Here's my summary of the key events from overnight that affect New Zealand, with news of a surprising detail in the recent Aussie budget.
But first in the US, import prices may be about to fuel a rise in inflation there. They were up +4.1% in the year to April, boosted by a rise in energy costs.
And the American government had a US$182 bln budget surplus in April. The fiscal 2017 year-to-date deficit is US$344 bln compared with US$353 bln in the same period of fiscal 2016. As a percent of GDP, this deficit is now just on -3%.
In China, consumer inflation remained tame in April, edging up on higher costs for rent, education and other nonfood items, while producer prices rose at a slower but still-high pace. The consumer-price index was up +1.2% from a year earlier, rising from +0.9% in March and slightly above the +1.1% forecast of analysts.
And new data shows China’s biggest-ever foreign acquisition frenzy is ending almost as dramatically as it began. After stunning the world with a record NZ$350 bln of announced outbound takeover deals in 2016, Chinese companies are now struggling to cope with tighter capital controls and increasingly wary counterparties. Cross-border purchases plunged by more than two-thirds during the first four months of this year, the biggest drop for a comparable period since the depths of the global financial crisis in 2009. After a brief starburst, Chinese buyers are now on the sidelines.
In Australia, some further measures in the new Federal budget are just now getting more attention - especially the depth of the plans to tackle their 'black economy'. One in particular deserves mention here; the new requirement for buyers of newly built homes and apartments to pay GST on their 'investment' directly to the tax department. (See page 5-13.) Currently that is done by the developer and a new home purchase is GST free just like a purchase of an existing home. But some developers have gamed the system so intensely, by going 'bankrupt' right at the end of the project, the Aussie tax authorities find they never actually collect the GST. So the onus is to be put on the ultimate buyer. It is a case where innocent developers - the majority - are going to 'pay' for the sharks' actions. And this will likely make existing houses seem more attractive to buyers - especially as a resale of the new-build won't recover the GST paid. Only the first buyer will pay it.
In New York, the UST 10yr yield is up again this morning and is now at 2.42%. And that is even after a heavy sag in-between based on US political risk.
The price of oil is is up US$1.70 today. The US crude benchmark is now over US$47.50 a barrel, while the Brent benchmark is just under US$50.50. The mover is a surprising lower level of US crude oil inventories.
Gold is alos up and now at US$1,220/oz.
The New Zealand dollar is slightly stronger as well and now at 69.4 USc. On the cross rates the Kiwi dollar is at 94.2 AU¢, its first break above 94 AUc since early February, and 63.9 euro cents. The TWI-5 index is at 74.6.
If you want to catch up with all the changes yesterday, we have an update here. And we will have all the news and analysis around the RBNZ MPS today at 9:00 am.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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22 Comments
Monster gas projects may pay no tax and royalties on $33B a year
https://www.michaelwest.com.au/monster-gas-projects-may-pay-no-tax-and-…
https://www.michaelwest.com.au/why-should-taxpayers-guarantee-macquarie…
I respect Michael West so it is disappointing he is only telling part of the story here.
It is true that the Oil & Gas companies pay virtually no PRRT however they pay significant state royalties (i.e. ~10%) at the wellhead. It is also not fair to suggest these companies are paying very little company tax, that is simply not true.
PRRT was effectively a "super profits" tax and the Oil & Gas companies in Australia are not making super profits. Yes it probably could have been designed better but perhaps the bigger issue is that none of the money goes into a sovereign wealth fund anyway.
The price of oil is is up US$1.70 today. The US crude benchmark is now over US$47.50 a barrel, while the Brent benchmark is just under US$50.50
Hmmmm...
“What we need is real demand growth, faster demand growth,” Kho, the president of Vitol Asia Pte., said in an interview in Kuala Lumpur. “Growth is there, but not fast enough.”
The problem in a nutshell: originally, oil consumption, or demand, was forecast to expand this year by about 1.3 million barrels a day, growth has been limited to about 800,000 barrels a day so far in 2017, Vitol's Kho said, adding that meanwhile U.S. output had grown 400,000-500,000 barrels a day more than expected. “If demand goes back to where it should, where it’s forecast, then it’ll help, but my gut feel tells me it is still a bit long,” he said. Vitol's dour demand outlook has been shared by the International Energy Agency itself, which trimmed its forecasts for global oil demand growth this year by about 100,000 barrels a day to 1.3 million a day as a result of weaker consumption in OECD member countries and an abrupt slowdown in economic activity in India and Russia, according to a report released last month. Read more
Try a root cause analysis
https://en.wikipedia.org/wiki/Root_cause_analysis
Imagine an investigation into a machine that stopped because it overloaded and the little fuse blew.[2] Investigation shows that the machine overloaded because it had a bearing that wasn't being sufficiently lubricated.
The investigation proceeds further and finds that the automatic lubrication mechanism had a pump which was not pumping sufficiently, hence the lack of lubrication.
Investigation of the pump shows that it has a worn shaft. Investigation of why the shaft was worn discovers that there isn't an adequate mechanism to prevent metal scrap getting into the pump.
This enabled scrap to get into the pump, and damage it. The root cause of the problem is therefore that metal scrap can contaminate the lubrication system. Fixing this problem ought to prevent the whole sequence of events recurring.
Compare this with an investigation that does not find the root cause: replacing the fuse, the bearing, or the lubrication pump will probably allow the machine to go back into operation for a while.
But there is a risk that the problem will simply recur, until the root cause is dealt with.
The root cause is excess demand, not all of the demand is immigration but a substantial amount is caused by immigration and the ability of overseas buyers to purchase property in this country unhindered. This could be sorted quickly and easily by the stroke of a pen. Eliminate the scrap metal (immigration) and lubricate the system with GST exemptions, although I am not a mechanic. Any excess funds could then be used to purchase new tires (food, investment in productive business etc) Edit - And replace the pump (government)
Are you sure, jobs/income
For example Joycie is saying this morning low interest, "when interest rates go up, affordability will be better" - not for the have-just-bought :(...
But he needs go further into the enabling credit creators (that can only act as building societies).
and then to what I think the core issue "Jobs/income".
P.S. there is never excess funds.
Jobs/income.
Today the root cause is a number of things. But in 2003 I expressed concern (not here) about a German woman who was able to come to Wanganui and buy 10 houses in a week and then go home. Shortly thereafter it was group of Australian investors. Chinese have been there too. Demand side drove it initially through foreign, cashed up investors(none of these borrowed money to buy). Then the Government didn't want to know (acknowledged by HC in the Ninth Floor series). Now the solution is neither simple nor easy, and most MPs are up to their necks in vested interest in the issue. So there will be no real solution that protects the average Kiwi.
But first in the US, import prices may be about to fuel a rise in inflation there.
Possible, but not forecast.
The staff’s forecast for consumer price inflation, as measured by changes in the PCE price index, was unchanged for 2017 as a whole and over the next couple of years. The staff continued to project that inflation would increase gradually over this period, as food and energy prices, along with the prices of non-energy imports, were expected to begin steadily rising this year. However, inflation was projected to be slightly below the Committee’s longer-run objective of 2 percent in 2019. [emphasis added] Read more
Chinas inflation may be tame today.... but their credit growth is not..!! ( and we live in a global world )
Good blog - this is a good write up too
http://brucewilds.blogspot.co.nz/2017/04/central-banks-massive-incursio…
"One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses. Their incursion into this bastion of the free markets signals we have entered the era where true price discovery no longer exist."
"The new requirement for buyers of newly built homes and apartments to pay GST... which can't be reclaimed upon the sale of the house or apartment"
Surely this will further fuel house price inflation ? as
1) fewer new houses and apartments will be built as a consequence = less supply
2) it makes new houses and apartments more expensive
3) New houses and apartments becoming more expensive causes prices for existing houses to rise
4) Rising prices attract more speculative interest so demand rises further, and
5) Rising prices means existing owners have more equity and can use this to borrow more
6) Some of the money flowing into Australia from overseas to buy new and existing houses gets spent and so boosts retail and hospitality businesses
7) Leads to more workers needed in retail and hospitality, these are low paid jobs so are filled with immigrants from low wage countries, leading to more demand for cheap rental accomodation
8) Bureaucrats and politicians bask in the delusion that they are doing a fine job and encourage all of the above to repeat.
...
39) Everyone works in retail and hospitality and various government bodies and wonders why productivity is so low, why the schools and roads are so crowded and why no one can afford to buy a house anymore.
..Yvii no i think not. I suspect the gst is always charged to the buyer (but within total price) , but these developers are collecting gst but closing out and not passing this gst to govt. So should have nil affect ...unless every developer has been running the rort as standard practice. But I'll stand correted.
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