Here's our summary of key economic events over the weekend that affect New Zealand, with news higher benchmark interest rates are clouding the global economy.
But after last week's big central bank meetings, this week it will be more about macroeconomic data. In the US, the spotlight will be on the PCE Price Index, as well as personal income and spending data. And durable goods orders, the final reading of the Q2 GDP growth rate, and pending and new home sales are all due. In Europe, September inflation rates will be released for the Euro area countries along with industrial production, retail sales, the unemployment rate, consumer confidence. For Japan we will get more clues from their central bank Monetary Policy meeting minutes. From China, it will be industrial profits. From Australia we will get retail sales, a monthly inflation update, and the usual end of month banking data.
Over the weekend, Taiwan released its industrial production data and it was less weak than expected. In fact, it rose in August from July to make back some of the year-on-year retreats. Meanwhile, Taiwanese retail sales came in with another strong month, especially for food services.
China is finding pork prices are zooming higher again. About sixty percent of all meat sold in the country is pork. But prices are up +30% as their government has been buying aggressively to replenish its strategic food security reserve that was run down in 2022, the culmination of a herd cull in 2018 and 2019 due to ASF. Higher pork prices might we helping farmers recover, but they will also be underpinning beef and lamb prices as pork seems less affordable to city consumers.
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. But the central bank met on Friday 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. Perhaps we will a better indication of their thinking when the minutes of their meeting are released later this week.
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.
The updated September Markit PMIs for the US paint a steady-state picture of no significant expansions or contractions. Their factory sector is reported to be contracting very slightly but that is its 'best' reading in 2 months. Their services sector is marginally expanding, but that is a very light slip from August.
And it isn't going to improve, with the autoworker's union expanding its strike to 38 factories owned by GM and Stellantis (Chrysler) sites across the US and Canada - but none for Ford yet.
Meanwhile Republican Congressional squabbles are keeping the potential of a Federal government shutdown a live possibility.
In Canada, retail sales may have slipped very slightly in August, it their overnight update. But they are up +2.0% from a year ago. That wasn't enough to account for inflation of course, but in Montreal they did. They were weakest in Vancouver.
In Europe, the Markit services PMI reported an improvement even if it is still contracting. The EU factory PMI is also contracting but at an unchanged rate. What is a worry there is that new order levels are falling at their sharpest pace in three years.
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.
For all the economic activity shifts over the past week, the most substantial one is the rise in benchmark interest rates, triggered by a hawkish American central bank.
The UST 10yr yield starts today unchanged from Saturday at 4.44%. But that is up from a week-ago level of 4.33%. Their key 2-10 yield curve is little-changed from Saturday at -67 bps. And their 1-5 curve is now at -90 bps and more inverted. Their 3 mth-10yr curve inversion is a bit more too at -96 bps. The Australian 10 year bond yield is now at 4.32% and back -1 bps from Saturday. However, the China 10 year bond rate is unchanged at 2.71%. And the NZ Government 10 year bond rate is also almost unchanged at 5.25%.
Markets now have a full +25 bps priced in for an RBNZ rate rise in early 2024. Globally, higher rates for longer is the trend setting in, and that will continue to weigh on asset price valuations.
The price of gold will start today at just on US$1925/oz and up +US$2 from Saturday.
And oil prices are little-changed at just under US$90/bbl in the US. The international Brent price is just under US$92.50/bbl.
The Kiwi dollar starts today at 59.6 USc, a +¼c rise from Friday and up more than +½c for the week. Against the Aussie we are at 92.6 AUc (remembering we started the week at 91.7 AUc). Against the euro we at 56 euro cents and we haven't been this high since late July. That all means our TWI-5 starts the week at 69.3 and a 45 day high.
The bitcoin price has hardly moved from this time Saturday, and it is now at US$26,574 and up just +US$8 from then. Volatility over the past 24 hours has been almost non-existent at just over +/-0.1%.
The easiest place to stay up with event risk is by following our Economic Calendar here ».
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39 Comments
Can the world withstand higher interest rates?
Canada and mighty New Zealand might be an interesting case in point.
Both have terribly unaffordable housing. Wages have not been rising as fast as inflation. Both countries have been pumping immigration hard. Citizens of both countries have been complaining of lowering standards of living. And related to the above question, many property owners with large mortgages are now worried about rising interest rates.
I’m no expert, so my question is can a comparison really be made between both countries? Are there fundamental differences that might lead to different outcomes for us compared to them?
We can compare, to see many places experiencing fairly similar problems.
And the outcomes, will also be similar, because most countries are part of the same system, adopting similar methods. But obviously not the same because of the nature of the varying economies and governments.
Better to be an owner than a borrower. Some cultures do that.
It is definitely better to already have a lot of wealth and sit on it than try to finance yourself into a position of wealth, for sure. Not many cultures 100% bootstrap their development though. Well, aside from some underdeveloped ones.
Last sold July 21 - $5.6m
Now for sale as mortgagee tender
https://www.trademe.co.nz/a/property/residential/sale/auckland/auckland…
Debt has been wickedly repriced. When rates go up things blow up
People will high debt who have been holding out for the so called fall in mortgage rates, will start to succumb with the higher for longer theme..
Indeed. Financial gravity is finally being felt again after a very abnormal period to speculative stupidity. Some will be crushed. Can't help but wonder what event will finally force the banks gassing the speculative.
The banks will do all they can not to. This is a regulatory failure - they don't hold enough capital to weather the cascading price drop shooting the over-leverages will cause.
Hence why we keep hearing stories of people who haven't paid their mortgage for months, and yet haven't been moved on yet.
Pretty interesting to see what that level of mortgagee property goes for.
NZ’ers need to learn that properties take capex and depreciate. After all this is just a house on a slope jammed in between others. “Resort living”, yeah right.
Once capital gains are questioned then the true cost of housing becomes in to view. Insurance and rates are going to be killers and on top of that any renovation is a huge job.
interesting to note. I can't help but also notice the even larger neighbouring property in the left of most of the photos. Looks like it is in desperate need of some maintenance. Paint is faded/stained, lichen all over the roof etc. Can't help but wonder if lack of maintenance is the first sign of distress.
Foreign owned? A store for laundered money?
or landbanking.
Winston the handbrake. Comeback of the century.
appropriate moniker there!
You love to see it. Biggest comeback since George Foreman decided to make a sandwich press and regain the heavyweight title.
Makes it a much easier decision to vote for NZ First if (like me) you want a handbrake but were also worried that a vote for NZ First would be wasted and potentially benefit the current government.
Send me the voting paper now, because my mind is made up.
Think ahead. No previous coalition has comprised three parties with two juniors of this size, each deserving numbers of cabinet posts. Key’s governments embraced a coalition of only small numbers United, ACT,TMP. The junior partners are bound to squabble or worse. NZ cannot afford an unstable government given the enormous challenges facing, let alone another election soon. This potential coalition certainly does not look as bad as the left counterpart, but that ain’t saying much is it and as well, don’t forget both WP& Hipkins can change their minds like the wind.
In fairness, we just had a government led by a majority that probably could've done with some minor players pulling their head out of the clouds.
What's the other choice? Based on current polling it would have to be Labour + Greens + TPM + NZ First - I don't see how having four coalition partners would be more stable than three (particularly when one of them has been 'ruled out' anyway, and you've got fundamental disagreements on issues like wealth tax between the major and two of the minor partners).
I don't see any potential government that will be formed after October 14th that will be particularly stable, barring some drastic change over the next couple of weeks that results in either National storming into the mid 40s on polling, or Labour making an even bigger comeback than Winston.
It's like picking between the 2nd worst and worst items on a menu because that's all that's available ... you've just got to get on with it at some point, or go hungry.
Unless you're suggesting it's more sensible to vote National (per my comment above, with a view to increase stability), which I thought was tantamount to blasphemy on this website?
If enough disillusioned former Labour supporters vote for NZF then ACT could be sidelined leaving a Nat/NZF coalition. Wishful thinking perhaps, but many former Labour supporters I know are horrified that 'a government led by a majority', while dancing around with TPM, threatened our democracy.
TOP is an alternative which I'll be voting for regardless as they have the LVT and taxation reform policy I think we need.
If it wasn't for that TOP policy, I could see the appeal of just stopping National / Labour doing pretty much anything they are proposing/currently doing!
Last time, although it has never been quantified, it is certain a significant part of the electorate strategically switched to vote for Labour in order to stymie the Greens. The same strategy would apply to vote National to reduce the power & influence of ACT.
While I really do agree with you, I find it extremely disappointing that we celebrate the return of a party with a reputation for holding Governments to account and stopping them from implementing their more radical policies. This is indeed a very clear indication as to the disgusting state of politics and Governance in NZ today.
Yes it's a total indictment on the state of NZ politics. But to quote a certain former PM, "it is what it is". The only power I've got is to vote in-line with my conscience, which is telling me that trying to reign in the worst excesses of both sides of the political divide is the best option I've got - and I can see only one party that is in a realistic position to effect that.
the moniker seems appropriate somehow
Dumbthoughts I'm curious as to the support Winston receives. Genuine question- does Winston's past history not concern you? Accused of benefit fraud, party charged with campaign fraud, Owen Glenn donation scandal etc etc. I view him as a dishonest crook but clearly my view is not shared by all. Are you aware of the past actions or do you believe that he has something to offer that outweighs the criminal charges? As I said I'm genuinely interested to know.
I'm curious as to your attitude. 'Accused of benefit fraud"? What actually happened, and did he actually commit fraud (or are you only interested in rumour?). Party charged with campaign fraud - who was charged over this? Same questions as above.
I would agree he's potentially a sharp operator, but guilt by proximity is not a crime in NZ. You sound like you would be part of a lynch mob, and not really interested in the facts.
The vote unhappy with Labour and National has to go somewhere else and he hasn't even fired a shot in this direction yet:
Adijaya, from Indonesia, said between three and six overstayers lived on the Bollard Avenue property in New Windsor at any given time.
Speaking in Mandarin, she admitted to having “two or three boarders” after she was shown photographs of Adijaya in the shed in her backyard.
And yet all these overstayers currently working under minimum wage for the all the jobs that business are screaming for staff.... go figure??
Globally, higher rates for longer is the trend setting in, and that will continue to weigh on asset price valuations.
There is a rare and powerful trend occurring in bond markets. History shows that if left unchecked, it can cause serious damage to equity markets and the economy. A thread.
America is basically using higher Fed rates to bleed the rest of the world out. They know they can hike rates without really hurting households (big businesses also fixed their debt long at low rates in 2021) and the billions of dollars per week paid out on bank reserves and savings is providing stimulus alongside Govt spending, so their economy is trucking along.
If the Fed stay in the 5s for another year, countries with high levels of short-term private debt (Aus, NZ, Sweden, UK etc) are going to have to decide whether to go it alone and cut rates. This will devalue their currencies, put upward pressure on prices, and increase the purchasing power of the mighty US dollar. It's monetary warfare.
What does the US want? High inflation in the rest of the world to inflate away their debt?
A stronger US economy and weaker economies everywhere else? The US don't care about the size of the Govt debt - they won't ever run a surplus again after the disaster the last one caused 20+ years ago.
Jfoe not arguing with your premise but dont understand the objective/outcome - assuming they have one
If that is their plan it would seem to put more pressure on allies than anyone else
Treasury Buyback Plan Will Boost Market Resilience, US Debt Official Says
Asst. Sect. for Financial Markets Josh Frost said, "...each dollar of Treasury's buybacks would have to be financed with a dollar of debt issuance as well." What's a few $100B here or there to keep bond yields under control? @Sorenthek Link
Promise you. Cross my heart and Hope to die. If they can’t get inflation to stabilize at a lower level and they can’t raise interest rates anymore, they must let inflation manifest in the long term bond yield. After that happens, then we see YCC. We’re just getting started folks. YCC comes between 3 and 4 somewhere. (1 of 2) Link
Bank positions in FX swaps: insights from CLS - BIS
They call it dollar dominance but it's really just how the Euro$ works: even when Europeans want some yen, and Japanese banks want to euros, both sets intermediation through US dealers in FX dollars anyway. https://buff.ly/46pk7x4 Link
""$15 million to 'indigenise trade policy and enable mana motuhake.'"" - can they leave it to AI and save $15m. If NZ can encrypt its trade policy into something foreigners cannot understand will that help or hinder trade?
Can the world withstand higher interest rates?
Possibly not but it's probably a lesson we need to learn about our debt fuelled "wealth" creation model.
"Inflating the debt away?" Nup just another monetary illusion to hoodwink the peasants. Much like QE worked best for those closest to the tap, debt deflation works best for those able to command inflated revenue increases. It's usually the same club members that benefit either way.
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