Soft maintain foreign manufacture, but bring some manufacturing capability home to meet internal demand? That'd push the cost up significantly for Americans.
Those corporations have been somewhat blase towards the risks of manufacturing in China and other countries. But they don't seem to care.
Yea well look at the chaos Chinese motor vehicle production is causing Germany who are applying tariffs, VW may not make it much longer.
The penny will drop one day for the liberal left, that we have allowed China to become the worlds manufacturing hub at our peril. Yes, we all had a significant standard of living boost. But what now that our manufacturing is hollowed out, unemployment is rising, we need mass immigration to keep nominal GDP positive.
Trump's a goon, but he's smarter than 99% of the media.
My Ford Ranger was assembled in Thailand.
I am curious; where were the bits manufactured? Did the truck arrive in Thailand as a kitset to be assembled, or were the bits manufactured there too?
There are a lot of consequences coming. I'm not sure we can see them all.
Massive number of Automotive assemblies now made in China, even for the likes of BMW. As soon as you have a circuit board and a few components in an assembly, it gets made in China and shipped as one completed piece ready to plug in. There is now a big difference between "Assembled in" and "Made in".
Thailand has a good quality engineering capability, particularly cnc type milling, and casting. It is quite conceivable parts for the ranger are made there, that would be a good thing.
Trump providing the stick, Biden provided the carrot with the CHIPS act and IRA.
Bidens plan is much better. It is targeted, and he implemented it properly and signaled exactly why it was happening.
Trump is already backtracking on his plan, is unpredictable, and is unclear as to his motivation (he said fentanyl, but that is an obvious lie). Nobody knows what is going on and how long it will last, so nobody will be rushing to onboard manufacturing in the USA because of a possible trade war that might or might not happen, and who knows how long it will last.
Just a distraction while Musk and his minions take over government in the shadows.
https://www.reuters.com/world/us/musk-aides-lock-government-workers-out…
Yes, flooding the zone with sideshow stuff to distract from looting.
The world would last a lot longer without the US than the US would without the world. Canada alone would kick their ass by just turning off the spigots. China would knock them out. The US is so divided and insular - they would eat their own tail.
Secondary effects. See my comment above. Tariffs are imposed for a different reason, primarily to protect industry at home from cheaper goods imported.
But it is an interesting question - a sales tax on imported goods?
If they were to protect industry at home the Trump would need to tariff every country. The US does not suddenly become more capable than China because of a tariff - but Vietnam etc does. It is all bluff and trump has been found out, hence the 'delay' and pretence of a result.
That's what they are for, Trump is doing his own thing.
And nothing happens suddenly. A tariff imposed on China would be intended to create the conditions for it to be economically viable to build the manufacturing industry in the country. Indeed Trump has actually said that - he's trying to bring the jobs home. Whether he succeeds is another question. It will take time for any business to run it's own analysis and costings make the decision, build the capability and then start producing, and eventually build up to meet any market demand. I'm not sure Trump understands the time frames he needs?
Personally i can't see it succeeding. The big corporations have screwed America as much as they've screwed us.
Tariffs impact differently depending on the status of the product itself. Often if the exporter really needs the market it will be forced back on them by way of a compensatory deduction from the invoice CIF amount. For instance, if I have this correctly, last time round when China tariffed USA soy bean exports the USA had to then subsidise their farmers relatively. The same when President Clinton applied a tariff and quota to NZ & Australian lamb exports, NZ producers had the cost pushed back onto them. Said all that to demonstrate just how distortionary tariffs can become. Governments would be reluctant to allow tariffs to affect their own tax structure firstly because they are fickle and can be removed overnight and as far as NZ GST that works as a blanket indirect tax and very difficult to become selective within that structure in the first place let alone based on influences that are out of their control.
Free trade agreements won't allow it.
We need to find a way to do it, perhaps higher gst on everything, but then deductible for made in nz goods and services.
Morningstar Kiwisaver survey:
"Conservative funds returned an average 1 percent in the quarter and 7.4 percent over a year.
Moderate funds were up 1.3 percent in the December quarter and 8.7 percent in the year.
Balanced was up 2.8 percent in three months and 13 percent over the year, growth 3.3 percent in the quarter and 15 percent in the year, and aggressive 5 percent in the quarter and 19.1 percent in the year."
ANZ caned
https://www.rnz.co.nz/news/business/540960/biggest-kiwisaver-provider-a…
David. Friends who live in Wisconsin paid 2.68 a gal today. Not 3.10 as you stated each state price is different California one of the highest but then you dont pay road tolls hence the freeway. Anyhow the fuel price has gone down since Trump came in they said was higher when Biden was in. Sometimes you get a more accurate picture from people on the ground
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