Here's our summary of key economic events overnight that affect New Zealand, with news that is all about the US Fed.
As expected, the US Fed has raised its policy rate by +75 bps to 4%. It is their sixth consecutive rate hike and the fourth straight +75 bps increase, pushing borrowing costs to a new high since 2008. The odds are currently divided between another +75 bps hike at their December 15 meeting, or a lesser +50 bps rise then, although today's statement tips the chances to the +50 bps end.
Recent economic data has been pointing to an impressively resilient economy although some signs of a slowdown are starting to emerge especially in their housing market. And of course, their inflation is sticky and close to a 40-year high. Of course, this is what the new high official interest rates are designed to bring down. Remember, they have an inflation target of 2%. But the overall resilience, especially in their labour market, is making that a tough task and there is scant evidence yet that these early sharp rate hikes are making a material difference, especially to inflation expectations.
Still, the Fed suggested it is coming to the end of its series of sharp hikes.
American mortgage applications fell again last week although not be as much as previously. And American mortgage interest rates also fell slightly, which wasn't expected. But they are still more than double the level of a year ago. Not falling are car loan interest rates, and they are now at their highest since the GFC and touching 6.3%.
The pre-cursor employment report from ADP which focuses on the private sector only delivered a marginally better result for October than expected. They reported a gain of +239,000 jobs last month, the most in three months, and compared to market forecasts of +195,000. However, hiring was not broad-based with the services-providing sector creating +247,000 jobs. On the other hand, jobs were lost in IT; professional and financial activities; education and health. Also the manufacturing sector shed -20,000 which is consistent with the tamer regional factory surveys we have been reporting recently. Analysts expect non-farm payrolls to rise +200,000 in October when they are reported on Saturday NZT.
Despite their extreme inflation stress, the number of German in paid work hit a new high in September at 45.6 mln. However, their labour market expansion is slowing somewhat. Their jobless rate stayed unchanged at 5.5%.
Just days after Russia suspended support for Ukrainian grain exports through the Black Sea, it has agreed with Turkey to restart its participation in the agreement. Wheat prices fell back on the news.
In Australia, residential building consent levels fell almost -6% in September from August, and are down -13% from a year ago. Meanwhile, lending for housing fell more than -8% in September from August and is down more than -18% year-on-year. Lending for commercial construction is down -33%. But non-residential building consents rose +3.7% in September and are down less than -2% year-on-year.
And the price of iron ore just keeps on falling as Chinese demand reduces further. Coal prices are no longer rising (although they aren't falling either). Chinese steel mills are highlighting weak demand, especially from their property sector.
And we should note that BHP is calling for a ban on sales of new petrol and diesel cars in Australia by 2035 and says governments should ensure the country has the necessary infrastructure to support an increasingly electric car fleet. An interesting call from a steel and mining giant.
The UST 10yr yield started today little-changed at 4.04%. But after the Fed announcement it fell to under 4%. The UST 2-10 rate curve is a little more inverted at -51 bps. Their 1-5 curve is also more inverted at -47 bps. And their 30 day-10yr curve is a bit steeper at +47 bps. The Australian ten year bond is up +9 bps at 3.86%. The China Govt ten year bond is up +1 bp at 2.69%. And the New Zealand Govt ten year will start today up +16 bps at 4.49%.
Wall Street's Wednesday session has been soft again with the S&P500 down another -0.6% prior to the Fed statement. Then it turned to a +0.6% rise on the day. Overnight, European markets also all closed down about -0.6%. Yesterday, Tokyo finished little-changed. However Hong Kong ended its session early on a typhoon warning, but rushed to a +2.4% gain. And Shanghai was up +1.2%. Both markets have been very volatile recently. The ASX200 rose a mere +0.1% yesterday but the NZX50 dipped -0.3% on the day.
The price of gold will open today at US$1648/oz. This is up +US$3 from this time yesterday.
And oil prices start today little-changed from this time yesterday at just over US$89/bbl in the US while the international Brent price is just under US$96/bbl.
The Kiwi dollar will open today at 58.6 USc and up a little since yesterday and a new six week high. But after the US Fed it has risen to 59.2 USc. Against the Australian dollar we are unchanged at 91.5 AUc and our highest since April. Against the euro we are up slightly at 59.5 euro cents. That all means our TWI-5 starts today at 69.5 and up +40 bps since yesterday.
The bitcoin price is now at US$20,533 and up a mere +0.4% from this time yesterday. Volatility over the past 24 hours has also been low at just on +/- 0.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
84 Comments
Listening to the whole FOMC Live presentation,and questions and answers, I would hesitate to read into JP's clear statements,that their is any pivot approaching,or much appreciable slow down in tightening,before mid 2023.
"Still, the Fed suggested it is coming to the end of its seriesurther to of sharp hikes."
When did he say that at all?
Or anything to indicate that .
He was at pains across all answers,to be clear that there was " further to go, and to not suggest a slow down. I would see 75 bps December,then maybe 2x 50 bps into end of first quarter next year.
That will slaughter new mortgage applications ,for sure.( Who would be willingly surrendering a 30 year @3%, toget a circa 8% new mortgage?) And he specifically mentioned this,that their very overheated housing market ,that still needed further Taming.
Why listen so closely? As what happens to USA housing market ,will doubly happen here. We have no 30 year mortgage ,and in 2 years,most are fixing at 7% or more .
Any ideas of an earlier softening in RBNZ stance ,are surely over hopeful.RBA may act like they are immune(0.25% INCREASES ),but not so here in NZ.
Very much agree with your assessment of Powells comments. The tone of the comments was very “hawkish”.
This statement in the press release was initially interpreted like that:
In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
https://www.federalreserve.gov/newsevents/pressreleases/monetary2022110…
Agree. If anyone can watch and suggest the rate hike in future will not be as high as 0.75%
https://www.wsj.com/livecoverage/federal-reserve-meeting-interest-rate-…
“We think there is some ground to cover before we meet that test,” Powell said. “That’s why we say ongoing rate increases will be appropriate. … We may move to higher levels than we thought.”
Nothing about pause there. Buckle up we are about to enter some turbulence.
One roof have started reading the scrolls, citing “the prophet”
https://www.oneroof.co.nz/news/42514
I can’t find the prophets Twitter handle maybe one roof “journo’s” could just retweet the prophecies instead?
"The Profit".
🤑
Is he The Prophet of Profit or The Profit Prophet?
The Prophet is certainly getting the Vested Interest Brigade upset.
7% Interest Rates This Year, Guaranteed ! Confirmed.
30% Crash in Home Prices by December, it's a Certainty ! North Shore already at -28.6%.
Who will you believe, the Vested Interest Brigade ? or The Prophet ?
10% Interest Rates Next Year, Guaranteed !
That is hilarious
... and if Bob Jones is correct , and inflation roars to 15 % next year ?
Do we still blame Putin , or blame the nation's #1 windbag , Robbo ... and where would Tane Mahuta's BFF need to place the OCR ?
It really is hilarious!
The following quote from Nick Goodall does stand out from the article:
“There are consequences to raising the OCR, which include slowing down the economy and pushing us into recession, as well as potentially lifting the unemployment rate and decreasing wealth in the property market, which the government has acknowledged needing to protect the value of our largest assets.”
Is this something the government has overtly acknowledged? I thought it was a perception due to the government's past actions (repeatedly bailing out homeowners in the past)?
Jacinda Ardern says 'sustained moderation' remains the Government's goal when it comes to house prices, as people 'expect' the value of their most valuable asset to keep rising
https://www.interest.co.nz/property/108301/pm-jacinda-ardern-says-susta…
Thanks, JP. Yeah, those words pretty much aged like unpasteurised milk.
Still, it was hardly a promise to homeowners that the government will continue to 'protect' house prices. If this was the only statement from the government Nick Goodall was referring to, he'll probably become increasingly disappointed as the property crash gains momentum.
Any market mavens have a moment to explain why we're not getting an international spanking now the OCR is a full half-percent lower than the Fed's rate? Furthermore, shouldn't this limit Orr's options over Christmas?
Surely RBNZ has to go 75 BPs absolute minimum, given the Fed will hike again in December.
Yep! If US go another 75bp and so do we though, we’ll still be starting next year 50bp behind. Exciting times!
Markets thinking Orr will now need to go harder with his next decision?
You mean the NZD?
This fed hike was widely expected, so the spanking already happened over recent months.
I mean the whole 9 yards - bond prices , capital flight , currency collapse, stern talking to from the global institutions etc….
Fed's Powell kills pivot hope. Says 'very premature' to consider pausing rate hikes. Says we will write down in Dec an updated sense of where rates will need to go. Nasdaq 100 sharply lower. Link
Closing price: NASDAQ Composite Index 10,524.80, -366.05 -3.36%
Fed's Powell looks so uncomfortable when facing media and nowhere he looked confident.
a full half-percent
Make up your mind is full or half, lol
You got me LOL! We'll be saying 'the full .75 %' in a month or two when that becomes the new standard unit of reserve rate increase.
Interesting Fed is now mentioning they're considering lagging effects of cash rate increases... RBNZ should be considering this also... we haven't seen the real impact of their actions yet, it would be easy to overcook it.
yep not if, according to ANZ, 57% of borrowers are yet to refix on the higher rates, if this is the same as other banks, then you are correct that the effects of the OCR are nor being felt by the majority yet, and those still on low rates have probably only seen the effect of the 8% pay rises.
And I think, as someone elsewhere has said, that there’s an element of people living it up a bit now before the belt tightening needs to start in earnest.
And us boomers do not have Mortgages on our own homes anymore.......
Easy to overcook it if he had raised ocr over rate of inflation but these .5 and .75 baby steps he hasn't even thawed the meat.
Path of least regrets right?
IMHO the path of least regrets is to give up on chasing down inflation.
Sound money is one of the pillars of our economy. If inflation becomes endemic & people lose respect for our currency it can seriously undermine the ability of our economy to function. We will go the way of your average South American country. Having a well respected, widely accepted means of exchange is more important than bailing out property specvestors.
Do you think that this will be when the digital currency initiatives will start to kick in? When the inflation rate is so high that GR will save us again with CBDC!
https://www.wsj.com/livecoverage/federal-reserve-meeting-interest-rate-…
Very clear and persistant that infltation is entrenched and the question is not high but how long the interest rate will remain high as will do everything to bring inflation below 2%.
Though are not sure like average person but hoping that the measure taken will help.
Am I correct in understanding this?
In the US, Fed has been increasing in 75bp jumps
In NZ, RBNZ has been increasing in 50bp jumps
In Aust, RBA has been increasing in 25 bp jumps
In the US, most mortgages are fixed interest for lengthy periods (30 yrs), so takes a lot of movement and a long time for Fed interest rate moves to flow through.
In NZ, fixed interest is typically only for 1-2 yrs, and with a mix of fixed and floating mortgages
In Aust, most mortgage interest is floating, so RBA interest rate moves impact quickly.
Is that why the difference in reserve bank interest rate hikes in different jurisdictions? Or is there more to it than that?
It's also to do with the ratio of bank lending to different sectors in the different countries and the performance of the currency. It isn't just about mortgages.
Thanks, currency I get.
Can you explain the one about the ratio of bank lending to different sectors in the different countries, please?
The hurdle rate is the minimum rate of return on an investment that will offset its costs. The internal rate of return is the amount above the break-even point that an investment may earn. A favorable decision on a project can be expected only if the internal rate of return is equal to or above the hurdle rate. Internationally in most economies lending is bigger institutionally and commercially then into residential real estate, the higher the FED Rate the harder for these guys to borrow for projects and project a good outcome = less borrowing = less demand = hopefully less inflation.... Midterms going to kill the DEMs, could be a lame duck 2nd half for Biden
BHP is calling for a ban on sales of new petrol and diesel cars in Australia by 2035
In 2022, BHP produced some 76.8 thousand metric tons of nickel.
With the material’s use in lithium-ion batteries for electric vehicles constantly on the rise, the nickel industry is gearing up for growth, with a flurry of activity as producers look to get their hands on this now-essential battery metal.
(https://feeco.com/meeting-nickel-demand-for-lithium-ion-batteries-will-…)
No nickel in the newer types of batteries that are becoming common. LiFePo4 are suitable for most commuter box EVs. Still not used in high performance or longer range EVs as they dont have the high discharge power or energy density for those applications. LFP with Manganese appears to be the next generation, until solid state or sodium batteries become commercially viable.
No, the next generation is the same. Fossil fuels. Drill baby drill.
Tesla was thinking of big Glencore stake but the coal piece put them off... Lithium
Taranaki is going to short BHP.
https://www.newshub.co.nz/home/new-zealand/2022/10/green-transport-advo…
During a council meeting last year discussing the installation of charging stations, one councillor piped up with this: "Petrol forever."
This was repeated by chair Stacey Hitchcock, who also said "petrol forever".
Councillors then voted against the council's own report to support Tesla installing three of its own chargers and one universal charger for free partly because of the parking revenue they'd lose.
'Petrol forever' is a lie.
Can't be had.
Finite resource, exponential extraction, end story.
Sigh. Someone has been listening to those economists with the closed diagram, again.
Give us a date where petrol will permanently go over $10 litre in today's money....Until then it's cheap and I will still be buying it for transportation.
Yes and the uptake in EV's will extend the deadline as well. Staying with Petrol myself, got a new car on order.
Are you sure it is a finite resource? Petrol forever will happen, plenty for everyone. Can be had. Sigh.
Now 'essential' battery material. What is essential is fossil fuels. Always will be. Drill baby drill.
You need to update your article after the markets close. Sandp 500 ended up 2.5% Down today.
You have published a .6% rise. Big difference.
Captain Cindy's climate leadership plan is working.
"China emits more greenhouse gas than the entire developed world combined, a new report has claimed.
The research by Rhodium Group says China emitted 27% of the world's greenhouse gases in 2019.
The US was the second-largest emitter at 11% while India was third with 6.6% of emissions, the think tank said."
Meanwhile lets make farming in NZ uneconomical..... Cindy and Grant simply must go.
What's your point?
... they're all hopping in aeroplanes & winging their way to Egypt for COP27 , from the furtherest reaches of the world ...
Which is a hypocritical cop out ... we have Zoom for meetings ... and Greta's yacht for getting out & about ...
Greenhouse gas is good. Life has got better, my plants grow better, earth seems warmer. Emit baby emit.
Dear Jacinda Ardern : we have a fire burning out of control along our coastline ... it started around 8 pm last night , and has razed 200 hectares of tussock & pine trees . Pine trees are exceedingly flammable . They burn easily , fanned by our Spring & Summer nor west gales . Please rethink your carbon offsets policy , which encourages wholesale conversions of productive farmland into pine trees as carbon sinks . Can we stick to producing food for humans on that land instead . I do worry that one hot summer in the future we'll have more pine plantations going up in flames than the fire service can handle : your loyal subject , Gummy .
"The Curse of Conservation: Empirical Evidence Demonstrating That Changes in Land-Use Legislation Drove Catastrophic Bushfires in Southeast Australia
We present a 120-year record of vegetation and fire regime change from Gunaikurnai Country, southeast Australia. Our data demonstrate that catastrophic bushfires first impacted the local area immediately following the prohibition of settler burning in 1970, which allowed a rapid increase in flammable eucalypts that resulted in the onset of catastrophic bushfires. Our data corroborate local narratives on the root causes of the current bushfire crisis."
Dear Bear - if you can invent a way to farm which doesn't involve using many calories of fossil energy to produce one - 1 - calorie of food, I'll do what you say. Deal?
Signed, J.A.Cinder
Permaculture ! ...
Animals to produce manure, a spade, seeds collected from last year, a brain (important), plants, some land, hopefully not sprayed with chemicals and a backbone PDK. Fossil energy - ZERO. Nutrition high, calories low.
Any steel in that spade or did you make a flint one?
This poor chap doesn't earn $800k / year for working 24 hours a week.
https://i.stuff.co.nz/business/130353910/no-money-in-negative-equity-an…
Sucked in by the myths and lies peddled by Printer8, TTP, CWBW, Combover Tony, Low IQ Ashley etc...
There's going to be a lot more tales of sorrow and regret by the time this finishes playing out, no doubt sold for clicks by the same degenerate media organisations that pumped the bubble.
In 2016 , Arthur Grimes claimed that house prices in Orc Land were woefully overpriced , and needed to fall 40 % to bring them back to the long term average , and to affordability ...
... they've risen a further 50 % since then ...
Labour , the party of helping the rich get richer ... nice one Jacinda !
But trending down under Labour, something National would try to reverse.
... crashing under Orr ... nothing to do with Labour : worst government ever , most useless PM ever ...
This might have a positive impact though as more of these stories in MSM mean the faster people put away the cheque book ((ha ha) and credit card and that less christmas trinkets will be sold
That story had me wondering - where is the blame here? It's pretty obvious he couldn't afford it when he bought it.
Refixing after 12 months - how far are interest rates actually above the 'stress tests' supposedly applied by his bank? I'll note he bought just before CCCFA kicked in... hopefully that saved at least some people from themselves.
ROFL re past comments that the bottom is in the S%P500 or the Nasdaq..... tech earnings per share have to come back down to earth levels ( like watching a red bull space sky diver....). Hold tight the next leg down is about to gain speed.
Amazon shares down ~20% this week alone. A month that includes Black Friday in its calculations
Retail looking grim for Christmas. Stock to be offloaded at substantial discounts.
Deflation knocking on the door.
Markets are like reef fish. Big tech was in fashion yesterday. Out of fashion today.
Big Tech is the future, it's just that the EPS in the future are being recalculated lower.....
Sounds just like overpriced NZ Property...
The congregation is swelling at the St Landers Church of "Buy It Cheaper Tomorrow".
HALLELUJAH .
That's all folks !!! Inflation is over according to the FED, its time to relax. I still think Orr will try and go 50bps again but its pretty obvious now it should be 100bps minimum.
Bad news for the resident infestors, hoping that the interest rates have "peaked"
The fumigation squad(Jerome Powell) isn't leaving.
There is only one cockroach
Day two in the Shanghai Disneyworld lockdown....
Log Plume ride 38.....
At least those long waits in the queue pass the time.
... do they still pass out free copies of the " Little Red Book " ? ... some fun reading , in a 3 hour queue ..
Inflation Busters #46
- Buy a one-day Disneyworld Shanghai pass.
- Cough
- Nek minnut multiday pass for free.
Thats very good
Hope they all purchased a weekly pass !!!!
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