Here's my summary of the key events from overnight that affect New Zealand, with news an Aussie insurer is being sued for 'deceptive conduct'.
But first in the US, Americans increased their spending in April with the biggest increase in four months, and there were upward revisions to the March data. These were matched by income growth. That takes the year-on-year growth in consumer spending to +3%. At the same time, prices of what they bought rose at a healthy but lesser clip. Both sets of data confirm the expectation of a June rate hike from the Fed.
That data was bolstered by the GDP-Now calculator at the Atlanta Fed. It is predicting US GDP growth at +3.8% in the second quarter, up a tick from last week's prediction and materially higher than the 1.2% rise in the first quarter.
Perhaps the only cloud today is the unexpected slip in a respected consumer sentiment reading. This survey found current sentiment steady, but there are clear concerns looking forward and probably related to the turmoil in Washington.
Across the Atlantic, a record spending budget was announced by the EU in Brussels. And they will suggest the euro zone might need to issue collective debt and run a joint budget. These are ideas from the new French President Macron. But the big spending plan may also be about the Brexit negotiations. The year ahead is the last one involving the British who are being pressed to agree to a large bill covering past British EU spending pledges. This is where the UK finds out the real cost of their decision.
And a geo-political trend to watch: Africa is to become the front-line as India and Japan team up to counter China's One-Belt-One-Road initiative which is increasing seen to have imperial designs. This is the opening that Japan and India are using to launch their Asia-African Growth Corridor (AAGC). It is also the sentiment behind the revival of the TPPA, without the US. US leadership in trade matters has very quickly evaporated.
In Australia, their competition regulator has instituted proceedings in the Federal Court against NIB Health Funds, alleging it broke the law by engaging in "misleading or deceptive conduct, unconscionable conduct and making false or misleading representations". At the heart of the case is NIB changing insurance contract benefits and conditions without notifying policyholders.
In New York, the UST 10yr yield is lower at 2.21%. And in a sign of the times, perhaps we should note that Amazon's stock briefly hit US1,000 for the first time today although it has slipped back just below that level now.
The price of oil is a little softer again today with the US crude benchmark is now still just under US$50 a barrel, while the Brent benchmark is now under US$52.
The price of gold is also a little lower, now at US$1,262/oz.
But the Kiwi dollar is going the other way and is noticeably higher today at 71 USc. On the cross rates the Kiwi is at 95.1 AU¢ which is a four month high, and 63.5 euro cents. The TWI-5 index is now at 75.3 and that is its highest since mid March.
If you want to catch up with all the 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
Cracks are showing across the ditch!
http://www.theaustralian.com.au/business/property/bull-run-over-with-pr…
http://www.smh.com.au/business/the-economy/sydney-and-melbourne-propert…
In New York, the UST 10yr yield is lower at 2.21%.
Not that long ago it was common for the third time to hear “interest rates have nowhere to go but up.” And each time that rallying cry of optimism is sounded the bond market is lower in yield than the last. It is perhaps not the most prominent and widely followed signal, but it is the most resolute and clear. The yield curve describes the economy particular the one expected in the near and intermediate future, and what it says today is unambiguous about the global state of economic affairs; “something” is still wrong. Liquidity preferences continue to be the dominant setting. Read more
The story isn’t playing out as expected this year, as investors and analysts navigate a slew of forces beyond just the path of short-term rates -- faltering inflation data, waning confidence in Donald Trump’s agenda, haven demand and a growing conviction that the bond market will smoothly digest the transition to a smaller Fed balance sheet. Read more
Federal Reserve Governor Lael Brainard said soft inflation could cause her to reassess the path forward for monetary policy should it linger, even as the global economic outlook brightens and U.S. growth looks poised to rebound. Read more
The AAGC seems like a good plan to counter Chinese imperialistic efforts in the region.
Couple this corridor with the TPPA, Japan will provide the much needed artillery to fire up the global economic landscape. Only if the New Zealand government provides more support to our high-value industries, our gains would exceed the costs of being a part of these global initiatives. We cannot rule the markets solely with our milk and fruit sellers.
A headline that reads' Sharp improvement in US economy " can only mean one thing , the Fed will be able to start slowly restoring sanity to money markets , increase interest rates , and unwind the QE .
The tide has turned and we will soon see who was swimming naked
It's funny how the economy is going good right up until the point of a sharp correction. Car loan defaults are soaring and there's a lot of other toxic debt in the US market. I'm not sure how bad the mortgage backed securities are at this time but the Fed is holding over $1.7t in them. The winding down of their balance sheet is going to be about 55% their own bonds and 45% MBS. There's not much else on their balance sheet of a significant size.
Hi David - a bit off topic for this article sorry.
I made contact with Robert Shiller about the real home price data that was put together over the weekend (This time is special? Err, no) to see if he had any thoughts as to why our current boom wasn't more pronounced in 'real' terms. Here are his thoughts in his email response after taking a look:
'You are looking at median home prices, not repeat sales indices. Homes are getting larger and better through time as society gets more affluent. Correct for that trend and the 2005 and current booms will stand out more. A quick trick might be to divide by average square meters if you can find that data'.
I'm not sure if there is any desire from the editors perspective to do further articles on the topic of real home prices vs actual vs affordability etc, but if there was it would be great if Shillers feedback could be incorporated if such data is available to you there.
Many thanks - IO
Thanks. His points are valuable and relevant. We do have average size data in the building consent series, but it will be tricky using that. REINZ and QV data is dominated by existing home sales. There are no long term data for new houses sold, certainly none in any regional/TLA depth. But this would be needed if we are to use the consent size indicators.
Appreciate you reaching out to him.
Some years ago I was professionally active in property investing
When evaluating prospective investments we obtained from the local real-estate agencies the current value of land per sq/f or sq/m for that particular area or road or street - often RE's were hesitant to provide that info but once having dealt with them they were quite forthcoming - they knew the price
I always used the unit value of the land - the value of the house was easy to estimate on a replacement for new basis - again on a sq/m basis
The important part was getting the unit value of the land for that area
That would still be woefully statistical in its representation. 200sqm of home on 2 hectares in Gore does not equal the same on a 300sqm in Ellerslie or an apartment. Neither is the condition taken into account. What has always been apparent to me is that few, if any, commentators refer to it correctly. It is property, it may come with a dwelling and other inprovements but that is incidental. Go to a high value suburb and buy a dunger, removal of the building does not affect the price by the amount that it would cost to replace. In fact removal may increase the value as there is reduced cost of demolition to the purchaser. I recall seeing an index based on a combination of land area and dwelling size, that is close but still flawed as you widen the area and different suburbs blur the reality. The short version is that we all must view each property in the correct context.
Independent_Observer
Wouldn't 'correcting' the data sample by removing larger houses to allow for the trend to bigger houses, support rather than detract from the thrust of the article i.e. the boom in real terms is not all that 'special' ?
Rather than making the 2005 and current booms 'stand out' (look worse) as Shiller proposes, isn't it more likely such an exercise would show that for what was previously, and is now, regarded as a standard sized home, prices have boomed less than is currently perceived? Or am I missing something ?
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