Weekend briefing: Stumbling along

Economy / news

US PMI expands slightly; Canada wins dairy dispute; Japanese inflation rises; Singapore industrial production jumps; China's property risks worsen; UST 10yr 4.47%; gold firm and oil stable; NZ$1 = 60.7 USc; TWI-5 = 69.7

25th Nov 23, 8:40am by David Chaston

Gibbs Farm sculpture park on the Kaipara Harbour

Here's our summary of key economic events overnight that affect New Zealand, with news the global economy is currently wandering around aimlessly, with the world's biggest economies hanging in there but not driving any direction.

The November Markit PMI for the US was unchanged with the modest expansion continuing. That covers a factory sector that is still contracting slightly, and a services sector expanding at a slightly faster rate. Of note was that US companies lowered their workforce numbers during November for the first time in almost three-and-a-half years, although the shift was very minor.

Canadian retail sales rose more than expected in October, up +2.7% from a year ago in value terms, so while that was better than expected it masks a -0.4% drop in volume terms.

And Canada has won a dispute with the US over its dairy quota system, with the final USMCA panel agreeing that the Canadian restrictions don't breach the Treaty. It is a result that can't be appealed. The US isn't happy. New Zealand has a CPTPP dispute with Canada over roughly the same issue.

In Japan, their inflation rate rose to 3.3% in October from 3.0% in the prior month, and a three month high.

Singapore’s manufacturing production surprised in October with a big +7.4% year-on-year jump, the first growth after a year-long series of successive contractions, easily beating market expectations of a -2.1% drop, and recovering from a downwardly revised -1.1% fall in September.

Meanwhile, Malaysia reported its inflation rate at a very low 1.8% in October.

In China, and despite being controlled by the Shenzhen city authorities, Moody's has downgraded Vanke, China's fourth largest property developer. Meanwhile, Beijing is ramping up pressure on banks to support struggling real estate developers, something even the big state-owned banks are wary about doing due to the size of the impending risks. The pressure is on to provide unsecured working capital 'loans' - allowing them to pay past bills to just keep these firms solvent for a while. But is would be very bad banking.

In Argentina, the new President's dollarisation plan has hit a stumbling block as his appointment to the central bank refused to take the role.

The UST 10yr yield is up +2 bps from yesterday, now at 4.47%. That's up +5 bps for the week. The key 2-10 yield curve is more inverted, now by -48 bps. A week ago it was inverted by -46 bps. Their 1-5 curve is marginally less inverted, by -78 bps. Their 3 mth-10yr curve inversion is now -93 bps and little-changed. The Australian 10 year bond yield is now at 4.56% and up +2 bps from yesterday. The China 10 year bond rate is up +1 bp at 2.72%. And the NZ Government 10 year bond rate is up +8 bps at 5.10%. A week ago it was at 4.98%.

Wall Street was only open for a half day during their holiday. The S&P500 was little-changed on the day to be up +0.9% for the shortened week. Overnight European markets closed all up a modest +0.2% except London which was unchanged. Yesterday, Tokyo ended up +0.5% to be a net +0.3% higher for the week. Hong Kong ended down a sharp -2.0% on the day to be down -0.4% for the week. And Shanghai fell -0.7% and was -0.5% lower for the week. The ASX200 closed up +0.2% in Friday trade to end down a minor -0.1% for the week, while the NZX50 was up +0.2% on the day and up +0.3% for the week.

The Fear & Greed index we follow has moved over further to the 'greed' side as risk appetites remain.

The price of gold will start today just under US$2000/oz and up +US$9/oz from this time yesterday. And that is up +US$20/oz from a week ago.

Oil prices have held stable since yesterday to be just on US$76/bbl in the US. The international Brent price is now at just under US$81/bbl. A week ago these prices were US$76/bbl and US$80.50/bbl, so very little changed since then.

The Kiwi dollar starts today at 60.7 USc and unchanged from this time yesterday. A week ago it was at 59.8 USc so almost a +1c gain. Against the Aussie we are firmish at 92.4 AUc. Against the euro we are unchanged at 55.5 euro cents. That all means our TWI-5 starts today still just on 69.7, up +10 bps since yesterday and up so +80 bps higher in a week.

The bitcoin price starts today at US$37,928 and up +2.1% from this time yesterday. That is up +4.2% from this time last week when it was at US$36,386. Volatility over the past 24 hours has also been modest at just on +/- 1.7%.

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Source: RBNZ

Source: CoinDesk

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61 Comments

by Pa1nter | 25th Nov 23, 8:45am 1700855152

FTX founder Sam Bankman-Fried, who remains behind bars after being convicted of fraud in connection with the collapse of his crypto empire, reportedly scored a fresh look ahead of his trial by using fish as currency.

Citing people familiar with the situation, The Wall Street Journal reported Bankman-Fried paid a fellow inmate at Brooklyn's Metropolitan Detention Center to cut his signature curly locks by trading pouches of mackerel purchased from the facility's commissary.

Wise man. You can divide a mackerel into 100,000,000 mackoshies.

by Baywatch | 25th Nov 23, 11:25am 1700864759

Yes thats right Painter we have always traded

Money emerged as an innovation to solve the problems of barter, where the limitations of the double coincidence of wants and lack of trust between traders made transactions difficult. Money emerged as a liquid accounting system making transactions more efficient. Different cultures used various commodities as forms of money throughout history, including shell beads, cocoa, salt, and furs.

Each type of commodity used as money had unique properties that made them suitable, such as divisibility and the ability for them to be recombined. As technology advanced, people were able to produce more of these commodities, which led to their devaluation. However, two commodities that were difficult to devalue were silver and gold. These precious metals were rarer and had a natural difficulty adjustment, making them more suitable as money.

https://www.whatbitcoindid.com/podcast/the-emergence-of-money#:~:text=M….

by Pa1nter | 25th Nov 23, 1:48pm 1700873310

Except they weren't that suitable as money, because being more finite, what tended to happen was that the money would consolidate, rather than flowing through the system. These people over here can't trade, cause this dude over here's holding onto all of the gold.

Maybe if we make synthetic digital gold it'll work different. How many things did you purchase with Bitcoin this week? Or will you just hold yours and wait for those who will use it as actual money need some off you? Whatever will they do instead.

by J.C. | 25th Nov 23, 1:55pm 1700873733

It makes sense to spend fiat as soon as possible considering that its value and purchasing power is likely to be lower over time.

OTOH, it makes sense to accumulate and not spend the ol' rat poison if its value and purchasing power is increasing over time.

As the say at the water cooler, it's not rocket science.

by Baywatch | 25th Nov 23, 2:21pm 1700875262

Will keep trying...some day painter will have a light bulb moment?

by Pa1nter | 25th Nov 23, 2:34pm 1700876086

I should be putting all my spare resources into volatile digital token collecting instead of productive means to sustain myself (or just enjoy life)?

If you're crushing it, and have literally nothing else to do with your money, hey have a punt. But if you think it's somehow going to take you from driving a Corolla to a Bentaga, you could be waiting a while.

by J.C. | 25th Nov 23, 3:30pm 1700879405

How an individual allocates their resources should depend on their own circumstances.

But you raise a good point. A company is fundamentally a 'productive enterprise'. Should they allocate only to cash reserves, stock buybacks, or dividends? Arguably, keeping ratty on a balance sheet is a calculated move. Still only a few doing it. But don't be surprised if banks eventually hold BTC on their balance sheets.

by Pa1nter | 25th Nov 23, 3:48pm 1700880523

Again though unless your company is crushing it, you will want the capital being employed growing or refining, than sitting there on a balance sheet.

Especially if the value can drop 50-75 % just like that. The funds can effectively be tied up years just to be liquidated at purchase value.

by J.C. | 25th Nov 23, 3:50pm 1700880610

Yes. Buffet invested in the Japanese trading companies because of how they allocate their resources. Inspired move. They have massive cash reserves.

by Pa1nter | 25th Nov 23, 4:48pm 1700884124

Oh well if a mega billionaire like Buffet does it there's no reason someone can't just do snippets of his approach and also be a billionaire.

How much bitcoin has Buffet invested in directly?

by J.C. | 25th Nov 23, 5:28pm 1700886508

Well Buffet is not the only person to own Japanese trading companies.

Warren Buffet doesn't believe in ratty nor does he believe in gold as a store of value. But he has exposure to silver and he also has exposure to Barrick.

One of Buffet's best performing stocks in 2023 is Nubank in Brazil, which has BTC on its balance sheet and is a crypto-friendly business and makes money through its crypto exchange.

by Pa1nter | 25th Nov 23, 5:34pm 1700886857

So you think attempting to adhere to some of his principals by investing in something he doesn't agree with at all is a rational approach?

by J.C. | 25th Nov 23, 6:01pm 1700888503

Because Buffet doesn't like ratty doesn't mean that someone else shouldn't own ratty.

by Pa1nter | 25th Nov 23, 6:46pm 1700891170

True, but seems kinda pointless name dropping him.

by J.C. | 25th Nov 23, 7:05pm 1700892343

It's not pointless to highlight how a recognized investor selects a business on how it allocates resources. And it's clear that in the case of allocating to ol' ratty, Buffet will not reject investing in that business, despite his personal beliefs.

by IT GUY | 25th Nov 23, 8:51am 1700855509

China's property market failing will take down property globally ..... it will force people to ask what property is worth...

by Pa1nter | 25th Nov 23, 8:57am 1700855876

That didn't happen when Japan's property market imploded in the 80s, not sure why now would be any different.

Unless China's fall makes the world poorer in general.

by HouseMouse | 25th Nov 23, 9:13am 1700856799

Not quite right. Japan’s bubble burst in 1991, it was a factor in very weak economies and property markets around the world in the early 1990s.

by Pa1nter | 25th Nov 23, 9:51am 1700859089

Mostly right though.

If China mimics Japan, they'll have malinvested in much of the non property parts of their economy also, which is a common trap; see some good growth in certain areas, and double or triple down on them.

Property market goes boom, and you realize all the other "productive" sectors of your economy are full of overcapitilisation also. So your viable economy is actually smaller than you thought - and your trading partners also take a hit.

by HouseMouse | 25th Nov 23, 10:28am 1700861312

And yet you think there will be minimal

impact globally?

by Pa1nter | 25th Nov 23, 11:03am 1700863416

No, but I think the majority of the impact will be felt by China. The collateral impact will depend on how close others are to China.

by HouseMouse | 25th Nov 23, 11:13am 1700864020

Well I disagree. China, for better or for worse, has a large influence on the economies of many countries including NZ.

Just as one example - quite a few developers in Auckland, including non-Chinese developers, rely on funding from China. A property bust will decimate that funding source.

by Pa1nter | 25th Nov 23, 11:26am 1700864783

NZ had an economy before Chinese economic expansion, and likely after it's contraction also. Goods not sold to China, will likely get sold elsewhere, albeit not necessarily for the same price.

I guess we're splitting hairs over degrees.

by JimboJones | 25th Nov 23, 4:51pm 1700884276

There is also the contagion element. Once people realise a property ponzi can go horribly wrong, they might think about selling their risky NZ asset. When Japan crashed we weren’t as crazy as they were, but now we pretty much are or even worse.

by Pa1nter | 25th Nov 23, 5:23pm 1700886189

Another big difference is Japan worked out how to make houses like they make cars.

For our own attempt at a car, google "trekka".

by Speedmax | 26th Nov 23, 12:06am 1700910400

Our way of making houses is no better….almost everything a one-off, built almost exclusively by hand. Compared to car production, house building in NZ is still pre-Model T

by Pa1nter | 26th Nov 23, 7:53am 1700938390

House building is also still done mostly by hand in Japan (although obviously if its an apartment it's involving cranes and larger machinery). They just have uniform design and a much more procedural way about building houses. As you've said, we struggle here because each house usually wants to look different to the one next door, and there's such a huge variation in the way different tradespeople operate and the way houses are put together. It's way cheaper for me to do construction work the same way every day, than to do it any number of ways depending on who I'm doing the work for and how the whole process is being conducted.

We currently have a regulation and law environment that isn't one size fits all, and given the huge variation of design the amount of extra compliancing required to get them across the line also adds significantly.

NZ had a large affordable home issue in the mid 20th century. Part of the way they solved that is by mass producing the same houses 1000s of times over. Now our state approach to housing has the design change in almost every individual subdivision/development they do. Inefficiency 101.

by J.C. | 25th Nov 23, 12:10pm 1700867446

Not quite right. Japan’s bubble burst in 1991, it was a factor in very weak economies and property markets around the world in the early 1990s.

Japan's property bubble peaked out at approx 3x property values to GDP. NZ and Aussie surpassed that some time ago and have been well north of 4x.

Bursting the bubble in any meaningful way would be devastating for our economy. It already is devastating but not obvious to the sheeple why and how.

by Retired-Poppy | 25th Nov 23, 9:00am 1700856000

Yes,, there's another new and preferred game in town now - TD's.. Those on the wrong side of the fence call it lazy money.....

by Pa1nter | 25th Nov 23, 9:03am 1700856212

If someone has more financial and business nouse than just being a good little saver, yeah. It's money up to bugger all.

Good for oldies though.

by Zwifter | 25th Nov 23, 9:05am 1700856326

Money is money, I can actually live on my TD interest paid monthly now rates are over 6%

by JimboJones | 25th Nov 23, 4:54pm 1700884444

Temporarily. if you spend the interest then your deposit is being eroded by inflation. In fact even if you save the interest your deposit is being eroded by inflation.

by Retired-Poppy | 25th Nov 23, 7:26pm 1700893564

JimboJones, if Zwifter already owns his house outright and living off his monthly interest, his inflation prone fixed costs such as food, power, rates and insurance has been more than catered for when interest rates rose to where they are now. The more principle he has, the more interest he earns to compensate for increased costs. I cannot see how Zwifter is backsliding financially to be honest, especially if the interest were reinvested...

by Zwifter | 25th Nov 23, 11:09pm 1700906948

True but that will only be a problem if I live to say 120. Nobody lives forever so going going backwards very slowly is kind of irrelevant.

by KH | 25th Nov 23, 10:01am 1700859716

Well borrow and hope worked well for a while Pa1nter. But that was then. Some will need a new gig perhaps.

by Pa1nter | 25th Nov 23, 10:10am 1700860254

Some, maybe. Depends what you're borrowing for. If you and I have lemonade stands, and you take out a loan to make KH's Lemonade factory, and can make better lemonade cheaper and at greater volume, while I'm trying to bootstrap a second lemonade stand, you likely made a better move.

by Zwifter | 25th Nov 23, 9:04am 1700856250

Just put mine away at ASB on 6.26% for 12 months. The BNZ offer of 6.25% ends tomorrow. Perfect timing.

by Hardly | 25th Nov 23, 9:17am 1700857029

If only National/Act would cut the tax on term deposits to restore the dignity of term deposit lenders - yes Seymour said we needed to restore the dignity of landlords.

by Zwifter | 25th Nov 23, 9:38am 1700858292

I just want ACT to revise the stupid gun laws and stop cracking down on legal gun owners who have been members of a club for over 10 years.

by JimboJones | 25th Nov 23, 4:13pm 1700882022

Out of interest what is the cracking down? What are you no longer allowed to do?

by Baywatch | 25th Nov 23, 11:29am 1700864978

So your standing still at 6.26%? Probably the best option for safety..and risk averse. Hope the musket is locked up.

by J.C. | 25th Nov 23, 3:55pm 1700880940

Term deposits do not preserve capital.

by redcows1 | 25th Nov 23, 8:59am 1700855946

Not in Aotearoa it won't.

Duffrant.

by Zwifter | 25th Nov 23, 9:03am 1700856184

Will make zero difference in New Zealand.

by HouseMouse | 25th Nov 23, 9:14am 1700856873

I disagree.

But it might be only a minor-moderate factor.

by Zwifter | 25th Nov 23, 9:40am 1700858441

Total East/West separation when it comes to property, I mean its not like you could even go there and buy a house or an apartment even if you wanted to so why should it impact our market ?

by Pa1nter | 25th Nov 23, 10:15am 1700860509

Further, if the Chinese housing market goes tits up, will some Chinese RE investors look to cast a wider net?

Maybe not, if everyone there goes broke, but I'd imagine the desire for capital flight from China is going to feature heavily over the coming decades.

by Retired-Poppy | 25th Nov 23, 12:27pm 1700868425

.....imaginations/wishes aside, it will be more like capital controls. Xi is unlikely to sit idle drinking green tea while his country bleeds capital.

by Pa1nter | 25th Nov 23, 1:59pm 1700873952

Mmm, you're an Aucklander yeah? Dunno if you remember, but the 80s and 90s experienced a flood of migrants from the likes of Taiwan and Hong Kong. Scared of China. There's likely many more in China who may not want to stick around long term.

Assuming our political landscape keeps swinging from left to right, and we are probably 20-30 years away from the boomer die off that'll give a greater voting power for the socialist spectrum to get enforced. I'd put quids in that before then we'll end up with a populist right wing party that'll likely go for a short term capital boost by selling off more citizenship to wealthy political/geopolitical refugees.

Not that this is something I'm hoping will happen, but it seems like a decent likelihood.

Xi can't even transition from manufacturing to services, so it's hard to see how sustainable authoritarian communist-capitalism can ever be.

by Zwifter | 25th Nov 23, 1:53pm 1700873616

If there is capital flight out of China it will be into property, yet again. If China keeps on poking Taiwan you could see a sudden mass exodus of the rich and our house prices are loose change.

by Justa comment | 25th Nov 23, 7:42pm 1700894545

Exactlly. Thats why we dont want our residential housing available to foreigners. Winston had a good win for NZ.

by Audaxes | 25th Nov 23, 9:03am 1700856191

Oil prices have held stable since yesterday to be just on US$76/bbl in the US. The international Brent price is now at just under US$81/bbl.

Saudi Arabia Raises $11 Billion Loan to Help Fund Deficit Among the lead banks are ICBC, Citi, First Abu Dhabi and HSBC Syndicated loan carries a margin of 100 basis points over SOFR Link

by Speedmax | 26th Nov 23, 12:13am 1700910831

Saudi is another timebomb

by Rob Reid | 25th Nov 23, 9:53am 1700859206

The Chinese property Ponzi is shaping up to be a too-big-to-fail black hole absorbing all other possible sources of "wealth" as it collapses. Has long struck me that NZ and the others will go the same way eventually, so will be interesting to see how it plays out.

by NZGecko | 25th Nov 23, 1:47pm 1700873265

Housing worldwide will be investable again, but in a world of likely capital losses (as we will have, for a few years, during the sustained high debt cost paradigm shift) the yield must cover costs to hold + a margin.

So a minimum of 8%+ yield must be available, overwise they will be sold at lowering prices until a new owner (at lower cost) can afford the Debt/Costs + a margin.

It's that simple.

by Pa1nter | 25th Nov 23, 2:00pm 1700874039

It's really not.

by Justa comment | 25th Nov 23, 2:26pm 1700875561

Early reports coming in of very strong spending in the US on black friday weekend. Swaps up next week?

by NZGecko | 25th Nov 23, 2:54pm 1700877260

US Bonds going to get 7% +++++

by profile | 25th Nov 23, 5:38pm 1700887083

YPF up 98% since chainsaw took office. Get in there and start partial privatisations Luxon and get some scrutiny in those state owned bloats like Landcorp and Kiwibank.

https://www.google.com/finance/quote/YPFD:BCBA?sa=X&ved=2ahUKEwjkyIjoqN…

by J.C. | 25th Nov 23, 6:17pm 1700889427

The following FT articles suggests the ruling elite is worried about USD stablecoins in Hong Kong - basically becoming a hub for USD clearing that's outside their reach (while the US dithers). But it's not just HK. Obvious fast path for Milei to dollarize Argentina is via USD stablecoins.

The emergence of an opaque, unregulated offshore dollar-denominated transfer mechanism is directly counter to US interests. It’s up to the US to offer an alternative or to define what constitutes acceptable compliance.

It doesn’t look like much today, but the Hong Kong-based crypto dollar and dollar-based offshore transfer systems are like US national debt: don’t matter until they do. As Hemingway might have put it, crypto adoption and facilitation driven by the CCP may well happen gradually, but, suddenly, it could become a new standard.

By then, the “old” dollar and incumbent global settlement system will have escaped US control for good.

https://www.ft.com/content/39f10121-29ac-4b66-b364-c15bf62e0be9

by Rob Reid | 26th Nov 23, 2:01pm 1700960489

Most of my mates are "she'll be righters" at the BBQs, and have been borrowing and going long on property and vehicles, easily brushing off my warnings for the last few years.

Stories now coming back of $6000 per month debt servicing costs and "something has to give" struggles. If 2024 turns out to be as shit as it looks like it will from here, there will be changes next year.