Breakfast briefing: No appetite for a resolution

Economy / news

Despite good industrial production data globally, markets retreat on US equivocation for a peace deal; eyes on the RBA; city ranking updates; UST 10yr at 5.24%; gold drops and oil firms; NZ$1 = 56.7 USc; TWI-5 = 60.4

29th Sep 26, 7:21am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news the rejection of the Iranian peace proposal by the US has meant diplomatic efforts to resolve the issue have lost momentum and financial markets have downgraded prospects across the board, even though the release of some recent data has generally been positive.

First, the very positive August Dallas Fed factory survey has been repeated in September even if not quite at the same level. The last time they had two successive positive reports at this level was in March 2022, and prior to the pandemic recovery, in 2018. If there is a downside in this report it is that cost pressures are rising fast and faster than prices are rising.

Fed Governor Lisa Cook said overnight that future productivity gains from AI may not be enough to offset near-term price pressures, warning this trend could drive up US inflation.

Meanwhile the US and China are working on a US$30 bln tariff reduction framework, have agreed to establish an AI dialogue, and agreed to increase flights between the two countries. But all this just seem window-dressing talk at this stage. No actual deals have been agreed. Remember the Beijing meetings in May where large airplane and ag products were announced, neither of which resulted in contracts or trade.

China's industrial profits were up +4.2% in August to just over ¥690 bln from the same month in 2025. For the eight months of 2026 they are up +15.7% so this latest period is recording a notable slowing in their growth. But it is still growth. Most observers had expected the growth rate to pick up to +18% so there is a disappointment in this data, and reflected in today's Shanghai equity markets.

Singapore's industrial production rose a sharp +15.4% in August from a year ago and driven by a +28% surge in electronics products.

India’s industrial production rose +8.0% in August from a year earlier, up from an upwardly revised +7.4% in July and well above market expectations.

Later today we will be watching the RBA's monetary policy review which is widely expected to deliver a +25 bps hike to 4.6%. Financial markets have priced that change in at a 76% chance. Note, that isn't 100%. But of course most interest will be in how these policymakers see the track from here. Some observers think it will hit 5.35% before the middle of next year before the RBA is done hiking.

Before then we should note the release of the 2026 Global Cities Index from Oxford Economics. They say the top city is New York, followed by London, Paris and then Seattle ahead of San Francisco. Sydney came in at #13 (a fall from 7th), Melbourne at #16 (a fall from 6th) and Brisbane at #36 (a fall from 23rd). Auckland was ranked #60, Wellington ranked #75 and Christchurch at #96. No New Zealand rankings changed from last year. The index claims to assess the strengths, weaknesses and future potential of the world’s 1,000 largest cities.

The UST 10yr yield is now just on 5.24%, up +7 bps from yesterday and a new high since June 2007. The 30 year yield is at 5.55%, up +5 bps and its highest since January 2001. The key 2-10 yield curve is now at +33 bps (up +3 bps). Their 1-5 curve is now at +52 bps (-1 bp) and the 3 mth-10yr curve is at +130 bps (up +10 bps). The China 10 year bond rate is little-changed at 1.68%. The Japanese 10 year bond yield is now at 3.11%, up +4 bps from yesterday and a new generational 30 year high. The Australian 10 year bond yield starts today at 5.44%, up +7 bps from yesterday and a 16 year high. The NZ Government 10 year bond rate is now at 5.16%, up +2 bps.

Wall Street has started its week on the back foot, down -0.8% in its Monday trade. The Nasdaq is down -0.9%. European markets ended their Monday trade just marginally softer. Tokyo ended yesterday down -0.7%. Hong Kong was up +0.5% but Shanghai fell -1.7%. Singapore ended up +0.3%. The ASX200 ended up +0.2%. And the NZX50 closed up +0.1%.

The price of gold is at US$4137/oz and down -US$148 from yesterday. Silver is at just over US$61.50/oz and down -US$3.

Oil prices have risen +50 USc from yesterday to just over US$93/bbl in the US, while the international Brent price is just under US$106/bbl and up +US$1.50. Hormuz transits are rising today with 15 ships exiting over the past 24 hours, 5 of which one are tankers escorted (9 dark with transponders off) and nine entering for new loads (5 dark). The Red Sea activity is holding low at about 20 vessels in both directions at the Yemen chokepoint.

The Kiwi dollar is unchanged from yesterday, still at 56.7 USc. Against the Aussie we are up +20 bps at 80.8 AUc. Against the euro we are also up +20 bps at just on 49.9 euro cents. That all means our TWI-5 starts today at just on 60.4 and up +10 bps yesterday.

The bitcoin price starts today at US$83,618 and down -0.9% from yesterday. Volatility over the past 24 hours has been modest at just over +/-1.3%.

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15 Comments

by powerdownkiwi | 29th Sep 26, 7:34am 1790620462

Accounting manufacturing without factoring-in entropy, is akin to accounting births without factoring-in deaths.

False positives...

by murray86 | 29th Sep 26, 7:50am 1790621427

Funny, I thought along the same lines too when I read Lisa Cook's comment re AI. Increased productivity essentially means increased consumption (otherwise what's the point?), which translates to increased depletion of reserves. Other unspoken impacts are likely increased unemployment, reduced wages, reduced surplus cash and these all lead to people's inability to consume the increased production unless it is a lot cheaper. It's a vicious spiral to collapse. All driven by denial.

by powerdownkiwi | 29th Sep 26, 8:10am 1790622624

Good comment.

I sense that disillusion is growing, via reality hitting. Thus no political 'centre' anymore.

The narrative (as per JJ this site, insisting on linear cycles) is all about a temporary hiccup - a 'crisis'. The reality is a long-term coming-on of the screws - and more and more are disbelieving. If we ask what they're disbelieving - it's the type of omission, we see in DC's headline. These people are having increasing trouble parrying entropy - maintenance is taking an ever-bigger slice of a reducing pie - and cannot fit the 'growth' narrative with their personal trajectories.

Essentially, the narrative has moved past the MSM - which adds a new problem; sorting out the truth from the chaff.

by murray86 | 29th Sep 26, 8:44am 1790624698

The mid terms in the US will be telling. More Trump and the acceleration to collapse of the US will accelerate. Hobble him and they might be able to slow the decline. But there is no indication that there is any sanity within the halls of power over there, and what ever the out come in the US is, it will impact the rest of the world. Small nations like NZ are especially vulnerable. especially when our politicians are also in denial.

by Foxglove | 29th Sep 26, 8:52am 1790625178

It was the inherent American political system that percolated Trump to the top. More of a fetid swamp rather than a coffee pot though. It seeems to me that is very rare to find historically evidence that those that create problems are best suited to solve them.

by murray86 | 29th Sep 26, 9:02am 1790625731

The problems started well before Trump. You could argue he is a product of their system. I suggest the people who can see the problems, explain them are not necessarily able to communicate solutions that would be able to convince the masses. That's the core of politics- the ability to communicate with the people collectively. Trouble is most just use bribes for a short term sugar hit.

by powerdownkiwi | 29th Sep 26, 9:00am 1790625639

Bonhoeffer and stupidity: why evil looks normal today (Theory of Stupidity) - YouTube

Perhaps explains why Keith Woodford has started expressing what he has known all along?

Extrapolated, most of us are part of the 'system'. Most of us don't critique it.

by Let me be Frank | 29th Sep 26, 9:22am 1790626930

AKA...if you can't beat them, join them.

by Matt73 | 29th Sep 26, 9:48am 1790628507

AI is the new outsourcing. This time it's servers instead of countries and LLMs instead of people.

by murray86 | 29th Sep 26, 11:28am 1790634502

I don't disagree, but they're not thinking through what the costs are. AI will not be good for societies unless they change their fundamental economic paradigms.

by Colin Maxwell | 29th Sep 26, 10:08am 1790629698

Morning Report... "And the UST 10yr yield is now at 5.21% and up another +4 bps from this morning, its highest in 24 years."

My personal precursor to a state of "steady as she blows" is watching the Western-centric sovereign bond markets, and in particular that of the USA (United Sanctions of America) Treasuries and especially the 10 year T, because that is what sets the tone for most borrowing and impacts directly on mortgage rates. I believe that a meltdown is only weeks/months away.

Traditionally 5.0-5.25% was regarded as “elevated stress level”, 5.25-5.5% “serous danger”, and 5.5-6% as “something is breaking territory”.

Reuters canvassed investors only a few days ago on exactly this question. The conclusion was essentially... 5% used to frighten everyone, now people are beginning to ask whether 6% is the real breaking point.

JPMorgan reported that major investors were discussing a 5.5–6.0% 10Y range as a potential “breaking threshold” for equity markets.

My gut feeling is it is more like 5.5% as debt rushes to the short end of the yield curve, and short duration T-bills become an even bigger story than the 10-year-T.

WHERE MY WORK DIFFERS FROM MOST RESEARCHERS – and where for me the denominator becomes the real story

Headline global GDP includes enormous amounts of activity that may contribute little or nothing to the productive surplus from which debt ultimately has to be serviced. If you substitute a productive-GDP/PGDP denominator, the apparent debt burden rises sharply.

If global GDP is roughly $120 trillion, and broad global debt roughly $365 trillion, conventional debt/GDP is about $365T ÷ $120T ≈ 304%.

But suppose, purely illustratively, because we don’t have a robust internationally standardized PGDP dataset - genuinely productive output were only 50%, 40%, or 30% of headline GDP.

That is precisely why the PGDP argument is so vital - at 40% productive GDP, for example, the world’s $365 trillion debt mountain isn’t three times the productive-output denominator. It is 7.6 times that mountain.

The relevant question becomes - how much genuinely productive economic activity exists underneath the mountain of financial claims from which the escalating interest burden can ultimately be serviced?

That question is largely obscured by conventional debt/GDP ratios because GDP counts enormous amounts of financial intermediation, government expenditure, property-related activity, healthcare expenditure and other services regardless of whether they expand the productive capacity from which the accumulated debt claims can ultimately be honoured.

by Palmtree08 | 29th Sep 26, 10:23am 1790630632

"Remember the Beijing meetings in May where large airplane and ag products were announced, neither of which resulted in contracts or trade."

China just needs to nod and sit quietly by, while the US eviscerates itself.

by Foxglove | 29th Sep 26, 10:59am 1790632742

China will quietly but solidly see Iran right. The two nations have ancient history. Genghis Khan in the 13th century is the only proven conqueror and occupier of Persia which accordingly was included in the vast Yuan dynasty after his grandson Kublai had taken over the rest of China. Even the Ottomans subsequently could only make a few dents in on the western borders of Persia after the nation had reformed. Iran has oil, China has resources, that dovetails. Have always thought it noteworthy that China likes to style its currency as the Yuan.

by Yvil | 29th Sep 26, 11:45am 1790635507

I knew you were of a "certain age" Foxy, but I didn't realise you were that old ! Lol

by Foxglove | 29th Sep 26, 12:13pm 1790637228

Dotage beckons. Still there is some comfort in that the rambling remains of interest to some.