Here's our summary of key economic events overnight that affect New Zealand with news yesterday's optimism seems to have turned to custard today.
Earnings reports from Walmart and Target show that retailers can't raise prices fast enough to maintain margins and earnings are taking a hit. Investors have quickly forgotten the prior day's upbeat mood.
US mortgage applications were down a sharpish -11% last week but at least their mortgage interest rates did not rise further.
American housing starts remain high but in a rut principally due to supply chain inhibitions because completion levels aren't rising. Building permit approvals remain at historically high levels.
The US Treasury ran another bond tender, this time for their 20 year bond and it was very well supported. Despite the demand, the median yield rose to 3.22% at this even, well above the 3.03% at the prior equivalent event a month ago.
Canada's CPI inflation rate came in at 6.8% in April, marginally above the 6.7% in March but making it a 30 year high. But more recently, prices seem to be running at an annualised 8.5% rate, so they are in a nervous position. Food and housing costs are driving their increases, rather than energy costs.
Japan's economy shrank in the first quarter of 2022 at an annualised rate of -1.0%, continuing a recent trend of oscillating between growth and contraction. Accelerating inflation and a surge in pandemic cases contributed to gross domestic product, adjusted for inflation, dropping -0.2% from the previous quarter. A decline was expected, in fact a decline of -0.4%, so in the circumstances they might take this as a 'win'.
Average new home prices in China's 70 major cities rose by just +0.7% in the year to April, slipping from a timid +1.5% gain a month earlier. But 50 of those 70 cities recorded house price falls from the prior month, 4 recorded no change, and of the 16 that recorded a gain, none exceeded +1%. Shanghai recorded no change, presumably because it was locked down. This was the weakest rise in new home prices since October 2015, as Beijing's deleveraging campaign triggered a liquidity crisis in some major property developers.
In all of Shanghai, population 25 mln (in a greater metro region of 41 mln people), their car dealers sold zero new cars in April. Not even one. But because they order in advance, they still had to buy inventory. It must be tough.
A senior Chinese central banker is "being investigated" for suspected leaking of official economic statistics, after Beijing criticised the central bank for not adequately aligning itself with the party. There is no comeback for him now. The Central Commission for Discipline Inspection said that Sun Guofeng, who was until earlier this month head of the monetary-policy department, is being investigated for “suspected serious violation of laws and discipline.” It didn’t disclose any specifics but it earlier issued a report saying "the building of financial regulations is relatively sluggish" and blames the bank for not meeting President Xi's targets for "promoting deepening financial reform".
The EU settled on its final inflation data for April at 8.1%, up from 7.8% March, and marginally lower than their initial estimate. All their major economies are running much lower than this however; France at 5.4%, Italy 6.3%, Germany 7.8% but Spain recorded 8.3%. The UK reported a 9.0% inflation rate in April on the same basis, up from 7.0% in March and a 40 year high.
Australian wages rose +2.4% in the year to March, marginally better than the +2.3% in the year to December, but not as strong as expected (+2.5%). Even the q-on-q was a tad disappointing (annualised +2.8%), and this won't really bolster the RBA's case for a quicker return to 'normal' for monetary policy. But the weakish data will accentuate the political points at the end of their election campaign that wage earners are losers in the cost of living pressure. Also, this weak data probably rules out any outsized interest rate hike at their next review on June 7.
The UST 10yr yield will start today -8 bps lower at 2.89%. The UST 2-10 rate curve is flatter at +24 bps and their 1-5 curve is also flatter at +84 bps. Their 30 day-10yr curve is a tad steeper at +240 bps. The Australian ten year bond is now at 3.33% and down -11 bps. The China Govt ten year bond is down -2 bps at 2.82%. And the New Zealand Govt ten year is unchanged at 3.63%.
On Wall Street, the S&P500 could not hold yesterday's gain and is down a very sharp -4% in Wednesday afternoon trade. Overnight, European markets were all down about -1.3% except London which down -1.1%. Yesterday, Tokyo ended up +0.9%, Hong Kong ended up +0.2% but Shanghai fell -0.3%. The ASX200 ended its Wednesday session up +1.0% and the NZX50 ended up +1.1%. These new levels seem unlikely to hold today however.
The price of gold starts today down -US$2 since this time yesterday at US$1816/oz.
And oil prices are -US$3.50 lower today and now just over US$106.50/bbl in the US, while the international Brent price is now just over US$107.50/bbl.
The Kiwi dollar will open today almost -½c weaker against the US dollar, now at 63.2 USc. Against the Australian dollar we are little-changed at 90.5 AUc. Against the euro we are almost unchanged at 60.3 euro cents. That all means our TWI-5 starts today at 70.6 which is down -30 bps from this time yesterday.
The bitcoin price has fallen -3.5% from this time yesterday and is now at US$28,989. Volatility over the past 24 hours has been high at +/- 3.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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103 Comments
'Food and housing costs are driving their increases, rather than energy costs.'
David, ALL, REPEAT ALL costs are energy-underwritten. That nonsense (that energy is only x% of 'the economy') must be put firmly behind us.
Food is energy itself, levered off fossil energy by orders of magnitude. Housing is delivered ditto.
Sigh.
Imagine the above column provides a great playing field for DGMs. Pre the pandemic & a vicious war in East Europe the global finances were roaring along building mountains of debt with privileged parts of populations partying closely similar to the roaring twenties of 100 years ago. Who knows, perhaps maybe, these two events have provided a long overdue and mighty reality check.
Hopefully this is not the beginning of a massive crash, I have always wondered about the wisdom of the mandatory gambling scheme (KiwiSaver).
Great when things are going up, but is it the same mentality as people in the housing market? "Housing doubles every 7 years" = "shares always increase over time"
Historically sure, but that is only true until it isn't...
Wwh - there is NO basis for your statement.
Shareholders - like landlords and all other rentiers - are parasitic. The implication is: on something else. The 'something else' is something being done to something, in other words energy being applied to resources. The supply-rates of those two ingredients are NOT guaranteed to grow forever, indeed the reverse is provably true. So this is not a matter of prior trends extrapolated; it's a matter of whether we've reached the Limits.
At that (global, systemic) peak, the percentage of forward bets which represent expected growth, must be forfeit. Maybe they are clever/lucky, and some other party cops the lack of underwrite, but the lack is there, in said proportion. Then as supply drops off peak, the amount of forfeit must increase, yoy.
And we've been printing exponentially-more betting-slips for 14 years. In the long run?
PDK - when I worked in the transport sector and someone raised questions around use of fossil fuels (eg peak oil, limits to growth etc) someone would always say something along the lines of - “the Stone Age didn’t end because we ran out of stones, the steam age didn’t end because we ran out of coal” etc. The implication that human inventiveness would continually find new resources and sources of energy to exploit.
excatly, by the time you feel it's safe to move back in, you will have missed out on lots of the upside again.
I went backpacking for the year during the GFC, didn't check my pension once. When i got back it was the same value as when i left. Glad i didn't login mid-trip and decide to cash-out before things dropped further and while i had connectivity.
If you're giving up on housing and the international share market you're really going to struggle to find a way to beat inflation with your savings and fund a decent retirement. There are no guarantees and risks everywhere, which is why diversification is recommended.
Sitting on cash in the bank is to expose yourself to the very real and pernicious risk of inflation eating away at your savings - virtually guaranteeing yourself a worse quality of life in your old age.
Check out the Z app, and go to share tank, you can buy fuel today, within a 30km radius of your phone, and fill up anywhere in the country that there is a Z. I have used it for years, when I buy in chc and fill up in Auckland, or grey mouth but now more than ever its worth buying ahead. I filled up yesterday, and the app came back with "you saved $47 today" and I only pre bought that fuel 3 months ago. Pity I didn't buy a bit more
My mate and I were actually goiung to fly to christchurch pretty cheap, buy a few grand worth of fuel, then come back to rotorua and just stand at the fuel station and offer to full peoples tanks for a small discount using out share tank fuel. And they just pay us via bank transfer.
WIn win for everyone. Would have actually paid itself off after selling 400L
Standard advice is to decide your allocations and buy regularly into a global index, then forget about it. This will outperform the vast majority of us who spend time reading up and taking active decisions. I don't practice what I preach though - I enjoy it too much. Perhaps we'll be the lucky ones and eek out 2-3% more P/A than a passive strategy would in the long run, but the odds are not in our favour. Presumably your large market moves mean you are having to calculate and pay tax on capital gains too, which is an extra job and expense.
There are amazing articles out there about how little it matters whether you bought at the peak or the trough when looking back after 30 years in the market - asset allocation is absolutely more important than timing.
There is always a chance that society or the markets collapse, so maybe part of the standard diversification should be an allocation to local food production, resilience etc. Cash in the bank won't go far in this situation either.
Only if you brought the top.
Anyone who brought prior to 2021 is still well up, and in 5 years time anyone who brought the top at 69K will look lucky as well.
Especially considering how national currencies do as well.
MFD I am in the "lucky" position of having no savings, so don't need to concern myself with making the best decision. I am left with trying to determine the least bad decision.
What I am wondering is do I sacrifice the employer contribution by pausing my kiwisaver contributions to focus on paying down mortgage. This would free up 3% more to pay mortgage with. (KS might go up in next few years vs mortgage rates seem more likely to?)
Or do I switch my KS to conservative and crystalise the losses but maintain access to the 3% employer contribution.
I'm not a financial adviser so don't rely on anything I say, but in general I'd do everything I could to keep attracting the employer contributions and tax credit on Kiwisaver contributions. There's a real question about whether mortgage payments or investments works out better, but when someone else is chipping in nearly as much as you are I think it's a no-brainer. Of course there'll be situations where the money is needed right now and can't be sacrificed, unfortunately.
My general thoughts on switching KS is that the average person should take an aggressive KS and leave it there until they retire. Doing anything more than that successfully requires some ability (or luck) at beating the market. Do you have an edge over the other millions of investors out there?
Also bear in mind, switching to conservative is the easy side of the decision - you'll also need to decide somewhere down the line when to switch back in.
You seem to have clearly identified your own decision parameters there. If you need the 3% to pay the mortgage (it will be 2.5% after tax) then pay the mortgage. If you can manage it then get the 3%. Your age should be the steer here unless you have the time and education to be active in the market. If you are not a trader and you are young stay in reputable aggressive funds, dollar cost averaging will be your friend. If you are 40+ you should be 50/50, if you are 55+ then you must be conservative.
I didn't mention this in my comment above as I assumed the commenter was a little younger, but I do agree stepping down risk as you get older does make sense as you say. The degree and timing of this might depend on what other investments you have and what you plan to do with the cash on retirement - if you're taking a lump sum then going conservative well in advance makes sense, if you plan to stay invested for (hopefully) 20-30 years and draw down then it might be worth staying more aggressive.
Mid NZ - most financial advisers would say that the worst time to pull out is when shares are tanking, but this is what inexperienced investors do. Long term sharemarkets tend to bounce back, and by staying in you can take advantage of lower prices and any recovery. Also, and most importantly, your employer and government contributions are pure gold.
Two things I remember from an investor presentation when I was you age:
1. Unless you believe that capitalism is dead it will always come back.
2. If you let your investment fall by 50% then it takes a 100% gain to get it back.
I kept topping up my Aussie super during the dotcom meltdown so it's value stayed the same. Hard to watch money evaporate month after month... but it worked out pretty well in the end.
You make a guaranteed 100% on the employer contribution + the bonus $500 per year from the Govt so I suggest keeping on contributing.
Theoretically you can beat the market by switching at the right time, in practice it’s impossible to know when. Some people here will say they timed it, but it’s a probability game and more luck than skill. If I’d been trying to take it out when things were overvalued I’d have pulled it in 2016 and look what I’d have missed.
So keep making regular contributions until the end.
Why do people want to pay down their mortgage?
If your interest rate is less than infaltion, then your loan is loosing value faster than you are being charged for. Ergo the bank is loosing money and you are better to keep yours and spend it on either investments that will go up faster in the future, or on goods that will alo be more expensive in the future.
Obviously this is a long term view and you have to have secure cash flow, as well as being personally comfortable with good debt.
Hence why I am paying my student loan back as slowly as possible, its loosing 6.9% in value each year!
Pay it down because unless your wages keep up with inflation your income as well as your debt is being inflated away. Also, paying down at a 2.45% rate (for another year) is way better than the same amount on a 5% rate. My employer has frozen my salary for the next 2 years.
Ouch that hurts! I hope you got a good pay rise before they froze it? And would you consider changing jobs or is it public sector?
Yes this is obviously assuming that your income is inflation adjusted while your mortgage rates are not.
Even at 5% if inflation is at 6.9 CPI (which we all know is a very low estimate of actual cost increases) then your real interest rate is still -1.9%. But that all comes down to cash flow, as if your cashflow does not increase suffciently to cover the increased servicing costs, then your quality of lifestyle will decrease.
In general it is prudent to pay down your debts, but at low rates I would argue that the calculations do change.
I changed jobs at the end of last year. I knew a pay rise would be off the cards and saw inflation rising so negotiated to compensate. Managed a 35% pay rise for doing the same job. As always happens outgoings increased (including voluntary mortgage payments) to compensate so a pay rise would be nice!
Midnz
My first bit of advice would be to pay off all your personal debt. Credit cards become debit cards, fines all go etc.Save a months salary and you will feel much better about your world.When you have saved one months you will think about saving six. So many people live in mental anguish buying things they know they shouldn’t and walking around doing constant cash flow statements in their heads to get through the week.
My second will be go and get more skills.Talk to your employer they may well pay.Set a two year goal of going one layer higher in the org chart. Life becomes more fun when you get to end of the month and you have a substantial bit left over.you need a higher salary to do this without sacrificing your current lifestyle.
then worry about your super
Hi GNX,
All personal debt has long gone in my early 20's and I was giving my shorthand version of not having savings - in that technically I do not have any but I have a revolving mortgage with around $100k that I can draw upon if needed but in the short term allows me to pay off targeted chunks of my mortgage by moving pieces of debt from fixed into the revolving as they renew without hitting penalties. (Can't remember the name for this strategy but it was something to do with eating an elephant a bite at a time)
I like your second point and this is the approach that I have been using historically but I have progressed to the point where I recently turned down a promotion to keep my work/life balance where I want it to be with my young family. But maybe I need to have a think about replacing that goal with something else as in 2 years the kids will be older and maybe I do look at moving up again
I'm going to rerun my calcs over putting some solar panels on the roof.
It's one of the few places I can think of putting some cash and getting a real return.
Every time I've run the calcs, it doesn't quite add up. But the time will be coming soon when it does I think.
I do the same about every six months.
WFH has changed the mix substantially. More time at home in daylight hours means smaller system is required as load can be spread more evenly across the day.
Still at about 10 years for our place. I think batteries are still a 10-15 year lifespan and the panels about 25 years. So reality is you only get a couple of years actual "Free" power. (assuming you are completely off grid)
The real issue for many, is will they stay in the same property for 12 years? and will they actually be off grid? I imagine most people would be facing a negative return.
Get the setup costs down to about 5 years, with at least a 20 year battery so that you can be completely off grid, and then see how it goes.
Same situation with 2 of us WFH now. So as you say, can make a use of a lot more power during the day running washing machine and dishwasher.
I'm prepared to eat some of the cost with battery to forgo the pain of the semi-frequent powercuts we get here every time the weather gets a bit inclement.
We have lived off grid for the last 10 years, and I have quite a few friends that are the same. They often use a generator to top up the battery. If we moved back into town I would probably get 3kw of solar panels (to heat water and power house during day) but no battery and stay on grid. Batteries are about 40c per kwh in wear so it's cheaper to buy grid power and a lot less hassle.
Off grid it's all about reducing consumption, so if you were to behave in the same way on-grid your power bill would be tiny.
Has anyone on here looked into Solar Zero?
I sat through the sales pitch last year but I cannot tell if it is a really good deal or a trap packaged up really well? The one I looked at had panels and batteries - the batteries they replaced at the 10 year mark for free if I recall correctly
A whole generation of share investors and Kiwisavers are learning for the first time in 12 years that stocks go up and down, not just continually up on false QE money printed stimulus. Healthy corrections to PEs and assest prices now taking place as monetary conditions normalise.
Email received from prominent real estate company agent. Informing sellers in a subtle way that market is down and going to go further down and to preparing them to have 20% to 25% less expectation than from last year.
When real estate company sends this type of news letter to their data base, can understand how bad the situation is despite many who are not ready to accept that this crisis is different from previous ever faced and hoping that will be be short like in 2008 or 2018.
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hope you and your family are well. As mentioned in my last newsletter, I wish to discuss how a rise in mortgage rates is having an impact on buyer affordability and current house prices.Most buyers have a certain buying power based on how much they can borrow on current mortgage interest rates. When rates go up their buying power will go down as banks will lend them less money. This means that the price you will get from a buyer in the current market is different to last years market and will be different to future markets.
After the initial Covid lockdown in March 2020, economists were projecting a negative economic effect and expected house prices to fall substantially. Lowering interest rates was one tool used to stimulate the economy. These lower interest rates resulted in financial institutions lowering the mortgage rate with some offering rates as low as 2.2% fixed for one year.
This had a flow on effect, with buyers fearful of missing out (FOMO) and resulted in house sale prices increasing by up to 28% in some parts of Auckland. In order to rein in these increases, mortgage rates were raised in October 2021 for the first time in seven years.
These rates have continued to increase (currently 5.09% fixed for one year) and subsequently most buyers are finding out that they cannot borrow as much as they thought or were previously approved for. This in turn, is impacting how much they are able to pay for a property in today's market.
Lets look at a how an increased interest rate influences monthly payments: Assuming borrowings of $600,000 over 30 years, an interest rate of 3% equals a payment of about $2,530 per month, a rate of 4% equates to around $2,865 whilst a rate of 5% is a monthly repayment of approximately $3,221.
Another way of looking at this is: Assuming a buyer can afford a monthly repayment of $3,000, a year ago at a fixed rate of 3% they could have borrowed approximately $710,000 whilst today at a rate of 5% their loan limit would be around $550,000.
Please contact me if you have any questions or would like to discuss this further
If you are buying and selling around the same time and under similar market conditions, you may sell for less than you wished but remember you will most probably buy your next home for less too.
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From the Zero Hedge Article.
"The bottom line is that, just as Freightwaves warned two months ago, prices are now so high that demand destruction is crushing margins, with a recession now just a matter of months."
This is in a country with the majority of households on 30 year fixed rate mortgages.
Stagflation is here. I think it will stay 8-12 months while we get punched in the face by inflation until we lose consciousness. Then stagflation will quietly slip out the back door, letting in his little brother depression. Depression will stay for another 12 months until the Eco-agenda supply chain and support budgets come on line. 2026 we will have a robot from Tesla for sale in the US.
Numbers of these are starting to add up.
Hope Master Builders are more on to it than in the past.
https://www.stuff.co.nz/business/128681766/first-home-buyers-dream-shat…
Our family had a EQ rebuild. The whole industry from suppliers, builders and sub contractors is one giant chums club all there to protect one another at the expense of and cost to the end user, the prospective home owner. Quite honestly with what went on, the battle was not any easier than the preceding one with EQC & insurers. MBIE & LBP are toothless and Master Builders from experiences, not worth any paper they print on. The government needs to introduce a random audit nationwide of building completions, public can apply to be included before commencement, and if a builder is aware of such a potential investigation, they might be a bit more conservative about their rip offs and smart arseing.
Most certainly correct.,We were, staggered by just how long, widespread and strong their tentacles reached and squeezed. It was galling, a standard practice for them to blame the contractor and for the contractor to blame the product, leaving you simply in no man’s land with no recourse.
S&P Cuts World's Largest EV Maker From ESG Index, Musk Slams "Outrageous Scam"
Bezos and Musk are challenging the ruling classes.
These technocrats understand that any decision is now able to be deconstructed almost instantly by enumerable social commentators and are therefore able to call out the obvious fraud with safety.
This is a new social paradigm, if it weren't for the scale (and really that is all they have left) of the MSM footprint and legacy, if the MSM were not so heavily wedded to old, lazy ways of "reporting" information this would be a quick story of cancellation and reparation. But given the Titan's involved on the Left it will be an interesting battle. Hence Musk's comment re MSM coming for him even more soon.
It's the kiwi mindset - all important activity is targeted towards house prices. If it's not targeted at house prices, it's not important.
as things stand at the moment if you’re not a real estate agent, then you’re probably being a fool to yourself and a burden to others.
Maybe the central banks printed a little to much during 2020 covid period and now we face the reality of inflation eating it all back up and wages not keeping up.
I was happy with a crash in 2020 and then a a fresh start but no we now have many companies in zombie mode waiting for another bailout and lower interest rates which now no longer have the same effect.
Tough times ahead.
A rather stunning revelation in Ashley Church's Herald column today:
"I’ve never really understood the dynamics of what makes a stage show work. And yes, surprisingly, this is a topic to which I’ve devoted considerable attention over the years, having written three musicals of my own since 2005."
Would love to know what they are about. Am imagining the possibilities: 'Double in 10: the story of a plucky young property speculator' perhaps? Or 'The only way is up: a quirky real estate agent takes up hot air ballooning to spice up their advertising.'
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