Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop). It's a skinny edition today.
MORTGAGE/LOAN RATE CHANGES
No changes to report today.
TERM DEPOSIT/SAVINGS RATE CHANGES
None here today either.
HOUSEHOLD CONSUMPTION SQUISHED
Retail sales volumes shrank in the December quarter and that is the eighth quarter in a row it has declined. But wait, there's more (or, in this case, less). Sales volumes are -4.1% less than a year ago. And if you think that is tough, remember our population is rising at its fastest rate ever. This emphasises the pressures individual households are under and who are trimming real retail spending sharply now. "And looking forward, it’s not clear that this will change significantly over 2024." says the ANZ economists. They and other economists see downside risks to their positive GDP forecasts for Q4-2023 in this data. Q4-2023 GDP outcomes will be released on Wednesday, March 21, 2024, and there is a lot more data than just retail sales that goes into this. But weak consumption is an important indicator.
FINALLY, A SHIFT IN THE RIGHT DIRECTION
Falls in house prices at the bottom of the market are good news for first home buyers. And that has brought a significant improvement in affordability for first home buyers In January. Although still unaffordable (ie more than 40% of take home pay), this is the best/lowest it has been since September 2022. First home buyer affordability stress started getting tough in late 2021 when lower quartile house prices raced higher suddenly in the housing frenzy that built up in the pandemic (induced by "low interest rates").
PROFILE UPDATE
The full year results for market operator NZX were released today, and our profile is updated here. All NZX50 profiles are indexed here.
MINNOW AMONG SHARKS
New Zealand is taking up the role of Vice Chair of the WTO negotiating team that will be tackling 'reform' of agriculture trade rules, E-commerce, fisheries subsidies, and the dispute settlement resolution system, by trade minister in Abu Dhabi/UAE. Their conference runs from Monday to Thursday. Trade minister Todd McClay has left early to prep for his central role in this round of what seems like never-ending talks. It is pretty doubtful the NZ rural sector will get any more from a National trade minister than it got from the previous Labour one.
ANOTHER $100 MIL BORROWED
Wellington International Airport has issued $100 mln of unsecured, unsubordinated 6½ year BBB-rated bonds, with a yield of 6.02% pa. One covenant WIA offers is that "Total Interest Bearing Debt does not exceed 70% of Total Tangible Assets". Much of it will be used to refinance its $60 mln bond maturing on 5 August 2024. That has a coupon of 4.0% and a current yield to maturity of 6.48%.
BUT NOT US (?)
The US has recently moved to protect itself from vulnerabilities of using Chinese-made container cranes at their ports. That have assessed risks of high as they could be used in times of stress to shutdown activity. Auckland has nine container cranes, the three newest and main ones supplied by Shanghai Zhenhua Heavy Industry (ZPMC). Tauranga also has nine container cranes, most of them German Leibherr cranes.
PRIVATEER SUCCEEDS
We should also probably note that a private US company has landed a spacecraft on the Moon, at its south pole, in its first attempt. The lander is carrying a set of scientific instruments and technology demonstrations for NASA and several commercial customers designed to operate for seven days on solar energy before the sun sets over the polar landing site. It is the first new American equipment on the Moon in 50 years.
SWAP RATES FIRMER
Wholesale swap rates will probably be firmer again today. However, the key reaction will come at the close. Our chart below records the final positions. The 90 day bank bill rate is up +2 bps at 5.73%. The Australian 10 year bond yield is down -1 bp at 4.19%. The China 10 year bond rate is down -2 bps to 2.41% and a new record low. And the NZ Government 10 year bond rate is up +1 bp to 4.93%, while the earlier RBNZ fixing was at 4.85% and unchanged from yesterday and for a third straight day. The UST 10 year yield is now at 4.34% and up +3 bps from this time yesterday. The UST 2yr is now up to just under 4.71% and so that key inversion is now out to -37 bps.
EQUITY WINNERS & LOSERS
Wall Street closed up +2.1%, helped a lot by the hype around the strong Nvidia result and prospects. In the three days to its Thursday close during this short week, the S&P500 is up +1.6% and at an all-time record high. The NZX50 is up +0.1% in late Friday trade and if it holds that, it will end the week down -0.2%. The ASX200 is up +0.5% in afternoon trade heading for a weekly dip of -0.2% as well. Tokyo ended yesterday up +2.2% for a weekly gain of +1.5%. It is closed today for a public holiday. Hong Kong has opened up +0.4% heading for a +2.9% weekly rise. Shanghai has opened up +0.4% heading for a state-aided +4.0% weekly rise.
OIL STAYS FIRM
Oil prices are up +50 USc to just under US$78.50/bbl in the US while the international Brent price is still at just over US$82.50/bbl.
GOLD ON HOLD
In early Asian trade, gold is now at US$2026/oz and little-changed from yesterday.
NZD ON HOLD
The Kiwi dollar is slightly higher from this time yesterday, now at 62 USc. Against the Aussie we are softish at 94.3 AUc. Against the euro we are unchanged at 57.2 euro cents. That means the TWI-5 is still at 71.3 today.
BITCOIN EASES SLIGHTLY
The bitcoin price has moved lower today, now at US$51,379 and down a minor -0.4% from this time yesterday. There's been modest volatility over the past 24 hours of just under +/- 1.%.
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44 Comments
HOUSEHOLD CONSUMPTION SQUISHED
So... now the bank economists and commentariat wake up to what has been blindingly obvious to anyone looking at the data for more than a year. It's like 'oh crap, we have been talking up booming consumer spending and the need for RBNZ to cool those spending jets, but, actually, whoops, we didn't look at the inflation-adjusted data! Actually, 8 consecutive quarters of reducing demand while the population booms is really bad. No wonder the shops are closing and the dole queue is growing. Oh, and while we're at it, we can now see that real wages have been falling too. So, I guess they are not to blame for inflation either. Amazing what you find out when you learn how to use a deflator.'
The cost of this incompetence is tens of thousands of jobs - lives ruined. It's grim.
Yet companies still seem to be raising prices. Eventually they will have to stop!
Again I think it proves that the OCR is effective at reducing demand. I guess the question is whether the RBNZ has overcooked it. I am still on the fence on that, inflation has taken much longer to drop than I expected.
Yes, companies are increasing prices because most can downscale to adjust to lower demand and continue to price on a cost + margin basis. Now, what is increasing costs for companies? Same things that are increasing costs for households - rates, insurance, the cost of credit.
So, how low can demand go without prices coming down? A way yet. It's idiocy.
"RBNZ’s Orr Says Recession Is Bare Minimum to Tame Inflation" - Bloomberg article, august 2023
What do you mean, their models are broken? That's a bold claim. I've heard a lot of people on this site say "interest rates are such a medieval, obsolete or defunct tool that no longer makes sense", do you agree with that?
November 2023 monetary policy statement (here) forecast the following for GDP(P) quarterly growth:
- 2023Q4: 0.0%
- 2024Q1: 0.0%
- 2024Q2: 0.6%
- 2024Q3: 0.4%
- 2024Q4: 0.6%
So, no recession.
They were very, very wrong. Why? Because they don't understand credit stimulus and their models don't really include money.
I have been watching your stuff for awhile Jfoe, and I think your theory has merit. It seems to depend on the economy in question. Let's see what happens in Turkey for example.
Personally I think interest rates have always been too high in NZ compared to the rest of the developed World.
It's sorta like predicting gravity
The problem is more people predicting this every 2-3 months, for years before it actually happens. Oh, and the pitchfork wielding crowd baying for blood.
Also, as a bit of interest, retail sales went absolutely crazy in 2021. From 20% below the previous year, to 40% above it. That's a lot of consumer demand satiated in a short period of time. Aside from people having less money to buy stuff, they've also already bought most of it.
All in all, this was always how we were going to pay for spending months at home in 2020/21. We just extended out the timeframe with credit.
Yes, there were quite a few issues, but they got there, landed, took off, and got home.
I have an original copy of the Chch Press from the first moon landing. Quite interesting the forecasts for where we would be in the 80s. I imagine they would be quite dissapointed in the relative progress since then. I mean since the end of the Apollo missions, there have been more craft land successfully on Mars than on the moon, and nothing that has returned from either.
Truly staggering how hopeless we seem to have got at actaully "doing" stuff as a species.
When Kennedy made the demand so clear and urgent, it certainly reprioritised away from rort and pork to getting things done. They also had a skillful and well-resourced NASA to lead the effort and the contracting, not a public sector gutted of engineering skill and thus capability to contract effectively.
The missions to Mars are hugely impressive, though, and some will return. https://www.jpl.nasa.gov/news/nasa-and-esa-agree-on-next-steps-to-retur… But the resourcing is obviously on a far smaller scale.
However, resourcing of the Apollo scale and a mission orientation are probably better allocated to an earthbound challenge humans need to solve. E.g. fusion (just using this as an example, not a recommendation).
Not everyone believes they got there. Personally I don't believe the tech at the time was good enough and actually the tech even now is not even good enough to get a man there. The current series of unmanned attempts have mostly failed and its like we are somehow starting from scratch for some reason. Hopefully we will get there by 2030, my pick is the Chinese will do it first, I mean its practically a suicide mission you would have to be ordered to go.
On balance I think they did get there, the monumental hoax and coverup required simply wouldn't have stood the test of time. But I can definitely see how there is enough reasonable doubt to suggest they didn't.
I mean, as of this morning they still haven't got any footage (photo, audio, or video). Yet we had a full audio/visual feed essentially live back in '69.
I can't see China getting there without significant tech development on their part. They are decades behind USA and even Russia. Of the other nations, I suspect India would possible have the best shot, but even then I can't see them getting to the surface and back.
There is definitely an issue with how we used resources and prioritised space but I imagine we also needed time for computer and material science to catch up with our ambitions.
The shift to commercial partners has been a major game changer. This moon lander is a commercial partner. SpaceX has saved NASA big time on transporting cargo and astronauts to the space station. If it works, starship will be a similar success for the moon, able to take enormous amounts of material to and from the lunar surface.
One example which I think is instructive as to what messes things up is fuel depots in LEO. Apparently engineers at ULA wanted to explore this (I think it was ULA maybe Boeing or someone else). Anyway, when the powers that be found out they cancelled the projects and banned them from even talking about it because it threatened SLS - the big pork rocket.
Now Blue Origin and SpaceX’s plans to get to the moon both rely on orbital refuelling. But it took commercial contracts and a key senator retiring to get there. Hopefully it works.
Space X's moon landing plans are very flawed and will never work. They only got the contract by the sole ruling of an interim manager at NASA, who took a senior position with Space X shortly after.
NZ is so unbelievably naive in terms of national security. Incl Computers, cellphones, cellphone towers.
Even to the extent of going for a high proportion of electric cars where a few bombs at a few substations and if its all electric nobody could go anywhere... And if they are chinese they may have remotely operable off-switches anyway.
Is it okay to make the point - again - that NZ Inc.'s economy is like an oil tanker and once it slows down, friction will keep it slowing down, and even if the RBNZ dropped the OCR to the 'neutral rate' of 2.75% the economy will continue to slow?
No? Okay. I'll shut up then. :-)
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