Here's our summary of key economic events overnight that affect New Zealand, with news global oil prices have risen again with no end to Trump's Hormuz adventure. In something of a gigantic own-goal, the US economy is losing momentum rather quickly now.
But first, the overnight full dairy auction came in better than the futures market had signaled, up +2.3% from the prior full event. This was largely driven by the milk powder gains with WMP up +3.0% and SMP up +7.6%. However most of the milk fats fell. The overall gains in NZD were slightly better, up +2.6%. But despite this recent turn higher, prices are still almost -9% lower than year-ago levels, even if they are up almost +10% from the start of 2026.
In the US, the latest weekly jobs update from ADP has stayed low with less than a +10,000 gain over the past four week.
In contrast to the positive July factory report in the New York state region we noted yesterday, their services survey in the same region wasn't very good. The business climate index remained deeply negative, with almost half of respondents reporting unfavourable business conditions.
US industrial production data for July was modestly positive from June and that has resulted in a +1.1% gain from a year ago, although lower than the June +1.3% expansion.
US pending home sales were lower in July, both from June, and from a year ago. There is no spark in evidence in this sector, and perhaps not surprisingly when home loan interest rates are high at 6.8% and likely to rise from here. Every region is posting both month-on-month and year-on-year declines now.
US housing starts fell back sharply in July, down -13.5% from year-ago levels. In fact, the last time they had a July this low was in 2019.
And in Canada, they also reported a sharp drop in new housing starts in July, their lowest for that month also since 2019. But July housing market sales actually rose and delivered the highest levels they have had in 2026 (even if this isn't a particularly high bar).
Meanwhile, negotiations between Canada and the US over Trumps 50% tariff threat seem to be going nowhere, and they are due to come into effect tomorrow. Interestingly, included in the stoush is Canada's aluminium exports and if they are tariffed, the hurt to US businesses will be significant.
In China, they have a slowing momentum too. Households are clearly worried because they hare paying down debt faster and prioritising cash reserves in the face of a glum outlook.
In Australia, their consumer sentiment has improved from low levels but it is still net-negative and still below last year's level at this time. The improvement was driven by mortgages holders who were relieved that the RBA didn't increase rates at its last decision. The survey also shows house price expectations declined as the housing market weakened. But renters are less likely to expect price falls and are more downbeat about home purchases.
The UST 10yr yield is now just on 4.71%, down -2 bps from this time yesterday. The 30 year yield is at 5.28% and down -3 bps, and off its highest in more than 20 years. The key 2-10 yield curve is now at +53 bps (unchanged). Their 1-5 curve is now at +38 bps (+1 bp) and the 3 mth-10yr curve is at +102 bps (+2 bps). The China 10 year bond rate is down -2 bps to 1.67%. The Japanese 10 year bond yield is now at 2.95%, unchanged, up +3 bps. The Australian 10 year bond yield starts today at 5.05%, up +2 bps. The NZ Government 10 year bond rate is at 4.77%, up +3 bps.
Wall Street has faded again today with the S&P500 down -0.6% and the Nasdaq down -1.3%. Overnight, European markets were mixed between London's +0.1% and Paris's -0.8% fall. And Tokyo ended its Tuesday session down +2.5%. Hong Kong was up +0.1%. Shanghai was up +0.2%. Singapore ended down -1.2%. The ASX200 ended its Tuesday session little-changed. But the NZX50 had a good positive session, ending up +1.1%.
The price of gold is falling back, now at US$4353/oz, down -US$30 from yesterday at this time. Silver has fallen -US$1 to just under US$64.
Oil prices are up another +US$1 from yesterday at just over US$85/bbl in the US, while the international Brent price is now just on US$91/bbl and up +50 USc. Hormuz transits have stayed very low. There has been only one crude tanker and 4 cargo ship exiting over the past 24 hours (2 dark with transponders off) and eight entering for new loads (3 dark), again all Iran-linked. There have been deadly attacks on a few of these ships crossing. The Red Sea activity is still only about 20 exits at the Yemen chokepoint, little-change.
The Kiwi dollar is down -25 bps from yesterday at just under 58.8 USc. Against the Aussie we have dropped -20 bps to 82.9 AUc. Against the euro we are down -25 bps at 50.8 euro cents. That all means our TWI-5 starts today at just on 62.3, down -30 bps from this time yesterday.
The bitcoin price starts today at US$64,667 and up +0.7% from yesterday. Volatility over the past 24 hours has also been low at just on +/-0.7%.
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17 Comments
Election issues: power company profits. I understand that the biggest issue for voters is the cost of living. It is fascinating that the former two big parties are in lockstep about reeling in the excesses of these partial SOEs. My parents paid to build the hydro schemes. I have paid off the debt in my lifetime. This flawed neolib model is past reform. No dry year capacity, no base load capacity building. Let’s not rehire the governance team that led us to here.
Yes, those generating assets are paid for, except for ongoing maintenance. The price of electricity is set by demand and the marginal cost of new supply, which are driven largely by the ideology of exponential economic growthism
And yes, by your description, neoliberal ideology (the market arbitrates) is working by extracting profit.
Yet it misses the point that those earlier investments in generation capacity were a public good investment for all NZ. Electricity deemed a fundamental resource to drive economic development of the broad economy. An enabling investment not a maximising profit to ECNZ. Comparable to the roading infrastructure development - enables productive business development.
Our electricity infrastructure should be operating on an actual cost recovery basis that includes maintenance investment and a portion set aside for new generation capacity development. The cost to consumers should not be benchmarked against other forms of energy input but supplied at least cost. I suspect that if that were the case, then the industrial processing capacity lost over the last couple of years, would have retained viability and continue to be significant employers in regional communities and generating tax revenue back to government. And in that, deliver lower CO² emissions for NZ as a whole.
When asking AI to rank industry sectors on profit generation (quoting Stats NZ annual enterprise survey) it spat out the following;
Banking (finance and insurance) $b 6-8
Rental, hiring, real estate $b 5-7
Manufacturing $b 3-5
Big 4 gentailers $b 2-3
Agriculture, forestry, fishing $b 1.5-2
Retail trade $b 1.5-2
When I look at those figures, I draw a conclusion that the sectors oiling the cogs of the, in my mind, productive sectors are extracting an exorbitant level of profit that represses the productive sector.
With the high percentage of renewable generation, NZ has low cost generation. That low cost should be accessible to consumers whether domestic or industrial.
There are about 2 million active ICPs in NZ. So based on that number and profit of between $2b and $3b, that's $1000 - $1500 average profit per ICP.
Total generation in NZ is about 44,000gwh annually.
About 85% of ICPs are residential. And account for about 35% electricity consumption. Or 15,400 gwh.
Tiwai accounts for about 13% of total generation consumption - about 5000gwh per year. Average cost is estimated at $0.07/kwh or $70,000/gwh. Or annual cost $350m
Average retail price to residential is about $0.37/kwh (including gst which I expect is largely unclaimable because few residential users would qualify for a gst claim on that cost).
Therefore annual cost to residential is around $5.3 billion.
Annual gross revenue from the big 4 gentailers is estimated at about $10b.
Therefore the 85% of ICPs, that are residential, consuming 35% of total NZ generation (15,400gwh) contribute 53% of sales revenue.
So, I figure, whichever way you slice and dice this, residential ICPs are contributing an inequitable high share of gentailer revenue and profits. Yet have little if any capacity to shop around and gain meaningful savings.
Thanks for the quantitative summary. Appreciate it.
The gentailers are all ploughing essentially all of their profits, if not more, into new generation at the moment. This has been the case ever since the investment case made any sense, which it did not for years while governments of both stripes continued to allow brinksmanship from Rio Tinto over Tiwai.
No sane company was going to invest heavily in an industry where 15% of demand could evaporate at any moment. Now we play catchup after years of treading water.
Yes. And unless we can secure new load, and quickly, we are going to be heading into oversupply. Gentailers will shed the generation building capability they've developed to replace baseload gas over the last few years and the opportunity will be lost.
Hard to know how the Tiwai situation should have been handled, it is obvious the impact it had on the wider market. However aluminium prices were in the toilet for years and I think they genuinely were going to leave. It's hard to overstate the impact that leaving would have had, direct employment stuff. But also for the electricity sector. Nothing new would have been built for a decade probably. Maintenance would have been "managed decline". For instance, I think a lot of Manapouri capacity would have been mothballed as their transformers started failing and weren't worth replacing.
Catchup?
To what?
Exponential growth forever?
Rhetorical use of the mathematical term "exponential".
Even if they were fully government owned, and "paid off". The government should still charge a market clearing rate (ie what the gentailers charge today), and use the profit for direct transfers / offsetting taxation. Prices are most useful for deciding how resources are allocated. We know that households are far more important and are willing to pay more, than low value users like mechanical pulp mills.
We had the opposite prior to the reforms. The government was charging way below the market clearing rate, and consequently got into a situation every few years where they ran the dams dry and had to beg households to use less power, under threat of rolling blackouts.
I don’t really buy this. As we can now review the neolib experiment, for example, it doesn’t deal with externalities. The broader question is what kind of society we want to live in. Sure, as you say, the power companies can charge me as a consumer until I run out of blood. Those same charges have been applied to the little bit of processing we do here, rationally leading to the closure of timber processing facilities. Is NZ Inc really better to hike power prices and export whole logs? Can you please make the case for charging the “substitute “ energy prices? Why does that make sense? Building into the price maintenance and eventual replacement (that is depreciation) I can understand.
there is this theory of competitive advantage.
If you divide Mercuries $1b operating profit, by it's 300,000 customers, that's $3334 profit per customer.
The UN's 'Roadmap for Eradicating Poverty' cannot survive reality - resilience
'Economic activity must be bolted to biophysical reality. The architects of the re-jigged economy implicitly recognize that the present human enterprise is a growing fully-contained, dependent subsystem of the non-growing ecosphere'
Ah, but 'funding'.
Surely the biggest lie we told ourselves.
As the author notes
"Which brings us back to one of our recurrent themes. I have argued that modern techno-industrial culture is inherently unsustainable and cannot be ‘fixed’. A major—and without a viable plan, likely chaotic and painful—contraction of the human enterprise is almost inevitable. Systemic negative feedbacks will kick in to subdue humanity’s hubristic excesses."
We live in 'interesting' times.
Not a reputable website.
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
Love it.
Fake news - you're all the same. I don't like it so it can't be true.
US SPR to approximately 293.4 million barrels. Other strategic reserves will be similarly depleting. We are living a fools paradise.
Those occasional tankers getting through will be headed for China. Trumps blockade of steel has rusty holes when dealing with China.
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