Here's my summary of the key events overnight that affect New Zealand, with news financial markets are getting even more complicated and unpredictable.
Are we getting too pessimistic about China? Recently some well-know investors like Kyle Bass and George Soros have been talking their book (they have short positions) wanting markets to price in a China stumble. But a long-term China bear now thinks the drum-beating has gone way too far. Jim Walker says the biggest risk now is being too pessimistic.
Yesterday, the Japanese yen climbed to its strongest level against the Kiwi dollar since late 2012 after the Bank of Japan left its monetary policy unchanged, the latest sign of how the risk from England's “Brexit” vote is tying global policy makers’ hands. And that got even more complicated with the murder of a left-wing English politician on the campaign trail. The attacker was probably motivated by anti-immigrant views rather than the more general political issues.
In Hong Kong, their property markets are in trouble. One major developer there is breaking the mold by offering 120% mortgages to shift their new-builds. They do require security over another property, but still, this is the sign of desperation and what can happen when markets turn.
Some markets haven't turned lower. Vancouver, Canada is still rising at a phenomenal rate, up +32% in volume from a year ago on the back of a construction boom that is addressing latent demand. Average prices are up +16% at the same time to an eye-watering NZ$1,154,000. When latent demand is left to fester and build over many years, addressing it can throw up unexpected outcomes.
In Australia, the RBA yesterday released some research you don't see everyday. Australia's poorest households enjoyed the biggest gains in wealth over recent years, challenging the recent claims inequality is getting worse. They found the bottom 20% saw their wealth increase by more than 21% between 2010 and 2014. However the middle classes saw almost no real growth in wealth, and those in the top 20% actually suffered a drop. The main driver of these shifts was their compulsory employer-paid superannuation program.
The benchmark UST 10yr yield has slipped further today and is now down to 1.56%. Yesterday we saw local rates fall they start today with the 1-5 curve at just +14 bps and the 2-10 at just +47 bps, both the flattest since May 2015. And prior to that brief period you need to go back to 2008 to find a yield curve this flat. Low rates pose an enormous risk for fixed-income investors who now stand to lose big-time when rates start tracking higher.
The oil price is still falling and has sunk $1 in the past 24 hours. The US benchmark is now just under US$47/barrel and the Brent benchmark just under US$48/barrel.
The gold price is unchanged however at US$1,289/oz.
And finally, the NZ dollar, is also pretty much unchanged from this time yesterday at 70.6 US¢, at 95.7 AU¢, and at 62.8 euro cents. The TWI-5 index is now at 74.
If you want to catch up with all the local changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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14 Comments
The main driver of these shifts was their compulsory employer-paid superannuation program.
Pension plan IOUs predicated upon unobtainable reach for yield projections do not pay for rent and groceries today and in most current circumstances are unlikely to pay out in the future.
California Governor Jerry Brown pushed for the giant pension fund CalPERS to lower its assumed investment return from 7.5% to 6.5%. Given that the world is headed towards deflation and that CalPERS earned only 2.4% for the fiscal year ended June 30, 2015, Brown’s request seemed entirely reasonable. Instead, the board approved a staff proposal to move to the 6.5% target over 10 years. Read more
SH pretty much nails it on the head above, you need to look at what they are calling wealth. The future can't and won't, pay out on these claims. Witness the falling yield about the world, across almost all asset classes. What features of the productive economy do you see that are in place to reverse this 30 year trend?
Yep. The financial services sector is dodgy indeed. But what do you do ? A distant elderly relative has several hundred thousand dollars worth of valuable and rare timbers. He sells bits nearly every week and has been for about 15 years.
It won't protect him from all world disasters, but at least he is not so exposed to those financial services creeps.
Low rates pose an enormous risk for fixed-income investors who now stand to lose big-time when rates start tracking higher.
And if they don't government costs pose an even greater risk to lowly taxpayers being called upon to underwrite crown funding for projected investment costs that have nearly doubled in price in today's dollars.
Witness Transmission Gully.
The cash payments will be around $125 million per year, starting only when the project is finished and open for use, and lasting for 25 years. This stream of cash payments brought back to today’s dollars is $850 million and is the “net present cost”. Read more
Two years ago when this projection was published the NZGS 2027, 4.5% issue was trading at ~4.50% yield compared to today's quote of ~2.46%. At the current rate of yield collapse and approaching the beginning of the payments start date interest rates could half again to materially raise Transmission Gully's NPV cost structure towards ~>$2.0 billion.
The latest atmospheric CO2 readings are extremely ominous:
Daily CO2
June 15, 2016: 407.31 ppm
June 15, 2015: 402.21 ppm
Up 5.10 ppm (versus 2005-2014 average of 2.11 ppm per annum)
https://www.co2.earth/co2-acceleration
Clearly a massive global reduction in industrial activity is called for, but 'nobody' wants to go down that path.
So a British MP assassinated, it will be interesting to see if that has an impact on decision making. Already I see the offender being marginalised, is that an effort to minimise the message the killing portrays? I find it fascinating because this is exactly the sort to thing I have commented on in the past here. The self interest of politicians won't change until the stakes are higher. I don't condone this sort of action, I merely observe and analyse.
Here in Aus. after earning a bout an average income for 4 years my recent super statement shows me I have about the same amount as I have contributed in there. Once it is taxed and the upsell insurances & fees taken out it has only just trod water. The only benefit is reduced loss to tax over take home pay.
My guess is that, as poorer folk had zero savings before, anything counts as wealth so statistically it looks better. It just means they are not spending it or paying down debt now. Rich may be contributing up to the limit for tax reduction on money they don't need right now anyways. To be honest they would have to present the figures on actual spendable disposable income, they dishonestly tend to include super in this despite it being locked away until you die. Snowballs chance of that, the gravy train rolls along.....
What is going to happen in China - who knows. I don't think the Communist Party have any idea either. While pessimism seems commonplace (Bloomberg are just as bad as ZeroHedge - can both be banned from this website as links to support an argument - please , pretty please) - it is fear, uncertainly and doubt that drive markets daily - logic and rational seem to go out the window.
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