New Zealand’s interest rates are linked to the worlds interest rates by a very simple formula. A formula that the Reserve Bank just hates, as it limits its ability to raise interest rates.
“If our interest rates are considerably higher than the rest of the world then people from around the rest of the world want to invest in our banks. (And why not! if you can borrow money in your country for less than 1% and invest it in a safe place like NZ for 3-4% why wouldn’t you? Its making money on other peoples money . 300% return from day one.). Therefore if our interest rates are high, overseas people want to buy NZ dollars. This pushes our dollar value up against the rest of the world. The reserve bank has stated on numerous occasions that they are uncomfortable with our current dollar value at around .72c US. The problem with a high NZ dollar is that it makes our export goods more expensive overseas and therefore we have a harder job selling our stuff which harms the economy. The link between our official cash rate and our export success is a direct and real one”
Therefore what is happening in the rest of the worlds economy is of vital interest to us. particularly the USA economy as that is by far the largest economy on the world. The worlds largest economies ranked by Gross Domestic Product as :- USA, China, Japan , Germany, United Kingdom.
So we need to watch the USA very closely to see signs of interest rate rises there as these will eventually reflect in our interest rates . The news coming out of the States is bad, in fact it’s very bad. When the stimulus the money printing did is taken out of the economy there is very little sign of any real growth and lots of signs of continued recession or near recession. For this reason we are seeing very little sign the USA will be able to more than pay lip service to interest rates or perhaps put a token rate rise in to encourage investors .
This Article by Tony Sagami in his newsletter ‘Connecting the Dots ” tracks some vital indicators of how the USA economy is really doing apart from the artificial Government spending created by printing 10 trillion dollars worth of money . The important point to remember is that 70% of the total USA economy is driven Americans buying stuff in America. If this article is true then we have a long wait for their economy to turn the corner.
“Live by the Consumer, Die by the Consumer.” written Toni Sagami
The Dow Jones Industrial Average has been going sideways ever since the Commerce Department reported that retail sales in July came to a grinding halt (0.0%) in the month of July.
At the same time, the list of companies warning of disappointing sales—Starbucks, McDonald’s, Ford, Burberry, Gap, and many others—suggests trouble in shopping paradise.
Most recently, Target reported a Q2 drop of 1.1% in same-store sales and said it expects a “challenging environment in the back half of the year.”
There are many reasons why Americans have become reluctant shoppers, such as stagnant incomes and rising debt loads, but one of the underappreciated challenges is a distinct change in spending psychology.
According to Deutsche Bank, Americans are becoming big savers.
The saving-vs.-spending mentality has shifted for all adults, but the change is most dramatic for the live-in-mom’s-basement generation.
You know where else the evidence of shopping fatigue is showing up? In the transportation food chain.
Truck Slowdown: Truck shipments continue to decline. July shipments were down versus 2015, 2014, 2012, and 2011.
Ship Slowdown: Maersk Line is the largest container shipping company in the world, so it deserves close attention. Times have been tough for shippers, but Maersk expects the business to get even worse.
“Currently we are challenged by market headwinds,” said CEO Soren Skou during the latest earnings call, “…in the form of low growth and excess capacity in both our industries, and that has led to declining prices and declining revenue.”
And Jakob Stausholm, a member of Maersk Line’s management board, told Reuters, “It’s really tough, and everybody in the industry is really suffering, and so have we.”
Maersk isn’t the only shipper singing the blues. “World GDP growth is struggling… Combined with trade growth slowing down, this is a recipe for a very bad market,” said Evangelos Chatzis of rival shipper Danaos.
Port Slowdown: The Port of Long Beach just reported a 7.7% year-over-year decline in the number of shipping containers passing through:
“Due to continued market uncertainty and high inventory levels, the traditional holiday peak season is off to a slow start, and several national forecasts have been revised downward to reflect this softness in cargo movement.”
High inventory levels? The inventory-to-sales ratio is climbing, which tells me that demand is weakening and businesses are having trouble selling their products.
The ratio typically increases during the late stages of an economic expansion and often represents the turning point in a business cycle.
Remember, companies accumulate inventory for one of two reasons: (1) voluntary accumulation in anticipation of booming sales, or (2) involuntary accumulation as unsold goods pile up.
You’ve heard it a million times—the US is a consumer-driven economy with 70% of GDP tied to consumer spending. That is why you need to connect the dots between the retailers’ warnings, the shift from spending to saving, and the struggles of the entire transportation food chain.