Here's our summary of key economic events overnight that affect New Zealand, with news the world is waiting to see what direction inflation will take from here and how fast it will move.
But first, American mortgage applications rose again as another indication the US housing market is coming back to life. The rise from the prior week was minor, and this was despite virtually no change in the benchmark mortgage interest rates. It was the third consecutive rise, but to be fair it really isn't out of the lifeless pattern it has followed since late 2022. But at least it has halted the fall they had between the recent peak in late 2020 and late 2022.
There was other American data released overnight and none of it was market-moving. Both wholesale and retail inventories were little-changed in May. And the May merchandise trade balance came in slightly lower.
Later this morning the US Fed will release the results of its annual stress tests, their health check for a group of large American banks. It is expected to show they have ample capital to weather any fresh turmoil in the banking sector. Each time they do this, they update the stresses they are being subject to, so it isn't strictly an "improvement from last time" exercise.
In Europe at the ECB Forum on Central Banking, Fed boss Powell said at least two more rate hikes are on the table this year because of the very strong labour market in the US. At the same talkfest, ECB President Lagarde and Bank of England Governor Bailey both said they expect further tightening measures to cool down inflation too.
In China, more indications of their economic funk. Profits earned by their industrial firms dropped by -19% from a year earlier in the first five months of 2023, on weak demand, and margin pressures. The decline followed a -21% plunge in the prior period and a 4% fall in 2022, with profits shrinking in both state-owned firms and the private sector.
And while it touts its 'opening up' it is in fact closing down with new harsher national security restrictions. These are rules that can be used to target foreign firms in a retaliatory way for perceived slights in international relations. It will be more risky to invest, and especially send managers to China because these new laws gives Beijing the legal authority to hold these investments hostage to other matters. It is an unfortunate own-goal in their effort to push-back against the Western campaign to de-risk from China. Further, China does not recognise 'dual-citizenship'. According to China, Beijing considers a Chinese-born individual a Chinese national unless they specifically renounce their citizenship. (This is particularly tough on Hong Kongers who never decided to be a Chinese nationals in the first place.)
The scale of early mortgage repayments in China is becoming clearer and showing why it is having a broad economic impact. Fitch reports early mortgage repayments climbed to a five-year high in China at the end of the first quarter and they also see a new record high for Q2-2023. The rate of early repayments was 14.5% in Q1-2023, up from 8.5% in Q4-2022, their report showed.
In South Korea, consumer sentiment continued to improve with another good gain in June.
In March in Australia, CPI inflation was running at 7.0% pa. But yesterday they released their May inflation indicator which has it easing to 5.6% pa. That's a 13 month low. The RBA next reviews its cash rate target on Tuesday next week, so the chance of a hold then might have gone up. But then again 5.6% is still way above their target and the RBA doesn't always do what the markets think the signals are. Besides, some are noticing a rise in inflation expectations.
The UST 10yr yield will start today at 3.72% and down -5 bps and in a yoyo pattern recently. Their key 2-10 yield curve inversion is little-changed at -101 bps. Their 1-5 curve is more inverted at -137 bps. And their 3 mth-10yr curve is also more inverted, now by -140 bps. The Australian 10 year bond yield is now at 3.86% and back down -8 bps. The China 10 year bond rate is still unchanged at 2.71%. And the NZ Government 10 year bond rate is up another +2 bps at 4.60%.
Wall Street is closing its Wednesday trade with a minor -0.1% slip in the S&P500 and basically holding on to all of yesterday's rise. Overnight, European markets were mixed with London up +0.5% and Paris up +1.0%. Frankfurt was in between at +0.6%. Yesterday, Tokyo ended its Wednesday trade up another +2.0% in a strong afternoon session. Hong Kong was little-changed however, up a mere +0.1%, and Shanghai ended unchanged but after making back earlier losses. The ASX200 ended its session up +1.1%. But the NZX50 only managed another minor +0.1%.
The price of gold will start today at US$1912/oz and that's unchanged from yesterday.
And oil prices are +US$1.50 higher from yesterday to now be just under US$69.50/bbl in the US. The international Brent price is now just under US$74.50/bbl. An unexpected run down of US crude oil stocks might be the key reason here for this firming.
The Kiwi dollar starts today at 60.8 USc and down almost -1c from yesterday and back to where it was two weeks ago. Against the Aussie we have slipped slightly to 92 AUc. Against the euro we are -½c softer at 55.7 euro cents. That means the TWI-5 has fallen to 69.4 and down -60 bps since this time yesterday.
The bitcoin price has slipped from this time yesterday and now is at US$30,144 which is a -1.9% retreat. Volatility over the past 24 hours has remained modest at just under +/- 1.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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In what may be the beginning of the end for European nations, Germany and France are determined to reform national rights, including the EU right of veto, this year. The debate has caused a stir in recent months, and in recent weeks, the measure has been put back on the agenda. Link
That is why UK wanted out, and got out of the EU. Back to being an island nation, off the coast of Europe. Not a big deal. As the EU flexes it's muscles, UK will, as usual, sign a treaty with the 2nd most powerfiul entity in Europe. Which of course will be a post Putin Russia. The EU will desperately try to expand into Russia after he goes, but I hope will be unsuccessful. Lots of humour and tragedy potential unfolding over the next few years.
It is tough on Hong Kongers certainly but bear in mind the territory was, as with Macau, only leased for want of a better word. Add to that the “lease”:was coerced by dint of the opium wars that some Western Powers had inflicted on the then China, and for which it was known to be hopelessly outclassed militarily.
Hong Kong Island was never leased, it was ceded outright after the first Opium War. Likewise Kowloon after the second Opium War. You're thinking of the 'New Territories' which were leased in 1898, and which do make up the bulk of the landmass.
https://en.wikipedia.org/wiki/Hong_Kong#Administrative_divisions
Might is right.
https://en.wikipedia.org/wiki/Sino-British_Joint_Declaration
Indeed it was always a temporary lease. Just remember when Hong Kong was officially given back to China it was something like 20% of the Chinese economy. Hong Kong ren would look down on Chinese mainlanders (and still do) who came across, mostly regarding them with disdain. Now Hong Kong is around 2% of the Chinese economy, almost exclusively to do with China's huge growth and its basically on the same footing as any other Tier1 city in China. I would say Shanghai is probably far more wealthy and has much better local social systems as well (they have these cool neighbourhood watch like groups, mostly made up of old people that clean up streets and make sure locals feel safe, report issues to police etc, kind of like a more visible Maori wardens that we have in some spots around NZ).
Unfortunately China has been scoring a lot of own goals recently with its treatment of foreign money and firms/people. Many Chinese people are often quite racist unfortunately and their Nationalism that is growing in their country is making it more overt as well. Friends there have told me the mood has changed considerably in the last decade or so.
The other thing to remember is that China remembers the defeats and ceding from the opium wars. Much of its military buildup is related to this psyche that they have been abused by the West before, so have to be strong militarily to stop it happening again. Which isn't wrong if you were to look at history with an unbiased eye.
As explained above, only the New Territories were leased. 100 years, 1897-1997, no right of renewal. The actual island of Hong Kong was seized much earlier, and was only subject to Chinese claims of ownership. Same with Macau. Neither were leased but UK and Portugal both voluntarily handed them back to China, at roughly the same time as the NT lease expired.
As for other rubbish stated above, China only recognizes weak and strong, nothing else.
"Voluntarily"... China built a replica of Hong Kong on the mainland in the 1990s and practised an invasion of Hong Kong if UK failed to give it back. China flexed and the UK flinched. Portugal had zero chance of fighting back and bit the pillow first chance it got.
If Spain was half as strong as China, and had nukes it would get the Rock of Gilbraltor back off the UK in a heart beat... "voluntarily" of course;)
Eaqub is spot on. Any aspiring FHB voting for Blue is a Turkey voting for Xmas.
Eaqub is on record as saying he would never buy a house to live in as it was so disadvantageous compared to his renter. Is he still sticking to that? Or like most economists, was he wrong then, and therefore highly likely to be wrong now as well. On whatever topic he talks.
The irony of diminishing returns by running future cashflows into the ground importing more and more low wage workers.
Couldn't make this up - if I were a property investor, long term investment, I would stay the heck away from National. What's the alternative though...
Might need to get my glasses, but pretty sure values are going down aren't they?
Or do you mean CPI? Which is fine if we invest in productive work effectively, tax effectively and match CPI with wages. And the outcome is higher house prices, but more inline with wages.
I can't see a way out of this mess without spending and taxing more. What will constraining spending and relieving tax incentives for speculation achieve for us in 5-10 years time? sfa
And again, my comment stands: How has any of that worked out for us over the last three years?
I'd love to see a fraction of the scrutiny some are willing to apply to National applied to the performance of the government we actually have.
It seems these things only matter in the context of stopping someone else. Anyone else. Otherwise we might have to be honest about the situation we're in, and holding everyone to the same standard is probably going to be important for getting out of this mess. Unless it's not really about that at all.
"I'd love to see a fraction of the scrutiny some are willing to apply to National applied to the performance of the government we actually have"
Labour's excellent policies are helping sort the housing crisis. It has not solved them but it is pointing things in the right direction.
Interest rate hikes which are set by RBNZ and globally driven are the primary cause of the house price crash so Labour can't take credit for that.
National plans to reverse Labour's policies and have no alternative policies to solve the housing crisis.
Happy now.
"F Off if you don't own property!" quickly followed by "Hey, where the F did all the renters go!?"
Saw a lovely exchange on socials between two keyboard warriors. Situation is dire out there, if you don't own property, you are "jealous scum", and if you do you are "a greedy f-witt". A nation of losers, seriously wtf is going on.
The house price stability mandate was introduced in March 2021, prices topped out later that year and since then have gently fallen. Pretty good result.
Whether there is any causal relationship between the two or housing is just collateral damage from the inflation battle, I couldn't say.
Rents as a share of income haven't changed in quite a while, and with incomes rapidly rising, rents are following suit everywhere except Wellington.
I expect Wellington to be back to a normal renters market by January however, as the backlog of unsold houses eases. Many of those would have been rented out in the last year or two.
There is still some good rental income out there if you can find the right tenant.
"“The same Government that banned private companies from importing rapid antigen tests now admits it’s spent $45 million in 14 months on storage for expired and expiring rapid antigen tests (RATs) and PPE that will likely never be used,” says ACT Leader David Seymour."
Follow that money trail, someone "connected" with the Labour government just got given a massive back hander. $45 Million ? did they need to build the warehouse to put it in ? This stinks about as bad as it can get. someone needs to investigate, its the sort of RATgate situation that would bring a government down.
The fewest you ignore the the 80 odd countries with a lower death rates/100k and our excess deaths still running at 10% above normal.
$45 million to store some cardboard boxes is a disgrace. Did we get to keep the warehouse?
Zero. I always thought the RAT tests were a complete waste of time and money. If you felt sick stay at home, that doesn't change with or without a test does it ? The only difference is that you know you have Covid or you don't have Covid. Of more use to me over 2 years later would be an antigen test to know if I have even had it or not, but apparently thats not possible.
This clever and highly successful dude acknowledges the strong role of luck in his and other’s success (coupled of course with hard work and talent):
https://www.rnz.co.nz/national/programmes/afternoons/audio/2018895939/k…
NOPE NOT AT ALL. My parents were good, nice people but "driven" they were not. My dad was an employee his whole life (mostly for the same company), he was too scared to take a mortgage to buy a house. Why do you have such difficulty accepting that we can change and improve our life, no matter our background?
Why cant you accept that if you were born elsewhere with different parents you would be doing ram raids? Wrong time wrong place and you'd be a Nazi camp guard.
We are a product of nature and nurture. That is down to luck.
Stop flattering yourself. You are not different.
While it does have an effect, I can point to several families where one brother has ended up before the courts many times, or in prison, and another brother has done quite well for themselves, never been arrested and done alright for themselves.
Sure, if you were born into a mongrel mob family you are a distinct disadvantage compare to being born to a well off family with two university graduates as parents, but you still have agency and can determine to a large extent your own path through life.
Circumstance (or luck) and personal effort both shape the outcome of one's future. There is no way one can influence luck or external circumstances, therefore it's best to focus on what one can control and improve, being oneself, instead of complaining about circumstances and blaming others.
Wow, I almost agree with you for once, especially the bit about focusing on what you can control.
The only bit I would say differently is that it's completely OK to complain about circumstances and blaming others if that complaining can help change the system that brought about the unfair circumstances.
System change comes through individuals complaining about the current system and supporting those who know how to change it.
I personally cannot save the planet from climate change effects but I can complain about all the fuckwits that put their personal benefit over the long-term health or our life-supporting ecosystem. If enough of us complain, others who might be scared of complaining will see they are not alone and also complain, and then some politicians will realise there is votes in it and stand on platform to put environment over profit and we'll get legislative change.
So we almost agree but not quite.
How much of that is predestined by their genes, upbringing or surroundings? It gets interesting when you dig deeper - yes hard work will make your life better. So where did the desire to work hard come from? Where did the ability to work hard come from? It's luck all the way down...
The fact there's a grey area means
- when you're failing, it's because of someone else
- when you're winning, it's all you
Fundamentally every person is finding the boundaries of where the tail is wagging the dog. You can definitely impact the mental framework you view the world through via your own exploration though. There's quite a few mindsets around that are antithetical to succeeding, in many areas of life.
"- when you're failing, it's because of someone else
- when you're winning, it's all you"
If this was more widely understood then we would get better progress as a society. It's one of the reasons successful people oppose state led measures to increase equity once they themselves have benefitted from it. See boomers voting to start charging students for tertiary education, housing policies that benefit those who have already bought, universal super benefits while cutting other benefits, etc...
mfd, if "It's luck all the way down…", why don't you just give up on life? Don't go to work, don't look for a partner, don't be kind to your friends, eat whatever, take drugs, and don't exercise, since "It's luck all the way down…"
Or is that the way you currently live your life?
Ha, this was the exact question that I got asked at one of the Oxford entry tests. If we are a product of our environment and genes how can anyone ever be guilty of a crime?
Yvil's way is one way of answering but not the only one. Will not bore you with philosophy 101 but it is a fascinating question if you are interested in understanding the human condition.
No, it's not. I do my best to have a good life, playing with the extremely fortunate deck of cards I was handed. It's easy to clean up the game of life when your parents provided a stable upbringing and a good education, and provided me with the genetic disposition to take on that education and use it to my advantage. It would be crazy not to use such gifts.
Others were handed different decks, maybe short a few crucial cards. It's much harder for them to get ahead. This realisation that I am only where I am because of genetic and societal luck gives a little humility, more compassion for those who struggle, and more desire to spread my money around where it can do good (I'm working towards 10% of my income going to charity - stepping up the % every new year and pay rise).
There are a huge number of people living in poverty who could have achieved more than me if they had the same chances.
@Yvil, you really should take a course on logic.
I never said that it is all down to luck, I said it is a combination of both luck and effort, there are many variables that determine wealth. It pisses me off when people say it is ALL down to effort. The role luck plays in success is almost always understated by those who are wealthy. There have been many studies carried to prove this human tendency.
That's what you said agnostium:
by agnostium | 29th Jun 23, 9:55am
Yep but it probably all started with where you were born, what type of country you lived in, how healthy you were. Plenty of variables that have nothing to do with effort or smarts that would have also influenced how successful you were.
No reference at all to "effort". I on the other hand, acknowledged both sides:
by Yvil | 29th Jun 23, 10:31am
Circumstance (or luck) and personal effort both shape the outcome of one's future.
Lastly look up the meaning of "logic"
Read what I wrote again Professor
"Plenty of variables that have nothing to do with effort or smarts that would have also influenced how successful you were"
Notice how I said also. Your grasp of logic is worse than your grasp of Metereology.
Have a nice night. Actually scrap that.
Inflation is totally running out of steam, but the Central Banks of the world want to keep raising to create unemployment? Are they dim? Once again they prove they are incapable of understanding the basics of their job.
It takes time for interest rates to be felt, it takes time for people/instruments to come off old rates and onto new ones, right throughout the economy and financial systems. Energy prices have recently had significant drops, which underlie most of our inflation. At this point, its only OPEC holding up inflation, the reporting of which is behind current state.
I guess they want to be seen to be doing something even if its the wrong thing. Idiots.
"Create Unemployment" might just be code for "Keep Wages Down". The Central Banks know that we have a demographic time bomb exploding beneath us all. The Retirement generation is now in full swing, and they didn't produce a replacement or suitably qualified workforce - anywhere in the Developed World. We are all in population decline - hence the scramble to poach what workers there are from each other.
As we move into the last lap of the retirement phase; a phase of more people being supported - one way or another - to do nothing, the wage pressure is going to be immense. So getting the Wage Demand demon back in the bottle is crucial. But we know how that works out, don't we? So expect much higher OCR/Cash Rates in the near term as Central Banks struggle against the insurmountable.
(NB: We know the answer - it's Lower Prices, not Higher Anything Else. But that will be fought to the death)
If only we had a political party willing to balance foreign profits with productive internal spending supported by a fair tax system. We have a hoarders problem, and we don't want to touch it with a 10 foot pole because we're afraid those people might whinge and whine.
Paywalled however the headline tells you all you need to know. No surprises there.
https://www.nzherald.co.nz/business/three-waters-cost-blowout-expected-…
Too bad non-economic reasons prevent weaker oil from helping consumers with lower gasoline prices. It would be a tiny silver lining as recession accelerates, still every little bit would've helped. It does suggest more possible downside in gas, not that rate hikers pay attention. Link
New Zealand isn't on its own by any means.
"Water nationalisation as Thames Water teeters on the brink...Fears are growing that the collapse could trigger a domino effect across the industry, which is laden with £60 billion of debt built up during years of lower interest rates. "
https://www.telegraph.co.uk/business/2023/06/28/government-preps-nation…
"Thames Water provides drinking water and waste water services to 15 million customers in London and the southeast of England." Is that a closed loop? Would they tell anyone if it was?
Hopefully they are smart enough to spend three billion on water pipes instead of on consultants like Labour are planning to do... Which will turn into 6 billion of course.
Eject the numpties first and then judge.
We can't afford Labour/Te Pati/Greens for the next three years.
National are not better at spending our money than Labour, they still waste the same amount on consultants (in fact they tend to spend more as they generally try to cut the public workforce).
I work for a consultancy and have worked for central and local government and if you think keeping public wages and staff numbers low saves the taxpayers money you are completely wrong. Public servants leave with their redundancy paycheck and then contract back in to do the same job at x3 the cost.
The only way National "save" money is:
- by cutting services (which Labour then has to pay x2 more to set back up again when they get back in power)
- Selling public assets - we then get charged twice as much by the private sector for the services we used to own
- borrowing massive amounts of money and foisting it on future generations/governments to pay it back, normally hiding the debt in things like PPPs
The NZ National party has moved away from it's roots as a centre-right party and is now just a proxy for vested corporate interests
No, I'm not worried Jones, for two reasons;
1) even if National get in power with Act, the acute housing problem won't be solved and even if it was, very few people would be willing to accommodate people from WINZ, it's a tough job that requires someone on site 24/7/365.
2) we only have a portion of our accommodation set aside as emergency accommodation, the majority is still for travellers, trades people, sports groups, school events etc...
Even if Labour is better for us providing emergency accommodation, I will not be voting for Labour.
Fair point FH, and I agree with you. I would not have beneficiaries and regular travellers staying next to each other, or even in the same building. We are lucky to have several buildings, and we do keep WINZ people in a separate building. We could make more money by accepting more beneficiaries but I don't want to do this.
"But Labour are certainly better than any other party at wasting our taxes"
Are they? I think on transport, you could argue that National chewed up all the money on mega highway projects that return very little value for money.
There are plenty of other examples from both Labour and National where our money has been wasted, I don't think it's a general rule that holds.
In Europe at the ECB Forum on Central Banking, Fed boss Powell said at least two more rate hikes are on the table this year because of the very strong labour market in the US. At the same talkfest, ECB President Lagarde and Bank of England Governor Bailey both said they expect further tightening measures to cool down inflation too.
Bank lending in the Eurozone is an important credit channel for the real economy. Recently, banks are paring back lending as loan demand falters due to high borrowing costs. Yet, the ECB will keep hiking into this...Link
Interesting illustration. In the US's desperation at being overtaken by China and faced by a Russia unwilling to be bullied by the US, it's response has been to lash out at its own vassal state Germany, like a psychopath geting a kick out of hammering a defenseless child to death Link
It is expected to show they (the banks) have ample capital to weather any fresh turmoil in the banking sector
Are the bank's assets, such as bond holdings and commercial real estate, valued at current yields or the ultra low yields of 2+ years ago? I believe if valued at today's higher yields, most US banks are insolvent (collateral lower than liabilities).
Of course, the Fed doesn’t mark to market, nor have banks done so since the early-2009 market low, when the Financial Accounting Standards Board relaxed FAS Rule 157 (which is actually what ended the global financial crisis – by making bank insolvency opaque). Link -Hussman
Just a question given some of the polls recently.
If Labour get 38%,Nats 36%,ACT 18%...do National do the right thing and walk away and let Labour form a Government with what ever they can cobble together? That was the main arguement after 2017...whoever got the highest percentage had the mandate to govern according to Nat supporters at the time..
Hahaha. It's good to point out the hypocrisy but there is nothing wrong with not having the most party votes and still leading the country in the system we have. In some ways it will make them a little more humble and require them to compromise a little more with their coalition partners.
Talked again this morning to an Auckland Council planner, resource consent application numbers even more miserable than they were several weeks ago. Now less than half of what they were in the always quiet January period, and way more than 50% less than same time last year.
Resource consent applications are a key lead indicator of the development sector. On the basis of these numbers, it looks like a profound slump is on its way.
Logically, anyone with a vague interest in societal wellbeing and owning 1 or 0 houses should prefer cheaper house prices. The small minority who own > 1 house are unfortunately strongly over-represented in the media and politics (and on the comment section here, but that has rather less impact).
"Is house prices going up positive or negative for the country?" - not for from a personal perspective but for the country as a whole. I too would like to know peoples thoughts on this as i can't see any benefit to NZ as a whole prices going any higher for a long long time.
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