Here's our summary of key economic events over the weekend that affect New Zealand with news the messy international outlook continues but so far the changes are more in prospect than real.
First however, this will be a big week of data and policy releases. Not only will Australia review its policy rate tomorrow (a -25 bps cut is anticipated taking their cash rate target to 4.10%), our own RBNZ has its first monetary policy review of 2025 and it is widely expected they will deliver a -50 bps cut to 3.75%. China also reviews rates this week on Thursday, but no change is expected from them.
On Wednesday, there is another full dairy auction.
Canada and Japan will release January CPI data. And there will be many January PMI releases this week.
In data out over the weekend from China, banks lent a record +¥5.22 tln in new loans in January, far above the +¥990 bln in December and easily beating forecasts of +¥800 bln. It is a spectacular show of support by banks for the push by Beijing to juice up its economy via more debt.
Foreign direct investment in China plunged -99% over the past three years, Chinese government data shows, as their economic slowdown and concerns about their 'everything is national security' approach drove investors away. China only recorded a net inflow in 2024 of +US$4.5 bln and that is their lowest in more than 30 years. In two of the four quarters of 2024 there was in fact a net outflow.
Up from +1.8% in 2023, Singapore's economy grew +4.4% in 2024 on the back of stronger-than-expected rebounds in exports and tourism. This was an upward revision from the preliminary +4.0% rate reported by them earlier. By itself, Singapore's Q4 rose at a +5.0% rate.
Malaysia downgraded its growth in its Q4-2024 update to +5.0% from a year ago. This was due to weak progress in Q4 from Q3.
In the US, retail sales were +4.2% higher in January from a year ago, a slightly slower pace than in December (+4.4%). This official data backs up the Redbook survey we report weekly. But we should note that the good January data came despite a sharpish fall-off in car sales in the month. That fall-off contributed to seasonally adjusted retreat in January from December and one that was notably more than expected.
Business inventory data out for December actually shows lower levels, and their inventory-to-sales ratio improved unexpectedly. This shift might be due to public-policy uncertainty around tariffs.
With inventories lower than expected, it therefore won't be a surprise to know that US industrial production in January rose on a year-on-year basis, and by more than expected. But the January rise from December wasn't as strong. But at least it was a rise
It is Presidents Day in the US on Monday (tomorrow NZT), a Federal holiday, but only inconsistently observed by business and many states.
Across the border, Canada said its manufacturing sales rose, and for a third consecutive month in December.
Canada also released its Q4-2024 senior loan officer survey which revealed a sharpish tightening in credit conditions in the period.
The UST 10yr yield is at 4.48%, unchanged from Saturday at this time. The key 2-10 yield curve is still at +22 bps. Their 1-5 curve is little-changed at +11 bps. And their 3 mth-10yr curve is also little-changed at +15 bps. The Australian 10 year bond yield starts today over 4.43% and down -2 bps from Saturday. The China 10 year bond rate is now at 1.64% and also down -2 bps. The NZ Government 10 year bond rate is now at 4.61%, unchanged from Saturday.
The price of gold will start today at just under US$2882/oz and down -US$6 from Saturday.
Oil prices are down -50 USc at just over US$70.50/bbl in the US and the international Brent price is still just under US$75/bbl.
The Kiwi dollar is now at 57.4 USc and unchanged from Saturday. Against the Aussie we are also unchanged at 90.2 AUc. Against the euro we are still at 54.6 euro cents. That all means our TWI-5 starts today just under 67.3, unchanged from Saturday but its highest since Christmas Eve.
The bitcoin price starts today at US$97,094 and down -1.6% from this time Saturday. Volatility over the past 24 hours has been low at +/- 0.6%.
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55 Comments
Foreign direct investment in China over the last three years has plunged 100%, why not round it up. Lest we forget or has the globe forgotten that China, out of whatever origin you favour, unleashed the covid pandemic that knocked the socks of virtually every nation economically, socially and even emotionally. To date, neither acknowledgement nor apology has ever been forthcoming from the Chinese authorities. It is arguable that this event has been a turning point in world affairs causing hard lines to be considered and enacted nation on nation and a resultant shift to a priority of self interest. To put it simply could you argue again that covid commenced the end of globalisation.
It's not clear to me why the RBNZ would cut the OCR at this point, given the serious and continuing effects of price increases in staple goods needed to sustain all households and particularly affecting our lower and moderate income households - like food for example. The price level remains elevated as a result of the inflation, and continues to increase apace.
If the RBNZ is actually taking account of other data and factors - ie besides the rate at which staples are increasing - then they should be open about it. But I fear this is shrouded by the amorphous concept of preserving 'stability'. If so, in my view their priorities are simply wrong.
Not quite: also have regard to stability of the financial system, avoid unecessary instability in output employment interest rates & exchange rate.
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/monetary-poli…
They are allowed to consider all and sundry, ie GDP forecasts and trends, and international events. Its fair to assume that if GDP is in the shitter they would not expect domestic inflation to kick in, however they are concerned about insurances and rates, which are rising much much faster then inflation, places like WGTN who have a huge maintenance backlog in water etc... no way can that only stay at inflation level, even Auckland, which has less maintenance issues has water infrastructure capacity issues, witness water care saying no development until they can cope with more storm water and gray water.
The overbearing issue here is that OCR is still restrictive and will be after 50 bps and this is the worst recession in 20-30 years.
He will cut here for sure 50, outside chance 75, def not 25
If the RBNZ is actually taking account of other data and factors - ie besides the rate at which staples are increasing - then they should be open about it
People tend to think the RBNZ actions are just about indexes and spreadsheets, but there's a battle of words they employ, in the form of communiques like forward guidance. Their messaging is just as powerful a tool as things like the OCR, and 100% transparency is not compatible.
You cannot dismiss the fact that NZ’s economy & resultant well-being, as a small remote nation is at the mercy of events dictated by the actors of the large industrial nations. Therefore if the consensus is that the USA under Trump’s leadership, global inflation is going to be driven upwards, then NZ is unlikely to escape from that impact. Now during the sixth Labour government we had utterances, chiefly Finance Minister Robertson that the inflation then roaring up was largely imported. It is a fair question as to whether or not the RBNZ’s efforts to combat this with by rapid hoists of the CPR was actually relevant, in that regard at least. However overall if again NZ finds itself with significant rising inflation then on past performances the CPR will be rushed up again. This means that a graph of this function is starting to look a bit like a batting Manhattan in a rollicking in a one day cricket match.
You're not wrong Fox, but the benefit of hindsight is that you deal with known facts, whereas what you call foresight, deals with what we guesstimate will happen. Orr can't and won't make decisions on what might happen, he makes decisions on what he knows has happened. When we understand this, predicting the OCR path becomes a lot easier.
Now, now. You should know enough about winter. As an old timer in Maine told us - in spring up here, you don’t take the snow shutters off your windows, if there is any prospect at all of another storm, because you will have a hell of a job getting them back on in the middle of it.
Simple logic would say that inflation is on target and stable, so leave the OCR alone. They should only change the OCR if they are not meeting their target. The only real reason to reduce the OCR is if they feel some kind of empathy for destroying the economy and increasing the unemployment rate - which they aren't really mandated to do, but in reality they will.
Simple logic is not control theory. But that's OK, the RBNZ don't appear to understand that either.
As the target variable gets closer to the desired value, the change to the control should get smaller. (Gross oversimplification, mind).
Assuming the OCR actually has any effect on inflation at all - a .5 cut is simply unnecessary - unless of course instability and boom/busts are your thing.
Why does China need foreign investment exactly? They run large surpluses with the world. The banks are effectively releasing some of that surplus unto the economy - trying to stimulate local demand so that they don't have spare productive capacity.
Anyone care to guess when foreign investment in NZ peaked? It was 2022 when offshore investors piled around $30bn into NZ (8% of GDP). Now have a guess where investors were putting their money. I'll give you a clue, Govt was running a deficit.
Case for a 50bps cut:
RBNZ’s forward guidance, and the NZ2Y is already 55bps below the OCR.
Case for less than 50bps cut:
NZ2Y is only 55bps below the OCR, and if it sells off, RBNZ looks silly if they have to hike again. NZD is strengthening ahead of the OCR meeting, suggesting that the market might be pricing in a smaller cut. The US isn’t expected to cut until June, if they cut at all this year.
Case for 75bps cut:
We're fu*ked, RBNZ is in panic mode
As expected. Only people with media-brain believe that Trump’s policies will be highly inflationary.
We went from 25% global tarrifs + 60% tarrifs on China, to 10% on China + 25% on just steel. We went from deporting 20 million to only deporting a few hundred.
On top of Trump just blowing smoke, we now have a wild card that is DOGE wreaking havoc by deleting trillions of dollars in government spending and axing hundreds of thousands of jobs, all of which are deflationary.
If you truly believe Donald Trump wants high inflation, high interest rates, low growth, failing businesses, then you are extremely naive. The reality is current interest rates settings are still restrictive, the UST 10 year will start sliding down gradually and interest rates will resume the cutting cycle in a few months. Either that happens, or the USA goes into recession.
Yes I believe that was around last year when Middle East tensions were rising, and anticipation of Israel going to war with Iran was increasing. Oil prices I believe remained largely static, which furthers my point that the market usually looks at things macro-economically.
Only when we start taking a more practical view can we see that Iran does not possess the military capability to go toe to toe with Israel, neither will it make sense to, and one person trying to insert unrealistic policies (Trump) will not be taken seriously by the market and it will start to adjust accordingly. I mean we’re talking about a person who wanted to fully eliminate income taxes during his campaign. If you truly believe this man will surgically accomplish everything he feeds you on the news, then that’s on you.
"The message is clear: bureaucrats can refuse to implement the government’s policies and nothing will happen to them.
All these left-wing indoctrination courses across every professional body could be removed today. They are not mandated by law, but are implemented by radical activists in the bureaucracy. The problem is the coalition, and National in particular, do not want them gone.
Nicole McKee may be in government, but she is not in power."
https://pointofordernz.wordpress.com/2025/02/17/rogue-bureaucrats-and-f…
I don’t think I’ve ever seen (?noticed) such co-ordinated push back on a governments agenda.
It seems we have to import every stupid phenomenon from America, although I gather it is also a problem in the UK.
It would be disappointing if NZ had to make political appointments to the Public Service, but if you can’t get good staff….
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