Economy Watch

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.

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

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.

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.

And today we lead with news of mostly second-tier indicators today.

And that is because it is a public holiday in the US, Memorial Day, and financial markets are closed there.

Tt is probably good that business is closed there for one major commercial real estate investor. Starwood Real Estate Income Trust has had to limit the amount of money that investors can redeem in the fund (see page 6), in an attempt to fend off a cash crunch as high interest rates hurt the market for commercial properties such as office buildings. They aren't the only REIT facing a liquidity crisis. With interest rates rising again, the tide is going out on these types of investments.

In Japan, yields for their 10-year government bond yield rose above 1%, its highest level in 12 years. This came as the Bank of Japan governor said they need to re-anchor inflation expectations and warned that estimating the neutral interest rate accurately is challenging. Meanwhile, a deputy said the end of the battle against deflation was in sight, adding that wages are likely to continue increasing.

Despite the punishment grip imposed by China (for voting for a candidate Beijing doesn't approve), consumer sentiment in Taiwan actually rose in May and by more than is usual. However to be fair the rise is just back to 'normal' levels after their recent election.

China released industrial profit data today for April, and although this came in almost +14% higher than in April 2023, it is a very low base that enhances the apparent performance. Compared with April 2022, there profits are actually down -17%.

In Germany, their closely-watched Ifo Business Climate indicator was steady at 89.3 in May, the same as a downwardly revised 89.3 in April, but both were well below forecasts of 90.4.

And we should probably note - again - that the local carbon price hit another new recent low yesterday, now under NZ$45/NZU. You may recall that the last Government auction price was fixed at in March at NZ$64/tonne (and that was after a series of failed official events when nothing sold).

The UST 10yr yield is now at 4.46% and down -1 bp from yesterday. 

The price of gold will start today up +US$21 from yesterday at US$2354/oz.

Oil prices are up +US$1 at just over US$78.50/bbl in the US while the international Brent price is now over US$82.50/bbl.

The Kiwi dollar starts today up +¼c from yesterday at just on 61.5 USc. Against the Aussie we are unchanged at 92.4 AUc. Against the euro we are marginally firmer at 56.6 euro cents. That all means our TWI-5 starts today over 70.7, which is up +15 bps from yesterday.

The bitcoin price starts today at US$70,052 and up +3.4% from this time yesterday. Volatility over the past 24 hours has been modest though 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.

And today we lead with news American factory orders are rising and setting up a good second half of 2024.

But first we should note that the US is on holiday today and tomorrow, their Memorial Day (like our ANZAC Day but with more retail). This marks the start of their summer season when investors traditionally pull back from markets a little. But to be fair, it is less of a 'thing' now than it used to be. They return Wednesday, NZT.

The week will be 'highlighted' by the first full Budget by the new government, on Thursday. In Australia, they will release CPI inflation data, and inflation data will also come out in Germany and the EU. There will be Japanese data too (retail sales and industrial production) and some important guidance from the Bank of Japan. And from the US, they will release an important PCE update, more data on their GDP growth, consumer sentiment (CB) and home sales updates. We will also get the official PMIs for China for May at the end of the week.

And this is a big week in India. It is the final week in their six-weeks of staggered regional voting for 543 parliamentary seats. The ruling BJP are expected to win in what is a system with questionable vote-counting integrity. Final official results will be released some time on Tuesday, June 4, 2024

In China, isolation by foreign investors is becoming quite stark. New net foreign investment grew a paltry +US$8.3 bln in April from March which looks like it is a decade low. For a country the size of China, this amount is just a 'rounding error'. In April 2023 it was only +US$14.1 bln and also considered low. In fact the total new foreign investment in the first four months of 2024 was -31% lower than in the same period a year earlier which itself was weak. The international de-risking trend is biting hard now as the nation turns inward.

And Bloomberg has an interesting story about the record withdrawals from Chinese bank deposits in April. One-year term deposits at China’s largest banks pay a record-low of just 1.45% pa. There was a large -NZ$880 bln outflow in deposits from banks in April, -1.3% of all deposits, and much of it flooded into bonds and "wealth management products". The policy goal is to spur national economic impetus by making these funds work harder. But China has had significant issues with "wealth management products" in the recent past so this is a very risky strategy. There is a history of a lot of people getting hurt - and very angry.

In Japan, their inflation rate fell to 2.5% in April from 2.7% in March. Their core inflation rate dropped to 2.2% from 2.6%. While these falls were not unexpected, they are the lowest levels since January.

Singapore's industrial production recovered sharply in April after the big miss in March. But it still isn't back to year-ago levels.

Across the Pacific, US durable goods orders rose by +0.7% in April from March, following a +0.8% increase in March and defying market expectations of a -0.8% drop. That makes them a very impressive +7.9% higher than in April a year ago and augers very well for their factory sector in coming months. It was mainly driven by strong demand for transport equipment.

An updated University of Michigan consumer sentiment survey result for May was released, coming in very much better than the preliminary version which recorded a drop. Yes there is still an easing but only a minor one. And this current level is +17% higher than a year ago.

After three dour and disappointing consecutive months, Canada's retail sales sparked into life in April with its best rise in a year. But it will still be only +2% higher than a year ago and less than inflation's bite.

The UST 10yr yield is now at 4.47% and up +1 bp from Saturday. And that is up a net +5 bps in a week. 

The price of gold will start today down a minor -US$1 from Saturday at US$2333/oz, and down -US$85 from a week ago.

Oil prices are down -50 USc at just over US$77.50/bbl in the US while the international Brent price is just under US$82/bbl. These levels were US$79.50 and US$83.50/bbl a week ago, so about -US$1.50 less since then.

The Kiwi dollar starts today unchanged from Saturday at just over 61.2 USc but -¼c lower than this time last week. Against the Aussie we are marginally firmer at 92.4 AUc. Against the euro we are also marginally firmer at 56.5 euro cents. That all means our TWI-5 starts today just under 70.6, which is up +20 bps from a week ago.

The bitcoin price starts today at US$67,735 and down -0.4% from this time Saturday. Volatility over the past 24 hours has been quite low at just on +/- 0.6%.

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 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.

And today we lead with news China seems to be making a play to avoided as an investment destination.

But first, initial US jobless claims fell to just +192,000 last week when a small increase was anticipated. Still no labour market stress signals here. The total number of people on these benefits fell below 1.7 mln, the lowest level of the year. The insured unemployment rate remains at a very low 1.1%.

The globally benchmarked S&P Global/Markit factory PMI for the US rose (to 50.9) in May from its steady state in April although it did not get its boost from new orders this time. But new order growth was a feature of their May services PMI (54.8) with an impressive display and a two year high.

This May strength is yet to show up in the Chicago Fed's National activity Index which slipped slightly in April. But it is showing up in the Kansas City Fed's factory survey which recorded a good recovery.

It definitely did not show up in the April new home sales data, which in the month ran at almost -8% lower than the year-ago level. The retreat has been gradual each month in that period, but relentless.

Perhaps we should note that there was another case reported where bird flu in US dairy cows has jumped to a human. Officials still say the risk is low.

The internationally-benchmarked May S&P Global (Markit) PMI for Japan delivered its fastest expansion in nine months. Their previously shrinking factory sector rose to a minor expansion (50.5) while their service sector expansion slipped slightly (53.6).

India's PMI data continued its strong run in May, for both the factory and services sector. A feature is the growing rise in exports, presumably benefiting from the China de-risking trend.

Taiwanese industrial production was up more than +14% from a year ago in April. That is partly a reflection of weakness a year ago but for the past three months the month-on-month rises have been impressive and March was notably revised higher. Their retail sales growth was more modest however although its base was more solid. All this comes before the full-court pressure the PLA is currently applying to the island nation, a crude show of force in the Russian style.

Beijing's claim that they are 'prioritising business reforms' rings hollow in light of the Taiwan pressure.

In Europe, their economic recovery gained momentum in May, according to provisional PMI survey data. Faster increases in business activity, new orders and employment were all recorded in the month, while business confidence hit a 27-month high. This recovery is being led by Germany. Meanwhile, rates of inflation of both input costs and output prices softened from April, but remained above pre-pandemic averages in each case.

Australian inflation expectations, as monitored in a respected Melbourne Institute survey, eased to 4.1% for the year ahead, down from 4.6% last month. The last time they measured actual inflation, it came in at 3.5% in March.

The internationally-benchmarked May S&P Global (Markit) PMI for Australia delivered another small contraction in the factory sector (49.6) but a good expansion in the service sector (53.1). But both levels were lower than March and April. New orders retreated in both sectors, but to be fair the reductions were slight and the least in the past three months.

The tighter global security situation has seen the container freight rates leap again, up +16% in the week to their highest in at least a year. The jump is all about outbound cargoes from China which emphasises the risks of trade from there. The Taiwan situation will make it even worse next week. So far, bulk cargo rates haven't moved much in the past week.

The UST 10yr yield is now at 4.48% and up +5 bps from this time yesterday. 

The price of gold will start today still in a sharp down-trend, down another -US$51 at US$2336/oz. That is now down -US$119 from its all-time high on May 20, 2024, a -4.8% retreat.

Oil prices are down another -US$1 at US$76.50/bbl in the US while the international Brent price is down a bit less to under US$81/bbl.

The Kiwi dollar starts today unchanged from yesterday at just on 61 USc. Against the Aussie we are firmer, up +¼c at 92.3 AUc and a two-month high. Against the euro we are firmish at 56.4 euro cents. That all means our TWI-5 starts today just on 70.4, and up +10 bps from yesterday.

The bitcoin price starts today at US$67,776 and down -3.0% 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 on Monday.

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

The fund backing New Zealand's incoming depositor compensation scheme is going to be small, it's going to take a long time to reach its target level, and the lack of depositor preference in the scheme is a mistake, according to a deposit insurance expert.

Geof Mortlock, an international financial regulatory consultant who does work for the International Monetary Fund and World Bank specialising in financial system stability, resolution of bank failures and deposit insurance, spoke about the depositor compensation scheme in a new episode of interest.co.nz's Of Interest podcast.

The scheme, expected to be launched in mid-2025, will provide protection of up to $100,000 per eligible depositor, per licensed bank, building society, credit union and deposit taking finance company, in the event of deposit taker failure.

 Finance Minister Nicola Willis has decided the fund backing the scheme, to be funded through levies paid by deposit takers, will be built up over 20 years to a size equivalent to 0.8% of protected deposits, or about $1 billion.

Mortlock says other countries typically have a fund size equivalent to between about 1% and 4% of protected deposits, and he recommends taking about 10 years to build the fund up to its target level.

He says the NZ scheme would likely be used for the failure of a non-bank deposit taker or small bank, but wouldn't be sufficient for the failure of a medium-sized or big bank, the failure of which would require "alternative mechanisms." Nonetheless Mortlock says it is worth having the scheme.

"I think it's definitely worth having because there are quite a sizable number of small deposit takers out there. And at some stage, one of them is going to fail. Hopefully not for a long time. But statistically, if you look around the world, there are occasional bank failures, and most of them tend to be small."

"For a small deposit taker or a medium sized one, I think having a deposit insurance scheme is really important, and I think it helps in two ways. It reduces the risk of what we call interbank contagion, where one failure can trigger multiple runs across the banking system. And secondly, it helps to reduce the risk for the taxpayer, because it means that there is a dedicated fund paid in by deposit takers and therefore [this] reduces the need for government funding," says Mortlock.

"But for a large bank failure, it is not going to be sufficient. And if you look around the world for a large bank failure, deposit insurance funds are not typically used anyway."

An option for a larger bank failure is the Reserve Bank's Open Bank Resolution (OBR) Policy. In the podcast Mortlock explains why he thinks it would be "potentially catastrophic" for the Reserve Bank to use OBR, and he doesn't think a Finance Minister would allow them to.

In the podcast he also talks about what other resolution options could be for a large bank failure, what products the scheme will cover, the impact deposit takers paying a levy may have on deposit rates, how the Reserve Bank should administer the scheme, bail-in, depositor preference and more.

Under depositor preference, depositors rank ahead of other secured creditors in a liquidation. Mortlock says it helps reduce the risk of runs on banks, and facilitates bail-in whereby unsecured liabilities such as bonds may be written down or converted into equity in the event of a bank failure.

At the moment, with OBR, NZ is "about the only jurisdiction I can think of outside of some dubious ones, which would apply a haircut to deposit liabilities and no depositor preference," Mortlock says.

"So if you're a wholesale depositor in a bank and the banking system is looking shaky, and you know that the OBR is out there and could be triggered, what are you going to do? I think you're going to do a preemptive run. And what would that do? That would almost certainly mean that the [Reserve Bank] Governor, joined by the Minister of Finance, would have to say, a, we're not doing OBR, and b, we are putting in place a temporary guarantee of all wholesale deposits. Just the opposite of what you would want to have to do. So I think it is a foolish policy, OBR, and made even more foolish by the absence of depositor preference."

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

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.

And today we lead with news the American central bank is wondering if they have done enough yet to quash the inflation impulse.

But first, US mortgage applications rose +1.9% last week from the previous week, adding to the 0.5% increase from that earlier week and taking it to an unusual third consecutive week of gains in mortgage demand and only the second time this year that has happened. But they remain -11% lower than last year's weak level. Benchmark home loan rates slipped slightly (-6 bps) to just on 7%.

But the recent rise in existing home sales fell back in April, down -1.9% from a year ago and also down -1.9% from March. It would have been a larger fall, but a surge of homes selling at the high end of the market capped the weakness. These are transactions less likely to need a mortgage. And that recent trend is also raising the median price.

Yesterday's RBNZ scepticism that they are seeing needed 'last mile' progress in the inflation battle has been echoed by the US Fed in the minutes released earlier today for their May meeting. Getting to their target will take longer than they thought, these notes show. Some officials are open to another rate rise if needed to get on top of the stickiness. But in the end they stuck with their faith that disinflation will get them there. The equity market slipped when this document was released.

Prior to that release, the US Treasury had another very successful bond auction, for a 20 year maturity, and that delivered a median yield of 4.58%, down from 4.77% at the prior equivalent event.

Japan's machinery orders rose +2.9% in March from February, slowing from the +7.7% m/m gain in February but way better than market expectations which assumed a March correction was likely of -2.2%. Year-on-year March was up +11%. Their forecasts suggest the high levels of orders will be maintained in the coming three months. Of note is that orders for very large constructions (not included above) are running very strongly at present.

But in China, their excavator sales - a market canary - fell almost -10% in the first four months of 2024, with domestic sales down -3% and export sales down -17%.

In the UK, their CPI inflation rate eased to 2.3% in April, its lowest level since July 2021. However that was higher than the 2.1% rate expected. But that progress was overshadowed by the announcement that that country would go into an election on July 4, 2024. That is much earlier than expected. The UK pound rose on the news. There is currently expected to be a change of government at that election.

Some Australian survey data shows that most 45 year old Aussies plan to retire soon after they reach 65. That is unchanged since 2018/19. There are now 4.2 mln retirees in Australia. Given their workforce is 14.3 mln, that means there are currently 3.4 workers per retiree. The same ratio in New Zealand is 3.3.

The UST 10yr yield is now at 4.43% and up +1 bp from this time yesterday. 

The price of gold will start today down -US$33 at US$2387/oz.

Oil prices are down another -US$1 at US$77.50/bbl in the US while the international Brent price is down a bit more to US$81.50/bbl.

The Kiwi dollar starts today up only a net +10 bps from yesterday at just on 61 USc. Against the Aussie we are much firmer, up more than +½c at 92 AUc. Against the euro we are firmish at 56.3 euro cents. That all means our TWI-5 starts today just on 70.3, and up +20 bps from yesterday.

The bitcoin price starts today at US$69,853 and up a mere +0.2% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.0%.

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.

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

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 we are looking for signs inflation is actually easing and policy interest rates can be adjusted lower.

But first, at the overnight GDT dairy auction, prices rose a bit more than +3.3% from the prior event two weeks ago. That takes the price level back to where it was in October 2022 with a nice up-trend developing now. Overall prices are now +13% higher than a year ago. Volumes offered however are at a four year low. The key WMP price was up +2.9%, SMP was up +3.5% and butter up +5.1%. Interestingly, mozzarella was up almost +10% indicating rising foodservice demand. China is back with good demand for WMP and butter, but it is the Middle East where the rising cheese demand is coming from. However we should note that the recently rising NZD capped the overall price increase at +1.9%.

In the US Redbook retail sales indicator was up +5.5% last week from the same week a year ago, handily more than inflation so they are seeing real gains still.

Not only are retail appetites high and rising, American stock ownership levels are now back to levels last seen prior to the GFC.

At an event in Germany, the US Treasury Secretary Janet Yellen called out China, the UAE, and Türkey as the main evaders of the American and European sanctions on Russia over its invasion of Ukraine.

In Canada, their CPI inflation rate eased to 2.7% in April from 2.9% in the earlier month, in line with market expectations, and is now the softest rate of consumer price growth since March 2021. Their core inflation rate is down to 1.6%. This shift lower is what their central bank said would happen. Easing food prices (from a year ago) led the shifts. The chance of rate cuts there next month have risen. Their policy rate is currently at 5%.

In China, we are awaiting the data for April on foreign direct investment flows. It is unlikely to be very positive but it will give an updated position of where the 'de-risking' trend is at.

In Australia, the expanding labour force (up +2.5% in March from the same month in 2023) is behind a +7.1% rise in total labour compensation in March from the same month in 2023. That means in April 2024, total wage and salary compensation will have pushed on up above AU$100 bln in the calendar month.

Consumer sentiment in Australia, as tracked by the Westpac Melbourne Institute survey was virtually unchanged in May from April but at a low level still. It is a measure that has been in the doldrums for more than two years now; the last time it was 'positive' was in February 2022.

Join us at 2pm this afternoon when we will have full coverage of today's RBNZ Monetary Policy Review. No-one is expecting any rate change, but their outlook opinions will be very important. Financial markets currently have two OCR rate cuts pencilled in for 2024 and three in 2025 and the RBNZ assessments of where they stand in the battle against inflation could well adjust that pricing - and that in turn may have echoes in current wholesale money markets.

The UST 10yr yield is now at 4.42% and down -2 bps from this time yesterday. 

The price of gold will start today down -US$14 at US$2420/oz.

Oil prices are down another -50 USc at US$78.50/bbl in the US while the international Brent price is still just under US$83/bbl.

The Kiwi dollar starts today down another -20 bps from yesterday at just over 60.9 USc. Against the Aussie we are marginally softer at 91.4 AUc. Against the euro we are also softish at 56.2 euro cents. That all means our TWI-5 starts today just on 70.1, and down -10 bps from yesterday.

The bitcoin price starts today at US$69,683 and up +1.9% from this time yesterday. Volatility over the past 24 hours has been moderate again at +/- 2.7%.

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 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 China seems to be struggling to find its way through the wreckage of its property crisis.

The Chinese central bank left both its 1- and 5-year rates unchanged in their monthly review today, still at 3.45% and 3.95% respectively. The one year benchmark has been unchanged for nine consecutive months now, the five year benchmark for three. These 'holds' come amid a flurry of other loosening activity last week, targeted at reviving their property markets and saving the remaining large property developers.

Analysts are forming the view that the actions China has taken to reinvigorate its property sector won't be enough to achieve that. Bets that much more stimulus will be required are juicing up some commodity markets. Copper, for example, has now risen to US$11,250/tonne, up +7.5% in a week, up double that in a month. Zinc has taken off too, up +10% in a month.

Meanwhile that are chalking up some global success in other areas. The number of new shipbuilding orders in China rose almost +60% in Q1-2024 from the same period a year ago. This accounted for about 70% of global orders for ships. Almost 40% of those orders were for bulk cargo ships, 12% for container ships. But there was a notable surge in orders for oil tankers, accounting for 35% on Q1 orders. Normally they account for less than 10%.

We should get the Chinese foreign direct investment data for April later today and markets are braced for another quite weak result as the two superpower blocks disentangle.

And we should note that the southern province of the Guangxi (at the border with Vietnam) is suffering unusually heavy rainfall currently with widespread flooding. Both hourly and daily rainfall records have been broken.

Meanwhile Taiwanese export orders came in in April at the same level as March, a very good result because that is almost +11% higher than April 2023 and well above the expected +4.5% gain.

And we should also perhaps note that the New Zealand carbon price is falling away quite quickly now, with the NZU down to just $46/tonne. (You will recall it at over $80/tonne more than a year ago.) That is now miles below the NZ$132/tonne EU carbon price, which is languishing but not really falling.

The UST 10yr yield is now at 4.44% and up +2 bps from this time yesterday. 

The price of gold will start today up +US$19 at US$2434/oz. 

Oil prices are down -50 USc at US$79/bbl in the US while the international Brent price is still just on US$83.50/bbl.

The Kiwi dollar starts today down -20 bps from yesterday at just over 61.1 USc. Against the Aussie we are still up at 91.6 AUc. Against the euro we are softish at 56.3 euro cents. That all means our TWI-5 starts today just on 70.2, and down -20 bps from yesterday.

The bitcoin price starts today at US$68,332 and up +2.4% from this time yesterday. Volatility over the past 24 hours has been moderate however at +/- 2.1%.

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

Renting in New Zealand today is more difficult than a decade ago, with fewer properties available, rents continuing to increase, and the quality of rental properties not much better, Shamubeel Eaqub says. However, the economist and co-author of the 2015 book Generation Rent, rethinking New Zealand's priorities, says it's not all bad news.

Speaking in the latest episode of interest.co.nz's Of Interest podcast, Eaqub says the "lived reality of renting" has got harder over the past decade, but the regulatory settings are slowly improving.

"We need to ensure there's sufficient renters' rights ... because in New Zealand renting is so insecure and is such a problematic thing for so many people."

One area giving Eaqub optimism is the rise of build to rent, where landlords must offer 10-year rental tenancy agreements.

"I've been a long time fan of institutional landlords rather than accidental landlords. When you are in the business of land lording, you want to have as little turnover as possible, whereas if you're an accidental landlord, you are much more interested in having quick turnover and being able to sell it off and all those other bits and pieces. The tenant is kind of incidental to the story and a bit of an annoyance, really."

Eaqub says build to rent offers two types of security; tenure security and financial security.

"Because more often than not [build to rent] will come with contracts that will have a known level of [rental] increase for the next, say three years, so you can plan your finances. Whereas in a normal tenancy you have only certainty for 12 months and then you don't know what will happen next."

Build to rent is adding new housing supply targeted for one particular use, which he says is unusual in NZ.

"If you look at what happens in New Zealand, or how it has generally happened in New Zealand in the past, it's the idea of filtering, right? You build houses which are for new homes and for rich people, and then the older homes that are secondhand, that kind of gets recycled into the rental market."

"So I'm very encouraged to see this new supply that's coming in, that's very much targeted towards renting specifically. Because if you think about the pressures that we see in terms of emergency housing, social housing and all those kinds of things, that's happening because people are falling out of the rental market, because the rental market is short supplied and is very expensive. And so the more we can do to get more supply directly and retained in the rental market, the better it is," Eaqub says.

He also talks about his disappointment at the fracturing of the Labour-National consensus on medium density residential standards (MDRS).

"[The consensus] showed me for the first time the grown-up-ness of the way that our politicians can respond to structural problems, that we can put aside our political differences and just do something because it's the right thing to do, not because you're on one side of the House or the other. But that grown up moment of politics lasted very, very briefly, and we threw it away at the first chance when the election campaign started," Eaqub says.

In the podcast Eaqub also talks about NIMBYS, the construction sector, what's driving rents, problems with local government, his views on rent controls, the accommodation supplement, emergency housing, what the rental market may be like for his kids' generation, and more.

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

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