Here's our summary of key economic events overnight that affect New Zealand, with news we are entering the shadow period before the next US Fed review on Thursday (NZT) and activity is restrained. The Bank of Japan is also doing its regular review and expectations of changes driven by its new governor are uncertain now.
But we can first report that the NAHB/Wells Fargo American Housing Market Index slipped for a second month in September and it is now at its lowest in five months. Quarter-century-high high mortgage rates are clearly taking a toll on both builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase. Rising unaffordability of housing is a growing problem.
However, across their northern border, Canadian housing starts are holding relatively high.
Staying in Canada, the recent bump up in energy prices has seen their August producer prices jump by +1.3% over the previous month, the first rise since October 2022. This was much higher than expected. This upturn in producer prices is similar to what they had in consumer prices and raises the chance that the Bank of Canada will hold its policy rates higher at 5.25% for longer than anticipated.
In China, the business sector is starting to worry about the aggressive encroachment of their 'national security' laws into how business functions. There is growing talk the moves have already gone too far and effectively stifling decision-making and diverting resources.
Singaporean exports are limping along with large year-on-year decreases, reflecting the weak state global trade is in. Exports to the US of electronic products is holding up, and their exports to Indonesia are growing, but these seem to be the only bright spots.
In Europe, benchmark interest rates are rising. The yield on the German 10-year Bund has surged to 2.7%, marking its highest point in over six months, primarily driven by the hawkish statements made by ECB officials. It was 7 bps higher in March, but prior to that, this is its highest since 2011.
And staying in Europe, the BIS is warning (p4) about the sudden re-emergence of large speculative positions by leveraged investors in US Treasuries. They see a risks there that could blow up suddenly.
Meanwhile in Australia, a survey of manufacturers found that deep pessimism is rolling over the sector. More than a third of factories expect conditions to worsen over the next six months, taking the mood to the worst since 2008. Driving the gloom are fast-falling orders in response to weakening consumer demand.
The UST 10yr yield starts today down -2 bps at 4.32%. Their key 2-10 yield curve is more inverted at -74 bps. And their 1-5 curve is now at -99 bps and marginally more inverted. Their 3 mth-10yr curve inversion is little-changed at -108 bps. The Australian 10 year bond yield is now at 4.20% and up +4 bps from yesterday. The China 10 year bond rate is up +2 bps at 2.69%. And the NZ Government 10 year bond rate is now at 5.08% and up +8 bps.
Wall Street rose +0.2% on the S&P500 in its Monday session to start its week. Overnight, European markets were however sharply lower, down -0.8% in London to down -1.4% in Paris. Yesterday, Tokyo was on holiday and didn't trade. Hong Kong ended its Monday session sharply lower, down -1.4%. Shanghai was more subdued and even managed a +0.3% rise. The ASX200 ended down -0.7% while the NZX50 started weak but rose consistently all day and ended up +0.4%.
The price of gold will start today at just on US$1933/oz and up +US$9 from yesterday.
And oil prices are -50 USc lower from yesterday at just over US$90/bbl in the US. The international Brent price is now over US$93/bbl.
The Kiwi dollar starts today still in its recent yo-yo range and up about +¼c from this time yesterday at 59.2 USc. Against the Aussie we are holding at 91.9 AUc. Against the euro we are little-changed at 55.3 euro cents. That all means our TWI-5 is actually up about +20 bps at 68.7.
The bitcoin price has moved up further from this time yesterday, and is now at US$26,809, a rise of 1.2%. Volatility over the past 24 hours has been modest at just on +/-1.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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15 Comments
I remain of the view that 2024 is going to be incredibly tough for anyone in residential construction.
Anecdotally, we have been in search of a good tiler north of Auckland for the last 12 months and have really struggled. Two have come back to us in the last month. One of them stated in June that they had two years worth of work in front of them. That works has now all gone…. two years! And that’s just the tiler.
I think a lot of these sub-trades have been kept in the dark by the developers who pulled back earlier in the year. Those involved with design and consents are aware, but I don’t think the trades are aware.
I'm of the view that there will be enough work out there, due to ongoing demand and delayed fulfilment subsequent to recent labour and material shortages + price gouging and of course rebuilding in Auckland and the East Coast. Any serious excess labour is likely to be sucked up by Australia.
I have to agree. I took a quote from concrete layers for fixing up my driveway. There is enough workload with the East Coast rebuild, new schools and solar farm construction in Northland/BOP.
Most of those homebuilding skills are transferable and there is a gigantic backlog of capital works in every possible domain.
Yeah, but it’s not necessarily easy for a bunch of out of work builders and tradies to pickup sticks and move from say Auckland to East Coast.
Tradies don't have to up sticks. I'm aware of Auckland builders who were FIFO to work on Qtown developments. Arrive Monday morning, fly home Friday afternoon.
Indeed. GFC and lack of work saw a generation of older trades retire, and a good bunch of the recently qualified head west.
There must be some blindness to not see what's is approaching. Tradies are pretty well networked in my experience and talk about what's happening upstream of them. Regardless, it will be a good time to get some specialist jobs done where they could not be arsed returning calls within the last 5 years.
I have a few tradies in my family and have been talking to them about the downturn.
The common theme is that their pipeline a year out is poor. HOWEVER, I quiz them on that and ask them when such a long pipeline of work became a thing and they often say "Oh, around 5 years ago, before that we were maybe 3 months out"... then I ask them if things have completely stopped and they tell me... "Actually... people are just adjusting to the new normal of interest rates and costs".
While I think some of the big builders might still fall over, the smaller ones I see and general tradies are just slowing down, not stopping. We had a tradie on a Reddit page ask a local area if anyone had any building work, he got about 20 replies with everything from retaining walls to full redecorations.
Anecdotal, sure, but with KO having a blank cheque and various disasters that may be ongoing, I don't see a huge shock, just a downturn.
Good points. I think that KO cheque book might be put away post election, though.
I actually think things will be more challenging for all the professionals engaged in planning and design, rather than the actual on the ground people. Architects, surveyors and residential-focussed civil engineers, planners
Yes we are seeing the same. ETCO which is for Electrical Apprenticeships has a very large amount of apprentices on down time as there is no work. They offered us a free apprentice for 2 weeks to entice us to take on more apprentices.
I agree.
That BIS report which you cited is a gold nugget right there. Thanks
I tend to be more interested in business than fine finance. So it's fascinating to see the info on building prospects as above. Anecdotal of course but real and I like to hear them.
Keep it up folks.
And staying in Europe, the BIS is warning (p4) about the sudden re-emergence of large speculative positions by leveraged investors in US Treasuries. They see a risks there that could blow up suddenly.
Basis trading, undertaken by all primary dealer bank trading desks to accommodate prime brokerage customers.
So having authorised a massive increase in spending this year and next by the RB, without (as the law requires) releasing any info on the reasons for this increase, MoF sits on an OIA for weeks and then kicks for touch beyond the election. https://croakingcassandra.com/2023/08/24/spe Link
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