Here's our summary of key economic events overnight that affect New Zealand with news its a big day of data locally with our Q4-2024 GDP result out later this morning, preceded by the Fonterra half year result. Either may have market-moving implications.
But a few minutes ago, the US Fed released its latest monetary policy review and projections, the dot plot indications and forecasts, which suggest they see higher inflation in the year ahead (now 2.7% from 2.5% and a smaller economic expansion (1.7% from 2.1%). They also expect a higher jobless rate.
They see two rate cuts this year. Nine of the 19 policymakers expect it to be in the 3.75%-4.00% range by the end of 2025.
But at this meeting there was no policy rate change.
In contrast, the AtlantaFed's GDPNow tracking suggests the US economy is now contracting at a -1.8% rate. Apart from the pandemic period, that would be their worst since the GFC.
After two strong weeks of mortgage application growth, but mostly driven by refinance activity, last week there was a pull back with volumes falling -6.2%. But with the rise in US benchmark interest rates, and the consequent rise in the 30 year home loan rates (their first rise in nine weeks), perhaps this isn't much of a surprise. Still, overall activity is now +6% higher than year-ago levels.
Tariffs and tariff threats are raising prices for basic commodities. For example, American steel is up +27% just from February 7, 2025. There is no way that won't have an inflationary impact there. Thinks cars. Interestingly with international steel diverted, these costs will be lower elsewhere, so the core competitiveness of American-made products are probably going to weaken noticeably. Chinese steel prices are back to where they were in 2017.
Across the Pacific, Japanese exports rose +11.7% in February from the same month a year ago and this was the second best rise since December 2022 and much better than the +7.8% rise in February 2024. Still it wasn't quite as strong as expected.
Japanese machinery orders rose +19.8% in January from the same month a year ago (up to ¥3.27 bln from ¥2.73 bln in January 2024.)
The Bank of Japan kept its key short-term interest rate at around 0.5% during its March meeting, maintaining it at its highest level since 2008 and in line with market expectations. It was a unanimous decision and a cautious stance, focusing on assessing the impact of rising global economic risks on Japan’s fragile recovery. They noted ongoing uncertainties in the domestic economic outlook, including trade policies and global conditions.
The central bank of Indonesia held its benchmark interest rate at 5.75% during its March 2025 meeting, as expected. They have had only one -25 bps rate cut in 2025 which took their policy rate back to where it was for most of 2023. Recently their inflation rate fell to only +0.8%. And there was a sell-off on their stock exchange earlier in the week. So this 'hold' may be their last. The financial instability in Indonesia is a bit of a worry, especially for its neighbour, Australia.
In Turkey, their autocratic president is feeling increasingly vulnerable. He has moved against his main rival with trumped-up charges and the instability has caused the Turkish currency to dive - again. Inflation is running at 39% still but it is falling. And their central bank keeps cutting their policy rate, now down to 42.5%.
The World Meteorological Organisation's latest report, for 2024, is a sobering read. New Zealand may be situated in a climate sweet-spot but that isn't the case for almost all our trading partners. CO2 levels in the planet's atmosphere are now at an 800,000 year high. The future won't be like the past. The main way it will hit our pockets is through insurance costs.
The UST 10yr yield is now at 4.28%, up +1 bp from yesterday at this time. But it had risen much more priro to the Fed release, then falling back on the announcements. The key 2-10 yield curve is marginally flatter at +24 bps. Their 1-5 curve inversion is now -3 bp. And their 3 mth-10yr curve inversion is +1 bps. The Australian 10 year bond yield starts today at 4.50% and up +4 bps from yesterday. The China 10 year bond rate is now at 1.96% and unchanged. The NZ Government 10 year bond rate is now at 4.65%, down -3 bps from yesterday.
Wall Street has opened its Wednesday trade with the S&P500 up +0.9% and rising on the Fed review. Overnight European markets were mixed in the range of Paris up +0.7% and Frankfurt down -0.3%. Yesterday, Tokyo closed down -0.2%. Hong Kong ended its Wednesday session up +0.1%. Shanghai was down -0.1%. Singapore was up +0.3%. The ASX200 ended its Wednesday trade down -0.4%. And the NZX50 fell -0.3%.
The price of gold will start today at just on US$3034/oz and down a net -US$2 from yesterday.
Oil prices are up +50 USc from yesterday at just on US$67.50/bbl in the US and the international Brent price is at just over US$71/bbl.
The Kiwi dollar is now at 57.9 USc and down -30 bps from this time yesterday. Against the Aussie we are unchanged at 91.4 AUc. Against the euro we are also unchanged at 53.2 euro cents. That all means our TWI-5 starts today just on 67.2, and -10 bps softer.
The bitcoin price starts today at US$84,613 and up +3.3% from this time yesterday. Volatility over the past 24 hours has again been moderate at +/- 2.1%.
Join us for the Q4-2024 GDP result at 10:45 am this morning. And before that, we will have the Fonterra half year update.
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22 Comments
Insurance risks need to reflect the actual site location for property. Dispersing the cost of risk across a lot of policy holders distorts the cost of insurance. Insurance companies need to be much more rigorously regulated.
It would certainly lift the lid on where the highest risk areas are and there'd likely be a bit of mobility afterwards as homeowners in high risk areas flock to sell up and get out
The economic repercussions of Trump's policies are escalating. The month long stay on tariffs on motor vehicles is coming to an end and apparently the heads of the major US companies have realised there is no extra 'give'. This will reverberate all over the world.
It is ironic that Trump truly believes that all the foreign countries have been 'ripping the US off' and doesn't understand that it was large US corporates who did it all by seeking lower people costs. Bottom line - Trump's billionaire mates and prior generations of economists and politicians have done it to America. The end result for Trump is going to bite very close to home.
A part of me celebrates it though as he is doing what the politicians should have been doing for generations, protecting jobs and ensuring the national wealth is shared by all people in the country. But isolationism has a cost too, and trade is a two way street. As is politics - clearly America can no longer claim to be the leader of the free world.
Well said, Murray.
Ironically, Trump is manifesting some truths about the US narrative, which its citizens weren't inclined to know. And they weren't alone; we coat-tailed on their thuggery for decades (and still are - we are witnessing a full-on genocide as we speak, but our leaders are too narrative-curtailed to call it what it is (Swarbrick aside).
The world order is changing, faster than I thought it would, but at 4x overshot as a species, the fight over 'what's left' was never going to pretty. I'd rather the dying hegemony was being led by someone less erratic, but maybe that goes with the territory
A fascinating time to be alive...
What’s not going to be pretty either is how Trump’s attempts to reverse virtually overnight, decades of profiteering by a very small percentage of Americans at the expense of the homegrown industry. The trouble being that the other percentage of Americans are going to be hit hard by the resultant inflation and other distortions. America at street level can far too often be volatile and violent. The incidents of mass shootings are sufficient testament. Whatever Trump is striving to achieve, even if it is understood, will soon be discarded by the wider public when they find themselves getting even worse off, when he had promised the opposite.
Underlying this is the big question is 'What is necessary for the way forward?' Trump's chaos? Trump being removed from power? The Americans remain unable to understand how and why Trump? Is a civil war required (the people against the establishment)? Can the US remove Trump from power and successfully reach an understanding of how and why they got to where they are and then formulate a plan to fix it? Personally I doubt it. That would take a dictator for the people (Trump is not that, he wants to be richer), and I don't think the establishment would allow that to happen.
And then there is the effects and impacts on the rest of the world.......
Hmmm, Civil War in the US... again. That would be the most heavily armed civilian population v.s. the most heavily armed military. Bad on a Syrian scale, aka very very bad. It would also open the door to China taking Taiwan and no doubt a truck load of other conflicts globally. The Orange rain is definitely acidic, with a side of bully boy style.
That said should Europe be funding the majority of its own defense -probably. Does the US need 50 odd military bases in Europe with the associated cost - probably not. Has the US taxpayer been paying thru the note to the Merchants of Death for endless war profits somewhere else - yes. Has the Federal govt been wasting money left and right - increasingly looks like it. Is the US Stock market bloated (crazy PE levels) due to printed cash sloshing everywhere - yes. Is their housing market as speculated on as ours, floating on the same printed cash -yes. Is their national debt so out of control its scary to think about - yes. Is there no sign of an easy solution for that biblical level of debt -no. Was the last President an unfit puppet - yes, so who was pulling Biden's strings? Is it simply a case of "follow the money" which is supposed to be an easy task in today's digital world?
Summary can their s$%t show continue for ever - probably not. Something has to give eventually and Agent Orange is on the hot seat. A seat that's been fiddling while Rome burns since the GFC.
I don’t think the USA has the broad ability to accept the increase in cost of living they are, and will continue to see through tariff implementation. They’re simply coming to see that their standard of living, like our own, is built on cheap resources from other countries they have been able to exploit. They could have kept manufacturing more so in house but they didn’t, and now it is expensive to set up shop in the USA and if businesses have to pay a reasonable wage then nobody will be able to afford ghe goods produced. They’ve had the better part of a century being told America is great, and they wont be able to give their kids the same lives as the parents had. This will add to resentment, ties in with PDK’s assertions and we’ll likely see ongoing calls for change over again unless the rich get adequately taxed to help with the national debt. Buffet sees this.
We are the same as the US - predilected to buy stuff cheaper than we can make it, using wages high enough to buy it.
So we have to use essentially slave-labour (Bangladesh sweat-shops etc) and screw others out of resource-ownership (usually by crippling them with 'debt'.).
You can't 'make America great again', nor NZ, until that scenario until it reconciles - which will make us seem a lot 'poorer'.
Swarbrick misses the point too. She doesn't understand that the real problem is population. Instead she focuses on issues that essentially go against human nature. She has been captured by the power and privilege of her position and has just turned into another politician. She can sound great, but noise achieves nothing.
The world order is just politics and changes across the world in that arena almost always occur rapidly. Power is seized and lost very quickly when it really happens. Incumbents don't have time to see it come and prepare for it. Again in the US it looks like most Republicans still don't understand what they have unleashed. Indeed they seem to be feeding it, I saw an article where US law required the House to hold a vote on an executive order within 12 days, but the Republicans passed a bill redefining a 'day' so they don't have to do that. 'Strap in, it's gonna be an interesting ride!'
In the US the home of the many crazies is on the left side of the Dems, in NZ their resting place is TPM or Greens, But Labour needs them under MMP. Labour knows their views are toxic to most of the center voters (perhaps 50% of their own core voters...).
These are the type that justify people walking out of supermarkets with 10 packs of rump steak as ... hungry and disadvantaged due to colonization and needing our sympathy not prosecution. Yes that level of crazy.
Swarbrick is captured by crazies, make no mistake, nothing has to make sense, either financially or even practically once you leave the safe habour of sanity.
The entire world has gone nuts, Social media has given everyone a voice and if enough are not listening, a temper tantrum is not far away.
In the old days and in the future, where resources are more scarce, someone stealing rump steak may well feel a baseball bat from behind. We are passing through peak Crazy.
She has read, and gets, Doughnut Economics - which puts her ahead of most 'financial' commentators.
But she avoids population, as do most of the Left (it doesn't bear thinking about).
Mind you, most of the Right avoid it too, so they can chant their creed: Growth is possible forever.
and it's follow-on: Growth can fix the problems caused by.............. Growth.
Don't blame the Left - while the Right is equally adrift from the truth of the human predicament.
IT Guy are you implying the Republicans are not crazy? What they're doing is just nuts. Completely and utterly. They're so wrapped in their own egos and power they can't see the cataclysm that they've unleashed coming for them. The DC riots were a warning, and they still don't believe it applies to them.
Why Trump wants Canada in a single chart;
https://www.globalfirepower.com/proven-oil-reserves-by-country.php
They already have their oil - 97% of Canada's exported crude is to the US.
You're both correct, except Profile misuses a word.
https://www.cer-rec.gc.ca/en/data-analysis/energy-markets/market-snapsh…
But the key word is 'have'. Verus 'can buy'.
https://www.investopedia.com/investing/canadian-oil-companies/
'The main way it will hit our pockets is through insurance costs.'
The main way it will hit our pockets, comes from the front end of the sequence, not the back. The front end is burning long-stored carbon for the concentrated energy it contained (the back end is the released CO2). We burned the best, first (we always go for the best, first). It's gone. We are burning our way through ever-lower grades of it. Giving us ever-less work output, per work input (ever-worse EROEI).
Given that money is a proxy hoping to purchase the product of work-done, money is directly related to that reducing EROEI, and therefore the way that will 'hit our pockets' is in the 'price' of everything 'produced'. Except that we have not been able to 'afford' paying for work-done, for some time. Increasingly, we've upped debt, in a futile attempt to bridge the gap.
Adding to that, we obviously cannot 'afford' future energy extraction which returns less than yesterday's, which means there is an upper limit to what we can 'invest' (spare for, in EROEI terms) in new sources.
Eventually, the debt has to be forgiven (per Steve Keen) or the system will fail through lack of mass belief in it being repayable. Even the beginnings of the latter will be self-reinforcing; less personal spending will magnify itself domino-wise. And there are limits to Ponzis big enough to soak up the debt (inflating numbers against existing houses having been the recent effort) even at zero % interest.
Yes, the main way the narrow focus on climate alteration will impact us, will be via insurance increases (they need to reflect some form of reality) but the bigger picture makes that comment somewhat like saying B-Deck passengers are going to get wet trousers - true in itself, but not really the story...
Many life/health insurance costs are up 15-19% this year, its not just climate related, provision of medical service inflation is well well above standard so called CPI. Medicines and procedures are more advanced and require higher skills to administer.
I would not want to be minister of health, its an impossible job as voters age and medical needs increase.
Many life/health insurance costs are government/insurance funded AKA other peoples money. When you have to pay for medical procedures out of your own pocket, and are exposed to free market competition, costs have not gone up anywhere near as much. Compare private cosmetic procedures to "free" public health. Time to switch the Singapore public health model where people are financially incentivised to remain healthy.
"Between 1998 and 2022, the average unweighted price for 16 common cosmetic procedures increased by 63% (and by only 37.5% when weighted by the number of procedures). Over that same period, Consumer Prices increased by 81%, and the CPI for Medical Services by 144%. All of the individual procedures increased by less in price than the 144% increase in the CPI for Medical Services, and far less than the 244% increase in the cost of Hospital Services."
https://x.com/Mark_J_Perry/status/1765814533392576512
https://www.aei.org/health-care/examples-of-irrational-pricing-in-healt…
Is he talking about USA costs, or Singapore costs of healthcare? Probably not valid to compare the NZ situation to the USA (world's least efficient health system); Singapore, I don't know much about.
Either way, we could slash our Health spending requirements (i.e. have healthier people) through a whole host of policy changes. Look at what was happening with tobacco as an example. Finding ways to reduce alcohol harm and making sugary processed foods less appealing would be a start. As would making exercise easier for people to access.
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