Here's our summary of key economic events overnight that affect New Zealand, with news both the US and China are slowing now in what will surely have global implications.
First, weaker American consumer sentiment is taking the wind out of Wall Street today, but it is also helping the Fed lower inflation expectations. The widely-watched University of Michigan consumer sentiment survey for May came in much lower than expected - in fact no change was expected, but it actually dipped to a six month low. Congress's debt limit crisis got a specific mention as a key reason for the sudden shift in attitudes. (We will have more on a novel solution to the problem in a podcast later this morning.)
As the days get closer to a June debt-limit crisis (which could come very early in the month), the US Treasury Secretary noted some American debt will inevitably be defaulted on if Congress doesn't act very soon. Short-term costs for insuring American bonds are skyrocketing, and the long-term effects of repeated flirtations with debt default are already a financial burden. These are costs that are spreading worldwide and even impacting our wholesale rates.
Separately, the USDA World Agriculture Supply & Demand Estimates (WASDE) have been refreshed with new big-data-based estimates. That has seen grain prices generally fall as American growing conditions are excellent and likely to result in bumper harvests. The exception is wheat where world stocks are low. They see larger crops in several countries, including Argentina, Canada, China, the EU, and India that are partly offset by sizeable declines in Australia, Russia, Ukraine, and Kazakhstan. They now expect higher beef imports into the US and higher beef prices. Dairy estimates are little-changed.
In Canada, their quarterly senior loan officer survey showed mortgage lending conditions tightened sharply in the March quarter. Other business lending showed tightening too, but not to the extent of mortgage lending. In fact mortgage lending was its tightest since their survey began in 2017.
In Japan, financial group SBI Holdings announced that it will make a takeover bid for its affiliate SBI Shinsei Bank and take it private, by acquiring the 27% of the lender it doesn't own for NZ$1.8 bln. SBI owns UDC.
Yesterday we pointed to deflating producer prices in China as a sign that their economy is misfiring. We can also note that loan demand has weakened much more sharply than expected too, confirming the funk. In the long term it is probably a good thing that debt levels aren't rising as fast, but this recent shift is caused by stuttering activity levels. Imports are very weak, suggesting the need for inputs is weak. And Chinese banks extended less than ¥720 bln in new yuan loans in April, less than a fifth of March's level and just over half of the amount expected by analysts. That is a massive change in just one month. Analysts had expected a fall to ¥1.4 bln so this came in at about half of what was expected. For a country as large as China, this is huge.
More than that, Chinese household bank deposits dropped sharply in April too, by nearly -¥1.2 tln (-NZ$280 bln), according to the same data release. That too is a massive one-month change.
India's industrial production growth unexpectedly slowed sharply in March, rising just +1.1% from year-ago levels which was quite unexpected given the strong rises in the prior four months.
Indian inflation also slowed sharply to 4.7% in April, the lowest since October 2021. That is a full percentage point drop from 5.7% in March (and 7.8% a year ago). Food inflation came in at 3.8% and the lowest since November 2021. Climate isn't hampering Indian food production.
In Australia, global leaders from accounting and consultancy firm PwC are flying in to try and rescue the firm from a deepening fraud disaster. Recall, partners there are accused of trading in confidential information they gained from helping the Government in its tax policy development, using that inside knowledge to brief other clients that would be affected. The scandal is affecting the firm globally now. And coming up will be a very public Parliamentary Inquiry in Canberra. We will hear a lot more details soon that are sure to unsettle PwC's reputation further.
The UST 10yr yield starts today at 3.46%, and back up +5 bps from yesterday. That puts it back to week-ago levels. Their key 2-10 yield curve is a bit more inverted at -55 bps. Their 1-5 curve is little-changed at an inversion of -136 bps. And their 3 mth-10yr curve is more inverted than yesterday, now by -221 bps. But this is the only one more inverted in a week. The Australian 10 year bond yield is now at 3.39% and up +5 bps from yesterday. The China 10 year bond rate is up +1 bp at 2.73%. But the NZ Government 10 year bond rate is now at 4.06% and down -10 bps from this time yesterday.
On Wall Street, the S&P500 was down -0.2% in its Friday session and a -0.3% weekly fall. Overnight European markets all rose about +0.4%. Yesterday Tokyo ended up +0.9% for a +1.0% weekly gain. Hong Kong ended its Friday session down -0.6% for a sharp -2.5% weekly drop. Shanghai was similar, dropping -1.1% on the day to be -2.1% down for the week. The ASX200 closed Friday little-changed to be up +0.5% for the week. The NZX50 was up +0.4% on Friday and the same for the week.
The price of gold will start today at US$2011/oz and down -US$20 from this time yesterday.
And oil prices have fallen another -US$1 from yesterday to be just under US$70/bbl in the US. The international Brent price is just under US$74/bbl. Downward pressure is still strong.
The Kiwi dollar is -1c weaker against the USD and now just under 61.9 USc. Against the Aussie we are also -1c lower at 93.2 AUc. Against the euro we are -¾c lower at 57 euro cents. That means the TWI-5 is now at 70.1 and -80 bps lower than this time yesterday, down -60 bps in a week.
The bitcoin price is lower again today, now at US$26,359 and down another -1.9% from this time yesterday. Bitcoin was at US$29,557 a week ago so it has retreated more than -14% since then. Volatility over the past 24 hours has been modest at just over +/- 1.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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75 Comments
I actually quite like nationals policies including removing interest deductibility rules from rentals. Not allowing deductibility is only going to push up the price of rent. Granted, I’m not confident in any party but national act are definitely the least worst option.
Yeah I'm not buying it. When interest rates went down did we see a reduction in rent increases? If we straight up gave landlords money would that reduce rents? (hint: accommodation supplement has done nothing to reduce rents and in fact, has probably pushed them up higher). Rent is supply and demand, landlord costs have little to do with it as we have seen with many "investors" going after capital gains rather than yield in recent years, with lots of talk of "topping up the mortgage".
Rents will likely be going up but this will most likely be coming from increased immigration and Auckland floods taking a lot of housing stock out of the rental market. Australia still has full-fat negative gearing and as we can see over there rents clearly aren't going down anytime soon either and are actually going up at a rate much worse than in NZ.
It's pretty straightforward, any time you initiate a new cost or rule on something, price goes up.
Looking at what's going on with rents and inflation in the super short term doesn't tell you anything - the interest deductibility rules don't even kick in 100% for 2 more years.
But if we look at Ireland, they threw a bunch of measures at housing to shift the balance between landlording, renting and home owning. The results are less availability for homes to rent or buy, and higher prices.
Although if you make the rules bad enough, you get enough capital and human flight so there's cheap housing for everyone!
I'd agree with that if rental yields weren't already so cooked. Fundamentals have been completely ignored and that is a double-edged sword for investors. Overleverged landlords who are most affected by these changes were going to be trying to get rents up as fast as they can anyways, the rule changes aren't going to make that big of a difference in this. Not to mention a lot of current landlords may be mortgage free and not affected by these changes. And the reality is renters can only afford so much, there isn't much meat left on the bone as is, and the capacity for people to actually pay more isn't necessarily there.
And the deductibility rules aren't applied to new builds anyway so the incentive to create new housing is the same as ever. We should be encouraging investors to create new housing, not buying up existing stock and renting it out. The latter wasn't really adding much value to the overall rental market in the first place and was probably making things worse.
And it isn't looking at short-term trends, rents go up, they always go up despite zero changes or even reductions in cost for landlords. The only time they went down is during covid when demand got lowered due to the population not increasing. The fact that landlord costs are going up now will have little effect on whether or not rents go up because they were going to go up anyway. Landlords are already charging as much as they can and as we have seen in the past their own costs have little to do with it. I could be wrong here but from what I have seen it seems to be the case generally.
Ireland bought in other changes like rental controls which would be more impactful than removing interest deductibility. And again, look at Australia, way looser rules than here, and yet they have all the same problems we do. What it shows is we can't really depend on private individuals to supply a stable rental market as the incentives are to create a scarcity of housing rather than trying to keep a healthy balance.
I'll let you in on a sweet inside tip: every time you think rents and house prices can't go up, you will most likely be wrong.
The entire country of Ireland often has only around 500 available rental dwellings. NZ has close to 8,000 at the moment, and we apparently have a 'crisis'. They can have rental controls and do whatever they want, but it's irrelevant because private landlords and house builders have simply left the building, and the government won't (can't) fill the void.
Every rule has a cost and the level may not be apparent for quite some time.
At what point did I say they can't go up? I literally said they will keep going up. What I said is that changing the tax rules around them isn't going to be the sole cause of rents going up and even if we scrapped all those new rules that you are blaming for rent rises, the rents would still go up anyway.
Any tax changes that aren't around building new housing stock (which we still have interest deductibility for) aren't going to do diddly squat for the current or any future housing shortages. And houses don't just cease to exist when a landlord sells them, typically somebody ends up living in them. And what we actually need is more people living in their own houses rather than people renting them out.
You were making a logic based argument for the interest rate changes not having that much of an impact, based on your assumption rents have hit a ceiling.
I'm saying these changes can't not be inflationary for rents, i.e. they will exacerbate future rent increases.
Fundamentally, for a magnitude of reasons, housing is and will be in short supply. That situation needs reversing, instead of trying to move around the existing pieces and hoping they'll suffice.
Where did I say they have hit a ceiling? They will keep going up, I literally said they will keep going up. How many times do you need me to repeat this? Should I put it in bold? Rents will keep going up.
But they were going to go up anyway. Landlord costs are only one small part of the equation and the fact that housing was already so out of wack with reasonable yields meant there was only ever one way they were going to go so may as well buckle in and watch the shitshow unfold. Shit's broken on a fundamental level and no amount of government fiddling will fix it outside of something on the scale of the Ministry of Works.
Just to try and be specific, you said
And the reality is renters can only afford so much, there isn't much meat left on the bone as is, and the capacity for people to actually pay more isn't necessarily there.
And my view is anytime I've heard (or even thought myself) some sort of assumption like this about the costs of housing, it's invariably wrong. Usually even faster than I thought.
There is a limit though isn't there? At a certain point, you can't actually charge anymore as people literally cannot afford to pay the prices asked, it's not like FHB's or property investors where interest rates kept creeping lower allowing people to borrow increasingly insane amounts of money to purchase houses and ignore fundamentals.
Sure we can cram more people into existing houses, multi-family homes, sharing beds, etc, but even that has a limit.
Even in Dublin or Sydney with insane demand, they can't charge beyond a certain amount as people literally cannot afford to pay more. I suspect they will keep going up, and everything will likely get significantly worse for renters, but everything is already so completely and fundamentally whacked that even if we increase/decrease landlord costs it will make no difference as the situation is pretty much already beyond remedy. The only actual solution is to build more housing which is easier said than done.
There is a limit though isn't there?
probably. However
Sure we can cram more people into existing houses, multi-family homes, sharing beds, etc, but even that has a limit.
That limit, is probably a lot further from where we are today.
The only actual solution is to build more housing which is easier said than done.
No kidding.
It's actually easier than many might think. Housings a high priority issue for many people. Enough to form a decent enough voting block to hold an incumbent major party to ransom with, anyway.
The alternative is to try and wait till the boomer voting block is an absolute minority.
You've got it in one! The two broad church parties are now stale or moribund. It seems the only way to get policy change is to party vote for a more cavalier minor party that (a) is closest to your own political ideals; and (b) is very likely to be in Parliament (by crossing the 5% threshold or doing an electorate deal). Even then, during the horse trading period after election day, one has to hope that (a) they are able to enter into coalition with a broad church party; and (b) get a deal that promotes as many of their policies as possible.
Good to see you two want more of the same old same old that we have had for the past 25 years, and nothing changes and nothing really gets done, Labour spends up large when in power, and National pays the NZ debts down. No spend on education (our future), no spend on health and no spend on infrastructure. Result NZ gets further and further behind other country's, when we used to be one of the top countries world wide.
Maybe. But that would require a large chunk of Ilam voters to think it's a good idea that another left leaning party is needed in the parliamentary mix. Possibly risking the result of a Labour/Green/Maori/Top government. Hard to imagine enough of them voting for that. And I don't think National/ACT/Top would be a possibility...too far apart.
Hard to see how TOP are left leaning. Radical centrist is how they are generally described. Only extreme right wingers would call them left wing.
I would describe them as future focused, philosophically long termists, attempting to look after future generations instead of existing groups. And a party full of people educated in the fields which they represent (I forget the term). All of these things are decidedly lacking in the current political spectrum where it's mostly people who have zero training taking on running those portfolios.
Check your above poll too, looks like support for them may be higher than we think.
Yes I am surprised how far away the results above are from the official polls.
I have voted for TOP before as I see a vote for a fledgling party with fresh ideas as an investment in improving the political discourse and much less a wasted vote than for a large party. I would disagree though that ACT would accommodate TOP policy as readily as the Greens would. I would eat my hat if TOP entered into a National ACT coalition.
Don't be so sure with Raf trying for Ilam. If they hit 3% and win a local seat, it's game on. A distinct possibility this year, people are finally and with good reason, becoming disillusioned with the major parties, who have zero real long term plans and simply appeal to ideology and special interest groups once in power. We need to switch to a party which is actually interested in the future of the country.
And oil prices have fallen another -US$1 from yesterday to be just under US$70/bbl in the US. The international Brent price is just under US$74/bbl. Downward pressure is still strong.
Big global problems behind lower oil prices, from US banks to the total wipeout in China.
The Chinese reported renewed declines for their imports, including a big one in crude oil. When OPEC announced production cuts, they could see China wasn't living up to reopening hype and the latest data absolutely confirms it (while driving a stake in the narrative). Not only are steelmakers there urging production cuts, too, US bank credit is about to become lights out if only to make things even worse.
The widely-watched University of Michigan consumer sentiment survey for May came in much lower than expected - in fact no change was expected, but it actually dipped to a six month low.
When is the credit crunch going to really hit? Don't know man, we are looking at the worst conditions to buy houses in 40+ years. You tell me... Link
And house prices have fallen another -US$1000 from yesterday to be just under US$700,000/bbl in the US. The international Brent price is just under US$740,000/bbl. Downward pressure is still strong.
DGM: House prices will halve within 12 months and be at zero in 24 months.
Realist: 🤣
The irony being house prices can go to $zero. Try selling one in Auckland that's been flooded a couple of times recently, for instance. The land value must be close to $zero as a result; the dwelling on top of it irreparable to meet current rental standards and now, uninsurable.
Unexpected price danger in many places that aren't interest rate driven.
And of course there's the relationship ending. (One in three isn't it?)
The assets have to be realised and in many cases each party will walk away with $zero from the house they 'own' once the lender has been repaid.
Unexpected price danger in many places that aren't interest rate driven.
Whats the answer. Look after the ladies in your life starting with mum tomorrow
A mate was telling me how he and his wife had split 16 years ago. What a mess, the kids hated the parents, the parents hated each other, one the kids now adults can't maintain relationships
WASHINGTON, May 11 (Reuters) - Climate change does not pose such "significantly unique or material" financial stability risks that the Federal Reserve should treat it separately in its supervision of the financial system, Fed Governor Christopher Waller said on Thursday in a detailed rebuttal of demands for climate initiatives by the U.S. central bank.
...noting that banks are already adept at hedging against weather-related losses, while more slow-moving changes - to coastal residential patterns as sea levels rise, for example - were analogous to population losses seen over the decades in cities like Detroit, locally important, but not systematically so."
https://www.reuters.com/markets/us/feds-waller-says-climate-change-not-…
and a way to keep the climate industrial complex running.
"The IPCC started with scientifically accurate statement about detection and attribution related to tropical cyclone intensities and this statement was at first clarified in the review process. But then the accurate and nuanced statement was removed, and in its place a false claim was inserted and expressed with confidence. This is not how assessments are supposed to work.
This week a group in Netherlands — called CLINTEL, which expresses openly skeptical view of climate science and policy — has published a report which asserts and seeks to document that there are many such errors in the recent IPCC report. I have read their report and I can confirm that in my areas of expertise, there is considerable merit in their claims of errors of commission and omission.
If past is prologue, the CLINTEL report will be met with shouts of “denier” and ignored by the IPCC community. That would be a mistake. Of course opposition groups often participate with zeal in the so-called extended peer review community. The issue here is not the motivations or politics of CLINTEL, but whether they — as I have here — documented meaningful errors in the recent IPCC reports. It appears that they have, and more than just a few.
Errors happen. Scientific integrity means that when errors are identified, they are corrected and the processes that allowed them to slip in are fixed. The IPCC is too important to be doing poor quality work. The ball is in their court."
https://rogerpielkejr.substack.com/p/a-tip-from-an-ipcc-insider?utm_sou…
Most of the greening is in China and India...
https://earthobservatory.nasa.gov/images/146296/global-green-up-slows-warming
And some of it is due to longer growing seasons due to atmospheric warming...
https://www.nature.com/articles/s43017-019-0001-x
Greener, yet heat trapping atmospheric CO2 is still rapidly rising. Obviously burning millions of years worth of geologically stored carbon every year can't all be absorbed with one years growth. Pretty simple maths!
https://www.google.com/search?q=keeling+curve&oq=keelin&aqs=chrome.0.35…
If it was that simple you wouldn't need the IPCC nor would the IPCC make up junk - as documented above. The post 1959 Keeling Curve doesn't explain pre 1945 warming nor post 1945 pauses. After trillions spent on the climate industry IPCC climate sensitivity is still in the likely range (66% chance) of 1.5°C and 4.5°C. If it was simple math, as you claim, this range wouldn't exist and phenomena like global greening would have been predicted and embarrassments like "the end of snow" predictions wouldn't have been made..
https://landshape.files.wordpress.com/2015/06/climate_sensitivity5.png
We wouldn't need the IPCC if humans were rational, you are living proof many/most are not. I'm unsure if your denial of the fact natural climate forcings can exist alongside human caused forcings is deliberate, or ignorant?
How fast will ice disappear, causing an albedo feedback loop? What will be the effect of less aerosols in the atmosphere, as humans clean up their dirty habits? How fast will oceans heat and when will there be a tipping point where they no longer perform as a CO2 sink?
Global heating should be obvious even to the terminally stupid, if they bother to take note of the changes in local climate out their door!
Funny how physics deniers never seem to be called to account for the nonsense they pollute discourse with?
Care to reference one physics denier who has been correct? Where is the cooling this idiot predicted? That's right, it doesn't exist. Because he has no credibility, just like all his other colleagues with their denial propaganda!
https://www.youtube.com/watch?v=3dYzXbGnWg8&ab_channel=climatebrad
My personal view is that equilibrium temperature for 2xCO2 will ultimately be in line with what Hansen projects, but we wouldn't want to scatter the pigeons of the exponential growth cult, would we? "RCP2.6 is a scenario designed to keep global warming below 2°C. idealized case in which 2×CO2 forcing is kept constant until all fast and slow feedbacks are allowed to reach equilibrium. The answer we find is close to 10°C, for CO2 forcing alone. If we include the negative forcing by today’s aerosols, the response may be as low as 6-7°C, but ESS is ~10°C."
chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/http://www.columbia.edu/~jeh1/mailings/2022/EarthEnergyImbalance.22Dece…
Not denying climate change but I think it’s too simplistic to carry on like the world is coming to an end. With all the the building that has happened in the last few years, including on flood planes could it be possible that this is contributing to flooding? Also, constant reporting of any rain as if it has never rained before. NZ is a dot in the world so us sacrificing economic wellbeing to save .0002% of greenhouse gasses is ludicrous
It really has been quite exceptionally wet in Auckland this year. That is why it is news.
https://niwa.co.nz/news/auckland-suffers-wettest-month-in-history
If only we could have predicted this wet summer last October. Too bust fretting about climate models 2100 predictions I guess.
https://www.skynews.com.au/australia-news/how-a-tongan-volcanic-eruptio…
NIWA are looking in to connections to the eruption
Doesn't matter a r/a whether you think too simplistically (sarc)
Economic wellbeing (an interesting oxymoron, in itself) is doomed to reduce. Sorry, it was based on the extraction of parts of a finite planet. Exponentially increasing same. We are heading over the plateau now.
We have bigger problems than CC - and a lot of them have been put up here. Clearly you don't do a lot of reading?
But is it 'man-made', or is the 'man-made' so that money can be made off it?
Was the breaking of the mini ice age 400 years ago due to humans having too many fires? Or is it a very long cycle, and we observe a tiny tiny snapshot of it and assume we are the cause (because human's are so important, ya know)?
As far as I'm concerned, NZ is a bit player in this, and pretty much everything we do is woke rubbish. Unless some very large polluters pursue some actions that then show a measurable difference in the climate, I'm firmly of the belief that the climate is actually beyond our influence.
ETS is just a money grab, nothing more.
Well you do realise technology has moved on from 400 years ago? Reading thermometers just isn't that difficult. Establishing a trend from reading thermometers isn't that difficult either. Even understanding the role of CO2 in the atmosphere is 100 year old science. Do try to keep up. Oh wait you are. Following others dutifully off the cliff.
One thing from the graph is it reminds you that previous economic cycles last around 7 years. Due to money printing (MMT) it has doubled the cycle but due to inflation rearing it’s head the “buy the vote and increase debt” policies adopted by most populist Govts. is over
PWC and all the other big accounting firms should be broken up. Where any accounting firm acts as auditor, it should be barred from acting for that company in any other capacity. The penalties for contravening that should be severe, right up to jail time. All these big firms suffer from serious conflicts of interest.
I would also break up the big banks into Narrow and Wide entities. This was proposed by the American economist Irving Fisher and others(The Chicago Plan) in the '30s and it would solve many of the problems inherent in the current system. By this, fractional reserve banking would be eliminated. Thus banks which take deposits would hold liquid reserves of 100% of the deposits taken. Wide banks would undertake all the other activities of present day banks and would not have any government protection in the event of failure.
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