Here's our summary of key economic events overnight that affect New Zealand, with news with some strong American news overnight.
Not only did the US Congress approve the debt-limit compromise, their labour market showed much more strength than expected in May. At a headline level, the US economy created +339,000 jobs in May (seasonally adjusted), compared to market expectations of +190,000 and following an upwardly revised +294,000 in April. Job gains occurred across the board in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.
However, that expansion is drawing more people back into their labour market even faster, so their unemployment rate rose to a 7-month high of 3.7% from 3.4%. And in turn that is dampening the rise in wages. Average hourly earnings for all employees on US private nonfarm payrolls rose by +11 cents, or +0.3%, to $33.44 in May, and this was as expected, after a downwardly revised +0.4% increase in the prior month. They are now +5.0% higher than year-ago levels.
On an actual basis, there are now 161.0 mln people employed, 156.3 mln on company payrolls and 4.7 mln as unincorporated self-employed. Actual payrolls rose +920,000 in the month, the second consecutive month at this level of expansion and a massive 4 mln more people employed in May than the same month a year ago. The US economy is a real jobs machine. (But we should also note that there is a significant shift away from self-employment into employer jobs, so that dampens the overall payroll strength.)
These two events moved markets. Equities cheered the results with Wall Street rising strongly. Bond markets see rising interest rates as the US Treasury scrambles to raise more debt and replenish its run-down cash reserves. Also, the Fed is more likely to keep hiking, given their employment mandate is firmly anchored where they need it.
American May vehicle sales were however a bit of a disappointment. They ran at about a +15 mln annual rate and well down on the +16.1 mln annual rate in April. But the 15 mln rate is what they have had for most of 2023 and this is well above the rate for the past two years. Still the American vehicle market is still much smaller than the Chinese vehicle market that runs at about a 22 mln annual rate.
Global food prices extended their retreat in May. The FAO Food Price Index fell to its lowest since April 2021. Dairy prices fell, meat prices rose within this overall review.
In Japan, there is renewed concern about their demographics. Japan’s fertility rate fell to a record-tying low of 1.26 in 2022, declining for the seventh straight year. The number of newborns last year reached a record low at 770,747, down 40,875 from 2021. It also marks the first time for the number of newborns to fall below 800,000.
In Australia, home loan approvals fell a surprise -2.9% in April, when a solid 2% rise was expected. This follows a strong +5.3% gain in March. Some analysts blamed the timing of Easter, but that was hardly unexpected. More likely it is an overall reflection of the state of the new house building market. The supply of new homes is set to continue to decline under the weight of rising interest rates designed to rein in inflation. They have a lot of work to do on that front.
Meanwhile, their official pay review body raised pay rates for their lowest paid workers by +8.65% and workers under their Award system will get +5.75% effective July 1, 2023. It will apply to about a fifth of the Australian workforce. That probably means the RBA will raise rates again soon. Inflation was running at 6.8% in March.
The UST 10yr yield will start today at 3.70% and up +9 bps from yesterday, although down -11 bps from a week ago. Their key 2-10 yield curve is more inverted at -81 bps. Their 1-5 curve is little-changed at a -142 bps inversion. And their 3 mth-10yr curve is at -153 bps and less inverted. The Australian 10 year bond yield is now at 3.73% and up +13 bps. The China 10 year bond rate is little-changed at 2.73%. And the NZ Government 10 year bond rate is at 4.38% and unchanged from this time yesterday. But it is down -8 bps from a week ago
Wall Street's Friday session was quite positive with the S&P500 up +1.5% for a strong weekly rise of +3.1%. European markets were all higher overnight up +1.5% on the day. Tokyo ended its Friday session up +1.2% on the day. However Hong Kong starred with a stunning +4.0% rise yesterday and Shanghai was up +0.8%. The ASX200 ended its Friday session up +0.5% to end the week little-changed. The NZX50 slipped -0.3% yesterday to book a small +0.3% weekly rise.
The price of gold will start today at US$1951/oz and down -US$26 from yesterday, but up +US$5 in a week.
And oil prices are up +US$1 today from yesterday at just over US$71.50/bbl in the US. The international Brent price is now just on US$76/bbl. These levels are about -US$1 lower than a week ago. We should also [probably note that over the past month, the North American rig count has fallen more than +50, or about -8%, the fastest retreat since 2015 (excluding the pandemic bump). Low prices and plentiful global supply undermines their oil patch investment.
The Kiwi dollar starts today little-changed at 60.6 USc (and little-changed in a week). Against the Aussie we are +½c higher 91.8 AUc. Against the euro we are firmer at 56.6 euro cents. That means the TWI-5 is up +30 bps at 69.5, also little-changed from a week ago.
The bitcoin price is marginally firmer today at US$27,071 which is up a mere +0.4% from this time yesterday. And it is up +1.1% from this time last week. Volatility over the past 24 hours has been modest at just on +/- 1.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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10 Comments
And yet, while the Establishment survey was a blowout beat and the strongest print since January, the Household survey unexpectedly tumbled by the most since April 22 as it plunged by 310K jobs.
One possible reason for the massive divergence: the birth death model "added" 231K jobs in March. These are not actual jobs, but merely an assumption by the BLS as to how many new businesses were created and hired workers based on statistical assumptions. Again, these are not actual jobs. Link
"Meanwhile, their official pay review body raised pay rates for their lowest paid workers by +8.65%"
The Reserve Bank (of Australia) is increasingly likely to raise the cash rate on Tuesday, and a further two times before September, after the largest rise in the minimum wage for decades was handed down on Friday, economists say. (AFR)
The RBNZ appears to have painted itself into a corner. Unless it reacts to this, then it's hard to see the NZ$ holding its current level.
What this says is the RBA doesn't need to worry about a general election... they can keep hiking and hiking, no worries mate. Where as in the land of the long Flat White the Guvna and the Min of Fin share each other's pockets and make sure the other gets elected/selected
For the NZD going DOWN to 47 usd
Bond markets see rising interest rates as the US Treasury scrambles to raise more debt and replenish its run-down cash reserves.
Even Treasury has to act as if the debt ceiling isn't going to move. It issued 3-day cash management bills today (that ended up with a high yield of 6.15% yet a low yield of 4.80%. Huge spread emblematic of the unnecessary stupidity of this nonsense. Link
5-Year Breakeven Inflation Rate
Inflation pressures are disappearing as deflation and recession conditions continue to take over. The Federal Reserve won't be able to keep up its interest rate stance for very long. The 5-year TIPS breakeven was once the epitome of the "inflation" panic, swelling to record highs during March 2022's shock crisis. And while the Fed continues to see inflation everywhere, that same market measure just hit a new multi-year low. Worse, it did so while more and more points to the fact time's up on deflation and recession. Link
Lovely sunny day for World Bicycle Day 🚲
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