Here's our summary of key economic events overnight that affect New Zealand, with news global interest rates are on the move.
The big news is the sharp dive in wholesale benchmark interest rates. And American benchmark mortgage interest rates have fallen below 7% for the first time since August.
But first, American jobless claims fell last week and by more than expected, and back to the low end of the range over the past year. There are now less than 1.8 mln people on this support, also a drop from last week but less than expected, but not enough to change the shallow rising trend.
As earlier indicators had suggested, the US holiday season retail impulse was good. Now the official retail sales data for November is out and that confirms the earlier data. Value levels were up +4.1% from a year ago, so there has likely been an expanding retail volume too.
And you can see the impact of that demand on business inventories, which fell - a small slip from October, true, but one that wasn't expected. From a year ago they were up +0.5% in value terms, so clearly falling in volume terms.
In Canada, their housing market sales are retreating, even if the shrinkage is still small.
Taiwan's central bank kept its policy rate at 1.875%.
In Hong Kong, 38% of people polled said they want to quit the City, mainly because of oppressive 'freedom' restrictions. That was up from a 29% in the same poll a year ago.
Overnight the ECB was clear that it will keep its rates at multi-year highs for a long time yet in its battle to get on top of inflation. In contrast to the US Fed signals that softenings are coming in 2024, the ECB was staunch. However Norway's central bank raised its policy rate by +25 bps to 4.5%. But the Swiss National Bank held its rates unchanged, as did the Bank of England which also conveyed a tough line against price pressures. The ECB and English pushbacks had the effect of bolstering their currencies.
And staying in Europe, the EU has "unanimously" agreed to open talks with Ukraine to join the bloc.
Australian inflation expectations fell from 4.9% in November to 4.5% in December, according to the latest update of the Melbourne Institute survey. At these levels, the RBA will also likely remain staunch in its monetary policy positions, even if it is at its lowest level since early 2022.
Although the Aussie jobless rate rose to 3.9% in November, the number of new jobs rose more than expected and most of them were full-time positions. The number of unemployed increased by +18,800 to 572,000. But the labour force rose +61,500 to 14.3 mln of which +57,000 were full-time. Their participation rate edged up.
Global container shipping freight rates rose another +4% last week as the world adjusts to the two big canal pressures, mainly on routes out of China. Meanwhile bulk cargo rates remain high but are coming off their early December peak.
The UST 10yr yield has fallen sharply in the wake of the Fed meeting, now at 3.93% and down -23 bps from yesterday. And the last time we were at this level was in July. The key 2-10 yield curve is much less inverted, now by -44 bps. But their 1-5 curve inversion is now much more inverted, now by -103 bps. And their 3 mth-10yr curve inversion is now -145 bps, also much more. The Australian 10 year bond yield is now at 4.08% and down -18 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 -20 bps, now at 4.67%.
Wall Street has opened its Thursday trade with the S&P500 up +0.1% in the shadow of the Fed decisions. Overnight, European markets were widely varied. London was up +1.3%. Frankfurt was little-changed. And Paris was up +0.6%. Yesterday Tokyo ended its Thursday session down -0.7%. Hong Kong went the other way, up +1.1%. Shanghai ended down -0.3%. The ASX200 ended up +1.7%, and the NZX50 rose +0.7%.
The price of gold will start today just on US$2037/oz and up a very sharp +US$55/oz from this time yesterday.
Oil prices are up +US$3/bbl from yesterday at just over US$72.50/bbl in the US. The international Brent price is now up at just on US$77/bbl.
The Kiwi dollar starts today at 62.2 USc and up a full +1c from yesterday. Against the Aussie we are -¼c lower at 92.7 AUc. Against the euro we are down -10 bps at 56.6 euro cents. With falls against the Yen and Pound, that all means our TWI-5 starts today just on 70.3, just +10 bps firmer than yesterday at this time.
The bitcoin price starts today at US$42,617 and up +1.8% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.0%.
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54 Comments
The UST 10yr yield has fallen sharply in the wake of the Fed meeting, now at 3.93% and down -23 bps from yesterday. And the last time we were at this level was in July.
Stocks are rising amidst expectations of disinflation and a Federal Reserve pullback, signaling optimism. Meanwhile, bond markets, in contrast, hint at looming risks, indicating potential dangers that stocks might be overlooking.
Fell? How about crashed? Straight through the lower Bollinger bands I use. That hasn't happened for years. Above yes. Below? Almost never.
Could the bond market be smelling a recession if the Fed rate isn't lowered soon? On the plus side - some recent bond holders will be laughing and will be able to bank good gains.
Is Indo-Pacific Quad about to unravel?
Biden is fading as rapidly as Trump’s sun is rising. Meanwhile back in the jungle that admirably suits Putin’s plan B, ie standard historic Russian patience, perseverance and protraction. Would be a glowing re-entry on the world stage for Trump to claim an end to that war simply by informing Ukraine that their eastern boundary now stops at the Dnieper.
Doesn't matter what Trump says, Russia/Putin will keep on pushing (till the USSR is restored?).
And further north
https://maritime-executive.com/article/russia-insists-on-an-expanded-bo…
"European leaders have decided to open EU membership talks with Ukraine and Moldova and to grant candidate status to Georgia.
Ukraine's President Volodymyr Zelensky hailed the decision, made at a summit in Brussels, as "a victory" for his country and Europe.
A spokesperson for Charles Michel, the President of the European Council, said that agreement was unanimous."
https://www.bbc.com/news/world-europe-67722252
the Americans invented the term "Plausible deniability". I suggest a person would be naive to think the US and Israel are the only ones playing shady games of intrigue and murder in the shadows.
I do not have a full understanding of the issues India faces from Tamil separatists but why are we surprised? They do need to get better at it though. Agents sent to carry out assassination plots ought not to get caught in the act. It sort of reflects badly on the boss!
Breakfast briefing: Global interest rates move lower
So did negative interpolated mid IR swap rate quotes after yesterday's bond tender.
4.50% 15 May 2030 - minus 15.58bps
3.50% 14 April 2033 - minus 19.07bps
2.75% 15 May 2051 - minus 21.18bps
Kerr said there was some light at the end of the tunnel.
"Look, I think there are some bright spots. I mean, the housing market seems to be recovering quite nicely. We'll see house price gains next year. That'll be good for a lot of Kiwis” RNZ news
I have no words to express my anger. As a parent of a well paid son who is saving hard and has been for years but will still struggle to buy his own home these people continue to push the idea that house price rises are a good thing! I hope the social problems caused by this kind of thinking are visited upon them.
Whatever you think about the late Dr Cullen, he nailed it when he said something like - it’s bad enough when we keep seeing rungs added to the top of the house price ladder. But it’s even worse when they are taking the rungs from the bottom of the ladder to do it.
If only if he had done something about it rather than "nailing it".
https://resources.stuff.co.nz/content/dam/images/4/y/p/o/i/6/image.rela…
The sad thing it is simple to drastically lower housing housing costs but vested interests override basic society needs. Perhaps nine house Helen stopped single house Cullen from helping out fellow man?
"The average price of this land was $1.266m per hectare.
In our subsequent exchange, my reader noted that the value of this land for agricultural purposes might not be much more than $30000 per hectare. He went on to point out that not that long ago 3800 hectares of forest land – a little further inland than Dairy Flat, but similar terrain and a similar distance from central Auckland – had sold for $1700 per hectare. In other words, the preferentially-zoned Dairy Flat land was selling as 750 times the price of the forest land.
...And most of this “value” is simply added by politicians and bureaucrats drawing lines on a map. It is obscene, and unnecessary. It continues to skew the game against the young and those on relatively low incomes and/or limited access to credit, in favour of those who already have, or who can lobby councils to draw the lines in suitably limited places."
https://croakingcassandra.com/2017/08/26/land-prices-on-the-developable…
"The alternative isn’t just some theoretician’s dream. When I wrote here six months ago, I highlighted Little Rock, Arkansas, as one example of the many growing, pleasant and highly-affordable US cities. Real house prices in Little Rock hadn’t changed much in 40 years and median house prices appeared to be about NZ$300000. Interest rates are at least as low as those here. Check any website and you’ll easily find modern townhouses to rent in Little Rock for no more than NZ$1000 per month. Try that in Wellington."
https://croakingcassandra.com/2021/11/06/house-and-land-prices/
Soon considerable numbers of households will start to discover that while their home is valued higher than they ever thought possible the subsequent cost of rates, insurance, maintenance etc coupled with other standard living costs has become more than burdensome. What to do? As one spotty council worker said to an elderly lady - get a reverse mortgage. Maybe therein lies a plan. Make the good people spend their houses to save the economy.
Amongst that is health insurance. Despite the high cost reportedly more of the elderly are enrolling. The reasons are pretty obvious but would have thought the costs would be taking it the other way. There is the argument the more private healthcare there is, there is then a relative reduction in public healthcare need and a tax break would encourage that. But then again Dr Cullen at his cynical best, avowed if you can afford private health insurance, you don’t then need a tax break.
I'm interested in this notion. We'd need too consider that the private sector is currently soaking up some of the public need e.g surgeons operating under public funding from their private premeses and referring for publicly funded MRI's in private facilities due to demand. Would the increase in private demand taper the specialists capacity (by their own choice following the dollar) for public procedures and consults or would this choice to take on more private patients free up more time for those specialists working solely under the public system?
Not sure of the percentage but some surgery is too complex/critical to be undertaken at the private hospitals. Also the surgeons like to, let’s say keep their hands in at the public where they can get greater experience on a greater range of procedures. But within your point must be a consideration that more surgeons are now just operating in private for sake of ease and revenue and that might well allow more capacity for the specialists at public. There does appear to be advantages on offer in the argument doesn’t there.
From a slightly different angle some DHBs had been actively and successfully working with the local GPs to upskill allowing them to undertake minor surgery at their practices to keep the patients from outpatients etc. Unfortunately this did not find favour with the either the last Labour Health ministers who seemed to think GPs are already making too much money.
Interestingly, MoH and Te Whatu Ora employees receive discounts on health insurance premiums (Southern Cross) and so do most other public sector employees. Kainga Ora provides free basic health cover to all employees that they can simply top-up for premium benefits.
So, taxpayers are already paying for subsidised health insurance in some way.
The argument also extends to high-earning couples sending their kids to private schools and still pay taxes for the public education system.
Providing health cover as an employee benefit is a sound investment both for retention and productivity. One of our staff members owes their life to company provided SX insurance cover. You can argue it's double 'taxation' but alternatively that it's a premium to secure timely intervention. Ditto for private education; some of our grandkids have this, others are in the state system. We are happy with the outcomes through both channels but note the extra one on one care and options in the private stream. Again, not double taxation but a worthwhile premium for those who value these attributes. Closet bolsheviks will shriek in outrage but the future value of connections made in the private system is also a consideration.
Sorry, I'm not familiar with the details. It's possible that some procedures may be similar.
The private operators do seem to be playing a clever game - they are the ones building capacity through capital investment and outbidding the public sector for staff. This mean fewer staff in public, less incentive for government investment in capacity and an inevitable and growing stream of public work flowing to private operators. Seems to be one way traffic at the moment and I don't see anything visionary from the new government (or the old one).
FG. The acerbic Cullen would reflexively reject any proposal that challenged his statist world view. That various state/private combo models operate successfully elsewhere would be haughtily dismissed by him. Like many people I'm conflicted, having experienced the professional caring culture of NZs state system but also the marvellous efficiency of private healthcare. We maintain our SX cover at ruinous cost despite entering fossil territory but there has to be a better way. ACTs voucher system superficially appeals both for healthcare and education but I don't have enough knowledge to properly assess its merits.
FG. I'd like to see some data as I suspect the asset rich cash poor ageing class is increasingly being forced out of the leafy suburbs. Rates are set to further increase sharply, insurance probably another 20% incr next year. It's not uncommon for those two bills to now be costing 5 figures combined.
Well in reality rates in their current form contain a large component that is a wealth tax. A charge for services and amenities which is though mostly apportioned on value. Can’t quite remember when the councils started to creep this calculation into play but it has now compounded to the point of being inequitable and unfair. The EQ rebuilds highlight the anomaly. In our extended family’s location two neighbouring houses, same sized land and structures, same street frontage one pays $6500 rates the other $10300. The latter is an owner occupied EQ rebuild and has two occupants. The former a rental, has six occupants, so which property then uses the most services. On top of that central government takes 15% GST to enhance the disparity.
How much longer can this go on before policymakers finally admits that housing inflation is the biggest drag on NZ's economic productivity/prosperity? Overpriced housing leads to high living costs overall, low household savings rate, high cost of doing business and low discretionary spending.
JoJob,
The older generation-and that certainly includes me at 78- have a lot to answer for. My excuse is that I lived in Scotland until 20 years ago, but i did have one rental property.
There is NO good reason why we have one of the most expensive property markets in the world, based on median price to median income( Demographia annual housing affordability study). There's a form of cognitive dissonance at play. I hear people say how awful it is/will be for their grandchildren trying to buy their first property, but they certainly don't want to see the value of their own property fall.
My sons have long had their own houses, but I fear for my 4 grandchildren. I wonder how many of them will be forced to look elsewhere?
NZ has failed to sufficiently differentiate between the property that is owner occupied and those that are tenanted. The former should be a natural priority for any nation that considers shelter to be requisite to the people. However that priority has been well and truly spreadeagled in NZ by the extreme urgency of NZrs to treat property as a safe haven investment and especially when that direction is catalysed by conditions such as the crash dived interest rates in 2020 and a government fuelling a borrow to spend doctrine. Would wager that there was in that period the greatest ratio of entry ever seen for new participants as property investors.
Indeed. My son who is my eldest has toyed with the idea of leaving NZ and therefore removing another highly skilled worker from the NZ workforce. My middle child has a science qualification but is unlikely to find the research work here that she is passionate about as funding gets pulled. My youngest is looking at a career related to Policing. Once upon a time you would not have questioned their ability to make a good life here in NZ based on their chosen fields but now I’m not so sure.
Two of my kids, both marginal rate taxpayers, and their partners are considering moving overseas with their children. Both are fortunate enough to own their own homes but view the country's economic prospects as bleak. They also cite the divisiveness characterising NZ society in recent times and reason that if this continues the cultural attractions of living here vs elsewhere increasingly carry less weight.
A large part of the problem is that home buyers borrow as much as they can. I.e. the bank says they can borrow "up to 880k" - they buy something at 880k and then spend 30 years paying it back with the first 10-15 years scrimping and saving and having not much of a life.
Why do they do this? Because Kiwis believe the untaxed capital gains will make it all worthwhile.
If Kiwis' maths was better they would figure out that all the b.s. talk about gains was b.s. spouted by fools with terrible maths skills.
Try this example.
Bought: 2002 for $390k
Sold: 2022 for $2.25m
Wow! A gain of almost $2 million dollars untaxed! Yippee!
But hang on ... What is that as 'annualized compound growth rate'?
About 9.15% per year.
And in Auckland, that particular example is an absolute standout exception!
Most are 3-4%.
Don't believe me? Try it.
Formula in link below.
Past sale prices and dates in Homes, Onewoof, Trademe, realestate.co.nz, etc.
Pick houses from interest.co.nz's recent auction pages. https://www.interest.co.nz/property/residential-auction-results
Exclude houses that have had recent renovations / additions / makeovers as the cost is unknown.
If you want to be a successful property investor, do it. Seriously. Just do it.
You'll learn quite quickly what a good buy is (most aren't). You'll also learn when the good times to buy are - but as always, past experience is not always a predictor of the future (NPS-UD, MDRS ... No I'll save my breath) Oh. and if you've read this far, the example above is one of mine.
Why do they do this? Because Kiwis believe the untaxed capital gains will make it all worthwhile.
That'll factor in for some people, but much if it will be like when you go look for a car with a budget of 20 grand, but after looking through the market, you end up spending 30.
One other method is to look at a house, and work out how much more it'd be to replace it, and that figure will only increase over time.
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