Remember, it is a public holiday in New Zealand today, Labour Day. Here's our summary of key economic events over the holiday weekend that affect New Zealand, with news that China is preparing for a confrontational future. Bit players like New Zealand could face some very tough choices in the decade ahead from the positions being staked out in Beijing this past week.
While we were holidaying, Chinese President Xi Jinping sealed his bid for a precedent-breaking third term while his deputy and several other top officials got the boot and 'retired'. Claims they were above the official age for retirement ring hollow because the don't apply to Xi's mates. Former President Hu Jintao, Premier Li Keqiang, as well as senior official Wang Yang were all ushered out. 'In' was Shanghai party chief Li Qiang, a long time Xi acolyte and the man who ran Shanghai's very tough lockdown, replacing Li, followed by anti-corruption chief Zhao Leji, ideology tsar Wang Huning, Beijing party head Cai Qi, top Xi adviser Ding Xuexiang and Guangdong provincial boss Li Xi. All have previously worked with the 69-year-old Xi over the years as he shot up the ranks of the party. It's a hardline group. There are no women again this this core group (again), and for the first time in 25 years no women in the wider Politburo. Also conspicuously missing are leaders with economic experience. Along with Li Keqiang, the central bank chief was another key economic official demoted.
It is likely that the same forces that moved Western companies out of Russia (and Russian companies out of the West) will play out again with China. We are already seeing moves like that, with early triggers relating to protecting supply chains.
The exhortations of the Party in Beijing this week are exposing a serious generation gap. The "last generation" movement among China's under 35s is becoming quite embedded with a suspicious and cynical generation emerging. The political theater in Beijing means little to increasing numbers of younger Chinese expected to carry the weight of Xi's "modernisation" dreams despite increasingly dire career prospects in their sputtering economy. At Xi's coronation, the signs of rot should not be dismissed. In the end demographics are destiny, and Chinese demographics tell a story of decline that is already underway. Xi is also expecting a country with deeply embedded values of hard work resulting in financial security to set them aside 'for the greater good'. It is likely to just build frustrations.
Buyers are shunning residential real estate 'investment' in most Chinese cities now. Local authorities are raising emergency funding to complete stalled projects, but buyers remain suspicious of what they will get. Some cities are trying to entice them back with sub 4% mortgage interest rates. In fact one city is now offering 3.7% mortgages. There is not a lot of evidence it is working yet.
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Prices for iron ore and copper are falling, mostly based on weaker prospects in the Chinese economy. And despite war disruptions from Russian supply, neither are aluminium nor nickel prices going anywhere either. Sanctions should have raised prices for these key commodities, but it isn't happening. The reason is weak demand, especially from China.
Global credit risks are rising as the triple threat of rate rises, Europe’s energy crisis and China’s stuttering property market all show no sign of easing. Good corporate profits can't mask any of these threats to credit markets.
Also, we should watch out for global commercial property valuations and sales activity. Rising yields and p/e ratios make this sector increasingly vulnerable to a slump.
We are less than ten days away from the next US Fed rate review. Markets are pricing in a full +75 bps (and a bit more) for that meeting, plus another +125 bps and taking their official rate to 5.0% by March 2023 and it is assumed it will level out at that point for the rest of the year. That is a rapid-fire set of increases expected and already priced in. The big question now is, when to slow down? (Markets have priced in a New Zealand OCR at 5.5% by August 2023.)
The US Federal Government booked a -US$1.78 tln deficit in their full fiscal year to September, a huge improvement on the -US$2.78 tln in the prior 2021 year. Still, this deficit is still -5.4% of US GDP. That is back to the average levels of the past 35 years, and a steep and fast recovery from the disastrous Trump years.
We should also note that the US Fed's balance sheet has retreated to US$8.7 tln (34% of GDP) and back to levels first reached in December 2021. That is a reduction of -US$220 bln from the peak in mid April 2022. Quantitative tightening (QT) is underway.
American used car loans are a new risk for the American banking system. Borrowers who took out loans when used car prices were high a few months ago could be under-water as those prices fall back as sharply and interest rates rise. Bank provisioning for this risk is rising sharply.
Canadian retail sales didn't slip away as much as expected; in fact they rose in August after a slip in the prior month.
As widely expected, Japan's government and central bank intervened in the currency market over the weekend to support a falling yen, The yen soared the most against the US dollar since March 2020 on the intervention, rising +2.7% in just a few hours. It was an intervention timed for the final few hours of trading in the US, so it should hold things until Tuesday NZ time, at least.
Japanese inflation came in at 3.0% in September, unchanged from August and holding near an 8 year high. Food prices were up +4.2%. Electricity costs were up 21% and generating a surge in home battery storage demand. Without food and energy costs, 'core' inflation there was only 1.8% however.
On Wednesday, Australia releases its September CPI data. It is expected to rise to 6.9% from 6.1% in August. But analysts like at CBA reckon it will be over 7%. At that level, the RBA may not be as sanguine about how they have handled monetary policy so far.
In freight news, the backup of container ships off Southern California’s coast that was at the heart of American supply chain congestion during the pandemic has effectively disappeared. The queue of ships waiting to unload at the ports of Los Angeles and Long Beach fell from a peak of 109 ships in January to just four vessels this past week. This doesn't mean all American logistics pressure is over, but it is an early sign that it is fading, and fading fast. And after peaking in early January this year, the share price of global shipping giant Maersk has fallen -35%. Super profits from logistics stress are no longer there.
The UST 10yr yield starts today at 4.22% and unchanged from this time Friday but it did briefly get up to 4.33% at one point in between. But it is up +20 bps from this time last week. The UST 2-10 rate curve is little-changed at -26 bps. Their 1-5 curve is marginally more inverted at -25 bps. And their 30 day-10yr curve is unchanged at +75 bps. The Australian ten year bond is down -1 bp at 4.21%. The China Govt ten year bond is unchanged at 2.74%. And the New Zealand Govt ten year will start today also unchanged at 4.69% but up +17 bps from this time last week.
The price of gold will open today at US$1658/oz. This is up +US$4 from this time Saturday.
And oil prices start today up +50 USc from this time Saturday at just on US$85/bbl in the US while the international Brent price is just on US$92/bbl. These are little-changed from week-ago levels.
The Kiwi dollar will open today at 57.6 USc and unchanged from Saturday. But it is almost +2c higher than this time last week. Against the Australian dollar we are little-changed at 90.3 AUc. Against the euro we are also unchanged at 58.4 euro cents. That all means our TWI-5 starts today at 68.1, and +160 bps higher than a week ago.
The bitcoin price is now at US$19,473 and +1.3% higher than this time Saturday. Volatility over the past 24 hours has however been modest at just +/- 1.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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79 Comments
Some of us started warning on China a number of years ago.
Decoupling and diversification is really required.
We were just shrugged off as xenophobic.
Decoupling and diversification is really required.
Indeed, but it's far too late now. Our way of life depends too heavily on cheap goods coming out of China, and telling people that they're going to have to change will be a hard sell. From the article:
It is likely that the same forces that moved Western companies out of Russia (and Russian companies out of the West) will play out again with China.
This is already happening, and just like with Putin, we'll place the blame for any fallout on Xi.
You can always find cheap goods, and it's happening. Just look at stuff being sold at Kmart and TWH (Chinese made EVs are also cheaper and they are getting some serious tractions).
However, it's way more difficult to find another country that purchases 30%+ of NZ exports in the next 5 to 10 years. A lot of people don't realise it.
It would be far wiser to find six countries to buy 5%.
The dumbest thing this country has ever done is put all it's eggs in the Chinese basket.
Xi is 69, and has many more years to rule. What will his China look like in five years.
Banned for being a bot? Always came across as one.
So he is a young kid; wait until he attains the intellectual maturity of Trump or Biden. Why do so few politicians have the wisdom to know when to go away? George Washington had it but Churchill and De Gaulle didn't.
Its known as "God complex". An inflated opinion of one's prowess and entitlement.
... saw the security goons dragging out the former president , Hu Jintao ... a sign of things to come ... ruthlessly removing voices of dissent against Xi's massive lust for complete control ...
5 or 10 years from now , this will end ugly for China ... ... very very disturbing ...
Xi in the East, Putin in the West, MBS in the Middle East have the power and money of nations. Like In James Bond movies, included is a licence to kill, enemies from within and out.
Borrowers who took out loans when used car prices were high a few months ago could be under-water as those prices fall back as sharply and interest rates rise.
Isn't almost every auto loan underwater the moment you drive off the yard?
An Ayatollah of Iran, ordered an execution of Salman Rushdie. Years later, Mr Rushdie was attacked, now blinded and maimed. And his crime, writing a book that had passages deemed blasphemous.
Be interested to know what causes an account to be deregistered like this. Can't see anything that looks rulebreaking, maybe editors deleted something offensive.
Trump's 757 re-furbished, doe he want his old job back.
Apparently he does. Confirmed in a speech somewhere in Texas. Along the lines - in order to save America, I will have to do it again. Unless they nobble him, legally or otherwise, he may well start in on saving America again.
That makes an assumption that America needs to be saved.....
Makes two, I suppose. Firstly as you say that America does indeed need to be saved & secondly that Trump himself, can do so. As such, I would take it beyond assumption, and suggest that he is being presumptuous.
... got my MAGA cap at the ready ... although I tell people it means " Make Ardern Go Away " ... 'cos that would be good ...
You're better than that GBH.
... " Make Aotearoa Great Again " ... you're right , I am better than that : cheers mon ami ... 🙂
Moot point
My opinion is that America cannot be saved.
But re electing a clueless reality TV star, suffering Dunning Kruger syndrome and with no moral compass, could/would accelerate the rot.
yet strangely - when you remove all the trump hyperbole out of it -- he presided over a term with no new foreign wars, no American invasions of sovereign nations, a very prosperous four years economically, wealth and job creation - did have America 100% self sufficient in Oil - before Biden walked back on that, and in real terms his presidency was very successful - except for the Media circus that followed him around.
As the UK is finding out -- better a competent Buffoon than presentable nicompoops! Anyone who thinks Biden's four years will be as good for the American people as Trumps is living in LA woke land! Its been a disaster of Epic proportions.
And yes - i think Trump is an egotistical maniac -- but i am damm sure Putin would not have dared to invade if he had still been in power --- makes you wonder!
America's global standing irretrievably damaged, look at everyone talking about US decline since he came to power.
The combined U.S. goods and services trade deficit increased to $679 billion in 2020, compared to $481 billion in 2016, the year before Trump took office. The trade deficit in goods alone hit $916 billion, a record high and an increase of about 21 percent from 2016.
When the new president Dwayne the Rock Johnson is inaugurated , you'll live to regret that comment .... if you can smell what the Rock is cooking !
All those little comments featuring despots (and I count Trump as a wannabe one) and look, not one woman in sight.
Mind you, I hope, becoming a despot is one thing women do not want equality in.
Suggest the little sister in Nth Korea is of some potential though. If the opportunity ever came about, that is.
I doubt that would be allowed to happen. If Kim's death precedes her, she won't be far behind.
Gina Reinhart?
Slight misspell there. But must say that my over reading of certain history kicked in there unfortunately. That being to me, the name does have a Berlin circa 1936, bit of a ring to it.
It took 20 years to build a $377bn annual trade between NZ and CN. Nowadays, CN represents 20%+ imports and 30%+ exports to NZ. Decoupling and diversification are much harder than you thought from NZ pov.
The real risk is what if Xi wants/needs it.
I am not sure where your 377bn annual trade comes from. According to stats New Zealand the total trade in the year to september was $153 bn with only 3.6bn trade with China for the month of September 2022.
Two things will definitely happen during President Xi's term:
1. China becomes the largest economy in the world
2. Taiwan reunites with China.
I wouldn't call Taiwan likely to be invaded to be anything resembles 'reunification' it would be plain, straight-out old-fashioned conquering and here we are thinking we'd matured beyond that.
maybe we could sell them our co-governance idea as nobody here wants it.
Those of us who have put a bit of effort into understanding what it is, do want it.
Maybe we could just sell them those that lack understanding and effort.
Pocket Aces. Study some more and work out who is the new co-governance 'party'.
It sure ain't ordinary maori.
Those of us who have put a bit of effort into understanding what it is, do not want it
Try this little exercise.
Had Maori known what was to come after the signing of the treaty, do you honestly think they still would have gone ahead and signed it?
then why did they sign it, because they where so busy killing each other they wanted crown protection.........
And now, the answer to the question I posed, please.
Even if that was an outcome they sought, it did not mean they were willingly signing up for what they got.
You know full well that had the Europeans not turned up they would still be chucking spears at one another to this very day.
Yes, just like how Japan is still stuck in feudal struggles between warring samurai without the benevolent guidance of ruling Europeans.
Amd I'll bet you don't think you are a racist!
Sorry Xi..China has peaked, the cracks are showing, protests coming.
You need to learn a bit more about dictators, and I suggest you start with those 20th century ones. They don't change, they follow the same trajectory.
If President for life Xi lives another 15 years he may well find India will be the largest economy in the world.
"Markets have priced in a New Zealand OCR at 5.5% by August 2023"
If this turns to reality, then house prices reverting to 2008 levels is a real possibility. The full effect of the peak rate wouldn't be felt till (at a guess) six months after that. The resulting unemployment factor will create a vicious cycle. As we all know, there are a lot of jobs directly/indirectly connected to real estate. Its going to be a long and very deep slump. Anyone calling the bottom of this slump at mid 2023 is reading of a different OCR forecast - (in their dreams)
Reverend Retired - Poppy. " Anyone calling the bottom of this slump at mid 2023 is reading of a different OCR forecast - (in their dreams) "
But Kevin Wagg from Property Brokers of Napier has already called the Bottom of the House Prices in May this year. He also goes onto say prices have been "increasing Month on Month". Maybe someone could email Kevin or Property Brokers Management as to why they claim this ?
Could you please help me Reverend understand what is going on here ?
Perhaps the holy water to which Property Brokers partakes has become contaminated with "spirits"?
"The Kiwi dollar will open today at 57.6 USc... almost +2c higher than this time last week."
I guess we have to assume that at least 75 bp is built in. The Fed might confirm that in due course.
There are no women again this this core group (again), and for the first time in 25 years no women in the wider Politburo. Also conspicuously missing are leaders with economic experience. Along with Li Keqiang, the central bank chief was another key economic official demoted.
Li was trained in the Western traditions, a Keynesian-like economist who thought central planning could be accomplished with computers and numbers rather than guns and godlike personas. The distance between neo-Keynes and communism is never all that far, not really in conflict for anyone committing to both.
You might understand why princelings like Xi would take China’s growing economic misfortune as the sign to move toward finishing his plans to do what Hu, Wen, and Song had always feared – going backward. The final stage in devolving would likely be the most uncertain, perhaps ruthless.
By Xi’s view, it wasn’t his choice – the global economic situation made the decision for him. Any dreams of continuing the pre-crisis way, the Deng way under that globalizing world was thrown out the window in the immediate aftermath of the Great “Recession.” There would be no recovery in the West, and there sure hasn’t been, therefore it would only be a matter of time before the finality reached China (2013, as it turned out).
The technocrats simply didn’t agree; there’s always a Keynesian-style “stimulus” plan which they’ll support, always claiming the next one will end up being the nick-of-time solution to every economic fix. As I’ve written before, these two views seemingly came to a head in 2015 and 2016, Li given room to implement one last try at the textbook, technocrat approach.
It failed. Text link and video link.
The problem imho is that we seem to be stuck like superglue to the notion that growth and success are tied to population growth, but that will destroy us in the end.
More smarts is all we need, not the next version of 'A Handmaids Tale', which is happening, even in the USA
More smarts amongst our leaders? Well at least Boris has pulled himself out. Note, I typed that carefully.
its all the dishy billionare
Population drop in China might save the planet. It's big.
In our small way New Zealand must help. We should set a population csp.
“We can have 1 Billion people with freedom, or 9 Billion slaves. We’re at over 7 Billion right now, so we need to bring that down to 1 Billion. I hope that culling can be peaceful and slow and equal between rich and poor.” -Dennis Meadows (author of Limits to Growth) Club of Rome Link
Thanks. That's the first time I've seen that quote. makes sense to me.
Curious how the political right thump the "freedom" bible, then work as diligently as possible to remove the physical possibility of actually being free. Space and resources, free of toxic overload. Seymour, Luxon et al = bad joke!
You can do this, but one of one things will happen: Finances will still mean capable parents who want more kids won't have them, and people who aren't capable but just don't care will keep having them. The former will end up bailing out the latter despite having to give away their own dreams of bigger families to people who will just ignore any edict about family sizes or population caps. Eventually it will be ruled as being racist, and either abandoned, or only applied to certain groups.
China is on the way out for a number of reasons but primarily because the now for life leaders have decided that having friends (sycophants) around is better than having qualified and skilled people in the team - not to mention that its a very sexist, racist leadership group. Like Putin they believe they are the only ones with the skills to lead - always very dangerous assumption
Bumpy ride coming for us and the world as China heads down same path autocratic rule for life path as Russia, Iran, N Korea - and sad news for the chinese people many who will want to leave
As opposed to us having to vote for someone who thinks they have the skills to lead when actually they don't ?
Boris, Truss, Luxon...oh sorry you mean Cindy.
Labour weekend glorious time on the water. you don't know how lucky you are....
Doesn’t think it. Knows it. It must be so simply because every day, those in the precious circle, tell her that that is true.
You don't have to vote for anyone you don't want to. That's the big difference champ.
Grattaway - no, the biggest takeaway is that they've removed economists from the table.
That's shattering - and entirely the right move.
They will attempt to fit within Limits - physical limits, the ones Meadows points out we've overshot - and as such, are ahead of our own culture. By some margin.
What we don't have, is a media capable of asking the needed questions.
What's going on w/US$ auctions at SwissNB isn't really that important in the big picture. They're just a more obvious symptom of what has shown up in far more important places. It doesn't get much more important than swaps. No not Fed's swaps, real swaps. Link
CAANZ piece pulling no punches:
That said, our central banks do have some questions of their own to answer. Their current economic models are like Formula 1 cars – precisely engineered with the latest technology, but no use off-road or in wet conditions: they need more utes. They haven’t got a good enough handle on how the money supply works through the economy – at a time when they were boosting it with their ‘unorthodox’ monetary policy instruments.
We should watch out for global commercial property valuations and sales activity. Rising yields and p/e ratios make this sector increasingly vulnerable to a slump
Good to see at least a mention of commercial property, I think Interest should write more about it as an investment vehicle. (I guess it won't get nowhere near the same readership or comments as an article on residential investment, but still it's an interesting investment option in NZ)
Just had a look at Goodmans (GMT) and Property For Industry (PFI) - two of the listed commercial property trusts in NZ. GMT is down 28% from peak and PFI is down 23%. So quite big drops already.
Like anything else, it might be a hard time until interest rates peak on this hiking cycle.
But as you say it's an interesting option and has advantages over residential investment (and I'm sure people might argue the opposite).
Commercial property investment also has the advantage of not getting constantly abused as an investments type choice. (on this site at least)
I wasn't really talking about listed companies, that's more akin to investing in the sharemarket, I was really talking about direct investment in commercial property.
Simply stunning
In a fascinating RBA freedom of information disclosure dumped on Friday, which references Coolabah's house price analysis/forecasts, the RBA Australian reveals how it once again got its house price expectations wrong--and then radically downgraded them.
The massive shift in the RBA's house price outlook almost certainly has implications for how high it needs to lift its cash rate: it has gone from predicting almost no house price declines to what would be--in its own words--the biggest draw-down in history.
https://www.livewiremarkets.com/wires/rba-predicted-almost-no-house-pri…
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