Here's our summary of key economic events over the weekend that affect New Zealand with news it doesn't look like our trading partners are going to be that helpful getting us out of recession.
This week we will be watching for the Selected Prices inflation indications on Friday. And financial markets will be doing their final jostling for the following week's set of monetary policy decisions, first from the RBA on the Tuesday of that week, and the RBNZ the next day. But this coming week the US will release its CPI and PPI reports, and the Fed will face a partisan Congress to explain the Monetary Policy Report they released over this past weekend. India will release updated inflation data, and the EU its Q4 GDP growth result. And this week a set of sentiment surveys will be released in Australia.
Over this weekend there were some major releases from the US.
First, the Fed released its semi-annual Monetary Policy Report. Although it got almost no wider media coverage, it does point to some very interesting stresses they are going to have to work their way through. And they are issues that could have global consequences. While they see banks having 'ample' liquidity at present (previously they saw 'abundant' levels, so a shift), in fact as a proportion of their economy it is historically low. If banks have low liquidity, that puts the Fed in a tough spot if it want to keep shrinking its balance sheet. The Fed's 'normalisation' is an economic tightening process that only works without consequences if the banking system has excess liquidity. When that shrinks, as it seems it is, then overall low liquidity could jerk benchmark interest rates higher. Something will give, and the Fed may have to stop its QT process. Announcing that is a big market signal and this MPR suggests it is close.
Secondly, total US consumer credit surged by almost +US$41 bln in December, far exceeding the forecasted +US$$12 bln. In fact it was the largest increase in the history of this metric. Revolving credit, which includes credit cards and personal lines of credit, jumped by +US$23 bln. Meanwhile, nonrevolving credit, which covers car loans and student debt, increased by +US$18 bln. The overall +2.4% year-on-year rise suggests consumers are only modestly taking on more debt however, similar to inflation's rise.
Third, US January non-farm payrolls growth came in less than expected, up +144,000 when the average of market estimates was +170,000. In 2024 that would have been regarded as a "big miss'.
The data collectors said that wildfires in LA and severe winter weather in other parts of the country, had “no discernible effect” on employment in the month.
Their jobless rate ticked down to 4.0% and average weekly earnings rose +4.2% from a year ago, so overall a mixed picture.
And fourth, the University of Michigan consumer sentiment survey for February fell from January and quite sharply. It's the second straight month of retreat and is now its lowest reading since July 2024. Both the 'conditions' and 'expectations' measures fell. There was also a large slide in buying conditions for durables, in part due to a perception that it may be too late to avoid the negative impact of their tariff policy. In addition, inflation expectations for the year ahead soared to 4.3%, the highest since November 2023, from 3.3%. This is only the fifth time in 14 years we have seen such a large one-month rise in year-ahead inflation expectations. Many consumers appear worried that high inflation will return within the next year.
Not only is this measure of sentiment down in February from January (-4.6%), it is down even more sharply from February a year ago (-12%).
And it is not going to get better. Trump is signaling 'reciprocal tariffs' on many countries, also expected to raise costs for Americans. It will be a major international escalation. No indication here on how that will affect New Zealand that basically doesn't have any tariffs with anyone. (In his alternate reality, he may just invent that we have some, of course.)
An uncertain and fearful American middle class may have a much bigger impact on the global economy than even their new public policy direction. Of course the two are related.
North of the border, Canada turned in a very strong jobs report again, it's second consecutive big gain. +76,000 new jobs were added in January, far higher than the +25,000 expected. Their jobless rate fell to 6.6%. Of course, this too is much more uncertain when looking ahead, for the same US-based reasons.
As the New Zealand dairy industry knows, Canada has an [illegal] trade protection scheme operating for its dairy industry, a system of "supply management". Their industry leaders "don't think it [is] being threatened" in the current stoush with the US.
And while we are reporting about dairy, we should note that American milk consumption rose +3.2% in 2024 while artificial 'plant milk' consumption fell -5.9% in the year. (Source.) That happening at a time when US milk production is steady (+0.7%) will no doubt create some interesting market supply stresses. But these signals may turn that around in the next season. The cost of feed for the mostly barn-housed industry will be the main indicator of how enthusiastic the response will be.
Japan is reporting that household spending jumped in December and by very much more than anticipated. It was up +2.7% in December from November when only a +0.5% rise was anticipated. That large monthly shift now means that the year-on-year rise is +2.3%. If Japanese consumers are opening their wallets, it is both a sign that sentiment is rising, and it will be some counterbalance to the US ructions and the Chinese slowdown. We should not forget that Japan is the world's fourth largest economy, larger than India. It is similarly important for New Zealand exports.
India cut its policy rate by -25 bps to 6.25%, its first cut since April 2020. Their forecasts indicate rising growth and falling inflation. Although that will be what PM Modi wants to hear, they may be 'brave' forecasts. But they are juicing up the stimulus, with this rate cut part of a two-part action to compliment last week's income tax cuts.
In China, their January CPI inflation is meandering close to zero, although it picked up to +0.5% from a year ago in this latest update, and that was because of the +0.7% rise in the month from December. So perhaps they have avoided deflation - in this official data at least. But beef prices were little changed month-on-month but down -13% from a year ago. Lamb priced were up marginally, to be -5.6% lower than a year ago. Their milk prices fell rather sharply in January, taking the annual dip to -1.7%. China's producer prices remained deflationary, down -2.3% year-on-year.
China said its official reserves rose marginally in January, now at US$3.2 tln. US$769 bln of that is US Treasury debt, and falling (Nov-24). (Those holdings may now be lower than those the UK holds in US Treasuries.)
Global world food prices were little-changed in January and are still running lower than a year ago. There was a small dip in sheepmeat prices, a rise in beef prices, and big rise in dairy prices. In fact dairy prices are now at two year highs, but are still -10% lower than when they peaked in June 2022.
The UST 10yr yield is at 4.50%, up +5 bps from Saturday at this time. The key 2-10 yield curve is still at +21 bps. Their 1-5 curve is holding at +11 bps. And their 3 mth-10yr curve is still at +17 bps and little-changed from Saturday. The Australian 10 year bond yield starts today over 4.35% and down almost -10 bps from Saturday. The China 10 year bond rate is now at 1.60% and down -1 bp. The NZ Government 10 year bond rate is now at 4.62%, up +5 bps from Saturday.
The price of gold will start today at US$2860/oz and little-changed from Saturday. But this is up +US$50/oz from a week ago. In between, gold hit its record high of US$2883/oz. Also note, China is now allowing its insurers to 'invest in gold'.
Oil prices are little-changed at just on US$71/bbl in the US and the international Brent price is still at US$74.50/bbl. But these levels are -US$1.50 lower than week-ago levels.
The Kiwi dollar is now at 56.6 USc and up +10 bps from this time Saturday. Against the Aussie we are unchanged at 90.2 AUc. Against the euro we are also unchanged at just under 54.8 euro cents. That all means our TWI-5 starts today just on 66.9, and the same as on Saturday, down -30 bps from a week ago.
The bitcoin price starts today at US$96,463 and a minor -0.3% slip from this time Saturday. And it is -6.8% lower than this time last week. Volatility over the past 24 hours has been low at +/- 0.8%. And we should note that El Salvador has ended its experiment where bitcoin was legal tender. It isn't anymore.
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82 Comments
"Inflation has fallen in Australia and NZ, but which is faring better?"
https://www.abc.net.au/news/2025-02-09/new-zealand-recession-australia-…
Pretty damning, Orr has done a bad job since he was given the role. The OCR has gone from one extreme to another which was never going to result in price stability. Maybe his mandate forced his hand a bit:
The RBNZ tries to keep inflation within a range of 1 and 3 per cent over the medium term (with a focus on the 2 per cent midpoint), whereas the RBA wants to keep inflation within a range of 2 and 3 per cent over the medium term (with a focus on the 2.5 per cent midpoint).
I think they should forget the focus part. If it is within band and predicted to stay there, then do what is best for the economy rather then try and move it from 1% to 2% by lowering the OCR, or from 3% to 2% by increasing. Try and keep the OCR as stable as possible.
The problem is that they use the OCR to save the economy when it suits, instead of just using it to control inflation. There was no reason to lower the OCR when Covid hit, there was no evidence that Covid would cause deflation. The RBNZ decided they needed to be the superhero and it backfired big time.
If you think that, you are not paying attention. The RBNZ has many levers, and uses them all the time. Critics are so conflicted. They say the RBNZ isn't doing its job when it doesn't deliver for their own self-interests. That is not how mandated policy institutions work. They are not your get-out-of-jail-free solution. The one thing the RBNZ can only respond to is fiscal policy. It doesn't make fiscal policy, it can only respond to it. And the fiscal authorities set the mandate, as well as the fiscal settings.
I think this is a very good article for a general audience. Clearly demonstrates that the Aussies have a more dynamic approach to monetary policy settings. They are now in the position to consider more monetary easing, all while keeping growth positive and minimal unemployment. They haven't had to engineer recessions to achieve the same or better outcomes than we have.
Its quite difficult to engineer an Australian recession when you have State Govts flush with cash (mostly borrowed) spraying it upon the populace at large in order to secure elections. Or Premiers like Dan Andrews who was solely focused on leaving a mega-billion dollar legacy behind so borrowing those mega billions to build useless vanity projects (thus keeping employment high) was signed off. Any tightening in monetary policy was offset by loosening fiscal policy, both at State and Federal Govt levels. And there appears to be no sign of any fiscal tightening any time soon despite clear warnings from the RBA Governor.
expected to raise costs for Americans
This is the whole point of the exercise. Many countries subsidize their exports or have very poorly paid workers, artificially lowering prices. They also just blatantly copy hard fought for IP, reverse engineer, thus avoiding the cost of research and development, trial and error and business gambles.
Raising the costs of imports will encourage local manufacturing. Perhaps it will also stop people buying so much worthless junk fit for landfill in a couple of years too.
This obsession with buying things cheap from countries that have different rules and different treatment of their workers should stop.
I sometimes wonder what public transport system we may have by now if we had not allowed importation of second hand jap cars? So much capital spent on cars now down the toilet, whereas the alternate might have been a functional public network.
Or maybe not. Speculating.
If you look at the level of subsidisation for public transport (currently at an average of 80%), it looks like a dud deal to me, especially if fuel excise duty is the primary source of subsidy.
NZTA pushing for PT fare hikes and service cuts - Greater Auckland
Private car owners in theory pay for the cost of their roads.
We just don't have the population density in most parts of the country for decent PT, hence the high level of subsidy. In the areas we do have the density, the geography is challenging.
Local roads are 50% rates and 50% excise tax, so a 50% subsidy to the end user. Highways are 100% excise tax, except for the RONs which are 100% general tax, and that also adds to a big subsidy to the end user. And that excludes all the other subsidies like air pollution, noise pollution, parking, sprawl, poor land use, no rates paid by roads, etc.
As someone who very rarely drives I dread to think how much I subsidise the driving habits of my fellow citizens. Everything from roads to car parks, to increased sprawl due to all the dead space, to having to navigate a hostile transport environment, and air pollution.
And then the same buggers who spew fumes into my face as I bike along complain when a small portion of the resources go towards giving us a moderately safe space to exist.
Car registration is very cheap in NZ for a modern vehicle with good safety crash standards. They need to drop the motorcycle registration however because people are simply not paying it. No way you are going to pay over $500 a year when you ride it like 1000 km over summer if you are lucky.
That's just bad planning. We've had a situation in Auckland where the council has been deliberately trying to make driving less convenient, but have neglected the other half of the equation, which is providing convenient, reliable public transport which people will want to use because they see the benefits.
So Aucklanders end up with the worst of both worlds - unreliable, inconvenient PT and inconvenient car usage. And since Aucklanders then need a car because of the atrocious PT are left in some areas with nowhere to park it because a moron decided it would be a good idea not to require a car park (which would pay rates) and get around to PT someday.
A failure of planning and execution.
We've had a situation in Auckland where the council has been deliberately trying to make driving less convenient
This is incorrect, we have a situation where the council is trying to make it both better to drive and better to use public transport and cycle and walk and park cheaply. In practice driving and parking win out and is heavily subsided, meaning that they need to subsidise even more on the other modes.
If we removed the driving and parking subsidies then we would not need to subsidise public transport as much.
The council policies and approach encourages driving, not the opposite.
Amazing when through car registration you effectively 'lease' a car space for your car 24/7, 365 days for under $400 per year.
You actually lease way more than one space, cars are parked in multiple locations, some studies put it at up to 8 car park spaces per vehicle.
A bit absurd, really. We're just not good at planning and fall for cars-first-and-only schtick too easily. Public transport is subsidised because it also benefits cars and trucks.
We still have folk actively campaigning against allowing intensification around trains in Auckland these days, which is nuts. For a city of Auckland's population.
Our politicians seem only able to push Auckland towards taking a Manila approach to transport, rather than a mature approach. They'll simply lock in greater congestion and suck out more productivity.
Agree that is an obvious purpose f the exercise. The question though is, regardless of merits of the intent, is in the disruption of disestablishing and re-establishing the status quo and whether the USA - industry, commerce, society , in other words the whole damn shooting box, has the understanding and resilience to accommodate the upheaval.
Yes I agree, morally all countries with worse working conditions/lower purchasing power parity should have tarrifs put on the goods they export.
That would raise the price a lot but we might move back to buying less and repairing things rather than replacing everything the moment it has a fault. So more higher quality jobs and less waste?
Trump and his team have picked up on Putin's strategy - if you put forward 5 or 6 versions of the truth, no matter how conflicting, then whoever wants to support you anyway will pick the one they want and discard the others.
This explains how Trump's tariffs are going to simultaneously be used purely as a high-stakes gambling chip, but also raise significant revenue allowing income tax cuts, but also stop people importing stuff.
The play is simple - pick the version that plays best to the audience and circumstance you find yourself in. When the audience changes, just pick another argument.
What's the real reason? Who knows. Trump isn't mentally coherent and he does whatever seems like a good idea at the time. Apparently the proposed tariffs on Colombia were announced from the golf course in between rounds - these are not carefully calculated policies.
Trump is used to doing business on the hoof this way. Unfortunately running the most influential country on the planet is not the same as doing a property deal. Meanwhile Muskcovite is dismantling government in the background and replacing it with.......Starlink United Co? Neurolink America Pty? The United States of Boring Inc?
"Raising the costs of imports will encourage local manufacturing."
I think that's a fallacy. Imports from China are so much cheaper than what the USA can produce, that even with a 60% tariff, the yanks will still buy the Chinese products because it will be 10 times cheaper than an equivalent American made product. Tariffs are simply going to make products more expensive, increase inflation and raise interest rates, which is catastrophic for countries with high debt. Which country has the most debt…? The USA. Trump is a dumbass who is making the USA poorer and he is also uniting the world against the USA.
We are all going to be rich I say!!
The country collects about $10m in royalties from total mineral exports every year, $1.5m of which comes from coal. If Jones’ minerals strategy is successful, and these historical totals are doubled over the next 10 years, $20m would be the annual take.
Bugger
The Crown is still paying off the $80 million tab for treatment of historical damages at Stockton mine, a site set to expand under the fast-track process.
What I would say to you is that this is correct but Shane Jones' donors get rich by privatising profits and socialising costs.
We all pay more and also get to leave a devastated ecology for our children. The important thing is his donors (also NACT donors) get rich and they stay in power. It's all about growth.
So let's all be happy for Shane and his donors and celebrate growth and productivity. Who knows maybe they will employ your kids one day as cleaners. Don't be a DGM.
Clutching. Time to get over the devastating loss suffered by the Labour Party and show some respect for your country’s government. The hatred is embarrassing. How about this for an idea? You spend a week or 2 crying if your team doesn’t win and then recover, get on board, and support where you think you can. If people can’t grasp, and action this, then it is obvious central government needs to be abolished.
Damning hypocrisy from the Trudeau government, and most commentators, over trade protection, subsidies and tariffs already in place.
Thanks for the reminder Mr Chaston, about the numerous restrictive trade practices already in place around the World.
With the likelihood that America won’t impose tariffs on NZ trade (being a five eyes partner and military partner in Afghanistan), there might be room for more dairy exports to USA from what you describe??
NZ’s trade hardly matters it is modest. For example believe McGuigans in Australia on its own, exports more wine than NZ in total. But what is important to us particularly is manufacturing beef. The USA needs the leanness to blend with its fattier domestic product for the absolutely gigantic hamburger trade. There are other suppliers, Australia, Brazil, Argentina among them. If a tariff should be imposed and resultantly lift the price of the beloved burger then that would obviously be highly unpopular. Then again because the market is so important importers may push it back onto the producers, a compensatory deduction from the CIF price. Believe this trade is something of a bellwether as to how the dynamics overall will play out.
No, It was in FDR's third term that WWII started for the US-Dec 7, 1941, By that time Roosevelt had already revolutionized the Federal Government. And then it was the American manufacturing Barons that revolutionized the Arsenal of Democracy, with Henry Ford retooling his newest car plant within 15 months to rolling out bombers at the rate of 1 per hour within a year or two.
FDR won 4 elections, and/or the potential of five terms which is indicative of quite some grip on power. Hard to say though if that would have occurred had it not been for WW2. Remarkably, so strong was his position, that he could appoint Republicans to his cabinet, something that neither party welcomed.
From the AFR today as to how Australia got exempt from tariffs during Trump's first term.
"Then-prime minister Malcolm Turnbull argued successfully on the basis that Australia has a trade surplus with the US and a strong mutual defence relationship."
Not sure if NZ has a trade surplus with the US, but it definitely hasnt got a strong defence relationship after it wasnt invited to join AUKUS. I suspect NZ is seen as being too close to China, especially after the previous Labour Govt said they wouldnt support the Five Eyes position on China
https://www.france24.com/en/live-news/20210419-new-zealand-says-it-will…
I almost choked on my steak and cheese pie this morning, hearing Willis tell me that putting funds in an "approved" managed fund is direct investment.... thus they need to buy a house.... I will look up the approved list and post links here.
The old put 2mil into gov debt was bad enough, especially as a major bank offered a pretty good rate to let you lend that funding....
Here is the link https://www.nzte.govt.nz/page/managed-funds
Makes a mockery of sharing their business experience.
There is also an article posted today in the Herald that it is unfair to ask the rich pricks to spend at least 6 months in the country because rich pricks don't spend that much time anywhere BUT they definitely need to buy a house here ... to keep it empty 300 days of the year? As a bolt hole when they have to flee whatever other country they get expelled from for being a parasite?
Fucking shambles.
I have to be careful least I want to hock my current land to a rich prick from offshore....
,,,, with a Chinese sounding surname... one must only cast your mind back to Manurewa auctions with 24hour tourist bidding.
But I would have thought these rich pricks won't bring much growth growth growth....
It sounds like a great exit strategy for those with the required investment package.
I would have liked to see a bit more hands on investment. Buy a % of company and get on boards etc.
Maybe Winnie has a few Villas to flick.
This is a thinly veiled scheme to reignite the property market. We have tried this before. Does nobody remember the mid 90's ? The families that became fabulously wealthy offloading land (for tax free capital gain) on what was then the fringe of Auckland certainly do. But it's a one time sugar hit. The cost of infrastructure and entitlements for health and education are spread over everyone.
I don't think that would work as we already have an under utilisation issue in hospitals (the time taken from people not showing for appointments and having 0 recourse for it) and in some areas a capacity issue. People can insure all they like but surgeons only have so much time to operate and there are only so many theatres.
As per my other post, its too late. The damage has already been done. The stench of wealth taxes will hang over NZ forever. There is too much Sovereign Risk in NZ to want to bring wealth to this country. NZ is the new South Africa - it wont be long before the next Left wing Govt passes a South Africa style Expropriation Act.
Labour already did that and they only got one applicant.
https://www.rnz.co.nz/news/national/477687/new-millionaire-migrants-vis…
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