Here's our summary of key economic events over the weekend that affect New Zealand with news we start the week with current data that is almost certainly not indicative of what's to come. The policy landscape is in ferment.
First in the week ahead however, locally it will be all about migration, retail sales, and a second look at 2025 inflation levels. In Australia their data releases will be about business and consumer sentiment, and industrial production.
Elsewhere, India will release a CPI update. Canada's central bank will review its policy rate on Thursday (NZT) and is expected to cut it by -25 bps to 2.75%.
In the US, upcoming updates will be for CPI and PPI, the Michigan consumer sentiment survey, and January JOLTS job data.
But first up today, weekend data releases from China confirmed they have slipped into a deflationary funk. Consumer prices fell -0.7% in February from a year ago (-0.5% was expected), and producer prices were down -2.2% (-2.1% was expected).
China's consumer price decline was their first consumer deflation since January 2024, amid fading seasonal demand following the Spring Festival in late January. Food prices fell the most in 13 months, down -3.3%, dragged by a steep decrease in cost of fresh vegetables and a sharp slowdown in pork prices. Beef prices are down -13.3% from a year ago, lamb prices by -6.6%. Milk prices are down -1.4% on the same basis.
China's producer prices are falling faster than consumer prices, but not really at an accelerating rate.
Earlier in the weekend, China said its exports rose +2.3% in February, but that was notably less than the +5% rise expected. China's imports fell -8.4% when a +1% rise was expected. That means their merchandise trade balance rose to +US$170 bln, well above the January +US$142 bln and spiked by reactions to US trade and tariff policies. Their data shows a -US$1.1 bln February deficit in their trade with New Zealand. With Australia it was a -US$8.4 bln deficit.
We may also get China new yuan loan data at the end of this week, although it is coming in a bit later, and weaker, these past few months.
Despite all the US, China and global trade woes, the New York Fed's tracking of global supply chain pressures is reporting a pretty sanguine situation. Of course, that will undoubtedly change going forward.
In the US, the February non-farm payrolls report showed the US economy added +151,000 jobs in February, slightly below the +160,000 expected. The January data was downwardly revised to +125,000 from the original +143,000. Their jobless rate ticked up to 4.1%. We should note that virtually none of the DOGE cuts are reflected in this data. Their participation rate fell.
The actual unadjusted rise in February from January was +891,000 in this payroll survey data, but that was less than seasonal factors would have usually delivered and less than the +1,065,000 gain in the same period in 2024. Including the unincorporated self employed, the total number of employed people was 162.5 mln, and that was less than in January. The shift to company payrolls is still happening but slower, and the total number of people actually employed actually dropped. Average weekly earnings were up +3.4% from a year ago and that was their least in more than a year. (Over the past 12 months, that rise has averaged +3.7%, so a notable tailing off in February.)
The US Fed boss Powell talked about the outlook for the US economy over the weekend, and commented that they see no reason to be cutting their policy rates any time soon.
The US Fed's tightening process continues with their balance sheet now down to US$6.75 tln, down by -US$782 bln in a year and eating into its pandemic surge now. Pre-pandemic, it was a balance sheet equivalent to 19.0% of US GDP. It peaked at 35.4% in April 2022. Now it is back to 22.5% of GDP. So normalisation looms. (For reference the RBNZ balance sheet is also currently at 22.5% of our GDP.)
In Canada, their February labour force data wasn't that flash. Full-time employment fell -20,000 while part-time employment rose +21,000. But their average hourly wages rose +4.0%. Their participation rate fell too. No-one expects this labour force data to improve while the tariff war hostilities build in 2025.
The US president has threatened Canada again, this time with 'reciprocal' tariffs on dairy and timber. If he goes ahead, it will almost certainly backfire on Americans. Canada is already the US dairy industry's second largest export market and that market will almost certainly reject US goods. And Canadian timber is well-embedded into US house building. Trump wants US national forests harvested to replace Canadian supplies but that will take time to build volumes, and come at higher prices.
In Australia, plans to call an April federal election have been shelved, partly because of the expected physical and financial cleanup after tropical cyclone Alfred. There are now still more than ¼ mln people without electricity this morning, and the storm is lingering longer than expected and the flooding heavier. The new expected election date will be sometime in May. There will be a new Budget update there in three weeks, on Tuesday, March 25, 2025.
In Western Australia, their incumbent Labor government won with a thumping majority, way better than anticipated.
Today the UST 10yr yield is now at 4.30%, down -2 bps from Saturday at this time. The key 2-10 yield curve is now at +31 bps. Their 1-5 curve inversion is now a positive, just. And their 3 mth-10yr curve is now flat. The Australian 10 year bond yield starts today at 4.41% and down -5 bps from Saturday. The China 10 year bond rate is now at 1.75% and down -9 bps. The NZ Government 10 year bond rate is now at 4.64%, unchanged from Saturday.
Here is an update of Wall Street earnings for Q4-2024. It is pretty positive.
The price of gold will start today at just over US$2911/oz and up +US$3 from Saturday.
Oil prices are still just on US$67/bbl in the US and the international Brent price is just under US$70.50/bbl.
The Kiwi dollar is now at 57.1 USc and up +10 bps from Saturday. Against the Aussie however we are down -10 bps at 90.5 AUc. Against the euro we are up +10 bps at 52.7 euro cents. That all means our TWI-5 starts today just over 66.6, and up +20 bps from Saturday.
The bitcoin price started today at US$82,620 and down a net -5.6% from this time Saturday. That means it is given up all its gains after the US election in November. So far, holders have responded by selling after the Whitehouse 'crypto summit'. Volatility over the past 24 hours has been moderate at +/- 2.4%.
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12 Comments
Surely it's okay for USA to impose tariffs if Canada is also doing it. Canada has had tariffs for many years.
A lot of confusion is being bandied around. Much comment claims that cost of tariffs are born by the consumer of the import country and is thus imperilled with extra inflation. In which case why would Canada be worried about that for its exports and why would it risk inviting the same outcomes by imposing its own tariffs in retaliation. On the other hand the NZH opines that tariffs on USA agricultural imports will cost New Zealand $billions which must assume the cost will not be met at the USA end of the trade. Tariffs are certainly complicated and disruptive but who actually pays for them is largely dependent on whether the market needs the product more than vice versa.
Canada has big problems.
China has announced retaliatory tariffs on Canadian rapeseed (canola) oil and other agricultural products. Starting March 20, 2025, China will impose a 100% tariff on imports of Canadian rapeseed oil, oil cakes, and peas. Additionally, a 25% tariff will be applied to imports of pork and some aquatic products from Canada.
This move is in response to Canada's previous imposition of tariffs on Chinese EVs, steel, and aluminum. Canada had introduced a 100% tariff on electric cars and a 25% tariff on steel and aluminum from China, which China claims violate WTO rules and harm Chinese industries.
Maybe Canada should learn how to negotiate and stop playing the victim card.
I would have thought, if say, 20% tariffs were imposed on Canadian diary exports, by the USA and not on NZ diary and Canadian diary was 30% cheaper than NZ then Canadian diary producers could keep charging the old price and still be competitive. If Canadian diary was 10% cheaper then they'd probably need to drop their price or lose some sales. So it depends on if there are substitutes, and if there are, what do they cost. Add to this can USA diary increase productivity and at what cost. Each product would need to be looked at this way. So, within diary: butter, milk powder, etc, would need to be looked at separately. I'm not an economist though.
China rolls into deflation.... USA rolling over into recession
Globally, we hit the Limits to Growth.
Has to be seen in total.
China on the down slope, USA trying to fiddle their numbers to keep the positivity absolute at all costs, overvalued S&P500, Oil Dropping which doesn't bode well for the US of A. Global recession looking to be starting to gain a little momentum at a glance. The big question is how long will we see the S&P drop for, will it stabilise, or will we hit panic at some point.
USA stock market futures are down, NAS nearly 1%, S&P and DOW less so. Oil down too.
Big emerging issue is that between 28% and 44% (depending on your version of reality) of S&P500 earnings are made outside the USA. Trumps actions may well bite the US Markets really hard.
add in gold copper oil and BTC interest rates and equities, all well off highs
All are screaming recession yet there is no panic and record high P/E Valuations?
https://www.nzherald.co.nz/nz/politics/labour-passes-national-chris-hip…
Has a newly elected New Zealand government ever failed so obviously and so quickly ever before?
Tariffs are a tax/charge/duty on imports and are paid directly by the importer. Subsequently, this is added to the cost of those imported goods, paid for by the importer, and eventually by the consumer.
What the #47 Admin is not telling us though is they fancy they can negate these extra costs, and the resultant inflation, using another method.
The effect of the continual trade deficits the US runs is that many of the excess dollars are not returned to New York, and are instead hoarded by the CBs (Central Banks) of Europe, Japan, Switzerland, China, etc, (China have some $3 trillion), because they want their currencies to stay at these lower levels to give themselves a competitive export market - as they hoard these dollars, the value of their currency rises against the US dollar, enhancing the competitiveness of their export sectors.
IOWs, the US expects the dollar to strengthen, which would cancel out the effect of the tariff. This is where their narrative that the "foreigners pay the tariffs" comes from.
DT claims that these foreign countries are taking advantage of the US - IOW they are holding dollars and in so doing are disadvantaging US exporters and giving themselves a competitive advantage in exporting goods to the US. This is the basis of Trump's claim that these foreign countries take advantage of America - this keeps their currencies down, and backs their currency, instead of holding gold or whatever else.
The PLAN - pile tariffs on China exports which then increases the price that US consumers pay, which would jeopardise the US economy by pushing up inflation, but it won't eliminate the trade surplus because at this point the dollar will rise, and in the end the US consumers won't be paying more - IOW they will have to pay the tariff, but this will be negated by their stronger dollar bringing the total cost of the import down, which then negates the additional tariff. This is as their cunning way of getting foreigners to "pay" for the tariffs.
When they impose the tariffs, these countries CB's will reduce IRs (Interest Rates) to absorb the shock to their economies - then as they reduce IRs, their currency value will drop against the dollar - IF this works, in the end, the net price to the consumer will not have changed much at all.
Furthermore, Congress and the House hold the purse strings for tax receipts, but not for tariff receipts. To increase the amount of money the Govt takes from the U$ taxpayer, Trump would have to try to convince Congress to allow this, but he has a very thin majority (only 4 seats in 435). However the more he slaps on tariffs, the more the stream of money goes into the Treasury without any conversation with Congress, with very few legal impediments, which Trump usually ignores anyway.
Nothing has been achieved in bringing down the trade deficit - instead he will have vastly increased the revenue take flowing directly to the Treasury and made the foreigners suffer accordingly.
It seems that the next phase is a revisit of some aspects of Reagan's Plaza Accords from 1985 where he instructed overseas CBs, principally the JCB, to revalue, or he would impose tariffs - Trump appears to be beginning with the tariffs - IOWs, you will sell your dollars for your currency, the euro, yen, yuan etc.
Alternatively, if you don't have enough dollars, we know you have short-dated 2-4 year treasuries, and you are going to swap them with new treasuries that are perhaps 100 years in duration at low interest rates - IOWs, you will subsidise long-term US interest rates, and if you don't do that, we will leave the tariffs on.
Tariff receipts go into the Treasury account and are not subject to Congressional control - remember that the House holds the purse strings for other tax receipts but not for Tariffs - this is probably why it is his favourite word in the English language - Trump loves this plan because his executive branch has this revenue to play with.
As Yanis Vourofakis stated recently, the US will say to China ... "choose your poison - either you will do as you are told and devalue your currency by selling dollars, or you will swap my debt that you hold, for long-term cheaper debt from me"
Slapping tariffs on everything that is not nailed down appears to be Trump's plan, and this avoids doing battle with Congress where Rep. members can cross the floor.
IMO what he and his team ignore, is the massively growing power of the BRICS/BRI initiatives which I believe will be the game-changer as they offer a multipolar alternative, where no country will have the clout to weaponise their currencies against the remainder of the global financial system.
Cheers
Col
PS I notice that the Atlanta Fed has revised their first quarter GDP growth figure of 1.5% from just a week ago, down to a disastrous -3.9%. Is the U$ beginning to hemorrhage already - even before the global trade war kicks in. Just as well they raised the debt 'ceiling' (sic) another $4 trillion.
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