Here's our summary of key economic events over the weekend that affect New Zealand, with news that the coming week will be dominated by interest rates decisions by the major central banks including US Federal Reserve, Bank of Japan and the Bank of England. Also in focus will be August inflation rates reported for both Japan and Canada.
All this will come following the global recession warning from the World Bank that is focusing minds.
Most equity market indexes ended last week sharply lower as investor fears grew. And the S&P500 futures suggest that Wall Street will open tomorrow down another -0.8%. From its peak in January this year, the S&P500 has now retrenched by -19.3%. The cacophony of news when it hits -20% and a bear market just might drive it to a new low. Certainly p/e ratios need correcting in this new environment of much higher benchmark interest rates.
But consumers seem to have had enough of the 'fear' mood - they already did that. Now they seem to be feeling better about life.
In the US the University of Michigan consumer sentiment survey rose to a five-month high, driven by a sharp, recent fall in petrol price inflation. Will it last? Who knows. Will the investor fear mood last? That seems equally uncertain but they are having to swallow increasing losses. Along with their bond investor brothers, equity market losses are piling up and portfolios are shrinking in value now. The negative mood might become a self-fulfilling trend in the back half of 2022.
More positively we should note that the "interim settlement" of the US rail dispute is a significant risk removed from the immediate future. Given where the parties were, it is quite an achievement, under pressure. Ratification seems likely.
China reported some key data late on Friday, and some of it was unexpectedly positive. Retail sales were up +5.4% in August from a year ago, an expansion at twice the July rate. Industrial production was up +4.2% on the same basis, also beating expectations. In fact, electricity production surged in August, up almost +10% from year-ago levels. But this is still a bit of a puzzle because these 'power' rises recently are far more than can be explained by industrial activity, or consumer behaviour.
The Chinese central bank fixed the value of the yuan (CNY) at 6.93 to the US dollar on Friday. But in freely-traded offshore markets, the CNH is trading over 7. If you can get CNYs out of China, there is a good arbitrage trade available now with an "easy" 1% gain on each transaction.
Chinese citizens are as heavily 'invested' in residential real estate as Kiwis, maybe even more so. But data out on Friday shows that in 50 or their 70 largest cities the prices of new housing fell in August from July. That is the most in more than seven years. More broadly, for housing resales, 56 of these 70 cities posted price retreats. The 'wealth effect' impact on vast numbers of Chinese households will be negative, and for many, disturbingly so. There may be building social disquiet.
Meanwhile in Germany, they have seized control of some Russian-owned energy assets in the country to shore up its energy security concerns. Russia has turned off its gas and oil taps and Germany needs the local infrastructure to operate on alternate supplies, which are starting to flow in volume, including from the US. The price of oil and gas is not rising, nor is futures pricing.
Elsewhere in Europe, Hungary is becoming the cheerleader for Russia at a time inflation is soaring. It has placed caps on mortgage rates, food prices and fuel costs. It is also cracking down of dissent, and the EU is worried for democracy in Hungary and is withholding US$7.5 bln in aid while those anti-democratic measures are in place. Hungary has inflation at 15.6% pa and a benchmark interest rate of 11.75%.
The UST 10yr yield starts today at 3.46% and unchanged from this time Saturday. The UST 2-10 rate curve is little-changed at -42 bps. Their 1-5 curve is marginally more inverted at -35 bps. But their 30 day-10yr curve has steepened back to +81 bps. The Australian ten year bond is up +1 bp at 3.72%. The China Govt ten year bond is unchanged at 2.69%. And the New Zealand Govt ten year will start today at 4.08%, also where it was on Saturday. We should also note the sharp rises in wholesale swap rates in New Zealand on Friday, pushing up again. Our one year swap rate is now its highest since 2008. Our two year reached that benchmark in June, fell away, and is now almost back there again now.
Bond investors may be taking losses, equity investors joining them, but data out on Saturday (for July) shows an international rush to shift money to the US. In the month, they reported the sum total of all net foreign acquisitions of long-term securities, short-term US securities, and banking flows was an inflow of US$153.5 bln. While these flows are quite variable, there has been an upward trend in them since 2019.
The price of gold will open today at US$1676/oz. This is -US$41 or -2.4% below where it was this time last week.
And oil prices start today little-changed from Saturday at just on US$85/bbl in the US while the international Brent price is still just on US$90.50/bbl.
The Kiwi dollar will open today at just on 59.9 USc and marginally firmer than this time Saturday. For the week it has been a -1.2% devaluation. Since the start of the month a -2½% devaluation. And since the start of 2022 the devaluation has been -12½%. Against the Australian dollar we are unchanged at 89.2 AUc. Against the euro we are still just under 59.9 euro cents. That all means our TWI-5 starts today at 69.6, marginally firmer but still very close to a two year low.
The bitcoin price is now at US$19,674 and virtually unchanged from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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52 Comments
I see an increase in comments like below in our mainstream media like Stuff and NZ Herald. The crown accounts for the full year will be out next month. Keen to find out what the real tax take, tax receipts, are compared with the forecast.
"Instead of paying tax he chose to use the money to fund personal and lifestyle choices and admitted using company funds for significant personal spending," IRD said in a statement.
I am sure this is happening much more than it is caught.
Plenty of noise, but one cannot help but feel the direction is overwhelmingly negative, globally and in little ole NZ
It's one of the slowest car crashes in recent times.
Yet we have sped up as we passed the Central Bank warning signs of "Road out Ahead!", convinced that it's all a ruse, and the road will be fine up in front of us. It always has been, after all. But this time, like the Tangiwai Disaster, the bridge really is out, and we've carried on; foot flat to the asset markets' floor....
Gold sure is a "store of wealth" in inflationary times?
It's not playing out that way. In USD dropped over 3% in last 12 months
So what are the BoE going to do? Surely they should be considering a humongous rise in their rate, even 500bps would seem low given their potential inflation. How are they getting away with such a low rate?
The dollar has devalued by 12% since the start of the year. That means the cost of imported good will rise by 12%. We have been raising interest rates, yet the NZ dollar is getting weaker. Are we using the right tactics to fight inflation?
When the market expects devaluation, downward pressure placed on the currency can be offset in part by an increase in interest rates. In order to increase the rate, the central bank can lower the money supply, which in turn increases demand for the currency.
The bank can do this by selling off foreign reserves to create a capital outflow. When the bank sells a portion of its foreign reserves, it receives payment in the form of the domestic currency, which it holds out of circulation as an asset.
https://www.investopedia.com/articles/economics/08/currency-crises.asp
The issue is that interest rates rises in NZ have been way too slow and too timid. We should have an OCR of 4.75% right now, if we do not want to see the NZ dollar going down the gurgle, and inflation going through the roof. There should be at the very least a 100 bps increase with the next OCR review. The longer we wait, the higher the OCR peak will have to be. We should also unwind all the QE that the RBNZ muppets have implemented.
Reserve Bank Governors by their own doing have goofed up and now have no choice but to act aggressively to repeat another blunder as now their very own existence is at stake
https://finance.yahoo.com/news/history-shows-no-example-hiking-16181231…
Looking at OCR near 5% by middle of next year.
US financial hegemony being re-asserted. US interest rates down leads to borrowing of USDs worldwide, hedged or not. This leads to worldwide boom. Now we have to pay them back. As US interest rates rise vast sums flee the other currencies despite their efforts to hang on to them by putting their interest rates up too.
These things happen about every ten years. It was the same when the GBP sterling was the reserve currency, so looks like a natural periodicity of human behaviour.
https://gm-media-library.s3.eu-west-1.amazonaws.com/image_f3b6bceb71.png
I used to think the RBNZ was to blame, but in many ways they are set up to be the scapegoat, so as to draw fire from the mistakes of the rest of our deluded administration. These forces are too powerful for any central bank to control. Their efforts to do so usually only make things worse, although that is not necessarily so.
When private sector borrowing expands and things start to improve, the bureaucracy tells themselves that it was their wisdom and skill that turned things around. The academics, economists, bankers and everyone who derive their careers from credit expansion then fabricate a whole intellectual universe about what policies worked and why.
As Richard Nixon's Treasury Secretary John Connally put it in 1971: “The dollar is our currency, but it's your problem.”
A problem, I might add, you cannot walk away from unless you want the US military invading your country to give your people back their freedom.
Sarcasm noted.
Historically uncertainty and the threat of recession/depression has caused a flight to safety US $ and in the past the Pound but this is not large enough to absorb all but will benefit, the Euro should also benefit but the near Bankruptcy of Belgium/Italy & Spain together with doubts on the German and french economies may create sufficient doubts especially in the ECB to make the Euro unattractive. Will be interesting to see how the BRICS currencies perform as a measure of trust - with China and Russia perceived as untrustworthy.
We need a 1.5% increase in population (including spouses and children of migrant workers) to keep our heads above water.
Or we could let a market correction run its course and release workers from their unproductive jobs in zombie companies (or the public sector).
That is the sad thing about it. The real engine of the economy, the productive small and medium sized businesses, are hit hardest. The public sector, with their powerful unions, access to power and regulatory protection, suffer only very lightly. Hence the stagnation and decline of the Western world. My image is of a Morris Minor trying to tow a very large caravan.
Santos says skilled migrant carpenters paid $23 per hour before Covid-19 hit are now earning more than $30, and the labour shortage incentivised employers to treat their staff well
Paying your workers a decent wage and treating them well - we can't let that happen now can we? We need state-sponsored migrant exploitation back on track.
Business groups sulking over Kiwi workers moving to Australia for higher pay are also pressuring INZ to drop the median wage threshold. The decline of NZ could be a few clicks faster than the rest of the Western world.
Carpentry is not easy; it requires physical effort and considered thought. If skilled carpenters were earning only $23 per hour just three years ago then that explains what is wrong with NZ. Can any family live on just $23 per hour? Only people who have never got their hands dirty and never made anything in their life could consider $23 per hour a living wage for a skilled worker.
Probably explains why paid at this rate they don't give a stuff about the quality of their work - que leaky homes.
Where does it end though? You give everyone a big pay rise, then the price of everything goes up, then you need to give everyone another big pay rise, rinse and repeat. Low immigration can force businesses to become more efficient, but in a lot of cases that efficiency involves a big overseas corporate running at scale and destroying everyone else (and then creaming more profit once the competition has gone).
In a way immigration works pretty well assuming the unemployment rate is not going up. Obviously it can't continue forever though...
You give everyone a big pay rise, then the price of everything goes up
As opposed to the pre-pandemic years in NZ when net migration was running at 1-1.5% of population, median wage growth slowed down and the price of everything was falling. Oh wait, non-tradables were still running at the higher end of RBNZ's target band.
The likes of India and China have high degrees of internal migration that helps maintain high skill availability, low wages and low unemployment. Are those the kind of economies we should be aspiring to be like @JJ?
The problem is when things like 'housing' explode, watches don't 'only just' keep up with them - they were so far off that you now have a need for wages to keep increasing. Housing costs exploded and we're not even close to touching the sides for the years of increases where wages flat-lined in the post GFC era.
Or is it 'no payrises when things are good but definitely no payrises when things are bad either'? Workers do not have the ability or desire to cop it no matter the prevailing economic circumstances, for some sort of 'greater good' that no one can articulate or explain when it might actually work in their favour for once.
So are you saying highish CPI inflation is a good thing for poorer people? Personally I would agree with you, but many would not.
No? I'm saying that pay increases can't be a 'heads I win, tails you lose' thing where there's never a good time for upwards pressure on wages.
But in an environment where CPI inflation is being kept to 2% they kind of have to be right? Wages have been fairly constantly going up faster than consumer prices ironically until now.
Good for young working poor and bad for elderly near to retirement poor.
That would be true if the cost of goods is 1:1 Labour component. It's not, so if you double everyone's wages a company won't see a doubling of the cost of goods.
Personally I think inflation around 5-7% is a good thing as long as it can be contained. But a lot of people would argue inflation is bad for poorer people, that we should limit it to 2%, and that won't allow wages to go up very quickly at all.
Advisor says "........Or we could let a market correction run its course and release workers from their unproductive jobs in zombie companies (or the public sector)......."
I would agree with that one.
The place would be better with fewer people. And why would you bring in vast numbers of people when we can't provide housing and infrastructure for them. That's been a simple case where the importing employers have benefited, with the costs paid for by the nation.
Agreed but the problem isn't that we can't provide housing and infrastructure for them. The problem is that too many of them don't have the skills to pull their own weight in this regard.
Australia applies quotas on migrant occupations to ensure the skill-mix is in line with policy direction. For example, they have roughly 4 physicians per 1000 people in their country. So they reserve at least 2.5% of their intake for physicians to make the country is not worse off due to migration.
NZ, however, continues down the failed path of placing all its faith in the markets to balance things out, despite INZ raking millions each year in the name of planning and policy.
importing people to build houses is a zero sum game ,because they need a house when they arrive.
works in south east asia and other places where workers live in shanties on site
Well maybe you only give the lowest earners a payrise and the richest amongst us get a pay cut to pay for it?
What planet are we living on when the people we need to build houses to help us ease living costs are paid so little that they can't make ends meet if they stay?
A friend moved in to a new build townhouse 6 months ago. All sorts of issues with quality, lots of problems with finishing, flooring etc. Hopefully structural is ok.
He has a one year warranty, the builder has sent the same clowns out 2-3 times and issues still Not fixed.
Apparently speak zero English. Good chance they are getting paid less than the minimum wage.
New Zealand housing is Kahawai on a caviar budget. Small houses, no living/workshop space, 30 year mortgages and half a decade for a deposit.
Hardly the deal of the century, being a Kiwi in Kiwland these days, is it?
No carpenter worth their weight in nails would get out of bed for less than $50 p/h
What are these "carpenters" that work for $30 p/h? Nail gun qualified labourers? Maybe ok for sheds and commercial construction but not on my house thanks.
619 employers suspended. No no, only a minority are ripping the system. Bloody big minority considering the lack policing.
Employees are leaving for double the wages, but it's not about the money .
Ok
If The Fed goes '1%, or more', on Wednesday, then the trap-door underneath Bitcoin and every other asset markets could swing open. If they go 'just 0.75% or less' then the markets will roar.
Everybody knows that, so what will they do? Me? I'm standing well clear of the gallows.
Exactly. Speculative (uncaring about yield) debt is about to become toxic, and then cash will reign supreme. The real "kaarkkk" moment approaches...
Elsewhere in Europe, Hungary is becoming the cheerleader for Russia at a time inflation is soaring. It has placed caps on mortgage rates, food prices and fuel costs. It is also cracking down of dissent, and the EU is worried for democracy in Hungary and is withholding US$7.5 bln in aid while those anti-democratic measures are in place.
Depends on which type of democracy one favours - bought and paid for puppet democracies are presently in favour at EU headquarters.
If only Putin had been smart enough to consider that invading Ukraine might push them closer to NATO and the EU in the search for allies against his aggression.
Not to mention driving Sweden and Norway into the fold.
With NATO stronger and Russia losing men and equipment on an hourly basis, the imbalance between them has never been greater.
Consumer sentiment in the US has rebounded because consumer prices have been less oppressive past few months. But sentiment hasn't *really* rebounded because consumers know what's coming. It isn't more "inflation." Link
UofM consumer survey of "inflation" expectations falling in September. 1y lowest since last September. 5y expectation lowest since last July. Either consumers are really confident in Fed, or they know what the Fed doesn't (what FedEx said). Link
Luxon to release Uffindell findings a month late but a few hours before the Queen's funeral. Who would've thought.
Edit: The findings will not be released to the public now, but rest assured Sam did not bully his flatmate. So I guess she must have been lying.
Or she was telling the truth, but they just don't care.
"HIT THE ROAD, FATTY!"
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