Here's our summary of key economic events over the weekend that affect New Zealand, with news investor inflation expectations are the key uncertainty this week.
Despite China being on holiday, it will be a busy data week ahead. For us it will be highlighted with the Wednesday release of our Q4-2022 inflation data. That will be quickly followed by the same data from Australia. Both have the potential to be market-moving. Markets expect the NZ CPI rate to come in at 7.1% and little changed from the September 7.2%, and for Australia at 7.5% and up from the prior 7.3%. The week will end with the US releasing its first estimate of 2022-Q4 GDP growth on Friday, and a +2.6% rate is expected. At the same time a +2.5% rise durable goods orders is expected. Before all that flash PMI data for January for the US, Japan, Europe and Australia will be released. We will also be following the Canadian policy rate decision on Thursday (+25 bps expected to 4.50%).
Of course, it is a full week official holiday in China, and Taiwan and Singapore are other countries taking a New Year holiday today at least. Hong Kong's financial market will be closed until Thursday this week, unlike Shanghai which doesn't reopen until Monday, January 30.
The Chinese central bank reviewed its loan benchmarks late Friday and left them unchanged. This wasn't a surprise and is the fifth straight month they have been untouched. The one-year loan prime rate (LPR), which is used for corporate and household loans, was held at 3.65%; while the five-year rate, a reference for mortgages, was held at 4.30%. Lower mortgage rates are not inducing more house sales in their struggling housing markets, so a change would make no difference.
The gigantic Chinese New Year (Year of the Rabbit) travel event has started, which will see more than 900 mln people move around internally and externally, probably extending Covid to every corner of their country. Some 2.1 bln trips are expected to take place during the 40-day Spring Festival period, double the number of treks from last year.
China's financial markets and government departments will be closed for all of next week, returning on Monday, January 30, 2023.
But when they return, there is some optimism that the restart to their economy will be stronger than we have seen it for a while, and that should drive a counterbalance to an expected slowdown in the US economic engine. (Optimism about China's prospects is not universal however, even in China.)
It's been a long-talked-about American slowdown, but there are few real signs of it yet. However, it will be no surprise if one comes. Most analysts expect it to be a mild retreat, and if inflation also retreats and stays down, then a more sustained rise may follow.
American resales of existing homes fell in December, continuing housing's current funk. The fact that they came in slightly better than expected isn't much of a positive when you realise this level is their lowest since 2010. In fact, sales in 2022 ended down by -18% from the prior year and down by a third in December on that same basis. The industry is expecting the sales rate to bounce off its bottom because mortgage interest rates are falling now.
The key to watch is the American labour market. Their tech industry retrenchment is gathering steam, with Google the latest to announce very large job cuts. But so far, the wipeout by the tech titans has had little overall impact on overall employment.
And of course, markets will be jostling ahead of the next US Fed meeting on February 2, 2023 (NZT).
Canada retail sales rose in December after falling in November, but the shifts are pretty modest. Year on year sales rose in nominal prices (+5.1%) less than their inflation rate (6.3%), they are seeing volume declines.
Japanese inflation hit a 41-year high in December, up +4% and above their central bank 2% target for a ninth straight month. It is up from +3.7% in November, the sharpest rise since 1981. Prices of electricity increased +21%, while grains rose +9.6%. Last year the overall level was up +2.3%, so a rising pace. "Core inflation" which excludes food, was also up +4.0%. The rise from November to December was at an annualised +3.5% rate, so perhaps there is some moderation coming.
German producer prices fell again in December from November at about a -5% annualised rate. This fall was less than the month-on-month fall in November but still leaves their PPI +22% higher than a year ago, which wasn't as much of a pullback as markets were expecting.
In Australia, investors are increasingly wary of commercial real estate. They suspect there will be a reset in asset values as credit markets tighten will hit office landlords. It a re-pricing that will be wider than that sector of course, but it has been on the cards for some time as interest rates rise. Much will depend on market reactions to the upcoming CPI data.
The IMF is about to release its latest global forecasts and indications are it will be raising estimates of expansion, including in China - and the EU.
The UST 10yr yield starts today at 3.48%, and unchanged. The UST 2-10 rate curve is still inverted at -69 bps and little-changed from a week ago. And their 1-5 curve is more inverted at -123 bps. Their 30 day-10yr curve is unchanged at -108 bps. The Australian ten year bond is up +4 bps at 3.47%. The China Govt ten year bond is unchanged at 2.96%. And the New Zealand Govt ten year is starting today at 4.05% and also unchanged.
Last week on the NZX50, the key mover was F&P Healthcare (FPH, #1) which was up +11% for the week. Good gains were also recorded by Restaurant Brands (RBD, #49) up +9.4% and Auckland Airport (AIA, #2) up +3.6%. Going the other way both Pacific Edge (PEB, #41) was down -9.3% for the week and Serko (SKO, #48) fell -7.6%).
The price of gold will open today at US$1926/oz and very little different from where we left it on Saturday.
And oil prices start today little-changed, at just over US$81.50/bbl in the US while the international Brent price is just over US$87.50/bbl.
The Kiwi dollar has firmed slightly overnight, now at 64.7 USc. Against the Australian dollar we start the week at just under 93 AUc. Against the euro we are unchanged at 59.6 euro cents. That all means our TWI-5 starts today at 71.8, and the highest of the year so far.
The bitcoin price is up further, now at US$22,836 and a heady rise of +6.9% from this time Saturday. Volatility over the past 24 hours however has been modest at +/- 1.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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53 Comments
Isn't it interesting than the horizons for economic news are one quarter or one year. Forwards of backwards Very few look much further, yet we are expected to take news, surveys or sentiment seriously.
The bigger the period, the more a black swan event makes us all look stupid. Within 2 years we might all be filing our own taxes via AI and within 5 years houses 100m from the sand dunes might be uninsurable.
Some of those houses already are. Dont change your insurance if you have it.
I think far too much importance is given to LAGGING indicators, such GDP figures, for example, I prefer to look at LEADING indicators. In this respect, it helps being a business owner, employer as well as an investor.
I'm in the camp of:
- a lot of this inflation is due to transitory factors
- the rate increases will happen anyway because they are also political. The banks don't want to be an easy scapegoat.
- the pullback and recession will be sharp and deep
My idea of a good bet for 2023 is income protection insurance.
The only way the last 40 years has been affordable is because we could keep lowering interest rates.
Rising interest rates will break something if they continue. In fact I think the breaking is baked in with interest rates now above that 40 year trend line.
The question you have to ask is what economic factors are on the horizon that would permit economic expansion? which you need to fuel higher interest rates. Something other than hope that is. I'm not seeing it. For one thing you need energy expansion, which I don't see. At best a status quo. The world isn't going to suddenly start pumping 110mbpd. To pay 5% interest it would have to expand to 200mbpd over the next 14 years.
"The only way the last 40 years has been affordable is because we could keep lowering interest rates." Spot on.
"factors are on the horizon that would permit economic expansion". The same one we've always fallen back on? The one being rolled out across The Ukrain today; the one the USA has deployed for 70 odd years - destroy it and rebuild it.
A collapse of the Russian war effort and the associated rebuild of Ukraine might add some growth - likelihood another matter.
Policy Makers Heading in the Wrong Direction
After years of buying time, votes, book deals and even a Nobel Prize, global financial leaders have smiled in public while privately failing with staggering panache among the more informed.
Rather than openly face and solve $300+T debt disasters the hard way, namely via economic growth, fiscal austerity, debt restructuring, inflation recognition (vs. “transitory” denial) and an accountable and transparent need for financial repression (nod to Reinhart and Rogoff), our leaders and central bankers have gone in the complete opposite and wrong direction.
Instead, they have recklessly and addictively relied upon mouse-click fiat money rather than money tied to actual goods, services and production to provisionally support years and years of un-earned reputations and unloved bonds.
As opposed to politically unpopular fiscal austerity, the math-ignorant and job-preserving (i.e., pathologically selfish) US politicos just added another $1.7 trillion spending bill to bribe/pay for their tenure but which they can’t otherwise pay back.
Instead, they just hand the bill to my kids.
You really can’t make this stuff up. It’s embarrassing open madness and blatant self-interest over national interest.
But then again, that’s the effective definition of a politician: Self first, nation later. Facts be damned.
Just consider fact-allergic clowns like George Santos… Link
Jacinda has once again changed the outcome of an upcoming election. She read it well.
Nats stroll in the park is over.
Interesting 9 months ahead.
She knows that the Nats are led by a boofhead with an ego. 9 months from now everybody else will know so too.
Boofhead? Is that more of that mis.. misog..... misogynist thing we have been lectured about the last few days.
I'm just as white and just as bald ;-)
You are us.
Misandry is the new word, or
https://psychtimes.com/peladophobia-fear-of-bald-people/ or
https://www.theguardian.com/world/2022/may/13/calling-a-man-bald-is-sex…
'Commenting on a man’s baldness in the workplace is equivalent to remarking on the size of a woman’s breasts, the finding suggests.'
Or for Chris Hopkins - Gingerphobia/russophobia.
But whatever you do not criticize their policies.
But Hipkins needs to slow down his yabbering a bit. You'd think after 20 odd years training in politics he'd have his speech tempo sorted. But from what I saw this morning, he was nervously chattering and full of political jargon.
Let's hope he gets over that, quickly.
indeed:
White House is chief of staff Ron Klain has resigned. He was the real power of the Biden administration. With him gone, politically, Joe Biden is naked. I would be very surprised if he is still president by the end of 2023. Link
Top response! "I thought Hunter was the naked one?"
It's actually a stroke of genius, akin to Andrew Little stepping aside for her. Only most of the commentariat have not realised it yet........
She was reading the polls
I think Jacinda had changed from young 30 year old who was out to save the world to 40 year old mum telling us off about masks and vaccinations (and I don’t mean that to be sexist as it happens to dads too). She lost the coolness factor, seemed to retain most female voters but lost a lot of male voters. If Hipkins can keep those female voters (I doubt they will swing to Luxon) but pick up even a small percentage of male voters, labour will be back in the lead.
Nats stroll in park definitely over. This thing is going to go to the championship rounds now.
IMO it's going to come down to whether or not National, particularly Luxon, have the ability to bring some fight and push back against the anointing of Hipkins as a "chill dude" and "Mr Fix It".
How can you be Mr Fix It when you appear to have done a poor job in your portfolios? I guess he is Mr Fix It when compared to his incompetent deputy (an easy target, if ever there was one) but that's hardly a tall hurdle to jump. I'm yet to see any evidence of Hipkins having fixed anything at all ...being a bit busier and dynamic than your colleagues doesn't mean you've solved problems. It's about where you place the nail, not how many times you swing the hammer.
How can you be a "chill dude" when you're cool with accusing women of being prostitutes to cover your ass, or when you lie about a journalist's MIQ application for political advantage?
Luxon clearly can't win on the personality front, so he's going to have to try and counter the personality politics and make this more about Hipkins and Sepuloni being nothing more than a fresh dusting of glitter on the same stale turd.
The other problem he will have is that when (not if) the first polls show a bounce for Labour under the auspices of Chill Dude Chippy, the sharks in the National party will be circling looking to roll him as they always do any time the going gets remotely tough (Labour - on the other hand - demonstrating a masterclass over the last week in presenting a united front).
Labour will also have an easier time on the policy front, as all they've got to do is roll back some of the less popular stuff (even if it's just a case of lying to the public about their intentions like they did last time, and bringing it back after the election, which is almost certainly going to be the case).
Luxon - with his proclivity towards placing his feet in his mouth, and his awkward style of delivery - will probably fail at this challenge.
Why is it all about personality rather than policy ? Society really has moved in the wrong direction over the years with the advent of things like Facebook. Now its all about the way you look and it doesn't matter if you open your mouth and just waffle to tell the sheeple what they want to hear and then get absolutely nothing done, hell you even get a second term. It took 5 years for New Zealanders to finally wake up and smell the coffee.
It really started with a smile and wave and campaigns like - let me and my friends design a new flag for you on the back of a weetbix packet..
Social media definitely has some blame, because it allows more easily the creation of echo chambers and algorithm-driven viewpoint reinforcement etc. Algos also reward vacuous meme content (like cool photos of Chippy with his speed dealer sunnies on).
However, I'd say that the biggest culprit is the 'conventional' media, particularly with respect to online media e.g. Stuff.co.nz - but the media-consuming public also have blame in this matter.
Their business model is getting eyeballs on a page to generate ad revenue via impressions. All that matters is driving more ad impressions ... particularly as CPMs (the measure of what you earn per impression, basically) naturally deflate over time. The quality and/or societal value of the "journalism" is utterly irrelevant.
They are no better or more virtuous than any blog, website or YouTube channel that exists to make money off ad revenue.
As consumers of media, we as a society have decided that we typically don't want to pay, like we once had to for our newspapers (which could then support revenue via ads). We want our content for free. Therefore, our attention spans are the product that are sold to the highest bidding advertisers. Stories about people (as opposed to policies) appeal to our innate human nature. Clickbait, of which personality-driven content is a huge component, is basically the only way for the likes of Stuff and the Herald - or the Daily Mail if you want a right-leaning and supremely successful example - to make a living.
The problem is that we still have this ingrained view in society that these 'digital-first' media outlets (who were once at least somewhat proper journalistic outfits and continue to masquerade as such; see Stuff's constant proclamations of their journalistic integrity) still occupy a position of trust and authority when it comes to shaping public discourse and perception.
Living Colour sang about it in 1988 (though the problem is probably as old as politics.)
Note: Outrageous-guitar-solo warning!
People don't vote on policies full stop. It's an ego thing. People quite often side with National, particularly on Facebook, because it helps compensate for some insecurities in their personal life. They can tag along with the party that represents business and successful people and throw out cheap insults on the internet without fear of being walloped in the face. But because they're minimum wage earners in real life, they toddle off to vote Labour in secrecy because otherwise it would be an own goal.
Chris will win the election ;-)
Chris will lose the election
Does anyone believe this is remotely true (that everything is still hunky dory for these 2)?
https://i.stuff.co.nz/business/131033528/meet-the-young-couple-who-boug…
Very hard to believe anything bought during the pandemic would be positively geared at current interest rates. Maybe they fixed for 5 years in which case very astute. House Prices may still be higher than than when they bought. Still if I was them I wouldn’t be sleeping.
It feels like best case scenario for the next 2 years at least would be to break even. But you can safely get 5% by chucking your money in the bank.
I'm waiting for the "small loan of $1 million" byline to be added.
8 properties over the pandemic, at 40% investor LVRs? They'd need a pile of cash much larger than $1m just to get started. Love reading these stories about the everyman Kiwi battler pulling himself up by the bootstraps.
Their bootstraps, or Daddies bootstraps? ( I didn't bother reading it) Usually buried about 3 paragraphs from the end is some mention of a gift or inheritance, or stupidly well paid job at the family business.
That reads like an invitation for an IR audit.
Yes. A really stupid article and of no interest at all because no numbers are included at all. Despite the hot air.
We do know it's 10 houses, and most in the last two years. (ok, those are numbers). but no other numbers.
What's the valuation of the houses, what is the total borrowing, what is the current interest rate, if fix what are the expiry dates. Also of course what is the incoming cash flow and outgoings. How is cash flow going to change ( it's going to change for sure). And upcoming tax changes of course.
Why bother to write such fluff without the real info.
They could rebrand themselves: fluff.co.nz
Like all digital media companies that depend on ad revenue to survive (which has a tendency to decrease over time) Stuff has to appeal to an ever lower common denominator in order to generate hype and clicks that result in ad views.
That is why I am always so insulted by their incessant begging and pleading to "support real journalism".
A couple of paragraphs were missing from the article, right?
"Our strategy was the same one we read on stuff.co every day - get big loan, gain equity after waiting, pull that out and purchase more, mumble mumble, portfolio go up!....It's a game you can't lose if everyone tries the same thing and you don't slip up!"
"For us, rents will cover expenses... except I guess one day our fixed terms might roll over and expenses could go up? But as a sales professional I am fully qualified to bury the truth and negative details of anything. Haha imagine if you asked me about the negative impact on society of such an aggressive strategy, about who is losing when we and our bank are the winners with our speedily growing portfolio? Well it would be hard to get such words on stuff.co huh"
Anyone who writes about the glorifying of debt is partly guilty for the situation we are in now. With the US hitting their Debt Ceiling things can get even worse than it is right now. The US government wants to raise the Debt Ceiling so they can attract new money to pay off the old bond holders. In fact the US government is running the biggest Ponzi scheme of the world!
Totally believable, except for the popcorn eaters who don't invest themselves, because all they can go by, is the published average data. In the real world, some do much better than the average and some do much worse.
That's a lot of bags they are holding for us.
National Heroes - respect.
California City Gives Up On 100% Renewable Plan
As California goes, so goes the nation, or so they say. If that rings true, the nation is set for a reversal of some of its strictest renewable energy plans, after the Huntington Beach City Council voted to dump its plan for 100% renewable energy.
Just one more nail in the hothouse Earth climate coffin (NZ soon to follow suit with the new Hipkins priorities). That's why I hope reincarnation isn't a thing: don't want to come back to what the future world will be like.
The IMF is about to release its latest global forecasts and indications are it will be raising estimates of expansion, including in China - and the EU. Hmmmm....Let them eat bullets.
In 2022, Poland concluded a huge arms purchase contract with South Korea: heavy combat tanks (four times more than France), artillery, fighter jets, for 15 billion euros. Warsaw also signed a contract last month to purchase two observation satellites from France for 500 million euros. Poland is determined to be ever more consequential in European affairs.
On the other hand, for Germany, Europe’s powerhouse, the war is a particularly sensitive issue and it is caught up in a certain constant questioning of itself. Germany’s Nazi legacy, its chosen dependence on Russian gas and the reluctance to deliver the first weapons to Ukraine put it in agony today over the issue of heavy tank deliveries.
Nonetheless, Germany promptly seized the Russian special military operation in Ukraine to announce on February 27 a sharp increase in its military spending to more than 2% of its economic output in one of a series of policy shifts. The government of Chancellor Olaf Scholz decided to supply 100 billion euros for military investments from its 2022 budget. (Germany’s entire defence budget by comparison was 47 billion euros in 2021.)
Not to be left behind, President Emmanuel Macron said in June that Russia’s operation in Ukraine had sent France into “a war economy” that he expected to last a long time. He announced in the weekend he would ask parliament to approve a new budget of €400 billion for the period 2024-2030, up from €295 billion for 2019-2025. Link
German organic farmers protesting. A cautionary tale for NZ and its 'sustainable carbon neutral products will get a premium' mantra from govt?
Consumers have to pay substantially more for organic produce due to the more labor-intensive production and the requirements of animal-friendly and environmentally-friendly farming. But they have been cutting back for months, giving organic supermarkets a wide berth. Sustainably produced foodstuffs are now mostly bought from discount supermarkets. That is where Schmitz now has to sell his milk, too.
https://www.dw.com/en/germanys-organic-farmers-are-in-despair/a-64465433
Yet as we embrace net zero carbon emissions in the name of saving the planet, growing tensions are emerging over what must be done to achieve this goal. Link
Audaxes,
I couldn't read the link as I am not a subscriber, but although the Telegraph has long ceased to be a decent paper, I think I would have to agree with what i guess it is saying.
I have been writing short papers about this issue for some time saying that the path to a Green(er) economy will prove to be a rocky and expensive road. I believe that much of the public support for climate change action is soft support and will lessen as the true costs emerge. I don't doubt climate change-the basic facts are simply unarguable, but politicians and environmentalists don't want to tell us the hard facts. Much MORE mining of minerals and metals will be necessary to make the transition possible and the energy to make that happen will come overwhelmingly form fossil fuels. I could quote numerous sources on this.
Ouch....
https://www.stuff.co.nz/business/130980589/family-faces-450-a-week-jump…
"The family bought their home in the North Shore suburb of Birkdale in January 2021, before prices peaked, paying a little over $1.13 million at auction.
They sold their home in the UK to buy their first in New Zealand but still required a $920,000 mortgage."
Good on them!! Another family that didn't get gloomy, instead they were bold and backed themselves, and are now enjoying the intrinsic value that a family home brings!!
Does something with an intrinsic value also have an intrinsic debt?
If you read the article, they are getting pretty gloomy about servicing the debt...
Yep, read it. I was being facetious.. :)
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