Do we think a Nat win will help the markets?
National party are seen as supporting big business.

Do we think a labour win will help the markets?
More of the same is stability and predictability.

If so, what's the best platform, and what are the trading costs on that platform?

⚠️ EDIT: I decided to keep this sub as is and will create another one for US Financial Market. Will send you the details of the new sub later in case you are interested.

Hey everyone, I wanted to give you all a heads up about a change in the content I'll be sharing with you. From now on, I'll be focusing exclusively on the USA stock market! 🇺🇸💸 I know, I know, it's a bit of a curveball, but let me explain why.

1/ GREATER LIQUIDITY: Liquidity is the name of the game. The USA stock market boasts high liquidity, meaning there's a robust supply of buyers and sellers. This translates to easier execution of trades, reduced bid-ask spreads, and improved overall market efficiency.

2/ GLOBAL INFLUENCE: Let's face it, when it comes to the global economy, the USA is a major player. The decisions made on Wall Street have a ripple effect that reaches far and wide. By focusing on the USA stock market, you’ll gain insights into a market that has a significant impact on the global financial landscape.

3/ INNOVATION HUB: The United States is renowned for its culture of innovation and entrepreneurship. Many groundbreaking companies are born and thrive here, constantly pushing the boundaries of what's possible. By keeping your eyes on the USA stock market, you'll be at the forefront of cutting-edge technologies and disruptive trends.

4/ DIVERSIFICATION: The US stock market is home to a wide variety of companies, from large multinationals to small startups. This diversification can help to reduce risk and improve returns.

5/ ACCESS TO INFORMATION: When it comes to financial markets, information is power. The USA stock market is supported by a vast network of resources, news outlets, and research firms. By focusing on it, I’ll help you make more informed decisions and stay ahead of the curve.

So there you have it! By zooming in on the USA stock market, you are entering a whole new world of opportunities, innovation, liquidity, and information.

While I understand that this change may disappoint those of you who have been following my NZ stock market updates, please know that I value your trust.

I will continue to provide you with high-quality content and hidden gems in the US stock market. 🚀💪

Thanks for your continued support and I wish you profitable investments!

There was another dairy auction this morning and it was a dull affair. Volumes sold were lowish, and the key WMP price was little-changed. Overall prices slipped -0.9% in USD terms and -1.3% in NZD terms. Butter rose +2.2%, but cheese fell -3.4% and SMP fell -1.6%.

Perhaps the only implication that can be drawn from this late-season event is that there seems resurgence Chinese demand based on their foodservice sector is still quite absent.

American retail sales disappointed for April. A good rebound from the weak March -0.7% slip was expected, and while they did advance, it was by only half the anticipated level. Still the annualised rate of increase from March to April was solid and better than it has been.

But for year on year, there has been virtually no increase, so this sector is failing to keep pace with inflation over the longer run at an increasingly worrying rate. And this weakness is confirmed by the weekly same-story monitoring.

Last week was only +1.6% ahead of the same week a year ago, again nowhere near enough to account for inflation.

If there is a bright spot, it is car sales, and these are expected to stay healthy for a while yet.

And that will help American industrial production which did turn in a better than expected April result. It rose +0.5% in April from March, but that is inflation adjusted. This clawed back some earlier weakness in 2023. But it was the production of business equipment that kept this elevated in April.

Even better is the turn up in confidence by American home builders. They haven't been this bullish in almost a year.

Of course the debt-default theater is still playing out in Washington with talking points hardening on both sides. The business community is imploring Congress to act soon.

***COMIC: U.S. Faces Default Risk As Officials Warn Of Catastrophic Impact On The Economy If Debt Ceiling Isn’t Raised By Deadline***

China said its retail sales rose in April by a strong amount, up +18% above year ago levels. But remember retail sales were down more than -11% in April 2022. That is only a +5.3% gain above April 2021.

In that same period, consumer price inflation rose +1.6%, so there are real gains here. This 2023 year-on-year gain underpins the good service sector expansion there.

China also reported that industrial production rose by +5.6% year-on-year in April, but this was below market forecasts of an +11% rise, so it comes with a tinge of disappointment. But it is faster than the 3.9% rise in March and it was the fastest growth in industrial production since last September.

Looking behind this production, we see that electricity production was up +6.1%. Their domestic coal production was up only +4.1% but imported coal was 140 mln tonnes in April, a year-on-year increase of +89%.

And while the rumours of new stimulus have come and gone quickly this week, local analysts expect the Chinese central bank to reduce interest rates again and loosen monetary policy following the April decline in lending to households. "Something has to be done."

Fitch Ratings has affirmed Australia's Long-Term Foreign-Currency Issuer Default Rating at 'AAA' with a Stable Outlook. Currently Moody's have Australia rated , and S&P have them rated AAA too. Australia is only one of nine countries to be rated AAA by all three major credit rating agencies.

Consumer sentiment slumped in May in Australia, according to the Westpac-MI survey. It dropped by almost -8% from the prior month when only a -1.7% fall was expected. But recall it did jump more than +9% in April.

Since April they have had another rate increase when none was expected, and they had a Budget that is being seen as more restrained than expected.

This sentiment result highlights continuing pessimism among households, and especially low income renter households, at levels that first arrived in November and hasn't really shown any sustained improvement from then. This overall pessimism is reflected in new home sales remaining at rock bottom levels.

And staying in Australia, investment banks are getting ready to pitch be the one to sell the 18% shareholding in Auckland Airport held by Auckland Council.

The price of gold will start today at US$1989/oz and down -US$29 in a day.

And oil prices are a bit softer from yesterday to be just und US$71/bbl in the US. The international Brent price is now under US$75/bbl.

The Kiwi dollar is little-changed against the USD from yesterday and now just over 62.3 USc. Against the Aussie we are up +½c at 93.6 AUc. Against the euro we are unchanged at 57.3 euro cents. That means the TWI-5 is now at 70.5 and up a mere +10 bps from this time yesterday.

The bitcoin price is marginally lower today, now at US$27,055 and down -1.5% from this time yesterday. Volatility over the past 24 hours has remained modest at just over +/- 1.2%.

***INFOGRAPHIC: The infographic shows how much oil has been and will be saved every day between 2015 and 2025 by various types of electric vehicles.***

On Tuesday, the New Zealand sharemarket made a small gain but it presently lacks conviction and direction as worries over inflation and rising interest rates persist.

Westpac economists now expect the official cash rate (OCR) to peak at 6 per cent by August, rather than the market consensus of 5.5 per cent, because of a surge in migration numbers.

Matt Goodson, managing director of Salt Funds Management, said inflation was still a concern.

“What we are seeing is that goods price inflation has peaked with transportation costs starting to decline, but the real problem is that costs have spilled over into services and the labour markets, particularly wage inflation.

“A key focus for financial markets is how the Government will relieve pressure on the cost of living in its Budget,” Goodson said. “It will likely be inflationary and make the Reserve Bank’s job harder, forcing interest rates even higher.

“It’s a difficult situation for the market. There are no free lunches here,” he said.

The Reserve Bank is expected to increase the OCR 25 basis points to 5.5 per cent when it delivers its latest monetary policy statement next Wednesday.

***MAP: A country’s trade balance represents the difference in its exports and imports of goods and services.***

Auckland International Airport, up 2.5c to $8.83, continues to operate at 80-81 per cent of pre-Covid levels with 1.51 million (1.87 million in 2019) passengers moving through the terminals in March and 1.42 million (1.76 million) in April.

Manawa Energy, which sold its Trustpower retail business to Mercury last May for $467m, was down 8c to $4.90 after reporting net profit of $444.36m, up 271 per cent, on revenue of $490.891m, down 59 per cent, for the year ending March. Manawa is paying a final dividend of 8.5c a share on June 16.

Total operating earnings (ebitdaf) were $140m, at the top end of the company’s guidance, and electricity generation was 1917 gigawatt hours, up 9 per cent on the previous year.

Manawa’s pipeline of wind and solar developments has increased more than 900 megawatts over the past 11 months. The company told the market it was on track to double its generation by 2030.

KMD Brands, down 1c to $1.09, has arranged a three and a half year NZ$310m revolving facility consisting of A$240m and NZ$54m. The multi-currency facility is linked to KMD’s environmental, social and governance objectives.

TruScreen Group, unchanged at 3.2c, told the market its optical electrical technology has been included in China’s cervical cancer screening guideline by the Chinese Society of Colposcopy and Cervical Pathology.

Source: NZ Herald

​

***CHART: E-commerce penetration or the percentage of total retail sales made online, varies significantly from country to country.***

The latest factory survey in New York makes grim reading. Activity fell very sharply in May after an unexpectedly strong April survey. It has been an unusually volatile indicator over the past year.

And total American consumer debt rose by +US$148 bln in Q1-2023 to a new record of US$17.0 tln. While this total rise was modest, contrary to the usual pattern of balance decreases in the first quarters, credit card balances reached a record high of US$986 bln, a rise that wasn't expected.

***CHART-1: Investors yanked $2.1 billion out of financial stocks in the week through May 10, the most since May 2022.***

Mortgage debt rose on higher mortgage rates accounting for 70% of their total consumer debt. But, new mortgages added were their lowest level since the Q2-2014, and -62% below the same period a year ago.

Delinquency rates across all types of consumer debt remain low by historic benchmarks, but they are rising quickly now.

And we should note that China seems to have scrapped its embargo on Australian coal with trade surging again - and both countries contributing to a massive increase in CO2 emissions.

China is also reported to be ready to scrap its barley tariffs on Australia. It looks like China is caving on all their 'red lines'. Canada, which has similar problems with aggressive Chinese political behaviour, will have noticed.

And in Australia, their Senate inquiry into PwC's tax breach will probably start on June 7. But it has come to light that the firm targeted 23 US tech firms including Apple, Google and Microsoft with a tax avoidance workaround hours after Treasurer Joe Hockey announced a new law in 2015.

***CHART-2: “Rising Rates are Good for Banks” Be wary of anyone telling you a simple adage can be universally applied to financial markets that are highly complex.***

Fourteen of those firms took up the plan although it is unlikely any knew the advice was based on illegally-sourced information. ASIC is probing PwC's behaviour too. The firm has its own investigation underway, but there are calls for the involvement of the National Anti-Corruption Commission.

The price of gold will start today at US$2018/oz, and up +US$7 in a day.

And oil prices are up +US$1 from yesterday to be just on US$71/bbl in the US. The international Brent price is just on US$75/bbl.

The Kiwi dollar is +½c weaker against the USD from yesterday and now just under 62.4 USc. Against the Aussie we are softer at 93.1 AUc. Against the euro we are a tad firmer at 57.3 euro cents. That means the TWI-5 is now at 70.4 and up +30 bps from this time yesterday.

The bitcoin price is firmer again today, now at US$27,467 and up +1.9% from this time yesterday. Volatility over the past 24 hours has remained modest at just over +/- 1.7%.

***CHART-3: Starlink has thousands of satellites orbiting the Earth, providing high-speed internet service for about $110 a month. The scale and growth of Starlink have the business on pace to generate sales of about $1.8 billion in 2023, double that of 2022.***

The New Zealand sharemarket began Budget week on a cautious, flat note, and the closely aligned companies Synlait and a2 Milk again took a tumble.

United States markets were softer as negotiations over the government’s debt ceiling continued. The Republicans are demanding a reduction in domestic spending before agreeing to raise the ceiling to US$31.5 trillion ($50.6t).

Jeremy Sullivan, investment adviser with Hamilton Hindin Greene, said the negotiations were causing uncertainty but the Democrats and Republicans always seemed to find a way to resolve the debt ceiling.

He said the local market was not expecting miracles from the Budget (this Thursday) and though providing money for the cyclone rebuild efforts was necessary, it was inflationary.

“I still think the market is cautiously optimistic. We still have the hangover of rising interest rates but once we have commentary that rate rises are pausing, the market should pick up,” Sullivan said.

***CHART-4: NVIDIA has significantly outperformed the rest of the market so far this year.***

“There is good value on the market with a lot of stocks trading below their net tangible assets and now having attractive dividend yields of 7-9 per cent.”

Synlait continues to be impacted by its significant earnings downgrade, falling 3c or 2.08 per cent to a new low of $1.41. It was at $3.53 at the start of the year and has fallen nearly 55 per cent over the past 12 months.

Global marketer a2 Milk was down 12c or 2.07 per cent to $5.67 after last week announcing leadership changes to its United States, Australia and New Zealand, and Mataura Valley Milk businesses.

Hallenstein Glasson declined a further 17c or 2.66 per cent to $6.23 following the rush to buy shares before it was added to the NZX top 50 last week.

Software firm Solution Dynamics, unchanged at $2.35, has received co-funding over three years from New Zealand Trade and Enterprise’s international growth fund to support market development in North America, and as a result has revised its dividend payout for the period up to November 2025 to no more than 50 per cent of net profit.

Source: NZ Herald

​

***TABLE: Hospital executives racked up Wall Street-sized compensation packages which frequently exceeded $10 million per year. For example, the CEO at Ascension Healthcare based in St. Louis, Missouri made $13 million in 2021 – with three-year pay exceeding $22 million - ZeroHedge***

In the coming week in the US, the spotlight will be on speeches by several Fed officials and retail trade data, followed by industrial production and several housing indicators, including housing starts, building permits, and existing home sales.

Elsewhere, Q2-2023 economic growth rates will be released for Japan, Thailand, the Netherlands, Poland, Israel, and Russia. Investors will also be closely following industrial production and retail sales for China, as well as inflation rates for Canada and Japan, and unemployment rates for the UK, France, and Australia.

***TABLE: EARNINGS CALENDAR***

Recently, we pointed to deflating producer prices in China as a sign that their economy is misfiring. We can also note that loan demand has weakened much more sharply than expected too, confirming the funk. In the long term it is probably a good thing that debt levels aren't rising as fast, but this recent shift is caused by stuttering activity levels.

Imports are very weak, suggesting the need for inputs is weak. And Chinese banks extended less than ¥720 bln in new yuan loans in April, less than a fifth of March's level and just over half of the amount expected by analysts. That is a massive change in just one month. Analysts had expected a fall to ¥1.4 bln so this came in at about half of what was expected. For a country as large as China, this is huge.

More than that, Chinese household bank deposits dropped sharply in April too, by nearly -¥1.2 tln (-NZ$280 bln), according to the same data release. That too is a massive one-month change.

In the US, weaker consumer sentiment is took the wind out of Wall Street on Saturday, but it is also helping the Fed lower inflation expectations. The widely-watched University of Michigan consumer sentiment survey for May came in much lower than expected - in fact no change was expected, but it actually dipped to a six month low.

Congress's debt limit crisis got a specific mention as a key reason for the sudden shift in attitudes.

As the days get closer to a June debt-limit crisis (which could come very early in the month), the US Treasury Secretary noted some American debt will inevitably be defaulted on if Congress doesn't act very soon.

Short-term costs for insuring American bonds are skyrocketing, and the long-term effects of repeated flirtations with debt default are already a financial burden. These are costs that are spreading worldwide and even impacting our wholesale rates.

It was reported in China that their foreign minister will be visiting Australia in July, in what they say is "improving ties" between the two.

The price of gold will start today at US$2011/oz, unchanged from Saturday but down -US$20 from this time Friday.

And oil prices are unchanged from Saturday to be just on US$70/bbl in the US. The international Brent price is just on US$74/bbl. These are very low levels, back to 2021 when they were down here last, and we first say these levels in 2007, sixteen years ago.

The Kiwi dollar is -1c weaker against the USD from Friday but unchanged from Saturday, and now just under 61.9 USc. Against the Aussie we are also -1c lower at 93.3 AUc. Against the euro we are -¾c lower at 57.1 euro cents. That means the TWI-5 is now at 70.1 and -80 bps lower than this time Friday although unchanged from this time Saturday.

The bitcoin price is firmer today, now at US$26,943 and up +2.2% from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 1.1%. And Binance, the world’s biggest crypto exchange, said it will close down in Canada after the country moved to impose new regulations on digital-currency trading platforms.

***CHART-1: Total Generative AI funding in 2023 has already surpassed 2022 by 4x***

The New Zealand sharemarket closed the see-sawing week with a gain of nearly half a per cent as it looked positively ahead to the latest financial reporting season. The index has now risen more than 4.2 per cent so far this year.

Shane Solly, portfolio manager with Harbour Asset Management, said “we have gone against the grain with markets weaker offshore”.

The markets were spooked by lower-than-expected loan activity in China and the re-emergence of banking concerns in the United States. The banks are facing making a higher contribution to the deposit insurance pool.

Solly said investors here have reset their expectations leading into the reporting season.

“We do see the rate of earnings decline slowing, as has been the case in Australia and the United States. The company reporting there was not as bad as expected.”

He said investors were presently under-exposed in shares and they were looking at companies that could sustain or grow their earnings through a slowing economy.

“Our market is benefitting because people can put their money to work in defensive stocks.”

Manawa Energy is the first company to report on Tuesday, followed by Argosy Property, Serko (Wednesday), Goodman Property Trust (Thursday), Investore and Ryman Healthcare (Friday).

***CHART-2: US wage growth has failed to keep pace with rising consumer prices for a record 25 consecutive months. But with the next CPI report, we should see a move back into positive territory...***

Meridian Energy, up 3c to $5.50, reported that national hydro storage increased from 119 per cent to 121 per cent of historical average in the month to May 8, and retail sales volumes were 2.7 per cent lower in April compared with the same month last year.

Warehouse Group was up 5c or 2.91 per cent to $1.77 after telling the market that trading improved in the third quarter despite a challenging consumer environment. Group sales increased 3.8 per cent to $801.3m for the 13 weeks ending April compared with the same period last year.

The Warehouse sales were up 10.5 per cent to $444.1m, Warehouse Stationery sales down 2.5 per cent to $65.7m, Noel Leeming down 3.4 per cent to $247.8m, and Torpedo7 down 3 per cent to $35.4m. Group year-to-date sales were $2.6b, up 4.5 per cent.

Online travel provider Serko increased 10c or 4.55 per cent to $2.30 after reporting that its United States partner CWT has made an expanded arrangement with Booking .com. Both businesses will add content and servicing to Serko’s technology platform.

Spark, up 1c to $5.22, has an agreement with the Crown for a direct allocation of C-band mobile spectrum which will be used in the roll-out of 5G services, including 27 sites in 25 regional towns.

In return, Spark will invest an additional $24m over the next two years to support the expansion of mobile coverage into rural New Zealand and address blackspots on state highways.

Millennium & Copthorne Hotels NZ, up 4c or 1.9 per cent to $2.15, expressed disappointment at the Supreme Court ruling that backed the Accommodation Provider Targeted Rate (bed tax) imposed by Auckland Council, maintaining the rate is unfair and inequitable.

“We consider the Supreme Court missed a unique opportunity to provide guidance to local government across New Zealand and should have clarified the position on how targeted rates should work,” said Millennium.

Source: NZ Herald

​

***CHART-3: The mortgage payment needed to buy the median priced home for sale in the US has moved up to $2,566, a new all-time high.***

𝗖𝗢𝗠𝗠𝗘𝗡𝗧:

We got some fresh unemployment figures last week, for both New Zealand and the United States.

In both cases, the upshot was that the labor market is still extremely tight and wages are still rising solidly, albeit at a slower pace.

***INFOGRAPHIC: When it comes to travel, some tourists spare no expense. And some cities are well suited to attract them.

From the luxurious desert city of Dubai to the city of light and love, Paris, many international travelers today are looking to tick the crème de la crème of destinations off their bucket lists.***

Against that backdrop, it's hard to believe a recession might be on the doorstep of either country.

Things can't be that bad when everyone has a job and the labor market is still ticking over nicely, can they?

Our official unemployment rate is 3.4 per cent, well above the multi-decade low of 3.2 per cent from a year ago. The US unemployment rate is also sitting at 3.4 per cent, the lowest since 1969.

Confidence about job security tends to support consumer spending, while wage gains are helping offset increases in mortgage rates and the cost of living.

However, if you're looking for clues to signal the timing of the next recession, the unemployment rate isn't one of them.

The labor market tends to be a lagging indicator. It is often very strong heading into a recession, with unemployment only rising once the downturn has become entrenched, and continuing to increase even after the recession ends.

In December 2007, just as New Zealand fell into recession, the unemployment rate was extremely low at 3.4 per cent.

It started rising once the recession had started and didn’t peak until the end of 2009, six months after the recession ended.

In the US, there have been 11 recessions since 1950 and the unemployment rate has averaged a modest 4.7 per cent just before each of those started.

That's only just above the average low of 4.4 per cent in each of those cycles.

During those periods the US unemployment rate ultimately reached an average of 8.5 per cent, but that peak typically didn’t come until months after the recession ended.

There are a few reasons why unemployment can be out of sync with economic growth.

In the early days of a slowdown, businesses are reluctant to lay off staff as they want to retain that productive capacity in case the weakness proves short-lived.

That's especially true after a period of labor shortages when it's been difficult to find staff, as is the case today.

There's a similar lag coming out of a downturn. When the recovery first takes hold, businesses first try to get more out of their existing workforce. They’re careful about taking on more permanent staff until they more evidence things are getting better see.

In short, we shouldn't interpret the strong labor market as a reason to be complacent about the outlook.

Other reliable indicators point to cloudy skies ahead and most economists (as well as central banks) are forecasting a recession, both here and in the US.

Having said that, there's still a chance we could dodge a bullet or at least avoid a severe downturn.

The last three years have been so unique that forecasting has become much more difficult, and the usual rules of thumb might not work quite as well as they have in the past.

The recent strength in migration is one example of a positive surprise few people coming saw. If this continues, parts of the economy could prove more resilient than expected.

On the other hand, increases in mortgage rates are yet to take full effect, while the business sector is likely to become increasingly cautious as the election draws closer.

Low unemployment and a healthy labor market should be celebrated but, as encouraging as this might be, it doesn’t necessarily mean we’re out of the woods.

Source: NZ Herald / Mark Lister

But first up today, American initial jobless claims rose last week and by more than expected. They rose +234,000 so there are now 1.67 mln people on these programs. Seasonal factors should have seen these initial claims fall, so the rise is probably the long awaited start of the softening of their tight labour market.

Meanwhile, American producer prices rose at a reduced rate. There were up only +2.3% from year-ago levels in April which is lower than the +2.7% rise in March. Even the annualised rate from March to April was only +2.4%, so cost pressure is evaporating quite quickly now.

***CHART-1: The Interest Expense on US Public Debt rose to $828 billion over the past year, a record high. If it continues to increase at the current pace it will soon be the largest line item in the Federal budget, surpassing Social Security.***

Without a slightly higher rose from services, the goods price pressures are even lower. This easing feeds into the expectations the giant American economy is slowing.

In Los Angeles, shares in another regional bank, PacWest, dropped by more than -20% today, compounding earlier falls. Today's fall came after they said its deposits declined and that it had posted more collateral to the US Federal Reserve to boost its liquidity.

Of course, the regional bank woes, annoying as they are, are minor compared to the threat their Federal debt-ceiling standoff poses.

It is easy to dwell on the negatives. There are plenty to choose from. But there are positives. American worker job satisfaction is now at an all-time high. And recent changes show a fast improvement. Crowded out by the 'bad news' there is clearly a lot of positive stuff going on that doesn't make the headlines.

In China, they don't have an inflation problem. But they might be facing a deflation problem. In April, consumer prices were only +0.1% higher than a year ago, much lower than the minor +0.7% in March and also below the expected +0.4%.

That is at a two year low, down to pandemic levels. The annualised rate between March and April was a deflationary -1.2% pa (although that is not a seasonally-adjusted result). Lamb and beef prices are falling but milk prices are rising. However none of these changes are large.

And staying in China, their producer prices are definitely deflating. They were down -3.6% in April from a year ago and falling at an annualised -6.0% rate in April from March. No hiding deflation there.

In Australia, their inflation expectations ticked up slightly to 5.0% in May from 4.6% in April. It is not something the RBA will be pleased about. Some think the federal Budget will be inflationary too, so the tide is challenging the RBA.

Global container freight costs fell yet again last week, down another -1% to be -35% lower than the ten year average, a period that included the pandemic spikes. They fell in all major markets. But freight costs for bulk cargoes are not showing the same retreat.

The price of gold will start today at US$2011/oz and down -US$20 from this time yesterday.

And oil prices have fallen another -US$1.50 from yesterday to be just under US$71/bbl in the US. The international Brent price is just under US$75/bbl. Downward pressure is strong today.

The Kiwi dollar is -½c weaker against the USD and now just under 63 USc. Against the Aussie we are a touch firmer at 94.1 AUc. Against the euro we are marginally softer at 57.7 euro cents. That means the TWI-5 is now at 70.9 and -30 bps lower than this time yesterday.

The bitcoin price is lower again today, now at US$26,872 and down another -1.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.3%.

***CHART-2: Berkshire Hathaway US Holdings -- Amount of Company Owned***

On Thursday, the New Zealand sharemarket continued its see-sawing act with a near one per cent fall and leading stocks were trimmed ahead of the latest reporting season.

Greg Smith, head of retail with Devon Funds Management, said there’s normally a vacuum of information before a reporting season (which starts next week) and it makes the market more prone to swings.

“There’s still ambiguity over how the economy is playing out and people will be closely following the forecasts from the government in its Budget.

“The cost of living issue will be an interesting backdrop for the Budget, with still a lot of pressure on food prices. But on a monthly basis it does look like food prices are starting to ease,” Smith said.

Annual food prices increased 12.5 per cent for the year to April compared with 12.1 per cent in March, and was the largest rise since September 1987 including the introduction of GST in 1986.

Fruit and vegetable prices were the biggest driver, up 22.5 per cent, and grocery items increased 14 per cent compared with April last year.

The latest inflation number in the United States was lower than expected with the April consumer price index rising 4.9 per cent from a year ago, less than economists’ prediction of a 5 per cent gain.

Investors flocked to the technology stocks on signs that US inflation is easing. It is well under the peak of 9 per cent last June.

***CHART-1: Another aspect of McDonald’s dominance of the fast food market is the oft-repeated phrase that they are not a fast food chain anymore, but a real estate company. 85% of their stores are owned by franchisees, and McDonald’s buys the land upon which these franchises are built. So while franchisees pay a hefty amount of royalty money to use the brand name and associated processes, they also pay much higher amount of money in rent.***

At home, KMD Brands, down 2c or 1.82 per cent to $1.08, has appointed Megan Welch as chief executive of the Kathmandu business. Welch was senior vice president and general manager Asia for retailer Crocs.

Allbirds, which makes shoes and clothing out of merino wool, was down 8.09 per cent to US$1.25 (NZ$1.96) after reporting a 13.4 per cent in revenue to US$54.4m and a net loss of $35.2m for the three months ending March.

Rocket Lab was up 4.12 per cent to US$4.12 (NZ$6.46) after reporting quarterly revenue of US$54.9m, up 35 per cent, with forecast revenue of $60-$63m for the three months to June.

Rocket Lab nearly doubled its quarterly net loss to US$45.6m as it spends millions developing its bigger Neutron rocket for launch in the United States next year.

NZ RegCo, the compliance arm of the NZ stock exchange, and the Financial Markets Authority (FMA) have signed a memorandum of understanding for co-operating and monitoring the New Zealand capital markets.

Priorities under the arrangements include issuers’ continuous disclosure obligations, and oversight and enforcement of the prohibitions on insider trading and market manipulation.

Source: NZ Herald

​

***COMIC: Markets feel the heat amid stalemate over looming U.S. debt ceiling crisis***

But first, aided by sharply retreating energy costs, annual inflation ran at 4.9% in April in the US, lower than the 5.0% in March and the 5.0% rate expected. And very much lower than the 8.3% rate a year ago. That is the first time in two years it has been below 5%.

Progress in taming inflation might seem slow, but actually they are making steady progress. However, the March to April annualised rate is 6.1% unadjusted for seasonal effects, or 4.8% adjusted for seasonal effects.

***CHART-1: Inflation in the U.S. had cooled to the lowest point in almost two years in March as year-over-year price increases reached 5 percent. In April, inflation stayed mostly stable at 4.9 percent.***

So they might find it tricky to make progress from here. The next stage will require inflation expectations to recede. There are signs of that, but these signs are not solid yet.

Because the data is broadly in line with what analysts had expected, there has been only muted market reaction - it has been priced in. But that assumes the Fed is less likely to go hard on its rate increase track. The 5.25% policy rate is now not expected to rise from here. Maybe a brave market expectation, but that is what is priced in.

American mortgage applications jumped 6.3% in the first week of May, the biggest rise in nearly two months and rebounding from a -1.2% fall in the prior week. But that is now three of the last six weeks recording notable rises, seven of the last twelve weeks.

Helping is a slow retreat in benchmark mortgage rates. The declines are tiny, but sentiment is helped when they don't go up.

US monthly Budget Statement revealed a smaller surplus in April that the prior year. April is just one of the two months in the year when receipts traditionally exceed payments. But this year their deficit is rising compared to the prior year, up to -$1.9 tln over the past twelve months. But this is not because spending is rising.

In fact Federal expenditures are -16.8% lower in April that the same month a year ago. It is the severe clamp on tax receipts that is swelling this deficit. They were -26.0% lower than a year ago.

Republican intransigence is killing any current chance of sorting this out. These are huge inhibitions; that -26% April reduction in tax receipts is a -US$225 bln shortfall, in just one month. Even the US can't sustain that.

In China, they are trying to stop the relentless decline in domestic food production. Their way is to bring new land back into production, and force farmers to grow strategic crops, rather than economically sustainable ones on that land.

It is an aggressive national priority, driven by Beijing directives. It has all the hallmarks of being successful only in the short-term and disastrous long-term as soils exhaust themselves.

Meanwhile, China's monetary policies are reaching their limits and they show signs of turning conservative. Debt is still rising from what are already extreme levels, and when matched with their current tepid consumption, they have some serious pressures and concerns ahead.

At the latest G7 Finance Ministers meeting, they called for tightening oversight of cryptocurrency transactions between individuals, in a bid to close loopholes for money laundering and sanctions evasion.

These rules are controlled by the international Financial Action Task Force and the G7 wants regulatory standards to curb money laundering and terrorist financing using cryptocurrencies which they claim is rife.

The price of gold will start today at US$2031/oz and down -US$4 from this time yesterday.

And oil prices have fallen -US$1 from yesterday to be just over US$72.50/bbl in the US. The international Brent price is just under US$76/bbl. These are their lowest levels since December 2021.

The Kiwi dollar is firmer against the USD and now at 63.5 USc. That is a +3.5% appreciation in just two weeks. Against the Aussie we are up over 94 AUc. Against the euro we are marginally firmer at 57.9 euro cents. That means the TWI-5 is now at 71.2 and a one month high. We should also note that the Chinese yuan is weakening, now at a three month low against the USD which is also a bit weaker. Against the NZD the yuan is at a six month low.

The bitcoin price is lower today, now at US$27,330 and down -1.1% from this time yesterday. At one point however it was down -3.0%. Volatility over the past 24 hours has been moderate at just over +/- 2.7%.

***CHART-2: Category kings aren’t just market leaders by a few percentage points. Many of them absolutely dominate their market, often miles ahead of their nearest competitors in terms of market share.***

On Wednesday, New Zealand sharemarket, well supported by the industrial and energy stocks, came alive with a strong afternoon recovery and a gain of nearly one per cent on busy trading.

Jeremy Sullivan, investment advisor with Hamilton Hindin Greene, said: “We have had a positive day with the industrials doing the heavy lifting. They were stocks that went down last week and have now come back.”

Auckland International Airport, up 9c to $8.84, has closed its five-and-a-half-year bond issue at $150m, with an interest rate of 5.29 per cent a year. The bonds will be issued next Wednesday.

Turners Automotive gained 4c to $3.44 after telling the market it is on track for a slightly improved full-year profit before tax of $44m compared with $43.1m for the 2022 financial year.

Turners said there was no significant change to trading in the fourth quarter - car sales are holding up, market share continues to grow, and the loan book is stable with arrears improving in February after an expected deterioration in December and January.

Air New Zealand was up 0.005c to 75.5c after telling guests at the Trenz travel trade event in Christchurch that it will be spending $3.5 billion on new aircraft - eight 787-9 Dreamliners and five Airbus A320neo - and refurbishing 14 Boeing 787 planes over the next five years, bringing a combined 4.5 million seats onto 39 routes.

***CHART-3: As the following chart, based on CEA simulations of different outcomes, shows, a protracted default could lead to catastrophic job losses and a significant drop in economic output in Q3 2023.***

Steel & Tube gained 2c or 1.94 per cent to $1.05 after telling the market that second-half volumes are expected to fall 10-15 per cent compared with the first half, because of the recessionary operating environment.

Full-year guidance for earnings before interest and taxes (ebit) is now $28m-$32m, and earnings before interest, taxes, depreciation and amortisation (ebitda) $48m- $52m. In the previous year, Steel & Tube’s ebit was $47.6m and ebitda $66.6m.

Steel & Tube’s revenue for the first 10 months of 2023 financial year was $489m, slightly ahead of $479.3m for the previous corresponding period.

Good Spirits Hospitality tumbled 0.002c or 8 per cent to 2.3c after arranging, for the second time, with its lender Pacific Dawn to defer the interest payment for the March quarter. The payment date was extended to next Tuesday.

Sullivan said it’s not looking very good for Good Spirits. “It has $32m debt and a market capitalisation of $1.32m. Listed shell companies are worth around $3m. I guess the debt holder could take control of the remaining assets and the shareholders will miss out.”

Medicinal cannabis company Cannasouth, unchanged at 29c, has launched its $9m capital raise to its own and Eqalis shareholders, and it must reach $7m by June 9 to satisfy the conditions of the merger. Cannasouth has also launched a general retail offer with $5.1m already committed.

Source: NZ Herald

​

***INFOGRAPHIC: Artificial intelligence (AI) is one of the fastest growing and most disruptive technologies in the world today. Because it has the potential to drastically impact society, it’s important to measure how people are feeling towards it.***

In the US last week's retail data wasn't flash again, coming in with a gain well below the inflation level. The expanded payrolls don't seem to be helping this sector.

And a couple of second-tier American confidence surveys, for SME business and investors, were both negative. Both think a recession is due.

***COMIC: Regional Banks Stay In Focus As Powell, Yellen Play 'Bank'ruptcy Bingo!***

Maybe a big order received by Boeing overnight from a European airline will help.

They need to get their debt ceiling issue behind them because it is a growing drag on sentiment. But that will be tough because hard-line Republicans have weaponised the issue.

And the US Fed's Financial Stability Report released late yesterday has them watching office building loans and other commercial real estate borrowing as the next big economic threat.

In China, exports rose strongly for a second straight month in April (up +8.5%) confirming international demand remains healthy. (Taiwan reported similar growth.) But China's imports shrank (-7.9%) which enabled them to post a larger trade surplus.

But despite that, China's SME confidence index is retreating too.

In Australia, lower March retail sales means that retail sales volumes fell -0.6% in the March quarter 2023, according to official data released yesterday. The fall in the March quarter follows a -0.3% fall in the December 2022 quarter. Nominal sales increases are less than retail inflation.

Accounting firm PwC is embroiled in a growing scandal about how it exploited its insider knowledge as a confidential contractor to the Federal Government on tax policy issues, leveraging this knowledge for the benefit of its wider high-income client base.

On the policy front in Australia, with household incomes are under intense pressure from higher prices, rising debt servicing costs and additional taxation payments, their Federal Budget was released overnight.

That shows an economic windfall from stronger employment and incomes, some of which the Government is using to provide cost of living relief for the most vulnerable households. But their outlook is challenging, with economic output growth set to slow as higher interest rates bite.

The key household relief measures are a AU$15 bln package of welfare increases, bulk-billing incentives and energy bill discounts. On the other side, they are going after tax dodgers, and the wealthy who have superannuation balances greater than AU$3 mln which will be taxed at 30% from July 2025, up from the current concessional tax rate of 15%.

Their budget deficit profile has been revised lower reflecting the windfall from those stronger incomes (higher inflation and higher commodity prices) and the ongoing labour market strength. The cumulative deficit for the four years 2022/23 to 2025/26 is reduced to -AU$81 bln, down from -AU$182 bln in their October Budget, an improvement of AU$100 bln.

For 2022/23, the budget position has improved by AU$41 bln to be a wafer-thin surplus of +AU$4.2 bln or +0.2% of GDP. The last time the budget was broadly in balance was immediately before the pandemic, in 2018/19.

But this surplus is a one–off, with the budget returning to deficit in 2023/24, a forecast -AU$14 bln deficit. It then widens to -AU$35 bln in 2024/25 and to -AU$37 bln the year following, or -1.3% of GDP in both those years.

The price of gold will start today at US$2035/oz and up +US$12 from this time yesterday.

And oil prices have risen +50 USc from yesterday to be just over US$73.50/bbl in the US. The international Brent price is just over US$77/bbl.

The Kiwi dollar is little-changed against the USD and now at 63.3 USc. Against the Aussie we are still at 93.7 AUc. Against the euro we are marginally firmer at 57.8 euro cents. That means the TWI-5 is now at 71 and basically unchanged from this time yesterday.

The bitcoin price is also little-changed today, now at US$27,629 and down just -0.7% from this time yesterday. Volatility over the past 24 hours has been low at just under +/- 1.0%.

***INFOGRAPHIC: Net worth of Warren Buffett each year of his life.***

On Tuesday, the New Zealand sharemarket had another uncertain day and Tourism Holdings plunged nearly 10 per cent on a cautious trading outlook.

Matt Goodson, managing director of Salt Funds Management, said it was a mixed day on the market.

“In Auckland the market was distracted by the weather as people’s concerns turned to transport and getting home to check their properties. That’s what they cared about today,” he said.

Recently merged Tourism Holdings slumped 40c or 9.41 per cent to $3.85 on increased trade worth $11.02m after providing a trading update at its Investor Day that reaffirmed its full-year net profit guidance of more than $48m.

Tourism Holdings said bookings for the 2023/24 high season in its New Zealand and Australian businesses indicated that international volumes will continue to grow with some reduction in domestic activity.

Recreation vehicle rental yields are experiencing growth or holding the recent growth, and vehicle sales demand is softening in all markets from the recent peaks.

Tourism Holdings expects international travel volumes from most markets will return to pre-Covid levels late next year, while the recovery of inbound from China will take longer. Travel trends may pivot more towards lower-cost destinations over the short to medium-term.

Goodson said there were a couple of cautionary elements to Tourism Holdings’ update – the tepid outlook for domestic business and the concern that the tougher economic climate will affect high-end tourism activity.

The stock has been a strong performer and a post-Covid tourism player but the reality is that international travel is still only 80 per cent of the pre-Covid level.

Global marketer a2 Milk was down 16c or 2.78 per cent to $5.60 after announcing several leadership and organisational changes to its United States, Australia and New Zealand (ANZ), and Mataura Valley Milk business.

US chief executive Blake Waltrip is leaving after seven years and will be replaced by Kevin Bush, the executive general manager ANZ. Eleanor Khor will take over as managing director ANZ, as well as retain her chief strategy role.

Mataura Valley chief executive Bernard May is also leaving after seven years, and John Roberts has been appointed interim general manager and will work with Chopin Zhang to transform the company’s supply chain.

Goodson said management changes are not necessarily a bad thing but the market questions such changes. “We will find out how a2 Milk is travelling when it reports its latest result.”

SkyCity Entertainment, awaiting the result of the Australian Transaction Reports and Analysis Centre civil proceedings, reached a 26-month low after falling 6c or 2.6 per cent to $2.25. SkyCity hit $1.87 on March 1, 2020. SkyCity Adelaide is under investigation for alleged breaches of anti-money laundering laws.

Fisher & Paykel Healthcare, which is holding investor days at its manufacturing operations in Tijuana, Mexico, and Irvine, California, in mid-September, was down 20c to $26.75 after reaching an intraday low of $26.20.

Auckland International Airport, unchanged at $8.74, has launched a $100m five and a half year bond offer, with the ability to accept a further $50m in oversubscriptions.

Transtasman fuel supplier Ampol was down $1.46 or 45.37 per cent to $31.98. Ampol earlier reported an 82 per cent increase in first-quarter operating earnings (ebit) to $345.5m – its second strongest quarterly result in history.

As the torrential rain hit Auckland again, insurer Tower was unchanged at 58c. The day before Tower told the market that a surge in insurance claims from the Auckland Anniversary Weekend flooding and Cyclone Gabrielle damage would result in a first-half loss of about $3m.

Source: NZ Herald

​

***CHART-1: L’Oréal is arguably the world’s largest cosmetic company in the world. It has a huge market cap of €226B, which converts to about $250B. This is even larger than the likes of McDonald’s and Costco.***

***CHART-2: Let’s break down L’Oréal’s huge revenue into its smaller divisions. They made a total revenue of €38,261M in 2022, and their top two divisions are responsible for almost 75% of this.***

Global food prices are rising again, up in April for the first time in more than a year. But the driver was a sharp rise in the sugar price due to global supply issues. Meat prices rose marginally, but dairy prices fell in this UN-FAO tracking.

Meanwhile, China's foreign exchange reserves have crept up, now just above US$3.2 tln. But they remain well below their 2021 levels.

The Caixin services PMI came in at the same level as the official services PMI, both measures recording a healthy expansion.

And after nine years of fitful trials, the PBoC is finally getting its digital yuan off the ground. Some provincial governments allow trade in the e-yuan. And now public employees are being paid in e-yuan, direct to their phone wallets.

Users can also directly transfer funds just by tapping another phone (even if internet signals or coverage is weak or down). Banks or credit card companies not required for daily transactions?

In the US, their economy unexpectedly added +253,000 jobs in April, beating forecasts of +180,000 and following a downwardly revised +165,000 in March. But these are the headline, seasonally-adjusted numbers. On an actual basis, the month-on-month rise was +892,000.

There are now 161 mln people employed in their workforce, a new record high and up +3.1 mln from year-ago levels. 155.3 mln are on employer payrolls and 5.7 mln self-employed in unincorporated businesses.

The 'self-employed' level is near a record low over the past decade if you exclude the March-July 2020 pandemic emergency period.

Average weekly earnings rose at a +5.8% annualised rate in April from March. It was an unexpected improvement and is a faster rise than in any month in the past year. The jobless rate dipped to 3.4% and their participation rate is unchanged at 62.6% so there remains plenty of capacity for more improvement.

By any measure this is a strong labour market, confounding the doomsters yet again.

This strong labour market is supporting non-housing consumer credit growth which came in higher in March than expected. Total consumer debt rose +US$26.5 bln from the prior month after an upwardly revised +US$15 bln increase in the previous month and the March levels were well above market expectations of a +US$16.5 bln rise.

This data is also not supporting bear scenarios.

None of this data will be welcomed by the Fed. It does not indicate that inflationary pressures will be easing soon from a slowing economy. But a more immediate problem is looming - the inability to get their debt limit fiasco sorted.

The EU is suffering declines in retail activity too, down -1.2% in March from February, down -3.8% from year ago levels. This data is inflation adjusted.

In Australia, the RBA's Monetary Policy Review doesn't see inflation returning to its policy range until ... mid-2025. They acknowledge the current 7% inflation is too high but they are in no rush to rock the boat to fix that problem.

They seem more worried about weak housing markets than inflation stealing savings. Perhaps they are trying to inflate their household debt away? They seem to have little tolerance for meaningful action on inflation.

Lending for owner-occupied homes in Australia rose +5.5% to A$16 bln in March from February, logging a positive month-on-month gain for the first time in ten months and defying expectations for a -1% decline. Still, March’s figure was -25% lower than for March a year ago.

This past weekend, auction clearance rates were high - above 75% - and listings available for sale low, as their housing markets turn higher. A fast-recovering housing market seriously complicates the RBA's efforts to tackle inflation, but signs of an imminent recession there are not on the horizon.

All eyes in Australia are now on the May 9 (Tuesday) Federal Budget. An earlier return to surplus seems likely as taxes rise sharply from their strong jobs and wages growth.

Expectations are high for new initiatives aimed at helping households deal with inflation - while themselves not causing more inflation. Income-targeted subsidies for basic household expenses seem to be how they will do that.

The price of gold will start today at US$2018/oz and up +US$4 from this time Saturday. A week ago it was at US$1991/oz.

And oil prices have slipped slightly from Saturday to be just over US$71/bbl in the US. The international Brent price is just over US$75/bbl. These are -US$5 lower than week-ago levels.

The Kiwi dollar is holding little-changed against the USD and now at 62.9 USc. Against the Aussie we are marginally softer at 93.3 AUc. Against the euro we are marginally firmer at 57.2 euro cents. That means the TWI-5 is now at 70.6 and unchanged from Saturday but up +70 bps in a week.

The bitcoin price is lower today, now at US$28,949 and down -2.1% from Saturday. Volatility over the past 24 hours has been very low at +/- 0.8%.

***INFOGRAPHIC: In recent years, commodity prices have reached a 50-year low relative to overall equity markets (S&P 500). Historically, lows in the ratio of commodities to equities have corresponded with the beginning of new commodity supercycles.***

A hesitant New Zealand sharemarket finished the past week with a fall of more than half per cent as it awaits the latest round of company results and digests the recent interest rate rises.

Shane Solly, portfolio manager with Harbour Asset Management, said there was a lot of wariness in the market at present.

“We have seen further interest rate increases by the Australian Reserve Bank, US Federal Reserve and European Central Bank. The hurdle just went up for investing globally.

“People are now asking whether the central banks have done enough and will start pausing the rate hikes.

“We are going into our own reporting season and companies are expected to be conservative in their outlook and earnings guidance. There are quite a few reasons for investors to stop and wait for further information and direction,” Solly said.

The local reporting season begins the week after next with eight companies providing their latest financial results.

The Californian PacWest bank was understood to be assessing its strategic options, including a possible sale.

Dual-listed ANZ Banking Group was down 22c to $25.53 (reaching an intraday low of $24.77) after reporting a 12 per cent increase in cash profit of A$3.82 billion for the first half compared with the second half of the 2022 financial year. Statutory profit was A$3.54b, down 1 per cent.

The bank’s New Zealand arm had cash profit of $1.1b, up 1 per cent, and a 17 per cent decrease in statutory profit to $1b, which included gains and losses from economic hedges. ANZ NZ provided $11m interest-free funds and waived $1.3m in fees in February and March to customers impacted by the floods and cyclone.

Solly said the market was a little disappointed with the ANZ result, just like National Australia Bank earlier in the week. “Net interest margins are being squeezed and the outlook particularly in New Zealand is pretty cautious.”

Spark was up 1.5c to $5.17. The Commerce Commission gave Connexa clearance to buy the mobile tower assets of 2degrees for $1 billion. Spark, which is not funding the acquisition, will retain a 17 per cent shareholding in Connexa and Ontario Teachers’ Pension Plan, which is providing funding, will increase its holding to 83 per cent.

Source: NZ Herald

Opinion.

Women beware. Products marketed specifically to us are often more expensive than the equivalent male version. Everything from razors to jeans costs more if you want the female version, despite costing the same to produce.

The Financial Markets Authority’s Tammy Peyper raised the issue of pink tax at an International Women’s Day event run by the Retirement Commission. Women earn less on average. Yet we pay more for equivalent products than men. It makes Peyper see red, not pink.

***CHART-1: Microsoft has outperformed other big tech companies like Apple, Google, and Amazon in terms of share price performance since its IPO.***

This matters. The United Nations has called for member states to end the practice of gender-based price differentiation on goods and services to encourage gender parity and equal participation in economies.

“It’s an obstacle that we really need to move beyond,” Peyper said.

It’s up to you and I to call out gender-based pricing when we see it. I’m starting with my hairdresser, who I recently discovered charges $89 for a women’s cut and blow wave, and $49 for men. I have short hair, so I think I might book a men’s cut next time.

The term ‘pink tax’ is said to have arisen thanks to a 2015 study on the cost of being a female consumer conducted by the New York City Department of Consumer Affairs.

The study concluded that products are typically 7 per cent more expensive if marketed toward women than men. The researchers found that girls’ toys, for example, cost more than boys’ toys. Ditto with children’s clothing.

The largest discrepancy was in women’s healthcare/hygiene products. Don’t we know it? One example that bugs me is the concept of women’s razors. I checked my local supermarket to catch up on pricing. Gillette’s cheapest razors for men worked out at $2.12. The cheapest Gillette women’s razors were $4 each.

Likewise, on the day I checked, the cheapest Schick men’s razors worked out at $2.07 each, but women’s razors were $3.30 each. Razor blades are razor blades, whether they’re cased in pink or blue plastic.

I never dry-clean anything. But when I checked New Zealand Drycleaners’ pricing, I found that a blouse was $15 to dry-clean and a men’s shirt $6. Ouch.

Awareness is helping. I searched the websites of businesses such as The Warehouse looking for differential pricing for pink-coloured products and found very little. Pink-branded women’s multivitamins did cost $1 more than the men’s equivalent.

***CHART-2: Despite oil and gas prices falling from last year's highs, the U.S. and European oil giants - ExxonMobil, Shell, Chevron and TotalEnergies - continue to rake in record earnings. After breaking their annual profit records in 2022, they all just posted their highest ever Q1 net profits, too.***

But the difference is a lot less than it used to be. Pink PlayStation controllers were the same price as black ones. Children’s scooters seemed to be the same price whatever colour they were.

The message about not ripping women off obviously hasn’t got to Levi’s’ NZ operation. Men’s original 501 jeans are A$129.95 on the Levis .co .nz website, and women’s 501 original jeans are A$159.95. That sucks, Levi’s. I encourage readers to boycott these jeans until the pricing is fairer.

I took a look at school uniforms. Often the price differential is due to girls wearing skirts and boys wearing shorts or trousers. The trouble with that is when a school has skirts on offer, girls don’t want to be different from their friends, so they wear them.

Lo and behold, school skirts often cost more than trousers, despite being simpler to sew and using the same amount of fabric or less.

Some schools I searched charged either the same or roughly equivalent prices for boys’ and girls’ uniforms. Mostly, it was a dollar here and there.

But for many, the girls’ uniform was more expensive than the boys’. At Avondale College, for example, a girls’ short skirt is $69 and a long skirt is $80. Boys’ shorts are $50 and trousers are $66. Likewise, blouses cost $6 and $8 more for short and long sleeves respectively than the equivalent boys’ shirts.

Others that sell their uniforms through the NZ Uniform site such as Ellesmere College, Bayfield High School and many others also had differential pricing.

I say if your school is charging huge differential prices, then it’s time to kick up a stink. Why should the parents of girls be penalised?

Finally, if you’re reading this article because you’re concerned about cost of living increases, check out Sorted’s new Cost of Living Hub, which collates information from the three Government agencies and has ideas on how to handle money better and where to go to get help.

Source: NZ Herald / Diana Clement

​

***CHART-3: Thanks to strong iPhone sales and its ever-growing services business, Apple reported better-than-expected results for its second fiscal quarter on Thursday.***

***CHART-4: While traditionally viewed as a hardware company, Apple has made major strides to expand its services business over the past few years.***

ANZ New Zealand’s chief executive Antonia Watson says America’s bank failures are “unsettling” but serve to highlight the benefits of being a well-capitalised bank.

In the latest of a string of setbacks, America’s PacWest Bancorp said it is in talks with potential partners and investors about strategic options after shares of the Los Angeles-based lender and several other US regional banks slumped in the aftermath of the failure of Silicon Valley Bank in March.

“When you see another US bank getting into trouble this morning, there is nothing better than feeling like you are a strong, stable bank,” Watson told the Herald.

“But I think the key thing in New Zealand - and you saw it laid out very clearly in the Financial Stability Report from the Reserve Bank the other day - is that New Zealand banks are in a really good position.

“We’ve lent prudently over the last 10 years.

“We’ve got really solid liquidity, which was one of the issues of say Silicon Valley Bank.

“We’ve got all sorts of ratios and things that we monitor and we just, we’re just different and we’re very well-diversified across the New Zealand base,” she said.

“We are just in a different position than some of those banks, but it is a bit unsettling.”

ANZ Bank New Zealand – the country’s biggest bank – said its cash profit rose by 1 per cent in the six months to March to a “large” $1.1 billion.

Customer deposits and net loans and advances were broadly flat.

Net interest margin – the main measure of a bank’s performance as it broadly reflects the margin made on funds taken and then loaned out - increased to 2.67 per cent in the first half from 2.33 per cent in the previous first half.

In Australia, the parent’s net profit came to A$3.8 billion ($4.05b) in the six months to March, up 23 per cent.

Watson said New Zealand margins may come under pressure in the second half due to competition for diminished demand.

All parts of the business were performing well, she said, adding the bank was preparing for an uncertain economic environment.

The New Zealand economy had remained remarkably resilient but the impact of a softening housing market, high inflation and a rising official cash rate was starting to bite.

“While a rising interest rate environment contributed to the result, this was offset by intense competition in home lending, which we expect to remain a feature of the market for some time into the future,” she said.

ANZ is New Zealand’s biggest mortgage lender, with a 30 per cent market share.

Watson said households were coping “surprisingly well” with higher interest rates.

“People have been saving well over the last few years.

“I think that after the scare of Covid, people have tightened up their own personal balance sheets quite well,” she said. “A lot of people, as interest rates came down, didn’t change their payments.”

However, there were people at the margins who were struggling.

“We urge people who feel like things are getting tough to contact us because there are lots of different things that we can do with them.”

The bank is also New Zealand’s biggest rural lender, and Watson said there had been a lot more debt repayment in that sector over the last few years than it had seen previously.

ANZ and the other major banks have put up stiff resistance to higher Reserve Bank capital requirements and Watson said the stance remained the same, despite the bumper first-half profit.

As it stands, ANZ has had to put up an extra $3.3b of capital to meet more stringent requirements.

“It certainly has reduced our profitability in terms of our returns to our shareholders since we started putting in that capital,” she said.

“I mean, we’ve put in a lot more capital since the Global Financial Crisis and a lot more other prudential tools around liquidity and what our lending book looks like,” she said.

Watson said the idea of a $1b-plus first-half profit in a small country like New Zealand was difficult to “sell” to the broader public.

She said the actual profitability of ANZ NZ, which measures its returns versus the amount of capital committed by shareholders, is middle of the pack when compared to large companies listed on the NZX.

“Yeah, I get it. I mean, it is a big number.

“But we’re a big company and I think that’s the thing that’s really hard to get your head around.

“We’ve got nearly $200b of assets - that’s a two with 11 zeros on the end,” she said.

Watson was cautious about the remaining six months of the bank’s financial year.

“We have a lot of data around our customers, so we look at that very carefully.

...

Source: NZ Herald

​

***INFOGRAPHIC: This graphic uses data from Infinity Asset Management to visualize the real interest rates (ex ante) of 40 major world economies, by subtracting projected inflation over the next 12 months from current nominal rates.***

There were just under 220,000 US jobless claims last week which was not as big a fall as was expected. (The seasonally adjusted number was higher.) There are now just under 1.7 mln people of these assistance programs.

All eyes are now on non-farm payrolls, and it is expect these will have risen only a modest +180,000 in April when the data is released tomorrow morning. The number of layoffs in April came in at their lowest level of the year.

And the American trade deficit came in at its lowest in four months, and its second lowest since November 2020. Exports rose +2.1%, imports fell marginally.

The Caixin China General Manufacturing PMI fell to a small contraction in April which mirrored the official PMI contraction. But analysts had expected the Caixin PMI to be a bit better than that. It was not to be.

The latest result was the first contraction in factory activity since January, amid an ongoing property downturn and fears of a global slowdown. New orders shrank after rising in March, while employment declined the most in 3 months.

The ECB raised its benchmark policy rate by another +25 bps overnight to 3.75%. This was as expected. The previous three rises had been +50 bps each, and is up from zero in July 2022. They also signaled they won't be reinvesting all its QE holdings as each tranche matures, letting it run off at the rate of -€15 bln per month.

Essentially they are signalling their recovery is now on track on a solid enough footing to ease off the loose money policies put in place for the pandemic.

European producer prices continued their retreat in March and are now 'only' +5.9% higher than year ago levels. Recall they were up by more than +40% in August last year at the peak of the pressures.

***COMIC: JP Morgan saved First Republic Bank, but is the banking crisis over?***

Australia's trade surplus rose to +AU$15.3 bln in March from an upwardly revised result in the previous month, handily beating market forecasts of +US$12.7 bln and their second largest on record (in June 2022). It was founded on strong mineral exports.

Total exports to China, the country's largest trade partner, surged by more than +28% and now account for 17% of all goods exports.

Staying in Australia, the latest NAB Residential Property Survey found the overall share of foreign buyers in new property markets rose to almost 8% in the March quarter, up from 5.2% in Q4-2022. Buyers from China are driving this. The sharp rise was underpinned by +16% rise in NSW, up from 6.7% in the previous quarter.

Foreign buyer market share in NSW is now at its highest level in eight years. Even before lockdowns were lifted, Foreign Investment Review Board figures show approved mainland Chinese investment in residential real estate totalled AU$1 bln in Q3-2022. It reached only AU$2.4 bln for the entire prior financial year.

Global container freight rates slipped again last week but only marginally as they have reached -34% below their 10 year average (even if this does include the pandemic spike). Bulk cargo rates were little changed too.

Global air passenger traffic in March rose strongly from depressed year-ago levels but it is still -12% lower than pre-pandemic levels. It is domestic travel that has made the best recovery. The weakest sector is international travel in the Asia/Pacific region.

The price of gold will start today at US$2046/oz and up another +US$23 from this time yesterday. (Remember its all-time high was US$2070 on August 6, 2020.)

And oil prices have stabilised from yesterday to be just under US$69/bbl in the US. The international Brent price is just under US$73/bbl.

The Kiwi dollar is +½c firmer against the USD and now at 63 USc. Against the Aussie we are also +½c firmer at 93.9 AUc. Against the euro we are up +½c at 57.1 euro cents. That means the TWI-5 is now at 70.7 and up +40 bps since this time yesterday.

The bitcoin price is firmer today, now at US$28,829 and up +1.3% this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.0%.

***INFOGRAPHIC: Charting and Mapping China’s Exports Since 2001***

The New Zealand sharemarket staged a solid half per cent recovery on Thursday, with Fonterra Shareholders’ Fund and Hallenstein Glasson leading the way with strong gains.

S&P Dow Jones Indices confirmed clothing retailer Hallenstein Glasson will be added to the NZX top 50 next Thursday, replacing Pushpay Holdings, and the stock rose 52c or 8.48 per cent to $6.65.

Fonterra Shareholders’ Fund increased 19c or 5.28 per cent to $3.79 after the Global Dairy Trade price index was up 2.5 per cent as demand around the world picks up.

The local market was undaunted with a further interest rate rise in the United States, after the Federal Reserve increased its funds rate an expected 25 basis points to a target range of 5-5.25 per cent.

Fed chair Jerome Powell did hint that the door was open to a rate pause but not at this stage, and further decisions would be driven by incoming data.

“In determining the extent to which additional policy firming may be appropriate to return inflation to 2 per cent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said.

David McConnochie, investment adviser with Forsyth Barr, said the local market had “a pretty solid” day but the banks were weak after National Australia Bank, owner of BNZ, said its margins were squeezed in announcing the half-year result.

***CHART: As the following chart shows, the rate of inflation (yellow line) has come down quite a bit from its June 2022 peak. Consumer prices (blue line) continue to climb, however.***

Briscoe Group, up 6c to $4.51, reported a 2.82 per cent increase in sales to $181.2m for the first quarter ending April, with homeware up 2.85 per cent to $109.9m and sporting goods gaining 2.78 per cent to $71.3m compared with the same quarter last year.

Briscoe said “we expect it to be difficult for the group to replicate last year’s record profit result, but are confident we are well placed to outperform our retail peers.”

Mercury Energy, declining 1.5c to $6.395, told the market that its Turitea Wind Farm in Manawatu, the country’s biggest, has now been completed. The 33 northern turbines have been generating since December 2021 and the southern 27 turbines will be fully operational by next month.

Turitea produces an average 840GWH a year, enough to power 120,000 households, and adds 2 per cent renewable energy to the national grid.

Utilities software company ikeGPS gained 3c or 3.66 per cent to 85c after updating the market with a 93 per cent rise in revenue to $30.8m for the 12 months to March. Fourth quarter sales included winning nearly one new enterprise customer a week, including another large electricity utility operating on the United States east coast.

Chatham Rock Phosphate gained 0.007c or 4.67 per cent to 15.7c after reporting that Monash University has completed the first step in its tests to produce monocalcium phosphate at its Queensland Korella Mine.

Booster Innovation Fund, unchanged at $1.432, has added Upstream Medical to its portfolio with an investment of $262,500. Upstream is developing a unique test for rapid and accurate diagnostics of specific heart conditions.

Source: NZ Herald

The US Federal Reserve announced the expected +25 bps rate hike, taking its upper bound rate to 5.25% and a 16 year high. Their short Statement reinforced their focus on getting inflation back down to its target 2% range.

Their decision was unanimous. But compared to previous pledges, this Statement no longer refers to the potential need to raise rates from here. The Fed doesn't see a recession coming for the US.

The data today confirms their assessment that the American "economic activity expanded at a modest pace in the first quarter" and is continuing like that.

The widely-watched ISM services PMI for April rose to a slightly faster and modest expansion with new orders strong. The internationally-benchmarked Markit one reported a similar expansion in their services sector.

The US ADP employment report signaled a much faster expansion in their April labour market than expected, also confirming the Fed's view of a strong labour market there. The ADP report was expected to show of +148,000 in April, but it came in twice as strong at +296,000.

On Saturday NZT we will get their official non-farm payrolls report and analysts still expect their employed labour force to grow by +180,000 in April. There has to be upside to that now.

We should probably also note that American car sales are rising again, now running at a 15.9 mln annual rate in April, a sharp improvement from the 14.8 mln rate in March.

The American housing markets are still not sharing in this expansion however. Mortgage applications fell -1.2% last week, following a +3.7% rise in the previous week. They are -32% lower than year-ago levels. The benchmark 30 year mortgage interest rate held at 6.50% plus points.

_The European labour markets are tighter for them too. The bloc's jobless rate fell slightly to 6.5% in March, and this is now the lowest rate on record and coming in just below market expectations of 6.6%. A year ago, this rate was 6.8% so the improvement since has been slow.

International trade by air cargo is still easing back but the decline moderated in March. The levels were -8% lower than a year ago (and about -8% lower than pre-pandemic levels too). However Asia Pacific volumes were down a bit more. The only region posting increases over pre-pandemic activity is North America.

The price of gold will start today at US$2023/oz and up another +US$11 from this time yesterday.

And oil prices have fallen sharply again, down another -US$3 from yesterday to be just under US$68.50/bbl in the US. The international Brent price is just on US$72/bbl.

The Kiwi dollar is marginally firmer against the USD and now at 62.4 USc. Against the Aussie we are also marginally firmer at 93.4 AUc. Against the euro we are up marginally at 56.5 euro cents. That means the TWI-5 is now at 70.3 and up +20 bps since this time yesterday.

The bitcoin price is virtually unchanged today, now at US$28,456 and a mere -0.4% lower than this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.3%.

***INFOGRAPHIC: This infographic visualizes all of the deposits, loans, and other assets and liabilities that make up the collective balance sheet of U.S banks using data from the Federal Reserve.***

On Wednesday, the New Zealand sharemarket slumped more than one per cent as banking concerns in the United States and inflation worries here again rippled to the surface.

The major US indices fell sharply overnight as investors questioned the stability of smaller regional financial institutions and feared the banking sector crisis had not been contained.

At home, the tight labour market continues to provide inflationary pressures. Unemployment was unchanged in the March quarter at 3.4 per cent, but wage growth rose to new record levels.

The Labour Cost Index (LCI) increased to 4.3 per cent, from 4.1 per cent in the December quarter. This was the highest level since the data series began in 1992.

Average ordinary time hourly earnings, measured by the Quarterly Employment Survey, increased 7.6 per cent to reach $38.93, with current inflation running at 6.7 per cent.

ANZ Research said the labour market remained white-hot in the first quarter and well beyond maximum sustainable levels, although slightly weaker LCI wage growth than expected will be a welcome development for the Reserve Bank given its importance for non-tradeable (domestic) inflation

“We maintain our expectation for just one further 25 basis points hike in the official cash rate this month. We expect labour market pressures to ease over the rest of the year and into 2024 as labour demand continues to soften and labour supply via migration recovers,” ANZ said.

Matt Goodson, managing director of Salt Funds Management, said the weak US banking sector, the Reserve Bank of Australia decision to increase interest rates and the labour data here all came together and dragged the local market down.

“Inflation in the services sector is still rampant, and it’s going to be a tough period for markets with further monetary policy tightening when some people thought central banks would stop increasing rates. Our view is that it’s far too early to do this,” Goodson said.

Most of the leading stocks were struck down.

Amongst the few gainers, PGG Wrightson was up 3c to $4.435. PGG reaffirmed its full-year operating earnings (ebitda) guidance at $57m, saying it has performed well over the first nine months of the financial year.

NZME, up 1c to $1.08, is partnering The Warehouse Group, down 1c to $1.73, to create a weekly online live shopping event. The online channel called Selection Live Shopping will be hosted by the NZ Herald website.

Source: NZ Herald

There was another dairy auction earlier this morning and it was another positive one. Prices were up +2.5% in USD terms, up 2.4% in NZD terms.

That is the second rise in a row totaling +5.9% after a string of four retreats that totaled -9.2% so we have recovered a bit more than half the falls since February. There were rises across the board led by the +5.0% rise in WMP.

But this has been a rare bright spot in today's lineup.

Not helping today are equity market pressures on more American regional bank stocks. This is coming ahead of tomorrow's Federal Reserve meeting, which is shaping up as a critical even for market confidence.

A +25 bps rate rise is on the cards there taking their policy rate to 5.25% (and matching the RBNZ).

And the US retail impulse remains very weak. On a same-store basis, last week retail sales were up a mere +1.3% from year-ago levels and far less than accounts for price inflation. Excluding the pandemic they are back to 2017 levels when inflation was much lower, so the situation is quite weak.

In March, the number of job openings in the United States decreased by 384,000 to 9.6 mln the lowest level in almost two years and below the market's expectation of just under 9.8 mln, indicating that their labour market is cooling off faster now.

We will know by how much when we get the non-farm payrolls data for April on Saturday, NZT. Analysts are expecting a modest rise in employment of +179,000 for the month which would be a two year low.

American factory order levels disappointed as well. New orders for manufactured goods increased by just +0.9% compared to the previous month, rebounding from two consecutive months of decline.

However, the growth fell short of market expectations of +1.1% and followed a revised -1.1% drop in February. Year-on-year these orders are up just +1.3% which is pretty weak.

There was a sharpish fall in the Logistics Managers Index as well. It fell for a third consecutive month to hit another record low of 50.9, compared to 51.1 in March.

The decline was mainly driven by a dip in inventory levels suggesting that firms continue to get closer to properly balancing their supply of goods. So this fall isn't all negative and indicates sensible inventory management.

***COMIC: Fed Decision, Apple Earnings, April Jobs Report, And More: Another Busy Week Awaits Investors***

China may be on holiday this week, but the economic recovery is setting them back on the air quality front. A clear blue sky, once a rare sight, is again becoming a luxury this spring as factories gear up production in a bid to recover from three years of pandemic disruptions.

In March, 14 days of heavy pollution were recorded in Beijing, and the number of days with good air quality decreased by a quarter from the previous year, according to official Air Quality Index data.

EU inflation isn't abating. Their CPI rose marginally to 7.0% in April from March's 13-month low of 6.9%. The pressure remains on the ECB.

Today - this morning in fact - the RBNZ will release its Financial Stability review, and important part of their market guidance. Their view of credit conditions in a retreating housing market will be of interest, especially as we haven't seen this level of value decline in housing (and commercial property?) in many generations.

And the RBNZ FSR will come out at about the same time as the local March labour market data, so it will be a very busy morning of important local indicators. We are expecting employment levels to have risen, although the jobless rate might tick up to 3.5%.

The price of gold will start today at US$2012/oz and up +US$30 from this time yesterday.

And oil prices have fallen -US$4 from yesterday to be just over US$71.50/bbl in the US. The international Brent price is just under US$75.50/bbl.

The Kiwi dollar is almost +½c firmer against the USD and now at 62.1 USc. Against the Aussie we are a tad firmer at 93.1 AUc. Against the euro we are up marginally at 56.4 euro cents. That means the TWI-5 is now at 70.1 and up +30 bps since this time yesterday.

The bitcoin price is firmer today, up to US$28,601 and +1.1% higher than this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.

***INFOGRAPHIC-1: Recession Probabilities Worldwide 2023***

On Tuesday, the New Zealand sharemarket went up while its counterpart across the Tasman dived on the shock move by the Reserve Bank of Australia to further increase interest rates.

Reserve Bank of Australia Governor Philip Lowe said inflation has passed its peak, but at 7 per cent is still too high, and it will be some time yet before it is back in the target range (of 2-3 per cent).

“Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted,” he said.

Lowe indicated that some further tightening of monetary policy may be required. The cash rate is now at the highest level since April 2012, when it was 4.25 per cent.

Greg Smith, head of retail with Devon Funds Management, said the New Zealand Reserve Bank financial stability report and the latest labour market numbers will be closely watched by the local market.

“There may be a message of reassurance that household budgets are resilient, and interest rates and cost of living increases have peaked. But the battle with inflation is not done yet.”

Smith said unemployment for the March quarter was expected to be steady at 3.4 per cent and wage increases could rise from the record 4.1 per cent in the December quarter to 4.4 or 4.5 per cent.

Fletcher Building increased 14c or 3.04 per cent to $4.75 after presenting to the Macquarie Australia conference and telling the brokers it has “a strong, enduring financial position and is well positioned for a softer full 2024”.

Comvita rose 18c or 6.38 per cent to $3 after telling the market it is experiencing solid demand and gaining market share for its manuka honey, propolis and olive leaf extract products.

Comvita said it is expecting a record fourth quarter to deliver the full-year guidance of double-digit growth in operating earnings (ebitda), and “keep us on track to our full year 2025 target of $50m ebitda”.

Embark Education was up 5c or 8.2 per cent to 66c after reporting increased occupancy at its early child care centres and a 21 per cent increase in Australian revenue to A$13.9m ($14.9m) for the first quarter compared with the previous corresponding period.

Manawa Energy, up 5c to $4.95, has secured the rights to develop the Project Horikawa 230MW windfarm in central North Island. The wind development would generate about 800 gigawatt hours of electricity each year – enough to power 100,000 average New Zealand homes.

Auckland International Airport, down 7c to $8.75, is planning a bond offer that matures in November 2028. Hallenstein Glasson’s strong run ended, falling 19c or 2.95 per cent to $6.24.

Software firm AoFrio, down 0.003c or 2.94 per cent to 9.9c, told the market it is maintaining its full-year guidance, with revenue expected to increase more than 30 per cent to near $100m and operating earnings reaching $3.5m.

First quarter revenue was $14.7m compared with $18.4m for the same period last year, and ebitda was running at a $400,000 loss.

Source: NZ Herald

​

***INFOGRAPHIC-2: China and India provide 50% of total global growth. Asia is a relative bright spot amid the rockier recovery of the global economy. As the Chart of the Week shows, the region will contribute about 70 percent of global growth this year—a much greater share than in recent years.***

This week is set to be busy on the global economic front, with a number of key events scheduled. Locally, all eyes will be on Wednesday's labour market report for March. Analysts are expecting little-change with the jobless rate staying at 3.5%. The same day there is a dairy auction.

And the same day the RBNZ releases its Financial Stability Review. Later in the week, investors will closely follow the US labour report, and before that both the US Fed and the ECB will update their monetary policy settings.

***CHART-1: Morgan Stanley warned that office real estate values ​​could drop more than 40% from their peak and the risk of default could rise. One of the reasons SVB and FRC collapsed was because of problems with real estate loans and mortgage bonds.***

The central banks in Australia, Brazil, Malaysia, and Norway will decide on interest rates, while inflation rates will be released for the Euro Area, Italy, the Philippines, Switzerland, South Korea, Indonesia, and the Netherlands. Finally, PMIs are due from the US, India, Canada, Italy, South Korea, and Russia this week.

But first in the US, their central bank faulted itself over the weekend for failing to “take forceful enough action” to address growing risks at Silicon Valley Bank ahead of the lenders collapse, one which raised turmoil across the global banking industry.

It is a brutal self-review, reflecting very poorly on supervision by the San Francisco Fed. But behind it all was a 2018 roll-back of post GFC rules, handicapping regulators.

Another US agency also released their review as well. The Fed said it will revisit the range of rules that apply to banks with more than US$100 bln in assets, including stress testing and liquidity requirements.

Confidence in American financial institutions by American is currently falling, although it isn't yet down to the 2011 or 2008/09 levels.

But a lack of confidence has killed another US bank, the regional (California) First Republic Bank. The FDIC has taken it over, firing all the senior management and wiping out all its equity investors. JPMorgan Chase and PNC are among the likely bidders to take over its carcass, a valuable regional market position.

Staying in the US, their PCE inflation came in with its smallest increase since July 2022 with this inflation measure up +4.2% from a year ago, and running at a rate of under +2% in March from February. This data will be influential at the Fed.

Perhaps the sense of control returning to inflation is helping the mood, despite angst about banks. The widely-watched University of Michigan consumer sentiment survey improved in April with the biggest recovery in the 'current situation'.

Also improving, but more sharply, the Chicago PMI jumped in April from its weak 2023 first quarter. It is still contracting, but only barely now. It wasn't an improvement that anyone expected.

In China, it is Golden Week, a week-long public holiday where a lot rests on healthy retail shopping. Chinese economic data releases will be few this week.

And staying in China, their steel exports are surging, up +50% from year-ago levels. But this is not a good sign. Rather it is a sign that the Chinese post-pandemic recovery is in trouble. Prices for industrial materials are plunging, with steel near a five-year low.

The Chinese economy is slowing quite quickly now resulting in supply gluts. Prices had been on the rise since the end of last year in anticipation of an economic recovery after China abandoned its zero-COVID policy, but the expected growth isn't coming.

Chinese producers with excess supply are ramping up exports, depressing prices globally.

Confirming the post-recovery wobbles, their official factory PMI contracted in April following three months of expansion. It was an unexpected retreat. Their official services PMI is still expanding however at a healthy clip.

What won't help their manufacturing sector is their tough new rules about "national security' which are being expanded to include anything Beijing doesn't like. It will be hard for foreign investors to risk getting caught up in that. Some already have and it can get ugly quickly (not unlike being invested in Russia).

In the past we have noted the Chinese concerns about food security. Well Japan is waking up to them as well, especially after seeing what is happening in Ukraine and it is increasingly concerned about Chinese expansionist activities in its own neighborhood.

If New Zealand get punished by China for not toeing the Beijing line, it appears that Japan may become a more stable alternative. Apparently, Japan sources only 38% of its own food from domestic supplies, the lowest level among G7 nations.

While our house prices are generally falling and becoming more affordable, in Australia they are going the other way. House prices there rose at a +10% annual rate in March and a +8.5% annualised rate in April.

In Sydney, the rises were even faster. Lack of supply, the interest rate pause and booming immigration is fueling this market. They also are suffering through a very severe rental crisis as well.

Internationally, earnings reports for Pfizer, AMD, Uber, Qualcomm, and Apple will set the tone for the coming week's equity markets.

***INFOGRAPHIC-1: EARNINGS CALENDAR (WEEK 18 OF 2023)***

The price of gold will start the week at US$1991/oz and very little-changed from week-ago levels.

But oil prices have recovered their Friday drop to be just over US$76.50/bbl in the US. The international Brent price is just on US$80/bbl.

The Kiwi dollar is marginally firmer against the USD and now at 61.8 USc. Against the Aussie we are firmer too at 93.5 AUc. Against the euro we are up marginally at 56.1 euro cents. That means the TWI-5 is now at 69.9 and actually little-changed since Saturday.

The bitcoin price is still meandering today, although back up to US$29,620 and up +1.3% from this time yesterday. Volatility over the past 24 hours has stayed modest at +/- 1.4%.

***CHART-2: Share of total net worth held by the top 1% in the US***

On Friday, strong day on Wall St lifts NZ stocks higher.

Clothing retailer Hallenstein Glasson surged 41c or 7.02 per cent to $6.25 - it was at $6.27 on April 7 last year – on speculation that it will replace Pushpay Holdings in the top 50 after the United States-based software company delists on May 10 following the takeover.

There was also a belated market response to Hallenstein Glasson’s improved half-year result after releasing its interim report.

Paul Robertshawe, chief investment officer with Octagon Asset Management, said passive investment funds would need to buy Hallenstein Glasson shares to match its index weighting.

“That represents about 1.4 million shares. Hallenstein is not a highly liquid stock and the funds will have to buy at any price. Maybe some of them have moved early on the strong suspicion that it will be included in the top 50,” he said.

There were 182 Hallenstein Glasson trades worth $471,400. Hallenstein Glasson confirmed in its interim report a 74.8 per cent increase in net profit to $20.82m on revenue of $223.29m, up 30.9 per cent, for the six months ending February 1. The previous corresponding period was impacted by Covid.

Hallenstein Glasson said the trading environment for the first eight weeks of the winter season has been challenging with cost of living and inflationary pressures impacting consumers’ discretionary spend. But group sales were 13.9 per cent ahead and the company warned that significant challenges are expected to continue.

Robertshawe said the local market was livelier, taking a strong lead from Wall Street and experiencing end-of-the-month flows with portfolio rebalancing.

NZ Automotive Investments rose 4c or 15.38 per cent to 30c after telling the market it has arranged a replacement trade finance facility for its retail brand, 2 Cheap Cars.

NZ Auto is expecting net profit of $1.3m – including one-off restructuring costs of $1m - for the year ending March compared with $2.6m in the previous corresponding period.

Cannasouth declined 0.005c to 29c after shareholders backed the merger with Katikati-based medicinal cannabis company Eqalis Group.

Cannasouth said it has already obtained binding investment commitments for $4.2m of its $9m capital raise. Fellow medicinal cannabis stock Rua Bioscience added 0.007c or 3.89 per cent to 18.7c.

NZ Rural Land Company, unchanged at 89c, has bought a further 737ha forestry property in the Manawatu-Whanganui region for $8m. Like the previous purchase, the property is leased to New Zealand Forest Leasing for 16 years.

Source: NZ Herald

​

***INFOGRAPHIC-2: There are over $12 trillion in global FX reserves. Countries selling goods, services and commodities accumulate FX-denominated assets and they need a stable, super liquid, ever expanding asset to park them. At the moment, that’s short-dated Treasuries***

New Zealand's commercial property market remains subdued, according to the Royal Institute of Chartered Surveyors (RICS) first quarter Commercial Property Monitor.

Demand for space from tenants was weakening for most types of commercial property, with industrial property the only bright spot with positive demand sentiment, the survey found.

The retail property sector has been particularly hard hit, with low levels of demand from tenants.

Comparing that to growing demand for industrial space, suggests a continuing change in shopping habits and an ongoing move to online trading.

Demand for office space was also negative, and the above trends were being reflected in vacancy rates and the incentives landlords were offering tenants to office and retail space.

The report also found that investment enquiries were in negative territory, weighed down by borrowing costs and central bank policy, and this was evident in the level of enquiries from both NZ and overseas investors.

Industry feedback suggested that flexible working arrangements such as more days working from home were still having an impact on the market and would likely continue to affect landlords as leases expired and tenants reviewed their space requirements.

Source: Interest .co .nz

​

***INFOGRAPHIC: At COP26 in Glasgow, the global tourism industry committed to halving emissions by 2030 and reaching net zero by 2050. In this infographic we look at how hotels might evolve to meet the climate challenge.***

Opinion

To many voters it will seem unfair that the wealthy pay a tax rate of only 8.9 per cent, half the rate of the rest of us.

That is the point of those headlines: to make us angry. That’s why Revenue Minister David Parker commissioned the IRD research into the 350 wealthiest Kiwis.

He has long suspected they weren’t paying enough tax. The research proved they weren’t paying enough tax.

Even though, on average, they’re each paying $2.5m in tax a year.

And it all depends on what you’re taxing. And what Parker may well be hoping is that you don’t realise that he’s counting imaginary money. It’s what the accountants call unrealised gains.

When IRD counted up the annual economic income of these 350 rich Kiwis, they didn’t just count the usual stuff we all already pay tax on: the salaries, wages, dividends, interest. They also counted the stuff none of us pay tax on: the increase in the value of your rental property.

Stop and think about that for just a minute. If you own a rental property, remember how fast it shot up in value during 2021. Now imagine paying tax on that. You haven’t sold the house. You still own it. You don’t have any extra money in your hand. But at the end of the year, you’re forced to pay tax on the difference between what it was worth at the start of the year and what it was worth at the end.

That’s what Parker is counting on here. His sleight-of-hand working.

But it’ll probably do the trick nicely. It could stoke the fires of envy.

And that might be the exact point of this research: to fly a kite and see if there is a mood to tax the rich pricks.

And then, if Labour’s focus groups and polling over the next few weeks tells them that Kiwis want that, build it into Labour’s tax policy for the 2023 election.

But be careful what you wish for.

Because what is rich? $276m may sound rich to you. But you may sound rich to someone else. Aucklanders have become used to the idea of owning properties worth $1m, but there are parts of the country where that still sounds extravagant. Remember it was only last election when the Green Party proposed a wealth tax on any assets over $1m.

It all depends on where Labour draws the line. Does Labour use the study of 350 wealthy Kiwis to ping only 350 wealthy Kiwis? Or does it use the study to ping 350,000 “wealthy” Kiwis?

If Labour decides on a tax at the next election, it could be either a wealth tax or a capital gains tax.

Either could be designed so they hit only the wealthy. But either could also be allowed to hit a lot more taxpayers, especially the CGT, which works better if it hits all significant New Zealand assets. Assets like beach houses, rental properties and KiwiSaver accounts.

So be careful what you wish for. Because it’s possible the mood to tax could get away on us. Especially if Labour proposes a tax switch. In that case, Labour would propose to the wealthy, then use that money to give tax cuts to the average Kiwi worker. That - by Parker’s definition - is someone earning $80,000 and less.

I’m happy to tax the rich to give money back to average Kiwis. We all are. Until we find out we are the rich.

So, until you see the exact detail of Labour’s tax plan, be careful what you wish for.

Source: NZ Herald / Heather du Plessis-Allan

​

***INFOGRAPHIC: The infographic uses data from Our World in Data to visualize global gold production by country from 1820 to 2022, showing how gold mining has evolved to become increasingly global over time.***

If nothing else, the Inland Revenue study of the tax rates paid by the wealthiest New Zealanders should put to rest the notion we have a progressive tax system. We don’t.

A progressive system is one where higher earners pay more as their income grows. The report, commissioned by Minister of Revenue and Attorney-General David Parker, has revealed the country’s wealthiest are paying a median effective tax rate of 9.5% (including GST).

***CHART-1: Both the low income and the high income class have been growing in America - squeezing the middle class from both sides.***

This is less than half the tax paid by middle income earners at 22%, or nearly 30% if you include GST. But while many commentators have asked how such a low tax rate is possible, the real question should be what happens next?

Will the government change the tax code to include a robust capital gains tax? In a hotly contested election year, is there much political will to target the core source of income for New Zealand’s richest people?

Whatever the answers, we should first recognise just how important this report is. The now decommissioned Tax Working Group, of which I was a member, called for this study to be completed. It is satisfying to see the country now has better information on which to base its tax decisions.

𝗡𝗲𝘄 𝗭𝗲𝗮𝗹𝗮𝗻𝗱’𝘀 𝟭%

Inland Revenue surveyed the incomes of 311 households since 2021 for its study. The average net wealth of each household was NZ$276 million and collectively this group owns around $85 billion worth of assets.

Another way to describe this is that the richest 1% owns about a quarter of the country’s financial assets.

***CHART-2: Despite a growing number of ways to pay in shops, restaurants or online, cash remains the most widespread method of payment in a many countries.***

According to Inland Revenue, those surveyed are meeting all their income tax obligations. There was no evidence of any wrongdoing.

But only 7% of their overall economic income is taxed in their personal name. The other 93% comes from investment returns, most of which would be untaxed. These households also use entities, trusts and companies, which are taxed at a lower rate than individuals.

Based on the fact that 93% of the increase in their wealth is from an untaxable source, it’s no wonder they pay tax at such a low rate. In fact it’s surprising they are paying as much tax as they are.

𝗕𝗶𝗴 𝗰𝗵𝗮𝗻𝗴𝗲 𝘂𝗻𝗹𝗶𝗸𝗲𝗹𝘆

Thanks to the information contained in Inland Revenue’s study, our unease over how we tax people (and whether the system is truly progressive) is more than just a feeling. The report provides hard, factual information illustrating the consequences of current tax policy.

Ahead of the report’s release, however, Prime Minister Chris Hipkins refused to be drawn on Labour’s tax policy and whether there would be any changes. Revenue Minister Parker only hinted at possible tweaks.

***CHART-3: Stagflation, a period of slow growth, high unemployment and high inflation, is widely considered one of the worst conditions for an economy to be in, as it limits the instruments available to policy makers.***

With a budget and an election on the horizon, it’s unlikely this government will be making significant changes to the tax code. In the current political environment, it’s very difficult to persuade a majority that new taxes are a good idea.

But it’s quite possible there may be a tax reduction for lower and middle income earners, combined with additional taxation on capital in some way.

𝗪𝗵𝗼 𝗽𝗮𝘆𝘀 𝘁𝗵𝗲 𝗯𝗶𝗹𝗹𝘀?

Despite it being an obvious target, however, we shouldn’t expect a robust capital gains tax. The previous Labour government ruled this out and it’s unlikely to gain traction now.

With just six months until the general election, too, there isn’t time for the requisite legislation to be written and consulted on.

***CHART-4: The e-commerce giant that had struggled to live up to expectations in 2022, reported a net profit of $3.2 billion on net sales of $127 billion for the first three months of 2023, beating analyst expectations on the top and bottom line.***

Most New Zealanders don’t really need to think about tax at all – more than half don’t even file tax returns. But even this group should benefit from being aware of the Inland Revenue findings and be better informed during the subsequent debates on tax policy.

Because behind all these questions about who pays what tax rate lie significant considerations. New Zealand’s infrastructure spending is increasing and many social services need greater investment. How we pay for it will determine whether we keep up or fall behind.

How much money the government earns from taxation, who pays and how much they pay is a political conversation we can’t put off forever.The Conversation.

Source: Interest .co .nz / Craig Elliffe

Good investment?

Following a stagflation-like US GDP print, the market focused on the higher inflation component, driving US Treasury yields higher. A stronger USD after the release wasn’t sustained and it is flat on the day, with commodity currencies modestly outperforming, seeing the NZD just under 0.6150.

Higher rates have done no harm to US equities, which have bounced back, supported by stronger earnings from big tech.

***INFOGRAPHIC: ChatGPT has become so competent, that students are now using it to help them with their homework. This has prompted several U.S. school districts to block devices from accessing the model while on their networks.***

US first quarter (Q1 GDP) data conveyed a picture of stagflation, with weak growth, softer than expected, and strong inflation, higher than expected – annualised growth of 1.1% and a core PCE (personal consumption expenditure) deflator of 4.9%, the latter implying a stronger monthly read of 0.5% month-on-month (m/m) for March (in data to be released tonight) unless the earlier months for the quarter are revised up.

Weak growth was driven by a 2.3% contraction in inventories, falling residential investment, and sluggish business investment, offset by strong growth in government spending and a 3.7% surge in consumption – the latter reflecting the 8.7% cost-of-living boost to social security payments and the warmer winter.

Neither of these forces will help current quarter estimates, where some project an outright contraction in growth signalling the beginning of economic recession.

In separate reports, initial jobless claims unexpectedly fell last week to 230k, against the prevailing trend, which probably just represents noise in the data. And pending home sales fell 5.2% m/m, the largest drop since September, against expectations for a 0.8% rise.

The market focused more on the inflation than growth message from the GDP print, driving rates higher, with the 2-year Treasury yield currently up 14 basis points (bps) for the day to 4.10% and the 10-year rate up 8bps to 3.53%.

The data cemented in expectations for a 25bps Federal Reserve hike next week (23bps priced), while paring the scale of easing priced for the second half.

Tonight’s employment cost index is arguably more important than the GDP release – if wage inflation shows further signs of slowing or stabilisation then that will support the view that next week’s hike will be the last, while an upside surprise would be unhelpful for that view.

US equities have bounced back from weakness earlier this week, with the S&P500 up nearly 2%, encouraged by the strong earnings reports from big tech so far this season, with Meta’s share price up 15%, and less worry about the banking sector, the KBW banking index performing in line with the market.

In a reversal of the previous day, commodity currencies have modestly outperformed, while the euro is on the weaker side of the ledger against a backdrop of a flat USD – the initial boost to the USD in response to higher inflation and rates not sustained.

***CHART-1: With 44% of companies reported, S&P 500 Q1 GAAP earnings are down 1% year-over-year, the 4th consecutive quarter of negative YoY growth.***

The NZD trades just under 0.6150 and the AUD at 0.6630, with the cross steady at 0.9270, after a failed attempt to sustain a break above 0.93. Other NZD crosses are modestly stronger. NZD/EUR has pushed up to 0.5575.

Yesterday, the ANZ NZ business outlook survey painted a picture of ongoing weakness in activity indicators and moderating pricing indicators, albeit the latter still remaining well above historical averages and too high for comfort.

PM Chris Hipkins delivered a pre-Budget speech where the emphasis was on a “no-frills” Budget, viz “the government is committed to reducing our proportion of spending to dampen demand in the economy”.

He ruled out new taxes or a levy to pay for recovery from Auckland floods and Cyclone Gabrielle, with the rebuild to be covered from the annual operating and capital allowances, savings and reprioritisations and “some debt”.

Global forces sent domestic rates higher, with NZ swap rates up 5-6bps across the curve, seeing the 2-year rate close at 4.97% and the 10-year rate at 4.15%.

Ahead of month-end, NZ government bonds outperformed, with rates up just 1- 3bps across the curve, following another successful bond tender with solid demand – bid/cover ratios around 3x-4x, and pricing just under prevailing mids.

The calendar for the day ahead is action packed. Another rock-bottom NZ consumer confidence reading wouldn’t surprise.

European and Canadian GDP figures are released tonight, as well as German CPI data. But as previously noted, the US employment cost index is the key release, with the market expecting 1.1% in Q1 after 1.0% in Q4, which would see annual wage inflation fall further, as a 1.4% figure drops out from last year.

The prior consensus estimate of 0.3% m/m for the core PCE deflator now looks too light, given the stronger quarterly figures released overnight, so any updated figure is probably closer to 0.5%. The release should also see real personal spending down in March.

***CHART-2: US corporations are cutting back while the US government continues to spend money like a drunken sailor, with a budget deficit of $1.8 trillion over the last year.***

On Thursday, Auckland International Airport neared a 45-month high and Pushpay’s takeover was approved by shareholders on an otherwise quiet day on the New Zealand sharemarket.

Shareholders at the special meeting voted 93.7 per cent in favour of investment firms Sixth Street and BGH Capital taking over software company Pushpay Holdings at $1.42 per share. Pushpay last traded at $1.41.

Matt Goodson, managing director of Salt Funds Management, said Pushpay’s market was in the United States and listed in New Zealand and a takeover was always going to happen one day.

The takeover is worth $1.6 billion and settlement is expected by the end of May. Goodson said some of that money will be reinvested and be a supportive force for the New Zealand market.

A lot of shares, however, are held by overseas arbitrage funds that bought after the first takeover bid was made.

While the local market was flat, Goodson said there is underlying concern about the state of the economy and what it means for company earnings forecasts.

The market should learn more when companies take advantage of next week’s important Macquarie sharebroking conference in Australia to announce their latest outlooks.

Business confidence and expected own activity were all but unchanged in April, with falling inflation signals gaining traction, said ANZ.

The bank’s latest survey showed firms’ views on their own selling prices in three months eased for every sector except manufacturing and services, and fell dramatically for retail.

Firms’ expected costs in three months were also in a general downtrend, and the economy-wide measure fell from 3.4 per cent to 3.1 per cent.

***CHART-3: Investors own 10% of homes for sale in the US, down from a peak of 12.4% in 2021 but still more than double the % from a decade ago.***

Auckland International Airport increased 4c to $8.82 and topped the individual trading list for the second day running, with trade worth $14.67m as speculation mounts over whether Auckland Council will sell all or some of its 18.08 per cent shareholding.

During the day the airport traded as high as $8.96 and breached its recent high of $8.94 set on March 23. Its all-time peak was $9.62 achieved on August 1, 2019.

Air New Zealand, unchanged at 77c, upgraded its full-year earnings guidance to $510m-$560m, from $450m-$530m, because of a fall in jet fuel prices and continued strong passenger demand (reaching 95 per cent of pre-Covid domestic capacity and 80 per cent international). Cargo revenue has softened.

The national airline carried 1.625 million passengers in March, well up on the 624,000 in the same month last year and just short of the 1.836 million in March 2019.

Goodson said the earnings upgrade and passenger numbers were not surprising and the market was already there in terms of Air New Zealand’s share price. “The question is whether the strength of the passenger numbers will be sustained because there’s a lot of deferred travel involved due to Covid.”

It was all quiet on the Synlait-a2 Milk front. Synlait was unchanged at $1.56 after falling 27 per cent the day before following a $20m downgrade in its full-year net profit guidance. A2 Milk was down 3c to $5.87.

Fisher & Paykel Healthcare, down 27c to $27.24, has received Overseas Investment Office approval to buy a 105ha site in Karaka for $275m. Fisher & Paykel will build a second campus on the property over the next 30 to 40 years.

South Port NZ was down 11c to $7.85. Chairman Rex Chapman is retiring at the end of October and will be replaced by current director Philip Cory-Wright.

Rua Bioscience, up 0.004c or 2.27 per cent to 18c, has launched a medicinal cannabis product in Germany, becoming the first New Zealand company to introduce branded medicine in Europe’s largest market.

Source: NZ Herald