Here's our summary of key economic events over the weekend that affect New Zealand, with news China has become the handbrake on the global economy now, delivering a string of weak economic data.
And, first up there has been something of a surprise from the Middle Kingdom. The Caixin China General Services PMI plunged to a minor contraction in September after a solid-to-good expansion in August. This was the first contraction in services activity since May, and came as the severity of the COVID outbreaks in many areas across the mainland built. It was however a faster retreat than was expected. New orders shrank for the first time in four months; while employment dropped for the ninth month running, with the rate of job shedding the steepest pace since May and backlogs grew for the second month in a row. Export orders expanded slightly, however, following an improvement in some foreign markets.
The private Caixin result comes after the official services PMI also fell but was recording a small expansion still in September. It has been a while since the Caixin results have reported worse levels of activity than the official surveys.
China's week-long holiday is ending and it is clear many people were staying at home this year. Travel data reflects that with activity down -36% compared to last year - which itself wasn't a strong event either.
And residential real estate sales have often been strong in this period too, but early reports suggest they could be -38% lower this year than the same period a year ago.
China's foreign exchange reserves were expected to fall to US$3 tln in September, a -US$55 bln retreat. But they didn't actually fall that hard, only declining -US$26 bln to US$3.029 tln.
Taiwanese exports dived in September, down -5.3% when a +1.5% rise was expected. This is a big and maybe important miss.
The giant US economy added more jobs than expected in September even if the gain was the lowest in 18 months. The headline gain was +263,000 when a +250,000 gain was expected. Holding it back was a -41,000 fall in Government workers. Apparently schools are finding it very difficult to recruit teachers in the charged political environments in many communities. But as regular readers will know, we also look at the raw data that is not seasonally adjusted. That shows overall payrolls rose +431,000 in September and taking the paid workforce to 153 mln.
The jobless rate fell to 3.5%. Their participation rate rose to 62.3%. Average weekly earnings rose +4.8% pa but at a +7.8% pace in September from August.
By any measure this represents a tight American jobs market. And the US central bank will know it can keep targeting inflation on the back of a resilient labour market that shows no sign of being hurt by that press. In fact the 'real' +431,000 rise in employment will bring even more spending impetus to the American economy. Rising wages do to. So the Fed isn't easing up on the rate rises any time soon.
The prospect of another +75 bps hike has equity and bond markets retreating as they revalue their asset holding to reflect the lower P/E ratios this implies.
Data out on American consumer debt shows that it grew by +US$32 bln in August from July, a much faster +8.3% pa rate than was expected. American now owe US$4.7 tln in this type of debt, or 21% of their annual economic activity (GDP).
This coming week will start the Q3 earnings season reports. It is expected to be a pretty lackluster affair, with expected earnings gains to be only +2.2% overall, down from the Q2 +9.9% reported. Tech sector earnings are expected to be even lower at under +1%. That means equity market news is expected to be dominated by as many underachievers as overachievers and that will depress market enthusiasm and momentum over the coming three weeks.
In Canada, they also delivered a positive employment report, a bounce-back in September from their August slip. They added both full- and part-time jobs with their participation rate rising to 64.7%, wages rising +5.2% pa, and their jobless rate falling to 5.2% which is 'average' for them, but it is below pre-pandemic levels.
German retail sales fell -4.3% in 'real' terms in August, the retreat they were expecting. In nominal terms, like every other country reports, they rose +5.4% due to the effects of inflation.
In Switzerland, Credit Suisse has come under scrutiny in recent weeks as investors speculate over its financial health. But it has initiated an almost US$5 bln share buy-back to bolster its claim that fears are overblown. From this and other actions, the markets have responded with a sharp +23% rise in its share price recently. In CHF its a +16% rise.
The crisis of high and rising food prices seems to have passed - well, passed its extreme levels anyway. Overall prices are almost back to year-ago levels now with another but smaller retreat in September. However, year-ago levels were high on an historic basis, but the trend is now lower. Dairy and meat prices are generally holding. It is a sharp retreat in vegetable oil prices that is driving overall prices lower. Both Canada and Australia are having outsized production years, helping the situation significantly.
The UST 10yr yield starts today at 3.89% and up another +1 bps from this time Saturday. The UST 2-10 rate curve is little-changed at -42 bps. But their 1-5 curve is less inverted at -3 bps. And their 30 day-10yr curve is unchanged at +92 bps. The Australian ten year bond is holding at 3.91%. The China Govt ten year bond is unchanged at 2.76%. The New Zealand Govt ten year will start today at 4.29%, and down a mere -1 bp.
The price of gold will open today at US$1695/oz. This is down -US$5 from this time Saturday.
And oil prices start today up +US$1 from this time Saturday at just under US$92.50/bbl in the US while the international Brent price has risen to be just under US$98/bbl.
The Kiwi dollar will open today at 56.1 USc and a bit softer from this time Saturday. Against the Australian dollar we are little-changed at 88.1 AUc. Against the euro we are also unchanged at 57.6 euro cents. That all means our TWI-5 starts today at 66.6 and little-changed.
The bitcoin price is now at US$19,508 and a very marginal +0.3% above this time Saturday. Volatility over the past 24 hours has been low at just over +/- 0.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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62 Comments
I look forward to my grocery bill coming back down (sarc)
Well if the next CPI hasn’t gone up, then the government will tell you neither has your grocery bill and about that, you should be grateful.
Yip
Shut down food production while world has food insecurity rains,
We have started. Its called the ETS and also a contributor would be high fertiliser prices. No discount fertiliser prices like India can avail themselves of.
Of note " Biden pushed back against Russian complaints that Western sanctions are harming its exports, stressing that US sanctions explicitly allow Russia to export food and fertilizer and that it was "Russia's war that is worsening food insecurity.""
Don't forget NZs 35% "premium" on Russian goods. Our part in supporting the Ukranians. Of course we are part of Europe, not like India.
Indian foreign minister
"Jaishankar said that “Europe has to grow out of the mindset that Europe’s problems are the world’s problems, but the world’s problems are not Europe’s problems.”
We are too small to take that attitude.
"India’s External Affairs Minister Dr S. Jaishankar said in a June22 conference when he took questions from an audience: “I am one-fifth of the world’s population. I am what today the 5th or 6th largest economy in the world. I feel I am entitled to have my own side. I am entitled to weigh my own interests, and make my own choices. My choices will not be cynical and transactional. They will be a balance of my values and my interests. There is no country in the world which disregards its interests.”
Wonder when the US is going to do something about that?
Good on them...clean water should come first (just ask a few CHCH residents)
Dutch government proposals for tackling nitrogen emissions indicate a radical cut in livestock - they estimate 11,200 farms will have to close and another 17,600 farmers will have to significantly reduce their livestock.
Coming at the "population problem" from another direction? Those 11,200 will employ at least that many farmers, and if they don't have working farms, they will need employment elsewhere. To solve one problem they are to all extents creating another.
Or transition to something other type of farming? Tulips perhaps?
Baywatch your post clearly comes from “ well fed on cheap food position “ what should be done for people who are not in that privileged position ?
while you promote food insecurity ?
The Dutch do not have food insecurity ..you might however.
The Dutch are major exporters of food as is NZ
would appreciate your view of my earlier question, what do you do for the underprivileged people ?
The Dutch mainly export cheese..how many of these under privilaged people you talk of eat cheese? Or are you talking about Kiwis who cannot afford Cheese? Can you explain your argument as just do not know what your on about? Here is a link to a farmer NZ thinking outside the square https://www.odt.co.nz/rural-life/rural-life-other/going-grain
Also do these people eat flowers?
Ornamental horticulture (flowers, plants, bulbs and tree nursery products) generated the bulk of the agricultural export value. In 2021, for example, horticultural exports stood at 12 billion euros, i.e. up by one quarter on the previous year. The value increase is mainly due to the sharply rising prices of flowers and plants last year. In 2020, the Netherlands exported 9.6 billion euros worth of horticultural products; in 2019, 9.5 billion euros.
Your having trouble see the bigger picture, globally their are calls from the UN and others to reduce food insecurity ( ie they want increased food production) and most westernised country’s are set on reducing emissions which reduces food production. Their are lot of people globally who’s future is bleak from a food perspective. While you celebrate reduced emissions spare a thought for the underprivileged.
+0.75 hike from the FED will put pressure on Orr to match it won’t it? Novembers cash rate announcement now looking more interesting. So much for the ‘interest rates have peaked’ narrative
Looks like the FOREX markets ate up and spat out that most recent RBNZ hike. Domestic disposable incomes dropped, no impact on imported inflation. What a deal.
The giant US economy added more jobs than expected in September even if the gain was the lowest in 18 month
Life in a Failed State — Part 2
Biggest question on Wall Street’s mind right now: “How large of a decrease to their standard of living will Americans tolerate?” Link
German retail sales fell -4.3% in 'real' terms in August, the retreat they were expecting. In nominal terms, like every other country reports, they rose +5.4% due to the effects of inflation.
Another case which proves rate hikes weren't needed to kill the economy, German retail trade suffered a pretty sizable setback in August. Y/y, trade was up 5% nominally but down 4% in real terms. No need for ECB intervention when Germans paid 5% more to get 4% less. Link
By volume, German retail trade looks like the Great "Recession." Even though nominal sales are up, that just means companies can't pass costs on to consumers. Fewer goods getting sold, business makes less money even if revenues rise. QEs more likely than rate hikes at some pt. Link
Just one manipulated lie by one screwed the world - INFLATION IS TRANSITORY.
This trajectory was pretty unavoidable from Q1 2020.
About the only lie was pretending it could be avoided.
The UK Telegraph. Yesterday.
A plunge in house prices is now inevitable. Surging interest rates means nothing can be done to avert a 1990s-style slump. House prices have been rising relentlessly now for many years. Since 2012, they have risen by 66pc. Surging interest rates means nothing can be done to avert a 1990s-style slump. Some people appear to be of the view that house prices never fall. They apparently believe that prices are driven ever higher by a continual imbalance between demand and supply, caused by the upward pressure of population on a housing stock that increases only slowly since housing construction is at very low levels. They misunderstand the nature of “demand”. It is not some immutable thing which emerges directly from the number of people in the country. Rather, demand expresses willingness and ability to buy at the prevailing prices. “Willingness” is empty without “ability”. And ability is all about incomes and finance.</blockquote>
I read yesterday that 2 year fixed rates are now 6%, even though their cash rate is only 2.25.
From a Reuters article:
If interest rates are to valuations what gravity is to matter, as Warren Buffett maintains, then it was always likely that asset prices would fall when the cost of borrowing eventually picked up. In the terminology made famous by former U.S. Secretary of Defense Donald Rumsfeld, these consequences count as “known knowns”.
https://www.reuters.com/breakingviews/global-markets-breakingviews-2022…
The thing that has caught my attention is that house prices there have only risen 66% in 10 years and they are making a big deal of that. They don't know what a real housing bubble looks like.
Separately are we expecting further rises in fixed mortgage rates to go up in the near future now that bond yields are sustaining their high levels? Feels like there will be pressure to do so soon.
An imbalance between supply and demand...
In NZ we have the super formula for housing exploitation. Start with the stupidity of almost free credit, a sprinkle of a booming aging population all wanting a retirement income, and mix with a model that allowed you to minimize your tax contribution with no DTi constraints and you have the mess called NZ Housing.
Surely DTi has shown its worth by minimising stupidity in the UK to only 66%....
Consumer Price Inflation (CPI) is really high in the UK now, that impedes affordability as most mortgage providers have an affordability buffer for living expenses that is adjusted with CPI.
Can we hold a minutes silence for the contestants of the block….
Missed it,what happened? And how far between expectations and reality?
The winners' house went for $4000 over reserve, and the only other house to sell went for $100 (one hundred dollars) over reserve - a cool $50 each for 3 months' work.
The other 2 houses were passed in.
Prize money should really be based on performance of house relative to the REINZ HPI. Hard not to feel sorry for that bunch, in the same way as the one's who did make money in past series when prices were booming, didn't probably deserve it. Not that I watch the show...
I haven’t watched in years. But doesnt the winning team also win $100k cash as well? So the couple who won with a $4k over reserve sale price, actually pockets $104k?
Yeah, plus they're being filmed in front of a camera so you have to assume they'd get a few tens of thousands for that too.
Symbolic
For many this will be the first reality (tv) check on how the market really is... there was no way the they could spin the poor auction results and the absolute waste of time for the contestants...
The producers will be away laughing though pocketing huge $$$ for all the advertising throughout the show.
The directors will be laughing because a series billed as 'redemption' but featuring some of the most out-of-touch plonkers in the history of the show finally saw them get their come-uppance at the hands of the market. Reality TV is good when it's good but it's even better when it's bad. Frankly it sounds like an ideal outcome for them.
Weren't all the previous years auctions held live on tv? That this auction was held prior to being televised shows the agents knew it was going to be a disaster.
They should have held on to the property. It will be double it’s value within 8-10 years.
What a cliff hanger... "Coming soon in 2032, the auctions of all auctions... double value or contestants get nothing..."
Haha
When coupled with last year's outcome :
But, last year, in Point Chevalier, the Block was won by Tim Cotton and Arthur (Arty) Gillies. Their house was the first to go under the hammer and it sold for $2.825m, which was $660,000 over the reserve. The pair took home $760,000. (stuff.co.nz)
...then the show is clearly just an advertisement for speculating at the right vs the wrong part of the bubble, with talent or work of any sort being generally unnecessary.
"with talent or work of any sort being generally unnecessary." This pretty much sums up the whole country for a while now. It hasn't taken much skill or smarts to become very wealthy, just good timing.
I'm seeing the effects of this in my 17 year old nephew. He doesn't think education is very important because you don't make much money through work anyway so he wants to get a bunch of friends to together to buy a house. Hardly sowing the seeds for an innovative productive country.
If you're smart enough on the purchase price there will still be money to be made. You just have to be able to buy cheap. Will the market allow that?
Ok sure. But the types of smart you talk about is hardly going to progress us as a country. We no longer value smarts that lead to innovation and productivity because we aren't incentivised to do so, when you only need to be smart enough to get a loan from the bank. Hardly rocket science.
This is something I wonder about. How is a nation built on a shed-driven myth about number 8 wire going to fare when we have houses so small that there isn't enough floorspace to even fit in a proper home office, let alone a garage or workshop space? We talk a big game about creative and innovative solutions, but we're making it borderline impossible foster that kind of thinking in the type of homes we build in our cities.
And spare me the 'innovation centres' or tinker-shops-for-men or whatever start-up driven garbage people use to try and turn a buck off this, they're not solutions to a problem, that's people trying to monetise it.
If I have to build engines on my dining table then I probably will and cop it from my family as a result, but others with a mere curiosity who could change the world probably won't risk the ire of their spouse to do so. We need to think about whether the houses we build at density are fit for the kind of lifestyles we actually want to lead.
(Solution: Tallboy townhouses with workshops and garage spaces can be done in the same footprint as townhouses with no parking and no garage space. We just need to choose to do it.)
My concept of a house is 3 bed roomed 160-200m2 incl a double garage. Anything over 200m2 is a mansion and should attract a mansion tax.
What a shame there's apparently middle-ground in between a three bedroom home and The Honky Chateau.
Like, oh, I don't know, the four-bedroom + house and income/rumpus rooms that we used to build plenty of in the 1970s.
The form might have to change but the usable space inside doesn't have to.
I bet they were all less than 200m2. In 175- 200m2 you can get 4 bedrooms. Its the total area that is the most important and whether it includes or excludes a double garage.
You can build a 200m2 "mansion" without an included double garage. Off St parking. Plenty of internal room. 4 bedrooms easily and a rumpus room.
...and you can easily build a four bed home, with a double garage and living rooms and still blow past 200sqm.
Floor area in isolation is not a useful metric. See Hobsonville Pt where many houses have garage but not many are used to store cars - the layouts of the houses themselves don't allow for enough storage space so the garages become storage lockers by default while the residents bicker about on-street parking.
Floor area is a very useful metric, one of the most important. Anything above 200m2 sq whether single double or triple story is still a mansion in my book and warrants a mansion tax.
True. Your description of the problem is spot on. I think a big part of the problem is the banks, who are supported by the Government. The banks clearly see business as a bigger risk than housing, even after they created the crisis (yes I blame the banks primarily). A part of the problem is our Governments who don't seem to see a way for them to creatively support business. The business's which do succeed seem to do so despite the Government, not because of them. There has to be a better way.
Bring in the TOP land tax and Dti. The banks will have to diversify from lazy housing focused lending, and start supporting businesses. Yes they would need to upskill their banking staff, and probably need a lot less of them to boot.
Sorry but the TOP policy was utter BS and just fiddled on the edge. The real problem was Government failure to properly regulate the market and the banks. The banks have all the power and when all is said and done of any body defaults on a mortgage the bank ends up owning the property. If they loan into a business the assets are often less easily defined and the risks higher. During the COVID QE the Government tried to get the banks to support business's but the banks ignored it and pumped the housing market, further exacerbating the problem, and proving in my view that the regulation of them needs to be much, much firmer!
It used to be that when banks loaned to business's that they would actively monitor, advise and guide those business's to support them and protect their own exposure. Today it seems they are hands off and and only bleeding off profits parasitically. That needs to change.
Yes and we have the main party in government that likes to be seen as the party for business (National) having policies that are only designed to keep money flowing into property. It doesn't make any sense to me.
7-house Luxon is the solution to our housing affordability crisis!
YEAH RIGHT!
Would make a good Tui slogan.
I actually think proper hard work is becoming a rarer commodity, and I regularly see people do pretty well out of life by giving things a crack, being persistent and putting in a greater than average amount of effort.
Working for someone else and existing as a consumer is a far tougher road to prosperity though, I'll give you that. That existence is designed to clip the ticket from you at every step.
If your 17 year old relative realises their aspiration of buying a house, that'd make them somewhat of a rarity, and likely more successful in life.
Play stupid games. Win stupid prizes.
KiwiSaver accounts tumbling, but oh you should just stick it out and never consider changing:
https://www.nzherald.co.nz/business/volatile-markets-hit-kiwisaver-agai…
I was roasted a few months back for suggesting it maybe better to invest your own money (research) rather then carrying on Kiwisaver deposits (I have stopped since late last year). And yes everything is cheap now - get in while you can...blah blah blah
Some would say if you stop, you're effectively taking a 3% pay decrease due to your employer also stopping...
Self employed
It's funny how the people parroting that old trope "it's time in the market, not timing the market!" are always the same ones earning management fees from the higher risk portfolios (or real estate commissions from property sales for that matter).
Kiwi Wealth's Cash fund is up 1.3% YoY. All others are in the red, some significantly, with even their conservative fund down almost 10% for the same period.
Exactly. Vested interest.
Donald J Trump says he's the most persecuted, donations can be made to the Save America PAC.
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