Here's our summary of key economic events overnight that affect New Zealand, with news most economic expansions are rolling on, but seem to be less secure as central banks struggle to contain inflation.
The giant American service sector expansion slowed slightly in October, and by slightly more than was expected. But it is still a healthy expansion, just less so. The widely-watched local survey from the ISM pegs the decrease due to slower growth in both business activity and new orders and taking this one to an 18 month low for this expansion. The internationally benchmarked Markit survey is actually recording a small contraction in this sector. This seems unlikely given the jobs and benefit-claims data, but that is what it shows.
The key metric is out tomorrow, the October non-farm payrolls report, and an expansion of jobs of +200,000 is expected.
The October job cuts report edged up to a tiny 34,000 in the month, but still, that is its highest since October 2021. And there are many reports of firms now bracing for tougher times ahead.
The number of American filing for jobless benefits rose marginally to +186,000 which is still a very low level for them. That means 1.24 mln people are on this unemployment support, and still bumping along near its historic low. That is an 'insured jobless rate' of just 0.9% of their workforce. (In New Zealand, we have 170,000 people on JobSeeker Support benefits (99,000 'work-ready', plus 71,000 with a health or disability issue) and a workforce of 2.939 mln, so an equivalent insured jobless rate of 5.8%! This is odd because the Household Labour Force Survey only identified 94,000 people as being out of work.)
US factory orders rose in September from August by the amount expected, and are +11.7% higher than year-ago levels.
The US September trade balance for both goods and services, which had fallen back to early 2021 levels by August 2022, blipped up in September to a deficit of -US$74 bln, as the economic expansion drew in more imports.
The American home ownership rate rose to 66% in September. (For perspective, in New Zealand that rate is 64.5%.)
The number of new Canadian residential building consents dived unexpectedly in September according to data out overnight. No-one saw the -17% month-on-month drop coming. A -6% drop was what was expected.
The internationally benchmarked PMIs for India shows their growth momentum picked up in October in both their factory and services sectors, and to good levels. In some large cities, this comes at considerable cost to public health, however.
Norway raised its key policy rate by +25 bps to 2.50%, and that was less than the +50 bps hike expected.
England raised its key policy rate by +75 bps to 3.0% in a split decision. This is a 30 year high and was as expected. The dissenters would have raised it less. They are fighting CPI inflation of over 10% and have a target of just 2%. They also said they are facing a two-year recession.
Container freight rates fell another -3% last week to now be -20% below their five-year average. Pacific rates are still falling. Atlantic rates are either stable or rising now. Bulk cargo rates are still falling too.
The UST 10yr yield started today at 4.13% and +14 bps higher than yesterday just after the US Fed market reaction. The UST 2-10 rate curve is a little more inverted at -55 bps. Their 1-5 curve is much less inverted at -40 bps. And their 30 day-10yr curve is a lot steeper at +68 bps. The Australian ten year bond is up +7 bps at 3.93%. The China Govt ten year bond is unchanged at 2.69%. And the New Zealand Govt ten year will start today up another +11 bps at 4.60% which is getting back towards its ten year high.
Wall Street's Thursday session has been soft again with the S&P500 down another -0.5% in late trade. Overnight, European markets all closed down about -0.8% except London which closed up +0.6%. Yesterday, Tokyo was closed for Culture Day. However Hong Kong ended its session down another massive -3.1. And Shanghai was down -0.2%. The ASX200 fell a sharp -1.8% yesterday and the NZX50 dropped -0.9% on the day.
The price of gold will open today at US$1628/oz. This is down -US$20 from this time yesterday.
And oil prices start today down -US$1 from this time yesterday at just on US$88/bbl in the US while the international Brent price is just under US$95/bbl.
The Kiwi dollar will open today at 57.7 USc and almost -1c lower than this time yesterday. Against the Australian dollar we are firm at 91.8 AUc and our highest since April. Against the euro we are down slightly at 59.2 euro cents. That all means our TWI-5 starts today at 68.8 and down -70 bps since yesterday.
The bitcoin price is now at US$20,306 and down -1.1% from this time yesterday. Volatility over the past 24 hours has also been modest at just on +/- 1.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
77 Comments
“The latest CPI inflation figures for Q3, which shocked all predictions coming in at 7.2% annual growth, led to an across-the-board upward adjustment of OCR forecasts. Assuming the RBNZ follow suit on 23 November the OCR will move to 4.25%, which could see the floating rate approach 8% and the 1 year fixed rate top 6%. This will likely lead to a lot of belt tightening by mortgage holders – the exact desired effect the RBNZ wants,” Mr Goodall said.
The housing market downturn in Aotearoa NZ slightly eased in October, with values falling by -1.3% over the month after tracking down -1.5% in September.
Well the falls are slowing, perhaps in 6 months things will be flat, of course things also be down another 10%, but as TTP would say, the DGM on here are not worth listerning to, and their predictions have no value...
Belt-tightening by mortgage owners is the difference between keeping up with house payments and losing your house. Meanwhile, those without, who could downsize or sell down multiple properties now get to benefit from the interest rates bought on by a structural problem they benefited from, and at a market behaviour level, actually caused. So yes, there will be changes in behaviour, but one group has far more at stake than the other. One is trying to cover the basics while the other just gets to continuing to feather their nests to whatever extent their spending patterns will allow them to.
These are not equal or equitable outcomes, but for some reason the belt-tightening of mortgage holders seems to be implying reckless spending, when for many it's going to be an existential exercise, regardless of how many cashed-up Gen-Xers there are to offset them.
Yes GV. The difference exists, but don't be so judgemental.
Some with mortgages borrowed because it was the only way. Others borrowed like crazy because they thought it an easy road to riches. Some went without to get rid of a mortgage. Others just could not achieve that.
I'm being judgemental of people who try to use weighted number to mask what is yet another chapter in the generational grift that is New Zealand residential property.
"I'm all right Jack" isn't a valid argument when it comes to the flow on effects of abject political and institutional failure, and pretending that there's no real issue because a larger number of people will be less impacted than a substantial number of people who will be hugely impacted (again) is disgusting. I'm disappointed to see respected commentators hiding behind this argument in a bid to avoid admitting who will take the pain (again).
My compliments GV, you didn't use the word "Boomer" and have put the onus on the pollies. For that you have my full endorsement. When the media discussion fully blames the pollies they might just be motivated enough to do something substantial.
PS I'm in Holland at the moment for a family emergency, so my participation will be a little limited for a few weeks.
Plenty of younger Kiwis who rode the debt dragon because they couldn't lose. Perversely, some who hyper-extended are now closer to retirement than I will ever be. It's as much a cultural obsession as an age-thing, although I do feel there's a lot of effort going into avoiding about the demographics of who has a mortgage and who is likely to have the most exposure relative to things like forever homes (e.g. they'll need to sell and move if they want families etc) as opposed to those who don't have mortgages at all.
I suspect if people were honest and started looking at the overlap between these different numbers we keep hearing used to justify how 'it won't get that bad' when you look at them in isolation, people might start to realise just how incredibly dark the storm clouds on the horizon are looking.
Yes, but less a generational thing than personal choice. But putting the cause of the crisis at the feet of whom it belongs, the pollies, by all the media will in effect force them to pay attention and consider doing something about it. They will try to dissemble and deflect, but calling them on it when they try to bullshit their way out will force them to try to do more. I'm being somewhat idealistic, but publically calling them on their rubbish should get a reaction.
Sadly all the tools are actually there for significant change, but the level of political apathy is such that the likelihood of that significant change is fairly low. More likely things will go pop at some level and someone will get voted in who'll promise the earth but lacks the skills and expertise to form any real improvement.
This tribalism only makes it far worse.
We're five years into that government ...
If you think that's a pop, you ain't seen nothing yet.
Good case in point though, after the last 2 years you'd think one urgent item on the agenda was a suitably sized quarantine facility be built away from a major urban centre. This would have saved much time and funds, and will do at some point in the future, but probably wouldn't even get a blip on most people's radars.
Quarantine facilities are not needed. If you are frightened of a mild cold virus, stay at home and lock the door.
We created the most amazing pathogen distribution system in history, in the form of mechanised transport.
The nature and severity of pandemics don't follow identical paths.
Your argument is pretty narrow in scope.
Plenty of pandemic candidates out there with 10, 20x the mortality rate of Covid. We failed the dress rehearsal, and I expect we'll continue with the previous strategy of 'she'll be right'.
My Gen-x cohort put their parents to shame when it comes to property investment. Boomers got lucky, Gen-x got greedy. Gen-y got on the bus and Gen-z are about to get run over.
Politicians and so called experts will use the data and analogies to suit their vested biased interest.
so two things polly's should do after next election?
Belt tightening, selling off stuff, 3rd job.
Those that survive out the other side usually end up better off. This is really the way of things. In some ways the central banks have been too good, because adverse conditions have now become very foreign.
Losing yourself to a generation or culture war is unlikely to provide good returns.
There isn't a war to fight anymore. The results are in and young New Zealanders are simply expendable.
The generation population have always just been numbers, this isn't news.
Not news, but the reality of who will cop what isn't news either.
The fact it's been going on so long doesn't mean people have to be OK with it or stop talking about it.
T-t-triple post.
Dp
Sure, but just as a general philosophy, if one isn't willing to accept life for what it is, or devote fairly significant time to devising and enacting change, you can end up pretty trapped in your own prison.
The fact that these comments sections are fairly light on interesting and plausible solutions, and pretty heavy on "it's all *insert baddie*'s fault" isn't filling me with much optimism. But then it is the internet.
Generally speaking, what more can people actually do? People voted for meaningful housing, tax and migration reform. None of those things happened. There's no accountability for the institutions that fed into this failure, so that's no help. On the one occasion the turkeys did vote for Christmas, Santa got so jacked up on milk and cookies that he passed out in someone's chimney and hasn't been seen since. Blaming the elves isn't going to achieve a whole bunch.
My suspicion is that generally people will start to cotton on as they see their immediate families or possibly even themselves start to come unstuck. It's quite likely that politicos will flounder, and get blamed for that instead of people reflecting on how we got into this mess in the first place. People forget that the fallout from the 1987 crash in NZ lasted a lot longer than it did for other places.
And at the pace our government seems to move, the whole thing may well have gone pop before they begrudgingly accept there's even a problem, let alone their role in how it came about.
The accountability is available every 3 years.
There is an information and public assembly system now available that has previously not existed. We saw this used during the Arab Spring, and I believe it's making traditional autocratic regimes more difficult to sustain over time.
The challenges are fairly great. Growth has faultered throughout the developing economies, and unless you do a fairly significant re-distribution (rarely works out well for most), you need to find some way to pay for people's current and future lifestyles. At the same time addressing climate change and a while host of other potential hazards, and what looks to be a level of deglobalisation and the inflationary complications therein.
I don't believe tweaking a rule here and a law there is anywhere near close enough. Bright minds need to re-draw a lot of what we are doing and then allocate the resources to getting it done.
Not "pay for'" - the problem is: underwrite. As in: physically.
The young are realising the jig is up for our consumptive way of life, and probably realising - by default - that the jig is up for overpopualtion. Thus they are concocting narratives - identifying-as, for instance - other than building a suburban nest and reproducing there. They are right; we need a little less of that. It fits with the fact that the incumbent nest-owners have monopolised new-comer access out of the park.
Also, there ARE folk suggesting alternatives; what happens is that they get silenced (media mainly) and the silence is then described as absence. Not true.
Central banks have been too good to the financial sector, not the productive sector, but that was always the plan. Adverse conditions are just starting. Buckle up and enjoy the ride.
I wouldn't be basing anything off the data for 1 month. -1.5% to -1.3% is so little difference that assumptions based on it are worthless.
England raised its key policy rate by +75 bps to 3.0% in a split decision. This is a 30 year high and was as expected. The dissenters would have raised it less. They are fighting CPI inflation of over 10% and have a target of just 2%. They also said they are facing a two-year recession.
First RBA, now BoE. "The majority of the Committee judges that...further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets.” Pivot is in the air - globally. Link
Nomura's Charlie McElligott nailed it yesterday:
“I really think there is potential for another 'rug pull' coming... from The Fed acknowledging these realities again and as early as next week’s meeting…”
As markets soared on the FOMC statement seemingly confirming their biases, before Powell dropped this bombshell of hawkish hate-speech:
“It's premature to discuss pausing. It's not something that we're thinking about. That's really not a conversation to be had now. We have a way to go.”
As McElligott notes, the initial “dovish Fed statement” component of yesterday’s market move began squeezing assets (and shorts) higher in painful fashion, the eventual sanity of Powell later in the press conference then differentiating between the “red-herring” focus surrounding the “PACE of tightening”…from what actually matters most, that being the “absolute LEVEL where Terminal Rate ultimately goes,” which is dependent still upon inflation data which is showing no progress in moving back towards target
The resulting rug-pull was the biggest post-Fed-decision loss in history, with Nasdaq now down over 4% from pre-FOMC statement (and down over 5.5% from pre-Powell presser)...
ZH is a huge improvement. Very good.
The central bankers absolutely love a good rug pull as many recent home buyers are now finding out.
Could be worse I suppose. You could have made the idiotic decision to try and build a house during a supply crunch only to see your interest payments rise dramatically whilst your non built house declines in value in a part of the country that will be uninhabitable in 20 years.
Albert2020 living up to his moniker - Lots of money but very little sense.
It's okay mate. I earn a million dollars a month for working 2 hours a week.
Tell me more about this "uninhabitable in twenty years" thing. You and Carlos competing to see who can out-dumb each other?
Prostitution is not a long term financial plan Dirk.
On a long enough time line, the survival rate for everyone drops to zero.
- Tyler Durden
Thanks. I am no longer young. Problems skeletal & medical are emerging, not surprisingly. Still I have had sound advice that they will get better before I die.
And poor little ole NZ fell into the central banker's debt trap, curtesy of Her majesty Cindy. And she wants to financialize our water! Who will own that debt? Wall Street? The WEF agenda she follows has all but broken our country.
Audaxes please run for Prime minister.
Get some help, mate.
Who owns Council debts relating to water assets at the moment?
Probably those guys.
The million dollar question now is, how can this wealth be redistributed?
As I've said before, smart money reaches the exit first, and those who are educated and informed enough to amass such wealth won't let this go without a fight if somehow the government finds a miraculous way to claw some of the wealth back from them. My bet is whatever they try, those with wealth will simply find another way to shelter their wealth offshore or in other assets, companies, trusts etc where these changes have the least effect, and substantially nothing changes.
"Some of you may die, but it's a sacrifice I am willing to make," Lord Farquaad (Shrek 1)
The response of RBs, economists & politicians to the mess they create
Oh, you just need to fall on your sword but please do it quietly and out of our sight.
German chancellor has changed his stance, wants ‘common ground’ with Russia, says Turkish president
Recep Tayyip Erdogan’s remarks came during live interview
1/2 Any whichever way one looks at it, Scholz's China visit is doubtless an open defiance of US' Indo-Pacific Strategy to contain/decouple/encircle/bully China. It can be precursor to shift in German policy toward Russia as well - return to 'ostpolitik'. Link
2/2 This may well rock Scholz's coalition with pro-US Greens, but he's preparing the ground also to explore the option to form Grand Coalition with CDU, which is in fact what German business & industry want for speedy economic recovery, instead of chasing chimeras as US' poodle.Link
Has there been any commentary about what appears (to me at least) to be the mismatch between the "workers getting payrises" is the cause of inflation and the launch of the 10% of workers can trigger collective bargaining on behalf of everyone else?
Surely the only outcome from this would be more wage increases?
Not a lot on here but that was pretty obvious during Newstalk huddle yesterday. The left are desperate to try to push wages up here, but don't sem to understand that will only mean Orr pushes OCR further up as well.... just another crazy leftist policy that believes the wage fairy can wave a wand and pay more....
Blind Freddy can see the result - I can tell you now the outcome will be workers laid off.
David Hisco was actually right, just about 7 years too early, it will all end in tears as always.
So what's the answer if wages shouldn't go up then? We've seen companies won't sacrifice margins or results for cheaper goods, so the expectation here seems to be that workers fall even further behind. That's a crappy deal.
Workers are long overdue a catch-up on price increases that have already happened - think food, housing, transport. To suddenly say now after prices have gone up hugely "Oh no payrises because that might be inflationary" is the business community simply trying to have their cake and eat it too.
Wages can go up, but if they can't get the margins to cover Oheads, then if they can't increase productivity with the wage increase, then the next option is to reduce the workforce, so yes while those that remain employed get to take more home, the others get to join MSD. It's a fine balance, if government try to wield the big stick on Private sector, and they in turn have owners and shareholders to report too, then that may be the consequence. (although I do think the gap between executive pay packets and the workers is way too big- but the exc's will always look after themselves first)
That hasn't held true though, or else wages wouldn't have slipped so far behind other living costs. We were in this boat long before Covid, productivity gains simply didn't translate into higher wages in NZ. Then we added more people, drove up living costs and guess what - still nowhere close to the same gains in wage growth. It's not a fine balance, it's been out of whack for years now.
If our economic system requires workers to simply endure repeated devaluing of the purchasing power of their wages OR to lose their jobs entirely in a bid to suppress inflation, then our economic system isn't fit for purpose. We've already seen the central bank system and political accountability mechanism fail, is it so unrealistic to think a system that requires workers to keep taking hit after hit and never squaring up is perhaps equally shithouse?
Others are putting the cart before the horse. The latest round of inflation started from profiteering during the COVID crisis as companies right through the supply chain sought to profit from shortages. Complaining that workers pay rises is causing inflation is just pure BS as companies continue to push for higher profits. If a company cannot effectively manage it's overheads as opposed to paying decent and fair wages, then should it really be in business at all?
Some simple data crunching also suggest immigration is having perverse outcomes for NZ's economic productivity. Cooks, retail workers and waiters still appear in the top occupations issued residence visas in NZ.
These jobs barely pay enough to cover basic living costs, let alone putting enough in the tax pool to pay for additional social services and infrastructure.
We should consider ourselves lucky to have maintained somewhat decent living standards for a large chunk of our population until recent times, despite having few high-paying productive industries or high-value exports to show for.
I've had my car blow up and need replacing the last couple of weeks and had to deal with a mechanic, tow-truck driver, wrecker and multiple car salesmen.
The only person that wasn't a recent migrant to NZ was the mechanic, which is the only one I'd consider skilled.
I have been having a related "discussion" recently where it seems in NZ the mentality is still for the employer to only offer market rates on hiring and then try to get away with minimal increases to existing employees. When you come in with an offer from another company then suddenly the budget is available for an increase - but by then it is too late as you have already become dissatisfied with the current employer enough to look elsewhere.
If they just gave the existing employees the same rates they were offering to new hires then overall they would save on recruitment costs and also get some of that fabled productivity by retaining experience within the company?
I believe retention and upskilling are of the utmost importance to many of NZ businesses. In the Gov't sector this is the primary focus as the attrition has been huge in the last 12months or more due to the tight labour market. Many workers got a ~4% pay rise then simply got another role in the same or a different area of Govt to offset the living costs, because why wouldn't you if the costs are increasing all round and your money is getting devalued.
The trouble now is employee expectations as well as the employers (not an employer here BTW). Everyone has seen how much their peers can command by shifting roles, and many employers still aren't willing to voluntarily raise wages for said employee when employees can give evidence of pay elsewhere for similar roles and threaten to leave. This employee then leaves and gets increased wages, and so on the spiral continues
I think part of the issue is the potential over reach by companies that put their prices up by CPI whereas LCI would have been the more valid increase.
But not having run a company myself maybe this is the opportunity they need to bring their overall margin back up to make the enterprise worthwhile?
12% wage increase....good and bad
https://www.rnz.co.nz/news/business/477972/countdown-worker-s-pay-rise-….
Anyone get the feeling all these increases and mandatory minimum wage increases from the government might be keeping young people out of jobs? Or is this more set to happen once the recession hits?
Workers are long overdue a catch-up on price increases that have already happened
On average over the last quarter centrury, wage increases have been 1.2% per year above inflation.
It's not employers that are the problem, it's all about asset prices.
On average over the last quarter centrury, wage increases have been 1.2% per year above inflation.
It's not employers that are the problem, it's all about asset prices.
I don't think you understand inflation if you think real wage growth has been positive for the past 25 years. Inflation is growth in the prices of goods and services + monetary growth + asset price growth. It's not what the media, govt, and the holiness council at the central banks tell you.
Why should employers have to pay for monetary and asset inflation?
If they're forced to it'll just move it all into goods and services inflation and continue the cycle.
Who do you think is going to pay for it?
Or are we going to have skilled workers living in parks en masse because after decades of insulation from fair wage pressure through things like WFF and accommodation supplements, employers want to pass the buck yet again.
I mean, at some point you might as well argue you shouldn't have to pay staff at all.
One more expert has taken upon itself to take the fight of rising interest rate to Mr Orr.
Headline and view as below
Why 75 being the New 50 is not a good thing
The Bank of England jumped on the 75 basis point rate hike bandwagon last night. Our Reserve Bank looks set to do the same on November 23. But they and others might be overdoing it, which would make the next couple of years tougher than they need to be.
The trouble is central bankers are still looking over their shoulders and at the crowds demanding they win back their inflation-fighting cred, rather than over the horizon where today’s rate hikes actually take effect.
Define "Over doing it". This really depends on whether or not inflation is the only measure of the desired outcome. Sounds to me like they do not care if unemployment rises or some people have a mortgagee sale because getting inflation down has suddenly become the only thing that matters. We now pretty much have to go 75bps as well or bust.
There are now no good answers.
Yes, The Government and the RBNZ have let us down and got it terribly wrong. But so have most other similar bodies across the Globe. Be that unintentional or deliberate (I'll go for the latter, for all sorts of distorted economic thinking), it doesn't matter. We are where we are.
But equally, we are all responsible for our own wellbeing, and again we each find ourselves, where we are.
The option before all of us; Government, RBNZ and each of us as individuals of 'doing nothing' and somehow hope it's all a bad dream isn't going to work. That will turn a bad dream into a nightmare.
What's coming, is coming - there is no longer a viable alternative. And that will entail much lower asset prices and, initially, much higher interest rates. If we are ready for that, then we'll get through. If we aren't, it's going to be shocking.
There's still just time for individuals to take defensive action. But will they? If they haven't by now, then I doubt it.
Good post bw, I also get bored with the blame game. We have known for ages that investing in family homes as a way to get ahead was going to collapse at some stage. However those that have bought a home to live in will be fine, with a little hard graft. Now we have global events that are dictating the economy of not only NZ but the World. Get used to it.
10 yr swap rates rising again, central banks raising not done yet. Still too much spending going on out there........
Someone should investigate the substantial difference between employment numbers in NZ given the difference between JobSeeker support numbers and the HLFS numbers. Surely getting this right is pretty important given the RBNZ bases their actions on it. Wait, what am I saying, they are just lackeys of the Fed who can't think for themselves.
In the poll commissioned by Newsweek, 63% of the respondents said they agreed that the feds should issue new stimulus checks to tackle inflation. Forty-two percent said they “strongly agree” while only 18% disagreed. Fifteen percent said they neither agreed nor disagreed. Link
Commoners don't understand how "economic stimulus" is all about putting a few dollars directly into your pocket and the overlords stealing more than that amount through corporate profits and inflation.
@blobbles 94,000 vs 99,000 seems to be to be pretty accurate, since the labour force survey is only that - a survey.
Many of those on jobseekers are not at all fit for work due to mental or physical health issues.
Ahh yes, sorry, I believe I completely misread that. Davids bracketing definitely didn't help!
That's right sparrow, those you mention are better to get a benefit and forget about them. We should concentrate on the young, up and coming.
Worth watching. (So he's going to fight what happened so recently? In case he's forgotten, The Market won)
Andrew Bailey's five word message to investors may come back to haunt him. "We don't follow the market", the Bank of England governor insisted on Thursday. To use Bailey's own words, it was "blindingly obvious" that rates would probably end up closer to their current 3pc rate than the 5.25pc predicted by markets in its latest report. Raising rates to 5pc would trigger the longest recession on record and force a million more people into unemployment.
https://www.telegraph.co.uk/business/2022/11/03/three-charts-show-why-b…
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