Here's our summary of key economic events overnight that affect New Zealand with news that higher inflation, lower growth and higher taxes lead the trends today.
At his Congressional confirmation hearing, Fed chairman Powell said inflationary pressures will last well into the middle of 2022 and they are addressing the problem by planning to raise interest rates and end asset purchases this year while a balance-sheet contraction could perhaps start later in 2022. He was hawkish on rate rises to get inflation back to the target level and prevent it from becoming entrenched. The Fed announced at its December meeting it would end its pandemic-era bond purchases in March, paving the way for three interest rate hikes by the end of 2022. But FOMC minutes released later showed a more hawkish Fed, and the central bank signaled it may become warranted to increase the federal funds rate sooner or at a faster pace than previously anticipated.
Markets haven't really reacted to the testimony, deeming the comments as confirmation of what they have priced in.
US retail sales in early January maintained a strong year-on-year expansion but the pace was a lot lower than pre-Christmas.
There was a US Treasury bond tender today for their 3 year bond. It was well supported, but of note is the solid rise in yield, up from 0.96% pa at the equivalent tender a month ago, to 1.19% today.
In China, analysts are now looking for a cut in their 1 year medium term lending rate, expecting a -10 bps reduction soon to help weigh against their slowdown.
Singapore's government is weighing actually implementing a long-delayed GST increase from 7% to 9% to help pay for their big debt increases caused by their pandemic response and potentially setting an Asian example for countries also looking to drum up revenue for the same reasons.
The latest trading in the NZ carbon market is at NZ$68.60/NZU which is up nearly +6% from the start of the year. The EU carbon market is now at €80.90/tonne or NZ$136 equivalent. The EU price is quite volatile at present, but is back down to its end of 2021 level.
The OECD said inflation among its 38 members rose to 5.8% in November, a 25 year high.
And the World Bank says there is a pronounced slowdown underway globally and the economic expansion is expected to decelerate markedly from +5.5% in 2021 to +4.1% this year and reduce further to +3.2 in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.
The growth of international air cargo activity slowed unexpectedly in November after a prolonged period of strong performance. Many drivers of demand, such as consumption and new export orders, are performing well. However, air cargo is increasingly impacted by supply chain issues, notably with congestion at airports and a lack of capacity where it is most needed. International volumes in the Asia/Pacific region did relatively well, up more than +5% from pre-pandemic levels.
In New Zealand, Fonterra revised its current season milk collections down by -1.6% to 1.5 mln tonnes. They were expecting milking conditions to improve over the Christmas-New Year period, but this has not eventuated. This is likely to underpin dairy prices, and maybe by more than +1.6%, so the effect could be positive. Fonterra itself said “Due to the high demand for off-GDT sales, we had already reduced the volume we were offering on the GDT platform earlier in the season." The next dairy auction is on January 17, 2022. The futures market is presently suggesting WMP could rise +2.4%.
Australian retail sales in November came in much stronger than expected, but of course that was before the hard Omicron strike. We have previously reported how retail sales have slumped to lockdown levels in January, but that November result was impressive all the same, the +7.3% increase is the fourth strongest monthly rise in the series with retail sales now at their highest level ever recorded, and up +5.8% higher than the previous record set in November 2020.
However the Australian trade balance eased back in November. It is still very positive at a +AU$9.4 bln surplus in the month, just less than the AU$10.8 bln in October. It was also less than the AU$10.1 bln surplus expected. Their surpluses peaked in July 2021 at +AU$13.4 bln so the November result is the smallest in seven months. For the year to November, they have recorded a surplus of +AU$123 bln for both goods and services, and that is up +70% from the same period in 2020 and an impressive +5.8% of Australian GDP.
In NSW, there were 25,870 new community cases reported yesterday, and a rise from the day before, now with 315,785 active locally-acquired cases (and undoubtedly an undercount), and 11 more deaths. NSW hospitals face critical staff shortages, and they have been told the number of COVID-positive people needing inpatient care could exceed 4500 within a month. They are now up to 2186. 19,491 pandemic cases in Victoria were reported yesterday, also higher than the day before. There are now 171,369 active cases in that state - and there were more 13 deaths. Queensland is reporting 20,566 new cases (much higher too) and one new death. In South Australia, new cases have fallen to 2941 yesterday with another death. The ACT has 1508 new cases and Tasmania 1379 new cases. Overall in Australia, 90,847 new cases were reported yesterday. A decent proportion (10%?) were from the RATs (rapid antigen test kits) but false positive and false negative results make these inclusions unreliable.
The UST 10yr yield opens today at 1.76% and with a -3 bps retreat. The UST 2-10 rate curve starts today notably flatter at +86 bps. Their 1-5 curve is slightly flatter at +107 bps, while their 3m-10 year curve is flatter at +172 bps. The Australian Govt ten year benchmark rate is down -2 bps at 1.87%. The China Govt ten year bond is unchanged at 2.82%. The New Zealand Govt ten year is little-changed at 2.54%.
Wall Street has opened today firmer with the S&P500 up +0.5% in afternoon trade helped by a strong rebound in tech stocks. Overnight, European markets all gained about +1.0% although London rose much less. Yesterday, Tokyo closed down -0.9%, Hong Kong closed flat while Shanghai fell -0.7%. The ASX200 ended down -0.8% while the NZX50 ended down -0.5%.
The price of gold started today at US$1815/oz and a +US$21 rise since this time yesterday.
And oil prices start today sharply higher with a +US$2.50 gain to just over US$80.50/bbl in the US, while the international Brent price is now just over US$83/bbl.
The Kiwi dollar opens today slightly firmer at 67.7 USc. Against the Australian dollar we are softish at 94.1 AUc. Against the euro we are little-changed at 59.6 euro cents. That means our TWI-5 starts the today also little-changed at 72.2.
The bitcoin price has firmed since this time yesterday, up +2.0% to US$42,745. Volatility over the past 24 hours has been moderate at +/- 2.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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And the World Bank says there is a pronounced slowdown underway globally and the economic expansion is expected to decelerate markedly from +5.5% in 2021 to +4.1% this year and reduce further to +3.2 in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.
Labour shortages, inflation, rising taxes and interest rates. It's easy to forget we're not alone.
It will be a decade of negative growth - as the last one was if we were accounting resource-depletion correctly.
Yes, the world is changing.
One hopes we see a change from this kind of comment "Many drivers of demand..........are performing well" too..........
"Engines of growth" is another .......
keith,
As a World bank graph shows, global GDP has been falling since the early 60s. That just happens to coincide with another graph showing a falling EROI. Of course, they may just be co-incidental, but the correlation is at least interesting.
As EROI continues to decline, as it must, then more(financial) resources will be subsumed in extracting ever dwindling resources from the earth. The consumer age will gradually wither as externalities are priced into the entire process and a circular economy emerges. In time, GDP will become an historical oddity.
Its like watching one of those TV programs where the parent feeds the child too many treats and the child keeps getting fatter. When the child reaches adulthood it is bed bound and incapable of even cleaning itself. Still, the parent keeps feeding their loved one obscene amounts of food until one day the end comes, and it's not pretty. If only the parent had came to its senses very early on and accepted a small tantrum from the child in return for a happy healthy long life for their loved one.
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refactornz,
Isn't everybody, until the costs of low taxes become apparent. If you or any in your family becomes ill, of course you want immediate and high quality healthcare. You want your children to be well educated by motivated teachers in well kept buildings. You want your infrastructure-roads, water, sewage etc to be well maintained. You want a fire service, ambulances, a well trained and equipped police force, a properly functioning justice system and so on and so on.
You may not have realised it, but these have to be paid for-by somebody. And who might that be? Taxpayers like you and me. I am quite sure that governments could be much more efficient and quite possibly with fewer people, but lower taxes? No.
That's why you need to go back to school.
If my monthly expenses is $15K and I have $1.2M in derivative contracts, if both inflation and oil does up 5%, I'll be $59.2K ahead. If there isn't inflation nor oil rise, my returns as well as losses comes close to zero.
So back to your math, do you still think I'm concerned about raging oil prices?
While we're all busy patting ourselves on the back and trying to convince each other that our pandemic response was great for both public health and the economy, future generations are going to be wondering how we ever came to that conclusion.
If you happen to be a grandparent, or are expecting to be, now might be a good time to start preparing for some awkward conversations. I doubt arguing the counterfactual is going to cut it.
Not all would agree that the response has been great but even so how long might that status exist? For instance NSW, better equipped with ICUs etc, similar population & vaccination levels has by all media accounts, been overwhelmed by omicron. What has NZ done or what has it got to prevent the same scenario? All that is being done here, is enforcing a delaying action.Sure omicron is presently held at bay but is it to be the government’s policy to keep NZ isolated until it simply disappears internationally, on the never never plan.
Who the heck knows what 'their plan' is.
I suspect they know we can't avoid it forever, and they are going for delay. It's 'good politics' to give the masses a nice summer free of the plague (cynical me).
I suspect we will see rapid community spread at some stage before March.
Enjoy your freedoms while you can, I am certainly trying to make the most of it right now.
.Well given the reporting about the dire state of Auckland EDs, and others, this morning on Newstalk, then if they can’t cope now how can they then do so if omicron spreads as in say NSW and/or Victoria. The actual reality is pretty damn obvious. Even if NZ is 110% vaccinated our hospitals would still be overrun. At least though the majority of NZrs vaccinated will be sufficiently protected it is fair to say, butI still fail to see how the government can justify the canutish strategy any longer.
Only people who follow theMSM narrative could possibly be surprised at how underwhelming Omicron is. My retired brother in Sydney drives for Uber for fun. Flat out all the time. Most Sydeysiders are just getting on with their lives, in spite of the idiot politicians desperately intruding as much as they can. He thinks he and his wife caught Omicron a week before Christmas. They neither know nor care about what actually happened. Home for a day or two with mild flu, then isolating for a few days, then back into it.
You can read it like a book. All the approved academics are daily in the media warning stridently, that omicron must be kept out or else. That is the harbinger of forthcoming government policy. NZ is to remain in isolation, borders closed, indefinitely. It’s quite simple to explain. If NZ’s borders require to be closed now, what could possibly then happen, to allow them to be opened up?
Yes there will be no hiding from O , would be nice for us overseas kiwis
to know what the gov plans are or will they just wing it ?
Are they even back at work yet ,
Most of Ozzy endemic in feb.
Staff shortages is the problem here.
Hopefully someone is looking at the best way to let O threw population.
That conversation will be a lot easier if you can tell your grandkids that you felt the Covid response was going to be a burden upon them, that's why you bought an investment house for each of them, which they will be inheriting soon when you pass away. A great way to be remembered by your grandkids!
That's true.
But hold them in secret trust so that they don't get carried away at the mean time.
For new parents and grandparents, you got to start the kids young like this guy and his kids from VIC across the ditch.
Bit of a problem when the only way forward anyone can see is doing this to get ahead - you do understand that we can't all rent houses to each other, don't you? At some point, someone's going to have to accept that businesses that don't involve spiking one of our fundamental costs of living through the roof is the way forward, not tossing ourselves off because we managed to send more and more kiwis to the breadlines and enrich our Australian banking overlords?
That conversation will be a lot easier if you can tell your grandkids that you felt the Covid response was going to be a burden upon them, that's why you bought an investment house for each of them, which they will be inheriting soon when you pass away. A great way to be remembered by your grandkids!
Except you may find your grandkids extremely bitter wishing you had instead invested in Crypto & the Metaverse for them... Will generations to come want a sh*tty old home?
If this study is anything to go by, we want to time things for peak Vitamin D: https://www.mdpi.com/2072-6643/13/10/3596/htm (and before anyone asks, no the author doesn't tell people only to take Vitamin D and not get vaccinated - they are very clear that you should do both)
Maybe that's why all the doom and gloom scenarios of a summer Delta explosion have not come to fruition? High vaccination rate plus everyone roasting themselves like turkeys out in the summer sun has done well.
Fair enough (its definitely only a theory), but there has to be some difference between us and them. They were having increasing cases before omicron and we can't really credit the vaccines as their rollout roughly matches ours.
It does not matter that they are getting outdoors its when close the windows at night with shared ventilation. I know they like the heat but are they voluntarily sleeping in >30.
Actually, there could be at least some validity to the theory.
Vitamin D from the sun is only really any good between about 11.30am to 1.30 pm.
Although the Aussies get outdoors, they are likely to be outdoors significantly less than kiwis at that time of the day.
Yes, I think it's reasonable to attribute the Aus November lull to people going outdoors but the case numbers were going up before omicron; what changed that's not in NZ?
I can see I have left too many blanks to fill in. Why is our summer working but not Aus? Yes is negligible transmission under summer sun with a breeze and yes vit D is protective against serious outcome (but maybe not against infection) all of this is the same in both countries. What's more different is when we are not in the sun.
When it start getting hot in apartments windows get closed and AC gets turned up and air gets recycled. The aerosolised virus stops getting cleared out. The lower humidity may also dry out some of body's defenses (not proven). As I led with its just a theory, probably wrong, but its still better than anything else I have come across.
You cannot buy RAT tests in NZ. The government has banned their private importation to date, and are now slowly deliberating on when they will start to release their own recent stock.
RATs otc would allow citizens to test themselves and this would relinquish too much control from govt mandates & MOH control.
https://www.odt.co.nz/business/concerns-raised-about-access-rapid-antig…
If you have relatives in Australia you could get them to send some over to you - but they have run out
The RAT tests are very good at picking up Omicron with no/few false negatives and will be the only way that NZ can keep businesses open with staff self testing once omicron hits nz.
https://www.medpagetoday.com/special-reports/exclusives/96287
Chemists and petrol stations should be selling the kits from today onwards so nz is ready.
RATs have terrible sensitivity for asymptomatic cases, on the order of 50-60%. That is to say that 40-50% of positive asymptomatic cases will return negative test results. Sensitivity is much better for symptomatic cases, being well above 90%.
If Omicron produces mild symptoms in both vaccinated and unvaccinated people, which appears to be the case, RATs will suddenly become a very useful tool. Right now RATs are practically useless for vaccinated cases, since they tend to be asymptomatic. If people start experiencing symptoms, however, they'll know to stay home and get tested with a relatively simple, accurate test they can do themselves. This will work wonders for preventing community transmission.
RATs are the main testing vehicle in Sydney atm which allows workers who get a sniffle (Omicron) to self test, sign off, then return to work.
Otherwise there would be no workforce left.
Testing 20,000 a day via PCR is just impractical, and too many simply avoid.
https://www.theguardian.com/australia-news/2021/dec/29/doctors-reveal-t…
Is NZ ready for staff shortages once Omicron the next variant spreads?
https://www.theguardian.com/australia-news/2022/jan/11/its-a-big-crisis…
From a property investment Facebook page this morning:
The bank has suddenly sent me letters advising that all my 4 mortgages will come off interest only immediately and a 5 year period is up with no notice. 2 mortgages in my personal name cannot be interest only. 2 Mortgages under my business to get them back to interest only they will need to go through an application process looking at income etc. it looks like without notice all my mortgages have moved to principle and interest. This is a massive financial change, is anyone else experiencing this and how have handled it? I checked with my broker and there don’t seem to be other options.
The dude hasn't planned this through, assumed the I/O would be extended ad infinitum. He probably also didn't realize that the remaining P&I will be calculated on the remainder of the loan term i.e. 20 years.
Mortgage outgoings effectively double overnight just as deductibility of interest costs are being phased out. Could be an interesting 12 months ahead, given 40% of investors are on I/O terms.
The government perhaps...
Kāinga Ora spends $1b buying state homes in five years
https://www.nzherald.co.nz/nz/kainga-ora-spends-1b-buying-state-homes-i…
Maybe, but the numbers they are buying in Auckland are pretty small on an annual basis compared to total volume.
I guess they could ramp that up big time and rip off tax payers (buying housing from developers is obviously a lot more expensive than building housing on the government's own land)
How could this not be a great investment?
(I wouldn't pay $100k)
https://www.trademe.co.nz/a/property/residential/sale/auckland/manukau-…
Edit: Highly motivated owners have other plans
At least the clothesline is out the back.
https://raywhite.co.nz/auckland/papakura/papakura/TKN25204/?fbclid=IwAR…
It's listed on TardMe for 800k. That means the slimy real estate agent is asking for 850k or 900k.
https://propertyprice.co.nz/single_html/3426247743.html
It boggles the mind that anybody would even consider more than a couple of hundred grand for that matchbox.
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