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Kia ora,
Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
Today we lead with news that the start of Summer in the northern hemisphere brings excessive heat and ominous food security and immigration implications.
But first, initial US jobless claims slipped slightly last week after the prior week's rise. They remain low at +227,000 even if the level is its highest since February. There are now 1.734 mln people on these claims, little-changed from the prior week. No real sign of building labour market stress here yet.
Meanwhile, housing starts in the US fell -5.5% to an annualised rate of under 1.3 mln in May, the lowest since July 2020. April was downwardly revised.. This unexpected decline shows that high interest rates are still weighing on their housing market. New building consents fell slightly too. This result came before the slight easing of mortgage interest rates in June.
The Philly Fed's Business Outlook June survey showed general activity edged lower but remained positive, while shipments and new orders remained mildly negative. These results were slightly less than expected.
We noted the extreme heat in northern India and the Middle East in yesterday's report. Well, it has extended into the eastern US as well with a major heat dome there too. It too is life threatening for some.
And we have noted before that severe drought and heat waves are gripping much of China's key agricultural areas. It is not getting any better there either.
China's loan prime rates remained unchanged at record lows after yesterday's China central bank review.
Across the Formosa Strait, Taiwanese export orders rose +7% year-on-year in May, more than expected but slowing from the +11% growth in April. The tech powerhouse country continues to benefit from a surge in AI applications, but demand also rose for chemical products.
The steady improvement in consumer sentiment in the EU was evident again in their June survey, although the improvement was slightly less than anticipated.
Staying in the region, the Swiss central bank cut its key policy rate by -25 bps to 1.25% at their June meeting overnight, following a similar move in the previous meeting. This was as expected. Underlying inflationary pressure is easing and the Swiss franc is strengthening, so it is an easy decision for them.
Meanwhile the English central bank also held a review and kept policy settings pat (and at a 16 year high), as expected. But they did indicate that rate cuts are coming there soon, mainly because of progress in getting inflation down.
Last week, the rise in container shipping freight costs accelerated again, up +7% from the prior week to be +233% higher that year-ago levels. China to Europe rates were especially hard hit last week. Bulk freight rates were up +6% last week to be up +80% from this time last year (but that was an unusual low point, to be fair).
The UST 10yr yield is now at 4.26% and up +3 bps from this time yesterday.
The price of gold will start today up +US$26 at US$2355/oz.
Oil prices are up +50 USc at US$81/bbl in the US while the international Brent price is now just on US$85/bbl.
The Kiwi dollar starts today a little softer at just under 61.2 USc. Against the Aussie we are marginally firmer at 92 AUc. Against the euro we are unchanged at 57.1 euro cents. That all means our TWI-5 starts today unchanged at 70.7.
The bitcoin price starts today at US$64,672 and down -0.6% from this time yesterday. Volatility over the past 24 hours has again been modest at just on +/- 1.5%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again on Monday.
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Ask Cameron Bagrie how to improve business and rural banking and some words reoccur in his answers. Three of them are "risk", "productivity", and "bankability."
With two parliamentary select committees set to hold an inquiry into banking competition, the business and rural banking markets will feature, unlike in the Commerce Commission probe into competition in the personal banking market. In the latest episode of interest.co.nz's Of Interest podcast, Bagrie, now of Bagrie Economics and Chaperon and formerly ANZ NZ's chief economist, speaks about why banks favour housing lending over lending to the business and rural sectors, and whether it would be good to entice them to change this and how it could be done.
At the top of the select committee inquiry's terms of reference ought to be balance between the pricing of risk versus the taking of risk by banks, and how that's impacting productivity, Bagrie says.
"I think we need to have a really good, hard debate about where the money is actually going, the composition of bank lending, whether it's short-term behaviour versus a long-term growth maximising strategy. Let's have a serious conversation about risk going forward, because risk is a big enabler. It's not open season on risk, but risk is an enabler of innovation, driving productivity. It just seems like we've screwed things far too far towards a low risk approach, and ultimately we pay the price for that over time," Bagrie says.
"I go back to the fundamentals of banking. The fundamentals of banking is pricing for risk and taking risk. And what we're seeing out there at the moment is that SMEs and farmers are certainly being priced for risk... Let's have a look at return on equities out of the banks by segment, not the aggregate top down number. Let's break it down into personal lending, including home lending. Let's have a look at business lending. Let's have a look at farm lending and the institutional [loan] book, and have a look at where those ROEs [returns on equity] actually sit. And I think we're going to be surprised how high those ROEs are for certain segments."
"The key here is to go through each segment and look at the risk adjusted returns," he says.
Figures from the International Monetary Fund show housing lending at 35% to 40% of total bank lending in some countries, whereas in NZ it's nearer 65%, having risen significantly over the past five years.
Bagrie also argues that banks' regulatory capital settings encourage them towards housing lending instead of business and rural lending, when there's "more productivity bang for your buck" when you're lending into the business sector.
"We need to have a look at this through the eyes of economic efficiency, economic growth, productivity, innovation. Because when you make banks a lot more safer, there's a price that you pay on the other side."
"The whole process of credit intermediation is a pretty critical part of economic development. And I don't think we've got financial system settings right on a whole lot of areas," he says.
Financial system settings and banking don't tend to be areas thought of when people think about what to do to make NZ a better place economically in regard to taking risk and driving productivity growth, Bagrie says.
"We sort of overlook what's a fundamentally essential one and that's that flow, that process of credit intermediation, [it] is absolutely essential. The Prime Minister has been talking a lot about encouraging the taking of risk...Well, yeah, in order for firms to take risk, you need the financial system to be prepared to take risk."
In the podcast Bagrie also talks about NZ businesses having a bankability problem and how to rectify this, the role of the Reserve Bank's regulatory capital settings, banks' becoming more vanilla, the rise and rise of bank profits over the past 30 years or so, the low level of banks' non-performing loans, the need for better competition policy across the economy, how housing lending has grown as a percentage of total NZ bank lending over the past 20-odd years, and especially over the past five years, Australian influence at the big four banks, open banking, his thoughts on the idea of a Business Growth Fund, and more.
*You can find all episodes of the Of Interest podcast here.
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Kia ora,
Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
Today we lead with news of some very large global tensions starting to boil hotter.
But first, mortgage applications in the US rose by +0.9% in the second week of June, extending the +16% surge from the previous week, which was the sharpest weekly increase since the start of 2023. Their monitoring of the benchmark 30 year mortgage rate showed it slipped below 7% last week, its lowest since late March.
The NAHB/Wells Fargo Housing Market Index in the US fell in June from May, and to below market expectations. It was the lowest reading since December 2023, attributed to mortgage rates remaining around 7%. However it is back at about its average level since mid 2022. The industry also said home builders there are also dealing with higher rates for construction and development loans, chronic labour shortages still, and a dearth of buildable lots.
In Japan, their huge agricultural bank, Norinchukin, has said it has made a massive mistake in its bond portfolio, betting that rates would stay down. They haven't and it said it would unwind its position between now and March 31. That will involve selling ¥10 tln (NZ$105 bln) of US and European sovereign bonds and take an expected ¥1.5 tln loss for the year. For perspective its total investment portfolio is NZ$585 bln.
Japanese exports surged in May, up from ¥7290 bln in May 2023 to ¥8277 bln in May 2024, a +13.5% jump. The jump was expected, but it came in better than anticipated. Meanwhile Japanese imports rose too but by less than expected.
We should keep an eye on the spreading impacts of excessive heat in northern India. Its inability to cool at night is life-threatening for many. The spreading heat emergency has also hit Saudi Arabia, and hundreds have reportedly died in their haj pilgrimage to Mecca.
In China, their central bank signaled it will be getting more aggressive in the way it supports the economy, a tacit move that acknowledges the tough spot they are in. They are likely to start trading government bonds in the secondary market, a change of how the central bank injects money into the economy and regulate liquidity. They are also likely to shift to a single short-term rate to guide markets, like almost all other central banks.
Tensions near the Philippines in waters claimed by China are getting worrisome with China's forces capturing a Philippines resupply vessel temporarily and forcing it away from a Philippine outpost. China's illegal claims based on their very doggy "nine-dashed-line" sea grab threatens a major international crisis.
In Australia, the RBA has been looking at the Buy-Now-Pay-Later and doesn't like what it sees. Their key concerns are not so much on the unregulated credit side, rather on the fee side. That say BNPL fees average 3.5% of the transaction cost, compared to 0.4% for debit cards, 0.8% for credit cards. BNPL makes Visa and Mastercard look good (!). A crackdown is coming, allowing retailers to pass on those costs to customers (until now the BNPL industry has prohibited that). But the RBA needs new powers to make that change.
Join us at 10:45am this morning when the Q1-2024 GDP result will be released. Markets are picking we exited recession on an overall basis, but with essentially no growth. (Of course, on a per capita basis, this result is likely to be a bit grim.)
The UST 10yr yield is now at 4.23% and up +1 bp from this time yesterday.
The price of gold will start today virtually unchanged, up and insignificant +US$1 at US$2329/oz.
Oil prices are unchanged at US$80.50/bbl in the US while the international Brent price is now just on US$84.50/bbl.
The Kiwi dollar starts today a little softer at just on 61.3 USc. Against the Aussie we are -¼c softer at 91.9 AUc. Against the euro we are marginally softer at 57.1 euro cents. That all means our TWI-5 starts today up +30 bps at just on 71.2.
The bitcoin price starts today at US$65,049 and up +0.7% from this time yesterday. Volatility over the past 24 hours has again been modest at just on +/- 1.3%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
Today we lead with news expectations for a rate cut any time soon in Australia have faded significantly after the RBA's MPS yesterday.
But first, the overnight dairy auction brought slightly lower prices overall, down -0.5% although they were unchanged in NZD terms. WMP was sold in to weakish demand and ended down -2.5%. SMP fared better, rising a minor +0.7%. But the star of the show was demand for butter, up +6.2% to a new all-time record high in both USD and NZD. Volumes offered and sold at this event were quite low at 16,800 tonnes; in fact a four year low.
Moving on, in the US last week's retail sales at physical stores rose to be up +5.9% from year-ago levels, a rise from the prior week. But that was overshadowed by the May official retail sales data that was only up +2.3% from a year ago, up only +0.1% from April. And if it wasn't for good car sales it would have been less.
On the other hand, US industrial production rose more than expected in May, up +0.9% from April to end two months of weaker results
US business inventory levels were reported for April, and while they rose slightly, they actually fell in relation to current sales to remain at unconcerning levels.
Today's relatively small but still well supported US Treasury 20 year bond auction brought a lower median yield, down to just under 4.40%, -19 bps lower than the prior equivalent event a month ago.
In China, the wealthy are shipping out, it seems. China saw the world's biggest outflow of high-net-worth individuals last year and is expected to see a record exodus of 15,200 in 2024, dealing a further blow to its economy.
And homeowners with mortgages in China are prioritising paying them off faster as values sink. Owning your own home is now perceived as a liability, not an asset.
In the EU, CPI for May was confirmed at +2.7%. However, we should note that the ZEW Indicator of Economic Sentiment for the Euro Area surged in June to its highest since July 2021, and firmly above what was expected. That has built into nine consecutive months of rising EU business sentiment.
Yesterday's RBA monetary policy review indicated that rate cuts are further away than anticipated. Markets no longer have any cut priced in until mod 2025 now.
And the OECD says high school students in Singapore, Korea, Canada, Australia, New Zealand, Estonia and Finland were in the highest-performing education systems in the first-ever creative thinking assessment under the OECD’s Programme for International Student Assessment (PISA). Results of the global 2022 assessment, to understand the skills of 15-year-old students in 64 countries and economies worldwide, show that students in high-performing education systems are not only succeeding in standardised mathematics, reading and science tests, but also in new creative thinking tests.
On the other hand we should note that New Zealand doesn't rank highly in the latest World Competitive Rankings, slipping one place in 2024 to 32nd (out of 67 in the survey).
The UST 10yr yield is now at 4.22% and down -6 bps from this time yesterday.
The price of gold will start today up +US$11 at US$2328/oz.
Oil prices are up +US$1 at US$80.50/bbl in the US while the international Brent price is now just under US$84.50/bbl.
The Kiwi dollar starts today a little firmer at just under 61.5 USc. Against the Aussie we are -¼c softer at 92.4 AUc. Against the euro we are marginally firmer at 57.2 euro cents. That all means our TWI-5 starts today essentially unchanged at just on 70.9.
The bitcoin price starts today at US$64,612 and down -2.6% from this time yesterday. Volatility over the past 24 hours has again been moderate at just on +/- 2.3%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
Today we lead with news the steam seems to be going out of the Chinese economy as their property sector woes just drag on and on.
But first, although it is still retreating, the June New York factory survey improved sharply from May, with firms there increasingly positive about the next six months.
And Canada reported a much bigger jump in housing starts in May, far above what was expected.
However, previously fast-rising Japanese machinery orders fell in April in March, but were up slightly year-on-year.
China’s new home prices fell -3.9% year-on-year in May, falling further from a -3.1% drop in the previous month. It marked the 11th consecutive period of declining home prices and the steepest since mid-2015. This is all despite more property market stimulus from the government, which clearly hasn't turned the market yet. There are no major cities reporting any gains in resold houses, with some declines now well exceeding -10% from a year ago. In the new home market only 3 of 70 major cities are reporting year-on-year gains (all tiny) and the rest are all declines.
Chinese retail sales eased higher in May, up +3.7% when a +3.0% rise was expected. April rose +2.3% year-on-year, so this May result is an improvement. But you have to say, in the context of recent Chinese history, this is a modest gain. And remember, Chinese official CPI is rising less than +1% year-on-year.
Meanwhile, Chinese industrial production fell in May from April to be +5.6% higher than a year ago. Markets were expecting that change to be +6%. April had expanded +6.7% on that basis. Tellingly however, electricity production rose just +2.3% in May from a year ago, up only +0.7% from April, staying at the lowish levels it has for the past year. The Chinese central bank kept its one-year Medium-Term Lending Facility rate unchanged in June at 2.5%.
The changed and less outlook for China can also be seen in the benchmark copper price. The February to May enthusiasm has given way to a sharpish retreat.
And here's something you may not have expected; wages are rising quite fast in the EU, up +5.5% in Q1-2024 from a year ago, a spurt higher than the already quite good +4.1% rises in Q4-2023. And it may go higher. The huge IG Metal German union is seeking 7% pay rises now.
In Australia, stories are swirling that NSW is about to raise its land tax rate. (Land tax is separate from property taxes, and does not apply to the family home, or farm. But it does apply to most other land.) NSW isn't the first to do this.
And staying in Australia, data released by their tax authorities shows that more than 40% of their income tax paid by individuals is paid by the 5% who had taxable incomes of AU$180,000 and greater. At the other end of the scale, the 42% of taxpayers earning AU$45,000 or less paid 2.3% of their income tax.
The UST 10yr yield is now at 4.28% and up +6 bps from this time yesterday.
The price of gold will start today down -US$17 at US$2317/oz.
Oil prices are up +US$1.50 at US$79.50/bbl in the US while the international Brent price is now just over US$83.50/bbl.
The Kiwi dollar starts today little-changed at just under 61.3 USc. Against the Aussie we are softer at 92.7 AUc. Against the euro we are -¼c lower at 57.1 euro cents. That all means our TWI-5 starts today down -20 bps at just on 70.9.
The bitcoin price starts today at US$66,351 and down a very minor -0.2% from this time yesterday. Volatility over the past 24 hours has again been modest at just under +/- 1.4%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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By Gareth Vaughan
How seriously is the public sector taking the fight against money laundering and terrorism financing?
This question comes up in a new episode of interest.co.nz's Of Interest podcast, featuring barrister and solicitor Fiona Hall and anti-money laundering auditor and consultant Martin Dilly.
In a recent article the two raised concerns about impending job cuts to the team at the Department of Internal Affairs (DIA) tasked with supervising compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act).
Dilly says the DIA proposal to cut 40% of AML/CFT staff "gives us concern that that's going to affect their ability to enforce and supervise this act." There's concern whether the next evaluation of New Zealand by the Financial Action Task Force (FATF), an inter-governmental body that sets international standards and is considered the global money laundering and terrorist financing watchdog, will show NZ technically compliant with FATF's recommendations, and whether we're effective in supervising the reporting entities who must comply with the law.
"I have heard some reporting entities clapping their hands with joy if they're supervised by the DIA, but it's not the good reporting entities. And I like to think that most businesses are good businesses that want to comply with the law. And the risk you have is, yes, sure, if there are far fewer DIA investigators, you're less likely to get a knock on your door. But the problem is, if you do get a knock on your door, you now might be being investigated by someone who really doesn't have a good handle on the legislation, let alone a good understanding of your business. And you are going to be in a much worse position," Hall says.
Dilly made an Official Information Act (OIA) request to DIA in an attempt to get more information, which he says "shows a pattern of under resourcing of the AML team within the DIA."
"They were essentially budgeted to have 55 staff members. That's what they had determined was necessary...The information provided shows at no point did they ever hit 55 staff. They've been consistently below that. In 2022, they only had 37 staff instead of 55... So the question becomes, why is that?"
"One of the other questions I specifically asked was, has any of the budget been reallocated from the AML team to other areas of the Department of Internal Affairs? And we get some government speak here. So one of the things they talk about is they don't talk about reallocation. They use the terminology 'a permanent reprioritisation of constant underspend.' And my question is, well, what does constant underspend mean? Why would you be underspending your budget in an area where you are tasked with implementing AML and educating and supervising these new entities [lawyers, accountants and real estate agents]?" Dilly asks.
Other issues Hall and Dilly cite include different agendas and lack of consistency to AML/CFT Act supervision between the DIA, and NZ's two other AML/CFT Act supervisors, the Reserve Bank and Financial Markets Authority.
The two are hopeful that Associate Minister of Justice Nicole McKee's proclamation that reforming the AML/CFT Act is "one of my priorities this parliamentary term," could lead to improvement. They would both like to see a shift to a single standalone supervisor.
"I think the results from the [DIA] OIA show that if it's within other ministries that you cannot trust them to not reallocate budget, whatever language they want to put on that. The other point I would really like to see is a move back to a more risk based approach. The act itself is risk based, which essentially means that we accept that people have limited resources and you are supposed to direct those resources towards the areas of highest risk in your business," says Dilly.
Hall would like to see better supervision of the supervisors.
The two also have many tales of frustration and contradiction. Hall gives the example of a client that collects school donations, arranges school lunches, the uniform shop, and sells tickets to school shows, and has been deemed high risk of money laundering.
"I sat with the Minister and said, 'look, how does buying two pairs of grey shorts from a school uniform shop ever get anywhere near, I mean, this is where I'm going to launder my money?' It is ridiculous."
On the flip side she points out the likes of Ticketmaster, selling tickets to shows, aren't considered reporting entities None of those are considered reporting entities, and neither are travel agents who have trust accounts and manage funds.
"So we have this real disconnect, in my view, even about who is and isn't a reporting entity," Hall says.
Meanwhile in the real estate sector, they have to do customer due diligence.
"Their customer is the vendor, it's not the buyer, which I always find so interesting because that's where the money is. And often a property's been bought years and years before, and suddenly, you know, the vendor's been asked to prove how they purchased this and how they funded it, and there is resistance."
There are also personal anecdotes. Dilly says the bank he has been a customer of for more than 40 years asked him about an account he has had for 25 years.
"They have full visibility of every one of my financial transactions. And I was interrogated as to what my plans were for that account. And my thinking was why? Why would you rely on anything I tell you when you've got 25 years of data on my behaviour? If I was an actual money launderer, why would I give you a straight story?"
And here's Hall; "I was at the supermarket checkout and I'd been having a particularly trying day for poor entities [clients] that I didn't think should be captured [by the AML/CFT Act] at all. And I was standing in line and I looked up and I was behind a whole lot of gang members...They were buying lots of meat, lots of alcohol, and out came the wads of cash. And I thought, 'my poor clients who are spending all their money trying to comply, and really there's the money that we probably are looking for right in front of me."
Much more is discussed in the podcast including why the public should care about the fight against money laundering and terrorist financing and the impact of it, the purpose of it, concerns NZ could end up on a grey list, concerns over whether the Police Financial Intelligence Unit is reactive and doesn't have the capacity to deal with all the suspicious activity reports they receive, quick wins with asset seizure where there's a lower threshold from a legal perspective, and more.
*You can find all episodes of the Of Interest podcast here.
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Kia ora,
Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
Today we lead with news of some slippage in the world's largest economies.
However, in the week ahead we will get central bank rate review decisions from China, Norway, the UK, and Switzerland. Of special interest to us will be Tuesday's one in Australia. No change is expected there at 4.35%, but the signals about how they see progress to their inflation targets will be important. There will be a heavy set of data releases from both the US and China this week as well, many of which could move markets. Elsewhere Japanese inflation data, German sentiment surveys, and PMIs everywhere will feature.
But first in Japan, their central bank held its new slightly positive official policy interest rate at Friday's meeting. But it did confirm it is working on ways to reduce its bond purchase program. They see Japanese inflation embedding from here, rising modestly over the rest of 2024 above 2%.
However Japanese industrial production slipped in April in advance data released Friday, but that was among overall business activity that rose at a modest rate.
Indian exports, which are actually modest on the world scale, rose in May to be more than +9% higher than year ago levels. (Australia's exports fell in the same month, but they are still larger than for India. You have to go back to 2018 for India's export levels to be larger than Australia's. Since, the Aussies have made far more gains than India. India may now be the world's fourth largest economy and Australia the 13th, but India is an also-ran as an exporter.)
Despite a heady push from Beijing, Chinese banks extended only ¥950 bln in new loans in May, up from the low ¥730 bln in April and well short of the 'recovery' analysts expected of ¥1.3 tln.
Also somewhat disappointing were May vehicle sales results in China. They were up only +1.5% from a year earlier to 2.42 million in May, slowing from a +9.3% rise in the previous month. However sales of new energy vehicles surged by a third, accounting for nearly half (47%) of all car sales and a record high share. The modest overall sales result is on the back of surging production (+25%) and the excess is being shipped to export markets, causing trade friction and distortions, and accusations of dumping.
And in a massive part of important north-east China, an emergency drought response has been triggered. This will be a very big test of their food security.
In Russia, as their central bank expected in its last policy review, inflation jumped to 8.3% in May from 7.8% in April, the highest since February 2023. A year ago it was running at 2.5%. War and the resulting labour market distortions are the cause.
In the US, the weekend release of the preliminary University of Michigan consumer sentiment index fell slightly for a third straight month in June, the lowest since November. Overall, consumers perceive few changes in the economy from the May survey. Inflation expectations were broadly stable at just over 3%. (The final results of this survey will come in about two weeks, and these have often come out better than preliminary results.)
The UST 10yr yield is now at 4.22% and unchanged from Saturday.
The price of gold will start today little-changed at US$2334/oz but up +US$30 from a week ago.
Oil prices are unchanged at US$78/bbl in the US while the international Brent price is still just over US$82.50/bbl.
The Kiwi dollar starts today still at just under 61.4 USc. Against the Aussie we are start marginally firmer at 92.9 AUc. Against the euro we are unchanged at 57.4 euro cents. That all means our TWI-5 starts today up +10 bps at just on 71.1.
The bitcoin price starts today at US$66,514 and up +1.5% from this time Saturday. But that is down -3.7% from a week ago. Volatility over the past 24 hours has again been low at just under +/- 0.7%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
Today we lead with news some think the first signs of a labour market in the US are showing.
Initial American actual jobless claims "jumped" last week to +235,000, above the expected +225,000 and to the highest level since August 2023. This may be the early signs that their labour market is softening somewhat, although there are only just over 1.7 mln people on these benefits, little-changed from a year ago and much lower than the more than 2 mln in mid-January.
Meanwhile American producer prices dipped in May from April to be +2.2% higher than year ago levels. There is no inflationary pressure from this sector, and to be fair there hasn't been any since February 2023. Even a month-on-month dip has happened frequently since mid-2022
There was another well supported UST 30yr bond auction earlier today with yields easing lower on the demand. The softer PPI and higher jobless claims may have influenced yields too. Today's median yield was 4.35%, and that compares with the prior equivalent event one month ago of 4.59%.
Later today we should get China's bank credit data, an important indicator of investment demand and economic activity.
And China is waiving entry visa requirements for New Zealand citizens, as part of the country’s drive to boost inbound tourism. That puts us on a par with Singapore, Malaysia, France and Thailand among others. Scheduled flights between the two nations are already more than before the pandemic and it turns out New Zealand is China's 15th largest source of tourists. Immigrants from China who settled here are making many trips back 'home' it seems.
EU industrial production sagged rather badly in April, down -3.0%^ from a year ago in the Euro Area, down -2.0% in the wider EU. A worsening from March was expected (-1.9%), but not by this much. Generally it is southern and eastern Europe doing much better than the northern group (but Denmark is an outier, doing the best of all).
Australian payrolls rose by almost +40,000 in May, more than the expected +30,000 rise. Full-time employment rose +41,700 and part-time jobs fell by -2,100. There are now 14.458 mln people in Australian jobs, 31.4% of them part-time and that is their highest level since mid-2021. (The highest ever was in October 2020.) Their actual jobless rate is now 3.9% and their participation rate 67.2%.
Although they still rose, international container freight rates were up 'only' +2% last week from the week before and seem to have topped out now. But that puts them +200% higher (three times higher) than at the same week in 2023. Fortunately bulk cargo rates are still holding at their long-term average levels.
The UST 10yr yield is now at 4.24% and down -6 bps from yesterday.
The price of gold will start today down -US$28 from yesterday at US$2301/oz.
Oil prices are unchanged at US$78/bbl in the US while the international Brent price is up +50 USc to just under US$82.50/bbl.
The Kiwi dollar starts today -20 bps softer at just under 61.7 USc. Against the Aussie we are +20 bps firmer at 93 AUc. Against the euro we are little-changed at 57.4 euro cents. That all means our TWI-5 starts today little-changed at just under 71.2.
The bitcoin price starts today at US$66,888 and down -3.3% from this time yesterday. Volatility over the past 24 hours has again been moderate at just on +/- 2.6%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again on Monday.
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Kia ora,
Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
Today we lead with news the US expansion rolls on, pushing back the timing of when interest rate normalisation will happen.
US CPI inflation came in lower than expected for May, slowing to 3.3%, the lowest in three months. In April it was 3.4% and forecasts for May were 3.4%. While this rise was lower than the past three months it is a higher rate than the October to February period. And it is above the Fed's target.
Then the US Federal Reserve kept the federal funds rate unchanged at the 5.25% to 5.5% range, as expected. Still, the Fed officials projected only one interest rate cut this year and four cuts in 2025, emphasising their intention to maintain higher borrowing costs for a longer period to get inflation back into range.
While all this was going on, US mortgage applications surged almost +16% in the first week of June, the sharpest weekly increase since January 2023. This is a rebound from the -5.2% drop in the last week of May and fully erases the slumps from the two prior weeks.
India's industrial production rose +5.0% in April from a year ago, little-changed from recent growth levels. The heady rises of late 2023 seem to be past them now with a more orderly expansion in play. India's passenger vehicle sales had been falling over the past few months after a heady rise and were only +4.3% higher in May than a year ago.
India's CPI inflation eased to 4.7% in may from 4.6% in April. But food price inflation hardly changed at 8.7%, a worrying sign for them.
China's CPI rate slipped -0.1% in May from April, to be just +0.3% higher than a year ago. Observers were expecting a stronger price gain than that, although not by much more. Low demand seems to be keeping prices close to deflation again. Beef prices were particularly soft, down -3.6% in the month to be almost -13% lower than a year ago. Lamb prices were down -1.2% in May from April, down -7.5% in a year. These are far softer than overall food price changes (-1.0%) for the year). Milk prices were unchanged in May, down -1.7% for the year. Meanwhile, producer prices are still languishing in deflation, but less so. They were down -2.5% in April from a year ago, easing to -1.4% in May.
Meanwhile, Japanese producer price inflation is rising, up +2.4% in May from a year ago, a nine month high.
The Bank of Japan is about to consider gradually reducing its Japanese government bond holdings, taking a step toward normalising not just interest rates, but the quantitative side as well. They are in the middle of a sea-change shift in monetary policy.
The EU has decided to hit EV imports from China with new anti-dumping tariffs taking them to almost 50% for some models. The concerns about the impact of Chinese "over-capacity" are spreading globally now. As you might expect, China isn't happy with this move.
The UST 10yr yield is now at 4.30% and down -10 bps from yesterday.
The price of gold will start today up +US$16 from yesterday at US$2329/oz.
Oil prices are up +50 USc at US$78/bbl in the US while the international Brent price is just over US$82/bbl. However whether they will remain up at these levels seems uncertain. The world faces a ‘staggering’ oil glut by end of decade, the IEA warned overnight.
The Kiwi dollar starts today +½c firmer at just over 61.9 USc and jerked around by the two big US forces. Against the Aussie we are slightly softer at 92.8 AUc. Against the euro we are little-changed at 57.3 euro cents. That all means our TWI-5 starts today at 71.2, and up another net +20 bps from yesterday.
The bitcoin price starts today at US$69,157 and a bounce-back of +3.6% from this time yesterday. Volatility over the past 24 hours has still been moderate at just on +/- 2.4%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news that will all be overshadowed tomorrow by two key pieces of US data, their CPI and the Fed monetary policy decisions.
Today, the American Redbook retail indicator came in +5.5% higher than year-ago levels, continuing its track well above inflation and showing a positive retail impulse in the world's largest economy.
And the NFIB Small Business Optimism Index rose in May to its highest in five months. So again, no real stress signs there.
Canadian building consent levels came in much better than anyone expected in April. The total value of building permits increased by 20% month-on-month, the most since May 2020, after a -12% decline in March. Residential permits were up by 21%. That means they are +30% higher than year-ago levels, a surprisingly strong surge.
And staying in Canada, their government is proposing an effective hike in their capital gains tax (by raising the 'inclusion rate' from 50% to 66%), a move that business interests say would hurt investment. But the IMF is now saying that is probably just scaremongering. The IMF wants Canada to go further, also raising its 9% GST rate while raising a related tax credit to shield the poor.
In Japan, their machine tool orders were up +4.2 in May from a year ago. While this isn't spectacular, it looks like there is a trend reversal underway from the previous twenty-one months of declines.
In Hong Kong the dollar cost of China's security embrace of the once-great financial center is starting to become clear. They are coming up to five years of falling commercial real estate values as the shift out gathers pace. Bloomberg is reporting that those real-estate value losses now exceed -US$270 bln (-NZ$440 bln). Of course, no-one knows where it will settle, but the funk is deepening faster at present, not slowing down.
Values are being market down over the past few days on their major stock exchanges too. Over the past month the Shanghai stock exchange has fallen -4%, the Hong Kong exchange is down -5%. Sentiment is certainly leaking away in China's investment community. And China-linked commodity prices are easing lower too, especially mineral prices. Copper, iron ore, and rebar steel are all lower, as are soybeans, for example. The imminent visit from the Chinese Premier (not President Xi) has the aura of representing a fading force in the international trading world.
Meanwhile, India, despite a projected slowdown this year, will continue to be the world's fastest-growing large economy, according to the World Bank's latest Global Economic Prospects report.
Australian business sentiment isn't improving either. In fact, business confidence there fell back into negative territory in May as conditions continued to gradually soften, suggesting the subdued economic activity seen in the Q1 GDP data has continued into Q2. Business conditions slipped just below average with trading conditions and profitability easing.
The overnight dairy Pulse auction had prices retreating somewhat from last week's good full GDT event. But the lower levels probably aren't significant at this stage.
The UST 10yr yield is now at 4.40% and down -7 bps from yesterday.
The price of gold will start today back unchanged from yesterday at US$2313/oz.
Oil prices are still at yesterday's level of US$77.50/bbl in the US while the international Brent price is just over US$81.50/bbl. But they have been volatile in between.
The Kiwi dollar starts today at just on 61.4 USc and up about +20 bps from this time yesterday. Against the Aussie we are up more than +¼c at 93 AUc. Against the euro we are also another +¼c firmer at 57.2 euro cents. That all means our TWI-5 starts today at 71, and up +20 bps from yesterday.
The bitcoin price starts today at US$66,780 and down a rather large -4.7% from this time yesterday. Volatility over the past 24 hours has still been high at just on +/- 3.0%
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news the EU parliamentary election jolt has everyone's attention.
But first in the US, in the four months December to March, consumer inflation expectations held steady at 3%. Then in April they rose 3.3%, and this latest NY Fed survey shows them easing somewhat to 3.2%. They were unchanged at the three-year horizon at 2.8%, and increased at the five-year horizon to 3.0% from 2.8%. So its a mixed picture where these expectations are holding higher than where they need to be.
In a well supported 3 year US Treasury bond auction (US$140 bln was bid for the US$58 bln available), the median yield achieved was 4.59%, and that was marginally higher than the 4.55% at the prior equivalent event a month ago.
Wall Street is in a bit of a lull at present as they await the combination of the May CPI result and the US Fed monetary policy meeting outcomes.
In Canada, consumer sentiment is beginning to improve, especially after their central bank made a cut to its official interest rate last week
In Europe, like many others, markets are recoiling at the EU parliamentary election results. And even more so, 'surprised' by the French reaction of calling a snap national election. But to understand both, you need to know that the EU parliamentary election featured low turnouts, some very low. That allowed motivated extreme parties to make some spectacular headline gains. But it wasn't all one-way traffic. Macron is gambling that a normal turnout in national elections will overwhelm the right-wing votes with more normal voting patterns as voters who sat out the EU version are 'shocked' into returning. We'll see.
In Australia, major supermarket Coles has imposed limits of how many eggs customers can buy after hundreds of thousands of chickens have been destroyed after bird flu was found at five large poultry farms. Prices are likely reflect these shortages, although the normal 'don't panic' notices have been issued.
The UST 10yr yield is now at 4.47% and and up +4 bps from yesterday.
The price of gold will start today back up +US$20 from yesterday at US$2313/oz.
Oil prices have risen +US$2.50 from yesterday and are now at just on US$77.50/bbl in the US while the international Brent price is just over US$81.50/bbl. So they are back to week-ago levels.
The Kiwi dollar starts today at just on 61.2 USc and up less than +¼c since this time yesterday. Against the Aussie we are little-changed at 92.7 AUc. Against the euro we are +¼c firmer at 56.9 euro cents. That all means our TWI-5 starts today still at 70.8, and up +20 bps from yesterday.
The bitcoin price starts today at US$70,043 and up +0.6% from this time yesterday. Volatility over the past 24 hours has still been low at just on +/- 0.7%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news the IMF is starting to worry that the US expansion could become unsustainable unless it is matched by national productivity gains.
But first we should note that it is a public holiday in Australia today.
However all eyes this week will be on Thursday (NZT) when the US Fed will opine on where they think inflation is going and their expected policy rate track. This will be in their dot-plot. Earlier in the same day, the US releases its May CPI data, a crucial piece of their puzzle. US PPI data comes on Friday.
But China also releases its CPI data this week, on Wednesday, followed on Thursday by their important new yuan loans data.
Then Japan will weigh in on Friday with its interest rate policy update.
But over the weekend in the US, markets were anticipating a 'good' rise in non-farm payroll jobs of +185,000. But in fact this headline number was up +272,000. Even more impressive, hourly pay was up +5.3% from a year ago, weekly wages up +5.6% on the same basis.
But as regular listeners know, we also look at the 'actual' data. There are now +917,000 more people on employer payrolls in May than in April. Overall there are now 161.3 mln people employed, although that is little-changed from April. So all the gain is a shift from the unincorporated self-employed on to employer payrolls. That may be why the pay gains are well above inflation.
Whatever way you slice it, it is a pretty good result, and markets are assuming the Fed will look at this and see pressures that are unlikely to quell inflation. The bond and FX markets reacted, but the equity market went quiet at unchanged levels (although they may argue this gain was already priced in).
The March rise in American consumer debt levels was a pretty modest +US$6.3 bln from the prior month and April was expected to catch-up with a +US$11 bln but still-modest rise. But in the event, April consumer debt levels only rose +US$6.4 bln again, up just +1.5% from a year ago. There is no evidence here that Americans are stretching themselves further with additional debt obligations.
Meanwhile American household net worth rose +3.3% or +US$5.1 tln to more than US$160 tln at the end of March 2024 from December 2023. The value of household equity holdings increased +US$3.8 tln, while the value of real estate held by households rose by +US$900 bln. In complete contrast, American household liabilities were up only +US$100 bln to US$20.6 tln. There is a huge amount of overall resilience here. (We are not suggesting this is evenly spread, because clearly it isn't.)
Canada also released labour market data over the weekend. Their payrolls rose +27,000 and more than the +22,000 expected. But it was all part-time jobs that rose and by +62,000, and full-time jobs shrank -36,000. Their jobless rate rose to 6.2%. They are probably not happy with this outcome but at least their central bank has cut its official interest rate and that may bring some relief to employment in the rest of 2024.
Perhaps proving important context to the zooming container freight rates, exports from China soared +7.6% year-on-year in May and beating market expectations of a +6% rise. It was also up from a +1.5% rise in the previous month. It's the steepest rise in outbound shipments since January, fueled by a lower base from last year and sustained overseas demand. The big export destinations were ASEAN countries (+9.7%) and South America, especially Brazil (+26%). Elsewhere little-change or decreases. China's imports were weak however, virtually unchanged from a weak May a year ago.
China's foreign exchange reserves rose to US$3.23 tln in May from US$3.2 tln in April and above market forecasts. Their gold reserves were unchanged at 72.8 mln troy ounces, an unusual pause because they had risen for 18 consecutive months. But the rise in the gold price saw the value of their holdings rose to almost US$171 bln.
In India, their central bank held its policy rate unchanged at 6.5% and said inflation's pressure at 4.85% is not changing much. Their policy target is a very generous 2%-6%. But food prices are rising and were up +8.7% in April from a year ago. Given their heat and water stress levels, food price pressure is an economic consequence they will struggle with.
In the EU, their GDP rose its most in Q1-2024 since Q3-2022, but to be fair the annual growth from a year ago was only +0.5% for the EU, slightly less for the Euro Area (+0.4%).
The IMF is pointing out that growth without sufficient productivity improvement is a problem for the world's financial stability, especially when the largest economies drag the chain on productivity. They seem to be pointing to the US on this, and that their expansions won't be sustainable without the commensurate improvements in productivity.
World food prices were up only marginally in May but are still running below the levels of each of the past three years. Global food security seems ok and at prices that are affordable (even if there are pockets of real stress and distress). Dairy prices are one area prices are rising and they have been for eight straight months. Meat prices are low and relatively stable.
The UST 10yr yield is now at 4.43% and down -1 bp from Saturday after the US non-farm payrolls surprise.
The price of gold will start today down -US$10 from Saturday at US$2293/oz and down -US$83 from Friday.
Oil prices have been retreating slightly over the weekend and are now at just on US$75/bbl in the US while the international Brent price is just under US$79.50/bbl. A week ago these prices were +$2 higher back then.
The Kiwi dollar starts today at just on 61 USc and little changed from Saturday. Against the Aussie we are unchanged at 92.8 AUc. Against the euro we are marginally softer at 56.5 euro cents. That all means our TWI-5 starts today still at 70.6, and also little-changed from this time last week.
The bitcoin price starts today at US$69,632 and up +0.9% from this time Saturday. Volatility over the past 24 hours has also been very low at just on +/- 0.4%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news global trade is facing a tough challenge in containerised freight costs.
But first, initial new US jobless claims actually fell modestly last week to +195,000 (although the seasonally adjusted level rose). There are now 1.67 mln people on these jobless benefits. All this is a tiny 1.1% of their workforce and unchanged in a year.
But all eyes are now on tomorrow's non-farm payrolls report when a rise in +185,000 is expected, and a continuation of the high levels of employment.
The reported level for job cuts was very similar to the very low April level, so not special signs of stress there.
A strong labour market would drive demand, including for imports and that is what we are seeing. May US imports were higher than in March, although the gain was modest. And there was a modest gain in exports as well. Although the US deficit in both goods and services is running higher than 2023 levels it is far lower than 2022 levels. For calendar 2024 it will come in just over 3% of their total economic activity, a decrease from 2023.
US banks are starting to raise deposit rates for savers to retain and grow their funding. But, as Bloomberg is pointing out, they are also back raising funds by collateralising their mortgage books. Readers with memories of the GFC might be surprised to know how much collateralised mortgage obligations (CMOs) have risen. These are on top of other mortgage-backed securities. One to watch.
Separately, it is starting to look like the US bird flu outbreak in parts of the US will be more serious for their dairy industry that initially hoped. It is likely that milk production declines will have an international echo.
Despite lingering price pressures, the ECB lowered its three key interest rates by -25 bps overnight as earlier signaled and expected, marking a shift from nine months of stable rates. Inflation has retreated by more than 2.5 percentage points since September 2023. The main refinancing operations rate was lowered to 4.25%, the deposit facility rate to 3.75%, and the marginal lending rate to 4.5%. Because it was well signaled there has been little market reaction. However they gave no clue about where their policy rates are headed from here.
This came as German factory orders did not bounce back in April from the March dip, as was expected. There has been no interruption to the now long-established downtrend there.
EU Parliament elections are currently underway. Results won't be known until early next week, but nationalist and far-right candidates are expected to make gains.
Many countries released trade data overnight and this included Australia late yesterday. Their exports dipped in April, but their import demand unwound rather heavily especially for consumer-related products. From that, their trade surplus rose.
China's April trade data will be released later today and rising levels of exports (+6%?) are expected. It is a surge that may other countries worry about because of it is driven by "excess capacity" and "dumping" arising from lower domestic demand.
And staying in China, their housing industry is probably not going to drive any economic activity there for a long time. China has moved to bar housing construction in some areas in its latest attempt to shrink a mountain of unsold homes that is weighing on prices. The new restrictions stop local authorities from selling land usage rights to developers in cities with unsold housing inventories that would take three years or more to clear -- a criterion that more than 40% of major cities meet. And that in turn is going to hurt local authority revenues hard.
Container freight rates rose another +12% last week from the week before in an increasing jump in the cost of global trade. These freight costs are now +180% higher than year-ago levels. Ther same culprits are at work - security, canals, and capacity. Outbound from China is the main pressure point. Inbound to China costs are falling and are just one seventh of the outbound rates. Bulk cargo rates are little-changed however, and still very low, near where they were first 30 years ago.
The UST 10yr yield is now at 4.28% and down another -1 bp from yesterday.
The price of gold will start today up another +US$19 from yesterday at US$2379/oz.
Oil prices are up +$1.50 at just on US$75.50/bbl in the US while the international Brent price is now just under US$79/bbl and a smaller rise.
The Kiwi dollar starts today marginally firmer from yesterday at just over 62 USc. Against the Aussie we are still at 93 AUc. Against the euro we are marginally firmer at 57 euro cents. That all means our TWI-5 starts today at just on 71.2, unchanged from yesterday and still its highest since late February.
The bitcoin price starts today at US$71,007 and down -0.9% from this time yesterday. Volatility over the past 24 hours has also been modest however at just on +/- 0.7%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again on Monday.
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The Australian Government's a Future Made in Australiainitiative could attract skilled migrants and potentially investment and entrepreneurs from New Zealand, and ultimately be a catalyst for a much more sustainable future, says Kylie Walker, the CEO of the Australian Academy of Technological Sciences & Engineering.
In last month's budget, Prime Minister Anthony Albanese's government unveiled a Future Made in Australia, saying this would invest A$22.7 billion over a decade to "build a stronger, more diversified and more resilient economy powered by clean energy, in a way that creates secure, well paid jobs and delivers benefits to communities across the country."
Speaking in the latest episode of interest.co.nz's Of Interest podcast, Walker says a key aim of the initiative is to boost Australia's economy complexity, a measure of the knowledge in a society as expressed in the products it produces, by upskilling and moving up the value chain.
"Obviously, we can't do everything, but we can absolutely do more than just digging up [natural resources such as minerals] and selling them off and then buying them back again in more technologically sophisticated forms. We know that those critical minerals are absolutely necessary for the ongoing electronics revolution, as well as for the clean energy future globally. So we can, for example, process our iron ore, or it can be used in or [turned] into green iron, at least, so that it can be used in green steel. And we have the minerals to make batteries for electric vehicles, for example. We have extraordinary batteries technology. Some of our researchers and developers in that space are amongst the best in the world. And so it seems to me, putting these two kind of natural assets at either end of that development spectrum together, that there ought to be a way to move us a little bit further along the value chain," Walker says.
To this end there'll be a need for skilled workers, especially in STEM (science, technology, engineering, and maths).
"Around 48% of professional occupations were in shortage across Australia last year, and that's up from 39% the year before. There's a similar shortage in the technical and trades occupations in Australia. So we are both going to have to train new people domestically as a matter of priority, and in addition to that, rely on skilled migration. And, you know, I think traditionally it's probably reasonable to assume some of that skilled migration might come from New Zealand," she says.
There should also be a role for private sector investment, research, development and ideas. Much of the earmarked government investment takes the form of tax incentives, but also includes a range of funding mechanisms.
"One of the other focus areas that we've got simultaneously with this Future Made in Australia push is, of course, building capacity in the global region. And there is a huge place, a huge part to play for New Zealand, for Pacific island nations and other near neighbours like Indonesia, in collaborating to research and commercialise those developments, particularly in the technology and engineering spaces, and to do that for mutual benefit, so that we build the capacity for the entire region," says Walker.
Ultimately, Walker hopes in 20 or 30 years, a Future Made in Australia can be looked back on as a catalyst for a more sustainable future.
"And I mean that both in terms of economically sustainable and societal wellbeing, and in terms of environmentally sustainable. I think if we do this really well, we can build a more circular economy, we can reduce our waste as well as our emissions. We can see small scale manufacturing and pop up factories all over the place. There are some really, really interesting and pretty great technologies coming up where, for example, a micro-factory the size of a shipping container can take glass and fabric being recycled from a building site and turn it into a new material to use in a new building on the same site. I'd like to see huge and widespread adoption of renewables [energy]. And I'm hoping that when we look back, we see not only that resilient infrastructure within Australia, but a booming export market for those products as well, ranging right through from the energy and the fuels, through to those slightly value added up the chain minerals exports, green agricultural exports as well, and a range of other stuff which, frankly, you and I haven't heard of because it probably hasn't been invented yet."
In the podcast Walker also talks about where a Future Made in Australia comes from, what's behind it, what needs to happen for Australia to become a renewable energy superpower, green hydrogen, mining, critical minerals, concerns about a Future Made in Australia picking winners and benefiting billionaires, its national interest framework, research and development, and how Australia can get along in a world of rising geopolitical tensions between the United States and China.
*You can find all episodes of the Of Interest podcast here.
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Kia ora,
Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news some central banks have started to cut policy rates, others are contemplating long holds or even rises.
But first, US mortgage applications fell a sharpish -5.2% in the last week of May from the prior week to be -13% lower than the same week a year ago, itself a weak level.
And the US ADP employment report disappointed too, indicating private payrolls rose +152,000 in May, and less than the +175,000 expected and the +188,000 rise in April. This is the precursor report for this weekend's May non-farm payrolls report when a +188,000 increase is anticipated. There may be downside expectations growing now. The ADP report said pay was up +5.0% over the past year indicating American workers are staying well ahead of inflation's rise.
US vehicle sales rose in May to an annual rate of 15.9 mln which is +2.5% higher than year-ago levels and that was better than expected, and higher than in April.
But the news that dominated markets overnight was the unexpectedly strong rise in the US ISM services PMI. The expansion it recorded was strong (53.8) and a sharp rebound from the minor contraction they reported in April. Further, this survey was backed-up, and more, by the S&P/Markit services sector survey which came in even stronger (54.8). New order growth in both surveys drove the expansions. And these new readings completely overshadowed the ISM factory survey hiccup (which you may recall was not matched in the S&P/Markit factory survey which was actually showing a positive expansion).
Markets reacted to the ISM services sector gains reported, especially Wall Street equities. They liked that the expansion is apparently broad-based.
Also worth a note is that a major carmaker is now building hydrogen fuel-cell vehicles in the US, as a hybrid with an electric battery. It's only emission is water vapour. Generally Americans have been reluctant to buy fast-depreciating EVs. It will be a test now for the appetite for fuel-cell cars.
Meanwhile in Canada, their services sector returned to a modest expansion and away from the prior contraction.
And the Canadian central bank came through with its expected rate cut, a -25 bps reduction to 4.75%. Markets expect the ECB will make similar signals, and also a -25 bps rate cut to 4.25%. We'll see. If so, these signal a new trend of major central bank rate cuts, led by this Canadian one. But will the US move? And Japan may increase, and possibly Australia too. So the trend isn't broad yet. The US decides on June 13 (NZT) and markets expect no cut presently. Japan decides on June 14, and Australia next on June 18.
Interestingly, the Canadian rate cut has not brought expectations it will revive their housing markets.
The private Caixin services PMI for China came in better than expected for May and a bit better than the official services PMI. Meanwhile the Japanese services PMI has risen in its final version from its flash result. It too is a similar and good expansion.
Meanwhile, Japanese pay rose +2.1% in April from a year ago, and well above the expected +1.7% gain.
In India, their PMIs for May (factory, services) both revealed slowdowns in their expansions on weaker order levels. But to be fair, both are still strong expansions, just less so.
And perhaps we should note that Prime Minister Modi's embrace of Indian billionaires prior to the election actually ended badly for him at the polls - and unexpectedly so. Other populist politicians who embrace billionaires should probably take note - but of course they won't.
In Australia, yesterday's release of quite weak Q1 GDP growth has brought fears of stagnation there. GDP per capita has fallen by -1.6% since mid-2022. But financial market traders pushed back the timing of rate cuts to July next year after “material” revisions in GDP data indicated household finances were actually stronger than many feared.
The UST 10yr yield is now at 4.29% and down another -4 bps from yesterday.
The price of gold will start today up +US$23 from yesterday at US$2353/oz.
Oil prices are up +50 USc at just on US$74/bbl in the US while the international Brent price is now just under US$78.50/bbl and a slightly larger rise.
The Kiwi dollar starts today marginally firmer from yesterday at just under 61.9 USc. Against the Aussie we are almost another +¼c firmer at 93.1 AUc. Against the euro we are marginally firmer at 56.9 euro cents. That all means our TWI-5 starts today at just under 71.2, up more than +20 bps from yesterday and its highest since late February.
The bitcoin price starts today at US$71,624 and up almost +1.4% from this time yesterday. Volatility over the past 24 hours has been modest however at just on +/- 1.2%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news of some unexpected outcomes.
The overnight dairy auction belied the futures market again somewhat, delivering modest rises across the board, probably because European production is sagging a bit more than expected. Demand from China was not strong, but other regions picked up the slack. Overall prices were up another +1.7% on top of the last auction's +3.3%. SMP rise +3.0% and WMP rose +1.7%. However with the NZD on the rise at the same time, the change in local currency was negligible (+0.3%). Still, overall price levels are back to where they were in October 2023.
This is all a bit of an outlier because commodity prices are generally retreating, both food and metals. The copper price is one making a rather fast reversal.
In the US, their Redbook index tracking retail sales on a same-store basis was up +5.8% last week from the same week a year ago.
Also up were US factory orders and by a bit more than was expected to be +3.4% more than year-ago levels in April. You may recall that the two US PMIs reported quite different tangents yesterday. Well this seems to suggest that the S&P Global/Markit version which indicated rising orders and an expanding sector is more confirmed than the negative ISM one.
The more up-beat mood was bolstered by a rise in the Logistics Managers Index. It jumped in May on the back of stronger shipments activity. This indicator has now expanded in 9 of the last 10 months and for the last six months in a row.
Meanwhile the April US JOLTS survey reported the number of job openings declined by -296,000 from the previous month to just under 8.1 mln, the lowest level since February 2021. So the upcoming weekend release of the US non-farms payrolls for May will have an edge to it.
Unexpectedly, it seems that Modi magic has faded for Indian voters. The ruling BJP isn't getting the landslide election result exit polls suggested. They will still be able to form a government but it will be a coalition with a somewhat chastened result that saw them lose their majority.
Elections are about to start in the EU next, and all eyes are on an expected swing to populists and far-right parties.
The UST 10yr yield is now at 4.33% and down another -7 bps from yesterday.
The price of gold will start today down -US$18 from yesterday at US$2330/oz.
Oil prices are down -50 USc at just on US$73.50/bbl in the US while the international Brent price is now just over US$77.50/bbl and a new four month low.
The Kiwi dollar starts today unchanged from yesterday at just under 61.8 USc. Against the Aussie we are another +¼c firmer at 92.9 AUc. Against the euro we are marginally firmer at 56.8 euro cents. That all means our TWI-5 starts today at just on 70.9, unchanged from yesterday.
The bitcoin price starts today at US$70,644 and up almost +2.0% from this time yesterday. Volatility over the past 24 hours has been modest however at just on +/- 1.8%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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US PMIs vary, US PCE inflation holds; Canada gets modest expansion; India gets huge expansion; Japan data good; China data weak; NZ to join IPEF.
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Kia ora,
Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news weaker US data has halted the bond selloff.
But first, the actual number of US initial jobless claims rose marginally last week, and the number of people on these benefits was actually unchanged from the prior week at 1.7 mln although that was a small increase from year-ago levels.
However, Q1-2024 GDP was revised lower to +1.3% in their second estimate, from +1.6% in the first and this was more of an adjustment than was expected. The main change was due to less consumer spending that originally estimated.
Both retail and wholesale inventories rose in April, but the changes were in fact very small. And the US continues to be a magnet for imports with a larger trade deficit. However some of this will be markets reacting to impending tariff rises and may be temporary. But their trade deficit as a proportion of total economic activity is little-changed.
US pending home sales fell sharply in April, down a whopping -7.7% from March in a dive that surprised analysts. It was the largest retreat since February 2021. Only a small -0.6% correction from a good march was anticipated. Getting the blame was the impact of "escalating interest rates" throughout April dampened home buying, and that left more inventory in the market.
Canada said weekly earnings in March were +4.2% higher than a year ago, a slight slowing of the pace in February when they rose +4.3%.
Taiwan also reported Q1-2024 GDP growth overnight and that came in much better at +6.6% higher than year-ago levels. And you will notice that is better than China's equivalent +5.3% in the same period.
In Australia, there was a small rise in residential building consent levels in April from March (+1.3%) but also lower when seasonally adjusted for Easter. Markets weren't expecting that dip. Year-on-year however, these consent levels are more than +13% higher.
And staying in Australia, major bank NAB is forecasting Perth residential prices to zoom almost +14% higher in 2024. That is the high outlier; Sydney is expecting a +4.5% rise, Brisbane almost +9%, but Melbourne will be the laggard at +2.5% in 2024.
Already high container freight rates rose another +4% last week to push them more than +150% higher than year-ago levels. The same drivers are at play; security risks, canal disruptions, and now plus the rush to beat new US tariffs on some Chinese goods. It is outbound from China rates that are being most affected. However, bulk cargo rates are immune to these rises, unchanged again this week and still at their long-run average levels.
The UST 10yr yield is now at 4.56% and down -7 bps from yesterday.
The price of gold will start today unchanged from yesterday at US$2343/oz.
Oil prices are down -US$2 at just on US$77.50/bbl in the US while the international Brent price is now under US$82/bbl.
The Kiwi dollar starts today marginally firmer from yesterday at just under 61.3 USc. Against the Aussie we are -¼c lower at 92.2 AUc. Against the euro we are also marginally softer at 56.5 euro cents. That all means our TWI-5 starts today at just under 70.6 and little-changed.
The bitcoin price starts today at US$69,480 and up +3.0% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.8%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again on Monday.
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Kia ora,
Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news today is Budget Day. Join us at 2pm for full coverage of the new government's first full Budget.
More broadly, US mortgage applications sank -5.7% last week from the previous week, the most since mid-February, and ending three consecutive rises. The retreat follows a fresh rise in benchmark mortgage rates, above 7% and following the rise in long-date Treasury yields.
Meanwhile, American retail sales continue to expand. The Redbook index of physical locations was up +6.3% last week from the prior week, the fastest week-on-week gain of 2024, and far better than can be explained by inflation. It is actually quite impressive because a year ago these sales were also expanding.
There was another US Treasury bond auction earlier today, this one for 7 year Notes was equally well supported as the previous ones. The median yield today was 4.59%, down marginally from the 4.66% at the prior equivalent event a month ago. Financing their swelling deficits isn't facing market pushback yet, and probably won't so long as their economy continues to expand at a healthy clip. (News reports of 'weak demand' just aren't in these result sheets.)
But the May Beige Book survey by the US Fed regions paints a more restrained picture of their expansion.
In China, the yuan is trading at a six-month low against the dollar, at 7.25, highlighting the divergent monetary policies of the world's two biggest economies. Authorities in Beijing are trying to speed things up from a weak base. In the US they are trying to slow things down from a very long expansion that just won't give in.
And staying in China, the IMF revised their GDP growth outlook to 5% for 2024 and 4.5% for 2025, both 0.4 of a percentage point higher than its April projections. The upgrades reflect stronger first-quarter results and recent policy measures. In the first quarter, GDP grew 5.3%, keeping China on track to meet its growth target of "around 5%" this year.
Japanese consumer confidence stumbled in May, slipping when a small improvement was expected. This will be a disappointing result for them because the stumble was across the board. But help may be on the way, with pay rises expanding everywhere.
However German consumer confidence is recovering. In May consumers' economic outlook increased significantly, their income expectations rose moderately and their propensity to save decreased noticeably. However, the propensity to buy increased only minimally. But these are building trends of turnaround in consumer attitudes there.
The German CPI inflation rate edged higher in May to 2.4%, a marginal increase from their 2.2% April rate. But there are no surprises here; this is what was expected and inflation rising in the low 2% range seems to be their immediate future.
In April 2023, Australia's monthly inflation indicator was rising at a 6.7% rate. One year later it is down to just 3.6%. But the headlines feature its rise from March when it was at 3.5% and the three prior months at 3.4%. Insurance and foods costs are the main culprits. An up-trend is being sensed and that probably means the RBA may have to double-down on its inflation-fighting pressure. This just adds to the international sense that getting inflation back to the mid-point of the various target rates is hard, and keeping it there even harder. Don't expect central banks to throw in the towel on their core mandate.
And staying in Australia, mining giant BHP has walked away from a proposed AU$75 bln takeover of Anglo-American after the British miner rejected a last-ditch request to extend talks. The key sticking point was how Anglo's South African assets were to be included.
Meanwhile, South Africa has gone to the polls, ending a fractious and dangerous election campaign period. Voter turnout is high.
The UST 10yr yield is now at 4.63% and up another +9 bps from yesterday.
The price of gold will start today down -US$15 from yesterday at US$2343/oz.
Oil prices are softish but really, little-changed at just under US$79.50/bbl in the US while the international Brent price is now under US$83.50/bbl.
The Kiwi dollar starts today down more than -¼c from yesterday at just under 61.2 USc. Against the Aussie we are firmish at 92.5 AUc. Against the euro we are also marginally firmer too at 56.6 euro cents. That all means our TWI-5 starts today at 70.6 and down a mere -10 bps.
The bitcoin price starts today at US$67,441 and down -0.5% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.3%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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Kia ora,
Welcome to Wedenesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the international edition from Interest.co.nz.
And today we lead with news global markets are putting upward pressure on interest rates and that is spilling over to our local markets.
In the US, and somewhat unexpectedly, consumer confidence rose in May in the latest Conference Board survey. This mirrors the University of Michigan version, although analysts were expecting this latest one to show a retreat. The rise was because those surveyed had a brighter perception of the future. But, equally significantly, consumers cited prices, especially for food and groceries, as having the greatest impact on their view of the U.S. economy. Notably, average 12-month inflation expectations ticked up from 5.3% to 5.4%. The last time actual inflation was reported, for April, it was running at 3.4% with food at 2.2%. So perception and reality are a bit disjoined at present.
But the key point is, consumer perceptions of inflation are high, and markets expect the US Fed to hold the line until a more realistic view is adopted in these perception surveys. In fact, overnight an influential regional Fed boss said he wants to see ‘many more months’ of positive inflation data before a rate cut. These were comments that moved markets.
In another very well supported US Treasury bond auction, this one for the five year maturity, the median yield fell to 4.48% pa from the prior event's 4.59%. It seems financial markets are persuaded that inflation is decreasing now and higher yields are not required. It is only consumers who remain to be convinced.
But the US Treasury two year bond auction was considered 'soft' by market observers despite its even better support levels. Median yields were unchanged at 4.85%. It is had to understand the market sentiment on this but secondary market yields are now up to 4.98% immediately after the formal auction, so something is going on.
Markets thought demand for both issues were 'weak' but if you look at the actual results, they really aren't. "Little-changed" is the best conclusion you could come to.
Canadian producer prices were up a chunky level in April from March, the third consecutive month-on-month rise, and they are now up +1.4% from a year ago. That is their first year-on-year rise since September last year and the most since the beginning of 2023. Still, these rising levels remain low and are no inflationary threat there.
In China, two first-tier cities are cutting home loan rates to spur housing demand. Shanghai and Shenzhen both made these moves.
The overnight GDT Pulse milk powder auction brought mixed results for the 1652 tonnes of product offered by Fonterra. SMP slipped -1.1% from last week's full auction event but WMP rose +0.4%.
The UST 10yr yield is now at 4.54% and up a sharp +8 bps from yesterday.
The price of gold will start today up +US$4 from yesterday at US$2358/oz.
Oil prices are up another +US$1 at just over US$79.50/bbl in the US while the international Brent price is now over US$83.50/bbl.
The Kiwi dollar starts today little-changed from yesterday at just under 61.5 USc. Against the Aussie we are softish at 92.3 AUc. Against the euro we are also marginally softer at 56.5 euro cents. That all means our TWI-5 starts today still at 70.7.
The bitcoin price starts today at US$67,809 back down -3.2% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.
You can find links to the articles mentioned today in our show notes.
You can get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston. And we will do this again tomorrow.
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