Here's our summary of key economic events overnight that affect New Zealand, with news asset values are under threat as the cost of money rises.
All the focus in financial markets is on bond yields. They rose overnight as investors concluded that the world's major central banks would need to keep the interest rates higher for longer to keep inflation in check. The yield on the benchmark US 10-year Treasury note rose well above 4.5%, topping 2007 highs while Germany's 10-year bund yield surged towards 2.8%, its highest since July 2011.
The ECB warned that it will be holding its policy rates higher "for as long as is necessary" to get inflation down. That could be quite a while.
And in Washington, Moody's warned that any Government shutdown over its inability to pass a funding resolution would be negative for its rating, adding further yield pressure on the benchmark. Moody's is the only major credit rating agency that gives the US Government a AAA rating.
Meanwhile in the US, the National Activity Index compiled by the Chicago Fed slipped in August after its July rise. Activity is still expanding, but now below trend.
The September Dallas Fed factory survey reports growth returning to factory production and the level of new orders not falling away as fast. But future uncertainty levels rose, despite these near term improvements.
In China, it is crunch time for a growing number of very large property developers. More are being liquidated, others are stuck in legal limbo and unable to make bond payments, while others are watching their equity value dive as investors flee trying to limit huge losses. It is a full-on rout. Officials are at a loss about what to do next.
And separately we should note that it is kiwifruit harvest time - in China - where 67,500 ha of crop is about to come to market.
Singapore's CPI inflation rate held at 4%, as expected. Their core inflation rate, the one their central bank watches, fell to 3.4% from 3.8% in July.
In Germany, the Ifo Business Climate indicator was little-changed, which was a pleasant surprise for them because it was widely expected to fall further.
In Australia, the excellent agriculture conditions over the past two years has seen their cattle herd and sheep flock rise sharply. Now, with the prospect of El Nino hot conditions, farmers are flooding meatworks with stock, and prices are collapsing. Industry data shows cattle prices broadly down almost -50% on last year and sheep prices down -37%. The flood of meat on offer will inevitably affect what our farmers can achieve in international markets.
The UST 10yr yield starts today up a notable +9 bps from yesterday at 4.53% and another recent high. Their key 2-10 yield curve is much less inverted from yesterday at -59 bps. And their 1-5 curve is now at -86 bps and less inverted. Their 3 mth-10yr curve inversion is much less inverted too at -87 bps. The Australian 10 year bond yield is now at 4.40% and up +8 bps from yesterday. And the China 10 year bond rate is up +2 bps at 2.73%. But the NZ Government 10 year bond rate is -5 bps lower at 5.20%.
Wall Street has started its Monday session quietly, up a minor +0.1%. Overnight, European markets were all down the tick end of -1%. Yesterday, Tokyo ended up +0.9%, but Hong Kong fell a sharp -1.8% and Shanghai ended down -0.5%. The ASX200 ended its Monday session up a minor +0.1% and the NZX50 was up even less.
The price of gold will start today at just on US$1916/oz and down -US$9 from yesterday.
And oil prices are -50 USc softer at just under US$89.50/bbl in the US. The international Brent price is just under US$92/bbl.
The Kiwi dollar starts today at 59.6 USc, unchanged from this time yesterday. Against the Aussie we are up +¼c at 92.9 AUc. Against the euro we at 56.3 euro cents and also up +¼c. That all means our TWI-5 starts today at 69.5 and a new 45 day high.
The bitcoin price has moved lower from this time yesterday, and it is now at US$26,335 and is down -0.9% from then. Volatility over the past 24 hours has been modest at just under +/-1.3%.
The easiest place to stay up with event risk is by following our Economic Calendar here ».
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109 Comments
Looks like the UST 10-2yr and especially the 10-3mth curves have bottomed out and are heading back towards not being inverted. Looking at the graphs, doesn't that usually mean a big recession is just around the corner?
Yes, once it is positive again then recession is imminent. This metric is probably the most predictive one we have - it has correctly predicted every recession since 1955.
This is what I am keeping a close eye on!
And the historical observation that the Fed normally starts cutting about 6 months after the peak on hold.....
Higher for longer folks... and I mean really Higher....
Pain at the fuel station.. at the grocery...but the biggest being the mortgage
Doesn't higher for longer just increase the risk of something big breaking?
Yup at some point.. but that 'something ' is the question.. and I think it will be the housing market
Yep and associated industries.
Construction, although fading, has been slightly more resilient than I expected. If rates stay higher for longer, the slump will turn crash.
From being in the trades I can tell you the resilience has come from clearing out the backlog. Most in the industry have now caught up with demand and the future work schedule is very light with leads few and far between. Get ready for the unemployment spike
I think it depends on if something big breaks overseas first, because then global interest rates will drop. If it is just the NZ housing market that breaks, then global rates will still stay high, so it will be double stuffed.
Yeah truly rooted. The OCR would need to be slashed, our currency would sink
Good for exporters? (temporarily of course!)
We are allowed to have recessions. The efficient working of capitalism depends on them.
And yet recessions haven't seemed to solve any of the problems caused by capitalism. And the burden seems to fall disproportionately on the average folk and working classes. We also have the issue that there are many vulture's, I mean capitalists, waiting to pounce on the misery of others.
Much like we had the discussion about the definition of a recession, it would appear we need the same about Capitalism. Maybe it's values and goals are no longer fit for purpose. Given what we've seen over the last 30 years it would appear it's only efficient in creating bubbles and misallocation of resources. Unfortunately we the people have been severely indoctrinated into it and are blind to any way out.
Thats because we dont have a truly free market. If debt and other excesses were obliterated every 7 or so years like they used to, the market would be much more efficient, and risk would be respected (and priced appropriately). But we have a market where the central banks and Govt are constantly interfering, propping up zombie banks and companies so that they stagger on under the weight of their debt while demanding more and more, so that capital struggles to get allocated to the truly productive companies, who face growth restrictions as they still have to compete against zombies. As Charlie Munger said "show me the incentives and I will show you the outcome". The supply of cheap money has given rise to company business models that are simply not sustainable in a world where money isnt free, and shareholders are no longer willing to shovel it into cash burning furnaces. The true fallout from the end of the free money era is really yet to be seen, or felt.
So we obviously need to have a discussion about money as well.
The cost of money rises higher
Has to be the oxymoron or false definition of the century. It's the cost of debt. The problem is the creation of debt and calling it money. The 'free market' created this problem. We don't have the checks and balances in place to prevent or mitigate the inequities.
Capitalism, productivity and efficiency obviously don't reconcile anymore, if they ever did. Capitalism is purely about chasing the money, the profit and a very narrow minded concept of wealth. It does not, and cannot distinguish between harmful or beneficial outcomes, both present or future. This is the role of people and their elected representatives. We appear to have failed miserably to learn from history and hindsight.
The investors don't think so. If they see there is huge risk in economy, the 2 years and 3 years yield would be lower and more inverted.
The UST 2:10 was at its lowest point since 1981 recently. How much lower would it need to go?
Yes US 10 yr breaks 4.5% and rising. Higher for longer is 80% chance now.
So 20% chance of Higher forever?
It looks like the economic pain in China will ramp up a little. Make one wonder at what level will the CCP decide they need to start looking for something significant to distract their population while they screw the pooch at home?
Mongolia?
Not unless they want a war with Russia. That girl is baggsed.
That’s exactly the point strategically. Mongolia seceded only about 100 years ago. Great pal Russia a la Ukraine, has given precedent to reclaiming former territory. That mission has weakened Russia, militarily, economically & socially to where China’s partnership is now absolutely vital and China is very much the senior partner. The West would have no ability to intervene and China would take the opportunity to both impress that on the world stage and ascertain exactly the impact of any reaction as evaluation for their next move. Xi has played Putin like a fish out of water.
Russia is immensely stronger militarily and economically since the Ukraine civil war. This has backfired on Nato countries slowly going broke through higher energy prices, deindustrialisation and wokeness.
I didn't know Putin posted on Interest.co
Russia's Navy is formidable accept against jetskis's.
10 roubles have been deposited into Blackdog's account.
I'm sure we are spoon-fed a highly 'propagandised' view of what's going on in Ukraine, Zelensky is nuts if he thinks there won't have to be some compromise and loss of territory, and clearly NATO is happy to arm a third party in the form of Ukraine and have it bear the brunt of a war by proxy, but at the same time you'd have to be crazy or on the payroll not to see that the war (or should I say 3 Day Special Operation that is somehow on about day 500) is clearly not a win for Russia and is unlikely ever to be.
Russia will still be quite capable of a spring offensive. Probably they believe winter will prevent Ukraine retaking much more eastwards and that they have rather expended themselves on their gains so far. Russia has not yet fully mobilised and may think to fall back on Stalin’s maxim that quantity has a quality all on its own. My pick would be this spring will be the decider but who can tell.
F16's with AIM120 AMRAM's and MGM-140 ATACMS coming to spoil Russias SMO in the near future. Putin can't conscript more mobiks before the "election" for fear of alienating Moscow and St Petersburg residents.
Top Russian lawmaker? Sounds like his recent night time reading has been Irving’s translation of the Goebbels diaries.
If Russia overcome Ukraine their troops will rape, murder, torture and commit barbaric acts of which the world hasn't seen since the holocaust.
They have no moral code or military ethics of any sort.
Anyone who thinks it acceptable for democratic countries to sit and watch this happen are not looking at what comes next.
Spot on Rastus. There are too many ostrich's rushing to put their heads in the sand. This problem is not going away while we insist on just sitting and watching. It will only get worse.
The Ukrainians don’t need to be told what lies in wait. Some survivors of Holodomor are still about. Fighting Russia pales into nothingness compared to surrendering to Russia. And to the West, the Baltic States, Poland, Moldova are similarly experienced and likewise aware.
Only democratic countries have ethics and principles about the treatment of fellow humans?
Are these the same democratic countries that falsified WMD to invade Iraq? The democratic MIC has morals and military ethics?
What do you propose these democratic countries do? Engage in WWIII? More economic sanctions that appear to cause more harm than good to citizens on either side? Those profiting from it aren't going to be in a hurry to end it. Obviously the 'western' democratic world doesn't see Russia as a threat outside of this isolated conflict.
There's probably way more levels to the whole situation that we're unlikely to ever know.
'Only' is you word, not mine.
I know WW2 Vets who had huge sympathy for what happened to the East Germs when the Russians arrived. There behaviour was sub human and encouraged as a righteous reward by their leaders and nothing has changed.
Democracy is worth dying for...thousands did it for you - don't you forget it. WWIII started some time ago, your just not looking hard enough.
Lol thousands died for me and democracy... Luckily I don't fall for that propaganda and guilt trip. I have ancestors who put more effort into attempting to prevent wars.
I don't condone or agree with any of it. WW3 started a long time ago... No we've never ended being at war. Our democratic countries have equally behaved sub human throughout history and in modern times. It's equally reprehensible.
Wars are the result of a weak, egotistical, unbalanced and dysfunctional masculine dynamic that pervades our civilisation. There's much more to come as we seek to heal this.
"Those profiting from it aren't going to be in a hurry to end it."
That would be the USA.
I see the Republicans want to use the extra 2? bill $ being requested by Biden for Ukraine to beat the Dems. up about something else.
I doubt whether the Republicans would actually follow through with it as they have the same general stance as the Dems on helping Ukraine
I am curious what you think Russia's military has done to become immensely stronger despite losing at least 12 thousand vehicles, including 2,334 tanks and 91 aircraft in the last couple of years (just counting those with photographic evidence), and perhaps 100,000 soldiers killed?
Blackdog,
Fascinating. Can you elaborate a little; just how is Russia stronger militarily and economically? I have absolutely no expertise in these areas, so look forward to be enlightened by someone who does.
If people want to read in-depth analysis of the current Ukraine counteroffensive, including both Russia and Ukraine's relative strength, from someone who is an acknowledged expert in the field but is nevertheless completely shut out of the MSM, I recommend this: https://mearsheimer.substack.com/p/bound-to-lose
If you want a video summary, see here: https://www.youtube.com/watch?v=8uo-E5rGNmQ
One recent western estimate puts Russia's capacity to manufacture 155 mm ammunition at seven times that of the US and Europe combined: https://www.nytimes.com/2023/09/13/us/politics/russia-sanctions-missile…
Covid-23
China is in big trouble. Don’t listen to the CCP fanboys.
I predicted this back in 2017-2018.
I predicted it when the property market really started taking off when I was living there in 2009-2014. Took years of growth still for the bubble to fully inflate. That's the thing about predictions though, any cult leader will tell you its impossible to get the dates exactly right.
It's akin to the US property bubble leading up to the GFC, I think. Just that its a real property bubble (too many houses built), whereas the US version was a financialised property bubble.
I predicted it last night in the bath.
Eureka! Eureka! I have found it!
The plug has been pulled and the water is going out but the cheerleaders still say the water will rise.
If open minded see my mundane astrology forecast for Chinese deflation bow wave on Mikekirkastrology.com
written 2 years ago
The prophet got bagged by some, myself included, but rates may not be a million miles from 10% by year’s end. Floating rates could be nearing 9%, at the very least.
We need people like the prophet to provide the alternative view.
Starting to wonder if we should not have blasphemed against the prophet, as he appears to be getting his revenge.
I was, am a believer. Never bothered me how often it was posted. But then I have neither property nor debt.
I'm sorry but as an acolyte of DGM Death Cult leader Hawkes Bay I have to step in here and explain that blasphemy is against God.
What we committed was heresy, against The Prophet.
Thank you.
We need people like the prophet to provide the alternative view.
No we don't. It was spam, pure and simple.
Fine if it were the occasional post, but hundreds of posts per month saying the same thing is just spam.
True, but don’t we get almost the equivalent of spam from OneWoof, bank economists etc on a regular basis? It evened up the ledger a bit.
At the time it annoyed me…
Spamming to counter spammers just results in more spam.
We've had 20y of speculator spam
Haha the majority of us posting here say the same thing every day... May as well ban us all.
God save The Prophet. The swaps are still rising so I don't think it's going to be far off at all!
So re: meat prices - does that mean us long suffering kiwis *might* see slightly lower meat prices at the supermarket?
Yer/Nah
No, it will go to Supermarket margin to pay for rebrands
That's funny! Just like Luxon lowering the rent of his 7 homes when National lower rent costs (neither of which will happen).
HFL.
So popular a comment it needs an acronym to save my thumbs. Anyone sitting on 2% debt with a case of the "I'm so greats", should seriously be investigating what their plan B looks like. Preferably before their bank does.
The great Ponzi unwinding starting to pickup speed in China. That will be felt here as well.
The great Ponzi unwinding starting to pickup speed in China. That will be felt here as well.
That’s why I keep an eye on events in China. I cannot see how if things unwind there, it won’t at all affect us here.
The Chinese seem to be unravelling in epic proportions. Take demographics for example. The decline in population is comparable to declines seen during the Black Death. To say that it won’t affect the Chinese economy is to be wilfully unaware of history.
Take also their property bubble. They overbuilt by millions of residences. They are horrendously expensive yet production, demographics and employment is in decline. How on earth can such a ponzi be propped up? How will it affect NZ when we’ve been so intimately linked with their economy? All remains to be seen, but I’d be feeling very nervous if I over invested in property here recently.
Overbuilding was the mistake. A declining population is a good thing.
On current trajectory their population in 2100 will be about 700 million. Quite incredible.
The current thinking is population halving by 2050.
Averageman,
'The great Ponzi unwinding starting to pickup speed in China'. Could that mean that there will not be a rush of Chinese buyers for NZ property and if so, what effect might that have on Nicola Willis's tax calculations? However, I am so sure that she will have done all the detailed planning to substantiate them that we needn't be concerned.
For example, she will-I am sure- have seen the figures from BC. which showed a dramatic fall in foreign buyers after they imposed a 15% in 2015. The proportion then fell further when the rate was jacked up to 20%.
China has stopped exporting minerals needed to make chips. This is the biggest blow to the US since the start of the trade war. China exported zero kilograms of the two minerals, which are key to making semiconductors, or chips, in August, a month after imposing restrictions on overseas sales over national security concerns. Link
Aussie will get richer, they have most of the rare earths, but outside china the west is lacking the processing plants
Does China not also print money?
And National want us to believe Chinese will be buying Nz property 😂
Of course they will. Wealthy Chinese will be desperate to escape the coming collapse and possible war, and NZ will be an easy target to go to because our governments just don't care about our own.
Yep Kiwis just cannot get their heads around how rich a load of Chinese are. Only found out last week that 40% of all BMWs made go to China. Our property prices are loose change.
But how many of their wealthy will still be wealthy after this financial crash?
If Winnie is at the table that policy wont happen so the hole will be well over a billion dollars.
Really ? Because of WinstonFirst's ~45yr proven track record of keeping his election promises...not.
Why anyone in NZ thinks a 78yo one man band political party should have any shred of opportunity to create the country's government speaks volumes about the decades of NZ dumbing down education, civic responsibility and MSM to the lowest common denominator.
Winnie has as much chance as the 40yo virgin one man band running the other team...
He's been vehemently opposed to land/asset sales to foreigners all his career. He was part of the government that implemented the FBB. You think he's gonna let that slide? That one National policy alone to end on the scrap heap is enough to vote for him.
As much as I hate the idea, strategically the idea of voting for him is not without merit
He would not have a shred of opportunity if the Nats and to some extent Labour woke up and didn't come up with ridiculous policies that do not resonate well with many Kiwi's, or at least the Kiwis who probably don't want Luxon or Seymour and only have Winston first to show their displeasure.
Wasn't it National during their time saying that Chinese buyers were not the problem, as they were such a miniscule portion of buyers?
Yet now they're costing whole tax plans on their prevalence.
I am getting dizzy from all of this spin.
We never seem to discuss stamp duty, but maybe its time we did. Many other countries have it. If 15% of foreign purchases over 2 mil can raise so much money, imagine what 1% of all sales would do! It would help reduce speculation and could offset some decent PAYE tax cuts.
Much as I'd like to see more property taxes, I don't think stamp duty is the best way. You end up making people less mobile, less able to move for opportunities. One applied to second homes and rental properties, sure, with some allowance for temporarily owning two houses while you sell the old one.
It has a lot of other advantages through: simple, effective, makes decent revenue from day one.
I reckon if you want to move, 1% stamp duty isn't going to stop you.
Yeah, there are some benefits. I can see the introduction of a tax effecting FHBs but not the empty nesters still holding on to large properties being a little controversial though.
JimboJones, even if a stamp duty was introduced at 1% it's unlikely it would stay that low for long. In other countries (Aus, UK, etc.) stamp duties are typically at least 3 - 5%, or even over 10% in some cases.
Stamp duties are just another ticket clipping envy theft for those who think they should have a right to take other peoples money instead of making more effort to earn their own. NZ finally got rid of them ~25 years ago for good reason including the economic inefficiency created by an unnecessarily stickier labour market.
The thin end of the wedge & politicians ideological fantasies mean such rorts will get extensive, complex & expensive quickly.
See Oz: https://business.gov.au/finance/taxation/stamp-duty
https://stampduty.calculatorsaustralia.com.au/
Oz stamp duties are ~3-4% on property and are a significant disincentive to housing and labour markets flexibility. They are ~3-7% on vehicles & increase with engine cylinders
https://www.savings.com.au/car-loans/stamp-duty
Typically, Pork barrel exemptions apply: https://www.onlycars.com.au/news/stamp-duty-australia
Australia also has a "luxury car tax" which I'm sure would be loved by our socialist parties while they're at it: https://www.ato.gov.au/business/luxury-car-tax/#:~:text=Luxury%20car%20….
‘Envy theft’ lol
It's interesting when people bring that word out as if it strengthens the argument and doesn't make them look like a dragon greedily guarding a pile of gold.
'Socialist'.
Talks about stamp duties "taking other people's money" in a market that is heavily distorted by people investing in rental properties that "take other people's money", and subsidizes those "other people" by topping up their pay with taxpayer funded credits to set a price floor on rents.
Spoiler alert - a person with the account kiwikidsnz basically says screw kiwi kids in nz :)
Love this envy bs people roll out whenever they feel their toys might not be worth what they think they are. Boo hoo.
In this case I am suggesting the introduction of one "envy tax" (stamp duty) to decrease another "envy tax" (PAYE). Us PAYE earners have had enough envy for one lifetime.
"Us PAYE earners have had enough..." Some would say more than enough. Half of NZ households pay no net income tax, supported by the 12 per cent of individuals pay just under half of all personal taxation, and the top 3 per cent account for almost a quarter of all personal tax paid.
Do you think those 50% of households pay no net income tax by choice? Or is it because in order to make the numbers stack up on many rental properties, the taxpayer needs to top up the tenants income?
Let's take away all those tax credits, turn these people into net taxpayers. But legislate a reduction in rents across the board by a corresponding net % amount. Set those new rents as zero baseline and then tie increases to the median wage. As a net PAYE contributor I'd be happy to see that to reduce my tax burden.
I'm sure that you are aware rent controls have always failed. However rent is set by peoples ability to pay, not the price of houses & the landlords financials. I have always said that the introduction of the accommodation supplement was simply a transfer from taxpayers to funding investors & higher property prices.
Lol leveraging debt into capital gains on homes is earning their own money.
Jimbo,
Absolutely. I have just written a short report for U3A on capital taxation alternatives for NZ and identified Stamp Duty as the most effective and simplest way to do so. It can't be avoided and based on UK figures, I think it could raise around $1.50bn annually-a useful sum.
There are those who will always think other peoples money is a "useful sum".
They used to be called thieves.
Yep. Laughable. If only it was funny.
"with news asset values are under threat as the cost of money rises."
Its only news to those who havent been paying attention. The rest of us have been busy liquidating assets while we still can.
Something this website might like to work on is its commentary on China, which seems to have a somewhat bullish bias towards China in articles.
Contrast that with Macrobusiness in Aus, which is (rightly) skeptical and has been for quite some time.
A deeper dive into what is actually going on would also be useful
Not hard to figure out China. It's communist, it's corrupt & it steals all sorts of stuff.
I've been waiting for their property crash since 2011. They printed their way out of the GFC & they were printing long before that in hindsight. And the only way out of today's mess is... you guessed it, printing.
At 25 years of age [a long time ago now] I came home through that part of the planet & I was ripped off left, right & centre. I wasn't that surprised as I'd been ripped off in plenty of places, but these guys would have the gold in your teeth in their possession before the conversation had ended. They were also very barky [shouty] about it, which I learned some years later is the only way they know. They bark at each other as well.
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