Here's our summary of key economic events overnight that affect New Zealand, with news China's clear need for less oil has pushed its price sharply lower even as both the Gulf of Hormuz and the Red Sea remain effectively shut. As other sources raise their output, global demand is being undermined, essentially by this Chinese transition.
But first up today, we should note the overnight dairy Pulse auction. Prices achieved were a bit more than -1% lower than the prior week's full auction in USD, but a bit less than that in NZD.
In the US, the ADP weekly private payrolls monitoring recorded another easing, only +15,000 and extending the easing trend that has been in place since early May.
The US merchandise trade deficit came in more than -US$100 bln in June, a second straight month of an unusually high negative level. Year-on-year, exports were up, but imports rose faster.
Meanwhile both their retail (+3.1%) and wholesale inventories (+4.1%) rose in June, reflecting the stockpiling trend that has been in place for a while now.
The expected improvement in the Richmond Fed factory survey didn't eventuate in July from June, but it remains modestly positive. New order flows edged lower while price and cost levels remained elevated.
But there was a solid improvement in the Dallas Fed services sector recorded in their July survey.
Nationally, the Conference Board's consumer sentiment survey in the US took a step lower in July. This extends its falling trajectory that started in early 2025.
The auction for the US Treasury 7yr Note was well supported earlier today but again, investors are getting higher yields for the elevated risk they perceive. This latest one delivered a median yield of 4.41% (high of 4.47%) compared to 4.20% at the prior equivalent event a month ago.
In Japan, a major 7.1 earthquake in the south has caused widespread damage and deaths. And Japan's parliament has approved a plan to create a "second capital" capable of keeping the country running if disaster strikes Tokyo. It is likely to be in Osaka.
Malaysia said producer prices there were +9.2% higher in June than a year ago. This was an unexpected jump from the anticipated +7.7% which was similar to the May rise.
Staying in the region, Singapore reported its birth rate for 2025 and for the first time since its independence, it has fallen below +30,000 in a year. It, like many places, is on a steep trajectory of lower fertility.
Industrial production in India rose +7.3% in June from a year ago, more than expected and the sharpest pace of expansion in nearly two years. It seems to be bouncing back from the initial shocks from the Middle East conflict.
Later today, we will be getting the June CPI result from Australia and a no-change 4.0% rate is anticipated. But yesterday Governor Michelle Bullock was out speaking and affirming that they are worried that these high levels are embedding, so their 1-3% target range is not likely in the medium term. Some are wondering if this was a signal that an unexpected hike is about to be delivered next week.
The UST 10yr yield is now just on 4.60%, down -5 bps from this time yesterday. The key 2-10 yield curve is now at +32 bps (unchanged). Their 1-5 curve is now at +28 bps (unchanged) and the 3 mth-10yr curve is at +90 bps (+1 bp). The China 10 year bond rate is up +1 bp at 1.73%. The Japanese 10 year bond yield is now at 2.77%, down -1 bp. The Australian 10 year bond yield starts today at 4.95%, down another -7 bps from yesterday. The NZ Government 10 year bond rate is at 4.74%, and unchanged from yesterday.
Wall Street is little-changed on both the S&P500 (+0.3%) and the Nasdaq (unchanged) in Tuesday trade. Overnight, European markets were firmer, up +0.4% in Frankfurt and up +0.8% in London. Yesterday Tokyo ended its Tuesday trade down -4.0%. Hong Kong ended up +0.4% while Shanghai fell -1.2%. Singapore was little-changed (-0.1%). The ASX200 ended up +0.6%. The NZX50 was up a slight +0.1%.
The price of gold has fallen to US$4030/oz, down -US$48 from yesterday. Silver is now just over US$57/oz, down -US$1.50 from yesterday.
Oil prices have fallen another -US$3.50 from yesterday at now just over US$79/bbl in the US, while the international Brent price is now just over US$84.50/bbl and down -US$5. Hormuz transits are still basically halted. There have been no crude tankers and only 3 cargo ship exiting over the past 24 hours (1 dark with transponders off) and three entering for new loads (1 dark). The Red Sea is even less active than the prior day.
The Kiwi dollar is up +20 bps from yesterday at just under 57.9 USc. Against the Aussie we are up +40 bps at 83 AUc. Against the euro we are holding at just on 50.8 euro cents. That all means our TWI-5 starts today at 61.8 which is up +20 bps from this time yesterday.
The bitcoin price starts today at US$63,568 and down -2.1% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/-1.7%.
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42 Comments
It seems oil is elastic, demand reduces as price increases. Assumptions otherwise were probably based on an era when there were no alternatives.
If I was Trump I'd play the long game (I suspect he's too impatient though). Keeping the Strait closed will hurt Iran more than everyone else. We will get used to these oil prices soon enough.
It’s not just oil though is it? Fertiliser is the key one among many others. The ramifications of this will be felt with greatly reduced food yield.
There is no equivalent energy source to replace oil. Nothing comes close in EROEI terms (you have to be n economist to miss that point).
So China is doing less, not replacing but refraining. To have replaced at that level would have required an unbelievable amount of unused plant - infrastructure in abeyance. Not happening. The glib comment re transitioning is therefore invalid.
And as A2020 points out, there are other feedstocks not getting through.
Nate Hagens coined the phrase 'energy blind'. Near-universal, it seems.
Keeping the Strait closed will aggravate everybody else because it hurts them and it's an issue they have no interest in.
It was open anyway until the USA blundered in.
It takes time to unwind but who wants to do business there. In my circle of frequent travellers the USA is avoided like plague.
Last century was theirs. That was then.
Agree they shouldn't have gone to war in the first place. But now if I was Trump I wouldn't be bending over backwards to make a deal with Iran. I'd say either open the Strait to everyone or its closed to everyone and your economy is stuffed.
Trump has bent over backwards and been stuffed by Israel already. Now he is struggling to live with the fallout.
I wouldn’t play a long game with Iran. They have an eye for an eye philosophy. A dictatorship can control their people more than a democracy. What would a week of no fuel in America look like?
Agreed Rampart.
It seems that Trump has got himself in a quagmire that he doesn’t seem to be able to get out of and is losing. His ramping up of renewed attacks over thirteen days resulted in the Houthis blockading Saudi oil shipments via the Red Sea, Despite Trump continuing to claim Iran is begging for a deal, they still have a good supply of munitions and are clearly prepared and able to play the long game while Trump faces mounting pressure with the mid-terms fast approaching and approval of his war around 29%, the cost of the conflict escalating, and Hegseth having to go cap in hand to Congress seeking further funding and facing considerable pressure from the Democrats throwing his and Trumps statements back at him.
This is not going to be settled anytime soon unless Trump is going to concede considerably with loss of both face and the war.
Trump has continually ranted that Iran are "begging for a peace deal", I would suggest it's more likely the other way around.
Their pain tolerance is a lot greater than the USA and global economy. You forget they have been under sanctions for decades and they still are able to function and militarily cause all kind of headaches for a super military power
Not sure USA can afford to keep the straight blockaded, what has this war cost them so far? $38 billion and thats just the military hardware.
Iran has historical trade routes to their north, particularly via the Caspian sea. The West seems to only now to be waking up to that courtesy of Ukraine. In WW2 the German High Command overlooked just how vital the Caspian Sea was to Russia. Iran is presently providing a very good example of the benefits of playing to your strengths.
Russia also shares a border with china. Drone tech is sent to russia from china then from Russia to Iran via Caspian Sea. Iran therefore has an endless supply of munitions.
And over in the east China just carries on regardless but with added consideration to the fact that through their adventures respectively in Ukraine and Iran, the two other super powers, Russia and the USA are not appearing to be all that super.
The snow is still the same.
Via AI and Otago Uni research. Surprisingly elastic. From memory -1.0 is perfectly elastic.
" The demand for oil and petrol in New Zealand is price-inelastic in the short run—with short-run price elasticity estimates around −0.1 to −0.3—meaning consumers change their consumption very little when prices spike. However, demand becomes more responsive over the long run, with long-run price elasticity estimates ranging from −0.34 to −0.46 "
The reduction of Chinese demand isn't likely to be for crude so much as some of the products of processing mogas for example might have it's demand dropping due to the massive number of EVs they're producing. They'll still have the need for the same or more Jet A1 and marine diesel, and don't forget all the other products that come from crude oil.
And all the other products that come from coal - China has massive investments in this area - 80% for their urea comes from coal for instance. So if you shut down a gas industry in NZ it is replaced by coal derived product from China - and a pat on the back from the commie UN for being net zero.
"Commercial-scale projects mushroomed in the 2010s, and, after a brief hiatus, more have emerged in recent years, particularly in the Chinese heartland, where the bulk of the country’s coal fields are located far from coastal cities. By now, its scale — which dwarfs all other countries’ coal-to-chemicals production — and growth is surprising even veteran industry observers. Look at some modernized plants and coal is nowhere to be seen: It’s mined underground almost directly beneath the chemical facilities, carried by conveyor into the furnaces where it’s gasified and transformed. From there, it goes into your plastic water bottle or synthetic fabric clothes.
The Chinese coal-conversion industry is an example of that blind spot. Western policymakers, apart from the US, often say they are “consigning coal to history.” That’s nonsense. Global demand climbed to an all-time high last year, and everything suggests it will remain at near record levels for several more years."
ttps://www.bloomberg.com/opinion/articles/2025-06-02/commodities-china-s-coal-…
We are saving our coal up for when everyone else's is running out.
Oil use elastic? It's true there's a lot of slack in the system high prices will flush out. This will mean an inconvenience to some and starvation to others. I guess we'll find out when the mandated release from global strategic reserves starts sucking air? 400million barrels was the initial planned release and we've burned through 290million barrels of that. 110million barrels left and counting. Will the decision be made to release more barrels? Yes, but again, the situation deteriorates by the day.
China has internal production of around 4.5 mbpd, another 900 000bpd via Rusian pipeline and the worlds largest SPR, estimated at 1.4 billion barrels. China sitting on the oil market sidelines is the largest factor saving the global energy supply from imploding would be my guess. This situation is not permanant!
Keeping the straight closed is hurting Iran the most at the moment, although whether a regime prepared to kill and torture its' citizens is really motivated by "hurt" is debatable. Assasinating the spiritual leader of your faith and being attacked by a foreign power aren't likely to forment internal rebellion any time soon either. Iran owes no one favours. My pick is they will see this through till the end.
"If I was Trump I'd play the long game (I suspect he's too impatient though). Keeping the Strait closed will hurt Iran more than everyone else. We will get used to these oil prices soon enough."
....the most idiotic comment I have read anywhere for quite some time.
https://www.stuff.co.nz/home-property/361012429/hidden-home-ownership-p…
I find this insane and a classic result of over regulation. We've now got charities acting as banks so people on low incomes or with low deposits can buy a house, all because the RBNZ and CCCFA prevented the banks from lending to those people. We get the exact same outcome, except now people are charity cases instead of independents.
While I have an issue with the circumstances that puts people in this position, I don't have a problem with what the Foundation are doing. I don't accept they are a charity case. Anybody with a mortgage is in partnership with their bank to buy their property. This woman just has a third partner in the deal. It is not a lot different to when I bought my first house in the 1980s. My wife and I took out a personal loan, had a Government Servant housing loan and the bank mortgage to make it happen for the first time. Wasn't unusual. Had bugger all left to live on, but within a year or two when we cleared the personal loan it got easier. It was the only way we could do it.
Invariably a mortgage is cheaper than rent, but exorbitant rents bleed tenants to the point where they have nothing left to be able to save. This is a good thing. Indirectly sticking it to parasitic landlords, and we've already discussed those to death in the past.
Agree these charities are good in the case where the bank won't lend to you. But why force the bank not to lend in the first place!
If the bank think you're capable to make repayments or of low risk to them, the government should f off.
If they really wanted to protect people, they should have legislated no recourse home loans.
If the bank think you're capable to make repayments or of low risk to them, the government should f off.
Seems pretty obvious the problem that the banks can't be trusted to manage this risk because at an employee level they aren't actually exposed to the risk, and even at an institutional level they likely don't face the full risk as indicated by past bailouts.
So the risk is ultimately at least somewhat socialised and the govt as effective insurer has the right to limit what risks are taken. You can argue about whether they are getting that right but I am very comfortable with them having a say and frankly if someone can't raise a deposit under the current relatively benign circumstances it's not a strong case for having faith in them to "tighten their belt" and make payments if times get tougher (war, pandemic, natural disaster, market crash etc)
It is immoral that the regulations state people can't afford a mortgage when they're paying more in rent.
I find the whole thing revolting. The government should not be deciding whether or not you are capable of tightening your belt and buying a home. They are basically locking people into poverty, supposedly for their own good.
The belt tightening should be on mass immigration. Fuel for the property Ponzi!
lobbied for and locked in by the rentier class.
They had to - the overall lid is sinking and they needed to defend their cut.
Too many people/not enough planet meant that someone was going to miss out. Most commentators miss the obvious point that the chances of paying off debt are reducing YOY. Inflation or collapse are the options - but en route you can expect the least-powerful will get screwed. Just like the sub-prime. And the enclosures, historically. The joke is that if the marker-system implodes, the rentiers might have to actually do something.
Is restricting low deposit purchase in a declining price market punishing people or saving them from themselves. If your rent is to high ask for a decrease if not forthcoming... move. Meanwhile save save save.
It wasn't a declining market at the time.
If the goal is to prevent people making a loss then they need to prevent everyone from buying a home!
Over regulation? You mean the regulations that impose the responsibility on the banks to lend within debt to income limits? That regulation that forces the banks to do what otherwise ethical practice would have had them doing of their own volition?
Hmmmm
And what about all those esteemed bank economists who raised no red flags during the low interest rates, easy credit feeding frenzy. Your below average farmer is wise enough to know commodity prices are cyclical. Surely bank economists could have given a pretty good idea of likely future movement in monetary policy and the impacts.
Ohh that's right.....never bite the hand that feeds you
"Japan's parliament has approved a plan to create a "second capital" capable of keeping the country running if disaster strikes Tokyo. "
Given Wellington's high earthquake risk this would seem to be an appropriate strategy for us especially as the main arterial route into Wellington is along the major fault line and the centre of Government is within no more than a kilometre to the fault.
I nominate Inangahua.
The great hustle-bustle metropolis
It qualifies by being built on a fault line.
Somewhat like economics.
As is Nelson Hospital, go figure.
or a bunker in Queenstown perhaps?
Since the beginning of the Iran war, Gold had an inverse correlation to oil prices. This seems to have changed for the last two weeks since the resumption of the war. Gold was up in tandem with oil price increases, and today both are down. It seems something is changing.
Behaviours Yvil. People have seen an oil shock and then an unwinding of this through false peace. They are becoming desensitised by the orange mans flip flopping, and may be getting too comfortable due to the buffers of the strategic reserves, and China's willingness to curb oil use. Remember China needs the world to buy it's good, therefore economic pain in the western world hits them too in dropping exports, which would thus impact their need for oil in the first place with lower manufacturing needs.
The big question I see it, to what lengths are China willing to buffer the western world and for how long, based on their long term geopolitical strategy.
Do they need to get to a certain level of development then let the USA implode? Or do they diplomatically take measures to prevent this if they aren't quite there yet? Big questions indeed.
Given that they are the ones buying US debt, do they really need the US?
But China is divesting out of USTs, PDK.
They are down -49.9% from their peak holding in 2013. That figure is in nominal terms. In real terms, the divestment is much higher than that.
In aggregate the total foreign central bank holdings of USTs has been dropping since 2014 - once again that figure is measured in nominal terms.
Gold bullion is now the #1 global reserve asset at 27% of the global total reserve assets.
USTs are #2 at 22%
Euro Bonds #3 at 15%
JGBs #4 at ~5%
UK Gilts #5 at 3-4%.
In nominal terms Japan is down -14.9%, Brazil down -34.2%, Saudi Arabia -22.4%, Hong Kong -39.9%, and Switzerland -11%.
Meanwhile the club, that buy one another's debt to help extend the giant Western-facing fiat-Ponzi, APPEAR to be gluttons for USTs.
In order of rank (UST holdings) the biggest buyers are...
UK at +46.1%
Belgium at +73.8%
Cayman Islands +74.2% (a British Overseas Teriitory)
Luxembourg +33%
Canada +39.9%
France +60.7%
Ireland 6.8%
Taiwan +74.4%
Singapore +148.9%
India +192%
Saudi Arabia +29.4%
South Korea +76.4%
Norway +55.7%
Germany +23.3%
UAE +60.4%.
It gets even more interesting when you relate the UST holdings back to a population basis, as it helps to highlight the global capital churn, as opposed to it being debt exposure of the local citizens.
In the case of the Cayman Islands it would amount to an accumulation of an extra $2,868,50 PP The figure for Luxembourg is $163,940 PP, and Belgium $16,980 PP.
The US TIC (Treasury International Capital) is a classic case of smoke and mirrors, because the data reflects the immediate geographic location of the institution holding the bond, as opposed to that of the actual owner.
Obviously this creates a massive blind spot, which allows central banks, the billionaire club, and hedge funds to obscure their holdings in depositories like Euroclear in Belgium, and offshore financial centers like the Cayman Islands.
Euroclear uses a massive Omnibus Account, rather than accounts for individual clients, large banks, or CBs - meaning that the US Fed only sees the aggregate UST purchase in that account.
Multiple countries can instruct brokers in, eg London or Zurich, to buy huge parcels of USTs and then custody them inside Euroclear. Belgium's treasury holdings then instantly spike by the aggregate of those purchases.
OFCs (Offshore Financial Centers) like the Cayman, British Virgin Islands, and Bermuda have strict corporate privacy laws, and zero tax systems to hide asset ownership.
In these OFCs the underlying capital could belong to a US hedge fund, a Chinese tech billionaire, or even a ME sovereign wealth fund, and no one would be any the wiser - the true owners hide behind local nominee directors.
Also foreign central banks can use a proxy buyer located in London or Zurich, etc, to hide the fact that they are buying or dumping USTs in real time, especially during times of geopolitical tension. The US TIC flags these spikes, but these holdings can be quietly moved, ensuring that the true buyers identity remains hidden.
The US loves these blind spots because it allows buyers to remain anonymous, ensuring that they can organise proxy buyers, and the fact that they are simply buying one another's reciprocal debt.
The US and UK buying one another's debt is known in the business world as "kiteing" or "cross-guaranteeing".
In the micro analogy, if an accountant looks at the balance sheets they appear stable. Sam (the US) claims John's (the UK) IOU/bond is a valuable asset, and John reciprocates.
No wealth of productivity was created - they are simply passing the same borrowed capital backwards and forwards to try to pay the interest, as well as rollover their older debt, and hoping like hell that the loans don't get called in.
In real life, if this was found to be the case, the small business or individual would be sold up immediately. Not in the Western-facing fiat casino-Ponzi world, of TBTF (To Big To Fail) banks, institutions, or for that matter, sovereign countries.
In this magical "never-never-land" the credit lines and meaningless paper trail of worthless tokens persists, with all the players praying that the music doesn't stop.
Personally, I believe that we are right on the cusp of this - where global investors realize that these massively indebted, technically insolvent nations are simply passing circular paper back and forth, where it will trigger a catastrophic loss of confidence. PROBLEM - apart from military threats and violence, the only thing that backs fiat currency is confidence.
When the fat lady finally sings, the illusion is shattered and the real world consequences can domino into a cascading chain reaction...
1 Investors realise that they need a much higher risk reward to continue to buy this debt.
2 The "Bond Vigilantes" refuse to buy new government bonds without getting massive increases in interest rates.
3 Bond yields surge. Because govt. debt benchmarks all borrowing costs, and interest rates spike across the entire economy - they begin to strangle the real economy.
4 When the bonds are dumped the sellers usually convert that capital back into local currency, or hard assets like gold.
5 As a currency crashes, the cost of importing goods, food, fuel, everything, skyrocket.
6 Stagflation results - a toxic mix of high inflation, interest rates, and unemployment.
7 The govt. faces default if they can't sell their bonds, and then the only buyer left is their own central bank, (the Fed or the BOE).
8 They buy this unsold debt using freshly printed synthetic money, a process known as QE or "monetising the deficit".
9 The death spiral now kicks in in earnest, because printing massive MS into a crashing economy accelerates inflation and leads to ever higher interest rates and the public debt becoming progressively more expensive to service.
10 The RoW abandons the dollar and the pound for trade and shift to pricing oil, gold, commodities, and goods, etc, in alternative currencies, especially those that are hard-backed for trade purposes.
11 The end of the 50+ year-old free-lunch, where the US can no longer export its inflation to the RoW by printing money and buying cheap foreign goods (including their underpants). Domestic living standards drop drastically as Rome II self-destructs... spectacularly.
The US CBO (which always wildly underestimates the deficits) estimates a federal fiscal deficit of $1.9 trillion of 5.8% of GDP (to me that means at least $2.5T). NB the 50 year average is 3.8%.
Then there is the current account deficit estimated by the IMF to be 7.5%
In the next 12 months ~$8 trillion USTs needs to be rolled over, just as the buyers are headed for the hills - then add to that, the new debt that has to be sold, to monetise the current deficit.
There were ~$1.8T 3-5 year notes issued between 2021-2022 with coupons ranging from 0,375% to 1.75%. The massive of tranches of 5-year notes hit their 2026 expiration and are replaced by notes at yields at near 4% - roughly 400% higher than their original cost.
This is the structural breakdown that no one wants to face up to. The US govt. is moving a huge portion of its funded debt profile from a cost basis of ~0.8% to 3.5-4%. It is a classic case of technical insolvency that will end in a train-wreck, and drag a big chunk of the global economy under with it.
China has been extremely accommodating to date because they know that a Western financial meltdown is bad for the collective global economy, including themselves. Despite that, the US declared a full-on financial war against China, not to mention a military war as well.
I fear they are running out of patience. China bailed out the West during the 2008 GFC by buying hundreds of billions of dollars of USTs and agency securities from the likes of Fannie Mae and Freddie Mac, helping the US finance deficits and injecting vital liquidity. China's actions significantly lowered the US government's borrowing costs whilst keeping global commerce afloat
I doubt that they will do so this time around - their priority now, 18 years on, will lie very much with their own financial security, and in assisting trading partners who can be trusted long term in reciprocal trade. On that note I await the hysterical outburst and gnashing of teeth from the resident sinophobes... for simply stating the bleeding obvious.
I saw a recent GallopPoll statistic where 40% of women aged between 15-44 want to leave the US if given the opportunity - could anybody really blame them?
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