Economy Watch

The Government could run a second retirement income scheme alongside NZ Superannuation as part of a transition to a new system, but according to Andrew Coleman, this couldn't be done without an increase in taxes on older people, or more general tax increases.

Fresh from his 13 part interest.co.nz series on NZ's government retirement income system and associated taxes, Coleman spoke to myself and Terry Baucher on a combined episode of the Of Interest podcast and the New Zealand Tax Podcast.

Coleman is currently a visiting professor at the Asia School of Business in Kuala Lumpur while on extended leave from the Reserve Bank. He has also worked for Treasury and the Productivity Commission. The views expressed are his own.

Coleman says the urgency for making change isn't just down to an ageing population and the increasing taxes he says young people will have to pay. It's also because those under 45 are inheriting a very costly system, which might not be what they like or want.

He uses an analogy of a 22 year-old who recruits help from their father or uncle to buy a car.

"And he says, 'oh, cars, I'm good at cars. You know, when I was a kid we had these great Holdens and you could put six people in them, everyone in the whole family would fit in them. And they had a big six litre engine'... And you say, 'oh, well that's maybe not what I wanted.' But he says 'oh look, I'll go and get you the car, just give me the money and I'll get you the car.' And so you give him ten grand and [he] comes back [with an] old Holden, which is a gas guzzler and not particularly safe."

"And you've only got a girlfriend or a boyfriend and no kids and it's nothing like the car that you want and yet you've paid for it. And it's got these high ongoing costs because it's chewing down the petrol," Coleman says.

"You wanted a little hybrid or electric car or maybe just a Toyota Corolla, which was quite small and fits in your little parking place. And it's a bit like that. Young people today are inheriting a [retirement income] system designed in the seventies when Holdens ruled. And it may not be what they want and it's very costly."

In his series Coleman suggests a new pension system, which he calls KiwiSaver 2.1, which would be a shift from pay-as-you-go funded pensions to save-as-you-go funded pensions. I asked him whether a transition could be made to the new system for those under 45, with the current system kept in place for older people, without higher taxes on older people which he suggested in his series would be required to change to a new system.

"There's no reason why you can't have two systems going. And one of the reasons is that your entitlement would depend on your birth date...that's very straightforward. We would just at some point introduce the second system for people under 45 and build it up and keep old people on the current system," says Coleman.

"Can we do it without an increase in taxes on older people, or more generally? No."

"There is a transition issue. It's like digging a hole. Once you've dug the hole, if you want to get out of the hole, you have to do some work to fill it in again. And so when we adopted a pay as you go system or expanded it significantly back in the 1970s, it meant that to reverse it, some future generations are going to have to be worse off than they otherwise would have been. And that's the political difficulty here. It's like there's this beautiful thing that you want over there, a beautiful island that you can go to, but you can't get there for free."

"But there's goodwill out there. I think a lot of people my age... recognise that young people are paying a disproportionate amount of the costs and that if we can find a way of increasing taxes on ourselves in order to make the system better for younger people, that's something that a lot of people would be prepared to do now. It won't have to be a permanent increase in taxes. It's a transitory phenomenon," Coleman says.

"Once we've got the new system up and running, taxes would come down and we would have a much better tax system. There should be, if we do this, a statue to the unknown 75 year-old who paid a few more taxes so that all the young New Zealanders of the future could be better off and have a better system."

In terms of what tax(es) are used, Coleman says a transitional social security tax on older people is an option. Social security taxes, such as Accident Compensation Corporation levies, are paid on labour income.

There's much more detailed discussion in the podcast audio including on taxes.

*You can find all episodes of the Of Interest podcast here.

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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 China is wrestling with how to respond to its slowdown, with the measures announced so far causing volatility.

But, first up today, and as expected, the American CPI inflation rate fell in September but by less than expected. It came in at 2.4%, down from August's 2.5%, but above the expected 2.3% rate. For three consecutive months. the month-on-month rise has been +0.2%, so it is tracking at the annual rate as well.

Rents dipped to that +0.2% month-on-month rise but from a year ago they remain +4.9% higher. But food prices were up +0.4% in September from August, the most in a year, even though the year-on-year change was only +2.3%. So one to watch.

However, the overall inflation situation remains pretty benign. No-one will be overly worried about this data. But it will reinforce the Fed that outsized rate cuts at this time are probably not warranted.

Initial US jobless claims however spiked sharply last week, coming in at +235,000 actual (more on a seasonally adjusted basis). There are now 1.62 mln people on these benefits, and virtually no increase from the prior week. The spike probably has more to do with the Florida storm impacts, and perhaps the Boeing strike, than any meaningful slowdown in the US labour market.

In China, money flows around their surging equity markets are creating issues for policymakers. Huge amounts have flowed out of WMP (wealth management products) chasing the expected equity market gains. But foreigners and some local professionals seem to have taken the opportunity to cash out in the rising market. And as the rises haven't been sustained, there may be a lot of very disappointed local investor/speculators.

But help may be on the way. The central bank yesterday announced the start of a key operation to prop up the stock market. That put a floor under the market, embedding the Beijing 'put'.

And all eyes will be on an announced weekend briefing by Beijing authorities on their next economic policy moves.

The rise in Japanese producer prices in August matched the pace in the prior four months, and is embedding at about a +2.5% annual rate. Again, little to morrow policymakers here.

German retail sales unexpectedly rose in August for a second straight month to now be +2.1% higher than year-ago levels, something few saw coming. That is actually their best year-on-year growth since April 2022. Further, this is a 'real', after inflation result. So it is quite strong. Food and travel volumes rose the strongest.

In Australia, it seems that the stage is being set for a new Federal election. On emust be held before the end of September 2025 anyway, but it may well come earlier in 2025 now.

Container shipping rates fell again last week to be down another -4% from the prior week, which takes them back to levels at the start of 2024. They are still elevated because they are +135% higher than pre-pandemic levels, and the reasons still relate to Middle-East security pressures. But clearly the world, and the industry, are finding ways to adapt. All the current weaknesses are China outbound rates.

Bulk cargo rates fell a sharpish -9% last week from the week before, and are now also -9% lower than at the same time a week ago. But there is nothing special about these levels, which are similar to the long run 35 year average. However, on an inflation-adjusted basis, they are remarkably low. It isn't great for shipowners.

The UST 10yr yield is now at just on 4.10% and up another +3 bps from yesterday.

The price of gold will start today at US$2621/oz and up +US$12 from this time yesterday.

Oil prices are +US$3 higher at just under US$76/bbl in the US while the international Brent price is now just over US$79/bbl.

The Kiwi dollar starts today at 60.8 USc and up +20 bps from this time yesterday. Against the Aussie we are also up +20 bps at 90.4 AUc. Against the euro we are up +30 bps at 55.7 euro cents. That all means our TWI-5 starts today now at 69.1, and up +30 bps from yesterday at this time.

The bitcoin price starts today at US$60,422 and down -2.2% 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 on Monday.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 commodity prices go into reverse as the Chinese post-holiday rally stumbles after only a brief shine. It is an ominous sign.

But first in the US there was a sharp fall in mortgage applications last week, down -5.5% from the prior week. That was because interest rates moved sharply higher after the strong non-farm payrolls report. But current application levels are running +55% higher than a year ago.

Those higher interest rates also showed up in the latest (well supported) US Treasury bond auction, this one for their ten year bond. The median yield came in today at 4.01% and well above the 3.61% at the prior equivalent event a month ago.

Hurricane Milton is about to hit just south of Tampa and Florida more generally. Analysts say it could cause US$60 bln in insurance losses apart from the far greater uninsured damage. Milton and Helene may be trigger events for widespread change in the way insurance cover is offered. Risks are rising fast for those who underpin these coverages.

US Fed minutes for their September 19 (NZT) meeting were released earlier this morning and they show the Fed's -50 bps rate cut was well supported (page 9) and seen as a quicker way to align it with the progress on inflation and their labour market. It suggests this was a one-off move and future moves will be more 'regular'. Remember, the September CPI data for the US will be released tonight and it is expected to slip from 2.5% to 2.3%.

Japanese machine tool orders rose in September from the weak August level but they remain -6.5% lower than year-ago levels - which it should be noted were unusually high at the time.

Taiwanese inflation fell to near its lowest since the pandemic, down much more than expected to a 1.8% rate.

In India, their reserve bank also reviewed its policy rate yesterday and left it unchanged at 6.5%, as expected. They see their economic expansion continuing and inflation broadly in line with the midpoint of their target rate of 4%. Inflation is currently running at 3.65%. However, their commentary does open the door for the next move to be down, which would be their first rate cut since May 2020.

In China yesterday, the Shanghai stock market lost steam rapidly after the post-holiday euphoria. It was down -6.6% on the day as scepticism grew about what Beijing is doing - and not doing - to recover China's expansion mojo. It is a telling signal.

In Australia, they reported Q2 dwelling commencement data yesterday and it continues to retreat as apartment building remains especially weak. Of course, low supply coming onstream isn't helping housing affordability. Rent inflation is still running at over 7% there.

The UST 10yr yield is now at just on 4.07% and up +4 bps from yesterday. 

The price of gold will start today at US$2609/oz and down -US$2 from this time yesterday.

Oil prices are -50 USc lower at just over US$72.50/bbl in the US while the international Brent price is now just over US$76/bbl.

The Kiwi dollar starts today at 60.6 USc and down -60 bps from this time yesterday. Against the Aussie we are also down -60 bps at 90.2 AUc. Against the euro we are down -40 bps at 55.4 euro cents. That all means our TWI-5 starts today now at 68.9, and down -50 bps from yesterday at this time.

The bitcoin price starts today at US$61,782 and down -1.1% from this time yesterday. Volatility over the past 24 hours has 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 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 China has not announced the new stimulus that investors were expecting, rather just re-hashing existing measures. Equity and commodity markets reacted negatively to the disappointment.

But first, the American retail Redbook index rose marginally last week to be +5.4% above year-ago levels, and well ahead of inflation.

The US SME optimism index rose slightly in September even though uncertainty levels remained high as the US election gets closer, less than a month away now.

Meanwhile the RCM/TIPP optimism index for investors rose to a 19 month high. But again, the change was small.

And the US trade deficit in both goods and services fell in August from July in a better-than-expected result driven by stronger exports that were +5.2% higher than a year ago.

There was yet another very well supported US Treasury bond auction overnight, this one for their 3 year Note. It resulted in a 3.82% median yield, but up sharply from the 3.40% median yield at the prior equivalent event a month ago

Canada also posted its August trade result and its deficit came in a bit more than expected, mainly on a -1% fall in exports

In China, the closely anticipated National Development and Reform Commission (NDRC) briefing was a damp squib, essentially not announcing anything new in the way of economic support for their economy. All they did was front-load existing measures. A rally in Chinese stocks on their return from the week-long holiday fizzled quickly as traders questioned Beijing’s resolve to add more effective stimulus.

After rising strongly in anticipation over the past week or so, the iron ore price sank sharply after this briefing.

And China said it will impose tariffs on European bandy in retaliation for EU tariffs on EVs.

German industrial production rose in August from July and by more than expected to be 'only' -2.7% lower than a year ago, it least year-on-year decline in a year and a big improvement from July.

In Australia, business sentiment became less negative in September. The NAB business confidence index 'rose' to -2 from August’s revised -5, amid notable improvements in retail and recreation & personal services.

And the consumer mood is improving too. Australia's Westpac-Melbourne Institute consumer sentiment jumped to a 2½ year high in October, a sharp turnaround from the fall in September. This followed interest rate cuts in other countries and more signs that inflation is easing locally.

We should also note that overnight Pulse dairy auction for just WMP and SMP came in less robust than the minor gains expected. The dips were small and most for SMP, but essentially both products are retaining their recent higher levels even if they are slipping slightly.

On the weather front, Hurricane Milton isn't easing, still a category 5 event and heading straight for Tampa, Florida. Urgent evacuation orders are in place. Expected landfall is in about 24 hours. Even if it does ease somewhat, it will be a powerful event.

The UST 10yr yield is now at just on 4.03% and up +1 bp from yesterday. 

The price of gold will start today at US$2611/oz and down -US$33 from this time yesterday.

Oil prices are sharply lower, down -US$4 at just on US$73/bbl in the US while the international Brent price is now just on US$76.50/bbl.

The Kiwi dollar starts today at 61.2 USc and unchanged from this time yesterday. Against the Aussie we are up +20 bps at 90.8 AUc. Against the euro we are still at 55.8 euro cents. That all means our TWI-5 starts today still just on 69.4, and up a minor +10 bps from yesterday at this time.

The bitcoin price starts today at US$62,417 and down -1.9% from this time yesterday. Volatility over the past 24 hours has remained modest at just on +/- 1.6%.

Join us at 2pm today when we will have full coverage of today's Monetary Policy Review and the expected rate cut to the OCR.

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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 of powerful forces at work in both the US and China.

All eyes today will be on the opening of the Shanghai equity markets after their week-long holiday. Many think outsized gains are likely. Over that same period the Hong Kong index rose +12%. And those changes will be in anticipation of the yet-to-be announced fiscal stimulus program that Beijing has signaled. There are high expectations. But investors are probably sensing they can't lose with the central bank's logic-changing ¥800 bln (US$115 bln) capital market support measure in place.

But with 'buy-the-rumour-sell-the-fact' mentality of many investors, who knows what will happen. Some fund managers will feel they don't want to miss a unique profit opportunity, others are more sceptical the economic fundamentals are not getting proper attention.

China can afford to throw money at their issues. Their foreign exchange reserves rose by +US$28 bln to US$3.316 tln (¥23 tln) in September, slightly more than expected. And it built to its highest level since late 2015. Their gold holding rose in value too, but only because of the rising price.

Japan's leading economic index, which was expected to rise slightly, in fact fell and by quite a dip. In fact it was their lowest reading since 2020. They will be hoping this is a rogue result.

European retail sales were expected to rise in August and they did, coming in +0.8% higher in 'real' terms than a year ago for the Euro Area. But that undershot expectations of a +1.0% rise. For the wider EU bloc, things were slightly better.

Germany factory orders were weak in August, down -3.9% from a year ago. But that was a correction from the +4.6% rise in July.

In the US, Hurricane Milton strengthened into a monster Category 5 hurricane as races towards Florida’s west coast. Cat 5 storms are rare. Given what Helene did recently (Cat 4), residents have begun to flee inland in large numbers. Hopefully it will lose strength before it hits Florida. It is still deep in the western Caribbean Sea about 1000 kms from landfall.

After a +US$25 bln rise in July, American consumer debt was expected to rise another +US$12 bln in August. In fact this expected data wasn't available when we published, so we will update this item when it is released.

The UST 10yr yield is now at just on 4.02% and up +5 bps from yesterday. 

The price of gold will start today at US$2644/oz and down -US$9 from this time yesterday.

Oil prices are up +US$2.50 at just on US$77/bbl in the US while the international Brent price is still just on US$80.50/bbl.

The Kiwi dollar starts today at 61.2 USc and down -40 bps from yesterday. Against the Aussie we are still at 90.6 AUc. Against the euro we are down -30 bps to 55.8 euro cents. That all means our TWI-5 starts today still just over 69.3, and down -30 bps from yesterday at this time.

The bitcoin price starts today at USA$63,601 and up +1.3% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.

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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 the world's economy is expanding in most places despite some 'hot' pressures.

The week ahead will crescendo on Wednesday with the RBNZ Monetary Policy Review and OCR decision. But there will be a lot else going on too. India and South Korea will also have rate decisions this week. In the US, they get their September CPI result along with PPI data. Japan will release sentiment survey updates, along with Australia. The EU will release retail sales data and factory order updates will come in Germany.

But first, we should note that today is the final day of the Chinese Mid-Autumn Festival and normal work will restart tomorrow. And in Australia, most of their eastern states will be on holiday today (except Victoria). NSW and Victoria have also moved on to summer time, so are back to 2 hours behind us.

But the big news over the weekend was the eye-catching headline (s.a.) rise in US non-farm payrolls (NFP) of +254,000, almost double the expected +130,000 rise. And as regular readers will know, we also check the actual change, which was almost double that, at +460,000. All very impressive. There are now 162 mln people employed in their civilian labour force. There is momentum here and the impact of +460,000 more paid workers will be widespread and impact the whole global economy.

Both their unemployment rate, at 4.1%, and the number of unemployed people, at 6.8 million, changed little in September.

And the East Coast/Gulf port strike has been settled. So that is no longer an economic irritant.

This result is of outsized change and it had an impact on the financial markets. While the equity markets didn't react, the bond markets did, juicing up benchmark UST yields noticeably. The USD rose sharply too.

The US Fed may well be restrained by this labour market surge. Cutting rates into a fast-rising economy would be inflationary and they have only just gotten things back on an even keel. By any measure, they have achieved a 'soft landing'. They seem set up for a solid 2025 expansion (provided their economic management stays professional of course).

The latest Q3 estimate of US economic activity is +2.5% which would take their nominal GDP to US$29.4 tln and +US$1.4 tln more than a year ago. It is impressive. However, given today's labour market surge, there are upside 'risks' to these estimates.

And we should note that all this is going on while the US Federal Reserve shrinks its balance sheet. It is now down to just over US$7 tln, a -US$76 bln drop in one month, a -US$900 bln drop in a year, and an almost -US$2 tln drop since its 2022 peak. Monetary policy resilience is being built back up. Yes, US Federal debt held by the public is rising in dollar terms but not as a proportion of overall economic activity (GDP). But a stock-to-flow ratio like that is a bit of a junk sideline stat. You will hardly ever see that ratio in the commercial world.

China may still be on holiday. And by official accounts, travel-related activity is 'normal' but other aspects of their economy are still a worry. When they return tomorrow we will likely start to see the rollout of their signaled fiscal 'bazooka'.

Singapore delivered good retail results for August, to be up +0.6% from a year ago and almost all of that in the latest month.

And Vietnam surprised observers by releasing data that showed their economy grew +7.4% in Q3-2024, driven by exports, even though production was hit by Typhoon Yagi. That is up from 7.1% in Q2-2024 and expectations it would only expand by +5.5%. Along with India, they have wrestled the mantle from China of the fastest growing developing economies.

More broadly, world food prices in September rose much more than expected, and across the board. In fact, it was the largest month-on-month increase since March 2022. Rising dairy prices were among the gainers, but not so much meat prices.

The UST 10yr yield is now at just on 3.97% and down -2 bps from Saturday. But that is up +20 bps from this time last week.

The price of gold will start today at US$2653/oz and up +US$4 from Saturday.

Oil prices are down -US$1 at just under US$74.50/bbl in the US while the international Brent price is still just on US$78/bbl. A week ago these prices were US$7 lower at US$67.50 and US$71.50 respectively.

The Kiwi dollar starts today at 61.6 USc and unchanged from Saturday. That is a big -2c fall from a week ago however. Against the Aussie we are still at 90.6 AUc. Against the euro we are down -10 bps to 56.1 euro cents. That all means our TWI-5 starts today still just under 69.7, and unchanged from Saturday, but down -100 bps from a week ago.

The bitcoin price starts today at US$62,760 and up +0.8% from this time Saturday. Volatility over the past 24 hours has been low at just under +/- 1%.

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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 global economic attention should have shifted to tomorrow's labour market report for September, but the US waterfront strike, and the Middle East tensions has sidelined it.

However first in the US, there was a minor dip in the actual number of initial jobless claims last week, but a lesser dip than expected. There are now 1.62 mln people on these benefits, the lowest level since November 2023.

And as you would expect, the level of job cuts in the US has remained very low.

Tomorrow's non-farm payrolls labour market reports is expected to show a rise in payroll jobs of +130,000.

Perhaps in something of surprise after the wavering factory PMI, the ISM services PMI came in much better than expected. It revealed the strongest growth in this sector since February 2023, amid faster increases in business activity and new orders. And that was mirrored by the internationally benchmarked version.

US factory orders in August weren't as strong, little changed from the prior month to be -0.6% lower than the same month a year ago.

The US East Coast & Gulf port strike is entering its third day, unresolved. But there are signs of progress in negotiations. The Canadian port strike has ended now.

With China closed for holidays, all the equity market signals are being squeezed into Hong Kong which remains open. And that is not good for their property stocks which have had a heady run-up based on the stimulus signals. Now those property stocks are falling just as sharply as investors realise the fundamentals are just not there. And the expected ¥10 tln fiscal 'bazooka' has still be be launched. It is still being talked about and is still expected, but it won't happen till after the holiday week at the earliest.

In the EU, there are signs that producer prices are rising again, up +0.4% in the bloc in August from July, but down -2.3% for the year to August which was a lesser rate of decline from the prior month.

And later today, the EU is expected to approve an increase in tariffs to as much as 45% on electric cars imported from China, a move that officials said would help protect European carmakers from a glut of cheaper vehicles directly subsidised by Beijing.

Those same subsidies have caused Toyota to pull back on developing EVs, because they are no longer commercial to produce.

In China, price cuts along with those government subsidies helped the likes of BYD to boost monthly deliveries to all-time highs in September.

Australian exports retreated slightly in August, but their imports retreated more, so their monthly merchandise trade surplus stayed at about AU$5.6 bln. But that was only because gold exports stayed strong boosted by sharply rising gold prices. Without those, their surplus would have halved.

The latest IMF review of Australia isn't entirely convinced they have a sustainable disinflation trend underway and they warn them to prepare to do more to get price stability. They also say Australia needs to build many more houses in its efforts to tackle unaffordable housing and its pressures.

Container freight rates fell another -5% last week as weak demand overcame the costs of the security issues in the Middle East. But that only dipped prices to 146% of pre-pandemic levels. Last week's weakness was mainly outbound China to Europe. The transpacific rate levels were unchanged. (Backhaul prices are now very low.) Bulk cargo freight rates slipped -2% last week after a long runup. They are now about +13% higher than year-ago levels, the same from the pre-pandemic period.

The UST 10yr yield is now at just on 3.84% and up another +6 bps from yesterday. 

The price of gold will start today at US$2655/oz and up +US$5 from yesterday.

Oil prices are up +US$3.50 at just on US$73.50/bbl in the US while the international Brent price is still just under US$77.50/bbl. Middle-East tensions are now starting to affect these prices as the never-ending 'retaliation' cycle shows no sign of ending.

The Kiwi dollar starts today at 62.2 USc and down -½c from this time yesterday. Against the Aussie we are -20 bps lower at 90.8 AUc. Against the euro we are down -40 bps to 56.4 euro cents. That all means our TWI-5 starts today at just under 70, and down -30 bps from yesterday.

The bitcoin price starts today at US$61,134 and down another -2.9% from this time yesterday. Volatility over the past 24 hours has stayed 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.

Audio soundtrack opening is licensed from Shutterstock, Track 1219389 Monetization ID TFGEPGEI0LHEIJAI

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 Hong Kong is gripped by an unusual stock market frenzy, up +6.6% on the day.

But first, US mortgage applications fell slightly last week after the best two consecutive weeks previously. The benchmark mortgage interest rate was unchanged and still at a recent low.

This weekend (NZT) we get the important September non-farm payrolls report and it is expected to show +130,000 more jobs added in the month. Today the precursor ADP Employment Report came out showing a rise of +143,000 which was much more than the +90,000 anticipated. And their August data was revised higher. There was good job creation in both the factory sector (+42,000) and the service sector (+101,000) reported in this ADP data.

Japanese consumer sentiment improved again in September, the fourth straight gain. However it isn't yet back to levels they had at the beginning of 2024.

In Singapore, there was an unusually weak PMI result released overnight. Apart from the pandemic period, it fell to a record low in September, and is now in a deepish contraction.

In Hong Kong, a wild stock market frenzy was underway yesterday, overwhelming brokerages with buying demand. Oddly, it is mainly about the expectation that the Chinese housing market will return to its old self and buyers will emerge to allow that. But that seems to be in the face of troubling demographics, and recent memories of steep losses for buyers. And the latest data still shows continuing steep losses for second-hand housing, continuing a 29 month trend. Maybe yesterday's Hong Kong rally was just FOMO.

One thing is for certain, the Beijing government is going to print huge amounts of money to try and make a recovery happen. There will be winners, just not sure property will be one of them. But the price of key construction metals like zinc, iron ore and steel rebar are rising. The focus now turns to the late-October National People's Congress meeting and decisions to see if there really is a workable way out of their structural problems.

In Australia, the widely-watched local PMI by the Australian Industry Group saw its factory PMI dive to its worst level ever at -33 (April 2020 excepted). This was far worse than expected where a much smaller contraction (-13) was forecast. Low order levels while inflation and labour pressures persist are making manufacturing there very tough. This AiG report pretty much mirrors the earlier S&P/Markit version.

The UST 10yr yield is now at just on 3.78% and up +3 bps from yesterday.

The price of gold will start today at US$2650/oz and down -US$20 from yesterday.

Oil prices are down -US$1 at just on US$70/bbl in the US while the international Brent price is still just over US$73.50/bbl. It turns out American inventories are high so demand from this source won't be strong.

The Kiwi dollar starts today at 62.7 USc and down a minor -10 bps from this time yesterday. Against the Aussie we are -40 bps lower at 91 AUc. Against the euro we are unchanged 56.8 euro cents. That all means our TWI-5 starts today at just under 70.3, and little-changed from yesterday.

The bitcoin price starts today at US$61,919 and down another -0.2% from this time yesterday. Volatility over the past 24 hours has stayed modest at just on +/- 1.9%.

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 of an expansion and the inevitable retaliations in the Israel/Gaza/Lebanon/Yemen flashpoints are now having an impact on global oil prices. It is also casting a pall over global sentiment as fears mounts for an even wider conflict. The shift toward safe-haven currencies has hurt the NZD.

But first, the overnight dairy auction brought a +1.2% rise in USD terms, on the back of a +3.0% rise in WMP. There were good (+3.8%) gains for cheddar cheese as well. But most other products fell. In NZD terms, overall prices slipped -0.3%. Volumes sold were good. But this full auction broadly reflected last week's Pulse event for SMP and WMP.

In the US, their retail impulse bounced back last week to be +5.3% higher than the same week a year ago.

The September ISM factory PMI is still contracting slightly, little-changed from August. The dockworker strike isn't helping sentiment by American manufacturers. The S&P Global/Markit PMI for the US was more negative. Both report lower new order levels.

But the Logistics Managers Index (LMI) jumped to its highest growth rate in the logistics sector in two years. They see rising demand for these services, but the transportation component was unchanged.

Job openings rose in August from the July lower levels, but even though that rise was more than expected they are still in an easing trend, one that started in early 2022. Their quit rate fell.

Yesterday we reported a soft factory report for the Texas manufacturing sector and its oil patch in September. Today we can note that the region's service sector was expanding, and by a bit more than expected.

And we should note that Fed boss Powell yesterday emphasised that the recent 50 bps rate cut was probably just a one-off and that future changes will be "a more neutral stance" after that 'recalibration'.

China is now on holiday, and will be for the next week.

Eurozone inflation fell quite quickly in September, to just 1.8%, its lowest level since April 2021. Mostly this was driven by sharply lower energy costs.

In Australia, retail sales rose in August more than expected to be +3.1% higher than a year ago - which is their best result for more than a year. But it is not that great because inflation is running at 2.7% there. But at least is is better than inflation finally. Sanguine weather conditions is getting the credit for this improvement

Market confidence in new home building in Australia has improved in recent months, as investors and owner occupiers return to the market. And that is now showing up in residential building consent data, which was +3.6% above year-ago levels.

But CoreLogic says their housing market lost momentum in September, with insignificant overall changes in prices. Even Perth's monthly change was less than 2%, and that had been the epicenter of frothy housing prices.

Globally, the market for corporate bond debt rose sharply in September. Bloomberg is reporting that more than 1200 issuers sold more than US$600 bln of bonds in the month, the most since these records began 20 years ago. The rush seems to have been driven by lower interest rates and rising uncertainty including of the US presidential election.

The UST 10yr yield is now at just on 3.75% and down -3 bps from yesterday.

The price of gold will start today at US$2670/oz and up +US$32 from yesterday, a new high.

Oil prices are up +US$2.50 at just over US$71/bbl in the US while the international Brent price is still just over US$74.50/bbl. The crazy Middle-East situation is now affecting this commodity.

And there have been moves higher for the price of many commodities, especially coal and steel. Zinc and nickel too. Some key food prices are turning up as well.

The Kiwi dollar starts today at 62.8 USc and down almost -1c from this time yesterday. Against the Aussie we are -40 bps lower at 91.4 AUc. Against the euro we have fallen -30 bps to 56.8 euro cents. That all means our TWI-5 starts today at just over 70.2, and down -70 bps from yesterday.

The bitcoin price starts today at US$62,020 and down another -2.3% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.9%.

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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New Zealanders should be grateful insurance companies remain committed to New Zealand given the country's risk exposure, John Lyon of Ando Insurance says.

In the latest episode of the Of Interest podcast I asked Lyon how well general insurers are serving New Zealanders, how competitive the market is, and how the public should judge strong financial results from their insurers. As well as being CEO of Ando, an underwriting agency, he's also the former CEO of Lumley Insurance. 

Statistics NZ's Consumers Price Index shows insurance costs rose 14% in the June year, making them a key contributor to households' cost of living pressures and the stubbornly high non-tradable inflation that meant the Reserve Bank held the Official Cash Rate at 5.50% for as long as it did.

"I think we should be grateful that there are insurance companies who are still committed to the New Zealand market, because what we need is a healthy, strong insurance market because the risks are so great in New Zealand," Lyon says.

"When you think about the risks we're exposed to from volcanoes that are overdue, to the well known earthquake exposures, the evolving cyclone and climate change issues, [and] we don't really fully understand tsunami risk. There's lots of evidence that there have been major tsunamis along the coast of New Zealand. At what frequency would we expect something like that to happen? We don't know. That's not been particularly well modelled. That's a major risk to the country."

"There's a whole bunch of factors in there that we can talk about in terms of what New Zealand Inc needs to do to protect itself from the environment we live in. And climate change is a big part of that. But it's also all of the other generic risks that are there in front of us. So we have to think about how we manage them as well," says Lyon.

With the likes of IAG, Suncorp and Tower having recently reported strong financial results, how should we judge how well they're doing financially?

"One of the things that the reinsurers did [last year], as well as putting prices up, was they went to the insurance companies and they said, 'you now need to hold more of the risk to your own account'."

"The Suncorps and IAGs, and indeed our business, was faced with a situation where if we had been holding, say, $100 million of the risk to our own account before reinsurance comes in, the reinsurers might have put that up to $500 million. So if you think about that, then if you've got an exposure of $500 million for any one event, you're not going to get $500 million every year."

"So typically what insurance companies will do is they say, 'well, maybe over five years, we'd expect to have $100 million on average. So it'll be one big event every five years. That's $500 million. We'd spread that cost over five years.' So in every year you'd put a cat allowance [catastrophic event allowance] in of $100 million. If you don't have a cat event, you've got $100 million profit and then the next year you might have no event and you got another $100 million profit. But in year five you've got a $500 million event and you lose $500 million."

"That's the market that we have moved to. The insurance companies need to be very profitable in the good years because the cost of managing the bad years is a lot higher. So it's not just reinsurers that suffer when there is a big event. The insurance companies hold more to their bottom line and that's a challenge for all the businesses in that respect," Lyon says.

"So it's hard to judge insurance on a year on year basis."

Lyon suggests the most significant barrier to enter the general insurance market is New Zealand's risk profile, noting a number of international insurers look at NZ and see the economy is relatively small.

"It'll never be a major strategic value add to a global company in terms of incremental growth. So all you're going to have is a problem when a big thing happens like an earthquake."

In the podcast audio Lyon also talks about what he believes should be done that would be more beneficial to customers' insurance costs than a market study, how the insurance industry is lagging from a transparency perspective, the perception of choice created by the big companies being behind numerous brands, how competitive the market is, the level of market power the big players have, climate adaptation, managed retreat and uninsurable areas, whether the general insurance market is a duopoly, insurance policies being used as a taxation device, risk-based pricing, parametric insurance, what the insurance equivalent of open banking could mean, and more.

*You can find all episodes of the Of Interest podcast here.

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