Here's our summary of key economic events overnight that affect New Zealand, with news the US Fed's interest rate rises haven't yet quelled enthusiasm in either their retail or labour markets, nor consumer sentiment, which is something of a surprise.
American retail sales rose faster than expected last week on a same-store basis to be +14% higher than year-ago levels, picking up the pace and by faster than can be explained by just inflation.
The number of job openings in the US rose and by almost +200,000 in July from June to 11.2 mln, while markets had expected it to drop to 10.45 mln. It was the first increase in job openings after three consecutive months of small declines.
And American consumer sentiment improved, as measured by the widely-watched Conference Board survey. While it wasn't an expected improvement, it doesn't really affect the overall trend of sliding sentiment yet. But it does hold out the possibility that a trend reversal is possible over the rest of 2022, something that seemed unlikely a month ago.
Yesterday we noted the weakness in the Texas factory survey. But today, their service sector survey came in positive for August, even if slightly less so than for July.
The US Fed is raising its benchmark interest rate as we know, and will likely keep at it with chunky increases for some time. They next review this 2.5% rate on September 22, NZT. But at the same time they are pushing through quantitative tightening, and now upping the withdrawal of prior monetary stimulus to -US$95 bln per month from bond markets. This is likely to have a compounding impact on core interest rate yields across the curve. Doing both at the same time is aggressive - and potentially quite risky.
Across the Pacific, yesterday we noted in China that rains had returned to southwestern regions but that they weren't enough to save agriculture or really break the drought. But they have lowered temperatures and reduced electricity demand. Now officials are worried that they might turn out to become excessive quickly and have issued warnings about flash flooding as a possibility. Slips and other land damage is possible too if they become strong. Officials have warned miners to be wary, including at coal mines.
And now that Evergrande has faded, the new 'largest property developer" in China is Country Garden Holdings, a developer that builds lower-end housing. They just filed their six month interim financial reports revealing profits fell -90% compared with the prior year. At least it wasn't a loss. But such weakness could be corrosive for them keeping their funding active. Being "China's largest property developer" is an unwanted title these days.
We should also note that the Chinese yuan is weakening quite quickly now, down -2.0% since the start of the month, down -8.1% since the beginning of the year. There is a loss of face involved here.
In Hong Kong, a total of 140,500 residents had applied as of the end of June for a special British visa that paves the way for citizenship in the UK, with China's sweeping national security law spurring more people to leave, especially families. Their population totaled 7.29 mln as of the end of June, down roughly 120,000 from a year earlier. It maxed out at over 7.5 mln in 2009. This marked the biggest drop since tracking began in 1961. The local government highlighted a "natural decrease" from deaths outpacing births. But in reality a large portion of the decline stemmed from the net outflow abroad of over -110,000 residents over the course of the year to June.
In Europe, Germany reported its August inflation rate overnight, and at +7.8% is was slightly higher than they expected, boosted of course by the cost of Russian energy. On an EU harmonised basis it came in at +8.8%. But it really is the cost of food that is giving this metric the real extra boost, and they wean themselves off Russian energy. Still the high rate in August is very similar to what they have had for the past six months now.
Their rate is tame compared with Hungary, which is paying for the mistake of cozying up to Russia. They have an inflation rate of 14% over the past year and 27% as the annualised rate between June and July, and to try and deal with this pressure they raised their policy interest rate overnight by +100 bps to 11.75%.
The ECB will also be weighing their new moves and that too is sure to include a rate hike as \EU inflation might hit 9% when it is announced later tonight. Just how much the ECB will move is the current question. Their next review is on Friday, September 9, NZT.
And it does appear that Ukraine is moving to retake their southern city of Kherson in what could be yet another brutal battle. It has taken the Ukrainians six months of defence to be in a position to counterattack.
In Australia, building permits were expected to fall -2% in July from June, but they actually fell -17%, a huge miss. Year-on-year they slumped -18%. Much of this is because approvals for new apartment building are now very weak, down -45%. But even for houses, the year-on-year retreat is approaching -20%. Rising RBA interest rates are getting the blame.
The UST 10yr yield starts today at 3.12% and up +1 bps from this time yesterday. The UST 2-10 rate curve is more inverted at -35 bps. Their 1-5 curve is also more inverted at -19 bps. But their 30 day-10yr curve is now steeper at +78 bps. The Australian ten year bond is -8 bps lower at 3.68%. The China Govt ten year bond is lower by -2 bps at 2.65%. And the New Zealand Govt ten year will start today at 3.98%, unchanged and at a two month high.
Wall Street is down -1.2% in late Tuesday trade as the correction gets a new impetus. Overnight, European markets were very mixed with Frankfurt recovering +0.5% while London lost another -0.9% to bookend these bourses. Yesterday Tokyo recovered +1.2% after Monday's sharp fall. Hong Kong shed another -0.4% in its Tuesday trade. And Shanghai also fell -0.4%. The ASX200 closed its Tuesday trade down recovering +0.5%, while the NZX50 ended up a strong +1.2%.
The price of gold will open today at US$1724/oz and down -US$14 from this time yesterday.
And oil prices start today down -US$5/bbl at US$91.50/bbl in the US while the international Brent price is now at US$97.50/bbl.
The Kiwi dollar will open today at 61.3 USc and a -¼c dip from this time yesterday. Against the Australian dollar we still down at 89.5 AUc but off a 5 year low. Against the euro we are down to 61.2 euro cents. That all means our TWI-5 starts today at 70.6 and a small retreat.
The bitcoin price is now at US$19,702 and down -2.8% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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I reviewed the sordid history behind Italian bond's repo collateral at marketsinsiderpro.com today because spreads are up again and ECB's efforts won't do crap. What you need to know about how Italy's bonds affect US$ conditions in a way Fed's useless bank reserves can't.
Recommended read on climate in New Zealand is "Hostile Shores". Library couldn't find the hard copy, but it was available digitally.
I also read this with a book about the origin of Maori, and was looking into large Tsunami events I'd seen mentioned.
Seems the problem isn't so much climate change, it is humans living in natures way. Massive 10m Tsunami events that probably wiped out most of the Maori through the direct event, and spoiling of agriculture and natural fisheries. There have also been decades long periods at the upper and lower end of the 2°C natural temperature variation. Long periods of warm wet weather punctuated by tropical cyclones that probably wiped out a lot of the South Island forests, and certain wiped out half the trees in the Ruahine Ranges in one event.
This within the last 500 years.
Other end of the spectrum is cooler dryer periods. This allows forests to grow back over the silt in flooded areas. Silt that is meters deep and that we live on.
Hi scarfie, I thought about you and Terrain Theory when I happened upon this study:
Correlation between body mass index and COVID-19 transmission risk
During the pandemic we had "experts" insisting we follow certain protocols while apparently making little effort themselves to reduce the risk to themselves and the risk they posed others.
It was complete dereliction of duty not to use the Covid opportunity not to push the obesity issue. Without obese people there would not be an epidemic, and I think you could translate that into annual flu also. But I guess we have a system that is producing obesity, and our systems don't really go backwards.
I'm now the only one I know of that hasn't caught Covid, or the seasonal flu this year. More so, not since Covid started. Who is the expert, the virologist that gets the flu each year even when vaccinated, or the crackpot on the internet that never gets sick?
Seems the recent data is slipping under the rater. All cause mortality in New Zealand up 35% on the long term average. If isn't deaths directly from Covid, the number in excess is much too high. You can only speculate as to the reason, no one has the answers.
From Dr. John Campbell's channel;
"England and Wales For 14 of the past 15 weeks, around 1,000 extra deaths each week, (none of which are due to covid If the current trajectory continues Number of non-Covid excess deaths will soon outstrip covid deaths this year (2022) Circulatory and diabetes, cancers Prof Carl Heneghan, director of the Centre for Evidence Based Medicine, Oxford University Excess deaths began to increase noticeably from around the end of April. They have stayed high compared with the past seven years. "
You just don’t know could have something to do with Covid vaccine, information is coming out all the time. why would vaccine producers companies have disclaimer that users cannot claim against them for any ill effects not even going to release findings from trials of years. Time will tell Fauci seems to be full of B/s whenever he is questioned.
I spent all of November living in a mates Caravan at Waikawa. Surfed almost everyday, sometimes twice a day. Surfing with Hectors Dophins, magic. Lived on Paua, probably consumed $5k worth at the retail price. Shit myself when a Sea Lion paid me a visit out in the waves. If I'd had a rifle with me then venison would have been on the menu. Great place to be while the rest of the country had gone mad. A great pleasure to visit PDK on my sojorn too.
Btw, if you are not aware of set point theory it is worth noting. Don't lose weight too fast, and try to keep off what you have lost for a year before you relax at the new level.
When you see the prevalence of big people about you know that even if they decided to change their lifestyle they have a five year journey ahead to get where they need to be.
The trick is to become 'fat adapted'. Most people run on 100% carbohydrates and any excess is converted to stored fat. Bodies need to be trained to run on fat as a fuel. If you get hangry or weak and dizzy after a few hours of no food you are not using your stored fat properly, your metabolism is broken and this needs to be addressed as soon as possible.
Its just good luck mate. Not had it here yet but I'm not very social and work from home so I think that lowers the risk substantially more than being a bit overweight. I mean seriously if you never left the house and spoke to people through the glass windows or over the phone you are never going to get it are you.
Looks like the MSM is finally catching on. ODT Editorial today; the bravest I've seen for...... probably ever.
https://www.odt.co.nz/opinion/editorial/disaster-waiting-happen
'Humans have so badly damaged the planet, its wildlife and ecosystems during the past century or so that, whichever direction you choose to look, environmental disasters are inexorably squeezing in and will eventually snuff us out, unless we can somehow save ourselves. It’s a grim picture and, unfortunately, even grimmer for the children and grandchildren of the world.'
It has recently occurred to me that sea level rise is a bit of a red herring with regard to the climate change discussion. The actual changes are upon us now. Threatening crops, houses and infrastructure worldwide to a greater or lesser degree. I have given up hope of the climate returning to ‘normal’ for a while. Disaster upon disaster is happening right now before our eyes across the world. Displaced people everywhere. The sea level rise in several decades seems a distraction given what we are currently facing. Not so much in good old Aotearoa though. Lucky blighters we are.
There was a discussion between Brett Weinstein and Chris Martensen in podcast some months back about how we are having the wrong conversations.
That sums it up nicely really.
Add that to the comment by Daniel Schmactenburger in his talk "The War on Sensemaking" that there isn't a low noise high signal source of information available today and you have the picture complete.
We don't really know anything, and we don't want to know.
Not so sure about the last comment, but really agree with the rest Scarfie. My thoughts are that it is politics. Too may systems in place are captured by the "conventional wisdom". Some years ago when I had that term thrown at me I did a little digging and found that there was little empirical data to support the 'conventional wisdom' and plenty to suggest it was, or may be wrong. It was also suggested that my view, based on what I was observing, was because i simply did not understand the process or what i was seeing. I sat back and watched the dynamics of the environment and quickly realised that is was personality politics driving the 'conventional wisdom' of the time. the social and political dynamics of the environment at the time had resulted in a small group of people being dominant, and only they could achieve any influence over what and how things were done. Any view that came into conflict with theirs was harshly rubbished and dismissed. That environment was really quite toxic. I have since come to realise that it was not only not unique, but really quite common, especially in Government departments, and occasionally in commercial business's (although generally didn't last long there)
I suggest that sums up the situation world wide. Political interests don't want the reality of the situation to be understood and acted on unless and until they can profit from it. They use their power and influence to block what needs to be done to preserve their own sources of wealth and privilege, at the expense of everyone else. So it is not that 'We' don't want to know, it is that 'we' are blocked from knowing until the dissenting voices get loud enough to drown out the 'conventional wisdom'.
‘Hostile shores’ is a great read. I still have my copy. That point you make about many Maori being wiped out was supposed to have occurred in the 15th century via a large tsunami coming from offshore north of the counrty if I remember correctly. The author postulates that the great ocean going waka were destroyed along with the mostly coastal settlements of the time. Leading eventually to Maori moving inland and the beginning of Pa building. Tough read though given was written by a scientist. Worth it though. Confirms we live in a wild country.
Yes definitely a change in culture at that time. Looks like there was more than one large Tsunami too, perhaps 3 in a 100 year period. I'd say with the food wiped out that is when eating people started, and the defensive Pa started out.
I don't know, the answers are not really there. You'd have to question the oral history too when the story tellers were probably wiped out with everyone else. The Tsunami's seem a bit thin in the story telling too, and a lack of consistency across the board.
Life expectancy of pre-European Maori was only 33. Doesn't speak of a quality lifestyle or time of any sort of security. What isn't known is of that life expectancy changed after the Tsunami's
In regard to ocean going Waka, what is really interesting is that there is very little evidence. One part of a Waka is all that exists in Archaeology in New Zealand, a single board of a Waka with lashing holes in it that points to ocean capable. In the Pacific there were none when Europeans first explored, only one is known from a dig site in Hawaii. They weren't sailing across the Pacific for at least the last 400 years, anywhere. The knowledge was lost, only recovered through the drawings early Europeans made of smaller sailing craft, and from Archaeology.
What is evidence in the Archaeology is that the earliest people here ate out the best resources. They can tell from the size of the shellfish getting smaller in the layers as they go up. Within 2-300 years they'd overpopulated.
Fair bit of romanticism going on these days.
A Scarfie saying.
Most of what we believe is just stories. Most of those stories are untrue.
Goes for the past, as well as today. Applies at an individual level, and across nations and cultures. Certainly some good bullshit stories baked in at the moment, which is back to my original point :-)
Hard to say. Ponga fronds are pretty soft. More likely bracken roots which were highly sought after carbohydrate. Then again many cultures used chewing for processing materials. The golden age was during the moa hunting period when there was plenty of protein and fat. They did eat a lot of small shellfish going by the remains I see on the volcanic cones in Auckland. They can be quite gritty which could have contributed to tooth wear,
After the devastating Japanese earthquake & tsunami in 2011, the people who fled to higher ground in at least one area found ancient stone markers up the hillside that said "don't build houses below this ". Over many centuries and generations the previous disasters were forgotten.
And it does appear that Ukraine is moving to retake their southern city of Kherson in what could be yet another brutal battle. It has taken the Ukrainians six months of defence to be in a position to counterattack.
Ukraine’s military suffers over 1,200 casualties in failed offensive — Russian top brass
Bullsh##t reigns from both sides in this war. We are mostly fed the western version.
www.liveuamap.com picks up reports from all over (often just tweets) and often quite contradictory. So you might have a little more faith than the in the one sided stuff we usually get fed.
It's a funny site, but if you fiddle about the useful map links each titbit to a place. Very informative.
Overall impression? A bunch of brothers and cousins murdering each other.
The Armed Forces of Ukraine have no opportunity for an offensive in the Kherson region. This was told by Lieutenant Colonel of the US Army Daniel Davis on Fox News. The Russian military has been moving inexorably forward over the past time, maintaining its presence everywhere. The command of the Armed Forces of Ukraine, in turn, talked for months about the offensive in the south, but it did not go beyond words. The Armed Forces of Ukraine simply do not have infantry, ammunition and equipment for offensive operations. Yesterday afternoon, Kiev's forces tried to attack in the Kherson region, but naturally rolled back due to heavy losses and lack of forces. Read more
Possibly because the Russians have been excitedly blowing up wooden models:
https://www.theguardian.com/world/2022/aug/30/ukraine-using-wooden-deco…
I stopped following the war in May for a few months but had another look a few weeks ago - not much seemed to have changed territory wise. I watch one channel on YT - he has some truly bizarre clips from Russia of the propaganda and total lack of critical thinking - makes me wonder what is happening in the world.
I'm sure russia has destroyed a lot of HIMARs. Probably more than Ukraine possesses. Ukraine has been knocking up plywood versions and parking them under trees, so Russia can spend their million dollar missiles turning them into wood chips. Makes a good headline in "Pravda" I guess?
We should also note that the Chinese yuan is weakening quite quickly now, down -2.0% since the start of the month, down -8.1% since the beginning of the year. There is a loss of face involved here.
What's going on w/China or India (or anywhere, including US markets)? Here's RBI's Shaktikanta Das: “EMEs are facing a rapid tightening of external financial conditions, capital outflows, currency depreciations and reserve losses simultaneously.” Link
Front page, Herald today, about the GST treatment of Kiwisaver fees. Amazing how most of the discussion on interest.co.nz seems to be about how to transition to a taxed-on-exit scheme for better KS outcomes, and the main priority of the Government appears to be jacking up GST receipts via fees.
A System will keep doing what it aims to do, until it can't (Donella Meadows; Thinking in Sysyems: A Primer). The government/state system (without which the economic system cannot function, despite the rhetoric) is now having to devour its support-systems, to survive. It will legislate to self-preserve, until rendered illegitimate - as happened to the USSR and the French aristocracy.
Identifying what is happening, needs perspective. As Macron has articulated, we're heading for de-growth, and everyone will attempt to survive under the sinking lid - governments included. We need to have this conversation; we need to acknowledge the inevitability of degrowth (better managed than not) and we need to appraise (all) moves against that backdrop. 3Waters, Polytechs, Health-centralisation, tax, these are all govt-survival moves (and misguided attempts to 'fix' a problem they've mis-identified.
Some pretty poor journalism on this topic with headlines screaming huge numbers that misrepresent what the actual effect will be. ACT support the correction to this gst anomaly, while Nats take unintelligent pot shots.
The real problem is that the management fees in NZ are far far higher than other countries.
Of course, once GST are charged on those fees on a level basis, the overall cost will stay the same, right? Totally unthinkable that fees might rise even further to claw back the added GST and a bit extra for compliance cost? You know, on those fees that are already way too high? Nah, good thing that could and would never happen, not in NZ.
Of all the problems with Kiwisaver that need addressing, this is the one that is apparently most deserving of attention.
I can't understand it either. My understanding it is the application of GST to the fees for Kiwisaver, which is quite different to taxing Kiwisaver savings. I do understand fees are higher with higher savings but I am confused at the backlash. I am happy to be corrected but I assume that the fees are payments for services and therefore can charge GST. Happy to be corrected of course. And very happy for someone in the know to explain why those services should be exempt from GST.
I had thought these fees fall into the broad GST exemption for financial services. Charging rent is a service that is GST exempt, for example.
Remember the old Tax Working Group Labour put together when they were elected, in order to make the tax system fairer? I wonder what their recommendations were on this. Oh look, it's the complete opposite of what Labour have done.
The Group:
43. recommends that the Government, depending on
its priorities, consider encouraging the savings of
low-income earners by carrying out one or more
of the following:
a) Refunding the employer’s superannuation
contribution tax (ESCT) for KiwiSaver
members earning up to $48,000 per annum.
This refund would be clawed back for
KiwiSaver members earning more than
$48,000 per annum, such that members
earning over $70,000 would receive no
benefit.
b) Ensuring that a KiwiSaver member on
parental leave would receive the maximum
member tax credit regardless of their level of
contributions.
c) Increasing the member tax credit from $0.50
per $1 of contribution to $0.75 per $1 of
contribution. The contribution cap should
remain unchanged.
d) Reducing the lower portfolio investment entity
(PIE) rates for KiwiSaver funds (10.5% and
17.5%) by five percentage points each.
89. does not recommend applying GST to explicit
fees charged for financial services.
https://taxworkinggroup.govt.nz/resources/future-tax-final-report.html
So much discussion on economy but is it not the time to have open and frank discussion on Democracy - vote bank politics.
https://thekaka.substack.com/p/another-186b-taken-from-the-future?utm_s…
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