Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).
MORTGAGE/LOAN RATE CHANGES
No changes to report today so far. But watch out for some in the coming week or two as wholesale rates surge.
TERM DEPOSIT/SAVINGS RATE CHANGES
SBS Bank raised their 5 and 6 month TD rates.
SENTIMENT STAYS LOW
Consumer sentiment is sagging as financial pressures bite. That is what the Q3 survey from Westpac-McDermott Miller shows. Household budgets are being squeezed by further increases in living costs and mortgage payments. Westpac says they expect spending will remain soft as we head in to the new year. They point out that low confidence is across all age groups, income brackets and regions.
AUGUST WAS A TOUGH TRADE MONTH, AS USUAL
The August merchandise trade deficit was its usual large negative. This year it recorded a -$2.3 bln deficit, less than last year's -$2.6 bln deficit, but $158 mln more than the 2021 version. It is the start of four consecutive months of large deficits when imports peak. August 2023 exports were -5.6% lower than a year ago but +14.3% higher than two years ago. Imports were -8.1% lower than last year, but +12% higher than two years ago. We ran smaller deficits in August with China and Australia, a small surplus with the US, and a larger deficit with Japan.
DAYLIGHT SAVINGS BEGINS
Daylight savings time kicks in this weekend. Clocks will go forward by one hour at 2am Sunday, September 24. Daylight Saving time will continue until 3am Sunday April 7, 2024. If you are working when Daylight Saving begins and the clocks go forward, you actually work an hour less, but you are entitled to payment for your normal hours. For example, if you were meant to work from midnight to 8am you will only work 7 hours, but you are entitled to be paid for 8 hours of work. If you are working when Daylight Saving ends and clocks go back an hour, you are entitled to any extra hours that you work. For example, if you were meant to be working from midnight to 8am, you actually work 9 hours and you are entitled to be paid for 9 hours of work.
EMBEDDED 3% INFLATION, BUT NO REACTION
Japan said its CPI inflation rate in August was little-changed at 3.2% from 3.3% in July, but that was its lowest reading in three months. Prices continued to rise for food however, up a sharp 8.6%, offset by even sharper falls for fuel, down -12.3%. Outside these, core inflation was unchanged at 3.1% and that makes it 17 straight months core inflation has been above the Bank of Japan's 2% target. They must be ready to change policy settings. In fact, the central bank met today and didn't make any headline change in a unanimous decision. The lack of any clear sign of a shift in its policy stance puts a damper on market speculation over the prospects for a near-term interest rate hike. And it is fueling pressure on the yen.
JAPANESE FACTORIES DIP, SERVICES EXPAND
The latest Markit PMI for Japan shows factory activity contracted a bit faster in September than the previous month, and sharper than market forecasts so they now have a fourth straight month of fall in factory activity and the steepest drop since February. But their services sector is still expanding at a healthy rate.
AUSSIE BUSINESS STILL TEPID
Meanwhile in Australia, their services sector shifted out of contraction - just, but their factory sector is still contracting, extending that to a 3 month low.
SWAPS MOVE UP AGAIN
Wholesale swap rates pushed a bit higher yet again today across the whole curve, probably up about +5 bps. Update: In the end they eased lower slightly. But the real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is up +1 bp at 5.70%. The Australian 10 year bond yield is up +3 bps to 4.35%. The China 10 year bond rate is unchanged at 2.70%. The NZ Government 10 year bond rate is up +3 bps to 5.25% and a new high, but still well above the earlier RBNZ fixing of 5.19% which was also up +3 bps today. The UST 10 year yield is now over at 4.50% which up another +6 bps from this time yesterday and more than a 15 year high (back to levels pre-GFC). But the UST 2yr has slipped -5 bps too, to 5.14% although that is up at October 2000 levels.
EQUITIES WEAK AGAIN
The NZX50 is down -0.5% today and heading for a -0.8% weekly loss. The ASX200 is also down -0.5% in afternoon trade but is heading for an uncomfortable -3.4% weekly loss. Tokyo is down -0.9% and if that holds it will also end down -3.4% for the week. Hong Kong has opened up +1.1% but so far this week is down -1.2%. Shanghai has opened up +0.7% and might make back the weekly -0.1% drop so far. The S&P500 ended its Thursday down -1.6% and will enter its Friday session down -2.7% so far for their week.
GOLD EDGES DOWN FURTHER
In early Asian trade, gold is at US$1923/oz and down -US$3 from this time yesterday. It closed earlier in New York at US$1920/oz, and earlier still in London at US$1915/oz.
NZD FIRMER
The Kiwi dollar is up +30 bps from this time yesterday, now at 59.3 USc. Against the Aussie we are up +20 bps to 92.4 AUc. Against the euro we are little-changed at 55.7 euro cents. The TWI-5 is up from yesterday to just over 68.5.
BITCOIN MOVES DOWN AGAIN
The bitcoin price is slightly lower again today, now at US$26,622 and down -1.3% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.4%.
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71 Comments
https://www.rnz.co.nz/news/political/498495/election-2023-all-the-lates…
"Labour promises a free lunch; National unveils a 100 point plan to rebuild the economy"
There is no free lunch.
What’s this progress on climate change your talking about?
last time I checked global emissions are still increasing vertically even though we in the western world (North America, Europe, Australia/NZ) are decreasing ours and have been since around the year 2000.
Nationals plan on climate change makes far more sense rather than the Greens and Labour.
example they want less farms, which means importing more food. which means higher global emissions compared to NZ food.
A plan needs one or just possibly two points. 100 points is useless and incomprehensible.
I would prefer a KISS plan. I had hoped ACT might have one but they seem to have got lost. Keep it Simple - Income tax rates proportional to income rather than arbitrary bands; welfare universal rather than dependant of where you live and whether you are in a relationship and what you managed to earn; child benefit to apply to each child not just the first one or two; free education for pre-school, school and college (i.e. Children) but not for tertiary.
Here's a summary of our well established political parties in a single image:
What if what we are seeing is just the start of the interest rate hikes? Ie current rates are low compared to what is coming?
Not suggesting or predicting anything, but just considering that the current settings in 2 years time (or 5-10) might be looked back at as extremely loose/low. Deflation may not arrive as expected per recent recessions/business cycles and stagflation is our future.
Yes. I think the risk is that the general assumption has been and continues to be that deflation will happen ‘anytime now’ as it has in previous (recent recessions) and rates will be on their way back down again. It is possible, but I think it would be wise to consider what the world looks like if that doesn’t happen.
Some inflationary forces will be persistent. Other aspects are going to fall like a stone, and will be more news worthy.
Lots of entities will be sitting on a surplus of covid-era priced inventory and will make sad faces having to liquidate it, amoung falling demand.
It seems fairly likely QE will be used to a certain extent, because the authorities want continuity above all else.
Hmmmm
I was very wrong re: inflation persistence, so won’t make a prediction on something that seems to be defying prediction!
Other than to say high inflation looks like it might be persisting well into 2024. And that it’s hard to see OCR cuts for quite a while.
Not convinced interest rates will go much higher, but perhaps a bit?
It still *feels* like at some point in the next 6-9 months the SHTF, we will get demand destruction, and disinflation. But then I have been saying that for a while. Will that never arrive, or is it just very delayed?
Seems the more rates go up the happier the well-off are to take the increases in their TD returns and buy EVs. Meanwhile the rest of us are slowly strangled. Both at once. Averages of little use in an increasingly rich/poor world. But central planners use averages to fiddle the price of money.
Not suggesting or predicting anything, but just considering that the current settings in 2 years time (or 5-10) might be looked back at as extremely loose/low. Deflation may not arrive as expected per recent recessions/business cycles and stagflation is our future.
IMO, the financial sector would break.
Anyway, rising US treasuries yields, so no-cash-flow, long duration assets like gold and ratty should have dumped, but it hasn't happened.
Explanation I've seen is that the financial system is broken because yields are rising due to inflation not growth. That also explains why gold/BTC outperforming.
Raising interest rates even higher than current levels will crush a lot of mortgagees. Many mortgagees will be rolling over to higher rates in the coming months and we will see those effects in lower spending and higher number of listings.
Businesses wont be borrowing at very high rates and same is true for home buyers. This all is going to weigh the economy down.
Slowing private sector reduces government revenue so they have to borrow more money and that too at higher rate. All this is terrible.
Raising interest rate even higher will make things a lot worse for everyone. 6% Term deposit rate is great when the economy is booming, which it is not. More money is moving from private investment to financing the government (particularly in US), which is called crowding out. This isn't good.
I personally think the best option here is to keep inflation some what higher, say around 4% if possible, without causing too many job losses and fracturing banks and insurance.
This will help reduce the debt burden to the government too, which would absolutely welcome. Of course the govt and the RBNZ will have to deny that this is the plan as this sucks, but it is the least bitter of all medicines.
All that being said I am not sure even this can be pulled off now. Bond yields have blown through every "cycle high" till now. Who knows what will happen.
Raising interest rates even higher than current levels will crush a lot of mortgagees. Many mortgagees will be rolling over to higher rates in the coming months and we will see those effects in lower spending and higher number of listings.
Businesses wont be borrowing at very high rates and same is true for home buyers. This all is going to weigh the economy down.
Yes. The relationship between cost of debt servicing for the bubble and businesses should not be underestimated in an economy like NZ. There is a synergy that is rarely talked about by RBNZ, the media, bank economists in particular, and even the chatter classes. And it makes sense. In many ways, the capital base for much of the pvte sector is in the bubble.
"Raising interest rates even higher than current levels will crush a lot of mortgagees."
We experienced this scenario going from the 1960s into the 70s and 80s. History doesn't repeat but it does rhyme.
At higher interest rates current elevated house prices (as a multiple of income) may eventually decrease.
Starting to look like a risk. Inflation is the rate of *change* in prices, whereas interest rates influence the *levels* of demand. It's the rises in interest rates that really kill inflation, and if our current rises aren't enough, we will need more rises - keeping people fixed at 7 whilst their wages rise in line with inflation, doesn't stop inflation.
What might these increasing swap rates mean for TDs and borrowing rates in the near future? There appears to some decent upside potential building. This aside, 10-year NZ Government Bonds @ 5.25% is getting right up there for credit hungry NZ. Our overseas debt is growing by the day and the interest bill right along with it. What could possibly go wrong.....
What could possibly go wrong is that the next government, of whatever coalition hue, could fail to survive a full term and thus destabilise and downgrade NZ’s fiscal outlook and credibility. Personally I find that to be the most worrying feature about this election.
I think there will be moment - regardless of incumbent - where there will be a shell-shocked PM, eyes slightly glazed, having to announce that all bets are off.
Can't say they weren't warned.
The question then? Who knows how to address the future? Almost everything will have to be restructured; debt, values, usury (probably will have to be outlawed) are only the start. I don't see any of the current crop having what it takes - Churchill's Blood Toil Tears and Sweat territory - although perhaps Chloe Swarbrick might have the cranial capacity to think on her feet at the required speed. The rest? Mostly too indoctrinated, too much faith/belief/assumption to think dispassionately.
MPs with property portfolios will be scrambling to preserve their own wealth, and policy for the good of many be damned!
Present campaigning already suggests an outsized conflict of interest, what with the eagerness to have working Kiwis disproportionately carrying the load while giving property speculators a free ride.
....core inflation has been above the Bank of Japan's 2% target. They must be ready to change policy settings.
They have a knife to the throat of the world economy because if the BoJ acted, it has the potential to trigger huge capital flows in the opposite direction back towards Japan. Yes it might sound like conspiracy, but I have thought about the extent of collusion between the U.S. and Japan. I wouldn't expect it from the BoJ considering the U.S. screwed over Japan on the Plaza Accord, which has indirectly and partially set the scene for today's nightmare.
University actually.
The Japanese were fairly brutal to the Chinese. Research the Rape of Nanking, if you haven't heard of it.
Japan can't defend itself against China without help, and if a Taiwan play comes off, China is unlikely to stop there.
OR
Japan wants to make a pariah of itself along the lines you've mentioned.
Are the Chinese fond of Japan? Do they teach positive Sino-Japanese relations in schools there? How good is Japans Defense Force - has it been restricted since they were naughty in the 30s and 40s?
China is also not particularly fond of the U.S. Doesn't mean they plan to go to war with the U.S.
F'more, it will not be common knowledge at your water cooler, but Japan has the 3rd largest defense spend among countries after the U.S. and China.
China is least fond of Japan. You know why, right?
Japans spend is a statistic. It's high currently, because for over half a century, their military has been constitutionally constrained from having any serious warmaking capability - their protection was assured by the US, who still have 50,000 personnel there. So only recently, they have got more expansive in their force's capabilities. They have a long way to go, to be able to adequately defend themselves.
You seek bad information.
Japan has altered its status militarily, no longer solely of defensive capacity. At the end of 2022 the budget for military expenditure was increased by near to 25%.For instance carriers are converting from helicopters to jet fighters and more. If Japan decides to seriously rearm then it will be swift and effective and might include, as with Australia, nuke propulsion subs. That is to be expected of the worlds third biggest economy and don’t overlook that that status has been achieved in only 70 years or so, out of the devastating ruin of WW2. The nation’s history demonstrates great resilience and capacity. The great earthquake of 1923 killed over 150.000citizens and ruined the capital Tokyo and surrounds. Yet 18 years later they were up and running and able to wage four long years of war with the Western allies.
Yes I have but the critical impetus to imperialism came later. The British enticed Japan into WW1 with the prospect of the capture of the German enclave Tsingtao on the Chinese mainland. After stout resistance it was captured with the Japanese army doing more than their fair share of the fighting. So much so that in the victory parade, when the British force marched past, the assembled German prisoners, turned their backs. Out of that Japan acquired not only the foothold to launch their genocidal invasion of China in the 1930s but also Pacific Islands, Marianas, Marshall’s and on which they fortified and caused the Allies great casualties in subduing in WW2.
Not correct. Japan's defense budget is not largely allocated to U.S. forces. It's <3-4%.
https://www.reuters.com/article/us-japan-defence-budget/japans-military…
I give the sock puppets a fair bit of leeway in engagement here. But only if there is an effort made to be witty or informed.
Is the CCP China?
yes and no.
I am not disputing that there’s plenty of angst and hatred towards the Japanese, in China. But it’s certainly not that simple.
Perspectives change over time. When I returned to NZ from Japan with my wife in the 90s, there was still plenty of bitterness in NZ for Japan’s wartime atrocities. To the point where she got verbally abused for it, several times. In my view that has all but vanquished. The attitudes I encounter towards Japan are overwhelmingly positive these days.
Russia has been about centuries before the Soviet Union a regime that didn’t last even one century and caused the dissolution of Russia as it had pre-existed by the hand of Peter the Great. Be that as it may, rest assured, whatever Russia may or not be now, it is only Russians that can change Russia.
Understatement. Not decades, centuries. The people are entrenched in subjugation. The Bolsheviks just remodelled the Tsars brutality and handily took communism off the shelf purely as an alternative structure of government. What is staggering amongst all of that is the sheer brilliance of arts and science and invention that the Russians have been able to provide the world despite the inherent oppression.
Russia has indeed been run poorly for centuries.
A good measure for the level of political apathy is the YouTube channel 1420, which is contemporary interviews with Russians. The oldies are true blue relics of the Soviet Union, and the youth are extremely politically apathetic.
As for the science and innovation, sometimes the best results come from the strangest places. The Brits, home of one of the most dreary places to exist on earth, have made arguably the world's best, soulfull rock music on the planet.
More Aussie madness.
“A dated, run-of-the mill brown brick house needing a hefty renovation or a complete knock-over has been listed for $8.8m.”
So, assuming $9 million in the bank returning 450k a year at 5% interest rates. Should cover the cost of any rental property in Sydney and work would be optional on the balance of your bank interest.
Alternatively, you buy this dump. Only makes sense to the property media and bank economists.
https://www.realestate.com.au/news/sydney-house-prices-modest-brick-hou…
It goes to show how hard it is to compare property prices across countries. We keep saying NZ is the most unaffordable in the world, then we see 400m2 of suburban land in Sydney going for $10 mil. A few US shows I watch aren’t cheap either, especially the “nice” areas of LA.
The big clue in the current credit environment like 33 years ago, commercial and industrial loans. Just like '90, everyone ignored this in favor of widespread belief in soft landing. There is no such thing as a soft landing. https://buff.ly/48oXWsM Link
32% of households have a mortgage -> 62% of households own their home, 34% rent, 4% have some other arrangement.
So, over 50% of home owners have a mortgage. Many are likely small having bought a while ago, but we're assuming people didn't leverage up.
How many rentals are underwritten by a mortgage?
NZ in the news for the wrong reasons?
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