Markets are confident Donald Trump will win in November. Photo / Getty Images
OPINION
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The attempt to assassinate former President Donald Trump was shocking. It was a blow for those hoping US political tensions might ease anytime soon. But for those feeling rattled and unnerved by the seeming chaos of US politics, financial markets might offer an antidote.
The first thing to say is that – as is often the case – investors have taken it in their stride with no especially dramatic moves in either direction.
What we have seen since the weekend is a rise in the US dollar, a rise in Wall Street markets, a rise in Bitcoin, a fall in oil prices and growing expectations of two rate cuts this year by the US Federal Reserve.
Broadly speaking, these are all good things.
None of the movements were unusual, though, and given we had upbeat comments from US Fed chairman Jerome Powell, they can’t really be directly attributed to anything political.
Before the weekend, markets were already pricing in the likelihood of a Trump victory in November. Those odds have risen further.
Conventional wisdom is that markets like certainty and prefer Republican presidents (which usually mean lower taxes and less regulation). So perhaps it’s not surprising the tone has been upbeat in the past few days.
But of course, Trump is far from conventional.
The market response paints a very different picture from the commentary we are seeing about America.
The tone of many headlines and opinion pieces – and most of the social media noise – is highly dramatic.
We are reading warnings about social conflict, the death of democracy, and a country on the brink of civil war.
The disconnect is jarring. One can only assume the reality is somewhere between the two extremes.
When we look at broader economic policy that Trump might bring in, it is his trade policy that is of most concern for this country.
A Trump presidency would probably mean more tariffs and another step away from the globalised free-trade world that suited New Zealand’s open export economy quite nicely.
But there may be some mitigating factors there too. One is that much of the damage to world trade has already been done.
Trump ushered in a new era of protectionism in his first term. It is something the Biden administration has not rolled back. In fact, Biden is about to introduce new trade barriers including 100% tariffs on Chinese electric vehicles.
Trump might go further still. The Economist Intelligence Unit (EIU) released a Trump Risk Index last week looking at trade fallout for the world.
“We think that Mr Trump would follow through on his stated intention to impose a blanket tariff on US imports; he has proposed a 10% flat rate, although we believe that this would ultimately be watered down,” it warned. “Additional punitive measures on politically sensitive imports like steel would be likely.”
The good news is that the EIU rated New Zealand as one of the nations with the lowest level of exposure to this risk – largely because we are so exposed to China’s economic fortunes.
That’s an issue in itself of course (see below for more on that).
Culturally, of course, New Zealanders still have a lot vested in the American drama.
For my money, Trump does look almost certain to win at this point. But “at this point” is an important part of that sentence. The events of the past few weeks should serve as a reminder that the American political news cycle is now spinning at a remarkably frenetic pace. November still looks a long way off. A lot can happen and it probably will.
Meanwhile, the steady march of progress towards lower interest rates offers a calming distraction.
The closure of the Auckland bar and restaurant SPQR was sad news for those who grew up with it.
Daring to venture in as a young adult was almost a right of passage. In the 1990s, I remember feeling hopelessly unsophisticated trying to fit in there. It was for a time one of the hippest places in town.
Times change of course, but it certainly became an institution in Ponsonby Rd, so it is hard to believe it was no longer commercially viable.
But we need only to look at the latest retail spending data to see how hard hospitality has been hit in the past year.
Two recent sets of data highlighted how tough it is for the sector right now.
Electronic card data released by Stats NZ on Friday showed hospitality spending was down 0.5% for the month and 2.1% for the quarter.
When you look at the latest raw dollar figures for Kiwis’ spending on hospitality, it is roughly on par with the $3.5 billion we spent in the last quarter of 2019 pre-pandemic.
Considering the high level of inflation since then – lifting costs for operators and squeezing margins – that’s a pretty terrible number.
ANZ’s card spending data is a subset of the total New Zealand figure based on the bank’s customers. But it represents a useful cross-section given it is the largest bank, and breaks down the figures in more detail.
It shows spending on restaurants and bars was down 6.3% year on year.
This stuff is true of several sectors, but hospitality did it tough through the pandemic lockdowns and the data shows it didn’t really get that much of a bump when things opened up.
They used to say that the booze business was recession-proof. But one suspects that, even if our love of beer and wine is too great to make it a discretionary spend, where we choose to consume it certainly is.
In other words, we’re more likely to do more drinking at home, because it is just a lot cheaper.
What all this adds up to is a bad winter for the sector. There’s no way around that, unfortunately. Get out and support your local bar if you can.
Otherwise when summer comes and you feel like heading out... it might not be there.
It is all eyes on the Consumer Price Index inflation data release at 10.45am today, with high hopes that we’ll see some movement in sticky domestic non-tradable inflation.
But, whichever way it lands (for the quarter to the end of June), we’ve already seen a run of really negative data that suggests that a sharp fall can’t be far away.
Evidence of a deep economic slump this winter prompted a change in Reserve Bank (RBNZ) language last week and got markets excited about the prospect of a rate cut in November... and maybe even October.
There’s a risk there’s been too much overly optimistic reading of the RBNZ’s softened tone.
Bank economists at Westpac and ANZ are holding firm, for now at least, on their expectations of February for the first cut.
But what we can say is the data since the RBNZ’s statement last week has remained suitably grim. Which is good news remember (at least for those hoping for rate cuts).
Electronic card spending data came in weaker than expected on Friday. “Bleak” was how ASB senior economist Kim Mundy described the result.
Spending for June fell 0.6% and 0.1% respectively for both retail and core retail (excluding motor vehicles and fuel) industries when compared with May, Stats NZ said. It was the fifth consecutive month in which retail spending fell.
Meanwhile, we’ve also seen the release of the BNZ/NZ Business Performance of Manufacturing Index and Performance of Services Index.
Neither offered any reason to be dissuaded that rate cuts will be needed sooner rather than later. The manufacturing index was the third worst (non-Covid) on record.
BusinessNZ director advocacy Catherine Beard described it as a “freefall in activity” from May to June and a “major concern for a sector that had already been stuck in contraction for the past 15 months”.
The Service Sector Index wasn’t looking any better, delivered with the headline on the press release that just said: ”Sinking”.
BusinessNZ chief executive Kirk Hope said after a bad May result, “the June figures simply got worse”.
The key index values for Activity/Sales (35.6) and New Orders/Business (38.3) were both the lowest for a non-Covid lockdown month.
Finally, we talk a lot about the wealth effect of housing when property prices rise. Well, no sign of that on the horizon. The latest Real Estate Institute figures show prices flatlining and sales dropping sharply.
The total number of properties sold in New Zealand decreased 25.6% year on year, from 5854 to 4356, and by 32.6% compared with May 2024.
One of the issues with the inflation data we’ll get today is that it’s pretty old.
I’ve written about this before, but it is frustrating that we don’t get to see the full Consumer Price Index every month as they do in the US.
Or, in the age of mega-data-crunching AI, couldn’t we go even better and somehow track price movements in real time?
Well, it looks like help may now be at hand in the form of a live inflation tracker built by the same Massey University Business School team who launched the GDPLive tracker in 2018.
To get an early read on GDP, GDPLive creates a real-time model using up-to-date data like PayMark’s electronic card spending figures.
The project also pulls in publicly available data from government sources like Stetson, the Reserve Bank, Immigration NZ, NZ Transport Agency Waka Kotahi and the Ministry of Business, Innovation and Employment (MBIE).
It also uses traffic data from the Ministry of Transport, and all the macroeconomic indicators from Stats NZ and the Reserve Bank.
And it uses AI (artificial intelligence) learning tools to constantly monitor and improve its performance.
It was developed by the Knowledge Exchange Hub, a multi-disciplinary research hub at Massey University.
The GDPLive project got some publicity when Herald columnist Richard Prebble argued the Reserve Bank should be using it.
For the record, the RBNZ says it is aware of GDPLive and has monitored its progress, although it hasn’t formally adopted it as a tool for its policy assessments.
I expect it’ll take the same “watch and assess” approach to the inflation tracker that was launched this week – with support from supermarket operator Foodstuffs and the New Zealand Initiative.
Central banks need to base their calls on rock-solid data. So it’s hard to imagine a scenario where the RBNZ didn’t look to the official Stats NZ data first and foremost.
But we need to embrace new tools that AI is making available to us. Ideally, that should be happening within the RBNZ and Stats NZ.
It’s a lot to expect from Stats NZ, which, like all government agencies, has been facing cutbacks. But I’d argue that the importance is so high we should be funding it specifically to do this.
Meanwhile, though, if others are quicker with the implementation of new technology then it would be great to see it in the mix of tools being used.
The consolation that New Zealand is sheltered from the worst of Trump’s likely trade policies (see above) by its reliance on China is somewhat tempered by recent data.
The Financial Times reports China’s economy grew 4.7% year on year in the second quarter, official data showed on Monday, missing forecasts and marking a slower rate of expansion compared with the previous three months.
“China’s economy has benefited from stronger exports, which rose 8.6% in dollar terms in June compared with a year earlier, according to figures released on Friday, though imports declined 2.3% in a further sign of weak demand.”
Meanwhile, consumer prices rose just 0.2% year on year in June, with growth stuck in low or negative territory over the past year.
New-home prices fell 4.5% year on year last month, the fastest pace of decline in nine years, while new construction starts and property investment were down 23.7% and 10.1% respectively in the first half of the year.
In other words, there is effectively a domestic recession curbing demand for our exports. Which is not good.
One upside, though, is that the economic giant is overcompensating with a huge surge in exports.
That will mean a flood of cheaper goods into the world – especially if tariffs restrict access to US markets.
Hopefully, that is a disinflationary force that will help the cause as we wait for lower interest rates.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
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