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US will vote on debt deal on Thursday; financial pressures elevated; China shares near bear market; PwC AU situation gets very ugly; McGowan quits; UST 10yr 3.77%; gold soft and oil unchanged; NZ$1 = 60.6 USc; TWI-5 = 69.4

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US will vote on debt deal on Thursday; financial pressures elevated; China shares near bear market; PwC AU situation gets very ugly; McGowan quits; UST 10yr 3.77%; gold soft and oil unchanged; NZ$1 = 60.6 USc; TWI-5 = 69.4

Here's our summary of key economic events overnight that affect New Zealand, with news we may be having a bear market rally in financial markets, always a very risky time even if the data doesn't shout risk warnings. (In the past, such events have ended with a panic selling period.) But of course every new event isn't the same as prior ones and this time we have strong labour markets and resilient households which were never present in similar prior periods.

But first, today is a holiday in the US, their Memorial Day. That will be a key reason financial markets will remain quiet today.

The Biden-McCarthy debt limit deal is heading for votes in Congress. The Senate is likely to approve. But the House vote will be more contentious, and that will likely take place on Thursday NZT. After that, attention will turn to financial markets as the US Treasury races to sell bonds to replenish their reserves. That amount will be huge but needs to be completed by June 5 (Saturday NZT) to avoid default. This rush will likely be destabilising ibn bond markets, although the Fed may have to step in with its balance sheet support to ease the strains on financial stability.

Yellen has told McCarthy that "We will make more than US$130 bln of scheduled payments in the first two days of June, including payments to veterans and Social Security and Medicare recipients. These payments will leave Treasury with an extremely low level of resources. During the week of June 5, Treasury is scheduled to make an estimated US$92 bln of payments and transfers, including a regularly scheduled quarterly adjustment that would result in an investment in the Social Security and Medicare trust funds of roughly US$36 bln. Therefore, our projected resources would be inadequate to satisfy all of these obligations." Essentially default is imminent. It is up to McCarthy to get his deal through the House. No wonder markets are nervous.

Across the Pacific, a gauge of Chinese shares traded in Hong Kong inched closer to a bear market as a wobbling economic recovery, intensifying geopolitical tensions and a weaker yuan kept investors away. The Hang Seng China Enterprises Index slumped -1.3% on Monday, taking its losses from a January 27 peak to a whisker away from reaching -20%. The Chinese carmakers' industry association said car demand remained weak and shares of many of these companies slid.

Also falling sharply have been Hong Kong exports in April, down -13% from year-ago levels but that too was less than was feared.

Singapore's producer prices are now more than -11% lower than year ago levels and at a three year low. This reflects the tough times that have fallen on their economy recently, but at least the pace of the fall eased considerably in April

In Australia, the turmoil at PwC is getting ugly. There are about 900 partners and many of them will be very angry at what a few of their tax partner colleagues have wrought for the firm. And partners are jointly and severally liable for the huge costs which are inevitably coming. Many good people are about to be hurt significantly. The firm has stood down the nine partners at the center of their troubles and the Chairman has been jettisoned. But none of this is going to save them. Now the Australian Prime Minister wants those partners at the center of all this named. And the MNCs who took the PwC tax advice will be sweating their situation.

Meanwhile in Western Australia, their very popular Premier, Mark McGowan has unexpectedly quit politics. He led the Labor Party there to an extraordinarily dominant win in the 2021 election. He is certainly going out on top.

The UST 10yr yield will start today at 3.77% and down -3 bps in off-Wall Street trading. Their key 2-10 yield curve is more inverted at -84 bps. Their 1-5 curve is at -133 bps and unchanged. And their 3 mth-10yr curve is little-changed at -181 bps. The Australian 10 year bond yield is now at 3.66% and down -4 bps. The China 10 year bond rate is little-changed at 2.74%. And the NZ Government 10 year bond rate is at 4.43% and down a mere -2 bps from this time yesterday.

Wall Street is closed for their Memorial Day holiday but the S&P500 futures rose +0.5%. European markets saw Paris and Frankfurt down -0.2%. London was closed for a holiday. Tokyo ended its Monday session up 1.0%. Hong Kong fell -1.0% while Shanghai ended up +0.3%. The ASX200 ended its Monday session up +0.9% and that was joined with a similar +0.9% gain on the NZX50 in a rising market.

The price of gold will start today at US$1943/oz and down -US$3 from yesterday.

And oil prices are unchanged from yesterday at just on US$73/bbl in the US. The international Brent price is still just on US$77/bbl.

The Kiwi dollar starts today marginally firmer at 60.6 USc. Against the Aussie we are marginally softer 92.6 AUc. Against the euro we are at 56.5 euro cents and little-changed. That means the TWI-5 is still at 69.4.

The bitcoin price is a higher again today, now at US$27,729 and up another +1.4% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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45 Comments

Betcha two shiny silver dollars there are some consultants in Wellington who are a tad nervous about extra scrutiny heading into an election? 

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Pr the price of beer and wine with extra tax inbound. Inflation...higher for longer which equals interest rates the same.

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No new taxes, :)- just existing taxes so now booze tax at 50%, as is the fuel tax..

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Making sense of current global financial conditions

Pretty easy really, just imagine a chimp with an assault rifle. On meth. And he wants your bananas.

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From my cold, dead hands. Bananas are expensive.

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Here's our summary of key economic events overnight that affect New Zealand, with news we may be having a bear market rally in financial markets

I agree, and I think it pays to keep this in mind when considering projections from the likes of RBNZ or REINZ.

I'm still bearish on property. I think prices have a fair way to fall yet in order to reach "sustainable" levels, but it won't be down in a straight line. I'm fully expecting to see a bit of a counter-trend rally towards the end of this year, once the election is over (regardless of results), spring has sprung, and people place false hope in minor tweaks such as loosening of the LVR, increased immigration, and fake news headlines claiming the RBNZ said no more rate rises. There will be price increases and plenty of references to "green shoots" during this period, but I don't expect it to last, and macro trends will eventually come to dominate again, to the chagrin of those who got caught in the bull trap.

Again, it pays to be wary of this when looking at projection graphs. Even the most pessimistic projections always seem to end with a suggestive little uptick, as if to imply that's where things will be heading at the end of the projection period. But even if that's true, it can be dangerous to extrapolate that trend further. It may just be a "bear market rally", which as David quite correctly points out above, can be a very risky time.

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Great comment Chebbo, apologies in advance to those who don’t like comments that praise other comments.

But you nail it and actually that one comment possibly makes all others unnecessary.

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Well thats it then..no more comments please - including you Chat GBT

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I also 100% agree. 

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I totally endorse and agree with those who see no need for further comments.

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For most New Zealanders (and pretty much everywhere else) they can only buy if they can borrow.

And on a range of metrics, that doesn't look it's about to get any easier. In fact, quite the reverse.

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Exactly. The only way I can see prices stabilising is that if there is a financial crisis overseas that means that global interest rates tank. But that would be contingent on it not affecting NZ unemployment too much. 

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Well, the increase of the OCR by 0.25% reduced the amount a FHB (or anyone) can borrow by almost 2%.

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Not true. 

Most home buyers,  76%, to be exact,  are not FHBS, and most are cashed up buyers or earn enough to afford a mortgage. 

Every nutter buying now can afford it and many are buying to get into a better " life"  or fiscal situation (not renting)

I think the biggest sector , 70+%, is elderly peoples downsizing and people downsizing to free up cash.

I have been to open homes In the 800 - 900k range  full of  old wrinklies who are to old to worry about paying to much

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The gnats said they're going to work to bring down land costs. Do you believe them. I think Liebour believe them because suddenly as fast as you can say, "game changer", Liebour want partisan discussions

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The cost of building will put a floor under prices. New Zealand must be the most expensive place in the world to build a home.

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What puts a floor under property prices is... that floor - the cost of Land. And that has a flexible value based on many variables (access to Debt being the biggest one). How much is land worth in Waihi Beach this morning, for instance?

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Will agents spent this as the new waterfront. 

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Margins derived from excess demand, soon businesses will need to sharpen their pencils to maintain cashflow.

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Retail In the  big cities is dieing at such a rate, due to poor service, parking costs etc , that cities will become a landlords nightmare very soon.

Auckland, Wellington. Tauranaga, whangarei,  are dead

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This will be cyclical IMO.  Last time retail died in cities, lots of buildings got converted to apartments... bringing more people into the city, increasing demand for retail.  None of which is a bad thing.

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Surely, if immigration is huge then expect  house prides to rise.?

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Are the immigrants buying houses? More likely huge immigration increasing rents?

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Agreed. The idea is that if the rate of rent increases picks up, owning investment property for rental yield could become lucrative once again. However, if this makes investors rush back into the property market, higher house prices will push down yields again.

So, a lot of this is dependent on migrants being able to afford higher rents and, more importantly, interest rates coming down.

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'although the Fed may have to step in with its balance sheet support to ease the strains on financial stability.'

The reality is that this is the first hegemon, ever, to be based on debt. Unrepayable debt.

Good luck with 'financial stability'; at some point the debt-extension is unbelievable, and therefore unsustainable.

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Just happened on a written piece about the Van Sweringen financial empire that crashed & burned (not by itself) 1929. Described neatly by the author as a pyramid of debt, but upside down. Nigh on a 100 years on what’s changed?

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'although the Fed may have to step in with its balance sheet support to ease the strains on financial stability.'

Bank reserve balances at the Fed are recorded at $3.2695 trillion. More than enough to absorb anticipated fund raising and will be reversed upon Treasury dispensing the newly created deposits into authorised recipient's bank accounts.

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Burn, PwC, buuurrrrnnnnn!!!

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We accepted parasitism, when we had adequate surplus energy. Now we are resenting it, and said resentment will increase exponentially. Advice corporates, law firms, banks; all are traceably parasitic. The reason is that the trend to 'cheaper', has reversed; the trend now is to 'more expensive', happening in a paradigm which has been unable to pay its way alone (ex disinvesting others)  since 1970.

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It's not all bad.  All that tax law in each city's library will provide a couple of days of firewood for everyone.

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Net inward migration in recent months has been running at a pace equivalent to more than 100,000 a year

the biggest growth in filled jobs by sector were in accommodation and food services, up 12.2%, and transport, postal and warehousing, up 8.2%

professional services jobs numbers were still growing but not as fast as they had been

Signs were that the government was still hiring

We don't learn from past mistakes, do we?

Infometrics data suggests jobs in cafes and restaurants grew at the fastest pace in NZ between 2008 and 2022. It is the largest employing sector in NZ by a mile; nearly 2x of the second-largest sector (residential construction).

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Prof Barnard debunking some of the population myths

https://m.youtube.com/watch?v=6IDRXAURjeY

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Parts of it were ok, bit much waffle. A few smart people on the planet will not help when the balance are stupid and do not want change. Ultimately we are doomed as a species, its really about what is learned and remembered on the restart.

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Transport, postal and warehousing up. Looks like people are resistant to change their spending habits, so they just look abroad to the likes of aliexpress to continue buying things they don't need but for cheaper. This taking more money away form local businesses.

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This taking more money away from local businesses

If your saying we're at a point where we need to help local businesses compete better in local markets against sellers of cheap crap on Aliexpress, then we're stuffed as an economy anyways.

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Many of the local sellers get their stock from AliExpress/China anyway, just charge higher markups for those that can't  be bothered sourcing o'seas directly themselves.

Similar stories other Western countries eg Amazon 

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...the turmoil at PwC is getting ugly. There are about 900 partners and many of them will be very angry at what a few of their tax partner colleagues have wrought for the firm. And partners are jointly and severally liable for the huge costs which are inevitably coming.

Obviously PwC should not work within the public sector in Australia. Other countries should also review.

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Do we know these characters produce anything useful at all with those tax dollars?

https://cranmer.substack.com/p/john-tamihere-and-the-waipareira?utm_sou…

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John and Willie..running out of ways to spend taxpayer money...

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I can't wait to vote for more of the same (and then some) come October!

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Has anyone seen IT GUY, I guess holed up awaiting the monthly figures.

Its a lot quieter here without his cynicism 

 

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HW2, you're coming across as a Troll short of a plaything.....

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What are you coming across as

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...someone who works tirelessly to prevent the minority spreading misinformation. If you haven't yet figured this out, chances are, you're the minority :)

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