Here's our summary of key economic events overnight that affect New Zealand, with news bond interest rates pushed higher overnight on a backdrop of stubborn inflation signals.
But first, last week American jobless claims slipped slightly to +201,000 and taking the total number of people on this support to just under 1.9 mln. A rise was expected. So far, this leading indicator isn't showing any changed labour market stress. It has been widely expected for months but just hasn't surfaced yet.
Meanwhile, American labour productivity is rising. Output rose +3.1% while hours worked rose +1.4%, giving a boost to a key economic metric. However, this is Q4-2022 data so a little dated.
US car sales ran at a 15.7 mln annual rate in January, a fifth straight month of increase. Easing supply chain pressures are getting the credit as manufacturers are able to deliver more. The US is the world's second largest car market, well behind the expanding Chinese market.
Across the Pacific, there was again no useful data released by Chinese authorities. But a survey by the Shanghai-based American Chamber of Commerce in China, found that most members plan to stay engaged, but worryingly a quarter said they had started disengaging in some way, up from 14% a year ago.
In Hong Kong retail sales bounced back strongly in January, although the timing of the New Year holiday embellished the data this year. And it was off a weaker than usual base a year ago.
Singapore's PMI however didn't change much, still in a steady state of neither expanding nor contracting. Still, that is a small improvement for them, away from contracting.
In Europe, while energy inflation slowed, food inflation rose. Their CPI dipped to 8.5% in February, the lowest since last May, but above market expectations of 8.2%. This latest data reinforces that inflationary pressure remains high in Europe and bolstered expectations that the ECB will remain hawkish for longer.
In Australia, building consents collapsed in January. They slumped -28% month-on-month to 12,065 units, reversing from an +18% rise in December and coming in worse than market expectations for an -8% drop. That is a decade low. Year-on-year they are down -8.4%. This was also among the steepest declines on record as higher interest rates dampened economic activity. A -40% drop in multi-unit dwellings was the main drag.
Although it has dropped fast to a low level, the cost of international containerised freight fell even more last week, down -2%. Outbound rates from China are the weakest. Rates are now more than -30% lower than ten year averages - averages that include the very high two year pandemic peak. Rates for bulk cargoes however are recovering fast from their unusually low mid-February trough. That have doubled since that unusual point.
The UST 10yr yield starts today at 4.08% and up +9 bps and its highest since November. The UST 2-10 rate curve is less inverted at -83 bps. Their 1-5 curve inversion is much less inverted at -74 bps. Their 30 day-10yr curve is also much less inverted at -51 bps. The Australian ten year bond is up +12 bps at 3.94%. The China Govt ten year bond is little-changed at 2.94%. And the New Zealand Govt ten year is starting today at 4.67% and up +8 bps from this time yesterday.
Wall Street is in its Thursday session with the S&P500 down -0.2% in late trade. Overnight, European markets all rose about +0.4%. Yesterday, Tokyo closed little-changed. But Hong Kong retreated -0.9% after the prior day's huge rise and Shanghai fell a minor -0.1%. The ASX200 ended its Thursday session up a minor +0.1% while the NZX50 moved a bit more, up +0.2%.
The price of gold will open today at US$1836/oz and down -US$5 since yesterday.
And oil prices start today up +US$1 at just under US$78/bbl in the US. The international Brent price is now just over US$84/bbl.
The Kiwi dollar is down -½c at just under 62.1 USc. Against the Aussie we are little-changed at 92.4 AUc. Against the euro we are unchanged at 58.6 euro cents. That all takes the TWI-5 to 70.6 and down -20 bps.
The bitcoin price is a little softer today, now at US$23,269, and down -1.9% from this time yesterday. And volatility over the past 24 yours has been modest at +/-1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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61 Comments
More pain for the housing market With the UST rising
Announcement on low inflation
"We will be resuming normal transmission temporarily"
Not likely, give it another year I guess
We know more inflation and so higher interest rates are coming.
If the Central Banks were really serious about hammering Inflation down, they'd have their collective official rates above the Inflation rate already. They'd be withdrawing existing debt from the system in a meaningful way. They aren't. They are chasing, in our case, the CPI higher. Years back many noted that "if ZIRP doesn't work to fix the system, then Plan B - the traditional resolution to a debt crisis; War, will happen" and it has. What better way to have a War, and all its financial and economic benefits (demand pull inflation; rebuilding etc) than to have one contained in a distant part of the globe? And it will drag on indefinitely.
So "give it another year"? Add 10 to that. That's the duration of the physical conflict; the inflation problem, and so the nominal big figure in front of mortgage rates.
Announcement of what investments to buy:
If there is an inflation problem, you might want to own food and energy stocks. For the hands-on investor, buy or set up an egg farm
If there was money in egg farming people would be doing it instead of leaving the industry in droves.
And we haven't even had bird flu through our flocks like they have in some countries.
Most are leaving because they don't have the capital to upgrade and/or their land parcel is no too small for a viable egg farm.
Capital or desire. There's no assurances one you upgrade that that'll be the end of it.
"If the Central Banks were really serious about hammering Inflation down, they'd have their collective official rates above the Inflation rate already".
I've seen this comment a couple of times which seems to suggest that the OCR has to go above CPI to be effective.
I have no problem - and as the RBNZ has indicated - that the OCR needs to go higher . . . . however, it is not necessary for the OCR to go above CPI to bring the CPI down. The OCR needs to simply go to a level to have meaningful effect on people's spending. There is no direct link between the levels of both or reason for the OCR to be necessarily higher; rather it is at what level the OCR needs to go to to effect people's spending and saving habits*.
There will be plenty of pain if the OCR goes to 5.5% as indicated and spending - and employment - will be significantly negatively affected. However, repairs and replacements following the recent Auckland flooding and Gabrielle will have a stimulus effect on spending so the OCR may need to go higher than the 5.5% as signaled.
* Note: The general theory is when the OCR rises, it costs more to borrow money, encouraging people to save rather than spend. With consumers buying less, demands for goods drops, business become more competitive, which can result in lower prices and a drop in inflation.
We have deliberately increased spending because inflation is significantly higher than after tax interest returns on savings. Anything I will need in the next few years I am buying asap. Clothes, footwear, tools, paint, oils, tyres, building and garden supplies, housewares, you name it.
Let alone pay. Just got a 3% payrise. After tax and inflation that's a 5% pay cut.
Many are doing this and it is only continuing the inflation. Boomers stocking up before retiring with less income etc also.
According to Orr NZ monetary policy is already contractionary because the OCR is above the "neutral OCR rate" where monetary policy is neither loose nor tight.
The CPI is only a relative price basket, not a monetary value.
This "neutral rate" business is pretty dubious. The RBNZ get to make up an interest rate target for themselves and don't show how they came up with the number.
I'd love to be able to "look through" this. But no. Our only just kicked off last LTP of year 1 being +12%, then years 2-10 being +7% increase each year is already in the bin.
https://www.stuff.co.nz/taranaki-daily-news/news/131382068/massive-rate…
More fallout from the FTX scam. Has been on the cards for a while.
https://protos.com/silvergate-warns-investors-it-may-not-survive-the-ye…
Struggling Silvergate Capital, owner of crypto-friendly bank Silvergate, has warned investors that it expects to record further losses for 2022 that have significantly impacted its “ability to continue.” Its share price tumbled 30% following the news, from $13.60 to $9.50 at press time. (Currently $6.35)
https://www.youtube.com/watch?v=GmniBwFIfGQ
The Maverick of Wall Street
A good channel to watch. Good luck on the 5.5% OCR peak.
7% peak OCR next year wouldn't surprise me at all
Should our response to the damaging effects of human induced interest rates be mitigation (reducing inflation) or adaptation (learning how to cope). In the end, life goes on
The response to human induced climate change has been a sh1t show. A good quote I heard recently... How NZ managed to kill itself while trying to save the world
Yep we send out ripples and get tsunamis in return.
NZ killed it with kindness.
I guess banks are scared now and want to hold as long as possible to not increase the interest rates since they know their customers will not be able to pay them.
This is a calm before the storm. Gabrielle woke up sleeping kiwis to dangers of floods and storms. Inflation and interest rates will give everyone a rude awakening that million dollar mortgages are not joke's.. 8% on a 200 k is not the same as 8% on a million dollars. It really still pinches evergreen if you earn a 200k salaries. 80k after taxes just for interest is no joke.
Bank profits 'costing New Zealanders $2000 a year each' | Stuff.co.nz - There is rising public anger at ever-higher bank profits
Anyone else tired of this bi*ching and moaning about bank profits at every reporting season? What can the public do about it, other than learn to live within their means and stop obsessing over houses?
We complain about banks overcharging while wasting our money.
I just calculated how much I spend annually paying the lawnmowing contractor. 4 grand. A good battery powered mower costs hardly anything and no service costs
$4K would get you a ride-on that you don't legally have to be sober to operate on your own property. Premium grade King of the Hill level stuff right there.
Grassed courtyards.
Those battery mowers are light to pick up and shove in the car boot and also super powerful. I love it.
So, $80pw.
It now comes to earning potential : if you can earn more than $80 gross in the time it takes you to mow your lawns, then you're making money contracting out the menial task - if the task gets done in normal working hours. Even outside normal working hours, you're buying yourself leisure time, plus plan flexibility, etc.
Same goes for other services, such as cleaning, driving and cooking, even childcare. At certain income levels, it simply becomes either more efficient or more convenient to contract those out.
On the other hand, variety is the spice of life. Doing menial tasks from time to time is good for the soul.
Character building
Actually 175 every two weeks. I could have shopped around but did this instead as am often passing by or on site
Takes about an hour and I get the exercise. Saves on a gymn sub too haha
Exactly. People have the freedom to make their choices in a neoliberal economy like ours. What you shouldn't be doing is blaming the vendor for your own uninformed economic decisions.
Can't blame Red Bull for selling their drinks in 24-packs when you decided to down them all in one evening.
When my misplaced spending reaches the tens of billions of dollars of dividends to overseas parent companies that banks have razzle-dazzled in the last decade or so, then that will be a valid point. Going to have to significantly increase my Red Bull consumption to make that happen.
You could do your bit and move your savings and mortgage to a local bank, but you wouldn't want to miss out on the sweet deals worth hundreds of dollars that the big banks offer and roundabout costs us $2k per NZer (as per the Stuff article).
ACC owns 22% of Kiwibank and yet banks with Westpac. What hope do you have for the average Kiwi to do the right thing?
My point all along is that competition study isn't going to solve a problem caused by NIMBYism and consumer ignorance (aka stupidity).
ACC sold to the govt.
We have generally adapted our lifestyle to subcontract lots of tasks -at a high cost. To pay $4k you need to earn $5 or $6K - so by mowing your own lawn you "earn" say $100 per hour (get fitter and save gym fees). Much better outcome than working for someone else and applies to lots of tasks we no longer do
And even more relevant now when a service provider is charging close to $100/hour plus call out to come and do your work
I think this will eventually cause a service industry recession in NZ, from buying coffee , smashing your own avos etc etc, lawns...
People will make choises involving more DIY
7houses doesn't look like he would be up to doing all his own mowing.
5 house helon didnt look like she could either, taking part in the property ponzi seems to have been a cross bench activity
Add on 15 percent tax to already tax paid earnings. You get $5.80 left out of $10.00 earning on 33 percent tax rate. If 39 percent you don't want to know what's left
Remember -in Auckland at least all those people who have "obsessed over houses" for the past 50 years-even the past 5 years-have come out winners without worries. Just go back to yesterdays commentaries about all the bright minds who lost money in their Stock Market investments over the past 12 months. It is that fact alone that drives-propels people to invest in housing, and paying the bank is just part of the process. In no other country can you sell out an investment property and not pay 30% tax on the net profit no matter what the duration of ownership. And that 10 year limit for investment properties has only come in since Labour introduced it this term. Housing is the easy investment and I don't see that changing.
The Brightline was introduced by National in 2015.
But not 10 years at that time if I recall.
Housing was the easy investment so people bid it up above reasonable value. It will be a while until it is easy again. You don't get to carry capital losses forward in NZ.
No, exorbitant bank profits points to the lack of regulation and how much the current rules have been slanted to favour them. The average person on the street has NO leverage. The banks are private business but they wield extreme power and influence over almost all of our lives. But in part you are correct, we need to be talking to our politicians about it and how it can change to a more balanced position.
Wondered often lately, freight rates are down considerably. They were used as a reason for price increases and consequently inflation. So prices will automatically drop now won't they? Economics is so easy.
Even China's NBS spokesman tried to explain how PMIs work and what they actually mean, but "highest in a decade" was too tempting to resist running with rather than the real story. https://youtube.com/watch?v=D0JXrl Link
That must potentially sink any idea of moving the port north... need full accessment of the ability to protect that rail line first.... it will stay where it is for sure now
The huge housing and congestion issues in North West Auckland make the Port idea functionally undoable anyway, given it was contingent on an Auckland distribution centre (read: an added source of inefficiency) being built in one of the fast-growing residential centres in the country. But who cares about feasibility when the point of the exercise is to take Auckland assets and jobs and gift them to Northland in the hopes of securing a seat for a coalition partner.
Go back 50 years in NZ and all out of town freight shipped by rail. Rail from Port Marsden to inland port in NW Auckland like they now have at Hamilton & Manukau. And then overnight when the commuter lines are shut down rail it from there to South Auckland port, and around the country. Very little freight would need to come off the rails at the NW Auckland port. That would unclog State Hwy 1.
Then why the need for a distribution centre in the North West at all? Why was it a central part of the plan? Was it to alleviate the fact that the point of distribution would be primarily in the south of the city, as opposed to the central bits? This is where the Port study fell apart.
The reality is for all the talk of how other cities don't have the ports in their CBDs, almost no one was prepared to admit that few major cities have their ports outside the actual city region in totality.
The Port of Los Angles handles Asian Cargo that flows all over the US. Once off the ships unit trains leave the West Coast and arrive in the middle of the country over 3000k to the east within 3 days of unloading in LA. Given Climate Change NZ rail road need to be upgraded to handle containers from Port of Orgin to the regions, and then the fact that the port is 150k north of Auckland matters not a bit. That's the way it used to be in NZ as well prior to Rogernomics before Illinois Central took over NZ rails.
Like pumped hydro and light rail moving the port is just another distraction to avoid making sensible decisions
Brynderwyn Hills..most countries would gave bored a 4 lane highway with rail through that by now.....NZ yer/nar.
One of our suppliers has notifies us of price drops on some bulky parts , because of lower freight costs.
What The Growth In 'Financial Shenanigans' Says About The Economy
As Gavekal founder Charles Gave recently pointed out (hat tip, David Hay), “When S&P 500 profits diverge dramatically from NIPA profits, it is a sure sign that accounting methods have changed at S&P 500 companies. If S&P 500 profits rise to exceed NIPA profits by 20% or more, it is a signal that companies’ reported profits are being generated largely by their accountants.”
Moreover, there are important economic implications from all of this.
Gave continues, “Usually this means that the economy is on the brink of a recession, and that the stock market is about to take a beating.”
Last year, we crossed that 20% threshold between S&P 500 earnings and NIPA profits.
Perhaps we should add this to the growing list of leading indicators pointing to recession.
How many years of your list growing before you actually have one before you're in stopped clock territory?
Remember how many years we heard about Auckland houses being overvalued and due a correction at any second?
Markets watching in despair as they realise that central banks are actually going to crash economies and throw millions out of work to tame price rises that are only weakly related to aggregate demand / wage rises.
So, putting it another way, you're saying the very low interest rates and the pumping of $'s into the system, didn't help cause higher demand, price increases and low unemployment? I disagree.
Liam D., one of the Herald cheerleaders, hyping up the Chinese economy:
https://www.nzherald.co.nz/business/the-great-reopening-will-chinas-reb…
What are your new predictions for the recession, interest rates and the construction industry ?
Central banks are being left to do all the inflation fighting with their very blunt weapons.
We need more dwellings and yet the building industry can't build when i-rates are too high.
It way past due that central governments started to help every time inflation raises its head. They have so many tool at their disposal and yet due to politicking they do little or nothing.
The result? A total mess in a critical industry providing essential services ... i.e. building shelter!
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