Here's our summary of key economic events overnight that affect New Zealand, with news that the economic pace is shifting lower in the US and higher in China.
Although American mortgage applications rebounded strongly last week from the New Year break, they remain well below year-ago levels. But mortgage rates are now falling and are their lowest since September. Despite that, the recovery in transactions in their real estate market are very modest at best.
There is a similar weak rebound in their retail markets for the new year. Sales are up on a same-store basis last week, but not up enough to account for inflation.
And their respected Advance Retail Sales data shows overall December sales fell -1.1% from November, and a rather startling retreat. Year-on-year they are up just +5.3% and nowhere near enough to account for inflation. The Fed's dampeners are working.
On the industrial front, we are starting to see concrete signs of deflation starting to emerge. Even though producer prices are +6.2% higher than year-ago levels, they fell at a -6% rate in December from November, which was more than anticipated.
Business inventories are swelling much faster now, as the slowdown makes this much harder to manage. They were a massive +15% higher than a year ago in November. To be fair however, they are only just back to the range they were in prior to the pandemic on an inventory-to-sales ratio basis.
As you might expect, American industrial production is waning now, and contracted in December from November at an annualised rate of -8% which is pretty sharp. Year on year it is up only +1.6% on a 'real' basis and that is the slowest expansion since before the pandemic.
It is not only industrial production that is turning lower. Overnight Microsoft announced that it is laying off 10,000 employees. The worm is turning even among the tech giants.
The Fed releases its December Beige Book survey at 8am NZT and it is likely to be a dour review to end 2022. We will update this item with anything special when it is released.
With all this weak news, both equity and bond markets are retreating in the US.
Canada also released its producer price data for December. And that also revealed a shift to deflation, and rather a sharp turn. Year-on-year those costs are still +7.6% higher, but that is down from +9.4% in November, so a sharp turn recently. But like the Americans, the main driver for the retreat is falling energy costs, so that isn't necessarily bad.
Chinese foreign direct investment data was reported late yesterday for December and that was weak from the prior month, and similar to the very modest rise in November. Both levels re rising less than the equivalent rises in 2021. In most years there is a surge in December, but that was notably absent this year.
In Japan, their central bank kept its ultra-easy monetary policy unchanged, despite the bond market fallout from a surprise policy shift last month. After the two-day meeting, the BOJ's nine-member board maintained its yield curve control policy, keeping its target band for 10-year Japanese government bonds at between plus and minus 0.5%.
Japan also released data for their industrial production, but that was nor November. However, their results were the opposite of the US. They reported lower year-on-year results, but a sharp improvement in November from October (+2.4% real annualised rate) indicating recent improvement. We also saw that in their December machine tool orders data we noted yesterday.
In Australia, the number of houses (dwellings) under construction reached a record high in December, but that is just as the number of consents and starts for new dwellings fell very sharply.
If they implement the BEPS reforms, the OECD says governments could get a bigger windfall than previously estimated, maybe as much as NZ$400 bln. Holding that up however, is the US Congress and its new Republican-controlled House of Representatives many of whom are in the pocket of wealthy supporters.
Meanwhile the IEA says global oil demand is set to rise by +1.9 mb/d in 2023, to a record 101.7 mb/d, with nearly half the gain from China following the lifting of its pandemic restrictions. Jet fuel remains the largest source of growth.
And at Davos, the IMF is suggesting it is likely to upgrade global growth forecasts because the prospects for improvement after China's reopening may be better than first assumed.
The UST 10yr yield starts today at 3.39%, and down -15 bps from yesterday. The UST 2-10 rate curve is still inverted at -68 bps. But their 1-5 curve is more inverted at -118 bps. Their 30 day-10yr curve is also more inverted at -103 bps. The Australian ten year bond is down a very sharp -21 bps to 3.45%. The China Govt ten year bond is up +2 bps at 2.96%. And the New Zealand Govt ten year is starting today at 4.12% and down a mere -1 bp.
Wall Street has started its Wednesday session with the S&P500 down -1.2% in late trade. Overnight, European markets were all little-changed. Yesterday Tokyo closed with another strong result, up +2.5%. Hong Kong ended up +0.5% and Shanghai closed little-changed. The ASX200 ended its Wednesday session up just +0.1%, and the NZX50 ended stronger, up +0.3%.
The price of gold will open today at US$1906/oz and down another -US$6.
And oil prices start today up +50 USc at just over US$81/bbl in the US while the international Brent price is just over US$86.50/bbl.
The Kiwi dollar has firmed slightly overnight, now at 64.5 USc but that is now a two-month high. Against the Australian dollar we are firm too at 92.4 AUc. Against the euro we are up at 59.7 euro cents. That all means our TWI-5 starts today at 71.5, and up another +30 bps since this time yesterday.
The bitcoin price is marginally lower, now at US$20,959 and down -1.1% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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74 Comments
US decelerating, bodes well for FOMC minutes 1 feb
1. slowing wage growth
2. the ISM service index slipping into a contraction after expanding for 30 straight months
3. rapidly decelerating consumer price inflation
NZ upcoming announcements CPI 25 Jan, MPS and OCR 22 Feb
Those pesky yield curves were on to something!
Soft landing though. I can hear the cry of the property bulls "4 more years mate, 4 more years"
Interest rates are near peak and there is upside for assets from here
While property bears and DGM waste their time looking into the rear view mirror
I think it will be flat for a few years once it levels out. Flat is good. People can get on with life when things are stable.
DGM looking in rear view mirrors? Yes, and no.
The worst of inflation looks to be behind us. Perhaps there are only 1 or 2 RBNZ OCR lifts to go.
However, current retail rates are unlikely to fall until late this year at the earliest.
There’s another 10-15% of house price falls to go before they level out late this year / early next year. And unlikely that prices will start rising again - slowly - till mid next year.
DGM looking in rear view mirrors? Yes, and no.
Yesterday news of housing being on a slope and dropping 12 percent yoy attracted 242 comments. Many comments were it didn't drop 30 percent in 2022. Then, what I like you call 'selling fear' .. .but 2023 will make up the difference
It feels like there are a number of buyers waiting in the wings and biding their time for the right moment or right price. Much like 2019 and 2020, they will hit the green button together. At that point, stand back everyone. Watch the market explode. 🔥 Last sentence is sarc but does not hide reality that demand is out there and buyers are buying
The spruikers would have said that in Ireland.
Can’t see an ‘explosion’ happening at all.
There could be solid gains in house prices mid to late 2024, but only if the OCR was slashed to circa 1-2% due to a major economic slump.
I see it far more likely that the OCR will be pulled back to circa 2-3% by mid to late 2024, that will provide some stimulus to the property market but it will be far from an explosion.
But that’s just my opinion.
Interest.co knows that the most views and engagement come from people angry about the housing market, and they release headlines and content accordingly. Can't blame them, it's tough in the journalism world.
Snide comment. And untrue from nktokyo.
It is pretty true. Top triggers for views here:
- housing's expensive
- NZ doesn't have as high living standards/productivity/GDP per capita as other places
- race based politics
If someone was smart they could run an AI bot over the comments, collate all the ones with the most thumbs ups, and devise a political party that talked mostly to those sorts of points.
...and call it ACT?
Only half kidding sadly. I made the mistake of going to a town hall meeting of theirs once. Got the firearms lady. I think I'll stick to the deciding between the two central parties each time. The fringes are a bit too out there for my taste.
So do you think the articles re housing, race based politics, and living standards (Pa1nter) are untrue or present an inaccurate picture of the reality?
If that is the case what do you think is an accurate portrayal of the situation?
Nah. It would be TOP. But the young can't be bothered to support a party that would support them.
I have since they started and their main policy re housing would not be great for me.
Disagree. The house price movement headlines are optimized around clicks and getting an emotional response from readers. It feels like NBR mixed with Stuff. This website only does that with housing.
Makes sense. Most people either have a house, or want one.
That exploding sound is the bubble bursting
Does inflation being 'behind' us matter when there is a credit squeeze and few have any disposable cash?
Nah... cause it's same difference.
Maybe it’s down to the great NZ V8 economy.
The NZD is looking good. Great for productivity/capital investment. That’s my industry focus, would be easier if it was lame property speculation, but I guess we all pick our poison
What does this stand for tom.... MNZGA
Part of making NZ great again is addressing affordability and generating capital for business. By doing this unfortunately you have to disincentivise property investment. Agree HW2 ?
Yes and no, but human nature with its greed mentality is constant no matter what restrictions and disincentives you put in place.
Part of MNZGA is remove the horrendous restrictions, form filling and regulations that have already crept in. And the Greens want more of. I preferred when we were a tiny island most did not know about, when we had the free market and we took the best candidate for the role.
Do you agree?
I agree on the form filling and bureaucracy. Unfortunately this has been as a result of incompetence.. ie leaky homes etc. As far as a free market… you can’t couple your trailor to globalisation and NOT learn from what’s gone before. 40% increase in house prices would not have occurred if there were processes in place to prevent it DTI, Strict LVR etc… the boom was big, transversely so will the bust. If we were still a little island that no one new about… would you be as wealthy?
Without foreigners, NZ house prices would increase anyway. Because of inflation in costs of new housing, housing affordability (this is important) and restricted supply of homes. On this last point, the greenies and the RMA have made me more wealthy than any foreigners, not that I care about wealth much.
You have to realise that Greenies think very differently and primitively to most others. Everyone likes the concept and ideal of conservation but not the methods. Greenies have stacked councils and regional councils around the country to push their policies, and have done the young people a major disservice. Young greens are now infighting with old green politicians and want to flip the models back. They have woken up to what happened in housing.
making NZ great again
I see no political appetite to make NZ great for anybody but those wanting to feast on the miseries of the young and vulnerable.
The productive Kiwis need to bugger off to Oz with their skills and whatnot. We will continue importing modern slaves from worse-off countries, make them toil in our fields and kitchens, and demand hefty portions out of their low wages for them to feed and house their families.
Basically the ethos of this Labour Govt.
The Labour party made bold promises to limit migration to high-skilled workers, build 100k affordable houses, rebuild public infrastructure (transport, healthcare) and introduce reforms to achieve investment-led economic growth.
Having failed on all those fronts, the Labour government instead default to the ethos they inherited from the previous National government.
Hehe, we tried and it isn't possible.....
It is not only industrial production that is turning lower. Overnight Microsoft announced that it is laying off 10,000 employees.
I expect we'll see Satya Nadella dragged over the coals for this and labelled a heartless bastard like Elon Musk was when he did it.
Any minute now...
He won't be alone
Microsoft, Amazon and other tech companies have laid off more than 60,000
I was being sarcastic. Most other tech giants are still very much pro-censorship, so their layoffs will be blamed on something else (probably Putin) and praised as a necessary evil.
Tech layoffs are having an effect on office vacancies in SF and the city budget,as WFH,layoffs and SME closures have a significant contribution to property investments,27% vacancy rate in SF,
https://www.cnbc.com/2022/12/30/two-of-san-franciscos-biggest-issues-of…
American companies start layoffs at the drop of a hat.
Surprise, surprise, the Bank of Japan remains in total control of the yield curve (again).
I thought the monetary policy remit was to avoid recessions. Boom and Bust economics was meant to be a relic of the past.
At 97.6, Japan's LEI is now less than it was in Oct '18. That was a crucial month as it turned out (I've called it a landmine ever since), as even Japan's ESRI declared that month the start of a recession. Though it took them until July '22 to make the determination. Link
I read elsewhere last night that Microsoft usually hires 40k per year. In 2022 they hired 52k. The headcount cut of 10k only brings them down to their usual hiring levels.
I haven’t fact checked it but if correct, the 10k redundancies only brings them in line with their usual growth rate.
Microsoft's global payroll is about 220,000 people.
Many companies that normally purge the lowest 10% of performance halted the practice during Covid, IMHO its more just restarting it again.
On consumer infkation
Here’s Alan Jope, CEO of consumer products behemoth Unilever, holding forth to CNBC this morning from Davos, Switzerland:
We know for sure there’s more inflationary pressure coming through in our input costs. We might be, at the moment, around peak inflation, but probably not peak prices.
Saw that on ZeroHedge, also that regional Fed heads starting to say that rates are starting to look restrictive, so they probably go 25bps next meeting.
Significiantly, RBNZ probably behind the eight ball still re inflation. I think RBNZ go 50.
The rates you see right here and now are going to be needed for ages. Inflation is going to be very sticky.
I agree on inflation being sticky for various reasons, eg. We have a decent war most likely with years to run - war is always inflationary.
Also, the amount of money creation was so gigantic it will be out there for years hoovering stuff up.
Older people made rich by govt/Central bank decree happily retiring, consuming and not producing.
Globalisation unravelling.
Meanwhile, govt deficits continue.
Chinese government Covid deaths data: 0% trust. Economic data: 100% trust. Hmmmmm........
Hmmmm
to be fair, David and Co. are pretty good at caveating with ‘they claim’.
My wish is that the headings would be less schizophrenic. One day China (or elsewhere) sounds strong, the next weak - according to the headings. But I realise headings sell news, so you know…
The reality is we will keep getting a mix of bullish and bearish data. But the overall picture is weak.
Construction counts for 25% of GDP and its dead.
A little overdramatic. Plenty of high-value non-residential construction continuing e.g. the stadium in Chch and the rail loop in Auckland. Kainga Ora builds also continuing.
I assumed he meant residential construction. Which if not dead, is certainly on life support.
Also KO builds are a pretty small portion of overall residential work, circa 5-10%???
Residential construction is not 25% of GDP
What is it? I think it’s close to 20% if you look at all the professions and trades that work within it.
There is a difference between high value and high spending, Christchurch Stadium developer is already looking for an extra $150m on a supposed fixed contract, Rail loop and Kainga Ora will be the same re open checkbook.
The reality of almost any building work outside of something very basic is to expect anywhere from 10-25% more costs due to unspecified variations or additions.
Super rare for a job to end up exactly as tendered.
Yes, it is normal to quote on the happy path i,e, less $ to secure a contract then go back for more when you face reality. Source: 25 years of project management
This is also common, but surely you agree it's rare that the final result is as drawn.
Built this house in 09 and vastly extended it in 19. Different builders and both times fixed price. Prices adhered too both times. Some variations both up and down at our choice.
It can be done, as was always done many years ago, when I worked for a large residential builder, working out the money.
And yet the promise is made by those that are promoting the project that the figure stated is what it will cost.
The point is these extra costs happen more on public projects rather than private ones, not just because of the scale (which should be a saving), but:
1) they are more ideologically driven as to market-driven ie cost is secondary, and
2) due to the inherent inefficiency in public bureaucracy to set timeframes and budgets. This increases the risk, which has to be built into the project, and
3), it's not their money they are spending, and
4) no real accountability or responsibility by anyone if targets are not met.
There is some research on this, including this https://en.wikipedia.org/wiki/Planning_fallacy, that almost all projects go over budget by 10 to 25%, EVEN WHEN they know this and have allocated this extra amount up front into the initial budget.
Just as the old principle of 'work expands to fill the time allocated for its completion', so it would seem, that for most public projects' 'the cost increases by up to 25% more than the money budgeted for it, regardless of any allowance to accommodate this in the initial budget.'
I ment in China
..a stadium is not high value. It's a very big financial drain that will haunt ChCh for decades to come
.
China tried exporting construction goods and services with the help of OBOR, but there aren't many poor countries left that aren't already drowning in Chinese debt.
I have watched Chinese property development and construction companies with interest over many years.
There seems to be two categories, with Category 2 more common:
Category 1: entities who are serious about developing and building, and get on with it eg. The apartments going up near Fort Street
Category 2: the perennial tyre kickers, who are clearly just speculating on land. They progress designs, get consents, and put out marketing fluff every now and then but aren’t serious about development. They own some big, strategic sites so this behaviour isn’t helpful for NZ’s housing situation, and I wish KO would go in with their compulsory acquisition powers with these tyre kickers. I won’t name names.
> I wont name names
Lol. Yes that’s one of them. St James theatre site another. Avanda Group in New Lynn. Various tyre kickers in Albany. The outfit with the grand looking pics for a big apartment development in St Johns.
Good comment HM
China still heads the best economic performance (CAGR?) over last 3 years
Must be difficult doing policy work or planning analysis in countries where data has such a wide margin of error
Or do Chinese officials use unofficial data as their source?
David looks far too happy in this mornings foto...doesn't he know economics is the dismal science.
And their respected Advance Retail Sales data shows overall December sales fell -1.1% from November, and a rather startling retreat. Year-on-year they are up just +5.3% and nowhere near enough to account for inflation. The Fed's dampeners are working. Hmmmm.. at a cost more effective market forces do not impose.
For NZ think $9bn of losses, but otherwise most of this note by 2 former Fed economists holds as much for NZ as for the US (and a variety of other countries). The lack of any serious accountability for such huge losses is disconcerting to say the least. https://mercatus.org/research/polic Link
And this in a country where the majority of existing mortgages are now fixed at around 3% for the next 20 - 30 years?
As you might expect, American industrial production is waning now, and contracted in December from November at an annualised rate of -8% which is pretty sharp. Year on year it is up only +1.6% on a 'real' basis and that is the slowest expansion since before the pandemic.
Russia sets a new historical record for grain and wheat production. This was not the case even in Soviet times with large hectares of sown land. Year by year, Russia is only strengthening its global leadership in wheat exports, while the United States-once the leader in grain production-is losing its position. They have not sold as little wheat as in 2022 to the world in at least 40 years. Link -Translation necessary.
I will be doubling my USA equity holdings over the next 6 months. DCA all the way
I do hope to strike the bottom of the market at some point, if we are not there.
But regardless my largest investment (liquid) is now a term deposit which is giving me nice passive income in case I'm wrong
Inflation was caused by excess demand from over stimulation of the economy at a time of limited supply of the capacity to move goods around our globalised world. Container ships were full going in every direction. Prices to move containers went up 6x or more. They have come down fast as demand falls and companies cancel or reduce orders to manage bulging inventories. A 40' container from Shanghai to Sydney is now only costing USD 1000 on the spot market. The same container to Auckland USD 4000 and falling further.
Walk around the supermarket and look at where the products are made. That is why prices went up and if they don't start coming down soon the commerce commission needs to start kicking some heads.
https://www.statista.com/statistics/1319525/container-freight-index-sha…
Bloomberg is reporting another Zombie crypto chapter 11,with Genesis the latest.
> the main driver for the retreat is falling energy costs, so that isn't necessarily bad
Question, for which producer input costs, would deflation be bad?
Isn't it always better when things get cheaper?
So long as it's not economy wide, why-spend-now-when-it-will-be-cheaper-tomorrow type deflation.
If a keg of beer goes from $100 to $200 then back down to $100, the back down to $100 is bad?
So , who amongst us predicted that Jacinda Ardern would step down as PM on Feb 7 ?
Equally, apparently Robbo doesn't want a bar of it.
Sitting back with extra popcorn ...
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