Economy Watch

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 ongoing rise in the world economy is shifting some key metals prices into a bull-run.

But first a look ahead. The American data to be updated this week will be their advance Q1-2024 GDP which is currently expected to come in at +2.5%. That will follow key updates to durable goods orders and new home sales - and advance April PMIs. It will be peak reporting for their earnings season this week too. April PMIs will also come for Australia, Japan and the EU, as will CPI updates in Australia. And there will be key central bank policy decisions for Japan, China, and Turkey this week

In the dominant global economy, their central bank reported that sticky inflation and sticky high interest rates were cited as the key risks to financial stability in its survey of key contacts, with geopolitical troubles and the upcoming American presidential election also getting a strong mention. These heightened risks were reported in the US Fed's half-yearly Financial Stability Report.

The Fed itself is worried about a steady decline in the liquidity of life insurers’ assets and their use of non-traditional liabilities and other novel funding which would be hard to control in a crisis. They were less worried about American households. Vulnerabilities from household debt were judged as only moderate. Inflation and uncertainty surrounding the direction of federal policy on trade, and government spending are banks' own top financial stability concerns.

Meanwhile in the financial world, yet another key voting Fed member is out dampening down prospects of rate cuts. The Atlanta Fed boss said US inflation is only coming down "very, very slowly" and "let's not be in a hurry" on interest rate cuts.

In China, and in all of March in all of the country, their incoming foreign direct investment was only +NZ$20.7 bln in March. But that was far better than the tiny +NZ$3 bln in March a year ago. Still the total for the first three months of the year was down a startling -26% compared to Q4-2023, up just +3.9% from the same quarter a year ago which was unusually weak. From Q1, 2022 the current levels are -28% lower. It will worry Beijing policymakers that these levels are bedding in so low.

China will review its two Loan Prime rates later this afternoon (NZT). No change is expected this month.

And we should note that the large southern Pearl River system is flooding, some of it severe.

Over in Germany, March data shows that their producer price deflationary impulse is easing. Their PPI was down -2.9% from the same month a year ago, but that was far less than the February equivalent of -4.1%. And those March producer prices actually rose +0.2% from the prior month and that was better than the no-change expected.

It is worth noting that the IMF and the World Bank have been having their annual talkfest Spring Meetings this past weekend.

In the real world, we should also note that it is not only the aluminium price that is rising at present (which is up +20% since the end of February), but the copper price is on the move higher too, up +16% in the same timeframe and actually approaching its all-time high set a year ago.

Other base metals like nickel, tin, and zinc, have all been rising sharply recently too. But not iron ore, lead, titanium or lithium - or the carbon price. (Even locally, here.)

The UST 10yr yield is now at 4.62% and down -3 bps from Saturday but up +10 bps over the past week. 

The price of gold will start today down -US$3 from this time Saturday at US$2391/oz.

Despite continuing Middle East tensions and uncertainties, oil prices have slipped lower to just over US$82/bbl in the US while the international Brent price is up slightly at just under US$87/bbl. Over the past week these prices have fallen -US$2.50 respectively.

The Kiwi dollar starts today little-changed at just under 58.9 USc. But that is down nearly -½c in a week. Against the Aussie we are up +10 bps at 91.8 AUc. Against the euro we are still at 55.3 euro cents. That all means our TWI-5 starts today just on 68.8 and unchanged from Saturday, -30 bps lower for the week.

The bitcoin price starts today firmer at US$64,854 and a minor +0.8% gain from Saturday. A week ago this price was US$67,601 so a -4.8% retreat from then. Volatility over the past 24 hours has been modest at just on +/- 1.1%.

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.

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For open banking to really grab people's attention the focus needs to be on the services it can enable, rather than the technology behind it, says Andrew Dentice.

In the latest episode of interest.co.nz's Of Interest podcast, Dentice, a technology lawyer and partner at HudsonGavinMartin, discusses the data sharing that enables open banking, what open banking actually is, why progress towards it has been slow in New Zealand, what's going on with open banking overseas, the threat and opportunity of open banking for banks, the benefits of it for consumers, and more.

One of the points he makes is consumers need to be put at the heart of it.

"If you're talking about APIs [application programming interfaces] and bank account information, it's not exactly the most sexy conversation to be having," Dentice says. "We have to put the consumer front and centre, have a look at some of these really amazing use cases that are starting to come out, and get people excited about it. And then that drives the [banking] industry to do more as well." 

"I think you've almost got to separate the open banking technology itself from the stuff that it enables," says Dentice.

"That technology itself is actually not that exciting as a consumer. APIs have been around for years. As a consumer, I don't really see that. What I see is the cool new app, the Sharesies, the Monzo, the Wise in market, that when I go and use it gives me a really fantastic, brand new experience."

"We're never going to get people excited with the underlying tech around open banking. We're going to get them excited around the use cases that it's driving. So it's kind of an enablement layer rather than new technology in itself," Dentice says.

Asked what the banking experience might look like for consumers in five to 10 years time if open banking really takes off in NZ, Dentice says better, more competitive, more interesting product offerings would be a great outcome.

"I would hope that there's a range of new, great, innovative New Zealand fintechs that are able to drive their business models off the back of this. I'd also hope that the great companies from overseas see New Zealand as a market that they want to enter. There's some larger [overseas] fintechs like Revolut and others coming into the market. I think if we have that open banking framework all up and running, then it makes New Zealand a much more likely place [where] the big players will come in and offer more competition."

He also thinks service from incumbent banks could be better and more competitive.

"I saw recently HSBC basically launched a competitor to Wise in that FX [foreign exchange] space. So there's the fintechs kind of coming in cutting [banks'] lunch, and then the banks' trying to cut the lunch back."

"And then I think digital first financial services means that people just have a better understanding of their money, their financial position. Financial literacy is really important. There's some great fintechs who are doing things with kids in that space, like SquareOne and Banqer."

"So there's a societal benefit to it, as well as a pure kind of competition and innovation benefit as well," Dentice says.

*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.

And today we lead with news that while we weren't watching a few people are making financial bets so large they could hurt us all.

In its latest global financial stability report, the IMF says near-term risks have receded as disinflation (that is, the lowering of the positive inflation rate) is entering its "last mile" zone. But they warn that medium-term vulnerabilities are mounting. One of those comes from the hedge fund sector. The IMF says that a small group of very large firms in this sector has built up an enormous short bet on global stability, one so large that if (as seems likely) those bets are wrong that could be a problem for all of us. “Some of these funds may have become systemically important to the [US] Treasury and repo markets, and stresses they face could affect the broader financial system,” they warn (on page 37).

Meanwhile in the US, the number of new claims for jobless benefits in the US was was marginally less than in the prior week at 208,500 and this was less than analysts’ expectations. And that means continuing claims were broadly unchanged at 1.865 mln, also less than market expectations. Those waiting for early signs of US labour market stress are still waiting. It has now been a full 2½ years of weekly reports saying broadly the same thing and there are few signs this will change any time soon.

One reason the wait may be longer is that the powerhouse Pennsylvanian/New Jersey rust belt manufacturing region seems to be on an upswing. The Philly Fed factory survey for April delivered positive new order and activity activity levels, in fact the best from that region in two years.

But there is no sign that the American housing market is improving. US existing homes sales in March were -3.7% lower than a year ago at an annualised rate of 4.19 mln units. They actually fell at a faster -4.3% rate from February.

Later today, all eyes will be on the Japanese CPI inflation rate. You may recall it came in at 2.8% in February and it is expected to be at a similar level (2.7%) when the March data is released this afternoon. If that is the case, the Bank of Japan will likely be emboldened to widen its moves to get off its very long-running QE programs.

Australia's jobless rate ticked higher to 3.8% in March from February’s five-month low of 3.7% but below analysts’ expectations of 3.9%. The number of unemployed individuals increased by +20,600 to 569,900 while total employment fell -6,600 to 14.3 mln. There are now 9.9 mln people in full-time work, up +27,900, and 4.4 mln people in part-time work, down -34,500. Part-time roles make up 31.1% of their employed workforce. Their participation rate slipped to 66.6%. (The updated New Zealand jobless rate for March will be released on May 1. As at December it was 4.0%.)

Global container freight rates fell another -3% last week, making them +53% higher than year-ago levels. Outbound rate from China fell again, but there was some movement up in rates to China even though they remain at very low levels. Bulk cargo rates rose +10% in the past week although they are still only essentially at long-run levels.

The UST 10yr yield is now at 4.65% and up +6 bps from yesterday. 

The price of gold will start today up by +US$11 from this time yesterday at US$2383/oz.

Despite continuing Middle East tensions and uncertainties, oil prices have stayed lower at just under US$82.50/bbl in the US while the international Brent price is down -50 USc at US$86.50/bbl.

The Kiwi dollar starts today at just on 59 USc and a minor -10 bps softer from yesterday. Against the Aussie we are unchanged at 91.9 AUc. Against the euro we are also marginally softer at 55.4 euro cents. That all means our TWI-5 starts today just on 69 and actually little-changed.

The bitcoin price starts today back up at US$63,221 and a +3.1% gain from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.9%.

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 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 our meat exports to China face tough conditions, and not just from competition from excess Aussie lamb supply.

But first, US mortgage applications rose +3.3% last week even as benchmark mortgage interest rates rose to 7.13% plus points and a four month high. (A month ago it was at 6.84%.) But to be fair, the recent shift higher in application levels is still -10% lower than the same weak week a year ago,so last week's rise is hardly significant.

Today's UST 20yr bond auction was another success with the usual excess demand. But just like the mortgage market, the median yield rose again to 4.77%, up from the prior equivalent event a month ago at 4.50%. It seems investors are prepared to accept a lesser rise than they want from home loan rates.

Despite these rising interest rate levels, the Fed's Beige Book survey paints a picture of a moderate and broad expansion in recent activity in the country, consistent with other recent data. They said overall economic activity expanded slightly since late February. Ten out of twelve Districts experienced either slight or modest economic growth, up from eight in the previous report, while the other two reported no changes in activity. They still found an expanding labour market, and the economic outlook among contacts was cautiously optimistic, they reported.

While most blue-chip professional economists think the US economy is expanding at about a +2% rate, the Atlanta Fed's GDPNow model ingesting current rate thinks it is much faster than that, near +3%. It is an expansion that is driving the global economy, including that of its rivals like China.

And Japan, which is on a roll, despite their currency issue angst (in USD terms). Their exports rose by +7.3% in March, following a +7.8% rise in February. It was the fourth straight month of increase for them.

In China, meat prices - especially pork prices - are in an extended slump. Pork accounts for almost two thirds of Chinese meat sales and you will recall prices hit a peak in October 2022. But it has been all downhill since, dropping -40% and putting producers at increased bankruptcy risk. It is a crisis that has national attention, even international attention because feed grain imports are falling. Soybean prices are down -23% from a year ago. It is tough for beef and sheepmeats to compete with pork in China at present.

The British released their March inflation rate overnight and it eased to 3.2% from 3.4% in February. But remained slightly above the market expectation of 3.1%. It was their lowest rate since September 2021, primarily driven by a slowdown in food prices.

The UST 10yr yield is now at 4.59% and down -7 bps from yesterday. 

The price of gold will start today lower by -US$22 from this time yesterday at US$2372/oz.

Despite continuing Middle East tensions and uncertainties, oil prices have dropped a sharpish -US$2.50 to just on US$82.50/bbl in the US while the international Brent price is down at US$87/bbl. Rising US crude stocks as their economy gains energy efficiency is behind the shift lower for oil.

The Kiwi dollar starts today at just over 59.1 USc and back up +30 bps from yesterday. Against the Aussie we are firmish at 91.9 AUc. Against the euro we are also firmish at 55.5 euro cents. That all means our TWI-5 starts today just on 69 and back up +20 bps.

The bitcoin price starts today lower at US$61,348 and down -1.6% from this time yesterday. Volatility over the past 24 hours has been very high at just under +/- 4.0%.

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 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 the US Fed is telling markets rate cuts from them are not coming soon.

First up today, the overnight dairy auction confirmed the recent rises, but didn't add to them in a subdued event. In USD terms overall prices were up +0.1 and in NZD terms up +1.5%. Volumes were seasonally small however. Perhaps of some concern in this data was that foodservice components like butter, cheddar, and mozzarella all fell, by -1.4%, -8.5%, and -3.8% respectively. However, given the overall 'hold', it is unlikely any farmgate payout forecasts will be changed by today's outcomes.

US housing starts and new building consents are in the doldrums as this sector continues to fade. March brought steep drops, almost -15% below February levels for new housing starts, -4.3% lower than year-ago levels. The situation isn't going to get much better because residential building consents also fell, down -4.3% from February although marginally up on March a year ago.

US retail sales rose +4.9% last week in their Redbook tracker, the tenth week in the past 13 that the rise has bested inflation. The retail expansion is embedded now.

US industrial production rose +0.4% from the previous month in March, in line with expectations and following an upwardly revised +0.4% increase in February. A rise in vehicle production was a notable component of the recent up-trend.

Meanwhile, Fed boss Powell was out speaking indicating their policy rate will stay elevated for some time yet. They see no pressing need to cut, or in fact make any changes. 

Meanwhile there was some important Canadian data released overnight. They said consumer inflation rose 2.9% in the year to March with their core rate rising just 2.0%

And Canadian housing starts eased slightly in March from February although they were +13.5% higher than year-ago levels.

In China, electricity production rose just +2.8% on March from a year ago, a huge retreat from the +8.0% rise in December. This is an important background data that should be reflected in China's economic activity (GDP). But Beijing reported Q1-2024 GDP rose +5.3% (up from 5.2% in Q4-2023) and this was despite retail sales only rising +3.1% and national real estate investment falling -9.5% in official data. They say industry expanded +4.5% (and down from the +6.8% rate in December). While we have raised our eyebrows at how they can deliver a credible GDP result just 16 days after the quarter end (no-one else can), few of the major components show expansions at the level of the claimed overall growth, and readers can draw their own judgements on the credibility of the rising 5.3% growth in Q1. Certainly ex-Premier Li Keqiang did.

Meanwhile, China's new home prices dropped by -2.2% in the year to March, faster than the -1.4% fall in February. It was the ninth straight month of decline and the steepest pace since August 2015, despite multiple support measures. For second-hand dwellings none of the 70 largest cities reported any rises, and the average fall over this set is now -5.9% year-on-year.

China continues to struggle with youth unemployment. You will recall they withdrew data that reflected badly on them last year and replaced it with 'better data'. But now an official confirms that even this data, the next update yet to be released, shows a situation that "requires a high degree of attention".

In Europe, the ECB said that they will likely cut rates soon. She was speaking at the IMF's release of their 2024 growth forecast update, and those revealed that despite gloomy predictions, "the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose". They say: "growth this year and next will hold steady at 3.2%, with median headline inflation declining from 2.8% at the end of 2024 to 2.4% at the end of 2025. Most indicators continue to point to a soft landing."

Join us at 10:30am this morning to find out what New Zealand's CPI inflation level came in at in Q1-2024..

Ratings agency Moody's said overnight that New Zealand's sovereign credit rating stays at its current maximum Aaa grade. The outlook is Stable. They are the only ratings agency to assign a triple A to New Zealand. 

The UST 10yr yield is now at 4.66% and up +3 bps from yesterday. 

The price of gold will start today higher by +US$31 from this time yesterday at US$2394/oz.

Despite continuing Middle East tensions and uncertainties, oil prices have changed little at just under US$85/bbl in the US while the international Brent price is also unchanged at US$89.50/bbl.

The Kiwi dollar starts today at just over 58.8 USc and down -30 bps from yesterday and a new five month low. Against the Aussie we are firmish at 91.8 AUc. Against the euro we are down another -20 bps to 55.4 euro cents. That all means our TWI-5 starts today just over 68.8 and down -20 bps and a ten day low.

The bitcoin price starts today lower at US$62,368 and down -2.6% 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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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 that bullish American consumers are likely pushing back the likelihood the US Fed will cut its policy rate any time soon.

Financial markets now price in only two cuts this year, one in September and one in December and far less than the four priced in at the start of the year. And the conviction for these scaled back indications is easing rather fast. The latest pricing suggest the September one might still happen but there in more of a chance the December one will be skipped.

And that is because American retail sales posted impressive results in March, and February's results were revised sharply higher. Those revisions means they were up +2.1% in February from a year ago, up 4.0% in March on the same basis. Consumer spending belies consumer sentiment. What they do is way more positive than what they say.

Meanwhile, overall February business inventories remain in good control, holding their relative level to sales. There is no buildup of tensions on this front.

On this data, the USD rose yet again, bond yields jumped - again - and equity prices packed a sad that they are unlikely to get the rate cuts they were banking on.

It is not all positive however. The New York Fed's local factory survey reported that both new orders and shipments fell significantly in March and unfilled orders continued to shrink. Optimism among these businesses is subdued.

And we should note that carmaker Tesla is cutting 10% of its global workforce, or -14,000 jobs, on stuttering sales and profitability issues. Its shar price fell another -5% in today's trading to be down -35% so far this year, down -59% from its peak on November 5, 2021.

Canada reported manufacturing gains in February from January, and even small gains from year-ago levels. Those gains, tiny as they are, also came out when inflation-adjusted.

In China, a new industry report from a corner of their economy details just how tough it has become to make deals there. Pay at China’s private equity and venture capital firms plunged as much as -40% year-on-year in 2023 as the industry’s downturn showed no signs of abating.

Just for the record, the People's Bank of China had its monthly review of its benchmark One-Year Medium-Term Lending Facility Rate, which is the main rate at which the central bank lends to big commercial banks, and it held it unchanged at 2.5%.

In Japan, machinery orders jumped +7.7% in February from January, reversing the -0.7% fall in January and far exceeding market expectations for just a +0.8% gain. That put them a healthy +9.4% higher than year-ago levels.

In the EU, industrial production rose again in February, making it the third rise in the past four months. Analysts were expecting this type of improvement. But despite this month-on-month rise, they still have some way to go to convert that into year-on-year gains.

We should also note that the rise and rise of the aluminium price over the past eight weeks too a sharp turn higher yesterday, taking it back to June 2022 levels. This shift is largely due to sanctions biting on Russian supplies.

In Australia, employers and unions are close to a national agreement that will allow workers to take double their holiday time off at half their pay. There are still details to be agreed, but the principle for this flexibility is being set.

The UST 10yr yield is now at 4.63% and up +11 bps from yesterday. 

The price of gold will start today higher by +US$20 from this time yesterday at US$2363/oz.

Despite continuing Middle East tensions and uncertainties, oil prices have slipped -50 USc overnight to US$84.50/bbl in the US while the international Brent price is unchanged at US$89.50/bbl.

The Kiwi dollar starts today at just over 59.1 USc and down -20 bps from yesterday and a five month low. Against the Aussie we are also down -20 bps at 91.7 AUc. Against the euro we are down -20 bps too to 55.6 euro cents. That all means our TWI-5 starts today just under 69 and down its own -20 bps but that is only a ten day low.

The bitcoin price starts today marginally firmer at US$64,004 up +0.3% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.8%.

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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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 of an export setback in China that may signal a tougher path for them in the rest of 2024.

But first, this week will kick off the US earnings season which will run for a few weeks until the Q1-2024 results are all in. Bank profits will be early in this set, many key ones coming this week. The Americans will also release retail sales results, and some housing updates.

Retail sales updates will also come from China, along with their Q1-2024 GDP outcome, tomorrow. It is "impressive" they can report that, well before any other major economy. Eyes will be on their foreign direct investment data too, along with housing market activity results for March.

Australia will release its labour market data this week, and CPI inflation data will some from Japan, Canada, and of course New Zealand (on Wednesday).

Over the weekend, China reported its new bank lending levels and they picked up in March from February but the results still disappointed. March is usually a strong month for borrowing because banks tend to extend more credit at the end of each quarter to meet lending targets. But the ¥3.1 tln in new March lending was less than the ¥3.6 tln expected and the ¥3.9 tln in March 2023.

Meanwhile, China's exports tumbled in March. They dropped -7.5% from a year ago, reversing sharply from a +5.6% growth in the earlier month. This was very much worse than market forecasts, highlighting the Middle Kingdom's uneven recovery and perhaps suggesting global demand won't drive growth there. It may also be a sign that de-risking from China because of its terrible recent signals to investors is biting harder and earlier than anticipated.

It is not all difficult news in China. A survey shows that for the first time since the end of 2021, wage growth rates there are picking up again.

India's industrial production rose by +5.7% in February from a year ago, the latest data released over the weekend, but that missed analyst forecasts of +6% growth; however it was a faster expansion than in each of the prior three months. A year ago this expansion was running at 5.8%, so little change on that comparison.

It is only about 200 days until the November US presidential election and nervousness about that outcome is starting to show up in sentiment surveys. Consumers are apprehensive that the golden run could be crashed by the vote, or that things could destabilise ahead of it. The University of Michigan consumer sentiment poll is now reflecting some of that apprehension. However it is only off a 33 month high so we shouldn't make too much of this April dip and it remains more than +20% higher than year-ago levels. Still, the shift was noticed by financial markets. Wall Street dipped in their Friday session, bond yields slipped slightly, and the USD surged against all-comers on the risk-off mood.

The UST 10yr yield is now at 4.52% and unchanged from Saturday's close. A week ago this rate was 4.39%. 

The price of gold will start today lower by -US$6 from this time Saturday at US$2343/oz. We should note that this price hit its all-time high of US$2432 at about 4am Saturday morning. But it has been sharply down after that.

Despite extreme Middle East tensions, oil prices have been surprisingly stable over the weekend and still just on US$85/bbl in the US while the international Brent price is -50 USc lower at US$89.50/bbl. Both levels are about -US$2 less than a week ago. Interestingly, the head of the IEA strongly criticised European energy policy for "two monumental mistakes" - relying on Russian energy, and shifting away from nuclear power.

The Kiwi dollar starts today at just over 59.3 USc and down -10 bps from Saturday. Against the Aussie we are unchanged at 91.9 AUc. Against the euro we are little-changed as well at 55.8 euro cents. That all means our TWI-5 starts today just on 69.2 and similar to Saturday and this time last week.

The bitcoin price starts today sharply lower at US$63,785 and down -5.6% from this time Saturday. At one point it got as low as US$60,908. Volatility over the past 24 hours has also been extreme at just on +/- 5.2%.

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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Finance spokesperson Barbara Edmonds says a re-elected Labour Government would have been willing to expand its planned public sector cuts to protect key programmes. 

The tax lawyer turned MP spoke on Interest.co.nz’s Of Interest podcast about the Coalition’s fiscal policy and her role in rebuilding the Labour Party after its election defeat. 

Part of that project will be rehabilitating the party’s economic credibility after presiding over a massive cost of living crisis. 

Ipsos’ February issues poll showed inflation, or the cost of living, was the number one issue facing New Zealand voters and only 23% saw Labour as being best able to deal with it. 

Only 22% thought it was the best party at “managing the economy” down from 31% a year ago and well below the National Party which has climbed from 42% to 47%.

The parties which have formed the Coalition Government campaigned on bringing down spending and therefore inflation, as well as cutting taxes for some groups. 

Edmonds agreed there was a need to consolidate spending—which had got ahead of revenue during the past three years—but tax cuts were a bad investment. 

Labour’s fiscal plan asked for up to 2% reductions in public sector budgets, while the Coalition Government is asking for up to 7.5%.

She admits her party would have had to make further cuts, given new Treasury forecasts showing tax revenue falling below pre-election forecasts. 

“If we had to make more cuts, or look at different savings, in order to ensure that lunches in schools kept going … we would have had to make those decisions,” she said. 

“I wouldn't apologize for making those types of choices. But what I wouldn't have done is promised really unaffordable tax cuts”.

Edmonds said the limited money available was better invested in infrastructure, schools, healthcare, public and private transport, and climate action.

Which tax? 

Edmonds said she was out meeting with key sector leaders and listening to new ideas she can carry back to Labour's policy council. 

Her role was to guide her colleagues through the process of developing a manifesto for 2026 and informing them about the costs and tradeoffs involved. 

“If I need to say no, I’ll say no. I’m a mum of eight, I know how to say no,” she said. 

“Ultimately, if I believe that it's going to put Labour into a difficult fiscal position going into the next election, I will make those views very clearly known”.

Labour recently voted against a bill put forward by Te Pāti Māori, which would have removed the GST from all food, on the basis that it was too expensive.

But the big policy question is about tax. Political opposition to taxes on capital has been the unslayable dragon of New Zealand politics.

Tax reform is back on the table but Edmonds won’t be drawn on exactly what kind.

She said it was necessary to first ask what the party was trying to achieve and then design a tax model that supported those outcomes.

The country will be facing some serious fiscal challenges by 2060 when superannuation could cost 10% of GDP and healthcare could absorb another 7%.

“2060 looks like ages away, but that’s the next generation. That’s my kids. So, we need to ask, what is the society that we want to leave this generation and how does tax help us get there?” 

The Treasury and the International Monetary Fund have both made recommendations about possible reforms, but Labour would be starting from scratch based on its long-term vision for New Zealand. 

Edmonds said political parties don’t win elections based on tax policy, anyway. 

“You win on committing to a better health system, better education, making sure the vulnerable are supported, and that our businesses are able to grow,” she said.

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.

And today we lead with news today's data releases in the shadow of yesterday's highish US CPI release, and there is some talk of rate cuts elsewhere.

First up in the US, the number of new jobless claims fell last week, consigning the prior week's jump to the 'anomaly' basket. There are now 1.9 mln people still on these benefits, virtually unchanged from the prior week level.

The rise in American producer prices was also less than expected in March, coming in just +2.1% higher than a year ago. A year ago they were rising at a +2.7% rate. Producer price rises are not a major factor in their consumer price inflation.

The USDA lowered its price estimates for most key agricultural commodities, especially grains, as good harvests worldwide more than cover global food demand. Global food prices were already running at 3 year lows. Specifically, the Americans are expected to import more beef and produce less milk.

China's consumer prices edged up a mere +0.1% in March from a year ago and much less that the market forecasts of +0.4%, and after an annual +0.7% rise in February. The extended flirting with deflation is dangerous and highlights the economic challenges they face. Demand is actually quite weak - and this data all comes from the officially approved series.

Meanwhile, China's producer prices shrank by -2.8% in March from the same month a year ago. This was the expected drop and compares to February's drop of -2.7%. It was the 18th straight month of contraction in factory gate prices and the steepest decrease since last November, highlighting the persistence of deflationary forces in their economy. 

In Japan, a lack of intervention in support of the yen after it weakened beyond 152 to the US dollar for the first time since 1990 has financial markets wondering when or even if the Japanese authorities will step in as has been widely expected. There are many market bets that this would have happened by now. But perhaps Tokyo senses that it is more about the rising USD rather than a weak yen. It certainly isn't that weak against most other currencies.

The ECB held its policy interest rates at record-high levels for a fifth consecutive time during its April meeting overnight, at 4.5% (and their deposit rate at 4%), both at 22 year highs. However they did signal that a rate cut could come there soon, perhaps in June.

Last week global container shipping rates eased only marginally, staying +64% higher than year-ago levels. Bulk cargo rates fell -7.5% in the week however and are now back at long run averages.

The UST 10yr yield is now at 4.57% and up a minor +1 bp from yesterday as things settle in at the new higher level. 

The price of gold will start today higher by +US$20 from this time yesterday at US$2355/oz and off its all-time high.

Oil prices have fallen -US$1 to just on US$84.50/bbl in the US while the international Brent price is down a bit less to just on US$89/bbl.

The Kiwi dollar starts today at just over 59.9 USc and little-changed from yesterday. Against the Aussie we are softer at 91.7 AUc. Against the euro we are firmer at 55.9 euro cents. That all means our TWI-5 starts today just on 69.4 and up a minor net +10 bps.

The bitcoin price starts today firmer at US$70,258 and up +1.3% from this time yesterday. Volatility over the past 24 hours has also been modest at just on +/- 1.6%.

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.

And today we lead with news it is all about American inflation today, and the consequences of missing expectations.

The American annual inflation rate picked up slightly for a second straight month, to 3.5% in March, its highest rate highest six months, and well above the 3.2% rate in February. And also higher than the analyst forecasts of a 3.4% rate. Of some concern is that the month-on-month rate stayed up at +0.4% (and almost a 5% annualised rate). Their core rate (sans food and energy) however, stayed down at 3.8% and unchanged, but a dip was expected here.

All up, this shows American inflation is far from beaten. Perhaps the Fed was expecting this because the minutes of its March meeting released today shows them wanting to see progress on the inflation front before they reduce their 5.25% policy rate. They are clearly not there yet as they suspected.

The USD rose sharply on the news, as did benchmark bond yields. The S&P500 fell as rate cut hopes for 2024 fade.

It may be all about the inflation miss today but there were other indicators out as well.

US mortgage applications were barely changed last week from the week prior, holding low to be -23% lower than the year-ago level. No rebound in the American housing markets. Their benchmark fixed 30 year home loan rate moved back up over 7% plus points, a one month high.

There was a rise in American wholesale inventories in February, but to be fair these overall levels in relation to sales activity are entirely 'normal' from an historic perspective.

As expected, the Bank of Canada rate left its policy rate unchanged at 5% in its overnight review. It says it is confident inflation's trend is easing there.

Japanese producer prices rose +0.8% in the year to March, in line with forecasts and marginally higher than in February.

Taiwanese exports surged in March, more than making up for the February hesitation. In fact they delivered their best month since July 2022 and their second best March month ever.

In the South Korean parliamentary elections, the conservative alliance is suffering a big defeat with the Democratic Party alliance heading for a parliamentary majority.

In China, ratings agency Fitch has affirmed their sovereign credit rating as A+, but has shifted its Outlook from Stable to Negative. It cited the growing risks of China's public finance situation as fiscal buffers have eroded, especially from overstretched Local Government Financing Vehicles while Beijing deals with its stuttering property development sector. (Fitch rates New Zealand AA+, Stable. You can see how the various ratings agency codes compare here.)

And staying in China, vehicle sales rose a very impressive +9.9% in March from year-ago levels to almost 2.7 mln units in the month, following a -19.9% slump the month before. Consumption recovered following the Lunar New Year holidays and many carmakers slashed prices which has been effective from a sales perspective. China's EV exports, particularly to Europe, continue apace, but there are growing questions about whether these shipments will find buyers. The flood to there is overwhelming local manufacturers and they are not happy.

The UST 10yr yield is now at 4.56% and up a sharp +19 bps from yesterday on the US CPI result. 

The price of gold will start today lower by -US$13 from this time yesterday at US$2335/oz and off its all-time high.

Oil prices have risen +US$1 to just on US$85.50/bbl in the US while the international Brent price is up a bit less to just on US$89.50/bbl.

The Kiwi dollar starts today at just under 59.8 USc and down -¾c from yesterday all on the USD moves. Against the Aussie we are also +½c firmer at 91.9 AUc. Against the euro we are little-changed at 55.6 euro cents. That all means our TWI-5 starts today just on 69.3 and down -20 bps.

The bitcoin price starts today softer at US$69,348 and up almost +1% 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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