Here's our summary of key economic events overnight that affect New Zealand, with news we are waiting on the US Fed.
Financial markets are in limbo, cautious ahead of the US central bank's monetary policy meeting results that will be released at 8am NZT today. We will update this item when these details are released. They are widely expected to keep the fed funds rate steady at 5.5% for a third consecutive meeting and push back against expectations of rate cuts early next year. Back in September, the Fed's dot plot indicated two cuts in 2024, but Chairman Powell recently deemed it premature to discuss rate decreases. They will release new economic and rate forecasts which will be closely watched and parsed.
Update: The Fed Statement is here and was quite restrained. Its accompanying materials gave its clearest signal yet that its aggressive hiking campaign is finished, forecasting a series of cuts next year. Immediately after its release, UST bond yields fell, the USD fell, and the S&P500 also rose. (These changes are not reflected in the rest of this article.)
Meanwhile American producer prices were unchanged in November from October to be just +0.9% ahead of year-ago levels - and that was a lower increase than expected. Consumer inflation might be stubborn but producer prices are now rising at very modest levels. Recall, US PPI peaked at more than +11% pa in early 2022.
American mortgage applications rose an unexpected +7.4% last week from the week before, a sixth consecutive weekly and driving applications to their highest level in over four months, thanks to the continuous decline in interest rates. The benchmark 30 year fixed home loan rate is now down to 7.07% in this survey, it lowest since July.
In China, the expected bounce-back from October's weak new lending levels came but it wasn't as robust as expected. China's banks extended almost ¥1.1 trillion in new yuan loans in November, a good rise from October's weak level but falling short of market expectations of ¥1.3 tln. Household loans, including mortgages, rose by almost +¥300 bln after shrinking in October, while corporate loans also rose by +¥300 bln from October.
In their Capital Flows Report, the IIF says China will suffer net outflows from Chinese stocks and bonds of -US$65 bln in 2024 from foreign investors, extending the 2023 trend of de-risking. In November alone, foreign investors pulled a net -US$3.7 bln from Chinese equities and bonds. Other emerging markets are not getting this cold shoulder.
China's delayed but important 2 day Central Economic Work Conference has wrapped up, but you would hardly know. The readouts of decisions and goals are in special Beijing-speak and opaque to most. Most of the released goals are platitudes.
The newly-elected Argentine government devalued the peso’s official exchange rate by -54% to 800 to the greenback on their second day in office, firmly above market expectations that ranged from a 27%-44% devaluation, marking a new record-low for the battered currency. The decision also narrowed the gap between the official rate and dollar prices for individuals available in parallel markets, which have approached 1,100 pesos per USD. It followed a group of aggressive economic measures passed by the new administration, the so-called “shock treatment” pledged by newly-elected President Milei that aims to battle inflation that approaches 150%, a plunging peso, and elevated levels of money creation to service spiraling debt. The new government stated it will cut an equivalent of -2.9% of GDP in spending, including reductions in social subsidies and pensions, while implementing a +2.2% increase in taxes over the next year. As a consequence, official forecasts for monthly inflation rose to over 20%.
Australia's Mid Year Economic & Fiscal Outlook (MYFEO) was released yesterday and it was surprisingly positive, signaling that they may in fact get another surplus this year - making it two years in a row Canberra has achieved that. It is built on the "usual suspects" - very high mining profits and delaying infrastructure spending. The tax receipt uplift is due predominantly to personal income taxes being +$30 bln higher than forecast, including +$9 bln for this financial year, and company tax. Tax relief for bracket-creep may be coming soon.
The UST 10yr yield is softer on secondary markets at 4.16% and down -5 bps from yesterday at this time ahead of the Fed. The key 2-10 yield curve is more inverted, now by -51 bps. Their 1-5 curve inversion is also more inverted, now by -94 bps. And their 3 mth-10yr curve inversion is now -120 bps, also more. The Australian 10 year bond yield is now at 4.26% and down -4 bps from yesterday. The China 10 year bond rate is little-changed at 2.67%. And the NZ Government 10 year bond rate is down -11 bps, now at 4.87%.
Wall Street has opened its Wednesday trade with the S&P500 unchanged ahead of the Fed decisions. Overnight, European markets were little-changed, all +/-0.1%. Yesterday Tokyo ended its Wednesday session up just +0.3%. Hong Kong went the other way, down -0.9%. Shanghai was hit harder with a -1.2% loss on the day. Interestingly there was no late home team support and when it didn't arrive the hurt increased. The ASX200 ended up +0.3%. And the NZX50 rose the best of the markets we follow, up +0.8%.
The price of gold will start today just on US$1982/oz and up +US$2/oz from this time yesterday.
Oil prices are up +US$1/bbl from yesterday at just over US$69.50/bbl in the US. The international Brent price is now down at just under US$74.50/bbl.
The Kiwi dollar starts today at 61.2 USc and little-changed from yesterday. Against the Aussie we are -¼c lower at 93.1 AUc. Against the euro we are down -10 bps at 56.7 euro cents. That all means our TWI-5 starts today just on 70.2, -20 bps softer than yesterday at this time.
The bitcoin price starts today at US$41,856 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.
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77 Comments
The UST 10yr yield is softer on secondary markets at 4.16% and down -5 bps from yesterday at this time ahead of the Fed.
Blistering Treasuries Rally Silences Deficit-Obsessed Vigilantes
Interest rates are shaped by economic fundamentals: growth, inflation expectations, investor sentiment. (lower growth, lower interest rates) 2011's market movements were a response to broader economic and monetary anxieties, not policy decisions. Link
Bonds are becoming "irresistible" to big buyers, so prices are headed higher in 2024 forecasts bond analyst Alf Peccatiello @MacroAlf
Why? Declining inflation, returning negative stock/bond correlation & a rush to lock in 4%+ yields Watch: https://youtu.be/coeLPzV0j3s Link
In their Capital Flows Report, the IIF says China will suffer net outflows from Chinese stocks and bonds of -US$65 bln in 2024 from foreign investors, extending the 2023 trend of de-risking.
China has shifted its trade from Western countries to Russia + Asia. ASEAN is important in that group. US & Europe still significant, but getting smaller. Link
Finance Minister Nicola Willis said KiwiRail would have a role to play in working on a new solution for ferries across Cook Strait.
Her message to KiwiRail was that a Ferrari was not the only car in the garage. While a big ship solution had been KiwiRail's preference, it was time to look to see if there was a Toyota Corolla, or maybe some second-hand Teslas, Willis said.
OMG
The proposed ferries were enormous, and would have been environmentally damaging. Why have huge ferries, which are great during peak season, but will lose money for the rest of the year? Willis’ makes excellent sense, I think. After all, Corollas are at least as safe as Ferraris.
One of the fundamental choices is whether to support rail across the strait.
Labour & NZF are wedded to this "because reasons" & the associated capital required for infrastructure is massive, as are the risks of disruption.
National & ACT would probably give serious consideration to road transport only.
The other choice is terminal location. There's been argument for years on the SI cloudy bay option. As reported this morning one of the reason for the massive cost increase is a new environmemtal requirement to raise the Wellington terminal 1 metre higher (on reclaimedland?). Perhaps there's a better location away from the central city (Paremata ?)
In the meantime, for maritime safety just replace the current boats with new/er ones that can use he existing terminals.
Why would Kiwirail even consider ferries that need a fortune in infrastructure spend to be able to be used, without even considering or allowing for this infrastructure spend in their project costings? This is either the work of incompetents, who didn't realise they needed to spend the extra money on infrastructure, or of cynics, who think they can run to the government for extra money as and when they demand it. Their big problem is of course that Chippie, Robbo, and their mates aren't in power any more. They will now have to spend even more money to even more consultants to come up with another idea. Part of the big problem they have is that the government has adults looking after their trough now.
Perhaps read what I write.
Perhaps think.
Perhaps don't assume.
And don't presume that because what you wish for is doomed, that other options aren't. That's self-justification, writ small.
What interests me, is the number who assume BAU, then put up suggestions (bridge, tunnel) without question the viability of BAU.
I'm disappointed in the ensuing discussion. I hoped for better.
Agnostium below suggests a tunnel, but the thought of driving through one under the straight gives me the willies. The fault line through there would make a bridge more practical I think.
But BAU PDK? this is not about BAU, this is about recognising that there WILL be a future need. A bridge and/or ferries can be ecologically sound. The only issue is how much we are prepared to pay?
Murray, i think it was you that told me a few months ago that PDK was politically agnositc. Well from the above comment and the last few weeks, it is apparent that he is anything but. Some comments are unbelievably condescending, not a way to champion a cause.
If we're not pursuing BAU but instead have to accept a slowing down or degrowth approach as PDK asserts, then I would have thought he would have been championing smaller ferries over grandiose ships? I mean, taken to the extreme by getting smaller, we'll eventually end up with canoes, rafts and wooden ships again given time.
You made me smile Hemi. we maybe headed for canoes anyway. But to be fair while PDK was included I wasn't only referring to his response.
Cook Strait is an issue for NZ. There remains the need for a connection between the islands, but the question is how do we do that?
A possible solution from a Government trying to develop national resilience could be that they will support the locally developed design for a sustainable solution, and then the development of the industry to create it? Perhaps not realistic, but how do we start? Consider that solution. Applying the best minds we have to use the latest technology and knowledge to craft a design that will meet projected future needs and restrictions, would likely develop a skill base that could produce a marketable product to markets outside NZ? 'Why not?' becomes the big JFK style question? No solution is going to be cheap, and all will be riven with politics, but really - why not?
Do you work for the Trucking industry chance as you have no idea?
Lower impact on the environment
The new ferries will:
- Be powered by a diesel electric hybrid system that will reduce fleet emissions by approximately 40 per cent from day one and can be adapted for more eco-friendly fuel sources as they become available.
- Run on battery entering and departing harbours in normal weather conditions, with reduced noise
- Be kinder on marine life, producing less wake energy – well below the limit allowed in Marlborough Sounds, and half that of existing vessels.
- Have an eco-friendly hull coating (tin-free), reducing impact on coastal marine life with lower underwater radiated noise having less impact on the environment and water user.
LOL. Is a ferry a car?
Golly! Some people are easily fooled by outright nonsense.
Do you know what a strawman argument is? Here ... Let me help you ...
https://en.wikipedia.org/wiki/Straw_man
Perhaps read this one too.
https://en.wikipedia.org/wiki/Reductio_ad_absurdum
Trust me. Ships are very, very different from cars.
People using car analogies in this discussion only highlight how little they know about the maritime environment.
Loads more people, like for like infrastructure replacement. I have no issue with immigration if they spend the money on infrastructure, but they seem to be allergic. Imagine how much they could do with the $3 billion a year in tax cuts!
In saying this, I do think Willis is right that $3 billion is a lot. It took years for them to agree to the city rail link, and it’s been debated ever since. But spending the same on ferries that will get a tiny fraction of the patronage is just expected. At the very least shouldn’t Wellington and Picton councils go halves in that $3 billion like Auckland Council had to with the CRL?
"I pay many taxes for services I never use..thats the point of tax" - exactly, I am just pointing out the arguments that were used against the CRL, and also the scrutiny on the CRL compared to this project. Especially considering there really are no alternatives to the CRL (other than more buses which is crap), whereas the alternatives to this is spending way less on similar ferries.
Why is highway 1 so much more important the the main commuter link into our biggest city? Why did Auckland Council have to go halves?
Before the Cooks Strait ferries the Union Steamship Company operated daily ferry sailing to and from Wellington/Lyttelton. Guess the the sailing time to Picton and then road travel to Christchurch is shorter but boy it would take some pressure of that highway and reduce diesel usage. New ferry come cargo vessels these days have very efficient automated holds for freight handling. Just a thought.
As well as ro ro, there are ferries too with quite a bit of FCL stowage on the top deck(s.) Recall the voyage was about 12 hours say from 7pm to 7am, maybe the vessels would be faster now. That takes a lot of trucks and drivers off the road for maybe 2 to 3 hours longer transit.
Problem is I don't think the ferry blow out is the only gremlin in the cupboard of big overspends not accounted for coming the Taxpayers way. So to say, Stop re look at alternatives is probably the prudent thing to do, until they have had time to add up all the others. I'm sure everyone wants a Ferrari, but if your income only lets you afford a toyota then that's the reality that many of us live in day to day.
Chris Luxon mentioned that in a metaphorical collective societal sort of way. That was the vibe he had got whilst travelling and campaigning around NZ. The quote refers to our collective state of mind, or attitude towards our lives in general living under the last government If the new government can swing a change to a more positive vibe, well that would be good.
https://www.nzstory.govt.nz/about-us/news/air-new-zealand-supercharging…
Air New Zealand: Supercharging New Zealand's Success
BY CHRISTOPHER LUXON
" It’s no secret some of our infrastructure is struggling to keep pace with the rapid growth in tourism, putting pressure on regional communities and compromising the visitor experience. "
'And this is why we’ve embedded a framework for sustainable growth at the heart of our business.'
Someone should have pointed out the impossibility.
Besides, I seem to remember the Government having to bail AirNZ out
https://www.nzherald.co.nz/business/government-bailout-of-air-nz-comple…
https://www.afr.com/companies/transport/air-new-zealand-bailed-out-2020…
Business model my a--e.
You need to up your valium dose to get your intergenerational angst under control. How many in this Government are Boomers (1 - Winnie)? Most of them will be your generation?
But I do agree with your sentiment, although squeezing cycleways into already too narrow roads is asking for trouble! But basic infrastructure should never be a problem for prioritising spending by government as there is clear economic returns to mark the benefits. It seems however that the advisors or the MPs themselves do not understand the principles?
"although squeezing cycleways into already too narrow roads is asking for trouble!"
You literally have no clue. The roads in New Zealand are magnitudes of order too wide. That's the issue, not that they are too narrow. If they were narrow we wouldn't need separate cycleways.
You're a bright reasonable man Murray. Don't buy into the car and fossil fuel lobby propaganda that cycleways are expensive, unnecessary and wasteful. Our roads as they stand are all of these things and we have to change how they are used or we'll end up with broken useless assets that we can't afford to fix.
It amazes me the backlash against cycleways? One person on a bike is more than likely one less car on the road - ergo less traffic and those in cars a quicker trip. Add to that the cyclist is probably going to need less health care in the future - (well unless htey get mowed down by said car rager)?
Its the reason I don't ride a bike anymore on the roads. Used to ride to school everyday and the bike racks were packed unfortunately the attitudes of motorists have just got worse and worse over the years to the point even cycle lanes are no good anymore, you need a totally separate cycle/walk way not to protect you from the assholes on the road, otherwise the pissed off motorists stuck in ques just think you are somehow stopping them getting to work on time.
"You literally have no clue." Rubbish! Cyclists proclaim loudly they need at least a metre clearance between them and motor vehicles. Space that out on average roads through our cities and most are not wide enough for the traffic that uses them.
I'm not against cycleways, I'm against cramming them into too little space.
Your blinkers come out strongly in your response, and a degree of intolerance. The infrastructure we build has to provide the capacity to cope with all the traffic safely.
Incorrect. Some people on bikes (there is no single group of people who agree on everything called cyclists) would be happy to sit in the middle of the lane on any road with traffic following at 15-20 KMs per hour at their place slowly behind as is their legal right (except state highways)
However, people in cars want to go faster than most people on bikes and do not like sharing the road with them.
That is why you need cycleways, to allow the traffic to go faster. It's the same reason we built footpaths, to get people walking out of the way of people in cars who wanted to go fast. Before we had footpaths with legal distinction from roadway people used to have to walk down the road in front of cars waving a flag to let people know a car was coming.
The recent road design and car ideology has only existed since around the 50's and 60's. Traditional transport did not include the car and it is the car drivers that have pushed out all other users as they are super inneficient (due to their size and weight).
Despite all this there is still ample room for cars people walking and cycling. New Zealand city roads are very wide by international standards.
The generous political donations into NACT's election campaigns weren't exactly from folks in their 20s and 30s. Don't tell me that you consider the fact that most of this government's promised actions within the 100-day plan disproportionately benefitting older rich folks than young working classes is mere coincidence.
You missed the point vman. A Ferrari is expensive, but they wanted to build a garage costing more than the Ferrari.
Built infrastructure in New Zealand is outrageously overpriced. Wharf works at each end each costing a billion and counting. Really?
Get the Ferries, sort out the stupid wharf cost.
The list of NZ's public assets in dire need of repair or replacement is growing by the day. We've stalled the "build or upgrade" process for far too long and it is now costing us dearly to even maintain all the infrastructure already past its use-by date.
The worst idea one could imagine in such a situation is build more demand pressure on the creaking asset base and low-and-behold we have population growing in this country at approx. 2.5% a year.
Quite right.
Governments seem to love flicking the 'import more people' switch because it's easy to do and quickly ups demand for everything - showing bigger numbers for everything from revenue through to taxes and price inflation.
What they're ridiculously reluctant to do is spend that money on infrastructure to support the increased demand that those imported folk impose.
The immigration shell game needs to stop - close the spigot, minimise the incoming stream until we have a handle on the infrastructure - right now just about all services are struggling - and have certainly deteriorated significantly over the past 5 years.
At the very least there aught to be some sort of population planning and/or referendum.
And keep race out of it - every single person brings additional demand - right now our infrastructure cannot support the people we already have - it's crazy to me that the supposedly intelligent people running our government cannot see that - or at least, choose not to do anything about it if so.
From the Fed Statement ...
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.
But wait! ... Hasn't the NACTF just removed maximum employment from the RBNZ's remit?
Did anyone see any informed economic discussion as to why? No? I didn't either.
Just time wasting exercise by the NACTF that serves no purpose and flies in the face of what other central banks are required to do. Pure window dressing to make them appear to do something useful when in fact they're not doing anything worthwhile.
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