Here's our summary of key economic events overnight that affect New Zealand, with news we have some major set piece central bank meetings this week and there is a growing feeling they will each try to challenge investors' expectations of 2024 interest rate cuts.
But first, American consumer inflation expectations for the year ahead fell to 3.4% in November, the lowest since April 2021. That is down from 3.6% in the previous month, and aligns with a number of separate private consumer surveys that have picked up a disinflation trend in the US economy. (Disinflation is falling positive inflation, deflation is where prices are falling.)
It is not only inflation that is reducing, US Treasury bond yields are too. Today there were two major auctions. The three year Note was well supported with $121 bln offered for the $50 bln available. Investors won that with a median yield of 4.43% pa which was down from 4.65% at the previous equivalent auction a bit more than a month ago.
It was a similar story for their ten year bond. Today $94 bln was bid for $37 bln available, so again well supported. Today's median yield was 4.22% pa and that compares to the 4.44% at the prior equivalent auction 5 weeks ago when US$40 bln was available.
In Japan, the latest official sentiment survey for large businesses there has revealed fast rising optimism, their best in two years.
Locally, inflation pressures are easing too. The Infometrics/Foodstuffs grocery cost index monitoring reports prices rose +4.8% in November from a year ago, the first sub-5% annual increase since March 2022. There are some categories (bulk foods and meat) that are now well under +3%, although some others still around +6%. Recall for the three year period 2019 to 2022, grocery prices rose overall less than +2%, so the current levels remain unusually high even if they are moderating fast.
And we should note that the aluminium price has fallen to its lowest level since April 2021.
The UST 10yr yield is firmer on secondary markets at 4.27% and up +4 bps from yesterday at this time. You will note that is a premium to today's US Treasury auction (above). The key 2-10 yield curve is unchanged, still inverted by -49 bps. Their 1-5 curve inversion is slightly less inverted, now by -87 bps. And their 3 mth-10yr curve inversion is now -112 bps, also less. The Australian 10 year bond yield is now at 4.36% and up +1 bp from yesterday. The China 10 year bond rate is down -2 bps at 2.68%. And the NZ Government 10 year bond rate is up +3 bps, now at 5.01%.
Wall Street has opened its week little changed with the S&P500 up +0.2% in Monday trade so far. Overnight, European markets were up about +0.3%, except London which slipped -0.1%. Yesterday Tokyo ended its Monday session up a strong +1.5%. Hong Kong was very much lower in their morning trade but clawed back some of those losses to end down -0.8%. Shanghai was in the same position earlier but they managed to turn that into a +0.7% gain for the day. The ASX200 ended up a minor +0.1%. But the NZX50, higher in early trade fell away at the end to finish down -0.4%.
The price of gold will start today just on US$1982/oz and down -US$23/oz from this time yesterday.
Oil prices are down -50 USc from yesterday at just over US$71/bbl in the US. The international Brent price is now just over US$75.50/bbl.
The Kiwi dollar starts today at 61.2 USc and unchanged from yesterday. Against the Aussie we are up +10 bps at 93.3 AUc. Against the euro we are still at 56.9 euro cents. That all means our TWI-5 starts today just on 70.3, +10 bps higher than yesterday at this time.
The bitcoin price starts today at US$41,753 and down a sharpish -4.7% from this time yesterday. Volatility over the past 24 hours has been very high at +/- 4.3%.
Daily exchange rates
Select chart tabs
The easiest place to stay up with event risk is by following our Economic Calendar here ».
49 Comments
It is not only inflation that is reducing, US Treasury bond yields are too.
30 year auction on Tuesday.
The Math for Buying a Home No Longer Works
"If you stop the credit machine be prepared for some pretty big moves..."
I think you miss the underlying point. the article is essentially indicating that middle and lower class incomes have fallen to the point where houses are becoming unaffordable. this is not just the basic price, but associated costs as well such as mortgage interest, insurance etc.
The bigger problem is that wealth is increasingly being captured and restricted to an upper class, but even the young are being denied the opportunity now. CNN is running an article on the increase in poverty in the UK (https://edition.cnn.com/2023/12/11/economy/csj-two-nations-report-uk-so…). This is where and how democracy is failing the people across the board.
I would also add that this failure is what lies under the protest at Te Papa yesterday. Governments, banks and big corporations need to understand that they must ensure people get to share wealth, through opportunities to earn decent livings or sooner or later every thing collapses.
Is that better or worse than the bad vibe of losing your house AND all your savings AND being left owing money ... see article below.
Buying a house is neither good or bad per se. It depends on each person's personal circumstance. What is definitely true is that people should not be forced to take on massive debt to be able to afford shelter.
Swings and roundabouts I guess. Major disruption perhaps every few years (which I certainly experienced as a renter) vs the constant energy you have to put in to maintaining a house and garden (which I certainly experience now as a homeowner).
Pick your poison. My main point is the financial decision is not clear cut, there is nothing special about buying a house other than easy leverage and it's quite possible to build up alternative assets instead.
For those unable or unwilling to save and invest money, buying a house is a simple forced savings scheme I guess.
"For those unable or unwilling to save and invest money, buying a house is a simple forced savings scheme"
This is spot on! Every month your pay your mortgage you repay some debt as well. The beauty being you don't have a choice, it's a forced saving scheme. Yes, you can rent and invest elsewhere (just as you can pay a mortgage and invest elsewhere btw). Yep you can… but in the real world, most won't
Until very recently, home loan interest + ownership expenses were similar to rent. So the advantages of owning vs renting were:
1) Capital gain
2) "forced savings scheme"
3) Fixed price - rent will keep going up, but the mortgage doesn't unless interest rates go up (which you can mostly mitigate with long terms)
4) You have your own home that you can do what you want with.
Of course there are advantages of renting, such as mobility, less maintenance, less risk.
But now home loan interest + ownership expenses are significantly more than rent. Its hard to see why anyone would be considering buying a first home right now.
The Math for Buying a Home No Longer Works
Came across the whole article in the WSJ y'day. Bear porn is all the rage in the U.S. at the moment. Among the highlights:
Rents are on the rise, but the cost of buying a home has risen by a lot more. The average monthly new mortgage payment is 52% higher in the U.S. than the average apartment rent, according to an analysis by CBRE. The premium is even sharper in many major metro areas—including 175% or more in Seattle and Austin, Texas, and several cities in California.
Some people, as a result, are just abandoning the idea of saving for a down payment.
The usual tricks aren’t working. For example, when interest rates rise, buyers sometimes turn to a type of mortgage that offers a lower rate for the first few years. But the costs of these adjustable-rate mortgages have also risen sharply this year. They are still a little cheaper than fixed-rate mortgages, just not by as much.
NZ food prices continuing to just follow global food prices with a 9 month delay - unsurprising given how much we import and that the domestic price is floored by the export price (plus wholesale and retail margins).
Worth noting that lower imported food costs are not being passed on by wholesalers yet - they are choosing instead to restore their profit margins - after not making as many billions as they wanted in mid-2023.
re ... inventories. True.
Smarter shoppers will have substituted 'slow moving' brands for the 'fast moving' lower cost brands, typically own store brands, and started shopping at the high volume stores. The faster and cheaper a product moves off the shelf, the faster inventories are replaced with lower cost product.
Alas ... Most shoppers are creatures of habit. And habits can be expensive when change is needed. (Someone keeps mentioning Kiwis aren't that bright. Maybe they're right.)
Our local supermarket is just a 5 minute walk away. But it's not anywhere near the cheapest. (Nowhere near cheap, Aussie owned.) So instead we make a list of what we need and shop bulk about every 10 days (or when the wine runs out) at the cheapest NZ supermarket that turns over huge volumes. We have to drive which costs about $2 in gas but we make that back big time on the grocery bills. We cook using lots of spices and home made sauces and we've never noticed the budget brands tasting any different, and nutritional values are virtually the same.
We have decent incomes. So why are we doing this?
Basically, it helps everyone by driving down inflation. Once prices are back to normal we'll switch back to walking, and paying a bit more, to cut back on green house gases. Or maybe we won't because a) they're ego spending $400m on rebranding and b) we've got it in for Aussie banks and they've tarred Aussie supermarkets with their brush. ;-)
Not really. It helps your budget - all that happens is the lower cost items sell out even faster and other people are left choosing from the higher priced items that remain - i.e., they still sell. The super market doesn't really care either way - I've noticed our local supermarket actually restocks the more expensive products first (as well as varying price by quantity of stock available)!
https://www.stuff.co.nz/business/money/301024956/stuck-on-136-interest-…
David Thomson is stuck paying a home loan interest rate of 13.6% on a house that was meant to be his retirement plan, which he now cannot sell......
Interesting article that. He places the blame squarely on the previous Government changing the Bright-lines test to 10 years - apparently the plan falls over completely if he had to pay tax on the large capital gain.
They took on large risks aiming for the moon shot when they had already built up half a million dollars in equity through their hard work. Borrowed another half million to subdivide and blame the Government when it doesn't pan out.
Agree they messed up but it also just goes to show how messed up the property market is in NZ that this is one of the main strategies people use for retirement, even though it's a ponzi scheme and people like Zwifter on here claim that anyone not doing this is a DGM. Sad.
Yes, the real story is they got to mid-late 50s without planning for retirement and that gives you limited options in a short amount of time. Hence the risky venture.
Much more risky than the kids putting their savings into crypto - the leverage means they can lose everything (or more) and they have no time to make it back.
What I find interesting in the comments is that no one seems to think the lender is involved in outright usury and/or using an oppressive contract to bankrupt a borrower.
So in NZ - a lender can use a contract that essentially protects the enormous profits they must be reeling in but a couple lose everything?
Fair? Are we all okay with that? I'm not.
In other countries, e.g. the USA (the home of capitalism and banking banditry), they have federal and state laws protecting consumers from such contracts. Such laws are based upon the fact that unforeseen events cannot be loaded onto only one party in a contract and/or the fact that, with time, the situation will correct itself and both parties to the contract will come out okay. A contract is an agreement between two parties. In the event unforeseen circumstances causes loss - or in this case delayed repayment - why should only one party to that agreement be impoverished? Isn't the lender using the 'contract' - that they also agreed too - to ensure they lose nothing when exceptional events should see them share the pain?
So yeah. Maybe Kiwis aren't that bright? Or maybe 'Mericans are smarter?
Or maybe they just like seeing their neighbor's suffer while they feel superior by never taking any risks while our laws ensure the the rich just get richer and richer?
There's a Part 1 to this story that was published in 2021 and it says they initially borrowed $350,000 from a friend at 8%. The story ends with this quote: "These days, Thomson says he and Eing are “living like kings”. Shame they didn't stick with what they had.
Unfortunately whilst I have sympathy for his current situation there were a number of 'flaws' in his original plan-
1. Taking out finance with a non bank 'second tier' lender. The reason the banks wouldn't fund him is they foresaw the risks. That should have been a red light moment. Unfortunately he ploughed on with more expensive funding. He willingly took on the added risk premium.
2. The required 'profit' seemed to be contingent on not paying capital gains tax. That says to me there was never enough profit in his initial feasibility.
3. The cost blowout was so extreme the initial feasibility was clearly flawed and I strongly doubt he had allowed for any contingencies.
Sad story but predicatable and totally preventable.
Multiply this example by 2,000 x and you will start to get a picture of what is likely to happen with DuVal, Williams Corp, Templeton, Oyster Capital and countless Asian developers in the next 12 months.
"I only earn $1740 a week after tax." Quote from the guy who is about to lose his property and retirement plan. Maybe he should have rented?
So not even lower quartile.
Why would anyone want to pump the housing market?
*edited to reflect the quote was from the article, not my personal situation.
How much is a serviced section? Surely someone would be interested at $200k. I would contemplate it, they had decent sea views and not that far from Auckland. If he can flip them for $200k each surely he would be fine.
Lots of people run a business (which this effectively is), put loads of work into it, pay very high interest rates, and it fails. In their case they will probably still make a profit, just not as much as they hoped. Yet this makes the paper, we are meant to feel sorry for them, but the local restaurant owner who goes under and loses everything deserves it.
$125k - not even close to lower quartile.
I too know a "bank said no, now paying 13%++" - grim.
There are a lot out there, as mentioned in the article "every mum and dad did it" - subdivided into retirement.
Then don't live near me. Our local lake has them in abundance.
https://www.stats.govt.nz/information-releases/international-migration-…
The 245,600 migrant arrivals and net migration gain of 128,900 in the October 2023 year are the highest on record for an annual period.
The long-term average for October years (pre-COVID 2002–2019) is 120,500 migrant arrivals and 91,900 migrant departures.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.