Here's our summary of key economic events overnight that affect New Zealand, with news that China's recovery has stalled, and that is affected many trading partners linked closely to it.
But first, Moody's has cut the credit ratings of ten mid-sized American banks and said it may yet downgrade some of the US's largest lenders. It said it is concerned about impending lower earnings, and the risks to bank funding. They have an eye on how lending on commercial property may need to be written down. This downgrade action is contributing to a wider sell-off by investors in bank shares.
Meanwhile, American household debt was largely unchanged in the June 2023 quarter primarily because mortgage debt isn't rising. But credit card debt is, and although the rise was modest, it did hit US$1 tln for the first time. Total American household debt is now 63.6% of US GDP. That is down from 64.0% a year ago and down from 66.8% ten years ago. (New Zealand household debt is 92.4% of our GDP.)
US exports of both goods and services in June held steady from May although they came in -4.3% lower than year ago levels. American imports however were down -7.8% from year-ago levels. Their trade deficit shrank to its lowest in three months.
US retail sales rose marginally last week at brick & mortar stores ending a run of declines. But the improvement was still less than inflation's bite.
In China, their Customs authorities said their exports were down -14.5% from July a year ago, a deeper dip that the -12.4% from a year ago in June. It was their worst fall since the pandemic. De-risking and reshoring by international firms is gathering speed. It is being felt on the factory floor. Exports to the US were down more than -23% from a year ago. Exports to New Zealand were down more than -16% (which is a bit surprising given the amount of Tesla's we import from the Shanghai factory). China's imports from us were down -13%. Their imports from Australia were up +9.5%.
Taiwanese exports were down -10.4% in July from a year ago and imports fell -21%, which were much smaller levels than they recorded in June. In fact their exports rose a rather remarkable +19.8% in July from June.
In Europe, Italy has approved a surprise one-off 40% windfall profits tax on banks they earn from higher interest rates and said it will use the proceeds to help mortgage borrowers. Italian bank shares plunged more than -NZ$16 bln in a move that could threaten viability for some of the weaker ones.
In Australia, the Westpac-Melbourne Institute consumer sentiment survey index remained in deeply pessimistic territory in August. They found the RBA’s rate hike pause again did little to boost confidence. Inflation still dominating consumer sentiment, driven by recent fuel and energy price rises. Housing sentiment is mixed: deeply negative on purchase, but bullish on prices. (Surging migration, a tight rental market and relatively low supply of homes have combined to send prices flying higher across the country.)
Meanwhile the NAB business confidence survey for July showed resilience around Australian business conditions and a small rise in business confidence. Both measures are above long-run levels. This survey noted a pickup in retailer confidence, which is surprising given the consumer sentiment levels.
Australia will have its attention to what, if anything, China does to try and undo the stall their economy is clearly in.
Global passenger air travel recovered by more than +30% from June a year ago, but is still lower than pre-pandemic levels. Domestic travel has fully recovered, and more, but international travel is still -12% lower than pre-pandemic levels and in the Asia/Pacific region it is still almost -30% lower. It is very noticeable from this data that Chinese travellers are holidaying at home.
The UST 10yr yield will start today at 4.01% and down -7 bps from yesterday. Their key 2-10 yield curve inversion is a bit more, now at -73 bps. Their 1-5 curve is now at -123 bps. Their 3 mth-10yr curve is slightly deeper as well at -135 bps. The Australian 10 year bond yield is now at 4.00% and down -9 bps from yesterday. The China 10 year bond rate down -1 bp at 2.66%. The NZ Government 10 year bond rate is now at 4.86% and up +4 bps.
Wall Street was lower in its Tuesday session with the S&P500 down -0.5% and shedding most of Monday's gains. Overnight London markets ended down -0.3%, Paris ended down -0.7% and Frankfurt ended down -1.1%. Yesterday Tokyo ended its Tuesday session up +0.4%, Hong Kong fell -1.8%, but Shanghai dipped -0.3%. The ASX200 ended Tuesday unchanged with a late fade and the NZX50 ended down -0.6%.
The price of gold will start today at US$1925/oz and down another -US$11 from yesterday.
And oil prices are up +50 USc and now at just over US$82/bbl in the US. The international Brent price is little-changed at just over US$85.50/bbl.
The Kiwi dollar starts today almost -½c softer at just on 60.6 USc. Against the Aussie we are soft at 92.7 AUc. Against the euro we are also soft at 55.3 euro cents. That all means the TWI-5 has slipped to 69.2 and down -30 bps in a day.
The bitcoin price is higher today since this time yesterday and now at US$29,799 which is up +3.1% and a two week high. Volatility over the past 24 hours has been modest at just under +/- 1.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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115 Comments
Not much. The nominal NIM would narrow and as a result - lending would dry up as cost driven expenses are slashed = employees and branches cut. "Our" banks are already widening the gap to generate the expected returns, and if they are impacted the answer will be a shrinking of business activity, i.e. good luck trying to get a mortgage with any set of figures.
(Isn't the current strike a good opportunity for Westpac to come out with the old "Ok. Fair enough. You've rejected our kind pay offer. We're leaving". Their NIM would then drop to 0%)
That would cause the price of houses to fall to much more affordable levels, and reduce that gap in the longer turn. They'd get to the point where everything would be much more reasonable sooner, and then be able to start lending again. The Government should really consider doing it here.
Same - borrowing is a risk and needs to be managed.
Businesses that have borrowed significantly at low rates without thought for a prolonged economic drought will need to be allowed to fail, their employees similarly should have questioned the business model and if in doubt - should have moved or retrained long ago.
There are a lot of expensive cars, mortgages and business loans out there (globally and in NZ) and the average Joe who didnt overleverage will be voting in parties that dont support bailouts.
Government workers and local government are also likely set for a hard period of redundancies and massive cuts to budgets as tax rates fall and government debt repayments rise. There will be little appetite from the tax/ratepayers to pay increases, in fact national and mayors will be elected to slash budgets so citizens can survive.
Looking at the economic data - a lot of businesses/people are going to find their previously friendly investor/bank manager/employer has a whole different side
100% OSE
I have a very close friend running his business on significant amounts of leverage who is getting absolutely squeezed and luckily is receiving a steady stream of personal bailouts, I wonder how far that will extend. (Regardless of family resource)
Anecdotal of course, but I suspect many won't have this luxury...
"Government workers and local government are also likely set for a hard period of redundancies and massive cuts to budgets as tax rates fall and government debt repayments rise. There will be little appetite from the tax/ratepayers to pay increases, in fact national and mayors will be elected to slash budgets so citizens can survive."
Based on the history from both sides of the aisle, their bureaucracies will sack and make front line workers redundant while managers and upper tier workers can keep their well padded pay packets. This will equal less nurses, less teachers, less firemen, less Corrections officers in prisons and probation officers (oh sorry, they're already doing that!), more AI answering phones, but less response over all.
Business and low rates are diametrically opposed. If you are stupid enough to borrow excessively against a family home to run your business I agree, these businesses may fail, if they are reliant on 2% rates.
If you have borrowed money from a bank using business assets as collateral, the business is in very good shape.
That's going to be very limiting, and would see a lot of businesses sold offshore for cheap.
In my case, i'm considering taking my employer up on his offer to buy the business off him when he finally decides to retire in 5-10years. There is simply no way for me as an employee without a trust fund baby background to save a million dollars or so to buy the business; without taking on debt i will not be buying to company. Nor is starting a competing business from scratch an attractive idea, there is a huge outlay in getting just the basics of the equipment, Think $250k for hardware, software and a design engineer, and then it'd be an all or nothing bet on making a sale in the first year.
Zero lending sounds good to me, has for a long time
A "long time" being one's own lived memory. Having a fixed money supply invariably has the majority of wealth consolidating even worse than what we have now. Its partly why we don't operate on something like a gold standard.
All that will happen is - every Italian Bank will re coup the 40%, to maintain their margins, thru increased fee's, lower TD's, higher mortgage rates. The net result is everything cost more and people can afford less.
EVERY time you put a tax on an organization or market they just pass it on and either destroy the organization/ market, screw the public, or make NZ expensive.
Hard to compare the US rate with almost anyone elses, as they're operating in 30 year terms; while Aussie or English mortgage holders get hammered immediately, in the States it just means people stay put under their existing interest terms (and there's loads at around 3%)
Anecdata insight for anyone who's interested.
I've been tracking in Xero how long its taking my business to get paid, and boy oh boy is the trend clear (for reference I have a fairly consistent client base - ~80% of my work is retainer, repeat business and the rest is one-off projects).
Normally invoices are issued at the start of the month for payment 20th that month (I typically work with smaller businesses where they don't have the "we pay 20th following month, if you're lucky" mentality of larger businesses) although some have their own terms, the main thing is we agree them and I base the invoice due date on our agreed terms.
Basically, I class an 'overdue' invoice as anything that is at least 7 days past the due date on the invoice, where the first Xero auto-reminder is sent.
I've gone from sitting steadily at 10-15% of any month's invoices being late (of which about half are because the client is always a bit short on cash, and the other half because they are just useless from an administrative perspective or have power-tripping accounts payable staff who won't pay an invoice if there's so much as an extra full stop on it) - very manageable and I know who usually operates in this manner and I factor that in.
Fast-forward to now, and for the last billing month almost 40% of my invoices are still outstanding, which is not pleasant. A couple of traditionally "decent" paying clients in there who have totally gone to ground in terms of even being contactable about payment - I can see from Xero they've opened the invoices, but suddenly Debra from Accounts doesn't want to answer my calls.
Thanks for the interesting anecdote! What industry are you in?
I think some of the businesses that will go zombie at debt rollover is more of a risk to the economy than over leveraged property owners.
All the best to you on managing your working cap and working with the powerful Debra!!
A tale of two countries, our exports are right down, while aussie has the opposite happening
China's imports from us were down -13%. Their imports from Australia were up +9.5%.
The loud noise you can hear are the people exports leaving nz and heading west to Oz. As a country we don't earn money on that trade
I’m in the process of moving back to NZ from 15y away in AU and UK.
Main reason is space for a young and growing family, comparatively very cheap daycare and housing, and to get out of the tax prison of AU! :)
My wife and I will both contract back to AU companies to help sustainably support the export numbers!!
Aaah, someone isn't aware of the incredible tax benefits available to Kiwis on a SCV i.e. temporary resident.
Check out Temporary resident on the ATO. alternatively, most tax advisors will tell you the benefits.
Basically, nil capital gains tax and you don't even have to declare any foreign sourced income.
In China, their Customs authorities said their exports were down -14.5% from July a year ago, a deeper dip that the -12.4% from a year ago in June.
Is diving straight down at terminal velocity a soft landing? We better hope so because the Chinese have something to say about the rest of the world... https://bloomberg.com/news/articles/ Link
Queensland NZ Police campaign should get alarm bells ringing.
We spend a fortune training our cops, some of the best trained Police in the world. Training is free. Experienced cops are a big enough loss, let alone detectives and specialists who have had thousands of dollars invested in them.
This need urgent attention. Either start charging fees to train or bring in a bond system.
Why should the taxpayer train Queensland cops?
I can't think of a good reason why they'd want to leave though.
It's not like the basics of shelter have been leveraged up to the point they're out of reach here...
So many problems could be solved by affordable housing and TOP is the only party seriously targeting it with their LVT policy.
Pattern emerging?
Free up cross Tasman travel, recognise NZ training as transferable, give kiwis all the same rights, export your crims - pick up our best and brightest courtesy of NZ tax payer.
This has always gone on, however this could be different.
Are we being merged as the next State of Australia - and their penal colony?
While I spent many years flying in and out of Australia consulting and enjoyed working there, I don't think 'merging' along the lines of their constitution (the tour guide at a museum in Canberra I went on during a weekend off highlighted it) would solve much. It wouldn't bother me as Aussies don't bother me like they do some NZer's.
This is because they are also operating a population and growth ponzi which has to end at some point. People with the name of Murray are damn annoying when they start sounding more right than wrong!
So you don’t think it would be much easier to retain, and attract, the people we rely on for our society to function, if our housing was say 30-40% cheaper?
You know - doctors, nurses, carers, teachers, police officers, bus drivers etc etc.
And you don’t think people would be able to invest more in things like retirement savings if housing was much cheaper?
you don’t think personal and household stress levels could be lower if housing was much more affordable?
you don’t think civic engagement could be significantly higher if housing was more affordable (research shows that home owners are significantly more engaged in civic matters and politics than renters)
There’s some starters for ten.
There's a fairly common narrative on here of a NZ that could've zagged another way and we'd have high paying, highly productive employment and cheap houses.
There's a grim reality of the economic and societal model we're running that dictates losers and increasing factionalisation.
Most places I know of with really cheap housing aren't the sort of places most people on here would be capable of living - the fact we have a semi-decent society and economy is also what attributes to the high pricing of our houses.
Just to clarify, I don't think cheap houses is an end game. I want affordable houses for those that work, whatever their work (some will always need assistance and that is fine in a caring society). I can live with expensive houses if we have the high pay and productivity that you speak of - but we don't, our house prices (well land prices really) are out of kilter.
I'm also not advocating equality, there will be some with more (land) and some with less (land). Provided those that have more (land) pay for the privilege accordingly (unavoidable land tax) I'm fine with it. Don't want to pay? Simple, sell all land and rent...
the fact we have a semi-decent society and economy is also what attributes to the high pricing of our houses
Disagree, we've stoked demand with massive population increases, restrictive rules and let private banks grow their loan books by selling the same houses to each other for higher and higher prices so that some may 'get ahead' (ahead of whom?).
The cheap debt is indeed a factor, but the places with higher house prices usually also have fairly strong economies and societal infrastructure. No matter what interest rates are, young families can almost never afford property in inner leafy green suburbs in good school zones, because they can't compete with the people already there, or people further along in their career and economic lives.
Debt is also cheap in Detroit, but house prices are almost zero, because it sucks in Detroit.
It's mostly the same though, the variations usually influenced by non-replicable factors. Japan's got a declining monoculture population. The nicer parts of Nordic Europe again have a strong monoculture, and extremely high levels of government trust.
The places with much cheaper housing, usually don't display those sorts of societal and economic advantages you link them to.
It would be easier to retain doctors, nurses, police etc if their pay was higher, hence the recent nurses pay hike. This is to stop an exodus to Australia, and nothing to do with house prices.
If housing was cheaper, then people would have more disposable income, which would be spent on holidays and expensive cars and eating out etc. This would lead to further inflation and a worsening of our trade deficit. I'm not sure how much people would be adding to their retirement savings.
Personal and household stress levels do go up with financial difficulties. This comes from things such as a massive hike in interest rates over a short period of time (courtesy of Mr Orr and the banks).
Houses in New Zealand are overpriced in specific areas, namely Auckland, Queenstown and Tauranga. This is due to that fact that more and more people want to live in those places, hence pushing prices up. However, its easy to buy a house in Invercargil, presumably because it is not such a desirable place for many (no offense intended). Even in Hamilton, there are many homes for sale between $400k and $600k. Everyone refers to the median house price for "affordability ", but why would a FHB be buying a median priced home?
Past the minor one rastus was alluding to of people leaving NZ in the 100's of thousands for Australia taking their often taxpayer funded skills with them?
Hope, this is the largest thing that could be solved - we've removed the realistic hope that someone can hold their head up high knowing they are able to provide shelter and food from themselves (and a family) by preforming a useful function in society. I want anyone that holds down a fulltime job to be able to afford a home and food in the place they work.
If that wasn't to your liking then try this, if housing was more affordable then bank loan books would be smaller, so they wouldn't be sucking as many billion out of the economy.
Taxpayers wouldn't be funding landlords to the tune of a few billion a year in accommodation and related supplement's and this could be redirected elsewhere.
I agree there were many problems in the 1990's too, but were they as large? Were there as many ram raids and people opting out of society - merely 'existing'? Affordable housing isn't going to solve anything by itself, but I cannot think of a better place to start for a better society - please share if you do.
Zero chance of the police introducing training fees, as that would be in conflict with their recruitment objectives of getting more recruits from "under-represented" groups where there is typically less wealth/income - I can imagine the headlines already (to put it in perspective, my understanding is the police have gone so far as to drop swimming competency as an entry requirement because it was disproportionately affecting the applications of candidates from certain backgrounds).
Bond system might be a goer, but presumably you'd need to up the pay to compensate (or maybe have a 'positive' bond system e.g. a retention bonus based on how long you stay in, such as a cash payout for completing your 2 year probation, another one that vests at 5 years and so on). If introducing a bond system could be a good opportunity to allow for direct entry into certain roles, e.g. detective work or other specialised roles, for those entering from outside - I imagine there would be people out there who'd consider joining if they could train to go into a certain role with the higher salary that goes with it, but who don't want to put up with entering with a frontline constable's conditions and pay packet.
Fundamental issue is the job just doesn't pay enough, particularly early on in the career, compared to the cost of living here especially in larger centers. Probably fine if you're a 20 something happy to flat with others, but no good for raising a family.
I would suggest that with the difficulties due to cost of providing a home for self and families, pay would be an increasingly important factor.
I think that the Government either doesn't understand this or is deliberately ignoring it. That is one of the problems you get when MPs pay is not linked to the median wage.
NZ housing prices is the factor affecting all of us. When you pay $900k for a $300k sh##t box and interest is at 6-7% a bloody big and totally unaffordable pay rise is required.
Most of NZ problems, be it social or employee retention wise relate to the cost of housing.
But we are encouraged to blame everything else, be it Maori activists, pot holes or gun laws.
I wish the NZ media could wake up a little...
What about the hard working south Suckland guy that worked his ass off in a crap job, saved, brought a 250k box in 2010, and has now been lifted out of poverty? Do we reduce the value of his only investment, an investment he hoped would see him live modestly in his retirement, to satisfy a bunch of homeless hopeless druggie car sleeping bludgers who chise tge wrong pathway in life?
House prices should be allowed to find there own market value without interference ... but that will never happen.
W-w-w-wait, if he's living in the place what difference does the house price make? That South "Suckland" fella just needs to continue working hard and saving for his retirement, and stop relying on the next generation to stump up a bigger sum when he eventually downsizes for retirement.
Somebody pays in the end, why should it be the next person working in a crap job? Maybe if the system didn't treat houses like retirement funds, Mr Suckland would have paid $125k for the box in 2010.
If the govt ditched kiwisaver, which is a dud that banks make billlons off, and ran a proper retirement fund that is Government run and not linked to dumb investments and based on how much you worked, then houses could be taxed heavily on the 2nd + properties.
It "rips my rashion book" that "dole lifers " get super"...Net takers!
This is the problem; houses are considered investments instead of the homes.
Once they are investments, then there is nothing wrong with accumulating more.
When you're accumulating more homes than you personally need to live in, it doesn't sound quite so reasonable.
To look at it another way, if the guy has three children, sure he's out of poverty - but his children all just landed neck deep in it and will have to work a lot more hours in the same job as their father did to get out of it.
Depends on what you mean by 'left the market'.
If you mean they've sold out, then they would be selling them to people without a home (because no investors buying per your scenario) such as existing tenants at a price they could afford to pay. Perhaps the Government would step in and some cases too.
The houses certainly don't disappear, and it's the houses that provide accommodation, not the investors.
Yes - there are lots of flash points right now
How long will unemployed chinese youth sit quietly for - or Russian mothers accept the body bags - Middle east looks like its ready for a new war - and borrowing is out of control in many places including NZ, USA, China
never mind the stresses from overprices shelter
But we are Ok - Larry Fink/Blackrock are coming to save us.....
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