Here's our summary of key economic events overnight that affect New Zealand, with news the IMF reckons the way the Aussie home loan market is structured accentuates mortgage rate pain.
But first in the US, consumer inflation expectations for the year ahead remained steady at 3% for a third consecutive month in March, holding at three-year lows. For three years ahead they rose marginally to 2.9% whereas for five years ahead they slipped to 2.6%. None of these are 'bad' levels but they are not quite where the US Fed would like them to be.
The actual current March US CPI inflation level will be revealed on Thursday, NZT.
Noticeable improvements recently in German industrial production, the US ISM PMI, and the Caixin factory PMI have combined to shift the expectations for the copper price sharply higher. It is now back to levels we last saw in May 2022, and first saw in November 2010. It is an upswing that has been unexpected.
But the same is not true for steel prices. Excess Chinese production and export dumping has driven the cost of rebar down to 2017 levels. The stuttering domestic construction industry is having world-wide impacts in this important corner of the steel industry. Iron ore prices are now at yearly lows too.
In Hong Kong, a winding up order is being sought by its major lender for Shimao Group Holdings, just another Chinese property developer that has hit the debt wall. What is interesting about this is that the lender is China Construction Bank, one of China's four pillar banks and state-owned of course. Shimano has projects across much of China, but only one in Hong Kong. When Beijing turns against you, you are toast.
In Australia, February new lending data shows that the number of loans issued for the purchase or construction of a new home over the past year is holding at its lowest level in more than 20 years. Values are up of course, but the number isn't.
The IMF has released an analysis that shows Australian households are more sensitive to changes in interest rates than virtually any other consumers globally because of the combination of the dominance of variable-rate mortgages, high levels of household debt and lax lending rules. New Zealand is up there too, but not because of high variable-rate lending.
The UST 10yr yield is now at 4.42% and up +2 bps from yesterday. The key 2-10 yield curve inversion is little-changed at -36 bps. And their 1-5 curve inversion is slightly less at -66 bps. And their 3 mth-10yr curve inversion is now at -96 bps and slightly less as well. The Australian 10 year bond yield is now at 4.23% and up +3 bps. The China 10 year bond rate is holding at just under 2.30%. The NZ Government 10 year bond rate is now at 4.80% and +10 bps since this time yesterday in an outsized move.
As anticipated, the S&P500 is up a minor +0.1% on Wall Street in its opening Monday session, awaiting the US CPI data on Thursday. Overnight, European markets closed firmer, bookended by London's +0.4% rise and Frankfurt's +0.8% rise. Yesterday Tokyo ended its Monday session up +0.9%. Hong Kong was little changed in its Monday trade. But Shanghai fell -0.7%, Shenzhen fell by double that, both in late session moves down. Singapore was only marginally softer. The ASX200 ended its Monday session up +0.2% before the China drop kicked in. The NZX50 ended down -0.2%.
The price of gold will start today a little higher by +US$6 from this time yesterday at US$2335/oz and yet another all-time high.
Oil prices have slipped -US$1 to just on US$85.50/bbl in the US while the international Brent price is now down a bit less at just under US$90/bbl.
The Kiwi dollar starts today at just over 60.3 USc and up +20 bps from yesterday. Against the Aussie we are softer at 91.3 AUc. Against the euro we are fractionally firmer at 55.6 euro cents. That all means our TWI-5 starts today just on 69.3 and up slightly.
The bitcoin price starts today firmer at US$71,715 and up +2.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.7%.
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64 Comments
NZ is in a category of high sensitivity to mortgage rate changes but not so much as Australia. Even so given the recent publication of $ millions of government funding being forked out to mortgagees in need, is rather eye watering. Plenty of dialogue on here predicted this problems eventual arrival when the crash dived OCR was suddenly re-blown the other way. Did anybody predict though that the tax payer would be obliged to rescue the affected households to this extent or did the government and officials of the time quietly assume this would be the likely and handy back stop.
As a result of a shortage of AFFORDABLE housing in the house ownership market, fewer households are able to buy.
As higher income households are unable to buy, they rent and increase market rents.
As rents rise in the private rental market, there is an increase in the number of lower income households that find housing unaffordable and more households require:
1) social housing
2) due to the insufficient availability of social housing, those on waiting lists require temporary housing
3) other lower income households have difficulty meeting rents in the private market and require housing accommodation supplements
Note that during the period, 1 year mortgage interest rates declined from Nov 2017 from 4.49% and bottomed in July 2021 at 2.162%.
This drove the nationwide house price to income ratios from 6.2x in Nov 2017 to peak at 9.3x at its peak.
The house price to income ratio that is considered affordable in the house ownership market for owner occupiers is below these levels.
Auckland has been an unaffordable housing ownership market for many years. Those who had access to the bank of mum and dad may have been able to buy. Households that did not have access to the bank of mum and dad either chose to rent or to move out of further and further out of Auckland (fringes) to either buy or rent as rents in more desirable areas became unaffordable. Many chose to move to other areas of the country and buy (if they were able to find suitable employment).
Remember, as a result of a shortage of AFFORDABLE housing, home ownership rates have been falling
https://tradingeconomics.com/new-zealand/home-ownership-rate
There needs to be an increase in new residential dwellings built. Increasing supply of rental housing at the expense of owner occupier buyers in the existing house market is merely decreasing home ownership rates and increases wealth inequality as the rich get richer and the middle income households are unable to afford to buy.
Non owner occupier property investors are reducing supply in the long term rental market due to cashflow stress. Cashflow stress has resulted in
1) selling their property
2) by choosing to rent out their property in the short term rental market
Other property investors in the long term rental market are not buying as current rental yields are inadequate. The reduced supply in the long term rental market will likely result in an increase in market price in the long term rental market.
So in the existing house market, we have
1) in the house ownership market - falling market prices
2) in the long term rental market - rising market prices
Thereby resulting in rising gross rental yields.
The current issue with building new housing, is that current construction costs in many places are above current market prices in the house ownership market, so there is no financial incentive to build new builds by the for profit sector.
Note that recent conditions have been favourable for non owner occupier buyers. Some of the reasons that non owner occupier buyers can outbid owner occupier buyers (such as upgraders, first home buyers)
1) interest deductibility
2) interest only financing
3) in an upward house price market - equity recycling resulting in zero savings required as the deposit is borrowed (in effect 100% of the purchase price is borrowed)
4) investor / non owner occupier buying syndicates - combined borrowing power results in higher purchasing power, higher than for a owner occupier buyer on 2 incomes for most owner occupier buyers.
In limited cases they also help with mortgages but only if they are small, this tends to be people aged 60-70 about to get super or just got super but still have a mortgage and find themselves without work.... cheaper to help pay then make homeless...
They do not help with million dollar mortgages, they tell you to sell.
Did a quick calc 236 million on mortgage assistance is $6279 pa per person getting mortgage help ie $120 a week, hardly going to fund a luxury mortgage.
pales compared to the other $2.124 billion, and making them sell and rent will cost the tax payer a fortune
But if they sell they will free up a lot of capital from their home. After all they have a low mortgage. They can then use this to buy a small portfolio of shares to cover their rent. I don't see why young taxpayers who can't afford a home should subsidize older Kiwi's who probably live in a home that is way to big for them anyway. Then again I am not a socialist.
When you think about it, it's propping up the banks and landlords. This is perpetuating the creation of a 'landed gentry' upper class, and ultimately is highly concerning. Note that by "landed gentry upper class" I am referring to anyone who has investment properties beyond their own family home.
But this is worse. this is a case where people are literally privatising the profits/gains while socialising the risks by getting the tax payer to bail them out. Investing in property is a business activity and I do not believe they have the right to be bailed out by the tax payer when they take on too much risk.
Alongside that is the case of simple mismanagement, sometimes wilful. For instance a couple who have enough means to obtain a mortgage should have enough means to prepare for eventualities, safeguard even, and that includes potential retirement. Instead those who ignore that requisite, spend up & keep the mortgage maxed, now can present a case to the government that they need to be rescued. And you might well argue that the simultaneous ballooning of their house value has precipitated such action. This is entirely the wrong message then. Appreciate you can’t change history but, when you consider this outcome now, boy did Norman Kirk’s Labour government have it right when they imposed compulsory super and to be fair to Winston Peters he was onto it too, some twenty years later, with the referendum for the same.
Hmmm indeed. I'm all for having a last resort e.g jobseekers, but these sorts of things aren't meant to be comfortable to live on. We seem to be transitioning to a world where nobody can fail and the government has to help when everything goes wrong. This both costs those that have, and puts off people that haven't, taken adequate precautions to protect themselves from risk. When this sentiment flows through to business like insurance and banking.....we need to be careful.
"Note that by "landed gentry upper class" I am referring to anyone who has investment properties beyond their own family home. "
Because of the significant debt to income disparity (which results in the bank of mum and dad helping out, and/or high incomes to even consider purchasing a house) ... You definition of "landed gentry class" is way too narrow. And over time, that class will indeed become the "upper" class.
I came across an interesting thread on Reddit this morning in the World News section, which was a discussion about NZ seeking to tighten immigration rules.
I've used Reddit for many years, and it has typically always been (and still is to many extents) a hivemind site with a very strong left wing lean, partly because of how the upvote/downvote system works. Immigration being an example where not that long ago, just about every top upvoted comment on Reddit would be in favour of wide open borders.
Therefore, it's fascinating to see how even on Reddit the 'mainstream' opinion has shifted to being opposed to mass immigration into Western countries. Just about every upvoted comment was along the lines of "good on NZ", "this is a great move", "wish we would have the same in UK/Canada/USA/Australia".
I'm not convinced for a nanosecond that the government will actually do anything meaningful here, as the business lobby (which is clearly so powerful it was able to scare a majority-holding Labour party into compliance, if you believe that yarn) will probably remind NACT who pulls the purse strings. That's before considering other factors, such as the fact that there are so many migrants in the country that any threat to their being able to start bringing in family etc might cause a political backlash.
What is more pertinent is the extent to which the public's opinion on mass, low-skilled immigration is at loggerheads with Western governments various.
I think the govt will slowly reduce the immigration coming in, but to still very high levels compared to the rest of the world. If we are importing "a new Dunedin" every year currently, then dropping it by half still means we have a new Dunedin every two years, which is still way more people than we are building infrastructure for.
Here is a familiar face telling why New Zealand is addicted to cheap labour!
https://www.youtube.com/watch?v=cpukmQ7IL0I&t=2s&ab_channel=1News
Being a little contradictory there aren't we Mr Thoughts?
Mass immigration being a left wing pastime, but then commenting it was the right wing lobby that bullied Labour into flooding the country yet again?
The left love open borders with their views of globalism and fear of xenophobia labels. While the right just want the cash rolling in from all the extra customers. The ship will sink regardless. NZ is a small country with limited resources, on a planet that humans have stripped of it's natural bounty.
I don't think I'm being contradictory? My comment was a bit tongue-in-cheek (insomuch that I still find it absurd that despite having an absolute majority and a supposed desire to do right by the working class, Labour somehow got bullied into doing what the Nasty Nat business lobby types wanted ... pathetic weakling behaviour)
I agree that both left and right tend to love immigration, but for different reasons.
Traditionally, both parties have been pro-immigration. But they do tend to manage immigration differently. The Left (particularly under Jacinda Ardern) sought to give everyone permanent residency, as that was the "kind" thing to do. Whereas the Right tends to import workers on temporary visas with no pathway to residency. This actually makes a big difference to NZ, as here people on temporary visas cannot buy houses (unlike in Australia for example, where mass immigration since opening the borders has led to massive increases in house prices).
So who you vote for depends on whether you want more permanent people, or more temporary ones. The hard nosed approach would be to select the latter, that way taxpayers are not responsible for their aged care costs, healthcare costs, or paying them a pension.
just about every top upvoted comment on Reddit would be in favour of wide open borders.
That's not in the slightest bit true these days, r/europe and r/canada for example are highly opposed to migration especially at high levels and if they're muslim refugees. In r/newzealand and r/australia the sentiment is pretty negative also, mainly due to housing.
Average yield on NZ mortgages hit 5.98% in Feb 24. That's a doubling of interest payments in two years to a splendid $20.8 billion (annual). That's 5% of GDP, 14% of total wages, 10% of consumer spending.
This money flows to banks and enables higher rates to savers and bank equity holders in broadly equal measures.
"enables higher rates to savers"
Oh well, after more than a decade of savers having their deposits trashed by artificially manufactured low interest rates, while everyone else piled into the property trough, I guess it's about time deposit holders made a positive yield after tax and inflation, just?
The price of gold will start today a little higher by +US$6 from this time yesterday at US$2335/oz and yet another all-time high.
Everywhere has shifted their focus to the China Gold markets now. Anyway, I saw these examples of major asset performance vs Gold over the past 5 years:
Long Term US Treasuries (TLT): -59%
Real Estate Investment Trust (REIT): -36%
S&P500 (SPY): -1.36%
Tech (Nasdaq): +32%
Rat poison: +648%
A metal that does very little has added more value over the past 5 years than the combined efforts of every employee in the 500 largest US companies.
It appears that we're possibly heading into a 'Great Debasement' of the 2020s.
Others would say the fiat currency has lost value against the metal.
Some comments from GATA from April 7.
Tonight's action in gold and silver is astounding. Both monetary metals opened down hard, as if somebody was trying to set a negative tone in the market for the day ahead after many days of strong advances.
Whereupon somebody pounced on the price smashes as if metal was a bargain at any price.
Something major has changed.
The Federal Reserve and U.S. Treasury would not have been letting the monetary metals rise so sharply over the last few weeks if they still had much control over the markets and if they still had much metal they were prepared to lose.
Is the second great era of gold price suppression ending just as the first great era ended with the collapse of the London Gold Pool in 1968, with the exhaustion of the ready reserves of the price suppressors?
In any case the U.S. dollar is in danger of being murdered by its own government through over issuance, spectacular and still-growing indebtedness, and political weaponization.
While the longstanding gold price suppression policy of the U.S. government and its allies, undertaken to defend the dollar and executed largely through the futures markets, remains a prohibited topic with the cowardly mainstream financial news organizations in the West, major central banks and governments throughout the world -- including those of China and Russia -- long have known all about it and have even discussed it openly.
Major financial houses know about it too, though they won't take the risk of discussing it openly.
GATA is a big reason why they know.
They all are aware of the uncoverable short position the Federal Reserve and U.S. Treasury have been running in gold for almost 50 years. The violence of the recent rally in the monetary metals strongly implies that this short position is being squeezed by equally big operators.
So maybe the sun won't be the only thing eclipsed tomorrow. Maybe a predatory financial system will be eclipsed too, and payback, as the saying goes, is ... well, very unpleasant.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Oh my.
A chilly scenario for the U.S. economy, in which interest rates climb as high as 8% as the effects of the unprecedented monetary policy taken to combat inflation take hold, is still very much on the table, according to JPMorgan Chase CEO Jamie Dimon.
The odds of a goldilocks soft landing outcome for the economy are “a lot lower” than the consensus of a 70% to 80% likelihood, Dimon outlined in his annual letter to JPMorgan shareholders Monday.
Coupled with Dimon’s concerns about the potential for “stagflation,” a recession characterized by lingering high inflation, he warned interest rates could soar to “8% or even more,” a far cry from the already 22-year high rates of over 5% and going against conventional wisdom of a looming decline in rates (U.S. interest rates have not been 8% or higher since 1990).
https://www.forbes.com/sites/dereksaul/2024/04/08/jamie-dimon-head-of-u…
JPMorgan CEO Jamie Dimon uses his annual shareholder letter to set a global agenda: Pro-America, pro-military, pro-Ukraine, pro-trade, pro-capitalism, pro-DEI, anti-China. Wrote: "Ukraine's struggle is our struggle, and ensuring their victory is ensuring America first". He likened AI's potential impact to that of the steam engine & said the technology could “augment virtually every job.” https://jpmorganchase.com/content/dam/jp
David Chaston says above. "....for steel prices. Excess Chinese production and export dumping has driven the cost of rebar down to 2017 levels...."
Chart is on the link above.
Given the proclaimed rise in cost of New Zealand building supplies, it would be interesting to know if New Zealand prices for steel follow the same down track. Or did they just go up anyway. (it's a New Zealand thing)
But I don't know how to find out.
Monumental fuck-up by Robertson and Woods to let Tommy Parker dupe them into agreeing to the tunneled option for light rail (although I suspect they didn't need much convincing). Has put Auckland's transport progress back by years.
https://businessdesk.co.nz/article/policy/almost-limitless-cost-increas…
That will be NZ soon. As corporates muscle in on the private rental market, sending the billions of dollars that tenants pay each year offshore to line the pockets of large international conglomerates and their shareholders. That's one thing people do tend to forget, the hundreds of thousands of private landlords in NZ are out there spending all that rent money (minus the amount that goes to the Aussie banks) in the local economy. What happens when that economic stimulus disappears?
Never a better time to rebalance taxation to more a mix of unimproved land value and income, not just income from productive work.
The restraint might be in the form of donations to politicians, though. So far they seem to have behaved rather in favour of the people farmers.
In today’s @FinancialReview , questions to answer for Aus Gov as Kurt Campbell says AUKUS boats are for Taiwan straits, that AUKUS is not a “jobs” project and “more money” will be required. Campbell has effectively countermanded PM and Marles on Aust sovereignty. 1/2 Link
Similar situation over in New Zealand. Check this rather extraordinary statement from former Prime Minister Helen Clark : "NZ’s independent foreign policy is being ditched as NZ foreign & defence ministers go all in on AUKUS" Link
Quote Helen Clark @HelenClarkNZ 19h Concern building that #NZ’s independent foreign policy is being ditched as NZ foreign & defence ministers go all in on #AUKUS & Foreign Minister goes to Washington DC for a week. This carries many risks for NZ, not least economic. WHO voted for this? https://democracyproject.nz/2024/04/08/geo
All she is really doing is complaining about NZ going away from her left wing isolationist ideology. Her vision/dream was probably a legacy of drug taking it is so unrealistic (Lange's was bad too). The reality is her 'benign strategic environment' was a BS pipe dream, and to have meant that she had little or no understanding of the major autocratic players in the world. Human history tells us no period remains stable for ever, but she and Lange have shot us in the foot. What we are really doing is return to old cultural connections that provide better security than where the world is going to.
"Benign strategic environment" was not a left wing ideology or belief at all, but rather a broad zeitgeist. And actually a follow-on from conservative political scientist Francis Fukuyama's ideas germinating in The End of History: https://en.wikipedia.org/wiki/The_End_of_History_and_the_Last_Man
The idea of a benign strategic environment certainly seemed to persist through John Key's years too, with Key and Co's very favourable stance toward China, even allowing Jian Yang into such positions as he was. National was anything but nationalistic, too. It's only more recently that large portions of society have swung back away from the more liberal view to a more conflict and power-based view of things, along with folk hailing strongman leaders and nationalistic ideas.
Probably reasonable that we're better off having AU and US as allies than China, though. Although the US seems to have generally had little regard for NZ or any other country than themselves, China seems a still worse version of that.
She used it as a justification for her isolationist strategies. Her ideologies meant she was opposed to the US/UK models of democracy and preferred the old Marxist type regimes which the Chinese purported to be. But a clear view of them reveals them to just be another dictatorship.
They tried to argue we weren't a threat to anyone an likened us to Switzerland, but we don't have big mountain ranges protecting us. They did argue we had a moat but if you've got a boat (or a navy) then a moat isn't much of an obstacle. She didn't appreciate it when people pointed out that neutrality must be backed with a strong military. Hitler proved that point in WW2.
Just pointing out that it wasn't a left position in the world at the time, but one of the times and broadly held across the political spectrum. Continued by Key and English, and Jian Yang.
Nor did they reduce democracy.
In fact, a big driver of centralisation was the ACT party too, merging more locally representative councils in a super city.
I received an email from BNZ this morning saying that they are changing their master home loan agreement such that they no longer have to provide any notice of further changes to the agreement. My first thought - what the hell is this change for as it seemed pretty unreasonable. Then I figured, nothing good (for the home owner anyways). Anyone else receive something like this?
Gold now past US$2350 yet Mainstream Media AWOL.
https://tradingeconomics.com/commodity/gold
So much coverage given to Residential Property rather than educating New Zealanders to the benefits of diversifying wealth into Precious Metals and ways of investing in these.
Silver anyone?!
https://tradingeconomics.com/commodity/silver
About to pierce the 5 year ceiling: once it breaks expect a doubling at least over the next 24 months.
A super spike, like the 70's, would be fun... 10 x?!
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