Here's our summary of key economic events overnight that affect New Zealand, with news US workers are back with incomes rising faster than inflation, and China is back with notable growth.
But first up today there was another dairy auction overnight and that brought a surprise lift in prices - not major, but unexpected. Prices rose +3.2% in USD terms and were up +4.9% in NZD terms. This comes after a series of disappointing results, interrupted by the occasional rise. It is hard to know whether this pattern is repeating or this marks a turning point up. Today's rise was the most since September 2022, but was on low offered volumes, the least since June 2022. The core WMP price only moved up +1.0% but butter was up +4.9% from the prior event, cheddar cheese up +5.7% and SMP was up 7.0%. Rising demand for foodservice uses in China was probably behind these shifts.
Meanwhile American retail is still weakening, up a mere +1.1% last week from the same week a year ago, nowhere near enough of a gain to account for inflation. Excluding the pandemic period, that is a weak expansion matching the 2016 period.
Perhaps Americans are becoming more thrifty? Median weekly earnings of full-time wage and salary workers were +6.1% higher in the first quarter of 2023 compared to the same period a year earlier, according to official US data. Inflation during that time ran at +5.8%. The inflation story is almost always about workers falling behind, but not so in the US it seems, and that is pretty notable. Actually, in the US, this positive relationship was pretty normal in the years 2013 to 2021. It was only when inflation got out of control that the tables were turned.
March housing starts in the US were little-changed from February and essentially maintaining their recent uptick even if they are lower than year-ago levels. New residential building consents were at a similar level although they seem to be tailing off in 2023.
Canada didn't surprise with its March CPI inflation number, coming in at the expected +4.3% level from a year ago. But that is its lowest there since mid-2021. Petrol prices fell, food price rises slowed.
China's bounce out of its pandemic lockdown raised their GDP by +2.2% in Q1-2023 from Q4-2022. This was the rise analysts expected. However from a year ago, their GDP is up +4.5% which was more than the 4.0% expected. This was all driven by retail sales which were up +10.6% with widespread revenge spending. Electricity production was up +5.1% with coal production up +5.5% and imported coal flooding back in. Industrial production rose +3.9% when +4% was expected. If you think about these changes, they don't actually suggest a very stable situation but that may just be their systems stuttering to reopen.
The Indonesian central bank reviewed its policy rate and monetary settings overnight and left that key rate unchanged at 5.75%.
The recent improvement in economic sentiment in Germany is still there but it is less in the latest ZEW survey. This is despite an improvement in the view for current conditions.
The latest RBA minutes show they are prepared to raise rates again, despite their recent pause, because they fear strong population growth and big public sector wage rises will push up inflation again. The pause was nervously agreed, these minutes show. Inflation is currently running at 7.8%. The policy rate is still only 3.6%.
And staying in Australia, their tax authorities are about to audit up to 1.7 million mortgage holders this financial year as it clamps down on tax-rorting by residential property investors. Almost 20 financial institutions, including the big four banks, will be required to share loan data with the ATO as part of a new data-matching program, which the tax office says shows nine in 10 landlords are getting their tax returns wrong - not declaring rental income and/or over-claiming expenses. Billions are involved.
The UST 10yr yield starts today at 3.58%, and little-changed from this time yesterday. The UST 2-10 rate curve is little-changed at -63 bps. Their 1-5 curve inversion is now at -114 bps and marginally less inverted. But their 30 day-10yr curve is now inverted at -20 bps and further substantial lowering. The Australian ten year bond is up +5 bps at 3.51%. The China Govt ten year bond is still at 2.85%. But the New Zealand Govt ten year has charged up +16 bps to 4.30%.
On Wall Street, the S&P5400 is in its Tuesday trade unchanged from yesterday. Overnight, European markets closed up +0.5% across the board. Yesterday Tokyo ended up +0.5%. Hong Kong ended its Tuesday session down -0.6%. Shanghai ended up +0.2% at its close. The ASX200 ended its Tuesday session down -0.3% while the NZX50 ended down -0.4%.
The price of gold is at US$2005/oz and up +US$10 from this time yesterday.
And oil prices are little-changed and just over US$81/bbl in the US. The international Brent price is just under US$85/bbl.
The Kiwi dollar has moved up slightly against the USD and now at 62.1 USc and a +30 bps firming. Against the Aussie we are unchanged 92.2 AUc. Against the euro we are little-changed at 56.6 euro cents. That means the TWI-5 is at 69.7, up +20 bps.
The bitcoin price is firmer today, now back at US$30,178 and up +2.3% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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55 Comments
https://www.nzherald.co.nz/business/richard-prebble-losing-sleep-over-t…
Richard Prebble: Losing sleep over the chances of a credit rating downgrade
If it wakes people up to the damage labour are doing then maybe a downgrade would be a good thing!
Downgrade to what? From AA+ back to AA as it was in 2019.
That's how it happens. People who have had the information in front of their eyes for some time and have chosen to dismiss it as "I've seen all this before - for years!" suddenly wake in fright as they realise what's about to happen. Many are about to have their 3:40am moment.
I dont think we should lose any sleep over the views of richard prebble regards credibility of our dollar or anything else,he had a good life serving his own interests and has a sweet pension.the herald will be wheeling out a lot of these old stagers that share the editors view in this election year.
Curia Research did a poll on perceived media bias based on 1000 respondents. The results surprised me somewhat - I thought Radio Red would have been perceived more left than it was, and the Spinof would have been more left than Stuff:
Bias Right
NewstalkZB 36%
The Platform 28%
Bias Left
NZ Herald 1%
RadioNZ 6%
Newshub 12%
One News 15%
The Spinoff 16%
Stuff 19%
Whats that you said, A surprise lift in prices?
Well maybe things can turn and fortunes change after such prolonged falls in dairy prices
The farmer experts were already predicting a major turnaround over the next year. China is coming back. They did not mention the assumed exchange so let's say its unchanged
Good time to buy... was yesterday
Prebbles an old campaigner, been both a left and right winger, can step off both feet. Most of his comment relies on his long political and parliamentary experiences and that is of substance that shouldn’t be ignored.
Actually I wondered whether IT GUY had been to a seance? Prebble is part - an unfortunate part - of NZ history.
Given the current state of the human trajectory vis-a-vis our very finite planet, his pandering to the neoliberal mantra (free-markets aka the rich make themselves richer and the rest get the picture) was a waste of 40 valuable years. We are so much less resilient, so much less sustainable, than we could have been.
I reckon a better analogy is that he tripped and fell flat on his face, trying to lead with both feet at once.
To put that comment in perspective, I regard Cullen in the same light; offloading responsibility from Govt to individuals, but retaining the flawed monetary-thinking as to how to store wealth.
Two British Lions of 1959, Mick English Ireland, Phil Horricks - Taylor England , both 5/8ths subsequently faced each other in the five nations. Ireland led 10 to 6 on full time but an English five yard scrum from which Phil danced past Mick and scored the winning try without a hand laid on him. So in the Irish aftermath dressing room Mick was an asked loudly why the hell he hadn’t even tried to tackle. Well he said I worked out he was going to run at me so I was ready when he came at me, then suddenly Horricks went one way then Taylor the other and I got the bleeding hyphen. Yep Prebble was a good hyphen too, I would suggest.
I wondered where that was going, sid
Beginner , Real Spruikers buy the day before yesterday !
Bugger !
Tony the Comb said something about green shoots. Better rush out and buy buy buy!
Chat Ai Just for fun as I don’t understand bond markets I asked chat to compare two of David’s recent reports. Here was the summary I got -
Comparing the two reports, there does seem to be a trend of increasing bond yields in New Zealand. In the first report, the NZ Government 10 year bond rate was at 4.17%, while in the second report, it had risen to 4.30%, an increase of 13 basis points in just two days. This suggests that investors may be demanding higher returns for holding New Zealand government bonds, possibly due to concerns about inflation or a possible tightening of monetary policy by the Reserve Bank of New Zealand. Additionally, the fact that the UST 10 year yield was little-changed in both reports may indicate that the trend is specific to New Zealand rather than a broader market shift.
(any comments from bond experts on answer?)
I was toying with the idea of creating a ChatGPT account to make comments on Interest.
Scary thought isn't it..
Elon Musk suggests that creating AI to lie is not a good path to be on.
But yet we can't handle the truth.
Gave ChatGPT a whirl yesterday for shits and giggles. I'm cutting my teeth on PowerBI for work. Was trying to write some code for Power Query which was breaking on me, so I asked it nicely to fix it.
The issue with your code is that you are trying to use a DAX formula in the Power Query Editor, which is not supported.
It then went on to give me 7 comprehensive steps to achieve the results I want, and a box with the correct code, including comments on what placeholders it has used.
I’ve had mixed results..sometimes because it’s my area I push back and say you are incorrect. Eventually the correct answer comes, but if you didn’t know your subject you need to be wary.
ZS - I thought you had, long ago
:)
I'll take that as a compliment.
I'm pretty sure TTP beat you to it ages ago ;)
The US wage information isn’t positive news if you wanted a pause in the Fed rate rises (even if you want to paint the picture that wages rising faster than the CPI basket of goods is a positive outcome - central banks don’t want consumers to have extra money to spend when they are trying to destroy inflation by reducing demand!).
They will see 6% wage rises as yet another sign that they don’t yet have inflation under control.
US Retail sales drop though, fuel prices helped this time
More crazy behaviour to watch for, changing car ownership records
Surreptitious car registration changes cause headaches for owners | Stuff.co.nz
https://i.stuff.co.nz/national/131780170/surreptitious-car-registration…
Man wrongly arrested for 'stealing' his own car | Stuff.co.nz
https://i.stuff.co.nz/national/crime/131764655/man-wrongly-arrested-for…
The former has been an issue for a very long time, the only thing that's changed is media has picked up on it.
The other thing that is really the problem, is thinking the database is a a record of ownership, and letting police treat it as such. Its not. Its a record of registered person, ie, who do the police/nzta send the tickets to for stationery vehicle offences and reminders of vehicle licence.
And staying in Australia, their tax authorities are about to audit up to 1.7 million mortgage holders this financial year as it clamps down on tax-rorting by residential property investors. Almost 20 financial institutions, including the big four banks, will be required to share loan data with the ATO as part of a new data-matching program, which the tax office says shows nine in 10 landlords are getting their tax returns wrong - not declaring rental income and/or over-claiming expenses. Billions are involved.
For all the effort put into builders/tradies, I suspect IRD would find much easier wins here.
Billions in tax not paid by landlords in Australia. Probably same in NZ?
Greedy bunch these landlords aye and now they keep putting articles up in media with crying faces that they have to pay taxes on their gains. Pay it up mate.
Each one of us pay PAYE on our salaries, we do not have leverage to make up or claim on expenses.
And a PAYE cannot claim GST too..
I own rentals and pay truckloads of tax mate. It's far easier to obey the rules than concoct some elaborate scheme to break them. Helps with sleeping at night too.
Maybe thats why Prebbo is waking at 3.40am..
Quite right. The IRD has the time, technology and a budget to outdo any of us.
But I'll wager that there are many, unlike you, who charge the new driveway concreting at home to the rental portfolio.
And one day, the IRD computer will do a reconciliation.
If we include how many bought and sold for the purpose of capital gains while pretending not to have so as to evade tax, we really would've benefitted socially from a more tough on crime approach.
nktokyo
Agreed. Very very risky to tell IR porkies.
I knew of a landlord who didn't declare rental income. All fine until the tenant fell on hard times and had to make an application to Work and Income for an accommodation supplement. Data sharing between W&I and IR was his downfall; he was convicted and bankrupted.
So many ways that can trigger an audit and they aren't stupid. The recent increase in data sharing, the considerable and widespread reporting requirements (including property transactions), and application of their algorithms are just a few ways. The hearsay of getting away with things are very much becoming part of the past.
If caught out, they are merciless regarding criminal charges, they get to decide the penalties which tend to be very heavy and compounding, and they will be on your back for life.
Not surprising, IR are the biggest instigators of bankruptcies in New Zealand.
It guys boasts of millions in gains would keep them busy
+1 we had rentals for around 20years, sold the last one over a decade ago.
For most of that time I did our tax returns (& managed the tenancies as well as the building body corporate). I found IRD to be exceptionally helpful in those days (& it was easy to get hold of a real human then).
Is that the reason why many landlords are keen on buying existing rather then new builds. They can secretly renovate the building and claim the expense as repairs and maintenance.
Many a new kitchen bench top or new carpets has been installed at a Landlords houses by mistake rather than at one of their rentals...... like registering another persons car, an honest mistake.
As an ex landlord I admit it was very tempting to do just that. I wouldn't recommend being a landlord to anyone.
I've just seen an awesome, right up my street property. Ticks 90pct of the boxes but out of my preferred spend range. I guess others will also like it.
But should I wait a month, catch the desperate vendor off guard and score a sweet discount
Have you compared the numbers to renting? If so, how did the comparison look?
5.8 pct gross. Quite good but we need better. Some say 8 to 10 pct and no one will ever sell to them
A new bench top is not r&m anyway, unless replacing like for like which is highly unlikely as you don’t replace a 80s kitchen with an 80s kitchen. If landlords are doing it they better be careful
We had the outside of the house repainted a couple of years back and the contractor innocently asked "What address do you want on the invoice for where the job was done?". Must be a common thing.
That 90% of landlords being on the wrong side sounds very serious. A high number. Could be some carnage over there.
its not the 90% of landlords that worries me --- it would be what % of rentals to they own --- as the vast majority of landlords only own 1 or 2 rentals -- so a drop inte h ocean overall --- the big players with 100+ rentals i suspect are all sittign very nicely thank you and will simply ride it out and then keep adding to their portfolio when they see more value
Landlords are amateurs compared to farmers :)
You really should follow this closely - it isn't hard to understand. For those whose job it is to monitor and regulate (allegedly) the monetary system, their silence is deafening. Either they're too incompetent to notice or too corrupt to be honest. This is not fine. Link
Just for reference/reminder, the current RRP is 4.80%. The secondary market for the 4w Tbill is trading at 3.70%. A 110 bps premium (price) is NOT NORMAL. Hell, a 10 bps premium should be setting off alarms. There are serious problems RIGHT NOW under the monetary surface. Link
"Landlord" and "tax cheating" in the same sentence. Who would have though...
"S&P5400" is that actually a thing? 2nd day in a row now
Inflation - probably quite accurate looking back from 2030.
The recent improvement in economic sentiment in Germany is still there but it is less in the latest ZEW survey. This is despite an improvement in the view for current conditions.
Good Morning from #Germany, where the crisis in the German housing sector is deepening. The number of building permits for dwellings fell by an astonishing 20.6% in February. This was the 10th consecutive decline due to higher interest rates & construction costs. Link
- In 2023, we expect sharply rising business failures in South Korea (154%), Italy (90%), Hong Kong (83%), New Zealand (82%), the Netherlands (79%) and the United States (74%).
- In 2024, we forecast relatively high insolvency increases in New Zealand (62%), South Korea (35%) and Singapore (30%).
(Atradius. One of the largest global credit insurance organisations in the world providing credit insurance and credit management products and services through 160 offices in 50 countries worldwide.)
There'll still be some economist bleating on about seeing a US recession.
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