Here's our summary of key economic events overnight that affect New Zealand, with news that it may be the summer holidays in the northern hemisphere, but that isn't making the economic news quiet. While they are holidaying the commercial world seems to be bleeding a bit.
Mortgage interest rates jumped in the US last week, taking the 30 year benchmark to 7.09% with a +16 bps rise in a week and their highest in eight months. Unsurprisingly, mortgage applications fell and it was quite a sharp weekly change. The availability of mortgage credit tightened too as banks prioritised quality lending.
One corner of the commercial office building market is in utter turmoil. WeWork shares suddenly became almost worthless yesterday after the one-time startup darling warned it could go bankrupt in a stunning reversal of fortune for a company that was once privately valued at US$47 bln. Co-working firms are finding life very tough in the post-pandemic world.
Canadian building consents continue to impress. In May they rose an outsized +12.6% and it was expected that in June they would fall back to even up. But in fact they rose another outsized +6.1%. It was commercial construction that shone, not residential construction. These may be strong recent gains, but in fact they were down -4.2% from June a year ago.
Japanese machine tool orders were weak in July. July isn't usually a strong month, but even the year-on-year comparison was weak, down almost -20%, principally due to low orders from China.
Taiwanese consumer inflation remained low at 1.9% in July, but was kept from falling lower by rising fresh food prices from a recent typhoon. Producer prices however fell -3.2% in July but that fall was much less than the -4.8% fall in June.
In China, we may be about to get a repeat of the Evergrande saga and collapse. Country Garden, another giant real estate developer has missed a bond payment, the same event that triggered the Evergrande collapse. Evergrande had liabilities of US$300 bln at its peak. Country Garden has liabilities of almost US$200 bln and large exposure in lower-tier cities. During the Evergrande saga Country Garden was viewed as a quality alternative, unlikely to follow Evergrande. The China property sector correction is far from over and will undoubtedly draw Beijing back in to 'rescue' the wider industry - not that previous actions have stemmed the odour.
Making matters worse, Chinese banks are resisting Beijing 'encouragement' for trimming the mortgage load on millions of home loan lenders. Borrower expectations of relief are being dashed.
Deflation has arrived in China again for its consumer prices. They fell -0.3% in July from a year ago (the first time in two years) but rose a minor +0.2% from June, but given year-ago levels it is unlikely to repeat on a monthly basis in future months. Food prices are deflating, so is clothing. Beef prices are down -1.4% in a month, lamb prices are down -1.3%. Milk is holding however, unchanged from a year ago. Recently petrol prices have blipped up, but they are lower than a year ago.
China's producer prices fell -4.4% in July from a year ago, worse than market forecasts of a -4.1% decline, after a -5.4% drop in the prior month, which was the steepest decrease since December 2015. It was the tenth consecutive month of producer deflation amid weakening demand and wavering commodity prices. Yesterday's weak export data won't be helping.
World food prices rose in July, but only because vegetable oils turned up. Dairy and meat prices were little changed in the month on a global basis, cereal and sugar prices fell noticeably. Given the global weather (and war) pressures, perhaps this is all a bit surprising.
But this may all be about to change. Rice prices are suddenly rising fast in early August. There are drought conditions in Thailand, flood conditions in China, and export bans in India. Prices are suddenly back to levels than haven't been seen in 15 years. Wider grain prices are also affected by Russia's war on Ukraine.
In Europe, Italy has moved to calm market fears over its excess profits tax on banks. It has said the tax will be capped in some way, and that retreat stopped the rout in bank share valuations.
In Australia, their de facto sovereign wealth fund, the Future Fund, is under attack with a proposal (unofficial at this stage) to wind it up and use the funds to retire Australian Government debt.
The UST 10yr yield will start today at 4.01% and unchanged from yesterday. Their key 2-10 yield curve inversion is deeper, now at -78 bps. Their 1-5 curve is now at -123 bps and unchanged. Their 3 mth-10yr curve is unchanged as well at -135 bps. The Australian 10 year bond yield is now at 4.00% and unchanged from yesterday. The China 10 year bond rate is still at 2.66%. The NZ Government 10 year bond rate is now at 4.84% and down -2 bps.
Wall Street was lower in its Wednesday session with the S&P500 down -0.3% in a minor shift. Overnight European markets were all up about +0.7%. Yesterday Tokyo ended its Wednesday session down -0.5%, Hong Kong rose +0.3%, but Shanghai also fell -0.5%. The ASX200 ended Wednesday up +0.4% but the NZX50 ended down -0.3%.
The price of gold will start today at US$1915/oz and down another -US$10 from yesterday.
And oil prices are up +US$1 and now at just over US$83/bbl in the US. The international Brent price is now at just over US$86.50/bbl.
The Kiwi dollar starts today unchanged at just on 60.6 USc. Against the Aussie we are still at 92.7 AUc. Against the euro we are softish at 55.2 euro cents. That all means the TWI-5 is still at 69.2.
The bitcoin price is lower today since this time yesterday and now at US$29,466 which is down -1.1%. Volatility over the past 24 hours has been modest at just under +/- 1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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52 Comments
China deflates
So we export less to China; the lesser export currency receipts we receive causes the NZ$ to fall. And China in return have less to export themselves, so we have to pay higher prices, both externally and internally, to get what product does arrive from them. And the NZ$ falls again.
With a lower dollar comes higher interest rates to try to stem the fall? I guess we are about to find out.
If our exporting less causes our dollar to go down, then a child of ten would realise that lower Chinese exports would also lower their currency, Therefore we would retain parity with them. Either that is true, or lower exports do not necessarily affect currency valuations.
Possibly, although we sell to the global dairy market so it has to be a big fall in demand across the globe. And a lower costs for Chinese producers means their products will be sold to us for cheaper ( in theory?).
I still agree it could result in higher rates though.
WeWork shares suddenly became almost worthless yesterday
They were always worthless, and a small amount of people took a long time to figure that out.
Always was a basket case with a bat$hit insane founder. It's been covered many times, but one of my favourite (albeit relatively shortlived) podcasts, Desperate Acts of Capitalism, did a great two part series on WeWork a few years ago when it first "blew up" - https://soundcloud.com/desperateactsofcapitalism/7-wework-part-1
US chipmakers are struggling to fill key positions with skilled engineers and technicians
This is something I called out months ago. Mate who works in semiconductor design in California says it's hard to land a decent electrical engineering grad because of how well tech startups pay for the same skillset.
NZ is going to struggle with the same issues as skilled workforce development is MIA amid the push to decarbonise and electrify everything. And no, stamping out visas is not the magic bullet.
That's the fundamental issue with intellectual talent in the 21st century. Our greatest minds have been co-opted into the world of parabolic share price increases, engaged in life shattering functions like "how to retain eyeballs on trivial content". The likes of Meta and Google now know more about the human mind than our academic institutions.
Probably didn't help that they couldn't sponsor visa's under trump (but I have US friends who instantly benefited, so they got what they wanted at the time). I don't know it that's changed since (for the record, I studied chip design and was effectively locked out of the US market at the time, and there really isn't one here aside from the occasional Verilog/VHDL requirement in some embedded roles - ah well).
And yet I see Damien O’Connor is quoted in the herald today as saying NZ’s problem is that we don’t collect enough tax. Guess we know what Labour’s plan is if the get re-elected. Odd could have sworn they were collecting $40bn pa more than when they came to power.
When my forebears brought the word of Christ to your lot, you were busy practicing slavery & eating each other. What was acceptable in the 19th century is a far cry from what's accepted today - how about less finger pointing & a little more shared responsibility for behaving like respectable 21st century citizens.
Nailed it MP. However, don't be looking for shared responsibility from this individual - it was only a couple of weeks ago he was bragging about being in the Med and how apparently everyone was just getting on with their lives despite the heatwave (meanwhile people were being evacuated off the beaches in Greece). Climate change denialism and Maori claims to be the custodians of the environment make pretty strange bedfellows.....
And oil prices are up +US$1 and now at just over US$83/bbl in the US. The international Brent price is now at just over US$86.50/bbl.
Brent is up another dollar now. RBNZ will have to work very hard here to keep inflation on track in October if this price persists, the tax increases where applied just as oil prices pushed up again.
The cost of energy sets the price of everything.
Agreed. We seem to be at the tipping-point now, where we will fight over the remaining energy, using some of it in the process. Last hegemony standing...
More locally, we can expect a stack of parasitic dominoes - those things which might be socially desirable/possible in times of surplus energy but which were parasitic on the energy-flow - to fall over. The list is long; usury, rentier-ing, journalism even... And the energy decline will steepen, so expect the cascade to self-perpetuate.
tipping points seem to be flavour of the decade
Tipping points are also usually when a new technology comes along and disrupts the existing order of things
and I know PDK that you think we are on the slide to extinction but really we have only just started digging the planet up - Nuclear power, hydrogen, fusion plus what we havent yet thought of means we have eons to go. Doesnt mean we shouldnt change but does mean extinction is highly unlikely
and remember for lots of leaders the peasants just dont count - except as cannon fodder!
worse than market forecasts of a -4.1% decline,
When prices go up, it's a problem, cost of living crises et cetera
When we prices go down, it's also problem?
Everything is always a problem?
Like house prices, me, when houses become more affordable, I think that's a good thing, but it's typically painted as a disaster, a 'crash'
Yes if you predict the possibility of more affordable houses in NZ you are a doom gloom merchant. What does this say about the people who don't want more affordable houses (relative to wages) and attack people with the 'DGM' label?
I think we have a sickness, like a mental illness, than lives within our society. From my perspective, it falls back to and emotional hijacking of fear and greed. Fear that they will never have enough (wealth), so they become greedy and self interested in order to resolve those feelings of fear about the future.
We should celebrate the idea that improving house price to income ratios will bring improved financial and social stability in this country. It is a good outcome.
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