Here's our summary of key economic events over the weekend that affect New Zealand, with news democracy is being tested in two autocratic states, and demographic patience is being rewarded in one that has struggled for a decade.
Elections are underway in both Thailand and Turkey and autocrat rulers are under challenge. While there are doubts about the fairness in both countries, there does seem to be a mood for change which might overwhelm the incumbents. Or, if their controls hold, it might not. We won't know for a day or two although pro-democracy parties in Thailand seem to be in a good position, a rebuke for strongman military rule. In Turkey, both parties are claiming the lead which does not bode well for the challenger.
There are elections in Greece next weekend. They won't be so notable, except that if a similar government is formed it is expected they will regain investment grade for their government debt. That will end 12 years of 'junk' status. They had to swallow tough medicine at the time, but they have come through their crisis with an economy that is now one of the better in Europe in terms of expansion, certainly in Southern Europe.
In the coming week in the US, the spotlight will be on speeches by several Fed officials and retail trade data, followed by industrial production and several housing indicators, including housing starts, building permits, and existing home sales. Elsewhere, Q2-2023 economic growth rates will be released for Japan, Thailand, the Netherlands, Poland, Israel, and Russia. Investors will also be closely following industrial production and retail sales for China, as well as inflation rates for Canada and Japan, and unemployment rates for the UK, France, and Australia.
Recently, 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.
And Singapore is currently suffering under record-high heat at 37oC. Their records go back 84 years. While their population can stay inside and air-conditioned, it isn't a sustainable solution even for them - and the likelihood is that temperatures will rise from here over time. And they are not the first to suffer under brutal heat this year, and these record highs are coming ahead of the region's summer season that may peak in August. It is a grim prospect many are facing.
In the US, weaker consumer sentiment is took the wind out of Wall Street on Saturday, 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.
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.
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.
It was reported in China that their foreign minister will be visiting Australia in July, in what they say is "improving ties" between the two.
The UST 10yr yield starts today at 3.46%, and unchanged from Saturday. And that is week-ago levels. Their key 2-10 yield curve is a bit less inverted at -53 bps. Their 1-5 curve is little-changed at an inversion of -135 bps. And their 3 mth-10yr curve is still inverted by -220 bps. But this is the only one more inverted in a week. The Australian 10 year bond yield is now at 3.39% and unchanged. The China 10 year bond rate is also unchanged at 2.73%. And the NZ Government 10 year bond rate is still at 4.06% but down -10 bps from this time Friday.
The price of gold will start today at US$2011/oz, unchanged from Saturday but down -US$20 from this time Friday.
And oil prices are unchanged from Saturday to be just on US$70/bbl in the US. The international Brent price is just on US$74/bbl. These are very low levels, back to 2021 when they were down here last, and we first saw these levels in 2007, sixteen years ago.
The Kiwi dollar is -1c weaker against the USD from Friday but unchanged from Saturday, and now just under 61.9 USc. Against the Aussie we are also -1c lower at 93.3 AUc. Against the euro we are -¾c lower at 57.1 euro cents. That means the TWI-5 is now at 70.1 and -80 bps lower than this time Friday although unchanged from this time Saturday.
The bitcoin price is firmer today, now at US$26,943 and up +2.2% from this time Saturday. Volatility over the past 24 hours has been modest at just over +/- 1.1%. And Binance, the world’s biggest crypto exchange, said it will close down in Canada after the country moved to impose new regulations on digital-currency trading platforms.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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68 Comments
Simon McDonald: “It’s the end of the game for Britain”
The former head of the Foreign Office on the UK’s decline, why we should not “make an enemy” of China and how he brought down Boris Johnson.
OneWoof acknowledging DTI is about to hit....
https://www.oneroof.co.nz/news/house-price-falls-who-scored-the-best-ba…
If I’m right and house prices do stop falling shortly, some would-be first home buyers may be wondering if they’ve missed the boat. However, I wouldn’t necessarily be too concerned, given the longer-term restraints such as caps on debt to income ratios (from March/April 2024). In other words, an extended flat patch looks more likely than a sudden recovery.
Stage 3 Bargaining with the RBNZ - "Ok. So prices have fallen. But if you stop pushing them down, we'll be responsible here in the Property Speculation Industry from now on. Promise"
DTI's and..... Age Caps, say 70. You have to have the capacity to fully discharge the mortgage(s) by then.
Want to be a Secondary Property Guru at 40 and have all the collateral boxes ticked? There you go...here's a 30 years mortgage facility to do it.
But at 50 you'll only get a 20 years term. And at 65, a 5 year one.
If you can't fit your compressed DTI's into the reduced term, then no loan for you.
by Audaxes | 11th Dec 22, 11:47am
I’m working with Dirk Bezemer and others on an article where we calculate how much of the GNP, the reported product, is actually overhead. In other words, what is Gross Domestic Product (GDP) without the FIRE sector (finance, insurance and real estate)? A strict classical economist would say, let’s take out the monopolist rent. How much of American industry’s reported profits, e.g., in healthcare, are really monopoly rent? The idea of industrial development today is to carve out a monopoly where there’s no competition and get super profits. This is a concept that has been dropped, really, ever since World War One, about a century ago. There’s no distinction between productive and unproductive labor, between wealth and overhead. John Bates Clark said that if somebody’s wealthy, they earned the wealth; there’s no such thing as unearned wealth. Today wealth is mainly achieved by asset-price inflation; by capital gains. You won’t find a single wealthy family that made money simply by saving up what they earned. They make money by increasing the price of their stocks and bonds and real estate holdings, not by saving up their earnings. Yet, capital gains, i.e., asset-price inflation, are left out of the statistics of almost every country. So it is very hard to explain how wealth is achieved, and yet that was the purpose of economics in the 19th century and centuries before. But suddenly the idea of wealth has been suppressed as sex was in the day of Sigmund Freud Link
Not just our GDP, NZ's [false] productivity is also tied in housing speculation. Real estate has the third highest GDP per filled job in NZ only behind mining and utility services, and nearly 4x construction.
https://ecoprofile.infometrics.co.nz/new zealand/Productivity/IndustryProductivity
Construction's low productivity relative to real estate (and the NZ average) shows why swapping houses has been more profitable compared to building new ones.
Market distortions such as mass low-wage migration, counterproductive building rules and low interest rates acting together have pushed up real estate margins and allowed wages in construction to outpace productivity for decades.
They also should get rid of interest only mortgages, and low deposit mortgages for investors. It's madness how much the bank is willing to lend you to buy a house, yet if I had 50k and asked to borrow 450k to invest in term deposits they'd laugh in my face. It's only appropriate to magic up money for property.
I've mentioned it before,I think they should look at treating equity used from one property to purchase another as a realised gain under the brightline test.i.e,'investor' buys property,a year later has it revalued then uses this equity as deposit on the next investment property,then he has in fact 'cashed in' his capital gain,so should be taxed accordingly.
Agree with this - allowing investors to use equity gains to purchase even more houses is a very dangerous thing to do - all it does is exacerbate price rises in the market, and if the market falls, risks making the crash even bigger (as the demand drop is amplified on both the way up and the way down).
It creates instability in the market - something the RBNZ should have been regulating against.
If an investor wanted to buy additional properties, they should have had to bring a cash deposit to the table - creating an even playing field with FHBs.
Investment has to be yield based profitable , its been taxed to death.
Cap Gains are tax but no longer on the table
As we stand right now rentals are going to get very expense, as there is no point in being in the game, no profit, and the poliuce etc wont help you protect your house....
We are running straight at a massive rental shortage.
To be yield profiable the land price has to fall perhaps 50%.... can houses even be built based on yield vs spec?
Sounds like we are going to end up with shanty towns like many third world countries. Why? Because it has become politically and financially impossible to create regulated dwellings that people can afford by working in the real economy (as opposed to using the property wealth of parents).
Two economies - those who own properties, and those who are beaten into financial and social oblivion because their parents didn't own property and can't afford property by working in the labour economy.
Doesn't sound that appealing TBH - and the generations of NZ'ers who came here to get away from this type of oppression would be ashamed of what we are turning into.
It really is just one big con job…a ponzi
I read about a young chap who borrowed $1m to buy a new rental on the landlord page. Rent $3k per month , interest payments $6.5k per month.
Has anyone graphed how the tops ups have increased over the years?
who wants to take an investment like that off his hands…and lose 3,5k a month for him
These are turning into serious numbers for people to find.And I see no reason why it won’t get worse for many.
And we have built our economy around these fundamentals…..madness
If houses rent for 30k a year they can only ever be worth 300k to make the numbers work, without capital gains.
Ultimately every asset is priced based upon the sum of the future discounted cash flows.
For current prices to stack up we need
1. a massive gain in wages or
2. a significant drop in discount rates (mortgages).
But the problem is that if 1 happens then the discount rate (mortgages) goes even higher! And if 2 happens, it is because we are in a recession and people are losingg jobs (bad for asset prices).
We've created a fools paradise.
Age limits would be so foolish. The only people who'd benefit would be the company's office with the registration fees.
Additionally, age is correlated with the ability to repay, but not 100% linked.
If you're trying to link it to employability, that makes no sense. Some people work quite late into their life. Additionally, people accumulate assets over their working life. If someone is able to repay the mortgage comfortably off asset income, or has sufficiently low leverage from a portfolio balance sheet POV that the bank is comfortable their loan will be recovered in full in the event of a default, then why shouldn't they be able to access debt?
This idea would simply result in financial repression.
Kelvin is in lala land for shizzzle💥.
Young people are buying the cheapies but that won't last if the prices rise and they can't afford to buy. this would reduce buyers by 25% ( fhb's) causing another bigger fall.
Cause and effect don't figure in ,"one spoof"s" thinking.
Elections are underway in both Thailand and Turkey and autocrat rulers are under challenge
Biden Is Selling Weapons to the Majority of the World’s Autocracies
Holy ship. So while the US preaches how everyone should undo their energy supply from Russia, they continue to buy commodoties from Russia to ensure their own energy supply. Classic Western/US hypocrisy "Do as I say, not as I do", and we/they wonder why the rest of the world doesn't trust us/them.
More of the same.......
''And Singapore is currently suffering under record-high heat at 37oC. Their records go back 84 years. While their population can stay inside and air-conditioned, it isn't a sustainable solution even for them - and the likelihood is that temperatures will rise from here over time. And they are not the first to suffer under brutal heat this year, and these record highs are coming ahead of the region's summer season that may peak in August. It is a grim prospect many are facing.''
What's different is that the editor is now commentating on this. My goodness, after all this time is reality finally sinking in?
Considering the enormity of the issue the editorship of this site have been lukewarm on the issue for the past 15 years, and have tolerated trolling by climate change deniers for year (whereas, for example, much of the covid disinformation that appeared here in 2020-2022 was removed (quite correctly so - on the basis that it was misleading drivel). Quite why covid disinformation is treated differently from climate disinformation is beyond me - the latter has immeasurably greater consequences than the former, as we are in the process of finding out.
It just weather cycles dude
Its been colder, hotter, wetter and windier in the past and before man took records.
FFS you climate panic merchants need to realize there are bigger forces in play than what a bunch of well funded political scientists feed you.
And even if your right do you think the climate warriors and their world body are really capable of fixing it.?... Especially since we are at COP 25 an f all has been achieved other than a flight fest.
Just wait mr F knuckle expert.
We've come from a ice age millions of years ago without any Human involvement!. What forced all that change ..
the powers of the universe are stronger and more of a mystery than you give myopic scientists credit for
is man knows more than 0.0000001% of the mysteries of the universe ( that we can see) I'll be amazed
Didn't anybody bother to check the link? Highest temp in Singapore since 1983. What made it so hot in 1983 when atmospheric CO2 was 20% lower than today? David really is grasping at straws if this is newsworthy - in one of the globes uber heat islands.
Even the IPCC admits "The climate system is a coupled non-linear chaotic system, and therefore the long-term prediction of future climate states is not possible." - unless of course you are are a chicken little Interest commenter.
I’m not a big fan of guns, but you have to accept that the gun rules hit honest gun owners. Gangs are just as well armed as before the gun laws came in, and will not comply with the rules anyway. A vote to anyone else but national and act is a vote for a continuation of this cluster f##k.
Nationals policies that I like:
free fees for nursing….if stay bonded for a period in nz
education- focusing on what’s important reading writing and maths
stopping racist separation of departments to Māori, non maori
i think they are indexing tax brackets….not sure.
always better on crime then the left….largely due to criminals voting leftie politicians
Nursing policy is OK but doubt there will be big uptake. No-one wants to sign-up to be a debt slave to a country.
Education - joke. It appeals to know it all boomers and is ridiculed by teachers who actual know about teaching.
Stopping racist policies, blah, blah, blah - culture war nonsense. They are promising to repeal policies that do not exist. Name one policy they are going to reverse or one law they are going to repeal. Be specific, not general.
Labour will index tax brackets
Crime, again no actual policies, just misinformed claptrap. It's a myth the right are better at addressing crime in the same way that it's a myth the right are good for business. Give me actual policies that are proven to work that National are suggesting.
Free fees for nursing is a stupid policy. As poorly thought out as much of Nationals offerings. All free fees will do is attract a bunch of people who shouldnt have done the study in the first place, and are totally unsuitable. Its very simple, pay them more and they will stay.
FYI We are finally implementing a full gun register here in New Zealand as of 24th June 2023. Really not sure how this helps, the police already have all the information they will be asking for from law abiding owners and there is a period of 5 years in which to try and gather the rest. Those that have guns that shouldn't have guns are not going to fess up. The registry should have been started decades ago when the guns first came into the country.
Recently, we pointed to deflating producer prices in China as a sign that their economy is misfiring.
They keep pushing rate hikes and short sellers as reason for bank woes when can see it's not.
Because so many of us focus so much on US banks, and US banks are making it easy to do this, it's also easy to lose sight of the fact this crisis is far from limited to the United States and a few of its banks. There are global elements at work. One we can see emerging in Sweden, and another in China we've been watching for a long time.
Shock, horror!
A bearish Herald piece on the housing market!
https://www.nzherald.co.nz/business/markets-with-madison-house-price-fl…
Interestingly this is something that Jamie Dimon (perhaps the worlds most influential banker) thinks should be outlawed!
Banks have far too much control and sway over society and state for my liking - why should they have special rules?
JPMorgan CEO Jamie Dimon: Consider Ban on Short Selling of Bank Stocks (businessinsider.com)
“Greece’s biggest success story over the past decade is exports,” said the chief economist of the Greek central bank," Exports have soared 90% since 2010, compared with 42% in the EU as a whole. The following FT article notes that average Greek wages are down more than 25% in real terms since 2008. GDP in real terms is down 20%. This, it turns out, is the secret to export "success".
By lowering wages and crushing domestic demand, Greece must export more of what it produces, even as total production has fallen. Its export "success" is mainly the obverse of a brutal drop in wages, and Greece "now has one of the highest rates of relative poverty in the EU."
NZ should take note.
https://www.ft.com/content/fcef4f83-f8db-4059-ae9b-34c4c871cb41
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