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Global inflation rising; US budget deficits lower; China hunkers down for 'stability'; Indian factories struggle; Australia in election mode; UST 10yr 1.49%; oil stable and gold firm; NZ$1 = 68 USc; TWI-5 = 72.3

Business / news
Global inflation rising; US budget deficits lower; China hunkers down for 'stability'; Indian factories struggle; Australia in election mode; UST 10yr 1.49%; oil stable and gold firm; NZ$1 = 68 USc; TWI-5 = 72.3
Auckland's inner city leafy suburbs
Auckland's inner city leafy suburbs

Here's our summary of key economic events overnight that affect New Zealand with news an Australia in electioneering mode may undermine New Zealand's skilled workforce.

But first, American consumer price inflation came in at the expected 6.8% year-on-year in November, and up from 6.2% in October. Their core inflation level also didn't surprise with a 4.9% rate compared to 4.6% in October. The main driver was energy costs, and the impact of these may fall away soon as crude oil's gains seem to have settled down. But other elements are rising faster too with food prices up a concerning 6.1%, clothing and apparel up 5.0%, rent up 3.8% and new car costs up 11%. Oddly, medical care costs have only changed minorly over the past year.

Americans haven't experienced inflation like this two generations (since 1982) so there is bound to be unease, and probably much of it partisan. Overlooked will be that average weekly earnings rose +5.6% in the year to November, more than the core CPI rise and less than the headline rate. 'Real earnings' will have declined, but there is more than enough room for consumers to make small adjustments to ride out these changes. And of course, most will.

But inflation 'shock' will be real, especially more those who didn't see this coming and others at the margins. However, so far there is no real evidence there is widespread angst, with the widely-watched University of Michigan consumer sentiment survey coming in more optimistic that analysts had expected and broadly stable over the past four months. So far, Americans seem to be handling higher inflation in a mature way.

Meanwhile, the US budget deficit is now shrinking, even if the progress is small. It came in under -US$2.7 tln in the year to November, or -12.5% of GDP. Rising tax revenues from higher activity is helping. For the first two months of their new fiscal year (October and November) federal tax receipts were +23% higher than the same period in 2020. If that keeps up (and it may be unlikely), they will eat into their deficits quickly. US federal tax levels are very low by international standards; in 2020 they were 16.5% of US GDP, 25.5% for all taxes (not just Federal) whereas the average for OECD countries was 33.5%. In New Zealand it was 32.2% and Australia 27.7%.

In China, the top brass in Beijing are increasingly concerned about stability as their economic activity slows down. In a statement after their closed-door three-day Central Economic Work Conference they declared: “Ensuring stability is the top priority for the economy next year.”

China's housing market is cooling fast. Unsold new home inventories have climbed to the highest level since August 2016. In some regions a sense of panic is growing as their home owners face steep losses. You can see why 'stability' is now the catchword.

In Japan, producer prices rose more than expected in November, adding to background global costs. At an annual rise of 9.0%, and a monthly rise of +1.4%, that puts them at a 40 year high, and a very uncomfortable position for their manufacturers.

Germany also reported very high consumer price inflation for November, up 5.2% and it highest since 1992 (and up +6.0% on a harmonised basis to compare with how other countries report it). Energy costs are the main culprit there, but food prices rose 4.5%.

Brazil also reported CPI inflation overnight - and theirs was at 10.7%. (All these high CPI rates puts New Zealand's 4.9% into perspective and makes Australia's 3.0% seem very modest. Inflation will surely persist as long as the supply-chain pressures persist, irrespective of the oil price.)

We should also note that coffee prices are now at a ten year high and have risen very sharply since April.

India's industrial production disappointed for October, up +3.1% and much less than was anticipated. The RBI's maintenance of loose monetary policies to try and get some momentum building in the Indian economy makes sense with this data.

In Australia, they are in full election mode again, with the Government 'forecasting' a rapid rise in business investment, and a rapid return to Government surpluses. This playbook was rolled out at the last elections in 2016 and 2019, and of course nothing like this actually happened. However, to ensure they have a chance, the Morrison government will steadily increase permanent migration back to around +160,000 per year "to energise economic growth and address skills shortages". If they actually do that, it may have a vacuuming effect on New Zealand's skilled workforce.

The Morrison government is the underdog in that election race, and will surely try ever more risky strategies.

Staying in Australia, pandemic cases in Victoria jumped to 1203 reported yesterday. There are now 11,145 active cases in the state - and there were another 2 deaths yesterday. In NSW there were another 516 new community cases reported yesterday, another jump, with 3,683 active locally acquired cases, and no deaths. Queensland is reporting 9 new cases, especially on the Gold Coast. The ACT has 6 new cases. Overall in Australia, just under 89% of eligible Aussies are fully vaccinated, plus a bit over 4% have now had one shot so far.

The UST 10yr yield opens today at 1.49% and retracing -1 bp overnight. The UST 2-10 rate curve starts today little-changed at +82 bps. Their 1-5 curve is little-changed at +99 bps, while their 3m-10 year curve is marginally flatter at +144 bps. The Australian Govt ten year benchmark rate has fallen -2 bps to 1.64%. The China Govt ten year bond is also -2 bps lower 2.86%. The New Zealand Govt ten year is down -2 bps at 2.43%.

On Wall Street, the S&P500 has started their Friday session up +0.6% and on the way to a good weekly gain of +3.2%. Overnight, European markets all fell about -0.2% so Frankfurt ended the week with a +2.0% gain, Paris was up +2.7% and London was up +2.4%. Yesterday Tokyo fell -1.0% on the day to be up a net +1.3% for the week. Hong Kong was down -1.1% on Friday to end the week +3.2% higher. And Shanghai closed down -0.2% for a +1.4% weekly gain. The ASX200 closed down -0.4% to be up +1.6% for the week while the NZX50 rose +0.6% yesterday to be up +1.4% for the week.

The price of gold will start today at US$1785/oz and up +US$8 overnight.

And oil prices are little-changed at just over US$71/bbl in the US, while the international Brent price is still just over US$74.50/bbl.

The Kiwi dollar opens today marginally firmer at 68 USc. Against the Australian dollar however we are down at 94.7 AUc. Against the euro we are unchanged at 60.1 euro cents. That our TWI-5 starts today lower at 72.3. We should also note that the Chinese yuan rose to another 3 year high against the USD as the Chinese central bank has stopped intervening in this market - for now at least.

The bitcoin price has slipped to US$47,519 and down another -2.2% from this time yesterday. Volatility over the past 24 hours has stayed moderate at just over +/- 2.9%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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44 Comments

So sounds like there will be plenty of opportunities for young kiwis to escape NZ's horrendous cost of living for greener (although browner) pastures in Aus.

Good luck to them, we've screwed their futures over here.

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We've screwed their chances anywhere - Aus included.

This is a planetary predicament; partisanship is irrelevant.

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In the bigger scheme of things, you are of course absolutely right.

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'Real earnings' will have declined, but there is more than enough room for consumers to make small adjustments to ride out these changes. And of course, most will.

Graphic evidence

And yet: #Apple, #Alphabet, #Microsoft, & #Amazon have between them gained $5.5tn of value since their March 2020 lows. In just 118 days between May 6 & Sep 1 last year, Apple increased its valuation by $1tn. Before 2018, no comp had ever even been worth $1tn. https://axios.com/newsletters/ax              Link

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Low interest rates = no point in holding cash = ballooning asset prices.  The mechanics of continued retirement savings and normal return-seeking behaviour leads to the asset bubble.

What I think is understood but with no real mitigation is the risk reward ratio are out of whack at these extreme over-valuations, other than expensive shorts what other protections are there?

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The 1% indebting the 99% must surely entail provision of, after tax and FIRE industry costs, the real means to service this debt.

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Thank you Audaxes. Average inflation adjusted hourly earnings in the U.S. are down -1.9% yoy, despite what the cheerleaders say.

Furthermore, that -1.9% is conservative. It doesn't cover all the other obfuscation and sleight of hand used to hide inflation. 

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Correct and we have lived in a deflationary environment.  Mass production, new technology, robotics, all increasing productivity, not to mention boomers downsizing, collecting pensions, Chinese labor, all deflationary.  But Central Banks target of 2% inflation (why?), gives them an excuse to capture these gains for the wealthy using their Keynesian policies.  Blackrock and Vanguard now rule Wall Street and with their leverage and monopolistic policies can control any market, including Big Pharma.  Blackrock has become a branch of the privately held Fed, who will never let 'their' banks fail, interest rates will forever be low.  Politicians are elected by corporate lobbyists influenced by these very hedge funds, who also control the media.  Blackrock even got to dispense bailout funds for the GFC.  The Fed has $2.5 Trillion (that is a T) of MBS on its books and Blackrock is buying whole sub-divisions in the US and turning them into rentals.  Powell owns Blackrock shares.  Coincidence?  You will own nothing and be happy.

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Nice Context,  I have always wondered why the 2% midpoint targeting is so entrenched.  Blackrock has been buying up significant numbers of houses all over the states since the GFC. 

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Germany also reported very high consumer price inflation for November, up 5.2% and it highest since 1992 (and up +6.0% on a harmonised basis to compare with how other countries report it). Energy costs are the main culprit there, but food prices rose 4.5%.

WTF? German Power Price on the way to €200/MWh. -  Link

Export price advantage destroyed. 

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Germany never had an export price advantage, not 20 years ago, not today. They win export price premiums based on quality. Nobody every buys a German product just because it is cheap.

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Yeah right - machine tool price competition is fierce - robot machinery based manufacturing is always precise and high quality.- China is just as capable as anyone now.

BeiDou conducted the first inter-satellite and ground station communication using using lasers instead of radio signals, transmitting data a million times faster than radio and increasing satnav accuracy 4000%. Read full article →

A high-speed railway linking China to landlocked Laos opened Friday. The 660-mile, 160 km/h line runs through mountains and ravines from Kunming to Vientiane. Read full article →

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I don't think its so black and white.

A lot of German produce is of very very good quality. eg . German cars. Or something I can afford: Stahlwille tools which are night and day better than any Chinese ones. But price does come into it to a certain extent. Overall I think its more to do with value for money.

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that's what we used to say about Japanese engineering. Give me a Corolla over a Golf any day for quality. Lexus is also pushing Mercedes in the luxury market.

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We are only a rainy day from seeing that go from 4000% to 4%.

The railway on the other hand is an incredible achievement that will (like almost all railway) give and economic boost to stops on the line.

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By gum stops like Ogdenville, North Haverbrook and Brockwaysure have been put on the map.

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Quality ? You have to be kidding. People buy German products based on it being a Status symbol. Sure they look nice, they look like nice engineering but the reliability is terrible. What really said it all for me was a Trade-Me comment from an Audi Technician who owned a Subaru. I have personally worked on some of their stuff and its nasty.

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I had nothing but trouble with bought new Mercedes Benz cars in the UK (1980s - 90s) - went Japanese and I have never had any trouble. Bought new 2005 Subaru station wagon still running without a single issue.

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I had a similar experience with a BMW series 7 (also in the UK) in the 1990s. Absolutely terrible. However, it really isn't about cars, but productive equipment. The machine tool equipment we were buying was at a level above, and only matched by some Japanese gear. As someone else noted, it is about overall value, not price. And things have improved an awful lot since the 1990s (30+ years ago). You know Germany (and Japan) have huge advantages when Chinese (and American) companies now pay large premiums to take them over. But then they fade (the Chinese-owned ones at least). We found that the ones that shifted to US ownership maintained their mojo, and got even better.

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The Bundesbank has noted residential real estate accounts for 80% of total fixed asset valuations in Germany - a country once noted for it's prodigious industrial output.

https://www.bundesbank.de/en/publications/reports/financial-stability-reviews/financial-stability-review-2019-814946

Global industrial production

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This is interesting, do they suffer from the same banking mandates that slow our business investment, the requirement for owners to go "all in" on a supposedly limited liability company by having to mortgage their house for business loans?

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Be em truble you

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The adoption of the Euro actually did just that. If Germany were still using the Deutschmark, its value would be higher and consequently their exports dearer. The adoption of Euro has not only given German exports a price advantage but also provided them with a much-enlarged domestic market. 

https://www.forbes.com/sites/miltonezrati/2018/01/23/the-german-swindle…

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Germany has switched off nearly all its coal fired plant and shut down nuclear. I don't know what the mix was and now is. If they increased their gas fired plant to make up for the drop in coal and nuclear, they'll be paying through the nose for gas. Their wind evidently has suffered, not enough windy days and sun in Germany? Shows what energy policy madness is on the go. UK not much better off but they hardly have any manufacturing.

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"..haven't experienced inflation like this in two generations (since 1982)"

Comments like that trigger all sorts of thoughts. Like, "I wonder how London was doing at that time?" and here's something I didn't realise:

What do you think the population size of London was in 1982? = 6.7 million. Sounds about right.

But what was it 'two generations' before that - say 1952? "Must have been lower", right?

But it was actually higher - 8.4 million. London actually shank for 30 years and didn't get back to 1950's size until 2012 - 60 years and ~4 generations, later.

No wonder, London property prices sank into The Bust of the 1980s.

"But that won't happen here!" (Auckland; emptying out as jobs disappear. Retirees heading out of town to 'cheaper' places to spend their remaining years etc etc etc ?)

https://www.macrotrends.net/cities/22860/london/population

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Haven't we heard that the Morrison govt is the underdog before?

I can still remember vividly when I think it was Amanda Gillies said in a quincy way "Oooooh, he had got to go....".

And a few days later they got voted in! Brilliant!

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Interesting watching a NZ property investors group on Facebook, increasingly more posts about auction sales rates dropping, prices being listed of properties and more recently Aderns comments about wanting prices to drop...

The majority of comments on the posts:

"It's Christmas and we've had a long year, everyone will look to buy again next year"

"House prices can simply not decrease, look how hard it is to build right now"

"We've got millions of people that want to live in New Zealand, as soon as the borders open house prices will rise further"

"Jacindas trying to ruin it for everyone"

It's fascinating seeing the refusal to face any chance there could be a price decline after abnormally high price increases. It really isn't in their comprehension that this could happen and think the prices are some how justified. It will be interesting see how this plays out and if the comments eventually turn... 

Will be looking out for 7 stages of grief

  • Shock and denial. This is a state of disbelief and numbed feelings.
  • Pain and guilt. ...
  • Anger and bargaining. ...
  • Depression. ...
  • The upward turn. ...
  • Reconstruction and working through. ...
  • Acceptance and hope.

 

 

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Fascinating.

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Nifty

I wouldn’t be worrying about property investors if I was you.

Just to brighten up your weekend:

It seems that the glee by many renter posters regarding tax changes last March was unfounded. 

As reported by interest.co a couple of days ago, rents up by 9.7% in past year . . . and that is on top of capital gains of 20 to 30% in past year.

I’m not hearing investors concerned . . . CG since March and rent increases above inflation rate seemed to be offsetting the negatives of the tax announcements and interest rate rises.

I’d be more concerned about renters . . . the likely probability is we will see further 9.7% pa rent increases as the tax deductibility is phased in and interest rates rise. 

Have a great weekend. :)

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A colleague of mine who has turned builder /buying n selling properties was mentioning that it is getting hard to sell to another colleague (who use to use to be FHB til he gave up) so now you should try but poor EX FHB who has burned with the very thought of starting the process again refused to believe.

Am try to highlight that now investors specially who are over leveraged are worried  but buyers, still are reluctant to believe.

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..... And they say that housing market is cooling as getting loan is not easy... 

https://www.newshub.co.nz/home/money/2021/12/auckland-housing-crisis-mo…

If house prices are rising despite banks getting tough, can imagine the dirt........ Now just like Mr Orr was kicking the can - inflation is transitiry - will again overlook the data which is real to expectation that may change.... Just like transitiry inflation rant will keep on repeating that possibility of housing market cooling to manipulste in taking no action to contain the ponzi. 

 

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If the new housing law with it's annoying requirement for windows doesn't apply to beds in garages then no problem - BAU.

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https://www.newshub.co.nz/home/new-zealand/2021/12/auckland-rental-adve…

[ jibberish removed. Please make a cogent point. Ed ]

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If those coffee prices keep going up we're finished.

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Yeah barista made coffees along with housing is one the mainstays of the economy!!!

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Yeah nah - have you checked the price of avocados lately?

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I bought a really good coffee machine pre the latest lockdown. With the way coffee prices are going it appears to be a sage investment. Havent bought a coffee since. 

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I don't blame Australia at all, there's war for workers within the Anglosphere and New Zealand will probably struggle to be seen as competitive due to the extremely high cost of living in relation to wages. Unless you already owned a house in New Zealand it's going to be really difficult to make ends meet.

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Agree. We have two children heading offshore in the next month. One to Australia and one to Europe. We expect to be travelling a lot in the future. 

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It is now looking untenable position to vaccinate healthy young people at no risk of dying of covid. The smug vaxo mandaters are also looking untenable. NZ politicians/MOH appears to be in the "grossly negligent" camp.

" -In the UK it was described that secondary attack rates among household contacts exposed to fully vaccinated index cases was similar to household contacts exposed to unvaccinated index cases (25% for vaccinated vs 23% for unvaccinated).

-Peak viral load did not differ by vaccination status or variant type

-In Germany, the rate of symptomatic COVID-19 cases among the fully vaccinated (“breakthrough infections”) is reported weekly since 21. July 2021 and was 16.9% at that time among patients of 60 years and older [[2]This proportion is increasing week by week and was 58.9% on 27. October 2021 (Figure 1) providing clear evidence of the increasing relevance of the fully vaccinated as a possible source of transmission.

-A similar situation was described for the UK. Between week 39 and 42, a total of 100.160 COVID-19 cases were reported among citizens of 60 years or older. 89.821 occurred among the fully vaccinated (89.7%), 3.395 among the unvaccinated (3.4%) [[3]] One week before, the COVID-19 case rate per 100.000 was higher among the subgroup of the vaccinated compared to the subgroup of the unvaccinated in all age groups of 30 years or more.

-In Israel a nosocomial outbreak was reported involving 16 healthcare workers, 23 exposed patients and two family members. The source was a fully vaccinated COVID-19 patient. The vaccination rate was 96.2% among all exposed individuals (151 healthcare workers and 97 patients). Fourteen fully vaccinated patients became severely ill or died, the two unvaccinated patients developed mild disease [[4]].

-The US Centres for Disease Control and Prevention (CDC) identifies four of the top five counties with the highest percentage of fully vaccinated population (99.9–84.3%) as “high” transmission counties [[5]].

-Many decision makers assume that the vaccinated can be excluded as a source of transmission. It appears to be grossly negligent to ignore the vaccinated population as a possible and relevant source of transmission when deciding about public health control measures.

https://www.thelancet.com/journals/lanepe/article/PIIS2666-7762(21)0025…

 

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Can't imagine any of that information finding mainstream media in NZ, it does not match our 'expert's' advice.  Nor does the 'science' of mRNA gene therapy promoted by snake oil salesman Fauci, warrant injecting children.

Being an expert on the virus, through personal experience of an infected household, both jabbed and pure bloods (personal choice), your findings are in line with mine.  Not sure who passed the infection onto who, but no one choked to death on their mucus or stole a hospital bed.  And yes, it sucks getting sick.

Stopping the fear of the unvaccinated in NZ and getting them out of their houses, weaned off government welfare, to face reality, will be difficult, because they still want to be 'safe'; now you are saying the vaccinated are just as infectious?  But the Pfizer CEO said the 'vaccine' looks like it works good against the new omicron variant!  Who am I to believe.  What did Murray say here; It is easy to fool somebody, but it is hard to convince them they have been fooled.  Pfizer loves ya baby....

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RBNZ site unavailable

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Oh please god let it be the end of them.

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