Here's our summary of key economic events overnight that affect New Zealand, with news our credit rating has been held with a stable outlook, and WMP prices didn't fall further, as expected.
But first in the US, job openings edged down in July and the number of people quitting their jobs fell. They declined by -338,000 from the previous month to 8.827 million in July, the lowest level since March 2021. These are early signs of an easing labour market, and that the Fed's tightening policies are having the 'desired' impact on their economy. Markets expect the rise in non-farm payrolls, to be reported for July on Saturday NZT, to be up a modest +170,000. The pre-cursor ADP employment report also sees a modest +195,000 rise in the employed workforce when they report tomorrow.
As we noted last week, there is a good move up in bricks & mortar retail sales underway in the US. They were up a creditable +4.2% last week from the same week a year ago on a same-store basis. Given they have 3% inflation, this is actually a quite positive sign and ends a six month dry patch, or a 10 month patch on an inflation-adjusted basis.
But you wouldn't know that from looking at the latest update from the Conference Board consumer sentiment survey. It dipped unexpectedly. They say consumers are noticing a cooling labour market and interest rates biting. But they also found consumer fears of an impending recession continued to recede.
The follow-up Dallas Fed survey of the Texas service sector was less negative than their factory sector and less negative that expected. But it was still negative in their region.
The US 7yr bond auction yield rose from 4.02% to 4.16% earlier today, reinforcing the bite of rising interest rates, although savers will be cheering and in the US there are more savers than borrowers.
In Japan, their unemployment rate rose for the first time in four months in July. It rose to 2.7% from June. Analysts had expected the reading to hold at 2.5%. The number of workers fell by -100,000 from the previous month to 67.5 mln, while those without jobs rose by +110,000 to 1.8 mln.
In China, Beijing is leaning on its large state-owned banks to cut home loan interest rates to encourage home buying, and cut deposit rates to discourage saving. There is fear in the air in the Chinese economy. But you wouldn't know it from their equity markets as the 'home team' buys aggressively to keep up appearances. Unfortunately for them it is foreign investors who are taking advantage of the 'market' and selling.
And despite 'opening up' rhetoric from China, US officials say American firms tell them China is now 'uninvestable' after all the fines, raids and other political measures like embedding Party committees inside their firms.
In Singapore, producer prices fell -8.9% in the year to July, but as sharp as that may seem it is a significant easing from the -14.3% drop in June. They rose +1.7% in July from June, a turn up that wasn't expected.
In New Zealand there was something of a surprise result in the GDT Pulse auction of WMP overnight. It came in unchanged, ending a series of sharp falls from late July, and staying at US$2450/tonne. Another fall was expected. Still this locks in a level we last saw in August 2016.
And staying in New Zealand, ratings agency Fitch has held its AA+ credit rating for New Zealand with a Stable Outlook. It identified our current account deficits a key weakness. But it isn't overly worried about household debt levels, less so about government debt levels and although fiscal target levels have been delayed, it likes both the RBNZ's monetary policies and our overall 'policy framework'.
The UST 10yr yield will start today at 4.12%, down -10 bps from this time yesterday. Their key 2-10 yield curve is less inverted at -76 bps. But their 1-5 curve inversion is a much deeper at -126 bps. And their 3 mth-10yr curve inversion is also deeper and also at -127 bps. The Australian 10 year bond yield is now at 4.07% and down -7 bps from yesterday. The China 10 year bond rate is up +1 bp at 2.61%. And the NZ Government 10 year bond rate is now at 5.06% and down -3 bps.
Wall Street is up a strong +1.3% on the S&P500 today. Overnight, European markets were all up in tandem by +0.7%. Yesterday, Tokyo ended up +0.2%. Hong Kong rose a full +2.0%, and Shanghai was up +1.2%, both with building gains yesterday. The ASX200 ended its Tuesday session up +0.7% while the NZX50 managed a +0.4% gain.
The price of gold will start today at US$1937/oz and up +US$17 from yesterday.
And oil prices are +US$1.50 higher at just under US$81/bbl in the US. The international Brent price is +US$1 higher at US$84.50/bbl.
The Kiwi dollar starts today +½c firmer than yesterday at just on 59.6 USc after a greenback pullback. Against the Aussie we are little-changed at 92.1 AUc. Against the euro we are also little-changed at 54.8 euro cents. That all means the TWI-5 is now at 68.6 and up a net +30 bps.
The bitcoin price has jumped sharply today and now at US$27,894 and up a whopping +6.9% from yesterday. Volatility over the past 24 hours has been very high at just over +/- 4.3%. In the US, a three-judge appeals court overturned a decision by the US Securities and Exchange Commission to block a bitcoin ETF.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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103 Comments
I was actually going to say a few sold around 1-1.2mil , not much higher though, so auction still best way to move entry level or just above if you need to sell it at the market price...... if you are selling 2.2mil good luck. That higher price band has been very slow to not moving at all, to get it moving is going to need price reductions and thats going to be a big part of the next leg down... In reality they are already worth less, the owners just dont want to accept that fact so wont sell.....Thats cool too they are free to sit on them forever its a free world, but I know a few are running out of money to hold them.
That's the timeframe we're looking at for 2% era mortgages to come off completely.
I don't know the name for people that feel the need to go around trying to diagnose others with cluster b personality disorders. But it's usually people that learnt a term, but not the full extent of it.
You can get better at commerce if you put your own wants and desires to the side.
Our current account deficit ain't going nowhere - the stuff we export is low value or limited in scale (foreign students, tourism) and two-thirds of our energy comes from refined oil, which we import in vast quantities. We are also planning to import tens of thousands of EVs, heat pumps, and, sadly, billions of dollars worth of overseas carbon credits. Not to mention all of the processed food and timber that we import because we have lost the ability to do that ourselves.
Unsurprisingly, Treasury forecasts for the next five years are current account deficits of $31bn, $25bn, $20bn, $19bn and $18bn. That's $113bn in total.
Now here's the kicker - that current account deficit requires Govt and / or the private sector to reduce their net financial balance by $113bn. That means a combination of:
- significantly increased Govt deficits
- households spending their savings
- businesses / households going deeper into debt
Which will it be? Govt (current and potential) seem determined to stick to their stupid budget surplus strategy, rich savers aren't about to start splashing the cash, and businesses are highly resistant to borrowing and willl often build up cash to pay for investments... So, what's left? Yes! Restart the housing ponzi baby! Fire up the money printer ANZ!
Inflation is too high and persistent for another housing bubble. Since inflation peaked at 7.3% year ago it has only fallen back to 6% currently. At this rate of progress it would take another 3 years even to get back to the mid-point, much less think about cuts to rates.
The only thing pro-asset price policies will do is accelerate inflation and squeeze mortgage holders harder. Generally we need to import deflation to keep the housing bubble going.
What could happen is inflation will abate faster at some point, as all the negative inputs bite, jobs start dropping and the economy starts going pooh-pooh
Then central authorities will juice the market by lowering interest costs and other incentives.
At about the same time, house building will be in the doldrums, and migrants will still be flowing into the country.
Note this isn't what im wanting or planning to happen, but it also seems fairly likely.
many of the migrants paid thousands to come, they are not really employable, as they speak minimal english and are not used to our construction techniques, so from H&S are not worth the risk.... Migrants will dry up with jobs over summer, some will go home, Migrants will not rescue housing as they stack them 10 to a 3 bd rm house and house is owned by the dodgey accredited employer (oxymoron..). Not sure how people begging for food and living like animals can afford market rents/
many of the migrants paid thousands to come, they are not really employable, as they speak minimal english and are not used to our construction techniques, so from H&S are not worth the risk....
From where I sit, they're being employed at a faster rate than young kiwis.
Yeah kind of. But I don’t think it will play out quite so tidily for that ‘pro housing narrative’. For example if the economy is in the doldrums - which I expect - why will migrants be flooding in to the country? There simply won’t be the jobs. Which also means the house building slump may have have limited impact on house prices, at least in the short term.
What happens in Australia will also be crucial in this respect. Does their economy also slump (China and iron ore etc) or are they more resilient?
National might introduce some big roading projects, but they won’t produce significant job opportunities for at least 2 years.
Look if the economics everywhere get terrible then more people will stay put. But you'd be talking 6-12 months.
It's fairly safe to say migration is still going to be a heavy feature in NZs population for the remainder of the 2020s (queue joke about people migrating from NZ to Australia)
A ‘heavy feature’ for ‘the remainder of the 2020s’? Why?
If our economy is weak for the next 2-3 years it most certainly won’t be a ‘heavy feature’
of course there will still be a steady stream, as we will need care workers and other essential workers at the very least.
A ‘heavy feature’ for ‘the remainder of the 2020s’? Why?
- migration is one of the only short term economic levers our government has to try and spur or retain growth, jobs and tax revenues
- NZ will become an increasingly attractive option as the globe continues its current trajectory
1. If the economy is weak there won’t be much need for migrants, regardless of whether immigration is a preferred lever. Immigration will likely be moderate and more in the area of essential workers (rather than the boom we have seen in construction, retail and hospo workers), yet we will continue to see emigration. Net migration will likely be quite low.
2. Why? Because we are ‘special’? Why are we ‘special’? Wages aren’t high and cost of living is. Please explain.
Sure some HNW people will come, but that is of limited impact.
1. Short of total collapse, there's always going to be demand for migrant workers across a bunch of fields. Note again I'm talking about a longer period of time than several quarters of recession.
2. I'm not sure why I'd need to explain to you why somewhere like NZ is a desirable place for people to move to. Presumably you've travelled and keep abreast of global affairs. That's not to say it's the most "special" place for people to move to, but demand for people to move somewhere like NZ will outstrip our ability to receive them.
Maybe not "special", just "less messed up"
2. I didn’t say there aren’t reasons for people to migrate here. But we are down the pecking order, and wages versus cost of living is a key reason. And again there need to be jobs for people to come here too. And there will be. But it’s quantum I am talking about, and what I am interested in. Save some sort of major international event over the next 5 years, I struggle to see how immigration will be anything other than moderate over the next five years given our economic outlook. And people will keep emigrating.
So to conclude - yes some people will want to keep migrating here, but there will be limits on opportunities, the last 1-2 years has been a one-off catch up, emigration will keep happening, net migration is likely to be be moderate, end result is fairly moderate impacts in terms of housing demand and house prices.
I am talking up to circa 2027.
I don't think attractive wages has ever been a huge pull to NZ. I think it's main selling points are:
- there's way more opportunities than much of the world (a manual worker can do ok here, many places they work 12hr days for a couple bucks an hour)
- its not as messed up and manic as most developed nations
Pretty sure you could find more than 100,000 people a year in either of those camps
Disagree.
Much of the higher wealth migration we had in the 1990s from East Asia, and then from the Uk in the early / mid 2000s, was driven by cost of living and lifestyle benefits. Given exchange rates, buying a house in Auckland in those days was a steal for those immigrants. I know because I know many of them!!! The lifestyle was also good - much better than now.
we now have a lesser lifestyle plus housing is ultra expensive.
If you were say a mid 30s middle income couple in England, I don’t think NZ would look especially attractive these days, financially. There would still be some lifestyle appeal. Although I think that is overegged - living in the UK you have the magnificence of Europe on your doorstep, and the Uk itself is pretty special.
It’s a matter of opinion as to whether we are ‘not as messed up as most developed nations’. We probably aren’t but we are heading that way.
Well at current course (1-2% population increase per year) I would suggest this is heavy (particularly in contrast to other countries). We don't seem to be too fussy in regards to who immigrates and a quick trip to India, rural China, Bangladesh etc will show that a move to our socialist dreamland is still desirable.
a quick trip to India, rural China, Bangladesh etc
Or England, Italy, Parts of the States
Wouldn't be too surprising if pale faced migrant demand to NZ only increased in the coming years.
Its not for everyone tho, so most of the billions of other people will probably stay home.
Generally weak employment doesn't support asset appreciation. You need a confluence of persistently low rates (historically this was driven by importing deflation) and a strong employment market.
To me it seems more likely inflation will persist because deficit spending is very popular politically at the moment. For example healthcare spending has risen at over 10% p.a. for the last 3 successive years and super at 7.2% this year. About the only sector that got bent over a barrel was education (because screw the kids, they can't vote!)
Totally agree with you P. The only question is what is the likely timing of the economic downturn, reserve bank changing tack and govt stimulus.
I personally think we have at least 12 months of negativity before sentiment might change.
I sincerely hope the govt focuses on increasing productivity whilst dreaming up ways to stimulate the economy.
My view is that higher rates are partly to blame for sticky inflation, but I agree with your general point - we are unlikely to see a major drop in interest rates. IF we dropped rates before the Fed we would see a nasty run on the NZD (something I note that RBNZ seem to be building foreign reserves to fend off).
My point was that if we don't see a borrowing boom, then something else has to give - either our trade deficit reduces massively (how?) or Govt deficit spending increases significantly. Perhaps we need National to do loads of unfunded tax cuts after all?
Richard duncan suggests Money printing to pay for R and D. ( a form of deleveraging , investing in potential productivity breakthrough, research..etc..?? )
An interesting idea worth pondering ?
https://www.amazon.com.au/Money-Revolution-Finance-American-Century/dp/…
Maybe a policy shift towards levels of "self sufficieny" , might help reduce the future current acct deficit..??
This is basically what the US is doing now - using the power of the money printer to finance a massive increase in investment in R&D, infrastructure, self-sufficiency etc. The US (like France, Spain, Japan, Israel, etc) have not run a budget surplus for the last 20 years, nor do they have any plans to. Why bother? It's dumb.
The major challenge we have with our current account deficit is that it reduces our monetary independence - we basically have to shadow the Fed on interest rates to reduce the risk of currency devaluation. If we could balance our trade, we would be in a much stronger position.
Jfoe...
To put a more tangible face to your accounting term... "reducing net financial balances "
.." Selling parts of the farm".... "selling the family silverware" .. "using the visa card " ( metaphors Buffet has used )
Under the promise that Foreign direct investment will "grow NZ" and create Wealth,. since Rogernomics, we have sold off most of our best assets.... eg. our banking system...... ( that alone repatriates billions of $ to its offshore owners..)
another form of foreign direct investment ...kinda, is our "ponzi" level of immigration.....
Over the last few yrs ... exporting things does not seem to be so important.... ( at a political level, at least )
One option you did not mention is that we can reduce our standard of living..... ie.. import less.
A household can live beyond its means until it runs out of credit... It can juggle things for a long time until it cant.. And then the change in lifestyle is kinda sudden and radical. ( long term debt cycle and the deleveraging that is the end result )
Not sure why you think that that a Govt surplus, in itself, is a stupid thing ?? .. Are you a believer of the Modern Monetary theory ideology ?
Doing it at the wrong time probably is stupid.
Dalio has written a whole book on deleveraging... and running ongoing chronic Govt deficits adds to the problems.... ie.. you cant sort out debt with more debt.. ie. Govt deficits is not a solution, thou it plays a role in "beautiful deleveraging" ...to use Dalios term..... and so does money printing...and debt restructuring ( haircuts )...etc..
I'm pretty sure NZ will face these issues at some point, ... We dont have the "productivity" to grow our way out of trouble..... in my view
Hosking said this morning that the expected tax savings are around ~$250/fortnight for the average couple with 2 kids, $100 for single individuals and $26 for superannuant.
Sounds to me that this could be the end of our "simple" tax system, which isn't that simple to begin with since it taxes earners hard and redistributes some of it back to a select bunch via MSD's welfare schemes that nobody really understands.
Its interesting. Won't lie. I benefit from this so National will get my vote. Nice to actually see National targeting younger voters for a change.
I guess my biggest problem is how will it be paid for. We are already running deficits. National also want to remove the removal of the removal of interest deductibility for property investors. Sort of leaves a bit of a hole in the budget. Maybe they will gut working for families?
Super along with other retirement benefits (winter energy payments, SuperGold, etc.) make up nearly half of MSD's entire welfare spend. Raising the super age and means testing payments is the only way National could claw back billions each year to fund tax cuts and interest deductibility on housing investment.
Stop being an extremist Jimbo. Your "rich aunties" might not need the payment, but there are plenty who do. That payment hasn't come close to paying the costs of my firewood.
The government would do better by fixing the cost of power at an affordable level. Instead they are complicit in the rip off power prices have become, like all other areas.
I typically vote Labour but they can't keep the bracket creep going forever, especially with 7% inflation. We are paying a lot higher marginal tax rate than we were 6 years ago, and I can't think of a single thing we get from it other than the promise of cheaper fruit and free prescriptions which were already free. Health, education, crime, transport have all gone backwards. And apparently people are struggling more now than ever, so they aren't even reducing inequality. So where has all that tax money gone?
Assuming National offer decent tax cuts then they will get my vote despite the fact I hate many of their other policies.
All parties are promising to tinker with the tax system and public spending, basically trying to achieve more by simply moving the deck chairs around. Not a peep from anyone about increasing our economic productivity (tax higher incomes instead). Our GDP per worker now lags behind Lithuania and is about the same as Croatia and Romania.
All parties want the easy way of opening up our borders wide so as to suck more taxes out of a larger pool of earners. Unfortunately, the clogged-up infrastructure in our capital-shallow economy coupled with low-skilled migration is producing diminishing returns across the board, and our political leaders are in complete denial of this.
The global trends are beyond all NZ politicians to influence. Their option is to react; no more. Currently both major Parties are reacting as if the past is the future. The future is not, however, going to resemble the past; they both, by default logic - must be on the wrong track.
But will we see any journalist - even those claiming they do so - challenging them? Not on your Nellie. Morning Report just swallowed and regurgitated Luxon, unchallenged. Dann should hang his head in shame - he's had enough material put under his nose, to have done better. We pay him to do so.
I feel like Luxon is also showing a bit more of how he is behind the scenes. Aside from being repetitive and lacking genuine deep thought, he is also talking over people. I was also a bit surprised Dann didn't push harder, but Luxon was also talking over him (with trite lines).
I'm pretty down on this upcoming election. Labour is not providing compelling reasons to vote for them, but seriously the National lot are a horrible bunch. The desire to bring back interest deductibility in itself just frustrates me to no end.
Oh well.
Presumably there will be a catch... I imagine catch will be the gutting of of the monstrosity called working for families. WFF is an economically inefficient system anyway which discourages specilisation, productivity & is damaging to the economy so would be nice to see National reduce its role in our society.
Probably , or will it appeal mainly to the 50% or so already voting for them.
But yes , if your a swing voter , then barring anything else substantial , go for the tax cut. unless you want to consider how it is going to be paid for . Wasn't $ 20 a week in the billions of $ cost ?
But first in the US, job openings edged down in July and the number of people quitting their jobs fell. They declined by -338,000 from the previous month to 8.827 million in July, the lowest level since March 2021. These are early signs of an easing labour market, and that the Fed's tightening policies are having the 'desired' impact on their economy.
Labor Market Implodes: Job Openings Crater, Prior Data "Unexpectedly" Revised Sharply Lower
"Central Banks Just Made It Clear They Aren't In Control, And Don't Pretend To Be" - Jackson Hole: "Does my R* look big in this?"
He makes a good point about the indicators being used for propaganda but this is not new. While the indicators are on their way down, they are still miles higher than the long-term averages, the US economy is cooling but it is still stronger than it's long-term average (as show on the graphs) with some way to go before approaching the long term rates.
People say this a lot, CEO's are not hired by putting their hands up and shaking a lot of hands. They are selected after a rigorous process to find the most-competent, and often most experienced, candidate. This makes them more likely to be competent at running complex organisations.
What is valid I think is to say that competence at getting things actually done is not a useful qualification for political leadership. Looks, personal charisma and good self control (with regards to being badgered in interviews) seem to be the most important.
I think it is pretty clear to me that the rot in Wellington will effectively (with years and years of expertise) nullify any attempts at meaningful change.
National runs NZ like a business, but for the wealthy, not the country.
National sell off anything that makes an income for the Government. Singapore has huge reserves and investments built up over years.
National push through whatever laws their wealthy donors ask them to. Why on earth would they want to start live export of cows for? Milk is our major export.
Not saying Labour is that much better. But the idea that National is anything like the Singapore government because a corporate man is running it is laughable.
Running a company gives experience running a country? Err no. Companies extract as much wealth for shareholders as possible while externalising any cost they can get away with. What part of this scenario is consistent with ensuring a country is run sustainably for future generations and keeping a functional biosphere?
In fact even lining up businessmen from most capable to least, airline CEOs would rank near the bottom of the capability list, marginally higher than bankers, MIC and fossil fuel miners.
People think everything needs to be run like a profit center. Imagine if you ran schools, hospitals, police, fire, ambulances all as profit centers?
Not sure these people will be overly pleased to receive a $1500 ambulance bill on top of any other care they may receive at the hospital.
Those skills are not exclusive to managing a company. Many many professions require those skills. A head of year in a school requires them, a nurse team leader needs them, a non-commissioned officer needs them.
They are generalist skills. There is nothing specific about running a company that would better prepare you to running a country than any of the multitude of professions that also require those skills.
In fact I would argue that the skill set developed in running a company would hamper you more than help you. That's not to say that someone who has managed a company couldn't run a country well, it's just to say that it doesn't provide you any sort of meaningful advantage.
Exactly. It would also be nice if the leader of a country could choose their subjects, narrow down their area of focus down to selling flights and paying his subjects to do what they ask.
It really pisses me off when I see this idea that business people are somehow better qualified than others to run a country. It's bullshit.
The US 7yr bond auction yield rose from 4.02% to 4.16% earlier today, reinforcing the bite of rising interest rates, although savers will be cheering and in the US there are more savers than borrowers.
Stellar 7Y Auction Sees Blowout Foreign Demand As Yields Tumble
It's really foreign demand for safe and liquid US$ assets that really should get your attention. Now why might foreigners really want so much safe and liquid US$ assets? Hmmm. Link
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