Here's our summary of key economic events overnight that affect New Zealand, with news that features measurements of sentiment that rounded out 2022.
And because most were either improving, or not as bad as expected, equity markets have responded with some solid gains. They certainly don't seem to be pricing in weakening data. And bond markets gave signals they are accepting central banks will need to keep hiking to get on top of inflation.
In the US, the Conference Board Leading Index came in down -1% for December, mirroring its November weakness. The declines were widespread, indicating deteriorating conditions in the months ahead for labour markets, manufacturing, housing construction, and financial markets. Meanwhile, the coincident economic index (CEI) has not weakened in the same fashion as the Leading Index because labour market related indicators (employment and personal income) remain strong. Still, these surveyors say the US is heading for recession in 2023.
Although it remains in deep negative territory (normal for them), the EU's survey of consumer sentiment continued its rather quick improvement in December and well off its war-induced lows from mid 2022.
In an interview in Holland, an ECB member said the central bank will raise rates by +50 bps in both February and March and will continue to raise them further in the months after because "it's clear we are not there yet". The current ECB rate is 2.50%. This comes as some in the US reckon the US Fed will tone down its rate-hiking path.
In Canada, they are getting ready for a +25 bps rate rise on Thursday, taking their policy rate to 4.5%.
In Australia, the Conference Board data tracking shows rising leading and concurrent indicators, so no indications of an imminent recession there.
And perhaps we should note that copper prices continue to rise, not only on expectations that China will return from holiday in an expansive mood, but also from a major mine closure in Peru due to widespread civil unrest.
And staying in South America, an idea that has been around since at least 1987 has resurfaced with an easing of tensions following the Brazilian election, Brazil and Argentina have agreed to 'study' the merging of their two separate currencies. Both will find it difficult, but both want to rely less on the US dollar.
The UST 10yr yield starts today at 3.53%, and up +5 bps from this time yesterday. The UST 2-10 rate curve is still inverted at -70 bps and little-changed. And their 1-5 curve is much less inverted at -108 bps. Their 30 day-10yr curve is also less inverted at -103 bps. The Australian ten year bond is up +2 bps at 3.49%. The China Govt ten year bond is unchanged at 2.96%. And the New Zealand Govt ten year is starting today at 4.11% and up +6 bps.
Wall Street has started its week on a 'positive' note with the S&P500 up +1.5% in late Monday trade. Overnight, European markets were all up more than +0.5% except London which barely managed +0.1%. Yesterday, Tokyo ended up +1.3% in its Monday trade. Of course both Hong Kong and Shanghai are closed for holidays. The ASX200 ended essentially unchanged and the NZX50 shed a minor -0.2% yesterday.
The price of gold will open today at US$1923/oz and down -US$3 from this time yesterday.
And oil prices start today +50 USc firmer, at just over US$82/bbl in the US while the international Brent price is up a bit more to just over US$88.50/bbl.
The Kiwi dollar has eased slightly overnight, now at 64.8 USc. Against the Australian dollar we start today down -¾c at 92.2 AUc. Against the euro we are unchanged again at 59.6 euro cents. That all means our TWI-5 starts today at 71.7, and little-changed from yesterday.
The bitcoin price is marginally higher, now at US$22,909 and up a mere +0.3% from this time yesterday. Volatility over the past 24 hours however has been modest at +/- 1.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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89 Comments
Agreed. Ask the average person on the street how they feel about their economic prospects, and the answer will likely be very different.
I've ticked over a dozen client meetings since coming back off holiday, and not a single one has expressed positivity in terms of where they think the year will go for their business.
Feedback has ranged from "things are ok" at best to "business has fallen off a cliff" at worst.
Personally I don't think the landing will be as hard as some make out (as humans we seem very prone to catastrophizing, or when things are going well being manically positive ... the reality seems to lie in the middle) but there is undoubtedly some trouble brewing.
The problem will occur if inflation persists as Orr continues to raise the OCR. This is the case currently. Unemployment will then start to rise and business sentiment will drop and with it investment.
If it goes bad (which is now increasingly likely) then history will not be kind to Orr and Robertson for their knee jerk reaction during covid - the printed way too much money and dropped interest rates way too low for too long into an already overcooked market and when we already had a growing house/asset bubble. Then their lack of monitoring the market and starting to raise rates and reduce cash early (when warning signed started) only added fuel.
Construction, retail, hospo, RE, mortgages are now feeling the pinch. Another couple of rate rises will kill those markets dead and many staff will flood the market and with that (and a lack of new jobs for newly unemployed people to goto) forced house sales will start.to become common,
Now all that he can do it raise the OCR faster and higher and pray that inflation drops - else we risk an economic crash of epic proportions - and with it his reputation. I hope inflation falters quickly but it feels unlikely as human nature tends not to support a rapid change in our spending habits.
Might sound like doom and gloom - but the opportunities abound either way.... :) And we need a bit of a reset
It's behind a paywall, but there was an article on Herald last night about some Auckland developer who had gone into liquidation as the bank did its best imitation of Roberto Duran and said "no mas".
I suspect we will start seeing more of this.
It also doesn't help developers that many seem incapable of managing their expenses ... you've got to have the fleet of new Rangers on tick, the expensive work shouts etc.
I have mortgage debt (but won't need to change anything unless rates get above 9%) but I've been bringing forward purchases in the last few months. Tragedy of the commons stuff - the economy would benefit if we didn't try to beat inflation, but we'd lose, and most of us are homo economicus to one degree or another - maximising our own welfare over wearing a hair shirt.
As a disciple of Thaler and Sunstein I agree with you that homo economicus is not a sound foundation to build a framework on. You ignored my caveat to one degree or another . It is a recognition that, while most of us behave irrationally in economics, to some extent, and situationally, do behave rationally.
A percentage of much of the planets income from wages is syphoned off every week and shoved into the global sharemarket ponzi. Even if the indexes are advancing a little, they are destroying capital doing it. The continual flow of cash from peoples pay cheques prevents a much needed cleanout!
Painter
Financial markets, and mainstreet are not one and the same. When mainstreet starts catching up with Wall Street, that will create a whole new level of demand from some new investors. Others will still sit on the sidelines wishing.
I have been saying here since last year about the financial markets and there are some who are unable to see it.
Your theory is wrong.
These systems don't use programmed "logic" but they have an opimisation function (yield) and train themselves on market data (raw material, oil & stock prices, inflation, OCRs, exchange rates, GDP, employment stats, govt & consumer spending, etc) going back at least several decades.
So yes, they will be trained on all past situations, GFCs and boom times we have lived through as long as there's the data.
That doesn't make them intelligent but it's like being a poker player and having all your opponents stats in your head + being able to count cards.
I was intrigued by the news. The respective values of their currencies is essentially based on the perception of their economies, including the levels of corruption. How would merging their currencies improve their value or stability if they do not or cannot address the underlying issues with their economies?
I would think Brazil's currency should be quite good if they addressed their internal corruption? What has Argentina got to offer?
Former Labour Minister Bassett on Hipkins. Ouch.
"Sad to say, Chris Hipkins has been a key figure in an incompetent government that has pushed up almost every bad social statistic. And I haven’t mentioned this government’s very destructive racial policies that might well do more than any of the failures listed above to finish off his time as Prime Minister on 14 October. A few hardy souls think he could pull Labour up, but after a probable momentary blip in the polls, I suspect that six years of a mostly dead-loss administrative record will sink the Hipkins Ministry. It’s a pity. With more able, less dogmatic colleagues, he might have had better prospects."
Agreed. It's a bit hard to separate Hipkins out for failing to fix the mess they inherited. Most of the problems we face today were put in place decades ago. the real issue is the lack of vision. Luxon is poking the stick, but hasn't yet put his money where his mouth is. I've no doubt he is trying to goad labour into telling what their platform is/will be, but he isn't either.
Hippy's not even been entrenched as PM yet , and he's already fronted up on NewStalk ZB for several interviews ... even directly answered some of the questions put to him ... a breath of fresh air , indeed ...
... unlike Ardern ... who banned herself from ZB , except for one brief occasion after QE2 died ... and who only made radio appearances where the hosts fawned over her & asked patsy questions about Clark or Neve ...
The truancy rate under Hipkins was criminal. What low standards we have sunk to. No even the bad flu season can be used as an excuse.
https://www.sciencedirect.com/science/article/pii/S0883035522000891
Ouch , indeed ! ... but , Bassett's plain speaking does nail it ... 6 years of ideology , of racial divides , failures at every promise , and just not listening to anyone outside their enclosed circle ...
... quite frankly , I'll be glad to see them gone ...
Fix our pot holes first ... then , save the world !
You cannot have it both ways Carlos?
On January 31, the Government’s Transport Support Package that has helped keep the cost of fuel down will expire, and road user charges (RUCs) will increase, once the 36% discount was removed.
Sales of 50cc mopeds will be on the rise quicksmart. $500-1.3k second hand, currently ~$12 to fill at $2.43/L and pays itself off in only a few months around town when you consider it is $90-150 for most to fill a car up. Another cost saver for the tough times ahead. Pray it doesn't rain too much though
Lange on Bassett. "My father had delivered him, and it became plain in later days that he must have dropped him ...."
https://en.wikipedia.org/wiki/Michael_Bassett#CITEREFBassett2008
New build townhouses in Auckland really flooding into the TradeMe rental listings. A good thing in terms of suppressing rental inflation.
This will accelerate over coming months, so along with construction cost inflation starting to moderate a bit, I am expecting the house cost component of the CPI to be significantly lower by May.
I feel quite worried for NZ. Sure everyone wants to say things will be ok, growth mindset BS etc. But thats not the case in this sector. They have simply built to much at a price the market no longer thinks is viable due to interest rate increases. I hope subbies are taking all tools home. Still they will take a beating in unpaid monies.
By relentlessly depriving investors of risk-free return, the Federal Reserve has spawned an all-asset speculative bubble that we estimate will provide investors little but return-free risk.”
– John P. Hussman, Ph.D., Return-Free Risk, January 14, 2022
Rezzie construction and all associated jobs is a pretty decent chunk of the domestic economy. Remember it’s not just builders, contractors and tradies, which alone is a big pool of jobs and incomes. It’s also architects, civil engineers, surveyors, planners, RE agents, valuers etc. Not to mention the big business of white ware and furniture retail, which will also be hit by rezzie construction collapsing.
Then we have the multiplier effect - all the people losing work / income in these sectors will spend less on hospo, retail and domestic tourism.
- It started falling over before the GFC, with the collapse of mezzanine finance.
And yes exactly - building was nowhere near as great back then as it is now, so a slump has more potential to cause problems now.
There are many other differences, including the fact that affordability is much more stretched now, which limits the ability for the sector to bounce back compared to the 08-13 period. The Christchurch earthquakes also provided support to the sector, with the rebuild.
Also you say we survived quite well after the GFC. Yet one of the key reasons for that was that China’s growth was on steroids. We also had the stimulatory effect of a National road building program.
Hopefully Kainga Ora builds will support the sector this time. Also there is a lot of demand based pricing that can be cut in the building industry. There should also be a backlog of smaller reno jobs like new kitchens etc that people have been putting off due to lack of builders at sensible prices. Not saying there won't be a big effect, just not sure how big it will be.
I agree on KO and also MoE can pick up a decent chunk of the slack in construction - win-win.
Demand for home renovations shot up during the pandemic due to low borrowing costs and households saving on their travel and eating out budgets. Once tradies clear through the backlog of renovations, there may not be much demand for these services.
KO is still a pretty small part of the overall market, so any lifting of their work volumes would need to be very large to offset the slump in the private sector.
Also the KO development funding model is heavily reliant on private development occurring. In areas like Tamaki and Mt Roskill, they are relying on a third of all development of their land to be private sector. What happens to that model with the slump in the private sector?
I have seen a section for sale with plans for 6 houses, they had already put the concrete pads down so they must have originally been going to do the full build. They probably spent close to 3 mil on the original house, demo, plans, consents, drainage, retaining, borrowing costs, etc. Would be very lucky to get 500k per section to cover those costs considering a finished house would probably only fetch $1 mil now.
A couple of ~80% completed developments down our street, one across the road. Sure hope they get finished as otherwise they will end up being dump sites. Probably far enough advanced that they will get completed. But there will be people that end up with a 1/2 complete tagged and smashed up dump site next to them for a few years no doubt.
It’s the < 50% developed ones I’m more worried about. Unlikely to be finished, banks will take a bath, and then a rubbish site will be left there until the section is eventually sold at a price that someone can develop and make money (which may be close to 0 at current development costs).
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