Here's our summary of key economic events over the weekend that affect New Zealand, with news that on top of the Optus screwup, now the four largest ports in Australia are effectively shut down via a cyberattack.
But first up today, we should note that credit rating agency Moody's has held the US rating at Aaa, but changed the outlook to 'Negative' from 'Stable'. It has been 'Stable' since 2013. (Link requires sign-in.) S&P has them at AA+ Stable. Fitch is also at AA+ Stable. Moody's expects federal interest payments relative to revenue and GDP to rise to around 26% and 4.5% by 2033, from 9.7% and 1.9% in 2022.
That is one way to start the week, a week that will feature the US CPI update for October, retail sales data and a number of Fed speakers. We'll also get US PPI, industrial production data and housing start numbers.
China will be in the limelight with updates on new yuan loans, industrial production, retail sales, and fixed asset investment. The week will also unveil Q3 GDP growth rates for Japan and a number of other countries. India will release CPI data, and Australia will provide updates on both Westpac Consumer Confidence and NAB Business Confidence.
Over the weekend the latest consumer sentiment survey for the US, the one by the University of Michigan, reported a sharpish retreat of sentiment in November from October. But to be fair it is still 6.5% higher than a year ago. Almost all the fall is in the 'current conditions' component. The future expectations component rose marginally. Of more concern is that the inflation expectations component rose somewhat to 4.4% for the year ahead. Long term inflation expectations in this survey hit a 12 year high of 3.2%.
Still in the US we should note that they regularly adjust their tax rate bands for inflation, avoiding bracket-creep. This year they rise by 5.4%, following last years +7% rise in the bands. The IRS released the details on Friday (NZT)
Staying in the US, Fed boss Powell was speaking and said it is too early for them to definitively announce the conclusion of its interest-rate hikes. But he didn't make a case for further rate hikes either. Powell was quite cautious acknowledging the dangers overtightening, while also noting the danger of being “misled by a few good months of data.” The tone reinforced they are not ready to declare an end to their tightening campaign, even though financial markets and many economists have concluded the central bank is done raising rates. He noted the supply-side benefits that have helped slow American inflation so far may have run their course, and repeated that stronger growth could warrant further tightening.
Japan and Korea are partnering up on building out hydrogen infrastructure, a major effort to decarbonise their domestic freight systems. They also signaled that they will cooperate closer on the technology around quantum technology and semiconductors. These agreements are expected to be signed on the sidelines of the San Francisco APEC meeting.
Also at that meeting, China has finally confirmed a worst-kept 'secret', that President Xi will meet with the US President at the end of the week.
China’s October vehicles sales rose at a faster pace of +13.8% year-on-year to 2.85 mln units, a record high for an October. But still, that level was fractionally lower than for September, despite the rising levels of discounting in the drive to meet ever higher sales targets. Production is rising faster than sales now, so the crunch is on. Electric and hybrid sales were up +33% year-on-year to 956,000 units, now representing a third of all sales.
The world's biggest holiday shopping bonanza, Singles Day, or 11/11, peaked over the weekend. All indications are that gross sales might have exceeded last year's level by about +2.1% in value but volumes may have been higher and the intense, even extreme competition may in fact reinforce deflationary trends.
India's industrial production was up +5.8% from a year ago in September, a sharp slowdown from the 14-month high of a +10.3% gain in August. This is also well below market expectations of +7% year-on-year gain. Most key sectors are in retreat, especially for factory production and electricity production. Overall, industrial production fell -3.5% in September from August, with factories down -2.0% and electricity production down -6.6%. They won't want this recent trend to embed.
The OECD said 48 countries have signed a data sharing agreement for crypto asset reporting as part of their global tax transparency data sharing moves. The US, Canada, Japan, and the EU are core signers, as is Australia, Korea and Singapore. Tax havens like the British Channel Islands and the Caymans are signed up too. But New Zealand is not on the list. Nor is China, Russia, or North Korea obviously.
We should note that ratings agency Fitch has maintained Australia's AAA rating with a 'Stable' outlook.
And staying in Australia, the RBA released its Monetary Policy Review with updated data and forecasts and noting there “was likely to be less progress” in bringing down inflation in the quarters ahead than it had previously thought, and that had increased the risks of inflation remaining higher for longer. They now see inflation only down to 3.5% by the end of next year, and to just 3% by the end of the following year.
Four of Australia's largest port operations, those owned by Dubai's DP World, are effectively shut down due to a cyber attack on the company. They say no ransom demand has been made yet. But the failure has prompted government crisis meetings over the weekend and is leaving more than 30,000 containers stranded ahead of the year-end holiday season.
We should also note that the risk of a major volcanic eruption in the Icelandic town of Grindavik is suddenly very high and evacuations have begun.
The UST 10yr yield is up +3 bps from Saturday, now at 4.65%. And their key 2-10 yield curve is still inverted by -42 bps. Their 1-5 curve is now inverted by -71 bps which is -3 bps less. Their 3 mth-10yr curve inversion is now -76 bps and little-changed. The Australian 10 year bond yield is now at 4.63% and down -2 bps from yesterday. The China 10 year bond rate is unchanged at 2.67%. The NZ Government 10 year bond rate is also unchanged at 5.22%.
The price of gold will start today at US$1939/oz and up +US$3/oz from this time Saturday.
Oil prices have firmed +50 USc overnight, to be just on US$77.50/bbl in the US. The international Brent price is now just on US$81.50/bbl. Both a much lower than a week ago however.
The Kiwi dollar starts today at 58.9 USc and unchanged from Saturday. Against the Aussie we are a tad firmer at 92.7 AUc. Against the euro we are also a touch firmer at 55.2 euro cents. That all means our TWI-5 starts today at just on at 68.9, and little-changed.
The bitcoin price starts today at US$37,126 and down a mere -0.2% from this time Saturday. Volatility over the past 24 hours has also been modest at just on +/- 0.6%.
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57 Comments
Adjusting tax brackets for inflation is not a tax cut. Furthermore, National's proposal only adjusts the tax brackets for a tiny fraction of the inflation that has occurred since the brackets were last adjusted. In reality, we have had an income tax hike every year since 2010 due to bracket creep, and National are just wanting to raise our income taxes a little less than the other guys.
You are correct, but the government rely on bracket creep to get back to surplus and National have promised to do so. Luckily NZers are sensible enough to not accept a government that has no plan for surplus, our government cannot keep borrowing forever. Some bigger countries apparently can have as much government debt as they like, but I personally doubt that is the case and eventually it will bite in some form.
National could give the (non) tax cuts by cutting handouts instead, e.g. winter energy payments, but they never seem to want to do that.
re ... "In reality, we have had an income tax hike every year since 2010 due to bracket creep,..."
Which got me thinking ... Would those tax increases have been the reason why we've had lowering interest rates and tame inflation from 2010 until 2020?
Food for thought, huh? Maybe taxes work far better than the OCR? Shock, horror. Who'd have thought, ay?
I see this meme online regularly of Ben Affleck smoking a cigarette, with the look on his face of being truelly fed up. I think that's Luxon at the moment. He has just found out why politics and business are 2 very different animals.. he can't even get over the first hurdle.
Don't forget that Taylor Swift mentioned this week's boyfriend in the lyrics of one of her songs at a live performance (must be weird dating her knowing you are just there to eventually become the subject matter of another album).
I'm loving this government-in-hibernation business.
Somewhat ironic that the electorate in 2017 ejected WP/NZF and seemingly voted strategically to stymie the Greens from being in formal coalition. Three years later though it arrives at a three way coalition that includes the resurrection of WP/NZF. Perhaps this time, an element has desired a coalition of perceived shaky membership and consequently, of doubtful longevity. Unfortunately this would indicate that the electorate is not only generally dissatisfied with parliamentary performance but is voting very negatively resultantly.
NZF and ACT ganging up to get a treaty referendum. National can't possibly allow a referendum, so they will have to offer some very big consolations instead. I wonder if National are having conversations with the greens, it might be the only possible option. We may even have another election.
ACTs proposal is not a referendum on the Treaty, its a referendum on the Treaty "Principles" - that dont exist in the Treaty Articles & were invented in an ideological burp by Palmer and Cooke a few decades ago.
NZFs proposal is to simply remove all references to the Treaty Principles from all NZ legislation.
Nope, it's a pretty simple coalition to put together, Jacinda managed to do it with NZF not being as aligned with Labour as National is with with NZF.
Portraying this as being anything more than easy is bullshit and helps to mask Luxon's incompetence. National should have walked this election home. This difficulty is a consequence of Luxon's incompetence and the National party's lack of direction.
Quite a few Labour supporters went NZF to stuff things up for National when it was clear that Labour was going to lose. Still awaiting the final outcome but it may have been better for Luxon to rule out NZF the same way Hipkins did instantly in the debate. Luxon strikes me as pretty hard line, if he is not happy with the negotiations I can see them running another election.
How do you work that out Heavy G? In 2017
- The number of seats in Parliament will be 120.
- The National Party has 56 seats compared with 58 on election night.
- The Labour Party has 46 seats compared with 45 on election night.
- The Green Party has 8 seats compared with 7 on election night.
- There are no changes to the number of seats held by New Zealand First and ACT New Zealand which remain at 9 and 1 respectively
https://elections.nz/media-and-news/2017/new-zealand-2017-general-elect…
I never imagined in February 2009 that the Fed’s balance sheet (less than $900bn to begin ‘08) would inflate from that February’s $2.2 TN to $9.0 TN, or that Treasury liabilities would more than triple from $9.5 TN to $30.4 TN - as Agency Securities ballooned another 50% to $12.0 TN. I expected rapid growth from China’s banking system, but to inflate from $9.0 TN to $56 TN was not something I thought possible. The same can be said for Bank of Japan assets that inflated six-fold to surpassed $6.8 TN, or the ECB’s balance sheet that inflated five times to almost $9.0 TN.
I’ve referred to the “global government finance Bubble” as the “granddaddy of Bubbles.” It originated from aggressive reflationary policymaking following the collapse of the mortgage/Wall Street finance Bubble, a historic Bubble that itself had inflated from post-“tech” Bubble reflationary measures. Link
Go woke...
Tim Murphy Nov 10
A sad reality: today’s issue of The Post (formerly DomPost) has not one, single, paying advertisement. Nothing at all on first five pages then only owner Stuff’s own, in-house ads and possibly 2 sponsored content part-pages over the remainder of the 28 pages.
Yes, same ol' internet playbook.
- Offer free content.
- Realise that free content still costs money to produce.
- Flood the site with ads.
- Realise ad's aren't as valuable as promised.
- They pay less.
- They annoy viewers
- Address drop in revenue and loss in users, by moving to pay/subscription model.
- Subscription costs then compete with every other hand trying to nab a dollar.
- Cheap out on content to try and keeps costs competitive.
- IPO/Sale to investment fund to cash out before it's too late.
- Terminal decline is imminent.
A few will survive. A couple linger painfully, most die pretty quickly.
How will NZ survive without the 'last bastion of critical thought and unbiased journalism' (or whatever modest terminology Stuff uses to refer to itself these days)?
No worries, I'm sure they can just make the digital begging bowl messages even bigger on their site.
A good article by a non-bank economist, Infometrics' Gareth Kiernan
https://www.stuff.co.nz/business/opinion-analysis/301006658/how-bad-are…
The graph and commentary around three factors that affect disposable incomes is extremely enlightening. It further begs the question, when we want to constrict disposable incomes to damp down inflation, whether raising OCR while ensuring overseas lenders are enriched further, is in fact a dumb idea. (As I and others have said before, raising taxes would be a far, far better option for NZ Inc.)
Many would conclude that if the OCR is dropped earlier than anticipated that the NZD would fall. Were this the case, exporters would get better payments while experiencing slightly higher inputs on things like fuel. Methinks the MPC has room to act earlier than many think. But will they? November is out. But after that ....
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