Here's our summary of key economic events overnight that affect New Zealand, with news both equity and bond markets are displaying some nerves ahead of tomorrow's US Fed rate and policy decisions.
But first, there was another dairy auction overnight and a good gain was achieved even if not as strong as some market forecasts expected. Overall prices were up +4.6% in US dollar terms on top of the prior event's +2.7%. In NZD terms the increase was a lesser +3.7%. WMP rose +4.6% from the last event, SMP was up +5.4% and butter up +3.8%. But cheddar cheese fell -1.7%. These are positive signals and momentum going into tomorrow's Fonterra result announcements, but we need to keep in mind even after these rises, overall prices are still -24% lower than year-ago levels and the recent rises only take them back to early August levels. This event is a positive sign, but will hardly move the needle on milk payout forecasts. More here.
In the US, residential building consents rose rather sharply in August, but housing starts fell sharply, and it is the falling starts data that is getting all the headlines. With more applications to build being approved, the fall in housing starts might be just temporary.
US retail sales at brick & mortar stores on a same store basis were up +3.6% last week from a year ago, good, but really only enough to keep pace with inflation.
Meanwhile, Canadian CPI inflation rose to +4% in August from +3.3% in July, overshooting market expectations of +3.8%. Rents and petrol are getting the blame. Their central bank has said inflation at these levels is inconsistent with their targets. That will raise expectations for more rate hikes there.
Separately, we should keep an eye on how relations between Canada and India develop, after Canada said it had direct evidence the Indian Government assassinated an opponent in Vancouver, Canada. US evidence in the link is a key component. India's embarrassment will likely result in extended anti-Canada and anti-US reactions.
In China there is a massive exit underway by investors. Official data shows holdings by foreigners of Chinese equities and bonds has now fallen by more than -NZ$330 bln from the peak in December 2021 until August this year when -NZ$20 bln left in that month alone. Those with direct, on the ground investments in China are growing less optimistic too.
The OECD is out with its updated global growth forecasts. It sees global GDP growth at +3% this year (vs +2.7% at its last review in June) and +2.7% in 2024 (vs 2.9%). The US economy is expected to grow +2.2% this year and +1.3% in 2024. The Eurozone is seen rising +0.6% in 2023 and +1.1% in 2024. And China is seen expanding +5.1% in 2023 and 4.6% in 2024. For Australia it is +1.8% this year and +1.3% next. New Zealand doesn't get a mention. As well as growth extending, they also see inflation pressures moderating.
Although it is one of the last to come to this conclusion, the Australian Bureau of Meteorology has declared we have now slipped into an El Niño weather pattern.
The UST 10yr yield starts today up +3 bps at 4.35%. And we make that it a 15 year high, since the end of 2007. Their key 2-10 yield curve is unchanged at -74 bps. And their 1-5 curve is now at -95 bps and marginally less inverted. Their 3 mth-10yr curve inversion is also less inverted at -105 bps. The Australian 10 year bond yield is now at 4.22% and up +2 bps from yesterday. The China 10 year bond rate is unchanged at 2.69%. And the NZ Government 10 year bond rate is now at 5.09% and up +1 bp.
Wall Street fell -0.4% on the S&P500 in its Tuesday session. Overnight, European markets were mixed with Paris and London essentially unchanged, but Frankfurt was down -0.4%. Yesterday, Tokyo was down -0.9%. Hong Kong ended its Tuesday session up +0.4%. Shanghai was essentially unchanged. The ASX200 ended down -0.5% and the NZX50 mirrored that.
The price of gold will start today at just on US$1930/oz and down -US$3 from yesterday.
And oil prices are +50 USc firmer from yesterday at just over US$90.50/bbl in the US. The international Brent price is now over US$93.50/bbl.
The Kiwi dollar starts today still in its recent yo-yo range and up about +10 bps from this time yesterday at 59.3 USc. Against the Aussie we are holding at 91.9 AUc. Against the euro we are marginally firmer at 55.5 euro cents. That all means our TWI-5 is also up about +10 bps at 68.8.
The bitcoin price has moved up further from this time yesterday, and is now at US$27,190, a rise of 1.4% and its highest in a month. Volatility over the past 24 hours has been modest at just on +/-1.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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"While the Minister of Finance was glowing about the state of the books, Auckland University’s Economics Professor Robert MacCulloch had questions: “I can’t make sense of the Finance Minister’s statements… He claims the country is in better shape than expected and that the ’forecasts showed New Zealand would avoid recession, with wages keeping ahead of inflation’.
“So here’s my question – GDP growth up to June 2024 is forecast to be just over 1%. On the other hand, it is also stated immigration is now running at 100,000 a year, corresponding to an increase in 2% of our entire population. But if total GDP is only growing at a bit over 1% and the population is growing at 2%, then GDP per capita must be declining, since GDP per capita equals total GDP over population size.
“In other words, from an individual perspective, we are entering a deep recession. But the Finance Minister says Kiwis are getting better off since our inflation-adjusted incomes are rising, so everything is hunky dory. Have I missed something? It doesn’t add up… No one feels they are getting better off. I reckon the Finance Minister is telling a porker.”
As Professor MacCulloch points out, in spite of the Finance Minister’s own PREFU numbers showing GDP per capita is collapsing – from a 2.1 percentage increase in the year to July 2023, to negative 0.7 percent in the current financial year, before recovering to 0.6 percent increase in 2025, and stabilising at a 2 percent increase in 2026 – he’s telling 5 million Kiwis they are all better off!"
More people more problems.
More workers, more tax to play around with.
Assuming net migration were to be reduced to a trickle from tomorrow, the government of the day would then have to grow the economy in the traditional manner, i.e., spend more effort and their political capital in reforming tax policies, education & training, infrastructure, business landscape, etc.
Nah, much easier to import more workers to grow the pie while the share per person shrinks. Living standards will continue to drop like a rock in this country for the foreseeable future with no sensible leadership in sight.
"Let's grow the population to ten million" Ximon Bridges. And when it gets to ten the same drones will be crowing "let's go for twenty" It's what NZers want, according to polls. Or maybe they've noticed labour aren't significantly different?
Robertson, and the rest of them, just tell it they way it is for them. They are not in it for us. And to their minds, if they say it they must believe it and then it must be true. That is because they are surrounded by layers of spinners & minders, head nodders if you prefer, who tell them that is just so. Has been going on for six years having grown like topsy out of the previous PM’s special needs.
Whereas the Luxon types are gloves-off advocates for the advancement of a very small echelon. Luckily - for his mob - the masses are ignorant.
Ask why they are ignorant, and look at the media; growth projections parroted unchallenged, ad infinitum. Same with that compere last night - took growth as a given. So the voters vote in ignorance. Sad epitaph, so much for sapience...
I know. The spectre of The Blue Suit Brigade , re-emerging from the mists of the swamp, riding hell bent for the glory of Corporate New Zealand, is not a prospect for good sleep.
I don't agree with a lot Richard Prebble says,but have to agree with this below...although he does conveniently fail to mention ACT is very pro immigration too...
https://www.nzherald.co.nz/business/richard-prebble-mass-immigration-is… excerpts below;
"The New Zealand economy is a pyramid scheme. The Treasury’s Pre-Election Economic and Fiscal Update (Prefu) says all that is keeping us out of a recession is increasing the population, at a rate expected to peak at close to 100,000 people a year.In pyramid schemes, only the promoter wins and everyone else loses."
" Increasing the population by 274 people every day is the equivalent of adding almost another Dunedin every year. Dunedin has a university, hospital, schools, civic facilities, a stadium, shops, roads and 50,000 houses. It has taken Dunedin 175 years to build and fund the infrastructure that all those people need.Most of the extra population will be in Auckland, which, according to Kiwibank, is also the location of most of the 65,000 shortfall in houses. Already, rents in the city are rapidly rising."
Immigration has made New Zealand a more vibrant country, but mass immigration is lunacy and unnecessary.
Getting beneficiaries into work is not cheap. There are not enough drug rehabilitation schemes. Short term, it is cheaper to pay the benefit than organising work. Long term, there is no government programme more expensive than paying people to be idle.
We are wasting so many people’s lives by importing immigrants to do work that we can and should do ourselves.
Importing waiters and truck drivers cannot be the answer. Both Labour’s and National’s economic plans rely on mass immigration that produced the housing crisis and will just add to the housing shortage. The economy will be bigger but most of us will be poorer.
The Howard League has a programme that assists prisoners to get driving, forklift and heavy vehicle licences. Over 90 per cent get employment. Reoffending is minimal. If it is possible to get convicts back into the workforce, how hard can it be to reintroduce beneficiaries to work?
We know mass immigration does not work. Why not try something that we know does work? Doing the work ourselves.
10y ust could hit 4.5% over the coming weeks.. be prepared for the next round of rate hikes..
Did someone say rates were about to start falling.. LOL..
People don't realise that rising bond yields is a big reason their insurance is going up. Bonds are the back bone of many financial institutions.
Interesting line, but I dont understand,
are you saying insurance funds its business by issuing bonds,
I would have thought it was the other way around , they buy bonds to hold against future claims
HOW THE FED BANKRUPTED
THE INSURANCE INDUSTRY
BY DESTROYING ITS CAPITAL EFFICIENCY
Antal E. Fekete
The New Austrian School of Economics
While politicians piss around trying to manipulate facts and figures to make themselves look better, middle NZ are stuggling to buy groceries, put fuel in their cars, pay the mortgage or pay their power bill. They are cancelling their superannuation schemes and insurances just so they can keep the lights on and have some food on the table. They don't care if we are or aren't in a "technical recession", they simply just want someone to listen to them and start addressing the big issues but the thing that makes everthing worse is they are struggling to find anyone to vote for.
Most of the issues with food and power come from governments of the past 10 years or so not seeing or planning for the future. We have linked our economy to be at the whim of dictators controlling oil and gas prices to an ever increasing degree. If we were smart, we would be implementing plans to be energy independent. That would mean ramping up electricity production with government intervention (solar/wind/hydro). Ramping up our own production of fertilizers. Ramping up the creation of a hydrogen industry for heavy vehicles (trucks/planes/trains) and ramping up the rollout of electric vehicles for personal use.
The more we rely on foreigners to set our energy prices, the worse our BoP and the more exposed we are to some dictator in Saudi Arabia deciding to punish us. We are price takers with almost no power to control our energy prices. Don't worry though, you are helping them create a insane building project, yay: https://en.wikipedia.org/wiki/The_Line,_Saudi_Arabia
How do we ramp up our production of phosphates?🤔
There is the Chatham rise phosphate but that would mean dredging up the sea floor there...
We won't be able to stop importing everything, but its the energy component that is at issue here. If we can be self reliant from that aspect, we have stopped importing a great majority of the product.
Just because we can't import the entire product, doesn't mean we should stop importing most of it. Thats the perfections/nirvana logical fallacy you are relying on in that argument.
What argument/fallacy? I was merely asking where we'd produce our own stuff from. And I answered that question myself.
We used to mine it down south so perhaps we get off out butts and use out own resources for a change.
Most P is just locked up in the soil and unavailable to crops anyway. If you plant pine trees on cropland it unlocks P unavailable to traditional crops just by using different mycorrhizae. Just not very practical.
Quite a bit of work being done in this area so the answer could be in the lab not in the Chatham Rise.
"Being within the plant, endophytes may have the ability to continue re-releasing the phosphate for continued plant growth. In addition, since the endophytic bacteria in this study possess at least some ability to promote solubilization of all three common forms of phosphate, i.e., Ca-, Al, and Fe-phosphate, they may have an advantage as bioinoculants in both alkaline and acidic soils. In all, these findings suggest an important role of endophytes for phosphorus acquisition and provide a deeper understanding of the symbiotic associations between poplar and the endophytic bacteria."
https://www.frontiersin.org/articles/10.3389/fpls.2020.567918/full?
"Compared with most other countries with a similar land area
and population, New Zealand is relatively well endowed with
natural mineral resources (see Box 1) such as gold, coal, oil,
gas, ironsand, limestone, clay, zeolite, sand and construction
aggregate. On land, these commodities have considerable
capacity for expanded production, whereas offshore within
New Zealand’s Exclusive Economic Zone there is immense
potential for new discoveries and development of oil and gas,
methane, gas hydrates, placer gold, ironsand, volcanogenic
massive sulphides (copper, zinc, lead and gold) and ferromanganese
deposits."
Mineral, coal and petroleum resources: production,exploration and potential (landcareresearch.co.nz)
Take GST off solar panels, inverters etc, batteries for solar installations, and installation itself.... Offer 2% loans for the life of the installation (Payable in full if property is sold...) It would not be hard to do...
Probably easier just to do what Labour have suggested from a bureaucracy point of view, less to manage. But I would up those rebates depending on size of the system so they are subsidising maybe 30%. 2% loans, yes totally.
Disagree.
Fossil energy is peaking globally - 2018 is looking like 'it'. The Saudis are well aware; Ghawar peaked in 1980... that is probably why they're looking at what comes next; they understand the problem more that anyone (why would they bother, if they though they could open the spigots ad infinitum?)
Hydrogen has a negative EROEI (granted, so too does battery storage). We would be better using the electricity directly, and in an energy-scarcity scenario, that is exactly what we will do.
Ex fossil energy, there is no bitumen, so nor roads as we know them. There is no EV build. There is no dam maintenance. There is a question-mark about maintaining the transmission network... Oh, and no city made it to over 1 million, ex fossil energy. So many folk assume BAU is not in question, and get messed up advocating alternative ways to 'maintain' it. The problem is that BAU is unmaintainable - by some orders of magnitude.
Baghdad had over 1million in the tenth century.
You got census data for that? Or relying on Chandler's guesses?
That they had the initial advantage of site, I'll grant you. But they quickly denuded the area, indeed the whole 'Fertile Crescent' is now essentially desert. Even drawing-down at that rate (and we're doing it ourselves, relying on the draw-down of fossil energy) I seriously doubt 1 million. Proof is 'everywhere else'. You can't get food in to 1 million, and feed the oxen which pull the carts which bring the food, in a spatial radius wide enough to support such numbers. Mind you, Noah lived to 600...
As a yardstick, it is a worry; the dissipation was very quick.
I'm using Wikipedia. I doubt you have sources dramatically more reliable. On Wikipedia I did discover that what you claimed was generally true with Baghdad being an exception and by a small margin. One problem with any city pop stats is what is the limit of the city - it doesn't make much difference if Huntley or Warkworth are added to Aucklands population but many cities have living just beyond the city boundary than inside.
I still agree with your point about fossil fuel required for transportation of food; the big cities pre-Coal/Oil had excellant navigatable water - such as Alexandria. Given selective breeding of horses and crops and with sufficient canals and solar power a city greater than 1million could easily exist when fossil fuels run out. I'm just hoping that Nuclear arrives before my descendants live through the demise of oil.
Baghdad did maintain a >1million for hundreds of years until the Mongols so that denuding was not quick. You can checkout ancient Rome and many Chinese cities.
The fact so many are looking at Aussie says all you need to know.
Watch Australia this summer - not to be envied, one suspects...
Yes. Could approach ‘hell On earth’ levels
Compared to what? Aussie mega droughts are well documented.
"The study has also suggested the region was comparatively blessed with rain during the 20th century.
Climatologist Alison O'Donnell said rainfall records since 1900 capture "one of the wettest periods in the last 700 years".
https://www.abc.net.au/news/2021-05-26/australias-hidden-history-of-meg…
Kiwis moving to aussie fb page has been growing by around 1000 per week recently.
I dropped some things in to a Salvation Army store this week.
The woman asked if I was moving to Australia.
No, why?
We've had so much stuff dropped in by people moving to Australia, "It's crazy".
Although it is one of the last to come to this conclusion, the Australian Bureau of Meteorology has declared we have now slipped into an El Niño weather pattern.
Weird how they call it late. The temperature anomaly in the pacific has been there since about june. Maybe they just wait till some local effects turn up?
71% chance of a "strong" one by NJD now... https://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/strengths/index.php
Debasement raveges Gold
From another perspective, it's depreciated by 52% in the recent 12 years. Clearly NOT an inflation hedge.
Patience. 12 year out of 2000+ is of no consequence.
From another perspective, it's depreciated by 52% in the recent 12 years. Clearly NOT an inflation hedge.
Possibly. But if the gold price crashed from its peak in 2011 to 2015, it doesn't refute the idea that gold is now in a bull run and is very much indeed an 'inflation hedge'. Next few years could be explosive for the gold price.
One day gold will explode in price....one day I hear..
So 'rents and petrol are getting the blame' for Canadian inflation and the central bank is likely to hike interest rates even higher in the hope that making household so poor that they can't afford petrol, and increasing costs for landlords and housing developers will reduce rents.
We are going to be facing exactly the same challenge over the next 6 months. Rent in Auckland is running at 8% year-on-year now (12% for lower quartile!) - pulling the national average up above 4% again (that's 0.4 percentage points on CPI). Petrol and diesel costs are booming (adding another 0.4 percentage points). Add on increases in insurance, local Govt rates, electricity, etc, and a healthy dose of near-zero competition, and there is zero chance of getting CPI down within range over the next year.
So, we continue to hold rates high and tank our economy / jobs to tackle unavoidable cost increases, whilst the rest of the world stages a recovery and looks at us quizzically wondering why we are so intent on self-destructing.
Yet a fair few seem to think we are ‘just fine’.
2024 is going to be hard for many.
Those higher costs across the board are a direct result of low-wage migration adding to the pressure on our creaking infrastructure and core services.
Recent releases from Stats NZ show that wages in professions and registered occupations are growing much faster than CPI. No surprises there as the demand for these workers keep increasing with our rapidly growing population and lack of adequate skill supply from overseas.
Globally there seem to have been a number of Reserve Banks that "paused" rates far, far too early to get inflation back to target. The words they should be using are "whatever it takes" and "as quickly as possible".
If they lose control this will turn from crisis to economic emergency.
Robertson has never owned or operated a company, and probably has never had to work to a budget since his university days, if then, so he has no comprehension of running anything financially, goes for all of them.
Consequently nothing gets accomplished.
Status quo
How about Nicola Willis?
Nationals no fault evictions. Are they trying to loose this election?
Clearly they have no had the pleasure of getting their kids settled into schools, parents into work nearby - only to be told the tenancy is over.
National has become the party of the dreadful.
Nobody ever gets rid of a regular tenant without a very good reason - such as failing to pay, damaging property, harassing neighbours. If you give security of tenure then you will end up with tenancies ended by intimidation - check out Rackmanism. A compromise can be found for example with tribunals. Evictions could be no fault but it is reasonable to demand a written explanation that must be shown to the next tenant.
I rented for a few years when I arrived - got kicked out twice by the landlord wanting to sell. I looked after the place, tidied up the gardens, and I guess they took advantage of the improved condition.
If I have to do it again, I'll try to fit in better and leave a couple of rusty old cars on the front lawn.
Once the brightline is reduced,watch how many tenants are kicked out so the landlord can sell now many can't cope with the rising interest rates.
Lots have just been waiting for this to avoid paying tax...
Then sign a long term lease instead of leaving it periodic.
Another way of getting kicked out is not having the fixed term agreement renewed. My landlord is selling the home while we have 5 months left in our agreement, I doubt whoever buys it will want to keep it as a rental given the poor yields and unreasonable price expectations.
I think that the landlord will have to pay you out. Check this out with someone official.
Tenants cannot dictate to a prospective landlord the length of term, certainly not past a year in NZ for residential.
They may ask, but the two options are usually: A) sign what is on offer B) be homeless.
My property (a granny flat) has been empty for 9 months and if having a tenant meant I could not sell then I'd leave it empty.
Fifty years ago I lived in London when it had security of tenure, widespread homelessness and the largest number of empty houses in Europe. Preferred tenants were foreign students sharing. I share concern about poor families but rent controls are classically counter productive - a good example of the law of unintended consequences.
"Nobody ever gets rid of a regular tenant without a very good reason"
Then what is the reason for "no fault" evictions then?
Once I had tenants (young builders) who were pleasant enough until payday when they would take drums out on the deck at 2am and make unbelievable noise. My neighbours complained to me. One neighbour had cancelled a visit by her family because of the gratuitous swearing. I asked Council noise control and they admitted four complaints and they were from different neighbours but would not give a name. So the reason would have been unreasonable noise but difficult to prove. I had a property manager and somehow she resolved the issue and the tenants left. Since then I've only rented to extended family and friends.
I've been evicted from three places in the last 9 years because the owner 'wanted to sell'. In each case, with a perfect payment record and full refund of the bond. One of those actually sold; another did extensive renovations and the place was empty for another two years, at least; the third, I'm not sure.
My fault for living in Auckland during a property bubble, really.
That'll teach you for cluttering up those poor owners' investments.
Oil keeps going up intermediate-term price expectations (TIPS) keep diverging. It's just like June '22 when Treasury market participants realized that oil surge would be one too many and lead to demand destruction. Economy this time is in much worse shape, though. Link
Japan's largest investment firm Nomura is launching a rat poison fund for institutional clients.
"Technology is transforming a large part of the economy from analogue to digital... Long-term exposure to Bitcoin offers a solution to investors to capture this macro trend."
- Sebastian Guglietta, Head of Digital Asset Management
Also a clever way to hedge against yen devaluation.
https://www.forbes.com/sites/digital-assets/2023/09/19/nomuras-laser-di…
S Jaishankar says ‘West not the bad guy’ in veiled dig at China
He said the issue today was the building up of a strong sense, over the last 15-20 years, over the inequities of globalisation where countries saw their products, manufacturing and employment come under stress due to their markets being flooded by cheap goods -- an indirect reference to the Chinese trade and economic policies.
Martin Wolf, chief economics commentator at the FT: "We shouldn’t call ‘peak China’ just yet". https://ft.com/content/8a7fb1d5-bb3a-48b7-aa72-1c522fd21063 At least he's slightly more thoughtful than his colleagues over at The Economist who've called ‘peak China’ every year for 20 years... Wolf makes the very valid point that if China were to reach Poland's level of GDP per Capita (it's now at 50% of it), the size of its economy would be more than double that of the US and bigger than that of the US and EU together. Link
Meanwhile, Canadian CPI inflation rose to +4% in August from +3.3% in July, overshooting market expectations of +3.8%. Rents and petrol are getting the blame.
It's hilarious to me that we carefully design a CPI basket only for central banks to cherry pick the subcomponents that fit their narrative. Reserve bankers are being cowards, either bring inflation under control or resign so we can appoint someone who will.
Has it occurred to you that another way to reduce inflation is to raise taxes on those people that are doing the spending that is driving inflation? The UK recently did exactly this. Good on them too.
Be careful what you wish for. ;-)
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