Here's our summary of key economic events over the holiday that affect New Zealand, with news the expected global recession in 2023 seems a way off yet
Although the headlines in the US are all about how many job cuts are coming, especially from Big Tech, in fact the December data did not show that as significant. First, the December layoff report said there were -43,600 cuts in December, -43% less than the 76,835 announced in November. But that is up sharply from the 19,000 cuts announced in the same month in 2021.
Second, the precursor ADP Employment Report ahead of tomorrow's official non-farm payrolls report said private payrolls expanded +235,000 in December and well above the +150,000 expected. Large companies in the West did reduce payrolls, but that was more than made up by a hiring surge in the South. Forecasts for the December non-farm payrolls gain are currently +200,000.
Initial jobless claims were surprisingly low last week as well. They rose for seasonal reasons, but by far less than expected. There are now 1.7 mln people on these benefits.
These strong labour market indicators are driving equity markets lower as investors realise the Fed will be emboldened to stay fully engaged in the inflation fight. High and rising payrolls are not a sign the Fed has done enough yet to cool the American economy to get on top of inflation. And the IMF thinks the Fed still has a long way to go before they succeed.
In more American labour market news, their Federal Trade Commission is proposing to outlaw non-compete clauses in employment contracts. Calling the practice "exploitative", the agency is moving to ban the clauses, which would allow workers to take jobs with rival companies or start competing businesses without the threat of being sued. They say it could increase workers earnings by +US$300 bln per year. This proposal will generate an almighty fight with business.
Meanwhile, the US trade deficit narrowed to -$62 bln in November, the lowest since September 2020, and below forecasts of a -$73 bln deficit for the month. It reflects a sharp decrease in the goods deficit and an increase in the services surplus. Total exports were down -2% while total imports fell more than -6%. Their trade deficits with both China and the EU both shrank. For the year to November, the American trade deficit ran at -US$965 bln or -3.8% of GDP. New Zealand's equivalent deficit is -4.8% of GDP.
American petrol prices are back to the same level they were a year ago, so no inflationary impulse there.
In housing markets, Auckland isn't the only big city turning in weak December real estate results. Things are just as tough, even tougher, in Toronto.
And the top end of the Chinese market also experienced a sharp downturn last year.
In Japan, consumer sentiment remained low in December but it did rise off its recent lows. The same survey revealed that almost everyone still thinks prices will rise, a view that has been almost universal in 2022.
In Australia, universities there have reported huge demand from foreign students, with visa applications +40% above pre-COVID levels, driven by demand from India. A survey of prospective Indian international students found that 29% listed Canada as their preferred destination followed by Australia (21%), the UK (18%) and the US (17%).
Container freight rates were little-changed again last week, with the main weakness being in the outbound China trade. Bulk cargo rates fell sharply, and heading back down to pre-pandemic levels again. One shipping boss said ocean shipping is heading for a 'great recession'.
The UST 10yr yield started today at 3.72%, and little-changed from yesterday. The UST 2-10 rate curve is more inverted at -73 bps. And their 1-5 curve is also a little more inverted at -86 bps. Their 30 day-10yr curve is also well inverted, now at -40 bps. The Australian ten year bond is unchanged at 3.83%. The China Govt ten year bond is little-changed at 2.88%. And the New Zealand Govt ten year is starting at 4.37% and down another -5 bps.
On Wall Street, the S&P500 is down -0.9% so far in its Thursday trade. In contrast, London closed up +0.6% overnight, but their European peers all slipped about -0.3%. Yesterday, Tokyo recovered +0.4%. And Hong Kong rose another +1.3% and Shanghai was up +1.0%. The ASX ended little-changed. The NZX50 added more to its first-day gains, up another +0.6%.
The price of gold will open today at US$1833/oz and down -US$23 from yesterday.
And oil prices start today unchanged from yesterday's levels at just under US$74/bbl in the US while the international Brent price is just over US$78.50/bbl and still near its yearly lows.
The Kiwi dollar has fallen back almost a full -1c to 62.2 USc on a surging greenback. Against the Australian dollar however we are firmish at 92.3 AUc. Against the euro we are softish at 59.1 euro cents with a -¼c dip. That all means our TWI-5 starts today at 70.6, down a net -40 bps from yesterday.
The bitcoin price is now at US$16,824 and a mere -0.4% lower than this time yesterday. Volatility over the past 24 hours has remained very low at just +/- 0.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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92 Comments
“No FOMC participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023.” Yes, but in 2021 you guys also told us no rate hikes for years to come. And you ended up hiking 400+ bps in 2022. Link
This is another big one. Repeated mistakes have already ended the Fed hawks.
The Federal Reserve continues to its hawkish display - just like it had in 2018. And just like back then, all the evidence keeps piling up that they're completely wrong. Another big one today to go with several crucial pieces over the last several days show why markets aren't even paying attention to these dead-hawks-flying.
Rising interest rates has an opposite, that being a shortage of credit. Anything related to credit, such as a credit fueled assett bubble (housing) needs a constant flow of cheap credit to keep it inflating.
No credit, bubble bursts, really quite elementary stuff.
This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:
[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link
Blond guides again
"Yes, but in 2021 you guys also told us no rate hikes for years to come. And you ended up hiking 400+ bps in 2022"
In housing markets, Auckland isn't the only big city turning in weak December real estate results. Things are just as tough, even tougher, in Toronto.
Good Morning from #Germany where housing market has come to standstill. Monthly mortgage lending has collapsed by 40% in Nov YoY, representing 3rd neg record in a row since start of statistics in 2003. Mortgage volume dropped to €1.4Bn, lowest since 2011. (via @BarkowConsult) Link
Hmm,…even the peak in mortgage lending in Germany is well below the peak in New Zealand. Germans like to invest more in enterprises who make and export stuff in stead of bricks and mortar like New Zealand! There must be a reason why their GDP per Capita and their average wage is well ahead of New Zealand’s. It also shows with 80 million residents their housing market is not important.
"Late Lord Alexander of Weedon who, as chairman of the British bank NatWest, visited the German Bundesbank many years ago.
Lord Alexander was carrying a copy of an English newspaper that displayed a headline to the effect: "Good news – another rise in house prices", on which the legendary Bundesbank president Karl-Otto Pöhl commented: "Over here, that would be bad news." "
"Bricks and mortar"?
I think you mean match sticks, pink fluff and expanding foam.
Germany's GDP per capita is only 2% ahead of ours, I wouldn't call that "well ahead"
https://www.imf.org/external/datamapper/NGDPDPC@WEO/OEMDC/ADVEC/WEOWORL…
Thanks, that's a good link.
NZ GDP has slowly been getting closer to other high income countries. It has exceeded Japan and is now on par with the UK. NZ made up a lot of ground in the 2000 to 2020 period.
NZ GDP has slowly been getting closer to other high income countries. It has exceeded Japan and is now on par with the UK. NZ made up a lot of ground in the 2000 to 2020 period.
Growth in GDP per capita in NZ will have been driven by household consumption much more than in Japan over the past 20 years. Pissed up against a wall.
Audaxes should be on the interest.co payroll?
As I said the other day, it amazes me how much time some people spend commenting on here. Almost like they're paid do it...
Audaxes' comments consist almost entirely of spamming links to other websites. Not sure anyone at interest.co.nz would be paying them to do that...
Besides, as this a neutral site, would the comment not be too pro USA?
That's funny Foxglove , I've always thought Audaxsses was anti western ideology. Even though it appears from his previous posts he (or is it she?) has been employed in western countries and hopefully done well.
I wasn't suggesting it was interest.co.nz doing the paying. I wouldn't be surprised if some get some pocket money from Oneroof or the REINZ though...
Paranoid and hilarious.
That'll be $15 thanks
Paranoid? It wasn't about me...
That explains it then.
Meanwhile, the US trade deficit narrowed to -$62 bln in November, the lowest since September 2020, and below forecasts of a -$73 deficit for the month.
Whether the plunge in imports is due to a the reverse bullwhip effect, or general economic malaise is unclear; adding to the confusion, the slowdown in US consumer demand for foreign goods and services will serve to boost GDP due to the way net trade is imputed for GDP purposes. In other words, expect a jump in Q4 GDP estimates due to a plunge in US imports. Link
It is showing in the US a reducing of inventories as they had a massive build up. I believe in the US what we are seeing as the bonds invert it is being a useful signal for the corporates to adjust, so we are seeing some adjustments occurring. Biden's announcement of allowing 30,000 migrants fast track through the borders may alleviate the job demand. so far the average 10% layoffs in the tech industry may well be visa holders which won't impact th numbers. Even though US car sales are back to the 2011 numbers, GM still outperformed Toyota! The Administration passing of several bills are prepping the US to be leaders in tackling climate Change. Some achievement but like the infrastructure bill they will take time to bake in. Wish we in New Zealand were in the same forward looking sweet spot.
New Zealand's key structural problem is not just the trade deficit at 4.8% but the external current account deficit (which takes into account all of the invisibles and interest transfers as well as the trade deficit) which is 7.9% of GDP. In the developed world, that appears to be a unique NZ problem. At some time the hens will come home to roost.
KeithW
Would a large part of this Keith be the big four?
I do not understand what you mean by the 'big four'.
KeithW
“New Zealand’s big four Australian-owned banks have forked out combined annual dividends of $4.2 billion this year, following the removal of the Reserve-Bank imposed COVID-19 restrictions.”
Aha! There is good reason to criticise the dominant role of big four aussie banks in the NZ economy. But I don't think we can blame these banks as being the dominant cause of the the structural problems that determine the external current account deficit. We have to inspect our own navels to find those answers. And it is not a pretty sight.
KeithW
Haven't we been doing the negative current account deficit since the 70's Keith? If it worked for 40+ years then it can work for another 40 surely. NZ has its own rules, including house prices to infinity, everyone knows that.
If you look at the data from stats NZ the account deficit has allways been around 1-3% of GDP in the past. The current magnitude of 7.9% is worrying and increases the dependency on the willingness of overseas investors to fund this deficit. It could mean our interest swap rates could stay higher for longer than we would wish even with the OCR going down again. With the milk collection down by about 4% and the impact of tourism being limited because we have to import all the diesel they use, the future looks not very sunny.
NZ's current account deficit was similar in the GFC. By the end of 2009 it was back to more "normal" levels. Nothing really bad happened to the NZ economy then, so it doesn't necessarily mean that we have something awful awaiting us.
https://www.stats.govt.nz/news/current-account-deficit-narrows-to-7-1-b…
The GFC was not pleasant, but at that time there were other factors operating that allowed us to skate our way out of the external account deficit. Those factors are rather different this time.
The next few years are going to be more than a little challenging.
KeithW
Maybe we are at peak Curr Acc deficit Keith. Now that our major trading partner China is re-opening, our exports and inbound tourism will probably increase a lot.
They will need to increase by more than 'a lot' to bring the deficit down to something that is long-term manageable.
KeithW
We in New Zealand haven't the Chinese companies knocking on our door asking to coal imports!
There won't be any hens coming home Keith, the farmers have gone of business hence the egg shortage.
Scary that those figures don't get much coverage. Would seem a basic to ask how we are paying our way in the world and base our thinking accordingly.
There was a report on the 9am news saying no stock in auckland and chch
Time to open a free-range farm !
Or an opening for plant based egg alternatives.
I wonder how many chickens are in cages in back yards around the country?
Porridge for breakfast.
I always add an egg to my porridge thick creamy and more protein
Thought about it, but then the bureaucracy, so just enjoy our own plentiful egg supply.
I bought eggs today in Auckland.
Impossible..the sky is falling!!!
I would suggest the weather in the top 1/2 of the country has caused unseasonal demand, and the supermarkets have not adjusted their supply fast enough
keith,
Is this factored into the exchange rate, or has that yet to happen?
On a quite different tack, can you give me the average size of our sheep and beef farms? I have come across different figures.
The exchange rate likely to be a key mechanism bringing the current account deficit under control. There is a complex interplay between capital inflows, the exchange rate and the demand for imports.
The big range in estimates of the 'average' sheep farm is a function of whether the large number of farms that carry small numbers of sheep are included. B+L tends to exclude these.
Keith
keith,
From the B&L figures I have seen, the average is around 370ha. Does that seem about right to you? Another figure puts it at 200ha. From what you say, the smaller figure would include all the farms with just a few sheep.
linklater01,
I don't spend much time looking at averages for sheep+beef, because so few farms resemble the average.
But any sheep+ beef farm that is less than about 400 ha will struggle to support a family without other income sources.
KeithW
Family members currently work a 450ha sheep and beef. I doubt it makes enough to pay their wages, I once did some figures on the winter dairy grazers they have. I thought they were better of just selling the silage bale's they had saved for them but grazing the beefes and sheep on the area was even less worth while. Doesn't matter now, by end of July it'll all be in trees.
7 million? As a sheep/beef it wouldn't be worth that, but Nash and ardern just mouth platitudes like "right tree, right place" 🤡
Conversation with an ex-farmer over Xmas, 5 sheep per hectare with inputs, 3 without..is this accurate still? (Inputs imported)
Keith, do you think interest rates will have to drop to solve the current account deficit?
Harvey W,
Interest rate policy - be that high or low interest rates - will not solve the current account deficit.
The situation will self correct when capital markets decide they don't wish to continue pumping capital into NZ. At that time the exchange rate will decline and imports will become a lot more expensive in $NZ.
The issue is not so much whether that will happen but rather, when it will happen.
The timing of the specific event that causes the financial reef fish to move as a tide rather than just darting hither and thither is impossible to predict with any confidence but eventually (or sooner) it will happen.
KeithW
The report on the Toronto housing market didn't seem all that remarkable.
I’ve always wondered how enforceable post employment clauses are, particularly in NZ. Surely the company should only have a say over your life if you are still employed by them, and if you are employed by them then they would have to pay you. Obviously they should be allowed to protect their IP, but they shouldn’t be allowed to tell you who you can work for etc.
I've had a few in the past, and always just ignored them and never had any issues - but then again I've never worked for a company with any crazy top-secret tech or anything like that.
When they've been in contracts in the past they've always seemed unenforceable and poorly written (e.g. one - for a particularly tin-pot outfit - was basically 'for 12 months you cannot work for any company we deem to be in any way remotely in competition, even if we fire you or make you redundant').
Personally, I don't think they should be allowed - perhaps unless the employer is willing to pay for garden leave. The second you stop paying an employee, they should be considered a free agent and within their rights to act in their own best interest.
However taking clients is the biggest worry.
True, although that falls more under non-solicitation, right? (which I feel is more acceptable/reasonable).
Once again it's probably because I've never worked a role where this would be a big issue. I would imagine in some industries where you have salespeople/business development and a highly competitive marketplace, it's a bigger problem.
Not taking clients may sound like a reasonable clause, but if you are in sales it would be hard to do your job without taking clients.
Personally I think any post employment conditions should only be allowed if they are prepared to pay you your full wage to not work, and even then you should still be allowed to quit that gardening leave and do what you want (but why would you!).
Yeah it’s the not being able to work for a competitor clause that is crazy. If you are specialised in that vertical you don’t really have many other options. If it were enforceable then the company could treat you poorly with no pay reviews etc as you basically have to change career to leave. Even with gardening leave (which I was never offered) it still makes it hard to change company. It shouldn’t be legal to put it in an employment contract.
There was a high profile case last year with Tova O'Brien, and if I recall correctly the courts ruled in favour of enforcing the non-compete. So they do appear to have some teeth in NZ.
High and rising payrolls are not a sign the Fed has done enough yet to cool the American economy to get on top of inflation. And the IMF thinks the Fed still has a long way to go before they succeed.
There is no alternative to razing the everything bubble.
Prices, that the unwary reckon have hit bottom, will continue to drop as the self-reinforcing dynamic of liquidation and repricing of risk feeds on itself. As painful as this liquidation and repricing of risk is for borrowers and lenders, those without debt, those with cash and those with essential skills that are in demand regardless of boom or bust will all benefit. Those burdened with high costs and promises that cannot be kept will be liquidated. Those with low costs and few promises have the means to adapt to changing conditions. (CH Smith)
I disagree.
We have in the Western world a demographic issue. We boomers are retiring. We haven't had a birth rate to replace those workers. We all had covid and generally a stalling of immigration. We have had unwelcoming policy geeks preventing qualified people being able to work here from Doctors Nurses, tech coders ..oh we could go on. we have seen the panic of not being able to have tourist and Pacificia not able to come to work here and a rapid response but no changes to our tax system to allow the boomers, students to be rewarded and not taxed by doing that work.
And don't tell me that the same geeks exist in the US the UK and more. The UK voted Brexit and no longer have the EU as its work pool.
As a bunch we just are not pragmatic. let's call it what it is. We have a pack of wallies in Wellington.
About time they did away with non-compete clauses. My understanding is that at least in NZ they are very hard to enforce.
Yes
It was very hard to stop someone earring a living
Why allow the clause in the contract in the first place though? The company could make you go through an expensive court process if they wanted.
My experience with most firms is that they tended to keep pro-forma contracts and gave them out to everyone they onboarded for years at a time, regardless of how enforceable or relevant the contracts are to the role being performed.
Case in point, a car dealership with a House Rules section that forbid staff to drive turbocharged or V8 company cars without express written authority - might have been useful at one point, but given the proliferation of turbos and small engines these days, entirely nonsensical. Likewise, no provision whatsoever about restricting electric vehicle use despite some of the affordable SUVs verging on 90s super-hatch/boy-racer performance numbers. Relics from a by-gone era.
And then there's the old chestnut, which used to be extending non-pro-rata'd annual leave to part-time staff, or giving casuals contracts that were literally the same with the word 'permanent full-time' swapped for 'casual'. That ain't gonna do it.
Our government’s of both persuasions are way too hands off with employment law. I don’t want to live in a socialist country where companies are completely screwed over, but we are a long way from that. Our employment competitors over the ditch have to pay long service leave, redundancy leave, lots of superannuation, etc. Are our light weight employment laws making us more attractive to companies or less attractive to employees?
Even when labour are in power they just want to empower unions rather than legislating better working conditions for everyone.
Don't get me started on erosion of redundancy. With each contract I've had, it's notably shrunk by 50% with each full time job. Soon it will be something that the company gets to push onto workers with the advent of the Employment Insurance Levy. Yet another example of not solving the problem, which is the lowering of the bar for everyone.
They may be hard to enforce, but they sometimes do get enforced. Ask Tova O'Brien
Stiglitz on the fallacy of aggressive interest rate hiking:
https://amp.theguardian.com/business/2022/dec/09/raising-interest-rates…
I think we should be careful allowing economists to tell us what is good and not good for us.
he talks of pain but what does he propose?… a world where borrowers are always rewarded and savings discouraged, regardless of the profitable return on capital deployed
welcome to the matrix anyone
does he consider the pain the current low rates have caused?
modern day witches
He doesn’t advocate for the ultra low rates we have witnessed over recent years.
Also there are measures beyond interest rates to rein in speculative housing bubbles.
NZ electricity generation came in at a 4% decrease,the lowest since 2005 (when the population was 1 million less) a mix of increased distributed generation,new build replacements at higher efficiency levels,demand destruction from large users such as Norske Skog and Marsden point (around 100mw) and increased efficiency in manufacturing,and reduced irrigation due to increased rainfall.
Comments from the Fed sound like they're trying to justify bad decisions in advance. Eerily similar to RBNZ keeping the OCR low for so long.
I cannot understand why petrol prices are so high. Oil at $78 per barrel is modest and out exchange rate is close to long term average. Adding back the 25cents per litre plus GST puts prices close to $2.70 per litre. We are being shamelessly ripped off and despite all the rhetoric, the government is sitting by inertly.
Fast to rise very slow to fall. They raise the price when the cheaper fuel is still in the storage tanks at the station but wait weeks till after the cheaper stuff arrives to fill the tanks a second time before the price falls. Hey didn't Labour say were were "Being Fleeced" about 3 years ago now and they would look into it ? Looking at it is all this government can do. They are so gone this year.
"look into it" - the term mirror comes to mind
So you would like the Petrol excise duty back on then Carlos?
If they'd delivered on the hype they promised with the 'being fleeced' reform then pathetic sops like taking the excise off temporarily wouldn't have been required.
It may be a few weeks out of date, but the MBIE reporting doesn't show a big increase in margin.
https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resourc…
91 is $2.12 without 6c discount here...
If people have not understood it by now, then it's just illiteracy. The oil companies are private corporations, they need to show increase in profits every quarter to their share holders. This is the financial world build around us which we have been happily supporting.
Everyone wants their house prices to double in 10 years, accordingly the commodity prices also increase as clearly stated by politicians in this country that house price increases is a good problem to have. Crikey how dumb can one be.
Wow,
NAB’s three-year fixed-rate bonds paid US dollar investors a yield of 4.96%, the five-year bonds yielded 4.94%and the lower ranking 10-year bonds yielded 6.42%.
Think of the home lending rates.
https://www.afr.com/companies/financial-services/nab-leads-2023-s-debt-…
We are always looking to hire good qualified people, but have held off recently due to the everything bubble fever that also fed through to employment ('be quick'). We read all the job ads in our sector. It's clear from that the heat is easing, and the desire to hire at any cost has subsided. It does make me wonder what firms do when they realise they've paid too much for alot of expensive seat warmers; it's not cheap or easy to let people go in NZ. I look forward to having conversations with candidates about the benefits of a new role rather than solely what we can offer them financially, the former question being something they seem to have completely lost interest in over the last year or two. Free Covid money set in people's minds that there is an entitlement to be paid, regardless of their contribution or production. It'll be an expensive lesson to learn, especially if they bought a house on cheap money in the same period using magic money salaries to qualify for a mortgage.
The mothership is slowing
https://www.wsj.com/articles/december-jobs-report-unemployment-rate-eco…
U.S. stocks climbed on Friday after December employment data showed wage growth decelerated last month while a closely watched manufacturing report reflected a contraction in the services industry. Investors perceived the releases as a sign Federal Reserve officials may ease their rate hiking campaign. The S&P 500 (^GSPC) jumped 1.7%, while the Dow Jones Industrial Average (^DJI) added 550 points, or around the same percentage amount. The technology-heavy Nasdaq Composite (^IXIC) advanced 1.5%. All three major averages were on pace to round out the first week of 2023 with losses before Friday, but the indexes will end in positive territory if momentum holds.
This news will please the fed reserve. It could be a good year for stocks, not that i care about that. The sharemarket is forward looking and rising stocks bode well. Even if some companies like Tesla are not, it is the general mood
Even OneRoof now gets it......
https://www.oneroof.co.nz/news/would-nz-house-prices-go-nuts-again-if-t…
The Government and the Reserve Bank have put in place a variety of handbrakes to contain the housing market since Covid arrived.
The measures were designed to cool what soon became a frenetic market, some of them with an eye on helping first home buyers seen to be shut out in face of super-charged price hikes.
Despite a variety of tools in use, however, experts spoken to by OneRoof say even if all of them were removed overnight not a lot would change.
That’s because the main driver of the market is interest rates.
The ten year bond is down 4 percent from 3.72 on the news. Down 35bp from recent high. Apparently the fed does not fight against market rates, so they could even drop the fed funds rate at next meeting end of January. Is it another 100bp move higher.
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