Here's our summary of key economic events overnight that affect New Zealand, with news the economic clouds are darkening for New Zealand.
First up today, the overnight dairy auction was a terrible one. Prices fell -7.4% in USD terms and -4.8% in NZD terms, principally on an almost -11% dive in the dominant WMP price (-8.5% in NZD terms). Remember these falls are from the prior auction two weeks ago which was also quite weak, so the declines are compounding. And these retreats are far worse than expected, and getting worse quickly. The WMP price is down -8.2% from just last week at the GDP Pulse event. Everyone expected a fall but no-one saw a crash as hard as this one.
The WMP price is back to levels we last had in August 2016. And dairy farmers will be sweating because since then we have had +20% overall inflation.
It's not all grim news; the cheddar cheese price rose +5.8% at this auction. SMP was down 'only' -5.2%, butter down 'only' -3.0%. But WMP dominates the volumes sold and is a serious pall on this market. Recent farmgate milk payout forecasts have clearly not been trimmed hard enough. Why the collapse? NZX dairy analysts remind us that China has produced +25% more WMP domestically over the last 12 months while their domestic consumption of the commodity has fallen almost -9%. That does not suggest there will be a bounceback any time soon.
Elsewhere, things are not so grim. US retail sales topped forecasts to be up +3.2% in July above year-ago levels and the best result in five months. And it came even though car sales dipped slightly. (And remember, US CPI inflation is 3.2% for the same period, so that is a real gain, at last.) The Redbook retail sales measure was up strongly for last week too.
However, New York manufacturing isn't is great shape with the NY Fed's Empire State factory survey retreating rather fast as new orders are harder to find. Perhaps unexpectedly, firms were more optimistic when they looked ahead.
And American home builder confidence weakened in August for the first time this year as record-breaking mortgage rates and still-high housing prices discouraged prospective buyers.
In Canada, their annual inflation rate rose to 3.3% in July from 2.8% in the previous month and this was above market expectations of 3%. So, very similar to the US CPI inflation rate.
In Japan, strong export growth propelled their economy in Q2-2023, up at a 6.0% annualised rate, far higher than expected (+3.1%) or the Q1 expansion (+3.7%). It was the third consecutive quarter of strong growth. Japan not only has unusual growth, it also has unusual inflation which is running at a +3.3% rate.
Japanese industrial production came in unchanged from a year ago however. But it was up +2.4% from the prior month so there is recent momentum building.
Meanwhile, China is in economic defence mode. Their central bank cut its one-year medium-term lending facility rate by -15 bps to 2.50% today. It's their biggest cut since 2020. This came after Chinese new bank loans plunged almost -90% from June to the lowest since late 2009. Loan Prime Rate cuts are expected next week now.
And it came as they released industrial production data that was weaker than expected. This was so even after steel production surged more than +14%, so a sharp cutback there seems almost inevitable. And retail sales were weaker than expected too. However, electricity production was up +3.6% from a year ago, a slightly enhanced rate from June, maybe because they kept production higher than end-market demand. A lot of steel would go into property development, but their national real estate development investment was -8.5% lower than a year ago, and that base wasn't flash in the first place.
And we should note that China is hiding more data, the latest being youth unemployment data.
German economic sentiment got less-bad in August, which is a positive for them.
In Russia, their emergency central bank meeting brought a strong response to the collapsing currency situation. They raised their policy rate to 12% from 8.5%. Observers had expected it to go up to 10%. The aggressive move brought tensions to the surface between the central bank and the Kremlin however.
In Australia, their central bank says soft wage figures have strengthened the prospect of a cash rate pause, and they warn their labour market may be about to turn down.
The UST 10yr yield will start today at 4.22% and up +3 bps from yesterday and matching its October 2022 highs. Their key 2-10 yield curve inversion is a little less, now at -74 bps. Their 1-5 curve is less at -100 bps. Their 3 mth-10yr curve is less at -118 bps. The Australian 10 year bond yield is now at 4.25% and up +2 bps from yesterday. The China 10 year bond rate is down an unusual -5 bps at 2.59%. And the NZ Government 10 year bond rate is up another +2 bps, now at 5.02% and its highest since 2011.
Wall Street is lower with the S&P500 down -0.9% at the end of Tuesday trade. Overnight, European equity markets were all lower with London down -1.6% and Frankfurt down -0.9% and Paris down -1.1%. Yesterday, Tokyo ended its Tuesday session up +0.6%. But Hong Kong ended down -1.0%, although Shanghai had a late intervention by 'the home team' and ended unchanged. The ASX200 ended up +0.4%, but the NZX50 slipped a relatively minor -0.1%.
The price of gold will start today at US$1903/oz and down -US$7 from yesterday.
And oil prices are -US$1.50 lower at just over US$80.50/bbl in the US. The international Brent price is down to US$84.50/bbl.
The Kiwi dollar starts today soft at just on 59.6 USc and near its lowest since November 2022. Against the Aussie we are holding at 92.2 AUc. Against the euro we are marginally softer at 54.7 euro cents. That all means the TWI-5 is now at 68.6 and up +10 bps from this time yesterday.
The bitcoin price is again virtually unchanged today from this time yesterday and still at US$29,293 which is down -0.3%. Volatility over the past 24 hours has still been very low at just on +/- 0.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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146 Comments
To what purpose? it is an accommodation supplement to help them pay their rent. In reality it is actually paid directly to the landlord. Many years ago one of my tenant received it. Hence it goes to the landlords. The path is a little convoluted, but I thought you would have figured that out Yvil?
As I've said on here for the last 5 years or so...remove the accommodation supplement and see who moans more, the tenant or the landlord.
I bet it will be the landlord as they are those ones who will have the bank after them when they can't pay the mortgage.
Landlords can kick the tenant out if they don't pay enough to meet the landlords mortgage/debt obligations, but if this happens across the market, all that will happen is that the cash flows that are used to price houses will reduce, meaning in more downward pressures on house price.
I don't see this as a bad thing - but there would be a lot of bitching for a few months (or a year or so) while landlords realise they don't have they power that they assume that they do - i.e. other people are responsible for paying my investment debt, no matter what.
"Recent immigrants on student and work visa don't get the AS. So how do they pay the asking rent"
Have you not been watching the news?
They live in the basements of peoples houses, 10 at a time, sleeping on mattresses on the floor in third world conditions right here in NZ.
There is most likely some truth in this. There will certainly be some landlords who are unable to lower their rents and therefore have to sell.
However a more likely outcome is something like -
- Small percentage of Landlords have to sell there rentals and this capacity does lower housing costs - but this may absorbed by new immigrants. (in the March year migrant arrivals up 199 percent - 161,900 (± 1,800) - https://www.stats.govt.nz/information-releases/international-migration-…)
- Significant number of beneficiaries are unable to make their current rent and this would add cost to the $1.2 Billion Labour have spent on emergency housing since coming to office. (https://www.newstalkzb.co.nz/news/politics/a-staggering-sum-more-than-1…)
- The many families who are unable to find even emergency housing will go and camp back at Parliament and as a heart-felt response the government puts back in the support under a different benefit name.
Not so helpful if you bought and borrowed at the higher valuation, good for newcomers though.
My only exposure is through a few of the listed property companies which I think are strong enough to get through, and don't seem to be suffering the kind of vacancy rates being seen in other countries.
Guys, Orr has stated that the OCR will be used to get the inflatìon rate back to 3%. Not for lolly scrambles, housing for everybody, ...
With America wobbling, canada inflatìon rising again, china imploding, abd the rest of the world living on borrowed time and money, the OCR has to go up 0.5% if Orr is true to his words and function as they relate to his JD.
But we all know he has Robertsons hand up his jacksy, who inturn has a combo of Hipkins and the Maoti caucus 's hands up his.
Orrs needs to get some inflatuation happeing😁
This is what S&P had to say about NZ's credit ratings back in March this year:
New Zealand’s credit grades with S&P Global Ratings could come under pressure if the nation’s current account deficit remains too big.
S&P had forecast the deficit would ease to 5.8% by mid-2023... If it doesn’t there is going to be increased pressure on the AA+ rating
Not a peep from the government, public service or opposition in doing anything about this slow-moving trainwreck towards a BoP crisis that has suddenly picked up pace.
Instead, the effort is all in propping up domestic consumption (import-driven) further with benefit boosts for key voter bases and importing thousands of more consumers by the week.
J.C. I would have thought that you knew that dairy is the biggest industry in NZ. If the biggest industry in NZ is losing money, there's a flow-on effect of belt tightening or possibly worse, some farmers going bankrupt. This will affect all of NZ, surely you must understand this?
J.C. I would have thought that you knew that dairy is the biggest industry in NZ. If the biggest industry in NZ is losing money, there's a flow-on effect of belt tightening or possibly worse, some farmers going bankrupt. This will affect all of NZ, surely you must understand this?
Biggest industry in NZ? Disagree. The lending and retail "industries" will dwarf the dairy industry in terms of value and volume.
I think we all know he meant 'export earner.' It is still number 1. With our current account deficit, the fall in dairy payouts only exacerbates the issue.
I see. But NZ has run perpetual current account deficits. Has never affected the bubble. Why now?
F'more, following your narrative, does this also mean that if the iron ore price collapses, the Aussie housing bubble goes with it?
The Stats Dept and NZIER measure agriculture's GDP as the net return at the farm gate. For example, using their definition, shearers are considered to be part of the service industry and not part of agriculture. Similarly any contractor who comes onto a farm, be that a silage contractor or a vet or anyone else providing a farm-based service, does not contribute to agricultural GDP. These services are assessed as a cost to agriculture. Fonterra and any other dairy company does not contribute to agricultural GDP. Neither do the meat companies. Nor do fertiliser companies.
Let there be no doubt, the current downturn in dairy product prices, if sustained, will have a significant impact on the broader economy.
KeithW
Let there be no doubt, the current downturn in dairy product prices, if sustained, will have a significant impact on the broader economy.
I'm playing devil's advocate a little. However, this is first time I've seen people react to the relationship between dairy prices and house prices.
BTW, I was at a trade show in HCMC last week. 80%+ of exhibitors were Russian, Chinese, and Indian. This Russian cheese brand was very interesting and the product itself very good (https://creamburg.com/en).
The 190-g processed cheese spread sits at shelf prices of approx USD1.
LOL. You're going to argue with Keith Woodford about farm economics? Good luck.
Thankfully, the RBNZ listens to people like Keith very carefully. Another crappy auction and I might bring my first OCR cut prediction forwards from March to January - While making a prediction the RBNZ will introduce DTI ratios way, way earlier while allowing banks some 'catch up time' to sort their systems out... ;-)
re ... "this is first time I've seen people react to the relationship between dairy prices and house prices" ... Wow. I thought you were way past high-school.
I'm playing devil's advocate a little. However, this is first time I've seen people react to the relationship between dairy prices and house prices.
It's interesting, because no one is talking about house prices. YOU are the one making a relation between the lower milk payout and houses. I simply stated that it's bad for NZ, an opinion K Woodford clearly shares!
Inflation on all costs, access to cheap labor restricted, and now falling income with to many eggs in the china basket. Looks like another overshoot on debt not supported by income.
Perhaps National will apply some new rules allowing foreign buy out of dairy to bail out the banks.
They are cagey on whether they will re-instate allowing non resident foreigners to buy non new build residential housing in NZ. When someone is cagey like Luxon or AN Other Nat then you can bet your bottom dollar they'll be re-instating allowing foreign buyers to buy into NZ residential housing.
Making me more convinced not to vote Nat or Act for the party vote and definitely not Labour or Greens and that includes any of their fellow travellers.
"Whif of death.'
Stench of decay is a better descriptor. Honestly I can't see NZ returning to the land I knew in the 70's. One parent works, family gets by. Camping holiday and no issues with affording or accessing healthcare. Crime? Barely a ripple. Gradual slide to the bottom and accelerated in the last 6 yrs.
To be fair, we are not unique there. We encouraged females to pursue careers (a good thing, don't get me wrong) but what happens as a result when we have more double income households? House prices go up. Now most families need a double income to be in a comparable position as 30 years ago. I keep hearing the, you need 10x salary to be a house compared to 4 in the 80's. Well no, you need 2x 5.
Cheetah, back then you needed 50% dep to buy a farm and housing had strict criteria too, in order to buy them. It helped to keep the price of land at a price that you had a viable business, and houses were attainable. Once cheap credit and easing of loan criteria came in prices for farm land and houses went up. Different societal environment then too.
Yep , and yet the National party have pledged to reinstate the stupidity.
https://www.nzherald.co.nz/nz/politics/national-leader-christopher-luxo…
Yes, better to give the live export business to Oz. You are not so naive to think NZ is the only country that exports live cattle?
Following the ETS boondoggle to conclusion we will soon be dairy cow free and importing milk from China anyway. Better to to get it from kiwi expat cows fed in China with American alfalfa right? We could export our hay to feed the cows but we have planted all the farms in pine trees so we can pretend to change the weather - and can show off at the UN how virtuous we are.
You're on point there. The real issue is the lack of innovation in NZ to venture into new export sectors with new products and markets.
Every attempt to diversify away from bulk agricultural exports has been half-arsed (lack of education & training, infrastructure, capital markets, etc.) and has only resulted in growing the domestic economy off consuming cheap imported goods and low-value services.
When will Western media face reality? When it comes to China, never, apparently, because China's economy is red hot. Its $30 trillion GDP will rise 5% this year = $1.5 trillion growth. Only five countries' economies are bigger than $1.5 trillion. It's more than the entire GDP of 192 countries. $1.5 trillion is more than US + EU growth in 2023 + 2024 + 2025 combined. China's 5% growth = 30% of global growth. America's 1% growth = 9% of global growth. Link
Over the years I too have had some consternation about some of Audaxes posts, but over time i have realised that he (?) must just spend all his time plowing through an awful lot of news and commentary websites and have a pretty good memory. He seldom injects his own opinion, but will post links to other articles or comments to provide support or a contradiction to a stated comment. I suggest that mostly he is trying to stimulate a bigger debate, but occasionally puts up something just for the reaction or to challenge some paradigms.
Keep it up Audie, I have come to enjoy many of the links you have provided, although I cannot go to all of them.
He seldom injects his own opinion, but will post links to other articles or comments to provide support or a contradiction to a stated comment. I suggest that mostly he is trying to stimulate a bigger debate, but occasionally puts up something just for the reaction or to challenge some paradigms.
Way smarter than your average bear.
Thanks murray86 and J.C. Positive comments always welcome in my corner.
I am perplexed by this claim:
MH: “That’s the idea. When President Biden said in February of last year 2022. He said that this war in Ukraine is not about Ukraine. This is the beginning of a two-decade war, maybe three decades. He said, this war will go on not only until we defeat Russia, but once we destroy Russia we can then go against our number one enemy China. It’ll take 20 or 30 years for us to uh destroy China and it’s going to take all of our allies an enormous fight of their own Army and their own citizens dying and their own economic resources to support the U.S encirclement and sanctions and its attempt to isolate the Chinese Community along with the entire Shanghai Cooperation Organization: Russia, Iran, Saudi Arabia, the whole rest of the world is to be isolated somehow by the United States without its own Army and without being a creditor anymore and without having its own industrial base. Nobody would have believed a science fiction story that would have said that an economy with all of the liabilities and negative features that the United States had could be any kind of a power at all except being like England after World War II which is the position America is in economically. But what makes America different from England and World War II is America doesn’t have a higher power that’s fighting against it. America is Its Own Worst Enemy fighting against itself instead of other countries fighting against this, so uh you’re having the dynamic of this International conflict that’s dividing the world into two – on the one hand the United States and Europe on the golden billion, “the Garden”, and on the other hand the rest of the two-thirds of the world’s population, the global majority, which America calls “The Jungle” which is to be cut down and clear-cut and privatized for the benefit of “the Garden”.” Link
Yes the USA is walking the path of self destruction that every global power has done so over the past 500 years.
Dalios 'Changing World Order' is a must read if anyone wants to better understand the correlation between monetary/fiscal policy, geopolitics and global influence power.
The US desperately needs to look inwards, not outwards. It must fix its problems at home first before it tries to continue to be the world police.
I think RFK Junior understands this (perhaps the only contender with a possibility of winning the next election) - like his father and uncle did (as well as his grandfather - who was abused for not wanting to commit the USA into WW2 while he was the US ambassador in London at the outset of that war - his idea was to build fotress America - very similar to what China is currently doing - it isn't fighting global wars, but building a military and defence system that is impenetrable by other nations).
Hardly. The US will continue as global superpower. It has the people, geography, resources and tech. It has everything.
China has little of the above. Russia has some, but demographics, war, flight of brains and they are stuffed. And both rely heavily on US tech.
Who are you backing? Who else is there?
This seems to be why the BRICS are hanging together. They would get picked off one-by-one if they tried to stand up to the US.
“At the end fiat money returns to its inner value - zero.” – Voltaire
The biggest battle the US has is keeping enough people using the $US.
Very true! It's also true that we do work, incur expenses and provide a service (providing accommodation) in return for the income we get.
I always feel good when we answer the phone at 3am to take in an abused woman and her kids who have nowhere else to go because her man beat her up.
Unfortunately Fonterra has sunk pretty much everything into stainless steel that extracts water from milk. Part of the keep it simple strategy that has been successful for the past couple of years. Low tech, low risk. A reprieve after previous inflated egos took us down a path of global dominance that failed miserably and at huge cost to farmer suppliers.
The question is where now for Fonterra? And how long will the banks support us farming at below cost.
Fonterra will be commemorated in business school textbooks as a case study, much like BlackBerry or Kodak.
Hell, you can call it the Nokia of this decade. At its peak in 2000, Nokia alone contributed to 4% of Finland's GDP and 21% of total exports.
Finland's economy somewhat survived the malaise because tech startups and other electronics companies came in to fill the void as thousands of highly skilled Finns were looking to be redeployed. I am not confident about the prospects for us on that front.
There is nothing simple about a milk powder manufacturing plant.
for example : A milk powder factory would typically be automated by computer control system with about 10,000 real world sensors and actuators. Try and work out what corrective action to take if just one of those devices fails.
Obesity and poverty are inextricably linked.
NZ has a double whammy. Those people who are in lower deciles tend to be Maori and Pasifica. In turn, they have a greater propensity for obesity in the 'right' environment.
Right-poor food quality. Chronic Kidney Disease and dialysis are exploding in NZ. And it will only get much, much worse.
When data is so bad you stop reporting it.
Chinese officials said they would stop reporting the country’s youth unemployment rate after months of spiraling increases, depriving investors, economists and businesses of another key data point on the declining health of the world’s second-largest economy.
The surprise move extends China’s efforts to restrict access to a variety of data on its economy and corporate landscape to outside scrutiny.
At the same time, China’s central bank unexpectedly cut a range of key interest rates, an emergency move to reignite growth after new data showed the economy slid deeper into distress last month.
The twin moves on Tuesday by the National Bureau of Statistics and the People’s Bank of China came as a batch of new data showed spending growth by consumers and businesses slowed last month, while factory output grew much less than expected, adding to a recent raft of worrying signals.
WMP -Prices are down and volume down, except Chedder.
Houseing - same
Flights - vols are below pre covid , due to airlines holding back planes due to them firing to many pilots during covid, prices are way high.
Strange Vol/price dynamics going on.
Sèe the greedy conglomerates have chewed off thier own hands. Except AIrNZ
Yet the same old spruikers find ways to spin the data to make a obvious volume and price decline spring forth with green shoots based on REAs vibe..
Jrn Baird needs to review her bullshit spin. Her and the Comb are a disgrace.
Lurkers are not buyers
https://www.newstalkzb.co.nz/on-air/heather-du-plessis-allan-drive/audi…
The Spruikers are getting desperate alright. But this is just a good indicator of how bad things are getting.
Here at the Ministry of The Prophet we are provided with Extremely Large Buckets of Popcorn. Big leather Recliner Chairs, and a nice Lady walking by to add Extra Butter. Enjoy the Show. We Are.
Bon Appetit.
"The equity risk premium (ERP) has fallen to its lowest level since 2007 Indicating that stocks are very expensive relative to bonds"
https://pbs.twimg.com/media/F3lCMU7b0AAEVRc?format=png&name=medium
If history/financial theory holds true, then global sharemarkets could come under some serious stress the next 12-24 months.
But to be honest, I've been very surprised at the bullishness of markets so far this year - but I still think the risk is greater than the potential reward in the current environment.
You'll know most of what is mentioned in the video no doubt but it's a good watch. https://youtu.be/QeawsiZ5saQ
He's slowly working through his "Dollar Endgame" series he wrote a year or so ago and producing the equivalent videos. https://youtu.be/f0yIATTy0J8
Some news on the best preforming asset this year to date (but sadly lacking in coverage)
Bitcoin-Touting Bukele’s Bond Rally Draws JPMorgan, Eaton Vance
- El Salvador global bonds have returned over 70% this year
- President has signaled willingness to pay sovereign debt
https://www.bloomberg.com/news/articles/2023-08-15/bitcoin-touting-buke…
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