Here's our summary of key economic events overnight that affect New Zealand, with news global demand worries kneecapped many commodity prices overnight. The NZD suffered from the trend.
The overnight dairy auction came in better than expected, but expectations were pretty negative. Overall prices were unchanged in USD terms when a -2.4% drop was anticipated. But in NZD terms it did record a -1.4% retreat. And that was on the lowest volumes sold since June 2019. The key WMP price was unchanged in this event But butter gained +5.5%. However cheese fell -3.3% and SMP fell -2.3%. All up a forgettable auction.
In the US there was surprising strength in the number of new housing starts in May, up sharply from April to more than an annualised 1.6 mln rate. That was its highest build rate since April 2022 and way above the expected 1.4 mln annualised rate. It is also +11% higher than year-ago levels. And residential building consents rose in May from April too, but they are -13% lower than year-ago levels.
In Canada, more sawmills are closing due to the extending wildfires across the country from British Columbia to Quebec. This is putting upward pressure on international sawn timber prices, and potentially log demand - just as their southern neighbour has a house building industry needing more product.
As widely anticipated, China's central bank cut key lending rates yesterday in a move to spur investment and consumption after the country's post-pandemic recovery stuttered in recent months. They cut the one-year loan prime rate by -10 bps to 3.55% from 3.65%, while trimming the five-year rate also by -10 bps to 4.2% from 4.3%. This is their first cut in 10 months. The moves will lower borrowing costs for both companies and households. They had earlier cut some wholesale rates -10 bps to benefit property developers. Markets are unlikely to be impressed with the cut, being a modest -10 bps given the challenges they face. The yuan weakened noticeably. The action so far is unlikely to turn around their loss of economic momentum.
In Japan, industrial production slipped -0.7% in April from the same month a year ago, held back by its electronics sector. Otherwise it would have expanded.
German producer prices fell -1.4% in May from April, and were up only +1.0% from the same month a year ago. This is a massive settling from the raging producer price situation only six months ago. That pressure is off now.
Perhaps even more surprisingly, the Germans reported that their population grew sharply by more than +1.1 mln in 2022, driven by a fast rise in Ukrainian refugees. That offset a fall in their natural population, and boosted their under 20yr demographic by a massive +2.8% in the year.
The UST 10yr yield will start today at 3.73% and down a sharp -9 bps from this time yesterday. Their key 2-10 yield curve is more inverted at -97 bps. Their 1-5 curve is also more inverted at -130 bps. And their 3 mth-10yr curve is more inverted to -139 bps. The Australian 10 year bond yield is now at 3.93% and down -13 bps. The China 10 year bond rate unchanged at 2.73%. But the NZ Government 10 year bond rate is up +2 bps at 4.50%.
Wall Street is back from holiday with the S&P500 trading in its Tuesday session down -0.5%. Overnight, European markets closed lower across the board also by about -0.4%. Yesterday, Tokyo ended its Tuesday session unchanged. Hong Kong fell -1.5% and Shanghai ended down another -0.5%. The ASX200 ended its Tuesday session impressively, up +0.9%, and the NZX50 has a late burst to end up +0.3%.
The price of gold will start today down -US$12 at US$1937/oz and that's a three month low.
Oil prices are down -US$1 from yesterday to now be just over US$70.50/bbl in the US. The international Brent price is now just over US$75.50/bbl.
The Kiwi dollar starts today at 61.6 USc and down another -40 bps from yesterday. Against the Aussie we are firmish at 90.8 AUc. Against the euro we are softer at 56.4 euro cents. That means the TWI-5 is just on 69.4 and down another -30 bps from this time yesterday.
The bitcoin price is up sharply from this time yesterday and now at US$27,791 with a gain of +4.4%. Volatility over the past 24 hours has been moderate at just under +/- 2.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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The bitcoin price is up sharply from this time yesterday and now at US$27,791 with a gain of +4.4%. Volatility over the past 24 hours has been moderate at just under +/- 2.9%.
Bitcoin hits new high for June as more financial incumbents signal commitment to crypto
It was the best of times, it was the worst of times ...
Out of my pretty decent cash out last year I've put back around 12% back in crypto during the dumps.
Although much too altcoin / eth heavy. Let's see how it goes. Had huge taxes to pay last year but still at a loss this tax year
No such thing as too ETH heavy, my friend. The flippening is inevitable. Grandpa appears to be firmly back in control currently, though.
Turning into a who's who: Blackrock, Fidelity, Schwab, Vampire Squid, Deutsche, Citadel. Who have I missed?
2011-2020: Ignore Bitcoin, don't take it seriously
2020-2021: Realize it is a legitimate asset class but don't have exposure or infrastructure built out yet
2021-2023: Coordinate with regulators to cripple industry and halt growth
2023-2025: Pick up the pieces and profit
Green shoots sprout in the rental market. Banks were right. Quick chaps, buy buy buy in Queenstown.
https://crux.org.nz/crux-news/slumlord-earns-30000-a-month-cramming-30-…
Mr Truong's address is given as Highview Terrace in Queenstown. The QLDC rates database shows the owner of Mr Truong's Highview Terrace property as Shai Hung Tan.
Ah, NZ property tax laws at their finest - "I'll live in 'your' house, and you rent 'mine', and we'll both claim the deductions available"
Can you explain how that works for the non initiated please bw?
If 2 people buy identical houses next to each other. You and your neighbour swap houses and rent to each other. Because it is now an investment property for both parties you can claim tax deductions on the mortgage, insurance, rates and maintenance. The NZ taxation system is all about allowing property investors to pay no or negative tax and wage earners to pay excessive tax. This way we penalize work and encourage ponzi! If anyone questions this economic model be sure to role your eyes and mutter under your breath "someone doesn't understand the wealth effect".
√
Similarly, don't let your children/family buy "their"own home. Buy it for them, and "rent" it to them. Sort out the cash and payments behind the scenes.
This is possibly the main (unwritten) reason for getting rid of interest deductibility. The kids don't mind though, because now they get a brand spanking new home to live in instead of an old one.
There are related party rules for this situation (associated persons is defined widely in tax law now). The situation of renting houses to each other could arguably be considered tax avoidance if picked up by IRD
Is IRD actively monitoring this though? They have access to the bond information (assuming it is filed) but the tenants could be anyone or any organization so the trail would stop there.
I think if you're paying close to market rent, you're fine.
Who'd be a landlord huh. Just hurry up and put him in prison. Opportunistic cockroache
With big names like BlackRock and Fidelity putting their crypto commitments on display, investors were optimistic Tuesday that some of the reputational risk of conducting any kind of crypto business – which for some investors has been a mental barrier to buying bitcoin – could start to fade.
If everybody decided to get by with what they have, cook at home and cut out all but the basic ingredients to get by for a while, how long until the entire economy crashes? 2 weeks?
Probably making their own coffees would be enough.
Was that supposed to be funny?
Why would it be funny? The biggest profit margins for cafe's and restaurants is found on drinks, in particular coffee, soft drink and alcohol, the rest have minimal margin.
Quasi- lockdown!
Without Covid wage support, the economy would fold
Conversely, without the RBNZ screwing the economy with high interest rates because the RBNZ threw billions of dollars of cheap money at our retail banks the economy would be fine.
2 weeks sounds about right, given how disproportionately large our domestic economy is relative to the export sector. The food and fibre sector makes up less than 11% of our GDP and 82% of our goods exports (66% of total exports).
Tony is not selling green shoots...... same story in Aussie see AFR today
- Investors on average are increasingly thinking about selling their properties as interest rate pressures grow.
- A rising motivation for selling is concern about the loss of interest expense deductibility.
- Only 55% of investors plan keeping their property at least ten years or never selling. This is a record low and below the two-year average of 64%.
- Investors are growing increasingly concerned about rising insurance costs.
Presumably, the IRD will be using a similar magnifying glass to the ATO.
Property owners and buyers are bracing for rising costs, land tax increases and tougher scrutiny of tax claims as revenue-hungry state and federal governments turn up the heat for the end of the financial year on June 30. The Australian Taxation Office is warning it will be doubling down on tax deductions for working from home, rental income being understated, expenses over-claimed or property improvements being incorrectly claimed.
US build rate still low in round terms, wonder why
Square houses
Rate cuts don't help the economy, but they do help us identify those times when economic (and monetary) difficulties are reaching serious proportions. When rates start going down in China, that means trouble not just for China. https://buff.ly/3qLvIad Link
Coercive headline of the day goes to Oneroof - no one is surprised:
Damn ponzi scheme.
Why Britain’s mortgage crisis risks triggering the biggest house price crash on record
By 2028 most voters are going to be young “asset-less” people. They will ask for more fiscal deficits and pro-labor policies to close the gap. This will generate a much higher inflation volatility than in the last 20 years. Most portfolios are not prepared for that at all! Link
The opening paragraphs are familiar to Kiwis with mortgages. We're in front them by quite a few months. (Their central bank can watch NZ and see the effect on lil' ol' NZ.)
Nikki Kopelman and her husband James Bore bought their £420,000 home in 2019, securing a five-year fixed mortgage at a bargain rate of 2.5pc.
But the era of cheap money is now coming to a brutal end for Britain’s homeowners. Kopelman – and millions of other borrowers – are facing rate rises that to many will be simply unaffordable.
As a result, the housing market is in for a terrible reckoning – with some forecasters predicting that the impending mortgage catastrophe could trigger a crash the likes of which have not been seen since records began. Last month, Britain’s biggest bank Lloyds said prices could fall by as much as 35pc in the worst-case scenario.
And now that the dust is settling on a grim picture for the housing market, economists say that this should all have been foreseeable – and even avoidable.
More than a decade of unprecedented ultra-low interest rates was always going to come to an abrupt end.
And then there were the ill-advised policy interventions. Critics say a stamp duty holiday in the pandemic poured fuel onto an already red-hot housing market. The Conservative Government’s heavy tax burden is furthermore adding insult to injury for already strained middle-class households.
And while this crisis has been simmering, the Bank of England and Britain’s politicians have failed repeatedly to get a handle on inflation.
The fun part here is that the "decade of unprecedented ultra-low interest rates" have become the new normal. Everyone will expect the rate rises to be temporary. And for the ponzi scheme to continue - they'll have to be.
Back in 2017 I wrote a post suggesting that on current trends Romania might catch NZ by the mid 2030s. Still looks about right, which is great for them, but a dismal reflection on NZ econ policy and performance. https://croakingcassandra.com/2017/06/02/a-t Link
And there's only one party this year who doesn't believe rehashing failed policies is a way to economic prosperity.
Vote accordingly.
More changes to our residency visa settings announced in an attempt to help businesses attract workers and fill skill shortages.
The government is dumber than I thought if they still believe the lies fed to them by MSM ad business lobbies that NZ is still an attractive place for skilled migrants and the skill crunch can be solved with faster visa processing.
The Productivity Commission report into our migration settings has met with the same fate as the numerous working group and ComCom studies that came before it - probably went straight into the PM's bin.
I'd say good pay might help.. but even we who I thought pay well are losing staff... until I checked the listings on Seek and we're actually below the average for our sector... hmm..
Edit: I also noticed there were no junior/intermediate roles available in the field at all. I don't normally look at those - but if we're not taking juniors/intermediates, is it any wonder there's a skills shortage?
I suspect thoughtless HR policies cause huge inefficiency in our employment system. Extensive experience is demanded for roles that could be thoroughly taught, on the job, within weeks. And the decisions about who gets interviewed are often made by people who don’t really understand the job.
The US 2:10 treasuries difference is the worst it has been since 1981
Note that this is a leading indicator of oncoming recession - the recessionary periods correspond to the upwards swing after going negative.
Using the swap rate charts NZ value is similar at -0.9%
Stuff article today rents in auckland up 10% according to TM. That will be politically unsavory, I'm keen to hear the government response.
I'm going with "higher accommodation supplement."
Just looked at the bond data: average Auckland rent gone from 600 to 640 over the last year. However, it spent most of that year below 600, until after February this year.
I wonder if there was some event in February that affected the rental market? Perhaps a few thousand people dislocated from their homes after a weather event, perhaps? Though, the 60,000 net immigrants in Feb also needed to stay somewhere, so maybe they're all in Auckland?
There was also a slight uptick after the last interest deductibility change.
However, even bond data doesn't tell the full story - in the particular properties I usually look at, the quality currently on offer well exceeds prior years - people leaving the country and renting out their homes instead of selling, or land bankers capitulating to rising rates?
Landlords preparing their annual tax returns and finally realising they're in trouble?
Median unchanged, would be interesting to know the breakdown or if this is simply listing prices up?
https://www.interest.co.nz/property/121306/median-rent-queenstown-lakes…
Regardless, rents are calculated in the CPI, so higher rents = higher inflation. Rent increases have been fairly subdued up until earlier this year, so holding the CPI figure down slightly. If you add investors tripping over themselves for that 3-5% yield and there would be a whole lot of new money creation. I don't think banks are buying it, they're advertising the bottom to generate a customer base so they can pick and choose which lamb is next. (That is my opinion, my reckon)
With interest deductibility still allowed on new dwellings they may become comparatively 'cheaper' (i.e. for what you get) than older places. Quite a few renters have moved to new places and are prepared to pay a bit more for the far better standard. The old place must be brought up to standard by the LL or they LL must accept less rent. (Many LL are reno'ing their places and are trying to sell first before putting them back into the rental market.) Thus medium rents go up. Source: rental agents.
Interesting! Thanks
It’s likely that median rents have been distorted lower over the past 1-2 years by the large number of new 2 bedroom townhouses being finished and added to the rental pool. This has likely changed the composition of rental supply, ie. proportionately more two bedroom places versus 3/4 bedrooms.
Watch: PM Chris Hipkins announces Michael Wood has resigned | RNZ News
"Despite repeated requests from the Cabinet Office and myself for Michael to manage his shareholdings, he's repeatedly failed to identify, disclose and appropriately manage conflicts of interest."
“The rules are focused on any financial benefits that the member may receive. However, it is important to note that conflicts of interest from a best practice governance perspective, is much broader. It is interested in whether a director’s judgement will be influenced by the arrangement including how the arrangement may be perceived by others.”
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