Here's our summary of key economic events over the weekend that affect New Zealand, with news investors are getting nervous about their exposure to office buildings in the commercial real estate sector.
But first, in this coming week, retail sales, industrial production, and housing data, including existing home sales, housing starts, and building consent data will be released in the US. China is set to release data for Q2 GDP growth, retail sales, industrial production, and fixed asset investments. CPI inflation rates will come from the UK, Canada, Japan, and of course New Zealand on Wednesday.
After retreating over the past year, average new home prices in China's 70 major cities were unchanged year-on-year in June. There were rises, including in Beijing, Chongqing, Shanghai, and Tianjin. But there were falls in both Shenzhen and Guangzhou, along with 40 other large cities. Prices for home resales went backwards with only 6 of the 70 recording any gains or standstills. But the official falls are nothing like New Zealand's retreat. The worst Chinese city is only recording a -7.5% year-on-year fall.
Later today we will get the PBoC 1yr Medium-term Lending Facility rate announcement and that may give clues of new stimulus for the Chinese economy, one that may be helpful to the property development sector.
We should also note that some zombie property developers are now being delisted from local stock exchanges. And things are not getting any easier for commercial landlords there either. In Shanghai, overbuilding means vacancy rates are rising and rents are dropping for this tier-1 city.
In the US there has been a surprisingly positive shift in consumer sentiment. The widely-respected University of Michigan survey improved for a second month in July to its highest level since September 2021, and well above the anticipated outcome. Both current economic conditions and consumer expectations improved, largely because of the slowdown in inflation along with stability in their jobs markets. To be fair though the overall level is still low, but it is well off the mat now.
Investors aren't worried about the future either. The Fear & Greed index is still hard over on the 'greed' side. But that is about to be tested with corporate earnings results to be released for many majors. We get big bank earnings results first. Then those from IBM, Netflix, Tesla, and Johnson & Johnson will all help set the tone. Already JPMorgan announced a stellar result, helped by its purchase of the regional First Republic Bank. And Wells Fargo also reported sharply better earnings too. There doesn't seem to be a profit recession, so the underlying economic strength points to a 'soft landing' for the world's number one economy.
Singapore’s GDP grew by +0.7% in Q2-2023 from year-ago levels, quite tepid levels again for an 'Asian Tiger' economy but it was stronger than a final +0.4% growth in Q1. This was the 10th consecutive quarter of increase however, but the second smallest. On a quarter-on-quarter seasonally adjusted basis, their GDP grew +0.3%, reversing a -0.4% contraction in the first quarter. So no recession there either.
Also in Singapore, their anti-corruption body has moved against a minister and a major property/hotel tycoon. Both have been arrested. It is their most serious graft case to be prosecuted in more than 35 years.
In Europe, their heat wave is getting worse and it is deadly serious for the people involved (Athens hit 39oC earlier today for example, Rome might hit 42oC early this week, Madrid too). And about a third of Americans are also facing deadly heat extremes (Dallas is touching 40oC now as well). These follow the heat dome that hurt northern China last week but hasn't really gone away; Beijing is expected to swelter in 37oC+ heat for most of next week. We would be wise to start preparing for high summer temperatures here.
And one consequence may come from the insurance industry. In the US major insurers are pulling back on homeowner policies from California to Florida, in many cases declining to renew existing policies. Climate change consequences are becoming uninsurable. And with reinsurance companies doing the same, agencies like our EQC and other government-supported programs could find their long-term futures threatened. In the US, high premiums aren't enough to entice insurers to offer any coverage in many places.
In Australia, one of their largest real estate investment trusts (REIT) has had to limit redemptions in a fund that specialises in office properties. It's a AU$2.5 bln fund and it received redemption requests equal to 15% of its equity, and only paid a quarter of what was requested in February (the latest disclosure). It is unlikely to be the only large commercial real estate fund to run into liquidity trouble. The problem for the industry is that this type of 'temporary difficulty' (when managers won't sell assets to fund redemptions because they believe 'real value' is way above what the market values their asset) is just the type of reaction to spook investors, who then rush to redeem to protect their capital.
And staying in Australia, their government named Michele Bullock as governor of the Reserve Bank of Australia, making her the first woman to take the role. Treasurer Jim Chalmers announced that Bullock, currently deputy governor, would head the central bank for a seven-year period starting in mid September, a day after incumbent Philip Lowe's term ends. In the end Lowe was sacrificed in the name of 'change', but Bullock isn't expected to change monetary policy direction. Her initial focus will be on internal reorganisation that has been earlier flagged (and making it a bit more like the RBNZ).
The UST 10yr yield will start today at 3.83% and unchanged from Saturday. Their key 2-10 yield curve inversion is also little-changed at -94 bps. Their 1-5 curve is slightly more inverted at -129 bps. And their 3 mth-10yr curve is little-changed at -148 bps. The Australian 10 year bond yield is now at 4.00% and up +1 bp from Saturday. The China 10 year bond rate is holding at 2.69%. The NZ Government 10 year bond rate is also unchanged from Saturday to 4.62%.
The price of gold will start today at US$1954/oz and down -US$5 from Saturday.
And oil prices are unchanged from Saturday at just over US$75/bbl in the US. The international Brent price is now at just on US$79.50/bbl.
The Kiwi dollar starts today little-changed from Saturday at just under 63.7 USc. Against the Aussie we are unchanged at 93.2 AUc. Against the euro we are firmish at 56.8 euro cents. That all means the TWI-5 is now still at 71 but up +70 bps from a week ago.
The bitcoin price has risen slightly in its recent yoyo pattern and now is at US$30,399 and up +0.7% from this time Saturday. Volatility over the past 24 hours has been low at just on +/- 0.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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71 Comments
CHINA Exports COLLAPSE as USA Stops Buying, Economic Downturn Accelerates & Inflation Falls to 0%
Physics always (eventually) trumps stupid. Retreat of available insurance in Florida...........(ironic that one of the pillars of the FIRE economy is the first to crack)
https://www.theguardian.com/us-news/2023/jul/15/florida-hurricane-insur…
Auto experts have said repairing EVs is more expensive than fixing gasoline vehicles. We penned a note in March titled Not ESG-Friendly: Insurers Junk Entire EVs For Minor Accidents. It only takes one minor accident to damage a battery pack, and if that occurs, it must be replaced at the cost of tens of thousands of dollars.
At the same time, auto insurance rates are soaring as the cost of fixing not just EVs but all vehicles has led to significant losses for big insurance companies over the last few years. America's largest insurer, State Farm, lost 28 cents for every premium written in 2022. It posted a $13 billion underwriting loss for its auto arm. Link
This is a report from the US analysing repair costs (done by CCC who provide technology solutions for insurers, automotive manufacturers, collision repairers, parts suppliers, lenders, and fleet operators.)
CCC found that both subsets of EVs had a higher average repair cost with a higher share of losses falling in higher repair cost dollar bands. Total cost of repairs averaged $4,041 for EVs, against $3,191 for non-EV models among small non-luxury cars. Among mid-size luxury SUVs, the difference was even more pronounced: $8,037 versus $5,242.
The higher costs, CCC concludes, are likely due to greater use of OEM parts and more repairs requiring operations like scans and calibrations.
That dovetails with a Forbes Advisor analysis released last week, which found that an EV costs about $100 more per year to insure than a similar ICE vehicle. Forbes said its analysis of data from Quadrant Information Services shows that the average annual premium for EVs is $1,889 versus $1,786 for an ICE vehicle.
So it's real, but not overly dramatic.
I’m in Sicily, hit 44c in the interior two days ago and 40c near coast last few days. Totally normal and everyone is going about their business enjoying life. The food is better and cheaper than NZ, the sea azure and gin clear. It’s only the West pushing the heat narrative. No wind, no cyclones, no drama. Dolce vita.
It’s the reason they have siestas. The old towns come alive after sunset. It’s a few months of the year and they are set up to deal with it. I mean the overnight lows are up near Auckland’s hottest day in record. Can just imagine woke Kiwis moaning about a 40x day in Auckland.
Same, have family and friends who live in the South of Spain. Might seem fine if you're a tourist. The locals see it differently. It's harming crops and sapping productivity. Other than making you feel less guilty about flying around the world on holiday and adding to the effects of global warming, your tourist anecdata (Te Kooti) is worth shit.
Woke means 'lacking heat tolerance' as well? It really is the word that keeps giving.
I spent a month in high 30s to low 40s earlier this year - I spent a lot of time in air conditioning which many of the locals don't have access to. I have no idea how anyone was able to do manual labour.
It was lovely going for an early morning/late evening walk in the low 30s though.
"I have no idea how anyone was able to do manual labour. "
You do become acclimatised, and being born into heat/cold definitely helps.
A long time ago we were in Brisbane in July for a Large extended Family reunion.Temp was between 20-24c most days.
- Those from NZ tended to be in shorts and t-shirts.
- Those from Brisbane were in trousers and long sleeves.
- A group from Cloncurry came in wearing light jackets and jumpers.
This is a dangerous fallacy. Educate yourself on wet bulb temperatures.
''Even heat-adapted people cannot carry out normal outdoor activities past a wet-bulb temperature of 32 °C (90 °F), equivalent to a heat index of 55 °C (131 °F). A reading of 35 °C (95 °F) – equivalent to a heat index of 71 °C (160 °F) – is considered the theoretical human survivability limit for up to six hours of exposure.''
https://phys.org/news/2020-05-potentially-fatal-combinations-humidity-e…
We are not talking about 70+c,60c or even 55c here. So where is the fallacy?
The comment I responded to clearly mentioned people were working, and they were clearly speaking about an area where humans are known to survive.
Further, the example I used, involves people who came from known human habitation areas well within the scientific range of human survivability. My example was to show that people can function and behave differently, depending on what they are used to.
We're not talking about temperatures where all humans shut down instantly - but we are talking about temperatures that put significant extra stress on the human body. This can be clearly seen in the excess mortality during heat waves. If heat waves become more common, and more extreme, and in more areas, there will be more deaths. Particularly if they crop up in areas that are not accustomed to them - my parents in the UK struggled last year in their heat wave. Shut the windows and curtains at day break, and stay inside until night. Very few people have air conditioning, but after that experience my parents are trying to get a heat pump inverted installed - if only they could find someone free to do the work.
Another little feed back look - climate change causing heat waves, meaning more electricity and hardware required to manage the heat waves in more areas, meaning more emissions.
I agree with everything you have posted, but lets take a breath and look at the comments...
- Comment 1 = Poster spent time in a high 30s/low 40s environment and wondered how people did manual labour.
- Comment 2 = an example providing showing how people can act differently in the same temp depending on their background.
- Comment 3 = Claims it's all a dangerous fallacy and that people cannot do it if wet buld temp exceeds 35c for more than 6 hours.
We have no idea of the wet buld temp in the original post, but assuming 40c air temp, then to exceed the 35 Wet bulb survival limit then humidity would have to be at 75% or more, and the people working would need to be doing more than 6 hours straight.
In terms of my post, relative wet bulb temp would be
- NZ = 10c/85% humidity = wetbulb of ~8.42
- Brisbane = 22c/80% humidity = wetbulb of ~19.45
- Cloncurry = 45c/15% humidity = wetbulb of ~24
As an aside Rome today is expected to hit 37c at 70% humidity (Wet bulb of ~32), so life is uncomfortable yes, but a long way from unsurvivable. In fact much of the tropics have Wet Bulb temps around this level throughout the year.
So my question - What dangerous fallacy did I raise?
For the record - I was in South-East Asia, and apparently average humidity for that time of year is about 80% - if that was the case on the 42 degree day, that's a wet bulb of nearly 39 degrees. I didn't note the exact humidity, but it was certainly humid. The locals were complaining, even though I was hanging around with office workers spending most of the day air conditioned. Apparently this year was exceptionally hot.
Of course this is the peak temperature - the morning would be in the 30s and I found I shifted my day earlier than I do in NZ to compensate.
100% agree I found out years ago that exactly 32 Deg C is the upper limit for intense exercise, at that point it begins to severely impact your performance. Of course NZ also suffers from high humidity which just compounds the problem. As the human body temperature is like 37.5 Deg C it becomes impossible for the body to dump the heat over that other than by sweating. Heat stroke and dehydration starts killing people in numbers.
Perhaps you could tell that to one of the 60,000 who died in Europe last year due to heat stress during their last (seemingly annual) event.........but then if it doesn't directly affect you, why would you care? One day though........
https://www.forbes.com/sites/darreonnadavis/2023/07/11/over-60000-peopl…
Going about their business and enjoying life?
Why are those associated?
That kind of temperature has ramifications for food-production, Europe-wide, one would have thought. Last I heard, starvation and enjoying life were mutually exclusive, but I guess some folk live gated lives...
And it was the temporary arrangement of 8 billion of an overshot species, going about 'their business' that threatens all future generations' ability to 'enjoy life'.
It has also been 16 degrees in Auckland the last few days, it felt like spring over the weekend yet it is the middle of winter. Its nice until your house is under water...
The funny thing is you would think the right wing would be more worried about climate change, they would probably own more land that is under threat.
See the problem is, there is no upper limit for temperature increases, well not survivable ones. People think "global warming, ahhh, things will just be a wee bit warmer", but what we are doing is taking millions of years of stored solar energy and dumping part of it into the atmosphere. This doesn't have an upper bound though, at least not one that we will be talking about if we go up a few more steps. It looks like the current heat extremes are jumping us up the next step, but the staircase is near endless. 44c is OK now, how about 50c peaks in 100 years or so. How about 80c in 500 years or so? There is no upper bound here, Venus sits at 475c, probably because of a mass greenhouse gas runaway scenario in its past.
We really, really, really need to stabilise our climate if we want to keep humanity going. Our climate underpins our existence. Although maybe we just don't care enough about future humans to escape our current model of rapacious greed and will see humanity burn for it.
"We really, really, really need to stabilise our climate": Yeah but that would require some extreme sacrifices, like buying a smaller car, walking short journeys, not buying unnecessary crap, getting a push bike, not flying around the world every year, etc. Its impossible, lets leave it for the next generation to worry about.
Should rephrase this then. We all really, really, really need to adopt long termism as the main philosophy for setting policy. And that might mean moving away from democracy to ensure our survival, given people only vote for the own short term best interests and an unwillingness to understand the problem. Likely this will be forced upon us if anyway if we don't opt for it.
Problem is without democracy we are virtually guaranteed to get psychos like Vlad Putin, Donald Trump, Pol Pot, or some theocratic council telling us contraceptives are banned and public stonings are to be reintroduced. Democracy is the best of a sub optimal list. The biggest issue with democracy is the nonsense we are brainwashed with every day. Media and advertising.
There are differences between the major corrections to asset market throughout time, but if history gives us one clue, it's that there is often a Second Wind before the biggest of falls. Unlike Inflation, that appears to have to be clubbed repeatedly, after the first battle is won, before it is finally tamed.
https://ewminteractive.com/wp-content/uploads/2018/08/The-Dotcom-Bubble…
https://www.federalreservehistory.org/-/media/images/essays/great_depre…
and the Inflation one:
https://www.federalreservehistory.org/-/media/images/essays/great_infla…
https://www.newsroom.co.nz/page/collapse-is-not-a-dirty-word?amp=1
(I put it up on the Trotter thread, but it deserves the widest reading.)
But its easy to become a bit of a cynic when China and India keep building coal fired power stations and Europe keeps setting targets that they know they cannot achieve (the plan to phase out combustion engines will fail) and Russia carries on with its 18th century empire building
So travel now before the world ends - Saint Javelin is organising a beach party in Crimea complete with fireworks
China is set to release data for Q2 GDP growth,...
Asia: 70% of global growth this year, with China alone being half of that. Europe: 7%. Europe's response? Let's "de-risk" from China. Obvious the "risk" here is actually cutting yourself economically from the region that delivers the immense majority of the world's growth. Link
> First, it turned out that various bits of US-made shoulder-fired junk — anti-aircraft Stingers, anti-tank Javelins, etc — are rather worse than useless in modern combat. Next, it turned out that the M777 howitzer and the HIMARS rocket complex are rather fragile and aren't field-maintainable.
That guy has an 'interesting' perspective on reality. Remind me, how many Russian tanks helicopters and jets have these 'worse than useless' weapons taken out?
“It is within the realm of possibility that Ukrainian forces have seen losses at this level,” the New York Times quotes a British security analyst, adding that “ a significant level of lost weapons was generally a hallmark of wars of attrition, like the one in Ukraine.” The newspaper adds the claim: “In the first two weeks of Ukraine’s gruelling counteroffensive, as much as 20 percent of the weaponry it sent to the battlefield was damaged or destroyed, according to American and European officials. The toll includes some of the formidable Western fighting machines — tanks and armored personnel carriers — the Ukrainians were counting on to beat back the Russians. Link
Of course both sides take losses in combat, but what has that got to do with my comment? Were talking about the ability of western weapons to take out Russian weapons.
If western weapons are worse than useless, why has Russian gained next to no territory in the last 12 months?
Wow some truly clueless people on here. Death Valley about to hit 55C but hey the worlds all good. Somalia in the 5th year of Drought, one more and its all over. Forced mass migration is going to be the next huge problem, you don't actually think they are just going to sit down and die so you can enjoy your Italian vacation do you ? Europe already has a big problem on its hands keeping immigrants out.
so lets slap a label on those we disagree with and then we can bully them into submission.
Actually a number of "climate change deniers" are no such thing despite your labels. They just dont agree that the solutions being implemented will work - So I am in both camps according to your definition which I guess makes you happy but doesnt add any real value
As PDK has pointed out if continuing to consume resources at the rate we are is the problem then (for example) buying an EV is hardly a solution and subsidising that purchase is certainly not
Nor is taxing farmers so that urban folk can continue life as usual
My comment was purely pointing to the number of comments on here that indicate people do not believe climate change is taking place and everything can continue as is.
I agree with you that we need to discuss the solutions, EVs are not going to solve anything.
But the first thing is to agree that there is a problem, then lets decide the best policies to fix it.
In Australia, one of their largest real estate investment trusts (REIT) has had to limit redemptions in a fund that specialises in office properties.
AFR says "It has since marked a number of properties for sale to meet the remaining 75 per cent of requests, but has now declared it “will only sell assets for prices that reflect fair value and given the lower sales volumes in the office investment markets, sales have proved challenging”."
In other words, the fund is in the denial stage. Offers are too low.
https://www.afr.com/chanticleer/the-global-office-property-crisis-has-f…
Coming apart at the seams across the ditch.
Super funds are not being properly scrutinised as they build up huge portfolios of illiquid unlisted assets, putting Australians’ retirement savings at risk, the authority [APRA} that oversees the financial regulators has warned.
https://www.afr.com/policy/tax-and-super/delayed-deprioritised-apra-fai…
The commercial property virus spreading throughout the Anglosphere.
Turn em' into residential property.
A crisis is building in the commercial real estate market, with $1.5 trillion in loan maturities coming due over the next three years. Many of these loans will turn into defaults and foreclosures in 2023, 2024, and 2025 as landlords hand back the keys on failing office buildings and retail strip centers. Morgan Stanley estimates that commercial property values could fall as much as 40% in the process.
https://www.reventure.app/blog/commercial-real-estate-defaults-are-incr…
Moral of the story here is don't count your chickens until they're hatched.
Around 43 million federal student loan borrowers may have been disappointed to see the Supreme Court strike down President Joe Biden’s plan to forgive up to $20,000 per borrower last month.
About 1 in 3 borrowers spent more than they normally would assuming they were going to see some debt relief, according to a recent survey of over 900 borrowers who qualified for Biden’s relief plan from Intelligent.com.
https://www.cnbc.com/2023/07/14/34percent-of-student-loan-borrowers-spe…
Jesus, National proposing a policy to allow people to use KiwiSaver to pay for bond tenancy payments?! Party of landlords alright. Shockingly shortsighted policy. What a pathetic political options we have to choose from.
Yep. Terrible. Why not the govt sign a guarantee in lieu of a bond?
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