Economy Watch

Sam Bankman-Fried was a nerdy billionaire and rockstar of the crypto industry, living a lavish lifestyle in the Bahamas, with celebrities advertising his cryptocurrency exchange FTX as he gained influence in Washington DC.

Then it all went wrong. FTX collapsed, leaving an US$8 billion hole and lots of angry customers. FTX was placed in Chapter 11 bankruptcy protection. Worse for Bankman-Fried, he was charged with fraud and extradited to the United States.

He's alleged to have used billions of dollars of FTX customer funds for his personal use, to make investments and millions of dollars of political contributions to federal political candidates and committees, and to repay billions of dollars in loans owed by Alameda Research, a cryptocurrency trading company he also founded.

After being released on a US$250 million bond and placed under house arrest, Bankman-Fried, who has proclaimed his innocence, is now living at his parents' house in California ahead of a trial. 

Speaking in the Of Interest podcast, San Francisco-based Bloomberg crypto, venture capital and startups reporter Hannah Miller, says if you wanted to make a technology company founder as a science experiment, it would be Bankman-Fried. 

Miller hosts, writes and reports on a six-part podcast from Bloomberg and Wondery called Spellcaster: The Fall of Sam Bankman-Fried.

"He [Bankman-Fried] basically grew up on the campus of Stanford University. The big joke is that if you wanted to create the perfect tech founder, he's it. He grew up in Silicon Valley. He grew up in the heart of the tech industry, he was right down the road from some of the people who would actually go on to invest in FTX as venture capitalists," Miller says.

In the Of Interest podcast she talks about how Bankman-Fried embraced effective altruism in his student days at the Massachusetts Institute of Technology, early working experience at Wall Street trading firm Jane Street Capital, and launch of Alameda Research and arbitrage trading of bitcoin between the US and Japan.

Then in 2019 FTX was founded and questions emerged over whether it and Alameda Research were really the separate companies Bankman-Fried claimed they were.

Miller talks about encountering Caroline Ellison, Alameda Research's co-CEO, who had been in a romantic relationship with Bankman-Fried at a mutual friend's bachelorette weekend. She also talks about how big and high profile FTX was at its height, how Bankman-Fried sought to be seen as "the good guy of crypto" in Washington DC, and the company's demise.

"I try to focus on the fact that there are people who trusted their life savings with FTX and now have no idea if they're ever going to get that money back. I think you have to look at the consequences here," Miller says.

"This is someone who really got a lot of people to trust him. And the fact of the matter is FTX is bankrupt and there are people with way more questions than answers."

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

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 hotter-than-expected American jobs data raises the likelihood of higher interest rates for longer.

But first, US jobless claims rose sharply and by +251,000 last week to leave 1.74 mln people on these benefits, the highest it has been since February.

However American job cuts levels shrank sharply as tech layoffs eased.

And the ADP employment report, the pre-cursor to tomorrow's US non-farm payrolls report on their June labour market, came in with a surprisingly strong jobs surge. It was enough to move financial markets sharply. They reported almost +500,000 new jobs added in June. The gains were widespread in both the factory and services sector, noticeably in SMEs (but not in large firms), and nationwide (except in the South). Pay rates rose again, but just not as fast as previously but for those changing jobs they were still up an impressive +11%.

Analysts are still only pencilling in a non-farm payroll rise of +225,000 for June so there is plenty of upside potential here if the ADP data is any indication.

We should probably also note that the May JOLTS report said job openings retreated in the month to 9.8 mln. But we have moved a long way on from then.

Also unexpectedly more positive was the wide-watched ISM services PMI. It unexpectedly jumped to an index level of 53.9 in June, pointing to the strongest growth in the services sector in four months, and well above 50.3 in May and forecasts of 51.

Not so positive were American mortgage application levels last week. They fell rather sharply ending a string of four weeks of gains. Perhaps that was because their benchmark fixed 30 year interest rate rose to 6.81% plus points. They are now back at levels approaching the recent November highs.

Moving north, Canada posted a surprise goods trade deficit in May as imports surged but exports went in the opposite direction.

Across the Pacific, Australia recorded another large trade surplus for both goods and services in May, +AU$10.4 bln and a level that is being normalised for them. Over the past 12 months that surplus is now just under +AU$150 bln. That's equivalent to 5.9% of their AU$2.5 tln nominal GDP.

In China, their heat wave is burning in substantial damage, especially in northern China. They have had the highest number of scorching days on record in the first half of this year. Cities like Beijing saw temperatures soaring above 41oC, threatening lives and crops. Beijing reported 15 days in June when the average temperature exceeded 35oC. This makes last month the hottest June on record. In the southwest of China, the story is different with damaging seasonal flooding.

In Germany, we should note that factory orders there turned up sharply in June; some calling it a boom. It certainly is an impressive turnaround for them after some lackluster months.

Global air travel is booming again. Strong growth continued in May as airline load factors rose back to 2019 levels. But Asia/Pacific volumes are still dragging the chain even though the May yar-on-year data was encouraging.

Meanwhile, container shipping rates fell yet again last week although some outbound China rates seem to have bottomed out. Bulk cargo rates fell as well, basically giving up all of their recent gains.

The UST 10yr yield will start today at 4.05% and up another sharp +11 bps from yesterday. That is its highest since early March and approaching its November highs.

The price of gold will start today at US$1910/oz and down -US$9 from yesterday to a four month low.

But oil prices are down -50 USc at just over US$71.50/bbl in the US. The international Brent price is firmer too at just under US$76.50/bbl.

The Kiwi dollar starts today just over 61.5 USc and down nearly -½c from this time yesterday. Against the Aussie we are firm at 92.9 AUc. Against the euro we are nearly -½c lower at 56.6 euro cents. That means the TWI-5 is now just under 70.2, and down -30 bps on the day.

The bitcoin price has fallen marginally from this time yesterday and now is at US$30,268 which is a -0.8% fall. Volatility over the past 24 hours has been moderate at just under +/- 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 on Monday.

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 long bond yields are rising sharply again.

But first, US factory orders rose in May by the same rate as in April, but that disappointed analysts who were expecting a better improvement. But at least it was a rise, countering the PMI signals. Orders for aircraft and electronic goods underpinned this result. Construction spending rose as well with another solid result even if it too was marginally less than expected.

And new vehicle sales rose in the June quarter on improving supply and strong demand, signaling that rising interest rates have not yet had a meaningful impact on purchases.

The US logistics PMI fell again and for a fifth straight month. Primarily it was a shedding of inventories that drove this fall, suggesting that American businesses are carefully managing stocks and not weighed down by excesses. When a solid upturn in new orders arrives, it could be turbocharged by lower-than normal stock levels.

But there are no signs an upturn is about to be driven by rising retail sales. The weekly Redbook survey of same-store sales has it still bouncing along at minor gains and not enough to account for inflation.

The Fed FOMC minutes of their June 15 meeting were released overnight revealing that all officials agreed that, with inflation still well above their 2% goal and the labour market remaining very tight, maintaining a restrictive stance for monetary policy is still the right course and almost all thought they should raise their benchmark rate further this year. There was disagreement about when the next rise should come however. The release of these minutes brought a yawn from equity and currency markets but set US bond yields noticeably higher, especially at the long end. That will no doubt echo in our markets later today.

In China, the extreme temperatures in the north are continuing, and the floods in the south are not.

But China's yuan slide seems to have ended for now, although it is yet to gain back any of its recent devaluation. Maybe it is bravado, but their central bank has approved some commentary saying they have plenty of tools to stem any further backsliding.

Shanghai is skiting about its minimum wage rise, the highest in China. That will take the Shanghai minimum to NZ$138.50 per week (NZ$3.46/hour). Yes, China has its billionaires but most are not.

There were a set of key services PMIs released overnight. But the important US services PMI will not be released until tonight. And in that sector we should note that major freight company UPS is facing the threat of a very rare strike. In China, their Caixin survey confirmed a slowdown in their expansion to a level matching their lower official version as well.

In Japan their services sector expanded faster running with good solid gains.

In India their services sector is expanding faster too and at an impressive rate.

In the EU the expansion of their services sector continues but at a much more modest rate and slipping to a 5 month low.

Meanwhile, producer prices fell in the EU in May. It was their first month of decline since December 2020, driven by a significant -13% retreat in energy costs. The cap on Russian oil and gas imports seems to be working well for Europe, not well for Russia.

Air cargo demand, a key indicator of global trade, remained weak in May. In the Asia/Pacific region was as weak as anywhere else.

The UST 10yr yield will start today at 3.94% and up a sharp +8 bps from yesterday. That is its highest since early March. 

The price of gold will start today at US$1919/oz and down -US$6 from yesterday.

But oil prices are up +US$1 at just over US$72/bbl in the US. The international Brent price is firmer too at just under US$77/bbl.

The Kiwi dollar starts today just under 61.9 USc and little-changed from this time yesterday. Against the Aussie we are up another +¼c at 92.8 AUc. Against the euro we are marginally higher at 57 euro cents. That means the TWI-5 is now just under 70.5, our highest since late May and no net change on the day.

The bitcoin price has fallen marginally from this time yesterday and now is at US$30,520 which is a -1.2% fall. Volatility over the past 24 hours has been modest too at just under +/- 1.2%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.

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 earth hit a heat record yesterday.

But first, it’s a public holiday in the US, so financial markets will notice much lower volumes.

Second, there was another dairy auction this morning and lower price levels are setting in again. Prices fell a sharpish -3.3%, much more than the -1% expected, driven by a -10% dive in the butter price and a -6% retreat in the SMP price. Volumes sold were up on the prior auction two weeks ago but actually came in less than the advertised 'minimums'.

Milk supply is strongish in most producers and the local season is ending with higher supply volumes. So perhaps buyers realise in future the supply situation will be flush. A year ago this same even fell -4.1% and was followed by a set of following events that fell at similar levels. Let's hope that doesn't happen like that again this year. And it also doesn't help that the NZD is rising, because prices in local currency fell -3.9%.

In Canada, their internationally-benchmarked factory PMI fell to a slightly steeper contraction in June, marking the third month of contraction since the start of the year and tracking the bearish momentum in the Americas and Europe.

China said that it will impose new export restrictions on two materials crucial to making semiconductors and other electronic components after August 1, 2023, in an escalating technology trade standoff with the Americans. China is currently a key source for these materials, but not the only one. And actions like this play into the hands of those warning China is instinctively an unreliable trade partner. "De-risking" makes more sense when they do this sort of thing. Pressing one of the most innovative industries in the world just encourages innovation to be less reliant on China.

And staying in China, there are more reports of falling bank account interest rates as authorities move to make holding cash less attractive in the hope these savers will spend more of it.

In Australia, their central bank has kept its cash rate unchanged at 4.10% saying, although further increases might be needed to rein in inflation, it wants more time to assess the state of the economy, the economic outlook and associated risks. Financial markets had expected an increase but not with any great conviction. But they are all aware that inflation is running at 5.6% in the year to May, still far higher than their target.

Meanwhile, we should note that yesterday was the hottest day on record, globally. It might go unremarked elsewhere and it certainly isn't anything to celebrate. But with the seasonal peak usually in late July, yesterday's record seems unlikely to last long.

The UST 10yr yield will start today at 3.86% and unchanged from yesterday. Their key 2-10 yield curve inversion is also unchanged at -108 bps. But in between it briefly almost reached -110 and a 42 year record. 

The price of gold will start today at US$1925/oz and up +US$4 from yesterday.

And oil prices are up +US$1 at just over US$71/bbl in the US. The international Brent price is firmer too at just over US$76/bbl.

The Kiwi dollar starts today just under 62 USc and up almost +½c this time yesterday. Against the Aussie we are up almost +½c as well at 92.5 AUc. Against the euro we are similarly higher at 56.9 euro cents. That means the TWI-5 is now at 70.4 and up +50 bps and our highest since late May.

The bitcoin price has fallen from this time yesterday and now is at US$30,889 which is a minor -0.4% fall. Volatility over the past 24 hours has been low however at just under +/- 0.9%.

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.

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 commodity prices are weak today as global factory activity slows. And some banks have run out of places to invest their excess cash holdings.

But first in the US there were two factory PMIs out for June today and this sector is back at its lowest level since May 2020. The widely-watched ISM one was quite downbeat. It contracted again and by more than expected as softness continues and optimism about the second half of 2023 is sharply weakening. In this survey new orders contracted less in June than in May, but they still contracted. In the internationally-benchmarked Markit factory PMI, the story was similar but new orders fell in that one although to be fair they were recorded higher in May and the decline in June is to a level that matches the ISM version. In both, price and cost pressures are easing quickly now.

American petrol prices are quite stable again ahead of their holidays and summer driving season. 

And we should note that reinsurers raised premium costs for their cover by +50% in many cases on July 1, reflecting the claims cost of climate-related events.

Janet Yellen isn't on holiday. She is off to China later this week to keep up efforts to try and normalise relations between the two superpowers.

In China, again less negative than the official measure, the Caixin factory PMI for China did not contract in the way the official survey suggested. But it isn't really an expansion either. But this 'good news' is enough to help Kong Kong and Shanghai equities maintain their rise, although the yuan remains under severe pressure.

Factory PMIs in Taiwan and South Korea are contracting although not at faster fates than previously in 2023. In Japan they are like China, neither expanding nor contracting.

India is the stand-out factory hub at present, recording surging demand and clearly benefiting from 'de-risking' strategies away from China.

Hong Kong retail sales were virtually unchanged in May from April in data released overnight. But because the base was so low, they have recorded very large year-on-year gains, especially in luxury goods. A year ago, their tourism sector was in the doldrums.

The EU factory PMIs are weak with demand and production sinking further in June.

In Singapore, their largest bank, DBS, said that deposits are flowing in much faster than it can invest them so it has had to lay off more than NZ$36 bln to Singapore's central bank, the Monetary Authority of Singapore, as it is “not finding enough opportunities to put the money to work.” They aren't the only ones worrying about future prospects for Singapore. Elsewhere, surplus liquidity is building up in Japan as well.

Australian building permits rose sharply in May, driven by the volatile apartment-building sector. The total number of dwellings approved rose +20.6% following a -6.8% decrease in April. By far the largest rises were in Sydney.

In Australia it is a different story with house prices turning up, according to CoreLogic analysis. The cumulative +4.1% lift since February comes after a -9.7% decline over the previous ten months. The pace of Annual price declines moderated from -6.8% in the year to May to -4.8% in the year to June. The recent turn up is consistent with the new lending data.

And staying in Australia, one of their largest pension funds has slashed the value of its local office property assets by as much as -20% as commercial property woes hit them as one of Australia's biggest landlords. The Australian Retirement Trust, which manages NZ$260 bln of assets, said its local office buildings have seen “material downward movements ranging between 5% to 20%”.

Later today, the RBA will review its cash rate target which is presently at 4.10%. Markets expect a +25 bps rise to 4.35% given they have a strong labour market and housing distortions are featuring again. They also have inflation at 5.6% which is well higher than they want. Higher interest rates won't help those commercial property valuations.

The UST 10yr yield will start today at 3.86% and up +2 bps from yesterday. 

The price of gold will start today at US$1921/oz and little-changed from yesterday.

And oil prices are a little softer at just under US$70/bbl in the US. The international Brent price is a tad softer too at just on US$74.50/bbl. Low oil prices are worrying producers. Saudi Arabia said that it would extend a cut in oil production of one million barrels a day that it announced in June through at least August, trying to push up what officials view as stubbornly weak oil prices. The Saudis were joined by Russia.

The Kiwi dollar starts today at 61.5 USc and only marginally firmer than this time yesterday. Against the Aussie we are little-changed at 92.1 AUc. Against the euro we are similarly little-changed at 56.4 euro cents. That means the TWI-5 is now at 69.9 and fractionally firmer.

The bitcoin price has risen from this time yesterday and now is at US$31,011 which is a +1.7% rise and still above NZ$50,000. Volatility over the past 24 hours has been modest however at just under +/- 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.

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 climate changes are making the reading of recent economic signals harder because the whole context is changing.

In the week ahead, the non-farm payrolls report and FOMC Minutes will be taking the headlines in the United States. This will be followed by the release of ISM Manufacturing and Services PMI, factory orders, and foreign trade data.

And there will be PMI survey results released for India, South Korea, and Canada among others. We will get inflation rates for Indonesia, Switzerland, South Korea, the Philippines, Turkey, and Mexico. And on Tuesday the RBA interest rate decision.

We should note that the iconic American holiday, July 4, is on a Tuesday local time, Wednesday NZT. Financial markets will be open Monday local time. But it is unlikely that volumes will be high because many people will make it an extended long weekend. In fact, through the end of August and until Labor Day in the US, summer holiday-taking is pervasive. But remember, Americans usually don't have more than two or three weeks annual vacation from their job.

But it isn't much fun this year in many places, especially in the West, as a heat wave grips these regions.

Globally, weather events are going to be driving economic events as extremes become more common. That makes thinking about the past as an indicator of the future less a valuable benchmark. New situations that require adaption can create opportunities as well as unknowable risks. And the big one is the demographic risks. The pressures for livable conditions then creates political risks. Yes, it will likely be that New Zealand is in a relatively favourable position but that won't make it 'better than the past' - just less-worse. We have suffered unbearable wet conditions in many parts of the country. We could be in for a sharp and an uncomfortable dry period over the rest of 2023. Adaption is going to require fast planning and preparation.

In northern China, the rolling heat wave is extending and will be around until at least Tuesday with temperatures near or above 40oC. The south of the country is getting heavy rains. Both are raising risks for harvests.

China released its official PMIs for June on Friday and they make concerning reading. Factory activity stayed in a mild contraction but it is now three months in a row it has contracted. Services is expanding but at their slowest pace in six months. Still, neither is severe, only lackluster. The Caixin versions will come on Monday. The private Caixin versions have recently tended to reflect slightly better results over the past few months.

The Chinese yuan is now at its weakest since the end of 2022 and if it beaches that, it will be its weakest since 2007. The PBoC seems likely to intervene soon.

Japanese industrial production which has been soft-to-flat for the prior six months, took a sharp turn higher in May, confirming other signals that Japan seems to have turned a corner. Some of that might have been inventory build, but most components seem to be going in the right way. None of this is helping their currency however and central bank intervention seems likely there too as the yen devaluation gathers steam as well.

The US released its May PCE inflation result over the weekend and it was another small dip, up +3.8% from a year ago and lower than the April +4.3% rise. If there is a hesitation it is that the pace was above that in the April-to-May period. But markets cheered the result and equities surged. But bond markets aren't signaling they think the Fed will relax just yet, especially as it signaled two more rate hikes at least in 2023. Markets have a July 26 +25 bps fully priced in now.

We should also note that while American personal incomes keep growing at an inflation-equalling pace and better than expected, consumer spending did dip in May according to this update and that was less than expected.

Meanwhile heartland manufacturing in the Midwest Chicago region is suffering with their PMI retreating faster than expected. It isn't a positive signal. It did come in in June less-worse than the May but the recovery was timid and much less than anticipated.

However, the final June University of Michigan survey of consumer sentiment is rising and by more than expected, capping four straight months of gains. But to be fair it is still well below its long term average of positivity. It looks good because the base of a year ago was so weak.

The first estimates of the US non-farm payrolls are coming through and the expectation is that they will rise another +223,000 to keep the labour force-led expansion going. But remember these forecasts greatly underestimated the gains in May which came in at +339,000.

A Canadian business outlook survey run by their central bank found businesses reporting that their indicators of domestic demand have moved up compared with a year ago as uncertainty about the path of future interest rates and their concerns of a recession fade.

Inflation in the EU came in at 5.5% in June, down from 6.1% in May, so they are on the right track even if more progress needs to be seen by the ECB before they ease back on their policy interest rate hikes. Food prices are the main pressure point now. Energy prices are the key restraining factor.

But German retail sales can't hold on to inflation, with a shrinkage on a volume/real basis. But at least their labour market is still hanging in there (just).

In Australia, as we signaled recently, the latest Commonwealth government accounts are revealing surging surpluses. They reported a monster +AU$24 bln surplus in May alone. Their financial year ends in June. Now they expect the full year surplus to be far bigger than the +AU$4.2 billion forecast contained in the budget seven weeks ago. Probably an all-time record. And big surpluses are now projected for the 2023/24 year as well. It is raining revenue for the Australian government as both company and personal taxes rose to new highs.

But it may not last. China’s leading steel makers warned on Friday that their industry faces a challenging second half as demand disappoints, profitability lags and pressure to cut costs mounts in the world’s top producer. Most of their steel is made from Australian and Brazilian iron ore.

And we should note that 22 key countries are supporting the proposal at the IMO for a climate-change levy on ships that use fossil fuels. But overnight China started a campaign to encourage developing countries to boycott the effort.

The UST 10yr yield will start today at 3.84% and unchanged from Saturday. Their key 2-10 yield curve inversion is holding at -105 bps. Their 1-5 curve is little-changed at -127 bps. But their 3 mth-10yr curve is less inverted, now by -135 bps. The Australian 10 year bond yield is now at 4.01% and up +1 bp. The China 10 year bond rate is unchanged at 2.69%. And the NZ Government 10 year bond rate is down -1 bp at 4.67% but still near its highest since early March 2023. Recall a week ago it was at 4.60%.

The price of gold will start today at US$1920/oz and unchanged from Saturday, and a week ago.

And oil prices are unchanged too and still at just over US$70.50/bbl in the US. The international Brent price is a tad softer at just on US$75/bbl.

The Kiwi dollar starts today at 61.4 USc and unchanged from Saturday. Against the Aussie we are still at 92.2 AUc. Against the euro we are similarly little-changed at 56.3 euro cents. That means the TWI-5 is still at 69.8 and exactly where we were a week ago.

The bitcoin price has risen slightly from this time Saturday and now is at US$30,495 which is a +0.5% rise although it did manage to finish June above NZ$50,000 for the first time since April 2022. Volatility over the past 24 hours has been low at just under +/- 0.8%.

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.

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 bad-news bears can't catch a break at present.

Overnight US data was quite good again, and is seen underpinning more US Fed rate hikes with the next one on July 27 NZT and just before their summer holidays.

US jobless claims came in lower than expected with a decrease of -18,000 from the prior week. Seasonally-adjusted it was higher than that, but still lower than expected. There are now 1.68 mln people on these benefits

The third and 'final' calculation of Q1-2023 GDP recorded an expansion of +2.0% which was much better than either of the two prior estimates. Analysts had expected a +1.4% 'final' result. Higher consumer spending was essentially behind this result

But what really got analyst attention was the higher inflation rate in their PCE version for April. A +4.4% annual rate, and an annualised rate higher than this between March and April would not have been unnoticed by Fed policymakers. And because they had already signaled more hikes in speeches earlier in the week, markets are now bracing for a robust response. Clearly inflation's impulse isn't beaten yet and probably won't be while their labour market is expanding so quickly. The June non-far, payrolls data will come out a week tomorrow and will very closely watched. Bets are being placed now that it will be another impressive increase.

There is one set of negative data today and one not expected; pending home sales in May fell when a rise was anticipated. It wasn't a minor shrinkage either. Perhaps we were wrong to suggest their housing market was showing signs of bottoming out and turning up. Their economy is expanding solidly, but it isn't due to their housing markets.

Meanwhile, the 23 largest American banks passed the US Fed’s annual stress test, and clearing a key hurdle for returning billions of dollars to investors. According to these results, those banks showed they can withstand a severe global recession and related real estate market turmoil and will be strong enough to come out intact. 

In Canada, the April data shows that their recent 2023 weakness in weekly earnings is behind them, with wages rising back at the same rate it did in 2022. That isn't spectacular, but the recent drag seem behind them now.

In China, their fast expanding EV car industry is facing a reckoning, one their country doesn't need. Many smaller EV manufacturers are either going bust or being swallowed up in a big consolidation drive. But the real problem is that production and capacity is far bigger than demand. Prices are dropping fast, and prices for components like batteries are falling fast too. This is [art of a general decline, and the yuan continues to weaken. In theory that should make exports from, China more price-competitive.

Japanese retail sales rose +5.7% in May from a year ago and handily higher than inflation's effect, so a real gain. We should note that this expansion has been running higher than +5% for every month in 2023, and that is the longest streak at that level since the late 1970s!

Germany reported a small rise in CPI inflation for May, running at 6.4% and up from 6.1% in April. This was more than expected but the April-to-May rate slipped to about half that.

The Swedish central bank hiked their policy rate by +25 bps to 3.75%, a seventh consecutive increase, and pushing Swedish borrowing costs to fresh post-2008-highs. But is was the increase markets expected. CPI inflation there was running at a heady +9.7% in May and is only seen coming down relatively slowly.

Yesterday, Australia reported their retail sales grew +4.2% in May from the same month a year ago, but given that CPI inflation is running there at 5.6%, those gains are not 'real. A growing level of special 'sales events' did boost the April-to-May increase however.

Saying in Australia, there were 432,000 job vacancies in May, down -9,000 from February, according to new figures from the Australian Bureau of Statistics. 

Overall global containerised freight rates fell sharply yet again last week and are now -80% lower than a year ago and almost back to the 2019 pre-pandemic average. Outbound rates from China is where the main weakness is. Bulk cargo rates were a bit softer last week but are essentially holding on to their recent minor recovery.

The UST 10yr yield will start today up sharply at 3.85% and a jump of +13 bps from yesterday and the highest since mid-March. 

The price of gold will start today at US$1908/oz and that's down -US$4 from yesterday.

And oil prices are little-changed from yesterday to now be just over US$69.50/bbl in the US. The international Brent price is still just under US$74.50/bbl.

The Kiwi dollar starts today at 60.7 USc and little-changed from yesterday. Against the Aussie we have slipped again to 91.6 AUc. Against the euro we are little-changed at 55.8 euro cents. That means the TWI-5 has fallen to 69.2 and down another -20 bps since this time yesterday and a four week low all of a sudden.

The bitcoin price has risen from this time yesterday and now is at US$30,533 which is a +1.3% gain and it looks like it will finish the month above NZ$50,000 for the first time since April 2022. Volatility over the past 24 hours has remained modest at just over +/- 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.

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 world is waiting to see what direction inflation will take from here and how fast it will move.

But first, American mortgage applications rose again as another indication the US housing market is coming back to life. The rise from the prior week was minor, and this was despite virtually no change in the benchmark mortgage interest rates. It was the third consecutive rise, but to be fair it really isn't out of the lifeless pattern it has followed since late 2022. But at least it has halted the fall they had between the recent peak in late 2020 and late 2022.

There was other American data released overnight and none of it was market-moving. Both wholesale and retail inventories were little-changed in May. And the May merchandise trade balance came in slightly lower.

Later this morning the US Fed will release the results of its annual stress tests, their health check for a group of large American banks. It is expected to show they have ample capital to weather any fresh turmoil in the banking sector. Each time they do this, they update the stresses they are being subject to, so it isn't strictly an "improvement from last time" exercise.

In Europe at the ECB Forum on Central Banking, Fed boss Powell said at least two more rate hikes are on the table this year because of the very strong labour market in the US. At the same talkfest, ECB President Lagarde and Bank of England Governor Bailey both said they expect further tightening measures to cool down inflation too.

In China, more indications of their economic funk. Profits earned by their industrial firms dropped by -19% from a year earlier in the first five months of 2023, on weak demand, and margin pressures. The decline followed a -21% plunge in the prior period and a 4% fall in 2022, with profits shrinking in both state-owned firms and the private sector.

The scale of early mortgage repayments in China is becoming clearer and showing why it is having a broad economic impact. Fitch reports early mortgage repayments climbed to a five-year high in China at the end of the first quarter and they also see a new record high for Q2-2023. The rate of early repayments was 14.5% in Q1-2023, up from 8.5% in Q4-2022, their report showed.

In South Korea, consumer sentiment continued to improve with another good gain in June.

In March in Australia, CPI inflation was running at 7.0% pa. But yesterday they released their May inflation indicator which has it easing to 5.6% pa. That's a 13 month low. The RBA next reviews its cash rate target on Tuesday next week, so the chance of a hold then might have gone up. But then again 5.6% is still way above their target and the RBA doesn't always do what the markets think the signals are. Besides, some are noticing a rise in inflation expectations.

The UST 10yr yield will start today at 3.72% and down -5 bps and in a yoyo pattern recently. 

The price of gold will start today at US$1912/oz and that's unchanged from yesterday.

And oil prices are +US$1.50 higher from yesterday to now be just under US$69.50/bbl in the US. The international Brent price is now just under US$74.50/bbl. An unexpected run down of US crude oil stocks might be the key reason here for this firming.

The Kiwi dollar starts today at 60.8 USc and down almost -1c from yesterday and back to where it was two weeks ago. Against the Aussie we have slipped slightly to 92 AUc. Against the euro we are -½c softer at 55.7 euro cents. That means the TWI-5 has fallen to 69.4 and down -60 bps since this time yesterday.

The bitcoin price has slipped from this time yesterday and now is at US$30,144 which is a -1.9% retreat. Volatility over the past 24 hours has remained modest at just under +/- 1.2%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.

The world needs to move to a new economic system where growth is replaced as the ultimate goal by meeting human needs within ecological limits, argues Gaya Herrington.

Speaking in the Of Interest podcastHerrington explains how working at the Dutch central bank, De Nederlandsche Bank, during the Global Financial Crisis led to her realising how interconnected things were.

When subsequently studying sustainability at Harvard University, she decided to revisit the famous 1972 book by a group of Massachusetts Institute of Technology (MIT) researchers, The Limits to Growth for her thesis.

As Herrington, now Vice President for ESG Research at Schneider Electric, puts it, the book; "indicated that our peak welfare levels would be around now, globally. And we would have a choice to maintain it or go down." Her research found we are most closely aligned today with The Limits to Growth authors' business as usual scenario.

"Growing forever on a finite planet is simply not an option," she says.

We don't have a lot of time but do have an opportunity to align ourselves with something like the stabilised world scenario from the MIT team.

How would we do this, what will it mean and can we do it? A new economic system must, first and foremost, replace growth as the ultimate goal with something else.

"I think it should be meeting human needs within ecological limits. That doesn't mean you're anti-growth. If growth then contributes to human wellbeing and can do that with a low environmental impact, we'll still do it and if not we won't bother," says Herrington.

One way or another, she argues, growth will halt.

In the podcast she also talks about what she believes the "very loaded word collapse" would mean, what the world might be like if The Limits to Growth warning had been heeded in the 70s, what system dynamics is, the difference between needs and wants and how this has become muddied, what the role of technology, finance and agriculture could be in a new economic system, how vested interests including billionaires have to give things up, why she sees a significant role for credit unions, whether human nature could allow such change, and whether we will actually make the change.

"I don't know because we've seen in history that it can go either way. I do think that we'll stop growing one way or another. I think what we're seeing already is a destabilisation of the system," Herrington says.

You can find the original The Limits to Growth book here, Herrington's Update to The Limits to Growth here, and her book Five Insights for Avoiding Global Collapse here.

(Note, this podcast was recorded via Zoom. While Gaya comes across clearly, for some reason the start of my questions sometimes doesn't. Apologies for this, we're not sure why it happened).

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

Kia ora,

Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news of a raft of strong first-tier US data. Their expansion cycle isn't done yet.

New orders for American factory durable goods jumped +1.7% month-on-month in May, following an upwardly revised +1.2% rise in April and easily beating market expectations of a -1% decline. This is the third straight month of rising durable goods orders, led by a surge in orders for aircraft and motor vehicles. Year-on-year they are up +7.3% so a real, after inflation gain now. Capital goods order growth was strong, up +15%. Boardrooms have been bullish, it seems.

Sales of new houses were very strong in May too, up a full +20% from year ago levels, although to be fair they weren't flash a year ago. These rises matches rising recent building consent data.

Not so strong was last week's retail sales data. On a same-store basis it rose only +0.5% from year-ago levels and much lower than inflations bite.

But that hasn't held back rising consumer sentiment. The latest survey from the widely-watched Conference Board was noticeably brighter, rising to its highest since January 2022. It was led by younger people, under 35 years.

Yesterday we noted the dour Texas factory survey. But that isn't indicative of all regions. Today, the Richmond Fed's factory survey came in much less negative in June than May, driven by a better new order situation. But to be fair, output levels remained lowish in June.

The Dallas Fed released its services survey for June today, and the troubling factory survey there is matched by a downbeat one in their services and retail sectors.

In Canada, falling energy costs allowed their May CPI inflation to fall to 3.4% from 4.4% in the previous month, the lowest since June 2021 but it was in line with market expectations. And the result was broadly in line with their central bank’s baseline scenario that inflation will slow to the 3% mark by the next month or two. By getting close to that official assumption it does raise doubts about the rate hikes left in its tightening campaign.

In China, with a spreading ban on commentary Beijing doesn't like, including of respected commentators on the independent Caixin platform, it is becoming harder to discern what is going on in their economy. But the bans reinforce the idea that the trends are not positive.

In Europe, ECB President Lagarde was talking overnight and said they will raise rates again in July, and they have much more work to to to tame inflation. She noted that wage growth is now pressuring inflation, and they are entering a second stage - first energy push, now wage-push - and this set to linger for some time. This was an unusually direct set of signals from Lagarde. And the IMF is also worried about how long it is taking Europe to get on top of its inflation problem.

In Australia, despite their slowdown, their government surplus is now expected to rise, according to their Treasurer. The budget surplus for this financial year will be “significantly” higher than the AU$4+ bln forecast last month, thanks to revenue from their still expanding labour market, sustained high prices for commodities, and company profits. Again, it is hard to have a recession when the jobless rate is low.

The UST 10yr yield will start today at 3.77% and up +5 bps. 

The price of gold will start today at US$1912/oz and that's down -US$13/oz from yesterday.

And oil prices are -US$2 lower from yesterday to now be just under US$68/bbl in the US. The international Brent price is now just under US$72.50/bbl.

The Kiwi dollar starts today at 61.7 USc and unchanged from yesterday. Against the Aussie we are little-changed at 92.3 AUc. Against the euro we are softer at 56.3 euro cents. That means the TWI-5 is now just on 70 and down a mere -10 bps since this time yesterday.

The bitcoin price has risen from this time yesterday and now is at US$30,722 which is a +2.1% gain. Volatility over the past 24 hours has remained modest at just under +/- 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 tomorrow.