Here's our summary of key economic events overnight that affect New Zealand, with news the heat is going out of some of the global pressure points - and equity markets like that.
But first there was a dairy auction overnight, and not an especially good one. Overall prices were down -3.5% in USD terms and down -1.2% in NZD terms. Leading the fall was WMP with a -4.0% fall. We are lucky we have a depreciating currency because that has limited the retreat. There was also a large retreat in the butter price (-7.0%), but every component fell. This was a surprise in terms of the signals from the derivatives market, but the intervening Pulse events have signaled that WMP might be soft, and it was. This events decline ended the prior two price rises. Overall prices are back to where they were in August.
American retail sales last week rose to be +12.3% higher than the same week a year ago. This data is on a same-store basis and is the strongest result since the end of August. Some of this increase will be inflation of course, but not all of it.
Meanwhile, pressure on the US job market seems to be easing. The number of job openings there dropped to 10.1 million in August, the lowest since June 2021. That is down from a downwardly revised 11.2 million in July. The all-time record level of 11.9 million was in March 2022.
As expected, new orders for US manufactured goods were flat in August from the prior month following a -1.0% fall in July on that basis. Excluding aircraft orders, there was a small rise, but it was orders for consumables that were the strongest. Year-on-year these overall orders are up +12.8%.
The American logistics LMI rose in September, but that isn't necessarily a positive signal. It was fueled by high levels of inventory and the associated levels of cost and utilisation holding them. On the other hand, transportation metrics continue their slowed pace.
In Europe, new September data out overnight shows that pressure on producer prices there isn't letting up, rising an extreme +5% in the month to be +43% higher than a year ago. These are higher level than they recorded in August.
Late yesterday, the Aussie central bank turned dovish, raising their policy rate by only +25 bps when markets expected a full +50 bps rise. Only +25 bps is priced in at present for their November review. But markets now expect them to keep raising their rate well into 2023. Their new current policy rate is 2.60%. Markets now expect that to top out at 3.50% in the middle of next year. That is now a much longer hiking cycle that previously expected.
Aussie building consents raced higher in August on the back of a strong recovery in consents for rental apartment buildings. It was a much more aggressive rise than anyone expected.
Meanwhile, housing finance fell in August. Mortgage approvals are now almost -20% below their peak at the start of the year. This latest data on turnover and prices, available up to September, points to more weakening to come.
Later this morning, we will report on the Barfoot's September sales results. These come after CoreLogic pointed out the fall in prices nationwide is gathering steam. And this afternoon, the RBNZ will announce its decision on the OCR level. It is widely expected to rise +50 bps to 3.50%.
The UST 10yr yield starts today at 3.63% and down -2 bps from this time yesterday. The UST 2-10 rate curve is slightly more inverted at -48 bps. But their 1-5 curve is also slightly more inverted at -14 bps. And their 30 day-10yr curve is less positive at +76 bps. The Australian ten year bond is -9 bps flatter at 3.71%. The China Govt ten year bond is little-changed at 2.76% and may stay like that while they are on holiday. The New Zealand Govt ten year will start today at 4.17%, down -13 bps.
On Wall Street, the S&P500 is up strongly again in a risk-on mood. It is up +2.4% in late Tuesday trade there. Overnight, European markets were all very much higher led by Paris's +4.2% and trailed by London's +2.6%. Yesterday Tokyo ended its Tuesday session up +3.0%. Hong Kong and Shanghai were closed for public holidays. The ASX200 ended up a strong +3.8% and the NZX50 ended up +1.2%.
The price of gold will open today at US$1722/oz. This is up another +US$30 from this time yesterday to a three week high.
And oil prices start today up +US$3 from yesterday at just under US$86/bbl in the US while the international Brent price has risen to be just under US$91.50/bbl.
The Kiwi dollar will open today at 57.5 USc and nearly +½c higher than where we that this time yesterday. Against the Australian dollar we are up +¾c at 88.4 AUc. Against the euro we are down -¾c at 57.5 euro cents. That all means our TWI-5 starts today at 67.2, and little-changed since this time yesterday morning.
The bitcoin price is now at US$19,998 and up +2.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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73 Comments
Anyoneone thinking house market correction is over, is fine as long as not putting his money to get destroyed for now.
https://i.stuff.co.nz/life-style/homed/real-estate/130066721/housing-ma…
Why aren't home prices falling (FASTER)?....came across this video from USA.
“supposed to function.” Not a great fan but even so, Michael Cullen summed it up rather nicely when he said something like - it’s bad enough when the property ladder keeps getting higher & higher, but it’s even worse when the rungs for that, are taken from the bottom of the ladder.
The connotation was fair. When i was young (Isn't that a song somewhere?) there was virtually no recognisable capital gain, but buying a house was considered compulsory saving. People understood that money in the bank, or under the mattress, tended to get spent, but if you bought a house, that money went into paying the mortgage which increased your share of the asset value. The rules then meant that the banks tended to be more accommodating about paying down the mortgage earlier. So after five years in a house, your effective capital to buy a bigger and/or better house was larger. There were also more hovels. Neglected houses that were ideal to buy cheap and rebuild, and i knew a few with the skills, enthusiasm and energy to be able to do that quite well.
And in that description lies teh argument why some tax policies should never be implemented. The choice to buy a house or rent is a personal one. And penalising people who bought by taxing the house value, when they inevitably sacrificed lifestyle to get that house because they are seen to have an advantage over people who chose lifestyle over owning a house, is nothing more than rank jealousy and unfair.
Alongside that. What seems to be being overlooked is the ordinary family household that bought their home & paid the mortgage. Some would have upscaled a few times, some doing so for reason of work transfers, some might be still in the original home. I would wager that there is a very large proportion of NZ households in that category, who as well have never ever owned any other property than their own home, and for the life of me I cannot accept that having the fundamental ability & right to a roof over your head, should be a fair target for taxation especially when local body rates are already being taken and largely calculated pro rata on value and central government mops up 15% GST on that.
Hey Rocky I've argued that people are trapped today and that is wrong. But that is the politicians and Government who have done that by failing to regulate the market to ensure it is fair to all.
But I'm 65, so I was talking about the market in the 1980's when i bought my first home. It's very much different now.
We voted for politicians who stood on a platform of not regulating the market. I don't think it's 100% fair to blame them for doing exactly what they said they would do. Deregulate, downsize the state, get out of the way of people making profit over everything else.
I mean over half of the commentators on this site who understand the issue and how it's come about will continue to vote for parties that stand for those things.
I think it is more about the limited choice of politicians and/or policy options we get presented. But I don't think even the politicians understood the ramifications of their policies. Theory tends to look at people through rose tinted glasses, but at the end of the day we tend to be greedy, self centred and selfish.
Take another look at your comment; in every instance bar one, only income derived from that money gets taxed.
For example;
- put it in a bank - the interest gets taxed
- put it in a business - the business income gets taxed
- put it in shares - dividend income and capital gain on sale gets taxed
- put it in Kiwisaver - the increase when realised gets taxed
- put it in your house - no income is achieved - pay tax on it - Rates, profit on sale has always supposed to have been taxed.
Slightly different view eh?
Absolutely, it's infuriating how people don't understand this. Homeowners are just more frugal than renters. That's why every fancy restaurant, hotel resort and Tesla dealer is jam packed with renters throwing around their undertaxed earnings. The only way to stop them is higher income tax, or rent increases - preferably both.
Yeah good point. In your day there were virtually no recognisable capital gains. Because back then the housing market was low risk low reward. So the property ladder made a lot more sense back then. These days it's clearly high risk high reward, given the insane capital gains we experience. And capital losses. You don't put all your wealth into a high risk market.
Question for all the experts on here.
Do we know what's happening in the NZ housing market? Do we kiwis have such huge wallets that we can afford $1 million average houses?
The price of land is through the roof everywhere in the country. Why are we paying more than half a million just for a piece of land. Are we the next SFO with silicon valley at our door step?
Are we really a very rich country and every back yard has a tree which grows money in Spring? Can i get a seed to grow one.
More people could afford $1 million houses when they could borrow at 2.5-3%. Fewer people can now, hence prices fall to meet the available credit.
When existing house prices rise as crazily as they did over Covid without being matched by construction costs, this manifests in higher land prices. Simple arbitrage - if land prices remained low there would be a massive profit motive to buy and build. Therefore, the price of land gets bid up by people seeking that profit.
As an extreme simplification, solve the equation 'existing house prices = land price + build cost'.
Existing house prices are falling, build cost still rising. Land price can be expected to fall hard.
What's your source for the 50% increase, and over what time frame? The CCCI was up 10% from the start of 2020 to March 2022, I haven't seen a more recent report yet. In fact, the index value was 146.1 so we weren't even up 50% from when the series was indexed in mid-2013.
https://www.corelogic.co.nz/news-research/reports/cordell-construction-…
Yes, it's lower than I would have guessed from what the media has been saying. Unfortunately they don't report the individual components (at least, not to me). I'm not involved in the industry myself, so the best I can do is look for a decent data series.
There is a well known effect where people tend to overestimate inflation as the prices that change are more salient and skew perceptions, I expect the same effect happens here. Everybody hears about the huge increases in steel products or whatever but we don't hear about the products and services that haven't changed significantly.
This is fully accounted for in the index.
edit: I think I see what you mean, sorry. This may be an effect but I think overestimating is far more common. You see it all the time in comments here and elsewhere when people complain about how the inflation figures seem too low.
You are certainly right that many people are incapable of doing basic maths, and maybe your example has more of an impact over longer periods of time as increases stack up?
This is a more realistic report on construction costs in NZ. Corelogic produces this report based on data aggregated from across the market that feeds into its 'Sum Sure' calculator.
This calculator happens to be the gold standard in NZ for homeowners calculating the replacement costs for home insurance cover.
Well I guess it was up to early this year so there could be a further 5-10% on top?
Also it’s based on a large, detached group build house. Inflation will be running much higher on medium and high density builds which are more reliant on steel and concrete, and have far greater build complexity.
Quarterly increase was running at 2.4% in March, so quite likely to be another +5% on top by now.
You're probably right the increase is different for different building types, not sure where to get hold of good data on that. I'd be surprised if it made enormous changes but perhaps the ~15% increase over Covid for their 'standard' home is more like 20% for higher density builds. 50% seems unlikely.
Stats NZ reported 18% in the year to June 2022 and 7% to June 2021, so over 25% since Covid.
https://www.stats.govt.nz/news/annual-inflation-at-7-3-percent-32-year-…
Wonder why it's so different to CCCI?
Good question. CCCI claims to be "a combination of labour, material, plant hire and subcontract services required to construct buildings". Perhaps the CPI construction segment doesn't include labour as that's accounted for elsewhere? I'm sure there's been pressure on wages in construction, but if the average wage had 'only' gone up 10-15% that could account for a lot of the difference.
As HM mentioned above, the CCCI I quoted is specific to a 200sqm 'standard' house which could be different to the 'average' the CPI would measure. I think they produce other indices but this is the free one that I can access. This could make up much of the rest of the difference.
Just guessing here - I don't really know. Maybe the CCCI covers other services like Council fees which have increased slower than materials?
Land cost is high partly because of rapidly increasing govt rules and regulations around subdivisions, and the resulting costs and delays, even in the last 2-3 years. Who would have thought from a labour government? Everything they touch makes it more expensive to develop and build.
Not sure about your analysis here. The government has just forced council's to get rid of a whole bunch of regulations relating to housing intensification, by removing things like minimum parking requirement (so the market rather than council can decide how much parking to provide), requiring council's to allow up to 6 story housing near urban centres and rapid transport links and allowing up to 3 stories by right in a whole bunch of other zones.
It seems to me that the government is actively forcing council's to remove a whole bunch of NIMBY regulations that increase the cost of subdivision.
My friend sent me this. I have only a few words but can’t use them here. Asking almost a cool mil for 275sqm section. No home.
https://www.trademe.co.nz/property/residential/sections-for-sale/auction-3732373701.htm
Pt Chev is pretty resilient through all this. It's a place that people from anywhere might want to move to in Auckland.
Good access to motorways, close to the beach, lots of different stock, good schools and a reasonable community feel.
I doubt they'll get that price though. Drop 100k and it's possible.
Three reasons. Debt, debt and debt. Government deficit spending, a healthy trade deficit and near zero interest rates without the matching productivity have led to massive asset and stock market inflation. As Putin has explained the western world is living above its means.
Crypto was the top performing asset class in Q3 (although bitcoin actually lagged most other cryptos)
I cashed out earlier this year starting at $47k or so on 1 April and got in post crash. Have been very happily DCAing (although bitcoin is a smaller percentage of my original portfolio)
He was always good at timing.
Billionaire investor Ray Dalio is relinquishing control of the firm he founded, Bridgewater Associates, the largest hedge fund in the world with $150 billion in assets under management.
“This was the natural progression of events; as soon as we were ready, we went ahead,” Dalio said in an interview with Bloomberg, which was first to report the new on Tuesday before Dalio confirmed in a series of tweets. “I didn’t want to hold on until I died.”
The 73-year-old financier is stepping away from his title as co-Chief Investment Officer, a role in which he served since 1985, and has ceded his voting rights to the board of directors on Sept. 30 in the final step of the firm's succession plan.
Dalio said he will continue to mentor Co-Chief Investment Officers Bob Prince and Greg Jensen, as well as the investment committee. He will also serve as a member of the operating board and as a senior investor.
Good question, is it too late for Mr Orr to change and be influenced by RBA. Before RBA turnaround their were voices that RBNZ should move rate by 0.75% if not 1%.
https://i.stuff.co.nz/business/130074921/should-prospect-of-recession-m…
Interesting how narrative changes but more important is what Fed does as will have direct effect on world economy - like it or not.
NZ$ below 0.52 cents US$ is a possibility before regaining 0.62cents plus.
I think RBA have got this wrong at a time when "Aussie building consents raced higher in August on the back of a strong recovery in consents". Food infation continues +5% last month in europe. OIl back up 7% last 2 days as OPEC signals production cuts (they want $90 +) Will be watching Oz inflation versus ours in 6 months time.
Isn't today's StockX market action the best example we can have of what happens when the markets think "it's over!"?
This is exactly what happened 40 years ago, when % rates rises were eased off, as it looked like Inflation was under control, only to see market expectations shove it way up again. And we know what the answer to that was, then.
Yes, 'things are different' today. But I'd argue they are far bigger, badderer and worserer - to mangle the English language, and if we let Inflation get away again, then the remedy will be either making the solutions of 1980 look like a picnic, or Global War - as those who suffer the ravages of Inflation realise they have nothing left to lose.
I am not sure western world governments care about paying back the debt they have amassed for their pet projects (Pfizer experiment?). That is up to the taxpayer!
Hey why not inflate the debt away, screw the savers and our young hard working wage earners, they can just live with mummy and daddy anyway.
Exactly. There is no chance of change.
The western economies are all massively over indebted - but who is going to tell them off or try to put a stop to it? They cant ever afford to pay it back and to be forced to do so would lead to social collapse... so they will defend their right to borrow at all costs.
That means the USA and allies would happily deploy their huge military power and fight to the end to protect their right to be broke and will borrow to make sure their military power stays #1.
Giant economic house of cards protected by brute physical force.
People with a mortgage and debt will end up paying for bank’s and government errors. They pulled a huge amount of people by dropping rates to near zero now when everyone is loaded up with debt the tapes are turned off people go insolvent and banks and a few rich people buy it all up at huge discounted price’s. Old playbook but works every time.
Correct, central bankers policies are to prolong the business cycle expansion and put a floor under asset prices when they sag. The only growth the western world has experienced since 2008 has been fueled by increasing levels of debt. Central bankers are absolutely clueless how to stop the impending collapse, they are literally 'drowning in their own bullshit'.
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