Here's our summary of key economic events overnight that affect New Zealand, with news all eyes today are on the signals to be sent by the Reserve Bank of Australia. Inflation seems to be easing there but the central bank is widely expected to keep its foot firmly on the throat of inflation with another rate rise.
But first, American factory orders fell in January, mainly because of weak aircraft orders. This was as expected. But without that category, they rose and by a bit more than the advance reports suggested.
In Canada, the Ivey PMI series which is the most widely-watched set there fell back to only a modest expansion in February and this was not expected. It is a far steeper drop than anyone saw coming.
South Korea is making progress on the inflation front - probably at the cost of growth. Their February CPI rate fell below an annualised 4% rate and the year on year rate slipped to 4.8%. We get their Q4 GDP growth data later today.
China has released its budget and most of the focus has been on the big increase in defense spending. But it also raising its spending to increase its grain reserves in a clear self-sufficiency push amid ongoing concerns over food security.
China is also quickly expanding is 5G base station network. It currently has 2.3 mln in place and will add another 600,000 in 2023. The country currently has more than 575 million 5G mobile phone users.
EU retail sales were expected to rise +1.0% in January, recovering from a chunky December drop. But in the end the rise was only +0.3% which disappointed market analysts. However, the softness is all about lower levels of fuel and energy sales, which for them may be a good thing.
In Russia, and indicative of their economic pullback, total vehicle sales in January were for -62% to 32,499 and dominated by Ladas. To put that in context, in the same month in New Zealand our sales were 19,600.
In Australia, the Melbourne Institute's Monthly Inflation Gauge showed prices eased sharply to under 5% at an annualised rate in February from January from almost 11% annualised rate in January from December. This was the sixth straight month of increase in the index, bringing the year-on-year rate to 6.3%, which was the second highest since the series began. For sure, the RBA will have noticed this data ahead of their cash rate target review later today. But another +25 bps rise is baked in now and that will be their tenth in a row and taking their cash rate target to 3.60%.
Separately, the Aussie agricultural sector is in for a banner year this year on the back of very favourable La Nina growing conditions. They will produce product worth AU$90 bln in the 2022/23 year, also aided by high global prices. But forecasters expect drier conditions to return soon, so this may be a high mark for some time. Although late this year, their fire season is returning now on the back of some very hot weather.
The UST 10yr yield starts today at 3.98% and a net +2 bps from yesterday. The UST 2-10 rate curve is marginally more inverted at -92 bps. Their 1-5 curve inversion is similar at -79 bps. Their 30 day-10yr curve is a little less inverted at -70 bps. The Australian ten year bond is down -8 bps at 3.77%. The China Govt ten year bond is down -3 bps at 2.91%, a big move for them. And the New Zealand Govt ten year is starting today at 4.68% and -8 bps lower.
On Wall Street, the S&P500 has started its week up +0.7% in late Monday trade. Overnight, European markets were all up about +0.4%, except London which dipped -0.2%. Yesterday Tokyo ended its session up a strong +1.1%. Hong Kong rose a small +0.2%. But Shanghai fell -0.2%. The ASX200 ended its Monday session up +0.6% while the NZX50 rose +0.4%.
The price of gold will open today at US$1851/oz and down -US$6 since yesterday.
And oil prices start today up +50 USc at just under US$80.50/bbl in the US. The international Brent price is now just over US$86/bbl.
The Kiwi dollar is down -½c at 61.9 USc. Against the Aussie we are down marginally at 91.9 AUc. Against the euro we are down -½c at 57.9 euro cents. That all takes the TWI-5 down to 70.1 and a retreat of -40 bps.
The bitcoin price is little-changed again from this time yesterday, at US$22,523. And volatility over the past 24 hours has been low at +/-0.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
66 Comments
Yeah no need to keep pushing OCR higher, the lagged effects of previous OCR increases are starting to be seen...money is being sucked out if the economy & going straight to banks...
maybe true but the ocr is going higher
agree on this and also Nifty’s point.
This may be the slowest economic train crash the world has witnessed.
Subprime and the GFC took ages to get going as well
yes much higher than Aussie because we have a government who can't control their spending
Due to a previous government who didn’t invest in anything
So Labour has borrowed 10's billions , can you please list how this has improved Health, education, Crime Prevention, Poverty reduction?
And now we have a real Disaster Grant can't even find the 14Bil he had in his jeans back pocket.....
Where did it come from?
There's a lot of fear-mongering in that article, but it seems light on details. For examply : many are going to face much higher mortgage costs.
Who are the many? The few (compared to the rest) who bought in the last 2-5 years?
Many more will be facing higher mortgage costs, but are well prepared by having a) older mortgages that they b) paid down during the low-interest period. And double that number have no mortgage at all.
What we're going to see here is that a small percentage of a big number is still a big number - but there are far less people as a percentage of the population affected than the story would have you believe.
I also smiled at the old "increased interest rates means increased rents" - already been proven that you are not allowed to increase your rent "because rates went up/deductibility kicked in". The driver of rent increases is increasing population density, so the newly opened immigration floodgates will cause rent increases - which just happens to coincide with the rate increases.
Yep exactly right.
But we need to think above the additive impacts of people losing jobs or losing some of their income (reduction of hours / bonuses).This will impact anyone, whether mortgaged up to their eyeballs, low- moderate mortgage or no mortgage (outright ownership or renting)
Re: immigration - I went to the barber in the weekend, both barbers on duty had only been in NZ for 3 months, and while I was waiting they cut the hair of a whole South Africa family who had been here 3 months as well.
Interesting hearing the conversation, the massive Afrikaans dude owned a contracting company back home, was pretty much off the tools. Now he’s here, he’s back on the tools, 50-60 hour weeks.
Heard the usual stories, scary experiences in SA, came to NZ to escape the danger etc. Life and death stuff
SA is a basket case, rolling power blackouts. Its going to collapse just like Zimbabwe.
Its only a matter of time now, nothing can change the course of an African country once it goes tribal and corrupt.
Good for them for getting out. Many of the South Africans in NZ who came here 20 years ago are closely watching NZ,
Any sign of tribalism or corruption and they will jump to Aussie.
I am A NZer but also in that camp, Aussie has a lot going for it.
Yes no signs of corruption in Ozi..
Nah their cops are as pure as the pissed on snow.
It's a different type of corruption in South Africa. Over a trillion rand ($54b USD??) destined to be spent on infrastructure just mysteriously disappears.
That is next level..... but just SNAFU for Africa.
Many of the South Africans in NZ who cam here 20 years ago are closely watching NZ
My colleagues from India are wary of these trends as well.
Imagine coming to NZ from India, Malaysia or South Africa, hoping to have left those divisive systems behind for good and finding out Jacinda's real legacy isn't what the media has been selling all this while.
Same experience. I've had the same warning's expressed from immigrants from Asia. Many of us that live or have lived overseas can see this tribalism, race baiting doesn't unite the citizens. I notice too that these laws that separate race come in a very stealthily way. Under the guise of so called progress.
Hearing the same thing about South Africans seeing issues in this country. We are heading the SA way at a frightening pace. I am about to start actively looking for jobs in Australia. I want the kids to get a proper education, not all the woke b.s currently being delivered here. While not perfect, Australia provides opportunities that just don’t exist here now…especially with the divisive race policies introduced.
Why not stay here and fight to make NZ better?
As an extended family we've discussed this. We all agreed to fight for NZ (in any small way we can). Things like joining BOT, attending council meetings, signing petitions just whatever we are capable of.
I'm not having a go at you, just trying to inspire you to not give up without a fight.
My colleague is from SA and is obviously still in touch with people over there. Things are really getting quite bad over there.
"increased interest rates means increased rents"
Yeah, because when interest rates went down, landlords decreased their rents, right?
...right?
Interest rates go down, house prices go up, increased buy-in for speculative landlords is a zero-sum game. However, the driver of rents is demand, and for the last 20 years, but especially the period 2014-2020 we had record net immigration, which is what supported the rent increases seen over that time. Note wage increases helps support increasing rents, but rent increases have outstripped income increases, as seen by the greatly increasing number of homeless over that same period.
Until very recently, Auckland had negative net migration and this was reflected in rents dropping. Add on the sheer number of rentals coming onto the market (though many are useless 1/2 bed units) and rents may continue to drop a bit - though I expect with the increased number of immigrants, that should reverse later this year.
Agree with this, Rent is all about demand. You will not get rents dropping untill you have more rentals than renters.
In Russia, and indicative of their economic pullback, total vehicle sales in January were for -62% to 32,499 and dominated by Ladas. To put that in context, in the same month in New Zealand our sales were 19,600.
All that sweet, sweet oil and nothing to burn it in.
Fun fact I only learned recently: In the 80s the NZ Dairy Board exchanged milk product for Russian Ladas so were the NZ agent for them, having to sell and service them.
Fun fact. My not so young mother purchased a Lada in Wellington sometime last century. In one spectacular downhill sweep she put paid to three parked cars but the Lada (obviously an early WMD ) and she were virtually unscathed. “It just decided it wanted to go right across the road she explained.”:And sure enough a steering arm had given out. That is one of the Lada’s not the driver.
Fun fact: Lada put together a fairly impressive WTCC campaign for a few years, with relatively narrow sedans but with wheel arches that would put a widebody 911 to shame.
Seems like you would be able to buy a TCR-spec Vesta Sport for around $250k NZD + GST.
Given pedigree historic cars have rocketed up in price, that's pretty good value for a track-day toy if your numbers come up on Weds.
So the NZ education system was in trouble a long way back...
A well stocked larder?
“Inflation seems to be easing there.” Well that seems the opposite of here. Accordingly the rate rise the RBA does set would seem to be of quite relevance to NZ’s next occasion. Especially as in my view when already running in catch up mode, the RBNZ last month took a breather that was imprudent and simply opened out the target’s lead.
Starting to think our next lift is only 25
Really depends on the March 2023 CPI print. If CPI drops below 5% I would expect a .25% OCR rise. If CPI stays above 5% I would expect a .5% OCR rise.
Mathematically speaking, for annual CPI to have dropped below 5%, the next QoQ CPI print has to be in the negative territory, -0.4% at least.
That scenario looks highly unlikely given businesses in NZ tend to front-foot minimum wage hikes and start to push up prices a few weeks in advance. We could see food prices push CPI up in the aftermath of the cyclones.
Anecdotally food inflation is still running hot, Stopped by countdown on the way into work yesterday to pick up some lunch supplies, and those pad thai/satay chicken snack box things are now up to $5.90 each, they were $4.50 on special and i think $5.20 off special. Today decided to get a drivethru coffee at Maccas, Take on the morning deal (McMuffin and Coffee) has gone up again, now $8.
Just got back from my weekly grocery shopping (NW Tuesday 5% gold card discount). Spinach $6, Lettuce $7, yoghurt up $1/lt, coffee $10/200g (I get this at P&S for $7 plus a few other "luxuries"), ProActiv $10 - I'm now on statins anyway so have gone back to butter, cheese I didn't need to look this week....
Can't wait for the government to wade into this particular price discounting and ban it to level up the playing field for all.
You mean giving discounts to people based on age?
I had to larf, I got a $8.99 watermelon at Pak and Sav. Its a good family desert as they have to sit and talk as I cut it up, vs run off with icecream.... Anyway was at countdown an hour later and they where having a Watermelon sale, $14.99 down from $21.....
Be smart shop around
Probably better if you patronize Kiwi companies. At least the profit stays here.
FWIW, yesterday, ASB told a first time buyer that "We aren't doing that any more" when they asked the loan officer, directly, for the 4.99% 1 Year Fixed to get them started.
I reckon there'll be an appointment made at the BNZ to see what they say.
Why are they not going to Kiwi Banks ?
China is also quickly expanding is 5G base station network. It currently has 2.3 mln in place and will add another 600,000 in 2023. The country currently has more than 575 million 5G mobile phone users.
How Putin’s war killed off the 5G dream
Surging energy costs and customer apathy have wrecked hopes of a revolution in mobile internet
China is also quickly expanding its state personal surveillance 5G base station network
My English guest this week works for GCSB in UK. Not allowed to travel overseas anywhere near China, or Arab transit airports because of Chinese phone surveillance.
China has released its budget and most of the focus has been on the big increase in defense spending. But it also raising its spending to increase its grain reserves in a clear self-sufficiency push amid ongoing concerns over food security.
I estimate that China's military spending will increase from 1.198% of GDP in 2022 to 1.201% of GDP in 2023. Link
The price of gold will open today at US$1851/oz and down -US$6 since yesterday.
Perth Mint, the largest processor of newly mined gold in the world and the only mint in the world that has a government guarantee, faces a recall of up to 100 tonnes of gold it deceivingly diluted before selling it to China. Link
Thats a great read, funny how gold exports are banned from China..... They are quite happy to export their Bitcoins for useless USD....
We are getting ripped off by our banks, who would have thought?
ANZ is the largest bank in New Zealand. Its floating home loan rate is 7.99%, which is a margin of 324 basis points higher than the 4.75% official cash rate
In the UK, the largest bank is HSBC. Its floating rate home loans, which it calls “tracker” loans, have even greater risk-based pricing than ANZ’s in Australia.
Someone with 40% equity, or more, would be offered a tracker rate of 4.29%, which is only a fraction above the Bank of England’s base rate of 4%.
https://i.stuff.co.nz/business/money/131414141/kiwis-pay-home-loan-inte…
My favourite is the big fat middle digit that the banks have pulled to Orr re passing through the OCR.
Ball's in his court - I expect a swing...and a miss.
If you can't get a run on the board from it, why even acknowledge that the ball is in your court, or the fact it exists?
It has always seemed pointless having an OCR, as it clearly doesn't control inflation.
Even the most ardent believer in Economic theory must now be wondering how it works if the banks just ignore it.
Central retail bank is looking a better and better option.
The Treasury announces the launch of a new 4.50% coupon 15 May 2030 nominal bond. Given the timing of the launch, the Treasury also announces the cancellation of the tender scheduled for 9 March 2023.
The Treasury expects to issue at least NZ$3.0 billion of the 15 May 2030 nominal bond and the transaction will be capped at NZ$5.0 billion. Initial price guidance is 2 to 5 basis points over the 20 April 2029 nominal bond.
The issue will be priced on Tuesday 7 March 2023, and further issuance of the new bond will not occur prior to June 2023.
ANZ Bank New Zealand Limited; Commonwealth Bank of Australia; J.P. Morgan; and Westpac Banking Corporation, New Zealand are Joint-Lead Managers for the issue. Link
By relentlessly depriving investors of risk-free return over the past decade, the Federal Reserve has spawned an all-asset speculative bubble that we estimate will provide investors little but return-free risk over the coming decade.
While 2022 was a challenging year for the financial markets, it is important to place stock and bond market losses in the context of valuations. Every security is a claim on a future stream of cash flows that investors expect to be delivered over time. For any given set of cash flows, the only way to increase the future expected return is to reduce the current price. For example, at the beginning of 2022, investors had priced 10-year Treasury bonds to provide a yield to maturity (average annual total return) of just 1.51%. By the end of the year, 10-year Treasury bonds were priced to provide average annual returns of 3.87% (as were 9-year Treasuries). To achieve that higher yield to maturity, the price decline required of 10-year Treasury bonds in 2022 was (1.0151^10) / (1.0387^9) – 1 = -17.46%, assuming a zero coupon for simplicity. From this lower starting price, the additional yield-to-maturity amounts to nothing but the expected recovery of that loss. The higher long-term return is the result of a larger advance in the price toward the face value of the bond as it matures, and for coupon bonds, of future cash flows being a larger percentage of the lower starting price.
Put simply, higher expected returns go hand-in-hand with lower starting valuations. Long-term returns are not determined by randomly flipping a coin, but by arithmetic. Respect for the relationship between current price, expected future cash flows, and long-term returns is what distinguishes “investing” from “speculation.” Year-to-year returns can experience a great deal of fluctuation, particularly as investor psychology shifts between speculation and risk-aversion. Yet long-term returns are much more mathematical in nature, because they are linked, and must ultimately be produced, by the delivery of future cash flows. There can be uncertainty around those cash flows due to default risk, or in the case of stocks, economic and business fluctuations. Yet in our analysis, the extent of the uncertainty around long-term economy-wide and index-level cash flows is far smaller than investors often seem to imagine. Long-term cash flows are also much less dependent on current-year profit margins than nearly all of Wall Street implicitly assumes when it values stocks based on a single year of “forward operating earnings.”
In the belief that low or zero interest rates left investors “no alternative” but to speculate, regardless of valuations, investors drove stock market valuations to a January 2022 extreme that, on our most reliable measures, stood at 3.6 times the historical norms that we associate with “run of the mill” long-term stock market returns (historically, about 10% annually). Presently, our most reliable valuation measures, based on their correlation with actual subsequent returns in market cycles across history, remain between 2.4 and 2.7 times their respective historical norms. These valuations exceed those observed at the 1929 and 2000 peaks, are matched by valuations observed at market peaks in 2018 and 2020, and are exceeded only by the final speculative advance to the January 2022 extreme. Nothing in our investment discipline requires these valuation measures to revisit their historical norms in the future. Still, it is worth repeating that respect for the relationship between current price, expected future cash flows, and long-term returns is the crucial distinction between “investing” and “speculating.” Link
This is cleary all rubbish as property doubles every 10 years, HW2 please feel free to chip in and tell us all how bond market mathematics and valuations do not apply to NZ shiteboxes......
Meanwhile unlisted real estate income trust (REIT) real estate income trusts, block with drawls.
https://youtu.be/4cia_v4vxfE Bachman Turner Overdrive - You ain't seen nothing Yet.
Blocked withdrawals: surely the sound track should be Hotel California: 'we are programmed to receive...you can check out but you can never leave....'. Someone with more time on their hands can ferret out the YT clip.
Saw them a few years back
Looked like they'd seen a few hard nights....
Economist Cameron Bagrie reveals what it would take for housing market to turn | Newshub
Theres that pesky "Cost of Capital" issue again......
Bagrie said the property market turning would require investors to re-enter the industry.
"The investors are like that marginal buyer that will look at the numbers and if you look at residential investment at the moment… the residential investment yields are well below the cost of capital where interest rates are," he said. "The investors are still pretty lukewarm in the market out there and, until they return, I don't think the market's going to base."
Lmao, that's Bargie calling quite a big fall in prices. He was saying cost of lending around 6.5% right now so yields need to be higher than that to get investors back in and stop the price falls. Take your average house that used to be $1m, rented at 650 per week so 33,800 p.a., thats just under 3.4% yield. To get that bad boy to a yield Bagrie thinks investors will bite at (say 7%) requires the price of that asset to fall to $480k all else equal. Lets be generous and assume that in the intervening 2 years of price falls rents increase at 5% per annum, so it's now rentable at 720 p.w. / $37,440 p.a., to yield 7% requires the asset to be worth $535k. Didn't realise Bagrie was such a bear.
You are using gross yield. Net yield, after you subtract Rates/Insurance/maintenance and the non-tax deductibility of interest, the situation is much much worse. Residential investment is now effectively over as an option for new entrants.
It really doesn't matter which ratio you use, net yield doesn't tell the full picture either as investors would also factor capital gains into their total return and accept (apparently) lower yields for that sweet retirement money in a decade or so.
Totally agree........ if you run the number through a spreadsheet with interest deductions, paying for last owners deffered main, repaints roof etc etc we will head back to 2008/9 levels before investors return. that said the 2s/10s inverse yield curve is going to move asset prices a lot lower much faster if that level of reession arrieves its 1990 level
That's a good thing. We really didn't need amateur investors running around with everyone else's money bidding up the price of existing houses.
Cash poor but "paper rich", not even gained from furiously chipping away at their mortgage but from other unneeded investors inflating the market.
"Here's $500k no money down just make sure the rent covers the interest payments".
Cam has done the math, you are not adding a risk preium for an illiquid asset.... joce does....
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.