Here's our summary of key economic events overnight that affect New Zealand, with news the cost of money is ending its extended 'cheap' period. There is a whole generation unused to its 'normal' level where the benchmark is about 5% with lending costs above that.
We start today noting that American bond yields are moving ever higher. The yield on the UST 10yr has hit its highest since November of 2007. Markets see the Fed encouraged to stay hawkish on 'good data', and the US Federal deficit situation will need more issuance at a time of very partisan election uncertainty and rising risks of shutdown. Investors insist of compensation for these risks. Inflation-protected 10-year Treasuries rose past 2% for the first time since 2009.
In China however, they made a modest reduction to their loan prime rates yesterday. Markets were disappointed at the timid policy action. The August fixing cut the one-year loan prime rate by -10 bps to 3.45% (a record low) in an effort to ease borrowing costs for businesses, but maintained the five-year rate, the home loan benchmark, at 4.2%.
It was a disappointing regulatory response that saw foreign banks cutting their China forecasts further. And the property sector revealed even more signs of distress.
The commercial office market in both Beijing and Shanghai is tightening significantly, extending the residential property sector's woes into the wider sector. More tenants in Shanghai's Grade A offices terminated leases than signed them during the June 2023 quarter ending, the first time that has happened since 2015. Further Beijing experienced its third consecutive quarter of rising Grade A office vacancies, also the highest level since 2015.
But their property crisis is much wider than A-grade buildings in icon cities. It is said to be triggering a liquidity crisis for municipal and provincial borrowers that pose risks to the country’s whole financial system.
Meanwhile, Taiwanese export orders rose in July from June to be at their highest level since November. However they are still -12% lower than year ago levels - but that is a big improvement from the -25% shortfall in June.
Hong Kong recorded a 1.8% inflation rate in July, little-changed from the 1.9% in June.
Thailand reported its Q2 GDP growth yesterday and it slowed much more than anyone saw coming. The Thai economy is far from irrelevant and a big miss like this will have regional ramifications.
In Australia, and just like their banks, insurance giant IAG has announced sharply higher profits while claiming the future is cloudy. After tax profits rose +37% or +140% depending on the metric you choose. Premium income was up +10.6%. They also said New Zealand premiums rose +12%. They expect the 2023/24 insurance profit of between approximately AU$1.2 bln and AU$1.45 bln. That would be a huge +50% increase from the current AU$803 mln.
The UST 10yr yield will start today at 4.34%, up +9 bps from this time yesterday and a sixteen year high. Their key 2-10 yield curve inversion is less at -65 bps. Their 1-5 curve is also less inverted at -93 bps. Their 3 mth-10yr curve is less inverted at -105 bps. The Australian 10 year bond yield is now at 4.29% and up +6 bps from yesterday. The China 10 year bond rate is down -3 bos at 2.55% and almost matching the temporary drop at the start of the pandemic in early 2020. Apart from that it is a 20 year low. And the NZ Government 10 year bond rate is up +4 bps, now at 5.12%, matching its week-ago levels which in turn were 12 year highs.
Wall Street has started its week up +0.6%. Overnight, European markets were mixed with London down -0.1% and Paris up +0.5%. Tokyo ended its Monday session up +0.4% but Hong Kong ended down -1.8% and Shanghai ended down -1.2%. Yesterday, the ASX ended down -0.5%, but the NZX50 was worse, down -1.3% in its Monday trade.
The price of gold will start today at US$1894/oz and up +US$4 from this time yesterday.
And oil prices are down -50 USc at just over US$80/bbl in the US. The international Brent price is now just over US$84/bbl.
The Kiwi dollar starts today little-changed at just on 59.2 USc. Against the Aussie we are softish at 92.4 AUc. Against the euro we are also softer at 54.3 euro cents. That all means the TWI-5 is at 68.3 and down another minor -10 bps from yesterday.
The bitcoin price is a little lower again today and now at US$26,038 and down -0.3% from yesterday. Volatility over the past 24 hours has been low at just on +/- 0.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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90 Comments
This is a mountain biking friend of mine. He hits the nail on the head. I agree with the majority of his content and it highlights the madness of the politics in NZ
Yes, it is pretty horrific when you see a main party campaining on reducing the brightline test, bringing back interest deductabiity and several other ideas to pump up the housing market, but practically nothing to support SME's. It seems we will literally never learn!
Horrific to say the very least! I just cannot fathom how a party who pride themself on good “business” people can have so many terrible ideas. And no original ones that will really rev things up and improve peoples lives (unless you are already very wealthy). And they want to reverse most of the only decent policies Labour have put in place in recent years. Why?! It just seems to be out of spite and fear mostly.
The Brightline test was designed to be 2 years and get around the "change of circumstances" fib that people were using to flick properties for a tax-free profit. National are saying they will reset it to that purpose for which it was intended. National brought it in.
Beyond that, the Labour Government's extensions and widening of the net is just fish hooks and unintended consequences, as seen by today's Herald story that cyclone victims are being caught in it. If you buy a house, have to move to ChCh for work, rent it out, rent while in ChCh, and move back in a year, tax. If you buy a house, don't have to move to ChCh for work, no tax. I know a lot of properties being held because the difference between selling today and in 12 months is 6 figures in tax. The longer the period, the bigger the incentive is to not sell properties to the next guy. So the period either needs to not have an end date (and the tax rate factor in inflation somehow - that was Cullen's f**k up), or you make it short enough to not distort the market.
Agree about the issues the current capital gains tax with associated brightline and exclusions creates.
Hence why I prefer a land value tax. You could think of it as paying a little bit of capital gains tax each year without the loopholes and problems with selling/moving for work you allude to.
Disappointed. Was hoping for a mtb video.
Nailed it, wish more people would understand and get the message across to our particularly useless political leaders, including the lobby groups like Fed farmers and unions etc who currently doggedly support one or the other colour.
Your mate hits the nail on the head!
productivity
Which party has ruined small bisness Productivity.?
LABOUR!
1. Allowing parents 6 months paid maternity leave. Which is hugely unproductive as it means youre paying for non productive psrents v non parents and the replacements you have to employ to do thier work.
2. The biggest killer of productivity is that funded division of the labour party.., The unions !!!
3. Introducing more paid holidaysl
4. Introducing more PC woke regulations
5. Enforcing employment diversification which means the best people are disregarded for a woman, transgender , or maori.
6. Allowing more job seekers to exist without any strict enforcement to get work
7. Green washing of buisness's has added costs and that have made them internationally incompetitive
a. Inttoduction of more red tape in compliance accross every facet of buisness
8 40% tax rate has just added extra cost to buisness
9, not enforcing a " get back to work" rule, post covid, for public servants while they pay huge SqM rates for empty offices
10. Fuel taxes (" but Jacinda said no new taxes")
11, killing off of high streèt retail by closing down acesss thru dumb green / julianne Genter ideaology bull shit and the need for her cycle ways... ask granny to cycle to town!
12.. all these taxes and costs have made most private companies locally unaffordable an internationally uncompetitive.
13. Ridiculous minimum pay rises for everyone has made private buisnesess internationally unviable. As has the NZD value has killed NZ
14, inflation has killed off spending and FHBs ability to búy stuff and thus support local huisnesses from the corrner dairy to the big jouse builders
25. Softness on crime is the final nail in the " Labour productivity coffin' ... FFS! The cost for all the small buisnesses ram raidèd and the time lost resolving the issues has hit bottom lines and resulted in productivity losses. Just ask michael Hill or ask why the 63,000 robberies of supermarkets this year has resulted in price hikes to cover the streams of dole bludgers walking out with armfulls of grocries.
LABOUR HAS DONE ALL THIS DAMAGE, AND MORE,... AND YOU WANT TO VOTE FOR THEM .
NATIONAL HAVE DONE NONE OF THIS!
and i havent even mentioned the Covid clustèr that Jacinda Hipkins inflicted on us!
To summarize the video. He is saying National want to supercharge the housing market and thus incentivise banks to primarily lend into that sector. He's digging out BOTH parties for a lack of vision around SME access to cheap capital for reinvesting in their businesses to become more competitive on a global scale. You really went down the rabbit hole on that one.
Kettle black tom Jones.
Youre matres main concerrn was productuvity!
watch the video again and listen to the words? productivity.
the rest of the video us just a personal agenda pn one reason, a small reason, small buisness is suffering productivity issues...
i have given 17 more better reasons...
youre mate is a moron.
Yip. And i know Tom jones left leaning slant and the videos spiin on 5he real facts.... which i just presented.
Youre refusal to acknowledge my list is a very bad reflection on you andyoure woke red labour loving view point.
It also shows your shalĺowness and inability to see when youre being spun a line.
I am concerned for your wellbeing. You only joined Interest recently and were really friendly and complementary of the level of debate on this platform. Within a couple of weeks, you have become angry and started launching personal attacks on other contributors. I am not sure if your current communication approach will win over many people to your way of thinking. Perhaps try a more conciliatory approach. Not everyone on here is partisan. It is better to debate the issue without resorting to tribalism.
Everyone likes a good rant every once in a while, better stress relief than doing physical harm out there! I just wish mofo could spell business correctly. Let's hope they only get a strike and not thrown out of the low level ayslum that is Interest.co.nz.
The fact that there are so many ranters out there speaks volumes for how stressed everybody has become. Life and the pace of change is becoming extremely hard for people to manage. It's like the Red Queen, everybody has to run faster just to stay in the same place. People innately know what is happening and are looking for a reversion to normalcy and support. It's getting ugly.
I hadn't thought of it that way. Better to rant on here than kick the cat I suppose. Mofo fomo should realise that there are good people across the political spectrum. Having a few friends you respectfully disagree with can be positive for mental health and also allow for new perspectives to develop.
Don't be. I Am fine. It's your woke lame PC tattooed gender confused green washed Freind's you should be worried about.
my ✔️'s are going well compared to some who argued that my robust opinion is a rant.
I feel sad for you lame Gen'rs who can't cope when somebody challenges your dumb take on things
Boomers build this country. You guys, with your dumb ideology, are ruining it , led by labour loonies, green social anarchy and TPM racial disharmony!
But WTF do I care ... Knock yourselves out. Vote Labour and reap what you sew!
1. Many employers don't pay anything extra towards maternity leave, mothers just get PPL from the state. They're getting off lightly.
2. Meh.
3. NZers already work massive hours and many don't use holidays so they have some form of redundancy insurance, because that's too hard to actually pay out of your own pocket. And if your people are so important that you can't afford for them to never not be there, are you paying them well enough to reflect that? In most cases, the answer is no. +
4. Name 3.
5. Let me know when someone from MBIE tells a small business owner who they can and can't hire.
6. I'll give you that.
7. It's 'uncompetitive'; a) Name 3 new red tape rules.
8. The 40% tax rate is a personal tax rate, not a business one.
9. Commuting is hours and hours of lost productive and family time - which you don't want people taking annual leave to get either. I would have thought if you cared about productivity, killing the commute should be an obvious one.
10. Only one part of the country has a new regional fuel levy.
11. Ask Granny to find a carpark in the CBD between massive SUVs and utes when she could easily get the same item or service from a big box retailer or mall. I suspect Granny is not so dumb she thinks she has to go into the CBD for every little errand.
12. Which taxes and costs?
13. There's no such thing as a 'minimum pay rise'. If there is, I didn't get one. Did you mean increasing the minimum wage? You might find that intentionally inflicting poverty upon people working 40 hours a week or more might result in even more unemployment. From memory, you're not a fan of that.
14. First Home Buyers were struggling already, they were being told their spending was the problem while older Kiwis leveraged up and minted themselves off tax-free gains. It has been going on for decades.
25: I'm fairly sure this is meant to be 15. But I'll give you the substance of the argument, which is true.
There's a lot of reasons to not like or support Labour and they've made a lot of mistakes, but this is incoherent ranting at best.
1.IF your paying taxes youre paying !
2. .? I take it you agreee
3. Start your sentence with "some". Then look an the world productivity charts and ask why NZ is so low!... and working many hours does not mean you are productive!
4 i can name 43... srand by...
5. Who said MBIE? But for one the dept of maori sffairs
6. .
7. There are many unessasary HSE AND COMPLIANCE RULES on every building site and road construction site in NZ. PLUS THE RED TAPE TO DO MOST THINGS ...
8 try selling a 2nd home for 300k profit at no 40%. Tax... 😈👿👿🤣🤣🤣
I could go on but its not good use of my time in the 27 degree temp and sailing to be had.
You keep beliveing your naive ill foinded ways and good luck to you for the future...
You will need it.
No, I think I'm OK. I'm capable of stringing a sentence together without letting talk-back level froth impair my ability to communicate an idea or concept so that other people can discuss it with me in a sensible and rational way.
But I guess everyone has their own way of doing things.
Change the timeline to max and tell me honestly you could pick out the Nat-led periods from the Labour-led periods. The only feature I could identify is Covid.
Originally inspired by comment spam, but this works equally well for filtering out the shouty angry mob like old mate here, adds a "Hide All" link to commenters on here: https://chrome.google.com/webstore/detail/interestconz-commenter-bl/kbf…
Your best mate in blue owns 7 completely unproductive houses. NZ has all its wealth tied up in unproductive houses. Luxon is part of the problem. I havent seen much of his business prowess on display, it sure as shit isnt in any Nat policy. This gigantic allocation of wealth into a roof over your head is a massive part of NZs productivity problem.
8. - Business tax is 28%. And has been for at least the last 2 terms of government. Sure if you pay that out as a dividend and you earn over 180k a year you will pay the extra 11%.
I cant be bothered commenting on the rest, best wipe your chin.
NATIONAL HAVE DONE NONE OF THIS
Correct, what they have done is worse than the whole list. They kicked off unchecked immigration in the 90's which labour continued in the 00's and then National failed to stop it in the 10's and called anyone that questioned them on it names.
If National wants to be known as the sound economic pair of hands, then I would expect them to give GDP per capita a bit more consideration.
So too insurance as indicated above. A double movement, premiums are rocketing alongside of value(s) needing to be insured. Series of natural disasters this century have exposed already an unforeseen percentage of uninsured or underinsured households .That unfortunately is going to burgeon. Folk who put all their eggs into the security of a home may soon find themselves unable to protect the nest.
http://resourceinsights.blogspot.com/2023/08/white-hydrogen-hydrogen-ec…
Who set MBIE on this wild goose-chase?
MBIE specialise in inventing wild goose chases. Dozens of them. It's about the pretense of doing something useful.
David Seymour's "Stop notices" will be numerous there. Lots of folk freed up and moving out of government to contribute something useful, but elsewhere.
Average (mean?) core public service pay is $90k https://www.publicservice.govt.nz/news/2022-public-service-workforce-da…
useful link.
"Chief executive pay: The average remuneration for chief executives decreased 1.4 percent in the year to 30 June 2022. The net result over the last five years is a 5.2 percent decrease."
I wonder if this includes bonuses. Doesn't specifically say total remuneration so I'm betting it excludes bonuses. Not including bonuses will keep the govt and some opposition parties happy with these numbers.
perhaps they'd be better looking into this one?
Watch the Insurance industry and their profits.
We went to reinsure our property in Wellington this week - premiums have jumped from $3500 to $5000 - we rang around for quotes- next best was $5600 all the way to tower who wanted $12000. Our house is nothing special. When we queried the premium increases we were told its because of Wellington's Earthquake, Flood, Tsunami and Landslide risk. Effectively Wellington is uninsurable
Friends who are elderly are thinking of taking the risk and dropping insurance altogether - instead they reduced their rebuild from $800 000 to $400 000.
Insurance costs will eventually lead to significant problems if we do have a crisis with people not insured sufficiently to replace damaged proeprties..
Our Wellington property is piled on an almost-level section, on a hill but well away from any possible slip areas, and the entire hill would have to come down to dislodge it. It was built in 1915 (but significantly updated by us) and has seen its fair share of natural disasters with no structural issues. Never been flooded, never had any slips. Premiums went from $5200 to $7000 this year. Clearly insurers are trying to "encourage" customers to lower coverage to reduce their exposure.
Now waiting in sheer terror for the renewal on our much larger Hawkes Bay property (flat land, elevated above the flood plain, many km inland, well away from the nearest hill).
The last hemorrhage - 2007/8 - IAG needed bailed out by taxpayers (who didn't have the readies either, so Govt debt - which is whatever you decide it is, until it isn't).
Next time, the overhang is much bigger, the believable ability to debt-underwrite much lower. It's not just the lack of competition - that's an ideological posit, often - it's that on the down-trend, insuring gets increasingly harder; it increasingly cannot hide behind inflation, increasingly can't offload, increasingly can't 'pay' - which really translates as can't supply the resources/energy to the rebuild - and increasingly can't be underwritten.
Its should also be noted this plus increases in local council rates are affecting how much banks will lend we considered upgrading earlier this year and when we spoke to the bank the amount they offered was conditional on rates and insurance being less than $9K a year. If we needed higher than that, then the loan amount would be less. In Wellington with average rates being 5K and insurance now $5K - just our own house exceeds the 9K a year - let alone an upgraded property.
I've done quite a bit of IT work in insurance, mainly high value commercial stuff.
When looking around for cover, it is quite common that one insurance company takes the 'lead' and insures some of the risk - or some of the risk for different types of events - and then passes the remainder of the risk onto other insurers via various mathematical models that are well understood in the insurance markets.
It seems that we need similar in NZ but at the 'insured' level. I.e. you'd buy cover for a certain amount and/or for specific risk events from different insurers.
You could buy earthquake cover from one insurer but fire and everything else from another insurer. And/or you could 'layer' the cover with the first $100k with one insurer, the next $200k with another insurer, the next $500k with another, and so on. (Insurance companies do this all the time and some brokers do this too. You just never hear about it.)
This is called re-insurance. (In your comment you are 'renewing' cover and not re-insuring it. Rookie mistake. Just about everyone who starts working in insurance has asked "What's the difference between renewal and reinsuring?" I did on my second day. If I remember correctly, someone explained starting with , "Ah. Grasshopper, take a seat .... ")
In NZ, insurers collect money through your premium which is paid to a government body that used to be called the Earthquake & War Damages Commission. For many reasons, it may be far better to buy this cover separately. It would need to be compulsory as at a minimum you'd need 'demolition cover' in the event the house was never rebuilt. (In fact Councils could collect through rates.)
In most countries, how the insurance markets work is bound up in antiquated legislation that pre-dates the computer and the internet. As a result, it is awash with inefficiencies and what would be considered outright nonsense if one was developing an efficient insurance market nowadays.
So as the insurance companies pocket huge sums using plausible statements about global warming, they are in fact 'working the system'.
Are any political parties addressing this? No. They still don't know the difference between reinsuring and renewals either.
Like banks, the best and cheapest model for this type of business is the non-profit model. That's why so many insurers used to have the word "mutual" in their names. (And why when they were privatized, they dropped the word ASAP!) Still plenty left worldwide however. Even in 'Merica!
Pleased someone has $100k. End of year that $6,100 will be taxed so you may get $4k or $5k and inflation probably will be over 5%. A better invesment would be a decent foreign holiday and a new car - high probability you will live to enjoy them while waiting for a year could result in your cash being inherited by undeserving kids.
Part of living a happy life is reaching acceptance with the fact that sometimes idiots succeed despite themselves.
Term deposits are a perfectly good instrument, especially laddered to keep some kind of liquidity in the cash component of a balanced portfolio. Anyone using just TDs for long term financial planning is missing a trick, and is almost guaranteed to underperform a balanced portfolio (and won't keep up with inflation).
You get to a point where you don't care about inflation. Would the latest Lotto winner of $37Million really worry about inflation ? Put that on a TD and you probably couldn't spend the $2Million in interest every year. The point is there is a threshold where you can just kick back and not worry and that threshold is now even less money in a TD with the rising interest rates. If you have money in a TD in the first place, chances are you are not getting smacked as hard as other people by inflation because you may have zero debt.
If I won $37 million I'd probably still find the hour or two required to stick half of it in a basic share market tracker. It is really not difficult to balance your assets and set up your future - in fact this is easier to manage than TDs which you have to renew every few years.
I mean, I get you want an easy life but if you're a millionaire you're probably giving up hundreds of thousands of dollars of future income to avoid engaging with the stock market. You're exposing yourself to inflationary risks you can side-step with minimal effort.
Singatum: that's a weird reply.
This is interest.co. DC puts up charts of rates and I added an anecdotal.
Are you on the right site? How about www.yolo.broke.
He did an interview with Bloomberg and I thought he was surprisingly articulate. His politics aren't my cup of tea however.
The last time the UST 10yr yield was this high was just before everything broke. And broke big time! (GFC)
Sure, things were a bit different then. But there comes a point where things break. We're close to that point now - more so given we've had 10+ years with rates at much lower levels so a 'new normal' has formed. (When? My guess is autumn in the northern hemisphere, or maybe winter.)
Are we still getting nonsense about what will happen as we were back in 2008?
You betcha!
The current nonsense is rates being "higher for longer". That's coming from the banks. Is it nonsense? Sure is. Rising banking profits in NZ have been the result of ever increasing loan books - mainly residential mortgages.
"Higher for longer" means banks will either making less or stagnating. Another real possibility is that the oldies cash in their term deposits and 'lend' the monies to their struggling children with mortgages - a win-win for them but terrifying for the banks.)
Do the banks know this? Of course they do. They've been talking up the R.E. market. But they also know when something breaks - as it inevitably will - rates will come crashing down. They have their plausible deniability line well rehearsed from 2008 - "Nobody could have seen that coming." Yeah. Right.
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