Here's our summary of key economic events overnight that affect New Zealand with news we are starting to see more overt political responses to economic pressures, from oil and gas to food ingredients, and these will all magnify inflationary problems.
But first, there was another sizable fall in mortgage applications last week in the US, coinciding with a sharp rise in mortgage interest rates. That has taken overall mortgage activity to an historically low zone. Brokers are reporting mortgage interest rates have risen to 2009 levels now and the shift has been fast.
American march home sales fell in March, under the same pressures.
But the American home ownership rate has remained stable at 65.4% and their rental vacancy rate remains low at 5.8%.
In their wider economy, inventories at both wholesale and retail levels remain little different from recent levels, although the small gains are accumulating as global supply chains force more resilience into these systems. They are also increasing because economic activity is increasing and that may in fact be the greater reason.
Certainly it is sucking in imports. In March, US imports rose a rather remarkable +24% year-on-year as domestic demand stays very strong. Some of that will be cost increase, but most is volume. US exports rose a healthy +18% and to a record high and that would normally be a stellar result. But it is overshadowed by the leap in imports. And the fastest rise in imports are "industrial supplies" and not "consumer goods" as is usually assumed. Capital goods imports rose fast too. Their goods trade deficit remains about -5% of US GDP and will be reduced when the services surplus is announced.
The latest US Treasury bond tender brought higher yields again, even if the event was very well supported. This 5 year bond had a median yield of 2.72%, a relentless step-up from the prior event at 2.46%.
China reported a strong rise in industrial profits in the March quarter, but that was mostly from the mining sector (coal and oil). Factory profits fell. This distortion has Beijing's attention as it "announces" major new infrastructure spending, especially noting the funds being redirected to "national security" in face of "extreme conditions" at home. Unlike similar prior announcements, there is no mention this time of "financial stability". This seems to be an all-out effort to recover an economy that is now withering as they battle the spread of Omicron.
Interestingly, the sharp rise in American imports does not seem to be helping China's economy. China may not be getting its usual share.
The cost pressures facing China are no different to other countries. And Indonesia's sudden and unexpected ban on the export of very low-cost palm oil will push a largescale substitution to other vegetable oils and push up worldwide food costs fast.
In Germany, an updated survey of consumer sentiment tanked. It came in far lower than what was expected to the lowest reading on record as the war in Ukraine hit household budgets and dashed hopes of their post-pandemic recovery.
Aussie headline inflation jumped to 5.1% in the year to March, the highest annual level in more than 20 years. Economists said a May election campaign rate hike was now in play because it came in far above the 4.6% rate expected. That is, a rate hike for them next week and in the middle of their election campaign. Worse, the March quarter rate was 2.14% so the recent jump in prices is running far higher than the annual rate suggests. Even their "trimmed mean" rates came in higher than expected. This data will probably have an echo in New Zealand yields, keeping them elevated.
The UST 10yr yield starts today up +6 bps at 2.82%. The UST 2-10 rate curve is a little steeper at +24 bps. And their 1-5 curve is also steeper at +84 bps. Their 30 day-10yr curve is little-changed at +244 bps. The Australian ten year bond is now at 3.07% and up +4 bps. The China Govt ten year bond is up +1 bp at 2.86%. And the New Zealand Govt ten year up +2 bps at 3.64% and still building ahead of the next expected RBNZ rate hike which markets have more than fully priced in at +50 bps.
On Wall Street, the S&P500 is up +1.2% in late afternoon Wednesday trade. Overnight, European markets all rose about +0.5%. Yesterday Tokyo ended its Wednesday session down a sharpish -1.2%. Hong Kong was little-changed on the day. But Shanghai recovered +2.5% on the stimulus announcements. The ASX200 ended yesterday down -0.8%. The NZX50 ended down -0.7%.
The price of gold starts today down -US$9 since this time yesterday at US$1891/oz.
And oil prices are little-changed at just under US$102/bbl in the US while the international Brent price is now just over US$105/bbl.
The Kiwi dollar will open today softer again at 65.6 USc. Against the Australian dollar we are soft too at 91.9 AUc. And against the euro we are marginally firmer at 62 euro cents. That all means our TWI-5 starts today at 72.7 and little-changed since where we left it yesterday.
The bitcoin price is up +1.8% from this time yesterday at US$39,102. Volatility over the past 24 hours has been moderate at just under +/- 2.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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67 Comments
Take out the inventory build, and the US economy is actually performing worse than Europe's! The latter is only two qtrs into its downturn. The US's is already three (find out for sure on Thurs). https://alhambrapartners.com/2022/04/26/glo
Flip flop Tony...
Tony Alexander: Eight reasons why Auckland house prices will fall 5-10%
He seems confused, this article is all over the show https://www.oneroof.co.nz/news/41317
What he means here is house prices will only fall 5-10%.
Tony Alexander is a perma-bull on housing, because his job relies on it. Yes, he's flip-flopped from "house prices will keep rising" to "house prices will fall slightly", but both of these are extremely bullish positions to take given the circumstances.
If The Tony Alexander says that house price will fall by 10%, can comfortably gauge that the situation is far worse and if he is saying 10% as is hoping that will be the best case scenario, if falls restrict to 10% ( which has already happened and is not will fal but have fallen and could be more than 10%, for now). If he Is admitting 10% is for sure that he can sense that will be far worse.
I do not see confusion. I read it as pragmatic,as the situation is multi-factorial,and T.A. is putting the balance of probable outcomes of these factors,on further average decreases. Not a particularly nuanced article,as it is a few paragraphs ,not a dissertation.
None of these points are new.
Decreased borrowing ability ( loan size) is missed, which is possibly a very significant factor. One can not offer , what the bank will not back.
Cost of living pressures,available servicing income on higher interest costs,are certainly a strong factor in relation to the vendors" what is my property worth" versus a buyers ability to offer it. Vendor capitulation hasn't really taken hold yet. Maybe in a spring glut of listings , motivation to sell will take hold amongst those that really need to. I wouldn't expect Bank originated selling pressure to kick in ,until year 2 of market declines.
Economists said a May election campaign rate hike was now in play because [Aussie inflation] came in far above the 4.6% rate expected. That is, a rate hike for them next week and in the middle of their election campaign.
This is why central banks are supposed to be independent from government. Either a rate hike is urgently needed, or it's not. The decision should have nothing to do with any upcoming election.
It seems that this pillar of central banking is gradually being eroded around the world, not least of all here in NZ, where the government seems hell-bent on bringing monetary policy (along with just about everything else) under their own control.
It seems that this pillar of central banking is gradually being eroded around the world, not least of all here in NZ, where the government seems hell-bent on bringing monetary policy (along with just about everything else) under their own control.
What are the alternatives when the existing central bank policy structures implode?
They will ultimately suffer the same fate as the First and Second Bank of the United States. That is, they will be used as scapegoats (exhibit A: interest.co.nz comment section) and dismantled.
"So what has been driving OCR decisions? Populism. After having kept the cash rate so low for so long and embarked on a $53 billion Quantitative Easing (QE) Program, the Bank is now in panic mode. It is panicking at the prospect of a full-on policy reversal that will highlight past mistakes and provoke widespread debt distress.
To the extent folks get into trouble paying back their mortgages the next few years, the blame lies squarely with our RBNZ Governor and Finance Minister. Together they encouraged a borrowing binge to buy houses at wildly inflated prices, financed by dirt cheap credit, both of them turning a blind eye to the breach of the target to which they mutually agreed, neither of them learning the lessons of the Global Financial Crisis in 2008."
https://www.downtoearth.kiwi/post/the-case-against-the-rbnz-and-finance…
Exactly....the solution to a problem (too much debt) isn't creating more of the problem (debt). But that is exactly what we have just done.
It will not create financial stability, it will only create greater financial instability.
I agree about creating too much debt, especially as the Reserve Bank and the Govt have been saying we should all save. A large number of people with TDs became landlords with the cheap money on offer. In addition, the Govt have shown that they really aren't looking at Kiwi Saver to supplement or replace Superannuation in years to come as unlike Australia, they have encouraged FHBs to raid their Kiwi Saver accounts to climb aboard the property ladder.
Is is greed to be forced in to buying a house when there are no rentals available? Or are talking about the greed of Air BnB taking rentals out of the market?
Who was personally responsible for one of the highest immigration rates in global history. Bring in 70 odd thousand immigrants when the local population as only supporting 60,000 new born was a big ask on the housing front.
More like a political/educated class rather than differentiated by generation IO. As the generations change i doubt you will find there will be much shift in policies unless there is some form of radical change that occurs. Do you know of anyone sharpening a guillotine?
Thoughts to ponder.
How come and why Mr Orr takes an overnight to act and remove restriction to support and when it comes to control, it will take him two years.
Everyone knows why committees are formed and when bureaucrats says waiting for discussion or when famously Jacinda Arden says that are waiting for advice actually means.
Banks are going to be very careful on lending, house prices were at top end of last year and will be falling quickly and as rates raise form emergency levels people over leveraged will default putting pressure on banks. Most of population can’t afford to buy in Auckland at 12 x average wage earners income. Over next few years the market will just crumble as people struggle with paying $1500 per week for million dollar box in Auckland when their deposit has gone and are in negative equity who in right mind is going to sign up for that.
You may be sure, Shore, but you're mistaken.
https://mahb.stanford.edu/library-item/the-great-simplification-dennis-…
In the last couple of weeks I have read a few articles on the debate on Global warming/economics - Ukraine invasion, economics -wages and so on. it seems there appears to be a class struggle going on where an elite strata in society do not think the masses should be able to earn fair wages (i.e. improve their living standards) while the upper classes should not be restrained. One article indicated that NZ's immigration policy was a direct strategy to drive down the median wage (as some have indicated on this site), and in none of the article was there any discussion on achieving national resilience and independence, or limiting population size. So in the up shot people, especially commentators and politicians are still essentially in denial and haven't changed their positions one iota.
It's all extend and pretend. 'Fair wages' of course, means: 'fair chance to access energy and resources'. And those are what the Great Game of global chess, is currently about. Seems Putin knows more than he's credited for (in the First World media, at least) and has won the right to petro-rubles - a game-changer.
This is right, the petro-ruble will be a massive game changer, it's really what will turn us into a multipolar world for better or worse. How the US responds to this will be a defining moment in world history. If they decide to defend the petro-dollar (as they have in the past), it may mean all out war as they would have to be very aggressive with India, essentially embargo ships transporting Russian oil to India or blow up pipelines or similar. If they decide to let it go ahead, other countries will quickly take not (Iran, for instance) and it will be all on, being able to escape US hegemony.
I struggle to see how they avoid all out war now. That opportunity is past. I said a few weeks ago that Putin had to be prepared to go the whole hog (nuclear) and he seemed to be so, when he went into this. If he was then, he must still be now - after all he has rattled the nuke sabre several times now. But now the western rhetoric has changed. It is now talking about rolling Russia back to Moscow and containing them. So if Putin starts losing Ukraine altogether, and this will mean Crimea too, then he will escalate and it gets extremely ugly. If he goes all out, this could be the final war. Can he be contained? It will depend on the sycophants he has surrounded himself with, and what they will do to protect their own interests.....
My personal view is that it will be 2014 esque. Russia will just settle for the Eastern regions + Crimea, there will be some sort of negotiated settlement, maybe. The bombs will stop dropping from either side, the border will become fluid and unstable with multiple incursions from either side, but no hot war. Basically it will become a warm messy area that you don't want to fly planes over or do any activity in, economically, militarily, except for farming. Russia will allow this because it means they have access to Ukraine and can just sit back again and build up their strength if they want and they know while it's messy, there's no way Ukraine will be allowed into NATO.
Sanctions against Russia will mean less and less if India/China start buying their energy in rubles and the US allows it. Basically it would mean no US oversight or ability to do anything about those transactions, it may even lead to setting up an entirely new financial system. And with China/Russia in their privileged security council positions, the UN/World Bank etc will have to accede to this, particularly if others want to join in. So the US rules based order for half the world (which wasn't really working for anyone except the US anyway) and another set of rules for the other half. And bickering over who is right etc in the middle.
I don't think anyone is dumb enough to light a nuclear fuse yet, although maybe when they realise the future ramifications, they might. But there is far too much non-nuclear arms that haven't even been touched yet before nukes will become involved. Nukes are usually the last option, there's a lot of arms not bought to bear yet...
Perhaps just ordinary Kiwis trying to get a stable roof over their head? Or who were worried the seemingly-entrenched 'never let prices fall' approach by RBNZ, the PM, Finance Minister etc might be something that would only make it harder when it came to things like starting a family, etc?
The Central African Republic has made Bitcoin legal tender.
https://twitter.com/bitcoinmagazine/status/1519306253016743943?s=21&t=j…
Funny that is what I think about when I see your post, and you probably will think the same when you see this post.
Less than 15% of Central African Republic's population, mainly in the wealthier suburbs of the capital, has access to electricity. How are you to publicly use a digital currency without being able to charge a smart device? That is if you are able to afford one.
To be fair, I am not completely dismissing crypto; I believe there is a bright future for central bank digital currencies.
In the short time I've been interested in cryptocurrency, Bitcoin has gone from being something only nerds use, to something only drug dealers use, to something only dumb crypto-bros use, to something only hedge funds use, to something only small countries use.
Yes, the Central African Republic adopting Bitcoin is not a big deal in-and-of-itself. But it does seem to be affirming the trend.
Please do some more research mate, your really showing your ignorance.
Alex Gladstein, the Chief Strategy Officer at Human Rights Foundation has some great exampes of how BItcoin can, and is, helping poorer people around the world.
He also has just published a book "Check Your Financial Privilege"which you could learn something from perhaps?
Yes, and what a shame it is that something with such great potential for the poor and disenfranchised is being used almost exclusively as an object of speculation for the rich and privileged.
Thankfully though, that potential comes from the decentralised nature of the blockchain, which is not specific to Bitcoin or any other cryptocurrency, and can be implemented in a heartbeat by those who would most benefit from it, leaving Bitcoin (and others) to be fought over by a bunch of aspiring millionaires.
https://twitter.com/gladstein/status/1519422534000648192?s=20&t=0o-giOu…
RIght on que here is his overview of the situation :)
Bitcoin, A Currency Of Decolonization - Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides
An overview of how France financially suppresses its African colonies.
When the CFA franc was originally introduced in 1945, it was worth 1.7 French francs. In 1948, it was strengthened to 2 French francs. But by the time the CFA franc was pegged to the euro at the end of the 1990s, it was worth .01 French francs. That is a total devaluation of 99.5%. Every time France devalued the CFA franc, it increased its purchasing power against its former colonies, and made it more expensive for them to import vital goods.
I agree that most people today use Bitcoin for speculating, but that doesn't mean that it doesn't have a use.
Late last year I visited Sydney and was able to use Bitcoin ATMs to take money out as we were traveling. No need to change money at an exchange in NZ prior to departure or to go through the tedious system of wiring money overseas. I just bought the Bitcoin with my NZ bank account and then took it out at an ATM. I would call that using Bitcoin.
You really have no idea unfortunately. If you want to educate yourself properly, I politely suggest you, or anyone who wants to understand the true innovation of Bitcoin, to take a few hours and watch this video.
It's an innovation, but that's not why people buy it. They buy it because they're think they'll be able to sell it for more fiat currency than what they bought it for. That's an object of speculation, not a currency.
NFTs are the same thing, based on the same innovation, but nobody is going to be liberating themselves with a screenshot of Jack Dorsey's first tweet any more than they are with Bitcoin.
Although people buy it to speculate with, bitcoin can be used as a currency. People speculate on currencies all the time. The fact that people speculate on those currencies does not mean they are not currencies.
It's true that significantly more people speculate on Bitcoin than use it as a currency. But it can be used as a currency. And I believe that it will be used more and more like a currency over the next three to four decades. It just takes time.
Brazil and Cuba are also pushing through some Bitcoin and Crypto legislation, mainly around how it will be managed.
Obviously the IMF is scared, they are explicitly putting anti Bitcoin clauses into their policies to try and stop countries that are dependant on the IMF from opting out of their system.
Bullshit hype-piece of the day:
https://www.youtube.com/watch?v=VshbJL0MxW8
Every outfit dependent on fossil energy, is going to extend and pretend - this one grabs all the tick-boxes.
Fred Singer would be proud. Bernays even more so.
I didn't see anything confusing about his article. He gave a few interpretations, some showing house price gains, some showing house price losses. At the end, he gives his interpretation, which is only 5-10% price losses for Auckland over the near future. He was very clear it is only his opinion. His opinions have been pretty good over the last twenty or so years, which is the main reason, I suppose why so many people don't like them.
Yes I got a pamphlet in the mail a few weeks back from a local RE agency, and in it there was a short market summary from Tony Alexander. And in it, he said he couldn't tell if the current market was overpriced by 5%, 10% or even 25%....he thought they were all possible outcomes.
Housing Minister Megan Woods has announced $ 1.4 Billion of infrastructure spending to boost the construction of 16000 homes in Orc Land ... infrastructure is the impediment to housing supply , she says ....
... fine ... they've finally woken up to how the Gnats got Christchurch rebuilt after the circa 2010 earthquakes ...
So , why did we have to endure " Kiwibuild " for 4 years , when all this time the answer was something else , and was staring them in the face ... Jacinda ? ... Mr Twyford ? ... Robbo ? ... hello ???
Phil " the toolman " Twyford steadfastly promised 100 000 houses over 10 years ... thrust his lantern jaw out to the cameras ... effected the far away gaze of an elder wiser statesman , and declared it shall be done ...
... 5 years later ... well ... need we go on ... ha haaa ...
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