Here's our summary of key economic events overnight that affect New Zealand, with news markets are looking forward positively today, putting behind a Q3 that had its issues.
First however, later today the RBA will advise its latest rate review and tomorrow the RBNZ will do the same. That means there is a pre-release shadow over local interest rate markets ahead of those announcements. Both central banks are expected to add +50 bps to their policy rates although that is less certain for Australia.
Meanwhile, markets are more chipper today with the end of the quarter behind it. Equity markets have opened Q4 in a positive mood. Perhaps strong progress by Ukraine in defending itself is helping. However the data coming through for Q3 isn't so bullish.
In the US, the widely-watched ISM factory PMI sagged much more than expected to be barely expanding. New orders, including new export orders were the weak spot. Labour is still tight however, although price pressures are easing quickly.
There was also the internationally-benchmarked Markit PMI for the US out as well, the final September version, and that was more upbeat recording a stable expansion. In this one, production and new orders rose, albeit only marginally, input cost inflation eased further as some inputs fell in price, and employment growth was the fastest since March.
This one ties into a global set which is much less impressive with business optimism sinking to a 28-month low.
In Japan, they are still expanding but the trend is down with new orders and output falling.
We already reported that China's factory sector was shrinking in September. And now we can add that Taiwan is going backwards too with output and sales falling at their quickest rates since May 2020.
In India, their expansion continues at a good, healthy pace.
In Europe, their manufacturing sector downturn accelerated in September as demand tumbled further and price pressures intensified.
Social media is making a mess of globally systemic banking giant Credit Suisse's reputation, suggesting it is about to be the 2022 equivalent of Lehman Bros. The real fear is that rumours might become self-fulfilling. Those fears were given credence by their CEO who wrote a staff memo saying the bank was at a "critical moment" which fed the rumour mill. But it appears he was 'only' referring to a major organisational shakeup within the bank.
In Brazil, a presidential runoff election is the outcome of the weekend vote. That runoff election will be held on October 30. The tightness of the first-round election result came as a surprise, since pre-election polls had given the leftist candidate a commanding lead over the incumbent. But leftist ex-president da Silva received 'only' 48% of the vote, versus 44% for far-right Bolsonaro, with 97% of the ballots counted. da Silva needed 50% to win on the first ballot.
The UST 10yr yield starts today at 3.65% and down -18 bps from this time yesterday. The UST 2-10 rate curve is unchanged at -45 bps. But their 1-5 curve is back inverted at -12 bps. And their 30 day-10yr curve is much less positive at +88 bps. The Australian ten year bond is -11 bps flatter at 3.80%. The China Govt ten year bond is unchanged at 2.77% and may stay like that while they are on holiday. The New Zealand Govt ten year will start today at 4.30%, down -2 bps, but may well fall later in the day in response to the Wall Street shift.
On Wall Street, the S&P500 is up strongly in a risk-on mood. It is up +2.2% in late Monday trade there. Overnight, European markets were generally firmer led by Frankfurt's +0.8% and trailed by London's +0.2%. Yesterday Tokyo ended its Monday session up +1.1%. Hong Kong fell -0.8%. Shanghai was closed for their Golden Week holiday. The ASX200 ended down -0.3% and the NZX50 ended down almost -1.0%.
The price of gold will open today at US$1692/oz. This is up +US$31 from this time yesterday.
And oil prices start today up +US$3.50 from yesterday at just under US$83/bbl in the US while the international Brent price has risen to be just over US$88.50/bbl.
The Kiwi dollar will open today at 57.1 USc more than +1c higher than where we that this time yesterday. Against the Australian dollar we are little-changed at 87.8 AUc. Against the euro we are up +¾c at 58.3 euro cents. That all means our TWI-5 starts today at 67.3, and up +100 bps since this time yesterday morning.
The bitcoin price is now at US$19,470 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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99 Comments
No worse than Luxon...he heads off to talk to his imaginary friend upstairs...same principle,at least you can see and touch a tree...
Orr may just be partaking in what the Japanese refer to as shinrin-yoku....
Just filled out my local body election form,nice to see,thanks to this government, that there isn't pages & pages of candidates as in the past for DHB's.
Good to see that reduction & productivity gain with out all those hangers on.
Just need to get on with 3 waters so the country can own and manage it's resources and finance it properly.
It is not only what Mr Orr does but also and more important what Fed does as things have gone beyond Mr Orr so in comming months will hear more and more about external forces/reqasons.
Following Fed as it suited ther narrative have screwed and now ....anyones guess. US with diversify and bigger economy will survive and cme out much better than NZ, where everything is tied to housing - interest rate.
Now when resetting government and rbnz both should try to motivate and support productive economy but.....it will be back to.......NZ now not only a laid back country by many but also the best place (Use to be and hopefully will be in future) to specualt for fast, easy and big money with support of all politicians.
Currencies are one of the last assets not controlled by government, because there is no central means for them to do so. Yes, you can buy currencies futures and options but they are just betting slips on the horse itself. Currencies go sideways about 85 % of the time and trend at other times. Don't believe any of the reasons attributed to the movement of currencies. Buy when they're going up, sell when they are going down, that's it. The trend is your friend till the end, when it bends.
Yea I'm the first to dump on our garbage currency but it seems to be doing OK. It's just out of cycle with the usual month-end close-outs for some reason I don't quite understand.
The real key is how much of this ground it can keep post-OCR announcement if the market is expecting or pricing in more than what we get.
If you were Mr Orr, and you wanted to adjust the OCR by more than anticipated -catch the markets by surprise and get it all out of the way, so to speak, would you prefer to be doing it when the market was in free-fall or when it was on a tear (the verb!)?
Opportunity beckons at the moment. Will the RBNZ seize the day?.
Meanwhile, markets are more chipper today with the end of the quarter behind it. Equity markets have opened Q4 in a positive mood.
There is so much money around these days printed by reserve banks in the last two years, so i guess all that money has to go some where. So i guess it goes into markets in a big way at some positive news.
Or its just the algorithms which automatically put money at some pre-defined triggers?
The UN are criticising the worlds central banks with this from the Guardian;
”In its annual trade and development report, the UN Conference on Trade and Development (Unctad) said a drive by major central banks to ramp up rates in response to soaring prices represented an “imprudent gamble” that could dangerously backfire.
The UN agency said an urgent “course correction” was required to prevent a cascading series of crises of debt, health, and climate emergency for poorer countries struggling to cope with the economic hit from the Covid pandemic and Russia’s war in Ukraine.
However, Unctad said political leaders and central bankers in advanced economies were making the mistake of harking back to hawkish policies used in the 1970s and 80s to squeeze inflation out of the system, which it said were inappropriate for the world’s current juncture.
Challenging the assumption that a sharp monetary shock administered by central bankers was required, it said much of the current inflationary burst was being driven by soaring prices for energy, food, and friction in global trade rather than excess demand for goods and services.
The report said measures including strategic price controls, windfall taxes, anti-trust measures and tighter regulations on commodity speculation were needed to combat inflationary pressures at source without pushing poorer countries over the precipice.”
A different solution suggested.
The report said measures including strategic price controls, windfall taxes, anti-trust measures and tighter regulations on commodity speculation were needed to combat inflationary pressures at source without pushing poorer countries over the precipice.”
Sure but this is all in the governments wheelhouse rather than central banks.
Pigs will fly before governments start a widespread rollout of windfall taxes and reigning in speculation.
It's a pity the media didn't do their job at the time but at least they are doing it now...
https://i.stuff.co.nz/national/politics/130054218/social-development-mi…
Let's try to remember all of these things before voting next time
The few managers I've had who would admit/highlight the mistake made and plan the way forward in light of it always got my full buy in.
The ones who would cover up, or pretend there wasn't an issue there. Or try and steer the auditors around the piles of crap here and there, not so much.
Then I look across to the other side of the house and wonder whether the outcome would have been any different. Then I cast my gaze around the rest of Parliament and wonder if any of them would have been honest in owning up to an error. All I really want is honesty and competency from our elected representatives when it comes to being accountable.
All these negative comments about the media being under government control, the government being the worse in living memory, the government being fascist and communist at the same time, civil servants being a waste of space, scientists being corrupt and peddling a conspiracy theory, doctors being in cahoots with big pharma, council's being useless, etc, etc, etc,
These are the narratives that eventually break down faith in our institutions. Strong institutions are the bedrock of stable societies, without them society can collapse. These narratives are straight out of the extremist's playbook. Look at the US, UK and Italy to see how that eventually plays out.
Maybe we can moderate our opinions a bit, most people whether they be politicians, businesspeople, civil servants, etc... are genuinely trying to do good. It's good to question but extreme views like the ones I mentioned above are bad for society. They are also bad for your critical thinking as they become ideology based and you will struggle to assess individual actions objectively.
End of rant
Thats right agnostium, I often wonder how these anti MSM people even get any information. There are many more well informed commentators in the wider so called MSM than appear on this site. I enjoy reading the comments here but as soon as any start to dismiss the MSM I switch off.
... we can but pray that sanity returns to our Gnats , from this rejection of generous tax cuts to high income earners ... lesson learnt from the UK debacle , Chris ? ... everyone gets to keep more of their earnings if you adjust the lower tax bands ... proportionally , lower income earners benefit most ... isn't that what we need ? ...
Except the Gnats don't really believe in a tiered tax system, the flatter the better for them. Dropping the bottom rate is the opposite of what they want to do. And the idea of property investors having to pay some tax really offends them, in their mind a fair tax system is one where you can buy a house and load it up with your own private debt and claim it as an expense and then make a massive tax free capital gain.
... agreed ... as a centre right voter , the current crop of Gnats really hack me off ... as did Tugger & Wild Bill ... we desperately need reform of the supply side , opening up state operations to competition , raising productivity , leading the world in science & medical technology ...
It's just not going to happen , is it ...
I've always had a bit of a theory that these top earners have the higher tax rate built in.
That is, the negotiate or charge based on them loosing xx amount via tax. So though yes, they pay a lot of tax, it's of no real loss as they are adequately compensated for it.
Gummy..t Luxon was quote as saying
On behalf of the New Zealand National Party, I have today sent Liz Truss a message of congratulations on her election as Leader of the Conservative Party and on her imminent appointment as Prime Minister of the United Kingdom.
The Conservative Party and the National Party also enjoy strong links and many shared values and I hope both parties will continue to build on that.
What do you think this proves? This is nothing but pathos. Ardern basically said the same thing:
https://www.1news.co.nz/2022/09/06/ardern-congratulates-truss-on-becomi…
Thanks for the link GV and sorry it made you sad. From your link I doubt these issues would be high on Luxons to do list. He must be deeply disappointed the plan to ditch the top tax rate in the UK?
Ardern said the New Zealand Government looks forward to working closely with Truss and her Cabinet on "ratification of the NZUK free trade agreement, implementing the extension to the youth mobility scheme, climate change, the Pacific, and supporting Ukraine" in particular.
It didn't make me sad. 'Pathos' in the sense that this is the sort of statement everyone makes about a new incoming leader, regardless of whether they deep down think they're a weapons-grade dickhead and completely out of their depth. No one is going to stand up and say "The New UK PM is a bit of a knob".
Also, as Leader of the Opposition, I doubt Luxon would be trying to do the PM's job on her behalf.
... way back when it was still a 3 way contest , lots of commentators did say that Liz Truss was a bit thick ... a distant third , behind Penny Mordaunt & Dishy Rishy ...
The Tories dropped the ball , did a "NZRU" , and picked the far & away least credentialed out of 3 candidates ...
It's because Tory voters have been become beholden to ideology. They used to be pragmatic but just like the republican's they are becoming less rational and more ideological. They now dismiss evidence that conflicts with their ideology, e.g. trickle down economics does not work, state intervention can improve productivity, efficiency and fair outcomes. I think it's partly down to them being on the whole older and it's much harder to change your world view the older you get.
And you don't think the on the other political spectrum has there own biased ideology? As for our own Government they abandoned many of their own overseas. The high court in NZ ruled what they did was illegal. Arden was disingenuous about what was going on. There was no real commitment to help NZ stranded overseas for 2 years, the result is many families are still suffering trauma. I for one won't be voting for Labour. Many in NZ have rose tinted glasses when it comes to our Prime Minister and that's for sure not rational...
Most open and transparent evah.
"The net result is that police arse-covering and ministerial control-freakery is resulting in widespread, unlawful delays to the OIA process.
So will the Ombudsman do anything about this? Sadly, he seems to have swallowed the "only 2%" spin hook, line, and sinker. I guess the lesson here is that if you juke your stats enough, you can get away with anything."
http://norightturn.blogspot.com/2022/10/why-police-ignored-ombudsman.ht…
Heard on RNZ yesterday , on Wallace Chapman's " the Panel " segment ... Dr Michael Rehm ( senior lecturer in property at Akld Uni Business School ) that Auckland's housing market has become a casino , pushed higher and higher by speculators seeking tax free capital gains ... that from its peak , house prices needed to fall 70 % to reach " affordability " ... and that the current market is not cooling , its crashing ...
I tend to fail to understand why consecutive governments keep giving tax breaks to housing investors when every other investment is taxed in the country. The first home buyers don't get any tax incentives on their interest payments but investors with multiple houses do get it when 99% of investors make incredible gains in their real estate investments. How can this be not visible to politicians or their bureaucrats that this is causing huge inequality in the country. Why wouldn't anyone act?
Yip our tax settings around property have in my view, turned it into something similar as a ponzi scheme. Especially the use of equity in a rising market as a deposit for additional rental properties. And as you say, at the same time, FHB's were struggling away trying to save a deposit while paying their landlords rent, while paying PAYE on earned income, and then paying RWT on their savings with interest rates near 0%!
Its been a period of insanity that we may well look back upon with regret in the future.
A tax reform of such a scale will bring the house of cards economy down and the political party responsible for this mess will also have to put up the effort to get NZ out of it. This means setting the scene productivity-led growth through sweeping reforms in education, healthcare and consumer markets, and most of all welfare and immigration - both of which have been overexploited to mask policy failures.
Or, the preferred status-quo option - continue to enrich the wealthy with lopsided tax rules in the hope that those benefits trickle down to the masses.
"Why wouldn't anyone act?"
Because we live in a democracy and when parties suggest acting the voting public votes them out.
Look at National's policies on reversing the Labour policies that are helping bring down housing prices (what everyone has been saying they wanted since John Key was elected). I have no doubt that Labour will lose many votes based on these policies and National will gain many based on repealing them. We get what we vote for.
I don't think tax fixes any issues. It does create new ones. And puts money into a very big pot for the pollies to play with with little accountability. Government regulation is a more effective tool.
It can look like tax addresses some issues, but think about it - there are always 'out' clauses for taxes so some people don't get captured, usually the wealthy. Some points about the effectiveness of taxes; neo-liberal money theory suggests, as Liz Truss suggested, that tax cuts for the wealthy leads to more investment and more employment. But the evidence is that trickle down theory doesn't work. (If tax cuts for the wealthy did this, why wouldn't tax cuts for the lower income brackets do the same, as they have more to spend too?) The ETS is a fancy name for a tax on carbon. With a carbon tax loaded onto fuel the theory suggests fuel use, travel, would reduce. Hasn't happened has it?
He's right, anyone that says it's not crashing doesn't understand that real estate crashes happen slowly. And they probably don't understand that real estate booms are predicated almost entirely on the availability of credit, in lieu of external shocks. Busts are the opposite (which is what is happening now), predicated on the credit environment becoming tighter.
Heard on RNZ yesterday , on Wallace Chapman's " the Panel " segment ... Dr Michael Rehm ( senior lecturer in property at Akld Uni Business School ) that Auckland's housing market has become a casino , pushed higher and higher by speculators seeking tax free capital gains ... that from its peak , house prices needed to fall 70 % to reach " affordability " ... and that the current market is not cooling , its crashing ...
DGM academic. Here's the link.
https://www.rnz.co.nz/national/programmes/thepanel/audio/2018861138/the…
Just out of curiosity, with so much cheap money and liquidity around these days and probably for years to come. Will cutting rates again in the short term be a good idea? There needs to a balance to not over cook or under cook anything to be edible. They went too far down and now going back up fast. They need to relax at a normal value for a long term. 4-5% seems good to keep everyone happy and working.
The Fed is keen to avoid a repeat of the 70s and so will more likely keep an elevated interest rate through next year to ensure inflation doesn’t creep back up, in my opinion. My understanding is that they raised and dropped rates responsively throughout the 70s and inflation stuck around. If/when the US goes into recession, that may not be reason enough to lower rates until the fed is convinced inflation has been adequately suppressed.
Its going to be interesting if stagflation is what we experience, or a rapid disinflation through to deflation.
I'm on the fence at present as I can see cases for both outcomes. My gut feeling is that this is going to be mroe like the late 1940's to early 1950's with big rapid swings between inflation and deflation - as opposed to the 1970's (because of the amount of government debt in many large economies - i.e. wartime debt levels and higher interest rates aren't manageable for economies). But who knows, either case is possible.
Jfoe - I'll just continue to say that I disagree with this view and provide the contrarian view that central banks 'overcoooked it' back in 2020-2021 (actually 2008-2021) as opposed to overcooking the interest rate normalisation that we are seeing now.
To say we are 'overcooking' interest rate normalisation is like telling a drunk that they are overdoing their AA meetings while getting sober/healing. The pain has to be faced in order to regain health.
The problem with this analogy is the drunks have cashed out and gone off to find a 24 hour karaoke bar and the only ones left at the AA meeting are the ones who are live with the fallout. The people who caused the problem aren't going to be living with the consequences.
That's why its been a bad idea to have drunks (property spruiker/debt speculators) hold a narrative over society that getting drunk (holding excessive debt relative to incomes) is a good idea. e.g. allowing oneroof, TA, AC, etc to have so much time on media platforms.
And yet, if you argued against that view, you were belittled as being a 'doom gloom merchant'. 'Look at that guy - he isn't getting drunk on debt like the rest of us....what a doom goblin!'.
We should have had the strength to stand against the drunks, but instead our politicians and central bankers decided to encourage them to advertise alcohol to everyone because 'getting drunk is good' (everyone wants rising house prices/asset prices, or we need the 'wealth effect' to get through 2020 otherwise we're facing a depression - how crazy is that view? And it was from our central bank!).
The issue is full or moral dilemma (I can certainly see your perspective GV). This is why I've consistently been standing against those who only want to one-sidedly promote housing/debt speculation because to me the long term damage from both financial and social perspectives is going to be very painful to remedy.
A principled approach is required to deal with issues like this - and to me, the financial and social stability of the country as a whole, is more important than the wealth creation of a few who already have enough (older property investors who were trying to sell their investments to younger people in order to benefit themselves at the expense of society as a whole in the long run - a utilitarian view). But oddly like a ponzi scheme, it seems that once people buy into it, they then become the sales people of it...even through previously they thought that what was happening wasn't a good thing (house prices being too expensive relative to incomes!).
Ultimately, to bring about a balanced and sustainable economy, our house prices need to regulate back to prices that are far more affordable relative to our productivity/incomes. 10x wages isn't it....and dropping interest rates to keep something that is unsustainable, afloat, is simply living in la la land.
Well said. I get irked by the people who act like house prices unwinding won't be incredibly painful to owner-occupiers. But we've reached an absurd point of no return and I don't know what the alternatives are. I have zero faith in Govt to deliver any form of structured walkback or meaningful intervention - at least intentionally.
All I know is that is a millennial it will be my fault either way for... well I don't know what. But that's generally how these things go.
Yes poor/negligent leadership has resulted in a system that is unsustainable/unbalanced. This was aviodable, but likely to happen because of the conditioning of the generations who have held control over the past 20-30 years , when they were younger (i.e. what they experienced in the 50's - 80's they assumed was normal...as opposed to the result of significant sacrifice in order to make society/conditions good).
Have you read 'The 4th Turning' there GV?
It might put some of the generational differences more clearly in your mind, as well as understand why we are experiencing such dysfunctional institutions and leadership across society. You may feel less of a victim (if that is what you are trying to say above) and simply an actor within a system that has found itself with an opportunity/mandate to push for positive change. And also that what we are experiencing now isn't normal but the result of bad decision making in the past. For which current generations will learn from and seek to make better for the generations that follow them.
House prices unwinding will only be painful to owner occupiers who are mortgaged up GV. For example I'm freehold, and don't really give a fat rats about some theoretical 'value' of my house. So the market unwinding doesn't affect me in that sense. It is not painful at all. so your comment and perspective is too general. I do fully agree with you on the lack of leadership though. And I celebrate anything that makes housing more affordable for everyone, especially our kids and grandchildren.
You're right. I should have been clear that I'm more concerned about millennials who got lectured about spending and not working hard enough and now have massive mortgages when prices rose, and who are now being told they need to take one for the team for the greater good.
Like I say, I appreciate the buck has to stop somewhere but it's a pretty raw deal to always be on the receiving end of it, no matter which way the cookie crumbles. It's probably time some of the non-housing stuff got a tickle-up (like child-care subsidies and other things that haven't been updated in decades) so that our generation can still carve out a meaningful life while we work our way out of this mess.
110% with you on that! If our governments had properly regulated the housing market, and banks this mess wouldn't have happened. But they abrogated their responsibilities around managing the economy which has resulted in the current mess. Now they need to help people out. It is their failure, but we are carrying the cost.
None of the parties seem to have an answer, vision or the courage to do something substantial.
You'd be surprised. Trying to rig a move to your next home if you bought a modest starter home (you know, the sensible thing, apparently) might get pretty hard financially - which has all sorts of flow-on effects for families, how long people can be out of work with kids, etc. We're going to be living with the demographic consequences of this for quite some time, and I don't think people quite appreciate what that could mean in the medium term.
I agree that banks overcooked it in 2020 - they did not need to cut the cost of credit to boost the economy, Govt fiscal intervention did all the heavy lifting and cheap credit + middle class people flush with cash = house price boom.
I also firmly believe that they are now over-correcting. The best cure for higher prices is higher prices - higher rates make sod all difference.
Some of you will remember 1987-91. Started by the share market crash in October/November 1987 the following 4 years were of much pain to most who were there. We were mortgaged up to our eyeballs as a young family - 4 mouths & a bank manager to feed - in the eastern burbs of the big smoke. House prices went down 25-35% depending on where you lived & we finally got out of jail in 1995 when we sold up to move south. It took a full 7 years to get back (nominally) to where it started from. Now things move quicker these days but even a 4-5 year dip & return back to the peak at the end of 2021, would give everyone & everything a chance to catch our breaths, especially the younger ones. Don't lose hope. It's going to be a tough year in 2023 but that will not be the end of the world - unless Putin looses it.
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