Here's our summary of key economic events overnight that affect New Zealand, with news things are turning sour in the trenches of the US economy - for consumers and many non-prime corporate borrowers.
The big news today however is that China is standing its ground. Beijing raised tariffs on American imports to 125% on Friday, hitting back against Trump's decision to hike duties on Chinese goods to 145%, and raising the stakes in the trade war. They repeated the "fight to the end" rhetoric, also saying they will "counterattack". "Even if the US continues to impose higher tariffs, it will no longer make economic sense and will become a joke in the history of world economy. At the current tariff level, there is no market acceptance for US goods exported to China."
On immediate consequence of all this is that investors are turning away from the US dollar as a safe hoven. And perhaps turning away from US Treasuries too.
But first up today, equity markets seem to be ignoring a sharp change in US consumer sentiment. The University of Michigan survey plunged in April to its lowest level since June 2022 and well below what was anticipated. That's the fourth straight month of pullback, and this survey is now more than 30% lower since the November 2024 election. It is signaling growing worries about trade war developments that have oscillated over the course of the year.
American consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labour markets all continued to deteriorate this month. The gauge for current economic conditions fell along with the component measuring expectations which is now at its lowest since May 1980. Meanwhile, year-ahead inflation expectations surged to 6.7%, the highest reading since 1981, from 5% in March. The five-year inflation expectations gauge edged up to 4.4% from 4.1%.
Meanwhile, March producer price inflation actually eased to 2.7% its lowest in five months, aided by a sharp drop in energy costs. Without those fuel cost drops, the index would have risen slightly to 3.3%.
There are signs that lending activity is tightening sharply in the US. For two weeks, there have been no - zero - high yield leverage loans for corporates in the US. The funds making these loans are having sharp investor outflows, and banks have become quite risk averse. A credit crunch is underway for most non-prime borrowers. If it extends, there will be real trouble.
In Canada, not only are they rejecting American products and travel option now, a new trend is that they are net sellers of US real estate they had as holiday homes.
India released February industrial production data overnight and that showed growth decelerated sharply to +2.9% from a year ago, down from an upwardly revised +5.2% in January. Markets had expected a +4.0% rise in February, so this is a big miss and is the weakest expansion since August.
China's vehicle sales jumped in March from February to 2.9 mln units, but the near-term change is distorted by the Chinese New Year holiday period. NEVs rose to 1.2 mln of those units, now 42% of all sales. They seem to be on target to sell almost 33 mln vehicles in 2025, almost double the level in the US.
Meanwhile, State-linked Chinese funds (the 'home team') stepped in to rescue Chinese stocks this week. But it’s an expensive exercise, involving more than US$1 tln so far and likely to have to go up much more than that. China's own credit crunch is coming.
In Europe, German CPI inflation came in at 2.2% in March (2.3% on an EU harmonised basis), slightly lower than in February, and lower than expected. Food prices were up +3.0% and the price of services were up +3.5%. It is also falling energy costs that are keeping a lid on their inflation.
Coal and steel prices are falling, with the coal price now down to a level it first achieved in 2016.
The UST 10yr yield is now at 4.49%, up +9 bps from this time yesterday. A week ago it was 3.99% so a large move up since then. This is its highest level since mid-February. The key 2-10 yield curve is a little more steeper, now at +55 bps and more than a three year high. Their 1-5 curve is now +11 bps. And their 3 mth-10yr curve is now +18 bps. The Australian 10 year bond yield starts today at 4.42% and up +17 bps from yesterday. The China 10 year bond rate is now at 1.66% and little-changed. The NZ Government 10 year bond rate is now at 4.78%, and up +12 bps from yesterday at this time. It is up the same for the week.
The VIX volatility index is little-changed today from yesterday ending the week -19% lower than this time last week.
Wall Street was up +1.8% on the S&P500 in its Friday trade as the whipsaw trade and sentiment continues. And for the week it is ending up +8.2%. See this. Overnight, European markets were mixed with London up +0.6%, Paris down -0.3% and Frankfurt down -0.9%.. Yesterday Tokyo ended its Friday session down -3.0% for a net +1.3% weekly gain. Hong Kong was up +1.1% for a net +0.9% weekly rise. Shanghai rose +0.5% to finish its week up +1.4%. However Singapore was sell -1.8% on Friday. The ASX ended its Friday session down -0.8% and down -0.3% for the week. The NZX50 ended down -1.5% in its final session, to be a net -1.7% lower for the week.
The Fear & Greed Index ends the week hard over in the 'extreme fear' zone. This is unchanged from last week.
The price of gold will start today at just on US$3234/oz, and up another +US$72 from yesterday, and yet another new record high. That is up +US$215 or +7.1% from this time last week.
Oil prices have risen +US$1.50 from yesterday to be just on US$61.50/bbl in the US and the international Brent price is now just over US$64.50/bbl. These are the same levels we had a week ago. For some reason the US naively thinks that Europe should buy its oil and gas, overlooking the now-extreme sovereignty risks for any dependency on the US.
The Kiwi dollar is now at 58.2 USc, up +80 bps from yesterday at this time and the highest since mid-December. A week ago it was 55.6 USc so a mammoth +260 bps appreciation or +4.7%. Against the Aussie we are up +20 bps at 92.6 AUc. Against the euro we up +10 bps from yesterday at just on 51.4 euro cents. That all means our TWI-5 starts today now just under 66.9 and up +40 bps from yesterday, up 130 bps from a week ago.
The bitcoin price starts today at US$83,758 and rising, and up +6.0% from this time yesterday. This time last week it was at US$83,808, so little net change from then. Volatility over the past 24 hours has been high at +/- 3.0%.
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31 Comments
No importer in any country can afford to stump up to its respective government 100%, let alone more, of the value of the goods they are seeking to clear. Unless of course the exporter at the other end has previously advanced it, which is just as unlikely. Effectively the borders of the USA and China are thus under embargo to one another. Must be a great tonnage of sea and air freight caught out in transit, resultant congestion at ports and airports, and big demurrage costs accruing.
The work-arounds will be in overdrive - shifting stuff to a 3rd-party en route. Customs will be overwhelmed. If there are any officials left.
The interesting thing to me is the comment re Europe's energy. The US already blew the pipeline (in Biden's time, let alone the child-god's) and is in energy trouble (in debt, fracking doesn't pay ex subsidies, internal EROEI is too low) so they have - for some time - needed to use force to control events.
Europe only have Russia as an alternative, making their Ukraine stance - interesting.
No other swing producers left to take up the slack.
Good point. Tariffs basically produce a bunch of deadweight costs against the economy, but also these additional regulation costs that you mention
Maybe they should be putting valium in the water supply.
Old, but still relevant today
Love this. Thank you Pa1nter. Great way to kick off my weekend. :D
Second that. I'm enjoying my stupid brunch coffee. Enjoy the stupid weekend.
Great post from Peston:
We just learned that the world’s most powerful person, Donald Trump, has a boss: the bond market.
He may not have acknowledged this to himself, yet, but the global financial tumult he caused - and has temporarily eased - has locked him in a fiscal prison.
Because, as I have been saying for 24 hours, he came perilously close yesterday to having caused such an extreme fall in the price of US government debt that it would have become prohibitively expensive for his administration to fund a large deficit - more than 6% of GDP - and also to refinance the almost $8 trillion of government debt that matures in the coming year (almost a third of America’s sovereign debt).
The point is he is totally in hock to the good will of bonds investors.
And when he announced his reckless roster of massive tariffs eight days ago he alienated them, because they feared he would tank the economy such that tax revenues would plummet and the deficit would balloon.
So they sold US government bonds, Treasuries, and the yield on the bonds - the de facto interest rate - soared.
Which is why Trump blinked, and put on hold the more extreme tariffs, except for the 140% on China, for 90 days.
You might think the worst part of this is the uncertainty he has created for businesses and investors for the next 90 days. Since no one in their right minds would make a major US investment till the final tariff determinations are made.
But the cancerous uncertainty is not the worst of it.
The worst of it is he has shredded any respect that overseas governments and investors might have had for America’s economic and fiscal competence.
Shades - you might say - of how Truss and Kwarteng’s unwise unfunded tax cuts undermined the perceived fiscal competence of the UK.
But unlike Truss and Kwarteng, there is pretty much no mechanism for removing Trump.
All of which means that bond and stock markets will remain fragile and volatile - fearful that Trump will regain his mojo and engage in some other fiscal extravagance.
He has also handed a loaded gun to his perceived enemy, China, and his supposed ally Japan.
This matters in both cases, because he is engaged in the mother of all trade wars with China - and Japan wants a trade deal with him that would see it escape mega tariffs.
The loaded guns they have are their massive loans to the US government. Japan owns more than a trillion dollars of US Treasuries and China not much less.
If they were to sell those bonds, or even if they chose not to refinance maturing bonds, that could be a disaster for Trump. Because it could cause another potentially crippling spike in bond yields.
Here is the measure of Trump’s debacle.
He may well have trashed America’s single most important financial competitive advantage, namely that investors have traditionally bought the dollar and US Treasuries at a time of economic and political uncertainty.
No more - because he personally has become the world’s source of economic uncertainty snd anxiety.
So, as I say he, is now in a fiscal prison. And if bond investors, including Japan and China, see him imposing tariffs or cutting taxes in ways they don’t like, they learned yesterday they have the means and power to stop him.
Not a fan of Trump, but the bond market was already selling off before he came back. The sell-off started in August 2020. Oct 2023 US10Y touched 5%. Tariffs and Trump are just a scapegoat to explain away the debt sell-off.
US10Y is touching 4.5%. Higher yields mean higher returns on US bonds, so you'd expect more demand for USD. But we’re seeing the opposite, USD is weaker. Looks like fears around US debt and inflation are dragging down demand.
A lot of important people will be reassessing their association with Trump. The credibility of him and his team is evaporating fast and many will sense that the writing is on the wall.
The USA is not short on history of retribution going on extreme violence against perceived perpetrators of wrongdoing of the people. From the Salem witch trials to lynching and mob brutality. When it turns it turns en masse for example against the muslim communities after 911. At a higher level admittedly, Trump might nevertheless have got himself in the same mode, a hold of the tail of very large and angering tiger.
But never forget the thing that a lot of people (those fixating on Trump) seem to want to ignore.
Enough of the 300 million inhabitants of the world's biggest consumer of 'stuff', are hurting enough to have rejected the status-quo. Twice, and more emphatically the second time.
Remove Trump entirely (and I'd be absolutely unsurprised if the threatened money does a JFK on him) and you haven't solved the bigger dilemma. Not one jot.
www.rnz.co.nz/news/national/557841/china-doesn-t-want-trade-war-but-wil……
His comments re production vs consumption are very clear. (Unfortunately, he too is forced to peddle 'economic growth').
Including the campaigning for 2016 Trump has been in the pressure cooker of American politics for ten years and endured simultaneously, impeachments and a multitude of court cases. While that at least gives him an AA+ for perseverance and stamina he has now embarked on another four years full of it, and at the same age that Biden took office. Whenever Biden began to noticeably decline was well camouflaged but judging from the end, when he did it was rapid. Whatever Trump’s crusade might be, he is the Richard the first of it and any unexpected departure or incapacity would leave an unfillable void That prospect in itself, throws up all sorts of scary repercussions. Just pondering, not predicting.
Perhaps his plan is to force as much manufacturing back to the US for self sufficiency prior to and orderly default. After all, how long can they really continue their recent debt funded lifestyle choices...?
At that point the global specurati debts will sink straight to crush depth.
Yes, I'm sure the average American is dreaming of working in a sweat shop in the USA and making T-shirts and getting paid $5/hour.
We already can't attract people high paying, blue collar jobs
I can't think who'll want to sign up for lower paying manufacturing jobs.
"We already can't attract people high paying, blue collar jobs"
Can we not?...what do you define as 'high paying' and 'blue collar'?
$80k a year to be something like a tractor driver or interior plasterer?
We bring in 10s of thousands of people a year to do the sort of work that earns $35-$40 an hour.
Basic factory work pays late $20s an hr, and it's mostly migrants doing those roles.
80k a year would place you in the 4th quintile of income. We bring in thousands of people a year to support 'growth', a bonus secondary impact is it keeps a lid on wages.
80k a year would place you in the 4th quintile of income
How much do you think being a manufacturing line worker pays?
Certainly not 80K....try 60. The median individual income last year was 70K....and there are a multitude of positions demanding tertiary qualifications that pay little more than minimum wage.
Yeah, so I don't know who's going to make our socks domestically.
Old ladies on super?
Could well be some old ladies on super working there
For $30 a pair.
I don't think people are quite aware of how aged out many of our traditional manual labour and blue collar jobs are.
The pay can be pretty good. An adolescent with no education can earn $80-$90k a year working on a boat, or in a food processing plant, on a harvester, holding a tool, etc.
Why would someone want to get $25 an hr screwing together a toaster?
"I don't think people are quite aware of how aged out many of our traditional manual labour and blue collar jobs are."
Being one of them I think I have the awareness
I know guys who chased the money working on the boats....most of them lasted one trip....and as to earning 80-90 K in the types of positions you list you are either a contractor or working mega hours and/or crap conditions....its why they struggle to find people willing (or for that matter able)
Being one of them I think I have the awareness
So then you'll agree, there's a dearth of newer entrants into these sorts of roles.
I know guys who chased the money working on the boats....most of them lasted one trip....and as to earning 80-90 K in the types of positions you list you are either a contractor or working mega hours and/or crap conditions....its why they struggle to find people willing (or for that matter able)
If you want mega hours, self employment or crap conditions the money is a lot higher than $80k
Again though, we're comparing this to lower paid factory shift work.
Your claim that people will not do production line work for 80k is patently false as most production line roles do not pay anything like 80k for those roles (unless you are doing substantial OT) as the advertiised rates indicate and the stats show....not to mention personal knowledge.
If you are finding a dearth of applicants for such roles i would suggest there may be any number of reasons why this may be so but also suggest that if someone is indeed paying 80K for such roles then they are unlikely to have any trouble recruiting from the competition who are paying considerably less.
As to 'contractor roles' many of these are seasonal and/or short term i.e. "on a harvester".
Your claim that people will not do production line work for 80k
I'm saying people won't do that sort of work at lower pay, given it's hard to fill better paying blue collar jobs that pay higher.
As to 'contractor roles' many of these are seasonal and/or short term i.e. "on a harvester".
Or just a self employed worker who would've otherwise been a wage or salaried worker. There's hundreds of thousands of these. You'll trade job security (arguably, as wage and salaried workers can also be non permanent), for the opportunity for higher income.
"$80k a year to be something like a tractor driver or interior plasterer?"
Your problem is you are inflating the reward for the positions described...."why will nurses not work for 150K a year?'....because in the main they are not paid such an amount.
We have made a number of poor decisions over the decades that devalued the trades and manufacturing so that now we find ourselves facing a shortfall of needed skills....pay is but one of them. The solutions are not to import low cost largely unskilled migrants to fill the gaps at reduced cost of increasingly poor performance.
Walmart is asking brands to increase retail media budgets by 25% and some are going up 75%. But sales haven’t followed.
One CPG mnfr tripled its Walmart investment over three years. Still flat. Another walked away from the deal entirely.
The pressure is real. Walmart is pushing for more media dollars without showing more return. This isn’t just over-investment. It’s fear-based investment.
https://www.adweek.com/media/walmart-asks-brands-to-boost-ad-spend-by-a…
Its been 17 years since the GFC, we are due a good recession. Sure we had Covid and another dollop of QE like free money... sooner or later the free money is not so free anymore.
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