Here's our summary of key economic events overnight that affect New Zealand, with news a slowing pace of the global economic expansion is leaving the debt overhang as a more serious problem in many countries.
But first up today there was another dairy auction, and on the face of it, it was a lackluster affair. Overall prices were up +0.6% in USD terms, a smaller rise than the +2.4% at the last event. This is consistent with the FAO monitoring. WMP prices were unchanged, but SMP and cheese both rose about +1.7%. However things were undermined in NZD. Overall prices dropped -2.0% in local currency as the NZD continues its puzzling rise. That means in local currency prices are down -15% over the past two months, compared to the equivalent -9% drop in USD. None of this shows were are getting on top of our deteriorating current account deficits.
Also falling away are US retail sales. Last week they rose less than +6% from the same week a year ago on a same-store basis. This comes at the start of the important year-end retail season and these results show they are no longer keeping up with inflation. Retail sales volumes are declining in the US.
Meanwhile, the American commercial real estate sector is facing some rejection by investors. Big and small investors are queuing up to pull money out of real-estate funds, the latest sign that the surge in interest rates is upending their commercial-property sector.
Also easing has been supply chain pressures, and by quite a bit. Their Logistics Managers Index (LMI) fell to only a modest expansion, the slowest since early in the pandemic (April 2020). Of note, managers are now making real progress in winding back inventory levels that had blown out during the supply chain shocks.
And confirming a slower pace, the American trade deficit in both goods and services in October wasn't as negative as expected. Their exports were up +13.6% year-on-year, while their imports were up +13.9% on the same basis. That added -US$10 bln to their year-on-year deficit, but it was less than markets had assumed, so the result has been ignored.
On the other hand, Canadian exports rose and their imports held unchanged allowing them to report a larger trade surplus in October.
In China, debt as a percentage of its economy hit a fresh high at the end of June, with local authorities borrowing heavily to hold together an economy weighed down by the central government's pandemic policy. Their debt now exceeds US$52 tln, or almost 300% of China's GDP. The same data pegs New Zealand at 218% and Australia at 232%. The US is 263% and Japan is 426%! (These debt levels are easier to sustain when they are essentially in local currency.)
German factory orders rose more than expected in October from September recovering somewhat from the prior month's retreat. But it still left them -3.2% below year-ago levels.
In Australia, their central bank raised its cash rate target by the expected +25 bps to 3.10% which is a ten year high. Banks have already responded with equivalent mortgage rate hikes. The RBA is on track for two more such rises to 3.85% by May 2023 because both wages and inflation will probably leave them little option but to keep tightening.
The UST 10yr yield starts today at 3.56% and down -6 bps from this time yesterday. The UST 2-10 rate curve is more inverted at -82 bps. And their 1-5 curve is unchanged at -97 bps, while their 30 day-10yr curve is less inverted at -20 bps. The Australian ten year bond is down -1 bp at 3.37%. The China Govt ten year bond is up +2 bps at 2.96%. And the New Zealand Govt ten year will start today up +4 bps at 4.05%.
On Wall Street, the S&P500 has started its Tuesday session down another -1.6% in a glum mood on the fears of further large US Fed rate hikes. Overnight, European markets ended about another -0.5% lower. Tokyo ended yesterday up +0.2%. Hong Kong was down -0.4% yesterday. Shanghai ended little-changed. The ASX200 ended its Tuesday session down -0.,5% and the NZX50 was down -0.4%.
The price of gold will open today up at US$1771/oz and down -US$1.
And oil prices start today down -US$4.50 from this time yesterday at just on US$74.50/bbl in the US while the international Brent price is down to just over US$79.50/bbl. The Russia price cap is biting just as global demand softens, which will annoy producers and cheer consumers.
The Kiwi dollar will open today at 63.4 USc, and a little firmer than this time yesterday. Against the Australian dollar we are +½c firmer at 94.4 AUc. Against the euro we are at 60.3 euro cents and up slightly. That all means our TWI-5 starts today at 71.9 and up +30 bps overnight.
The bitcoin price is now at US$16,972 and down -0.4% from this time yesterday. Volatility over the past 24 hours has low at just +/- 0.7%. Overnight the JP Morgan boss called crypto tokens "pet rocks".
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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94 Comments
What is your point?
We have two airlines running multiple flights daily between AKL-QT, yet RyainAir run only two flights a week between Orebro and Stanstead and are the sole airline offering that route. Competition is relative.
We have always been able to maintain two airlines on the main trunk routes. The competitors generally gounder due to Air NZ undercutting on these routes and recouping the costs on the regional flights.
Number of employees.
Ryanair - 19,100
Air NZ - 8,800
https://tradingeconomics.com/air:nz:employees
https://www.statista.com/statistics/1038851/ryanair-employement-figures/
Agree that it's basically 'free market baby' at play with airfares at the moment. Demand up the wazoo, tight supply, higher input costs etc. I guess if it were too expensive to fly, people wouldn't pay the price.
The only annoying thing is the nanosecond air travel slows down again Air NZ will be there with a greedy outstretched hand demanding more taxpayer cash once more.
NZ storage 24 days being expanded to 28 days, international average 90 days, spot a problem no I totally refude that. According to ardern just because we are 10,000 miles from Singapore and have no refinery or adequate storage does not mean NZ may experience a problem if a prolonged disruption occurs and she confidently predicts that Christmas day will fall on Goof Friday. I confidently predict ardern will go down as the most incompetent dishonest PM NZ has ever suffered under.
I think this is it. The refinery was run by a publicly traded company with responsibility for shareholder returns. Running the refinery did not generate reasonable returns due to high capital costs, and they have no responsibility for the external consequences. The returns the refinery could make were (I believe) regulated and based on refining margins overseas, so they could not simply raise prices to make a satisfactory return.
Could have been a case for nationalising or Government support to maintain our resilience, but expecting the company to suck it up for the good of the nation wasn't really an option.
Which outfits do you mean? There's no suggestion NZ could support two refineries, so Marsden Point was a natural monopoly and regulated as such. The fact they closed suggests the regulation was tight enough to throttle the life out of them, so I assume you are referring to all our recent Governments and assorted QUANGOs?
An indirect comparison perhaps in rail. It was sold off by one government and bought back by the next. Assumedly the latter decision was because that government thought it was necessary if not vital for NZ to maintain rail service(s.) Perhaps the Marsden refinery should have been regarded in the same light? Especially as this government is stridently warning of the peril of NZ losing public broadcasting, hence the merger proposed and $ millions being spent to make it happen and save it from a fate worse than something or other. So as the refinery had been legislated to the point of non viability by government(s,) a rethink on that aspect versus the national interest and its industrial & commercial self-sufficiency as best able, might have been appropriate?
Their debt now exceeds US$52 tln, or almost 300% of China's GDP. The same data pegs New Zealand at 218% and Australia at 232%. The US is 263% and Japan is 426%
So when you think NZ's debt issues are bad, might pay to cast a thought overseas.
Still, national DTI's less than 4 for the most part, sweet right?
"Could be worse" is how you excuse the nuance of how bad things are, or whether or not they could be better.
I have a hard time applauding NZ's debt situation given how Labour avoided building major infrastructure in the 2000s and National spent the 2010s building roads everywhere and almost nothing else. The funding and building of the CRL must surely rank as some sort of Catholic miracle, given how hard it apparently is to plan and build anything anymore.
"Could be worse" is how you excuse the nuance of how bad things are, or whether or not they could be better.
Just food for thought for locals who want to cling to a belief this is the worst country ever. Because the story could be that none of this way of life is really sustainable around the globe, and we're lucky it's slightly less unsustainable here than most places.
That's also total debt, public debt is pretty low in NZ. Hence the lack of nice stuff.
Public debt is low because we've managed to snick a decade's worth of inflation-non-adjusted tax revenue out of wage earners, while all their living costs increased drastically over the same period.
While I appreciate the logic to an extent, the end-game for this approach to our quality of living is 'least worst' and New Zealanders probably expect a little better, even given our tendency towards exceptionalism over reflection.
It's a strange attitude to have isn't it, to try and excuse our own problems by pointing out that someone else has it worse. This is the same mentality used by those who think they can improve their own lot simply by bringing others down.
I wonder what our debt to GDP ratio would be at, if our own economy hadn't been "weighed down by the central government's pandemic policy".
Not everything is right in NZ, but defining what are seemingly natural tendencies within the market system we've adopted, instead of pretending theyre down to any specific local government decision helps in framing the issues better.
If somewhere else had a clearly better mode of operation, that'd be worth investigating.
Hard to say. There's been a concerted effort over the last decade or so to clean up the private debt books, with increasingly stringent lending requirements.
Today, not having debt (or the right sort of debt) seems to be more of an impediment than having debt. Who knows though, maybe that'll change.
by Pa1nter | 7th Dec 22, 9:46am 1670359599
It's definitely harder to borrow money today than. 5, 10, and 15 years ago.
Few people can borrow at a DTI of 10x.
And yet in 2020, on the brink of a massive economic collapse, the central bank removed Loan to Value restrictions so that everyone could go on a debt orgy making the situation even worse down track.
But this is called 'stringent lending'.
And the fact that people even need to borrow at 10x incomes is all you need to know that the market is in a very precarious situation! Or that we're even having this discussion. In a normal functioning market, a need to borrow at 10x income would be considered completely insane/irrational/reckless.
by Pa1nter | 7th Dec 22, 10:17am 1670361467
That's partly my point, few people are borrowing at 10x income. The 10x is merely a sum of averages.
Nobody should be borrowing at 10x income if we have stringent lending practices. That is the insane part. The risk is far too high.
Yeah, the 10x was someone else's argument.
In years gone by, people could lend over 100% of a purchase, in what were little better than handshake arrangements.
The requirements to borrow now are far greater, this will shut more people out of the market than the actual purchase price.
In years gone by, people could lend over 100% of a purchase, in what were little better than handshake arrangements.
True - but may have only been 5x their income to pay the debt, not 7, 8, 9, 10x income.
Low interest rates (in my opinion) have seduced banks into taking far too much risk - even if it is within the regulatory requirements.
If interest rates regulate, lending over 5x incomes could be looked at very differently.
by Pa1nter | 7th Dec 22, 9:35am 1670358948
Hard to say. There's been a concerted effort over the last decade or so to clean up the private debt books, with increasingly stringent lending requirements.
This is why in 2020, when it was possible we were heading into a depression, that central banks removed one of the key tools (LVRs) to maintain 'stringent lending requirements'....and then Robertson and Orr encouraged the banks to 'lend, lend, lend' to keep the economy afloat.
So you say we've cleaned up the books - but have we really? It would appear to me, over 2020-2021 period they sprayed the books with effluent in order to kick the can down the road another 12 months - making it impossible to see just how bad the lending has been in the country.
As interest rates regulate back to historical norms, it will become clear how prudent this lending has been.
An extraordinary calculation done in haste with little idea if it would actually benefit short term and certainly no thought to long term consequences.Up until then numerous RBNZ governors and Ministersof finance had all repeatedly bemoaned, quite correctly, the poor savings record of New Zealanders in general. And that included in particular Robertson’s mentor Dr Cullen. Yet here was an extreme about face in policy to the direct opposite. New Zealanders were to be actively encouraged to borrow to spend and to embark on this in the midst of a global pandemic which hardly presented no black clouds on the horizon. No wonder several previous RBNZ governors decided enough was more than enough and defied convention to publicly criticise the incumbent.
Yip the irony is that central banks around the world went to extraordinary legnths to avoid a recession in 2020, and now have created widespread suffering via a cost of living crisis and may leave a large portion of FHBs in negative equity, and now they are going to extraordinary lengths to create the same recession that we could have just got on with in 2020!
(the only difference is one would have been deflationary which would have in a short space of time caused the US as the global reserve currency to be extremely exposed because of its level of debt - hence the need to create an inflationary recession that protects the USD and the US debt obligation/s for just a bit longer).
Absurd. No qualifications, no student debt and a boys (with a few girls) club to get in. I know a very qualified ex-navy fireman who couldn't get a look in. They leverage off calendars and public good will. Meanwhile the nurses (who don't sleep through night shift) continue to wait. If ever a case for equal pay for women, this is it.
You miss the point. There are no fireman shortages. They need no debt, no tertiary qualifications to join, min education levels and folk are ling up to join them. Contrast this with the severe shortage due to the complete opposite scenario with nurses and the like.
This seems like the crux of the issue. Attention should be focused on the many areas where recruitment and retention are clearly difficult. In my medical specialty, about half our trainees leave to Australia or elsewhere for better pay - does this happen with Firefighters too? We lose about 4 years of training effort each time this happens, plus the public contribution to several years of University education.
Finally, someone gets it. I have worked with all, firemen, policeman and nurses. The fireman and police are male dominated and aggressive bargainers. Nurses not so (caring nature verse male alpha). Thus the med profession gest screwed....and we wonder why there is a shortage.
It might be enlightening for you to learn that when a 111 call is received for a suspected coronary event, a fire appliance is dispatched along with an ambulance. Why? Because CPR is exhausting, and having a group of strong people able to rotate through 60 second compression intervals is quite literally the thing that will save your life. Sure, the medical system will help you recover, but there's not much our exhausted, underpaid nurses & Dr's can do with a corpse...
When I was involved in a serious accident with fatalities, the paramedic and firefighters I spoke with were all volunteers. My treatment at the hospital was delayed by some drunk in the reception area verbally abusing the nurses. The same nurses that had been up half the night treating the critical and seriously injured from the accident I was in. They had been helicoptered and I got there after a night drive in the ambulance 6 hours later. Our emergency services do an amazing job with little recognition.
The Paramedics are treated very badly by their employer who hides behind their charity (or NFP) status. Everyone has options, many more will consider them and start looking at FIFO mining jobs etc.... While NZ is a great place to live, safe and with great outdoors its very expensive to live here on low/med wages. Our nearest neighbour seems to have the scale to provide higher wages but lower housing costs.
They embrace mining, we reject it.
They embrace oil and gas, we reject it.
So whats left... farming and tourism, and Labour are hell bent on reducing stocking levels by 20%. Nov 23 feels a long way off.
What I find absurd is the volunteer fire fighters, which most rural areas rely on, get basically nothing. They also see deaths, go to crashes, house fires, medical events...for the good of the community. I do know there is a bit of friction between the two fractions...the haves and the have nots.
https://www.youtube.com/watch?v=od7lY1aVu4E
Former All Black turned firefighter Steve Devine's full interview with Tova O'Brien - Today FM
Bizarre isn’t it, but there is slow traction especially with the mental health decline since 2020, to have public acceptance of mental health services for workers experiencing trauma as part of their job. What good is it having strong pragmatic firefighters if they end up with a high suicide rate due to trauma experienced in the line of duty. I fully support this mentality but it goes against the hard man mentalities of previous generations which is a tough nut to crack
Oil down, house prices down, imports down due to low demand and high inventories, and lower shipping rates, strong dollar and rising immigration all point to a cooling of inflation in 2023. I find Mr Orr's move to force a recession at this time absolutely bizare and reckless.
I suspect oil is only down synthetically. US reserves need restocking and I reckon we continue to see global infra demand on the back of electrification, which should maintain oil demand (dont think we are close enough yet for electrified mining and construction, and there is no short term fix for an increase in oil production). You also have a lot of onshoring which I believe isnt going to stop anytime soon and also China coming back online. High inventories will be relegated to discretionary retail which may present a false flag of deflation.
I find Mr Orr's move to force a recession at this time absolutely bizare and reckless.
Can anyone else see the bizarre irony that central bankers went to extraordinary lengths in 2020 to play god and avoid a recession (even through the US bond market was signaling it was coming in 2019).
And on here we warned that you can't play god, there are no free lunches, and that this interference in the market will have ramifications.
And now those same central bankers, who did so much to avoid a recession, are now going to similar extreme lengths in the opposite direction to forcefully create a recession!
Why didn't we just let the recession happen in 2020 and avoid all of this drama over the last 2 years? It could have all been avoided if we simply let the free market efficiently reallocate resources, find the natural level/cost of money (interest) and readjust debt levels that are sustainable based upon a nations productivity?
We wouldn't have a cost of living crisis, house prices wouldn't have gone up 40% in a short space of time, FHBs now wouldn't be in negative equity with rising costs of living and interest rate costs, we'd have far less government debt....(and so on and so forth).
In NZ its become a mentality "thing"
People now expect the govt to provide for their every need and bureaucrats cannot resist tinkering or at least doing something -thats what they are paid for
All further entrenched by the current Govt further centralising services, providing one off handouts such as fuel subsidies and cost of living payments and the current guvna telling us that he is the only one who can save us ( from ourselves of course)
Yay HW2!! Imagine when Luxon gets in and gets rid of the envy tax!! Goody gumdrops. All the landlords can form a gated community so you can ignore all the peasants and their ram raiding and hotel living. Perhaps you can become leader of said community and call it “Success-land”. Thoughts?
In China, debt as a percentage of its economy hit a fresh high at the end of June, with local authorities borrowing
Government deficit spending creates money for people.
In the Caveat 1&2 are similar except the effect on the velocity of money. Money, once created, always goes somewhere, and in the case of #2 and asset prices the money is still there, but stagnant, when sitting in say a house. Borrowing against the house for lifestyle is #1.
The slide has been over 40 years. The peak of interest rates meant our civilisation was no longer affordable. Up to that point it was easy to borrow money for productive means and pay back the debt. Since then we've made it affordable by the only way possible, lowering interest rates for new debt to pay off the old debt.
Works for a while, works until it doesn't anymore. Question is if that moment is now?
Indian equities hit record high as investors look beyond China. Nifty 50 up 7% YTD, compared w/MSCI’s broad Emerging Markets Index, which is down 16%. Supply chain disruptions caused by Beijing’s zero-Covid policies boost India's appeal to multinationals. https://ft.com/content/f65249
Yes they will sneeze and we will catch a cold. The cost of eurodollars with these fed hikes is going to cause an issue across Asia real soon..... Sure the fed will issue swap lines to try and contain things, but if the underlying companies collapse here the unwind is going to be big and messy.
I do not see any way to kick the can further down the road, we are at the wall now. Perhaps we just have to let the overextended debts default, liquidate the assets according to the security laws applicable, and move on afterwards in a world of less debt.
This will be very hard on older peoples KiwiSavers etc unless they are in the more conservative settings. It's very possible that the Boomers will be unlucky from this reset.
more conservative
I feel like in my short life, I've stood on the edge of 'this can't go on for much longer' before, and yet it finds a way to keep going.
The thing is, I've generally felt it as more of a medium term risk, but the risk here is all short-side. We may well go into the next election talking about very different things compared to what looks to be a priority as things stand.
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