Here's our summary of key economic events overnight that affect New Zealand, with news markets only have eyes for the Fed, even as geopolitical tensions rise further in Ukraine.
But first up today, there was another positive dairy auction this morning and overall prices rose a tad less than +2.0% which was probably a bit less than expected and which was no doubt due to the -0.7% slip in the SMP price when a good rise was anticipated. However the WMP price did rise +3.7%. Coming to the rescue has been the falling NZD however. Recall prices rose +10% at the prior event in NZD and this time the rise in local currency has been +4.6%. Fonterra's upcoming annual meeting will be full of satisfaction from their shareholders, even if this auction on its own probably won't change any farm gate payout forecast.
We are now less than 24 hours from the US Fed meeting results and markets are bracing for some pain. The current view is that the Fed will stay tackling inflation strenuously (with another +75 bps hike) and be prepared to inflict painful growth-reducing consequences to achieve their goal. They need markets to 'know' they are serious about beating inflation no matter what the cost. Those may be costs others will pay, but this is probably their last chance to get on top of the inflation thief. Blinking now will damage their cred for a generation.
In the US they reported that new housing starts rose in August while permits for residential housing slipped slightly. Completions dipped as usual during the August holiday period. Given the softness of their housing markets at present, this data is actually pretty good.
US retail sales growth softened last week on a same-store basis, but they were still more than +10% ahead of year-ago levels.
There was a UST 20yr bond auction earlier today where the yield rose sharply from the prior event. The well-supported tender drew US$32 bln in bids for the US$12 bln on offer and the median yield achieved was 3.75% which was almost +50 bps higher than the prior event a month ago.
Canada reported its inflation rate at 7.0% in August, down from 7.6% in July and lower than the expected 7.3%. Month-on-month prices fell, and by more than expected.
Japan also reported its August consumer price inflation but it rose to 3.0% from 2.6% in July. This was the 12th straight month of increase in consumer prices and the fastest pace since September 2014, amid surging food and fuel costs accentuated by a slump in the Yen. Core inflation also rose above analysts estimates to 2.8%. Without food or fuel the rate was +1.6%. Now all eyes will turn to the Bank of Japan to see how they react. But while core consumer inflation exceeded the central bank's 2% target for five straight months, the central bank seems unlikely to raise interest rates anytime soon as wage and consumption growth remain weak, analysts say.
China reviewed its loan prime rates today but made no changes to either the 1-year (used as a base for personal lending) or the 5-year (used as a base for institutional lending).
Taiwanese export orders recovered in August which was impressive given the geopolitical pressures swirling around it then. They were up +2.0% in August when a -2% fall was expected after a -2% dip in July.
Far more worrying however was producer price data out of Germany. These are now rising rampantly, up +7.9% in August from July when only a +1.6% rise was anticipated. That pushes their year-on-year PPI rise to a dangerous +45%. These are the largest changes ever recorded there. German industry is in a dark place at present.
The race is on to insulate Germany from Russian risks. Newly released data shows that in the first seven months of 2022, China shipped photovoltaic (PV) modules with a combined capacity of 51.5 gigawatts to Europe, +25.9% more than the whole of last year.
We should also probably note that in Australia, their officials face an improving Budget situation, one that could be +AU$50 bln better over the next few years.
The UST 10yr yield starts today at 3.57% and up another +3 bps from this time yesterday. That is another new 11-year high. The UST 2-10 rate curve is less inverted at -41 bps. Their 1-5 curve is also less inverted at -31 bps. And their 30 day-10yr curve has steepened further to a full +100 bps. The Australian ten year bond is unchanged at 3.72%. The China Govt ten year bond is also little-changed at 2.68%. And the New Zealand Govt ten year will start today at 3.99%, down -6 bps from this time yesterday.
In Wall Street's Tuesday trade the S&P500 is down -1.5%. Overnight European markets closed down, bookended by London's -0.6% fall and Paris's -1.4% fall. Yesterday Tokyo ended up +0.4%, Hong Kong closed up +1.2% and Shanghai closed up +0.2%. The ASX200 ended its Tuesday session up +1.3% and the NZX50 was up +0.3%.
The price of gold will open today at US$1666/oz. This is another -US$5 below where it was this time yesterday.
And oil prices start today down -US$1 from yesterday at just under US$84/bbl in the US while the international Brent price is now just under US$90/bbl.
The Kiwi dollar will open today at just on 58.9 USc and more than -½c lower than this time yesterday, again. Against the Australian dollar we are also more than another -½c lower at 88.1 AUc. Against the euro we are down likewise to 59.1 euro cents. That all means our TWI-5 starts today at 68.6, down another -60 bps and a new two year low.
The bitcoin price is now at US$18,816 and -0.9% lower than this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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Looks like crypto do not like interest rate hikes, and won't do well for another year.
You left our equities, gold,..goldfish..
So two assets with the marketing line of being inflation hedges, aren't necessarily very good at being inflation hedges.
I dunno, inflation is the price change from a year ago. Back when the inflation was actually happening crypto was doing well.
Perhaps it is a good inflation hedge but sensitive to rate rises.
As far as I can see, nowadays crypto just follows the US stockmarket, but with much higher volatility.
Gold as inflation hedge should have touched new heights, if not now than when.
Crypto is very susceptible to interest rate fluctuations due to the silly levels of leverage involved.
Crypto is not an asset, just another speculative fiat currency.
The klaxons seem to be gravitating towards a message of "hoard cash".
Might have to do some work aye.
Russian stocks are down about 10% this week and 40% since the start of the year, despite banning foreign holders from trading.
Talk of higher taxes on exports, particularly energy companies, attempting to annex the occupies territories even as they slip out of their grasp, and possible mobilisation.
The theory seems to be if the Donbas and other regions are annexed they will be immune from Ukrainian attacks for fear of poking the bear. This strategy has not stopped attacks on Crimea and even in Russia proper around Belgorod.
https://www.bloomberg.com/news/articles/2022-09-20/russian-stocks-tumbl…
Market capitalization isn’t “wealth.” It’s the latest price, times shares outstanding. Blotches of ink on paper. Flashing pixels on a screen. If a dentist in Poughkeepsie buys a single share of Apple at a price that’s 10 cents higher than the previous trade, $1.6 billion in market capitalization emerges from thin air. If a single share trades 10 cents lower, $1.6 billion evaporates just as quickly. Whatever happens, every security in existence has to be held by someone until it is retired. Ultimately, the wealth inherent in a security is the future stream of cash flows it will deliver to its holder(s) over time. Price fluctuations don’t change those underlying cash flows. They just provide opportunities for the transfer of savings between investors. High valuations favor the sellers. Low valuations favor the buyers. Investors have never paid higher prices for those future cash flows, or accepted prospective returns so low.
Put simply, the bubble hasn’t changed the wealth, and a collapse won’t change the wealth. What will change is the market cap. I suspect that the erasure of market cap in the coming years, and possibly the coming quarters, may be brutal. Still, no forecasts are required, and our own attention will remain on observable valuations, market internals, and other factors. Meanwhile, even if an investor sells at these extremes, the only thing that will change is who holds the bag. Link
Essentially Russia will reset its border expanded to the west as far as possible. Oh yes illegal and all that and resultant international outcry and outrage. But no more to be done about it than the similar Nazi annexations of Aiustria & Czechoslovakia not far short of 100 years ago. This will now be Russian territory and any attack on it to be considered as and retaliated to, as it it was Moscow. Hardly subtle but hardly anything to counter it either.
First they need to run a referendum and better be quick about it...then publish the results which obviously will be cooked.
Hardly subtle but hardly anything to counter it either.
Kosovo, officially the Republic of Kosovo, is a partially recognised state in Southeast Europe. It lies at the centre of the Balkans. Kosovo unilaterally declared its independence from Serbia on 17 February 2008, and has since gained diplomatic recognition as a sovereign state by 97 member states of the United Nations.Wikipedia
All Russia did after the attack on a Crimean airbase (annexed territory) was bomb a few more civilian targets. Their red lines don't seem to be meaningful.
Dnieper might draw, for a large part, a natural historical line instead? It certainly caused Napoleon & Adolf much anguish! And especially on the way home.
Ukraine is more like Poland, the final straw. Russia's desires for Ukraine will die with Putin, sooner rather than later based on growing rumblings by the masses.
While you can't ever get a perfectly correct border for it the Donbas is ethnically and language wise Russian.
And lots of Russian speakers have been killed by Ukrainians since 2014.
But basically it's brothers and cousins murdering each other.
It will be ignored by the Ukrainians. When the attacks come, the ball will be back in the Russians' court to decide what to do about it.
I think Putin will blink first, as the Russian people aren't dumb enough to put up with full mobilisation for his pet project.
The race is on to insulate Germany from Russian risks. Newly released data shows that in the first seven months of 2022, China shipped photovoltaic (PV) modules with a combined capacity of 51.5 gigawatts to Europe, +25.9% more than the whole of last year.
The European Commission is considering the possibility of allowing the transportation of Russian coal. Link
Hopefully they put the PV somewhere sunny.
Purchasing power of the NZD in freefall as the global currency wars escalates. Inflation is yet to peak for NZ by a long way.
Fear not, the British Empire will save us.
Would have helped Sri Lanka, that has gone from prosperity to a complete mess. That said I checked that it was not dated April 1st.
Rserve bank should do what they are suppose to and let economy run on fundamentals.
It will be a while before economies are defined by fundamentals as cheap and easy printing / supply of money has distorted and politicians llowed as it suited their vested biased interest.
Not just the reserve bank. Robertson himself describes his budgets and funding packages as means to 'stimulate' the economy on every occasion.
On the one hand, his obsession with fiscal stimulus has propped up consumption of goods and services within our economy; and on the other, his government's mindless policies have added more barriers to domestic production.
The last 20+ years have unfortunately been characterised by subsidising and rewarding unproductive speculation while penalising productive work. it's a hard road getting off such welfarism.
Roberston is trained in political science not economics or finance. Jacinda has a penchant for installing in roles whoever is convenient for her politically, not the right people for the benefit of New Zealand.
Correct the Keynesian experiment is not quite working to plan.
It won't be long until our capital follows our workers to Australia for a better life.
We haven't seen headlines like "I'm cashing in my Term Deposit and shipping it off to Australia for a better currency rated return", but they can't be far away. Unless the RBNZ vigorously 'encourages' us to do otherwise.
" A report by Credit Suisse that says Australians are the richest people in the world."
"Westpac chief economist Bill Evans lifted his interest rate prediction, betting the Reserve Bank of Australia (RBA) will raise the official cash rate (OCR) by 0.5% on 4 October"
Getting harder to move away from NZ with our weak dollar... getting easier to move here from other countries.
We could see 0.75 against the A$; 50 cents against the US$, in the blink of an eye unless the RBNZ gets a move on. A head of steam is building up everywhere now, and a terminal OCR of 'just' 4.75% isn't going to cut the mustard.
"Sweden lifts interest rates by full percentage point, the biggest hike since 1992, with more to come"
😅😅 I can see why you did not mention Sweden's new interest rate. I looked it up myself and found that it is now at 1.75 percent 🤫
Why would anyone want to move here from other countries. It is probably a great holiday destination for people paid in other currencies (if we ignore the climate damage from the long flights). Apart from that we are becoming a poorly paid, low-tech, crime ridden, crappy-healthcare, unaffordable country with aging infrastructure and still well over priced housing. Also for professionals in tech, engineering, software and so on.... we dont have the job opportunities as we dont encourage those businesses to base here
We need a forward thinking government to accept a period of pain but reorient our economy towards something productive and sustainable. And with the confidence to smash the housing ponzi and have kiwis prefer to invest in and look up to productive innovative export businesses... kiwis used to be very good at that. Trouble is that any would be leaders who are into that left us long ago and wouldnt want the stress of being a politician here.. so we get what we deserve
Also, our politicians talk the talk on productivity but invest in...property. Pretty tricky to find one who's genuinely interested in turning NZ into a country that rewards entrepreneurship rather than speculating on land and freeloading off the working folk.
We need a forward thinking government to accept a period of pain but reorient our economy
The current migration programme is based on getting a huge volume of low-quality workers/students here to get exploited in a kitchen or farm by dangling permanency in their faces.
The so-called economy is a simply a network of shoddy businesses (and government entities) clipping the ticket at various stages along this Ponzi scheme. Unsurprisingly, most of the proponents of these schemes were once low-quality migrants themselves.
Long flights cause the climate to change? Just what proof do you have?
Too late for that, sounds like Sell Low, Buy High to me
The words Low and High are comparative, of course.
Many people look at the Past to determine what they mean. But it's only the Future that matters.
Don’t you know? House prices double every -10 years without fail! The past predicts the future!!!
Yes nominal growth was huge in dollar terms. The rate of growth in percentage terms is slowing, and that has been acknowledged already.
So if prices double within 12 to 15 years that could be good timing for you to sell your house before moving to the retirement village.
Our capital is leading the flight! See our massive current account deficit of 27.8 Billion in the year until july 2022
I love these stories:
House next to elite private school sells for $4.99m after auction zinger
https://www.oneroof.co.nz/news/42255?utm_source=nzherald&utm_medium=nzh…
Thanks OR
Something similar happened in my neighbourhood too. Enormous amount of money... Guess where are buyers coming from...
....Probably locals. If non resident they can only be kiwi passport holders or Aussies or Singaporean, so that leaves quite a few options
Stop with the 'Chinese sounding names' inference right now!
Economist in Australia predicts house value to fall by 16% and in Sydney by 26% ( Though economist keeps shifting goalpost and should be read like any other article/opinion with a pinch of salt).
https://www.macrobusiness.com.au/2022/09/australia-faces-largest-and-lo…
If we assume that NZ too will follow similar pattern than we are halfway down the road and still more to come and any fall from here will be......
And I am assuming that is not inflation adjusted. So add another 7% per year.
In Hamilton, council as per article for the first time in History has predicted a fall of 13% in Hamilton, so can safely assume 26% as will not want to create panic but at the same time want new FHB to be warned
https://i.stuff.co.nz/waikato-times/business/129910223/hamilton-house-p…
It is not possible to have a meaningful across the board figure. There are various types of sought after properties as there are different buyers. I wouldn't be surprised if some properties increase in value
NZD/USD @ 55 by the end of the month?
Bought my farm when NZ$ was 38 cents US, 20 odd years ago. So got a long way to go yet.
What happens when the Fed hikes rates? Construction industry suffers, the cost of credit goes up (upwards pressure on prices) and confidence goes down (slowing business investment), people taking out a new mortgage pay more, but vast majority of home owners are on 30-year fixed rates so they are insulated. Oh, and fiscal stimulus increases due to higher Govt interest payments to the private sector. The net impact of all this on the price level is uncertain - although there are signs that higher rates may have a net positive impact (rents are on the rise for example). Monetary policy is, lest we forget, all for show.
What happens when NZ hikes rates to protect our exchange rate and 'keep up with the Fed'? Disposable income drops quickly as mortgages transition to higher rates, consumer spending falls, confidence drops, businesses slow investment, job growth stalls and unemployment picks up, and the higher cost of credit puts upwards pressure on some prices.
The issue we have here is that pass through from higher interest rates in NZ is much faster than in the US - following their lead will be a disaster. But, at least we are not one of the dozens of developing countries with debt in dollars.
Exactly!!!!!!!
As I said yesterday, and as you affirm, the USA is significantly more resilient to interest rate hikes than NZ.
If we keep following the Fed’s lead, our economy is going to be a basket case by mid 2023. Unemployment likely to rise above 8% etc etc.
watch out…
But its almost certain (say 95%) that we follow the Feds lead....
The RBNZ is the Fed's puppet.
The reverse is also true that we should have limited our monetary (and fiscal response) in 2020-2021 to prevent this inflation blowout when we weren't even experiencing deflation! But we followed the Fed then, and now with almost certainty, we will follow them as they raise their funds rate.
The moral of the story is; creating excessive debt against a housing market to avoid deflation is a fools game. Why? Because we don't export houses so the net gain is zero, other than creating a debt burden that gives no room to fight inflation if it were to arrive. And it appears to have arrived.
The reason that interest rates and LVRs were dropped in 2020 was to protect the economy. So I would imagine the rbnz will not be prepared to go too far.
Using interest rates to control demand and inflation is a blunt tool and pretty irrelevant. See what the govt did to reduce inflation they took 25 cents plus gst off the price of gas. With interest rates they only really affect floating rate mortgage immediately and those who borrow using Hire purchase. Hopefully fuel prices will continue falling.
Generally reducing taxes, like what we did with fuel, is inflationary (even though it might improve the CPI read in the very short term..but that is just politics and is not solving the real problem).
To solve inflation you need to reduce money supply relative to the quantity of goods and services produced within the economy.
We decided to increase money supply (by removing a tax) and have done nothing about increasing the quantity of goods and services.
"The reason that interest rates and LVRs were dropped in 2020 was to protect the economy"
True, in part, with the caveat 'in the short term' while making it more fragile/weak in the long term. By increasing debt relative to productive capacity and having more at risk debt in the system, vulnerable to bankruptcy in the medium term.
It could also be said that it wasn't to protect the economy, but was to protect people who were carrying too much debt against and overpriced housing market (which is a bad place to be in the first place). Again, we tried to avoid a problem, by creating even more of the problem (house prices that are too expensive relative to incomes).
Mmmm. Doesnt the price of fuel go into the basket of goods. And also feed through the entire economy. My dad remembers the 70s fuel shocks
Whereas the price of secondhand houses and the cost of tomatoes not so much.
Yes the price of fuel goes into the basket of goods...but removing a tax on the fuel to make the CPI read look good (in the short term, for political gain) doesn't solve the underlying problem.
Ask your Dad how Volcker (and Reagan) solved the result of the 1970's fuel shocks, if you're not old enough to remember/know for yourself.
Wasnt it by getting everyone to log on to the internet so they could watch Ronald Reagan B movies at home and save a lot of gas Then after that the big nasty arabs couldn't agree on the output quotas... whew. But that was before the nasty Iraqis started a war with the Iranians causing the price to spike again which is probably what you are referring to.
Mind you I was talking about the oil price shock of 1972/3 and ronnie had not considered being president at that stage but neither had donnie as he wanted to become the richest man in America and buy up the Eastside of new York.
Is that correct?? I know you want to display your intellectual prowess sorry to spoil it for you.
I'm not concerned about intellectual prowess, more getting to the bottom of issues and what is happening/could happen. If that feels like intellectual prowess to you so be it, but then that is your perception and not my intention.
Have a go at second-order thinking on the issue. Consider what the oil shocks did in terms of the sticky inflation that happened through the late 1970's and into the 1980's. It started with an oil shock. But there were also other factors at play, including government deficient spending and taxation issues (where this thread starts). That flowed right through into the 1980's and it took rather unpopular (at times) economic settings from Reagan and Volcker to resolve the problem.
Here's a reasonable link on the topic if you would like to read about it, rather than your Dad telling you about it:
How the Great Inflation of the 1970s Happened (investopedia.com)
If you understand this, you might understand the context of the original post on this thread.
I dont think that saying he remembers the 72/3 oil embargoes means he has to tell me about it.
I'll have a look at your link and yes I think you do love the sound of your own written word and being able to defeat others. Esp by using the empathetic line but I will save that for another day. Cheers 🍻
HW2 in my opinion you are correct in your conclusion that oil prices feed inflation. Inflation in the 1970's was propelled upwards by the oil shock but it continued via a wage price spiral because of the baby boomer cohort's need for housing, ability to bargain for higher wages and their demographic spending. Businesses could still make the sales and profits to keep the show on the road due to this spending.
If there had been no Volcker to rein in the money supply there would still have been a point where the abilities of govt and firms ability to supply baby boomer spending needs would have happened provided that the same forces of globalisation and the scrapping of local industry tariffs worldwide had been followed.
I don't think that we face the same situation today. Instead of a steady rise in the population of the Western world there is a decrease. There is a demographic downturn in China. We have had a short term energy and materials shock due to Covid and the war in Ukraine and a demand surge due to Western fiscal spending. The fiscal spending is much reduced and Covid is low everywhere except China.
The war in Ukraine and post Covid lockdown spending seems to me to be the only thing holding the oil price where it is. Inflation (the rate of change of price increase) is starting to fall. The Reserve Banks will overshoot, they always do.
If you were a conscientious govt you would be making some kind of provision for a combination of continuing energy supply difficulties and some kind of backing for the reshaping of the New Zealand economy if we have to produce more of our own consumer goods, or producing more goods and services that foreigners want to buy.
A govt that spends money on R & D, on new industry (picking winners) and on upskilling the population instead of spending more money on bureaucrats (intent on stopping any kind of progress) and works that don't actually do what is needed.
A govt that spends money on R & D, on new industry (picking winners) and on upskilling the population instead of spending more money on bureaucrats (intent on stopping any kind of progress) and works that don't actually do what is needed.
Indeed. Invest in education, R&D (we currently invest only half of what's necessary for it to be an incubator of economic activity) and security of energy supply.
So we'll probably just give tax breaks to speculators and run austerity policy...
Basket case yes but will unemployment be constrained/retained by the ability of people to move to Aust.
And so productivity declines further as skill leave
Policymakers kid themselves by pointing to net migration trends. Multiple economic research has found that migrants we've acquired in recent years aren't as skilled as NZers who generally leave for greener pastures.
Yet much of the effort from government and businesses goes into "attracting" replacements for Kiwi workers from overseas instead of making NZ a better place to work and live.
Hmm sort of helps if you have the worlds reserve currency don't ya think?
Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, sees a “long and ugly” recession in the US and globally occurring at the end of 2022 that could last all of 2023 and foresees a potential 40pc drop in S&P 500
There is no clean way out of the mess we've created over the last 15 years. In terms that many New Zealanders understand - Sometimes it's easier and relatively cheaper to knock the existing structure down, and start again. It's messy whilst it's being done, but hopefully you have new materials and standards created at the end of the process.
Looks like all that toilet paper left over from Covid is about to get used up. The overleveraged are shitting themselves.
Crikey, well done the farmers, they deserve it. Wouldn't it be nice if we actually made a profit as a whole country, like those clever Australians? They run a current account surplus, meaning they have a successful business model.
We just borrow from overseas so we can play house speculation, that and flog off any successful businesses to foreigners. Think Trademe and Fastways. Colonisation by choice, whether we kow tow to the US or the CCP.
Was sent this chart earlier of German PPI vs CPI:
https://pbs.twimg.com/media/FdFDEdjXEAAjg8w?format=png&name=4096x4096
We worry about our housing market, but imagine what could happen to inflation in Germany/Europe.
Perhaps now we can see why we have to stamp Inflation out - now. Better, relatively lesser pain now than far worse later.
The Weimar Republic hyperinflation is the last thing we want a repeat of.
Reckon the Interest.co.nz comment section will be safe? https://www.stuff.co.nz/national/politics/129944717/christchurch-call-j…
Censorship is coming but of course its for your protection and its in your best interests after all it would be better if we all went woke. Life has been interesting, apparently you are only entitled to an opinion if you are in a management position, everyone else should just shut up and get on with it. Pays to become self employed in this country as fast as you can.
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