Breakfast briefing: Global interest rates move lower

Economy / news

US jobless claims fall, mortgage rates fall, retail sales rise; Europe's central banks remain staunch against inflation; Aussie inflation expectations fall; UST 10yr 3.93%; gold and oil up; NZ$1 = 62.2 USc; TWI-5 = 70.3

15th Dec 23, 7:26am by David Chaston

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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Source: RBNZ

Source: CoinDesk

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54 Comments

by Audaxes | 15th Dec 23, 7:33am 1702578809

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 vs. Bonds Whose Wrong?

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.

by ChrisOfNoFame | 15th Dec 23, 10:30am 1702589443

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.

by Pa1nter | 15th Dec 23, 7:32am 1702578755

Enjoy our Xmas sale, Higher For Longer beanies and hats, now 90% off for a limited time.

Buy 2, get a set of "10% rates, Guaranteed" coasters, absolutely free.

by Iceman | 15th Dec 23, 7:42am 1702579348

They know more than everyone else though 🤦🏻‍♂️

by Rob Reid | 15th Dec 23, 7:52am 1702579935

Decades of cheap money in deep pockets.

This noise is transitory.

by tomjones_04 | 15th Dec 23, 7:56am 1702580170

Lol... as long as the logos are written in English ....and come with a free packet of cigarettes. Or a picture of a Toyota corrola

by Jonny.Foe | 15th Dec 23, 9:38am 1702586309

Made my morning

by Flying high | 15th Dec 23, 11:20am 1702592437

You can also purchase the T-shirt and cap set of "The up cycle has commenced ... hahaha"

by Audaxes | 15th Dec 23, 8:04am 1702580648

Is Indo-Pacific Quad about to unravel?

Diplomatic blow to India as Biden turns down invite

by Baywatch | 15th Dec 23, 7:50am 1702579825

What a joke,..he would fly to Saudi Arabia at the drop of a hat if invited (back). I guess not a fan of Masala Dosa?

by Foxglove. | 15th Dec 23, 8:26am 1702581983

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.

by kiwichas | 15th Dec 23, 8:27am 1702582029

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…

by kiwikidsnz | 15th Dec 23, 8:35am 1702582519

"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

by Baywatch | 15th Dec 23, 8:27am 1702582056

Dream on MAGA

by The Person | 15th Dec 23, 8:59am 1702583969

US also went pretty cold on the Saudis for a while after they chopped up that journalist in Turkey.

by murray86 | 15th Dec 23, 8:30am 1702582224

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!

by Audaxes | 15th Dec 23, 8:09am 1702580986

_{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

by JojoB | 15th Dec 23, 8:23am 1702581798

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.

by Foxglove. | 15th Dec 23, 8:46am 1702583194

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.

by profile | 15th Dec 23, 9:31am 1702585901

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…

by Foxglove. | 15th Dec 23, 9:05am 1702584304

True. Likewise recall an interview around 2020 when the RBNZ money printer roared into action advising for god’s sake spend it on things that matter.

by profile | 15th Dec 23, 9:24am 1702585492

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/

by Foxglove. | 15th Dec 23, 9:32am 1702585945

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.

by Pa1nter | 15th Dec 23, 9:52am 1702587155

It'd be interesting to know how much impact the aged population has on spending. They have assets, and are getting older so require paid services that they can't perform anymore.

by Foxglove. | 15th Dec 23, 10:18am 1702588693

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.

by interesting1234 | 15th Dec 23, 10:27am 1702589223

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?

by Foxglove. | 15th Dec 23, 10:51am 1702590714

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.

by Pa1nter | 15th Dec 23, 10:28am 1702589307

I guess there's also an argument that says if people have private medical, they'll begrudge the taxes paid for public.

by Advisor | 15th Dec 23, 10:59am 1702591183

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.

by middleman1 | 15th Dec 23, 11:35am 1702593341

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.

by Pa1nter | 15th Dec 23, 11:39am 1702593582

It's really those connections that are of potential value overall.

by middleman1 | 15th Dec 23, 11:40am 1702593604

Pa1nter. Yes, until they have some serious crisis which only a critical care state hospital is going to have the infrastructure to respond to, upon which their 'double taxation' bitching falls suddenly silent.

by mfd | 15th Dec 23, 10:42am 1702590158

In my speciality, virtually all the doctor have gone part -time public and part private. This hurts our capacity in public so we out source patients to private at great cost.

A vicious circle.

by middleman1 | 15th Dec 23, 11:44am 1702593880

mfd. I had understood that private surgery for elective procedures was not significantly more expensive than if through the state system but sounds like I might be mistaken. Do you know approximately what the difference is ?

by mfd | 15th Dec 23, 11:51am 1702594317

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).

by Foxglove. | 15th Dec 23, 12:14pm 1702595679

Be careful with that word premium. That employer subsidy would likely be considered a fair target for a perks tax amongst certain previous Labour finance ministers.

by middleman1 | 15th Dec 23, 12:07pm 1702595264

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.

by profile | 15th Dec 23, 9:55am 1702587347

That would be chopping the rungs off at the top. Covering the full ladder today? The state love compliant populace - addicted to welfare and/or enthralled in hefty mortgages.

by Pa1nter | 15th Dec 23, 9:57am 1702587472

Or just paid employment for most. Enough to keep you in some sort of lifestyle, but nowhere near enough to escape it.

by EdwardD | 15th Dec 23, 11:13am 1702592022

Good point, but with the oldies having to take reverse mortgages to pay for ever-increasing insurance and rates, it makes me wonder what retirement homes will do?

by Pa1nter | 15th Dec 23, 11:29am 1702592968

Continue fleecing their residents?

by middleman1 | 15th Dec 23, 1:49pm 1702601351

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.

by Foxglove. | 15th Dec 23, 2:08pm 1702602495

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.

by middleman1 | 15th Dec 23, 2:22pm 1702603320

Yup, no question rates are a wealth tax. But given the correlation between higher occupancy incidence and economic disadvantage there's really no alternative to a progressive system. Thatcher tried user pays and it brought her down.

by redcows1 | 15th Dec 23, 9:28am 1702585704

Agreed. The idea that cpi reflects inflation is so far removed from realty when a physically depreciating asset can inflate at such a high rate it's a mockery. Mostly a direct mockery of those without such assets.

by Advisor | 15th Dec 23, 10:40am 1702590028

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.

by linklater01 | 15th Dec 23, 11:21am 1702592514

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?

by Foxglove. | 15th Dec 23, 11:54am 1702594475

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.

by JojoB | 15th Dec 23, 12:52pm 1702597968

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.

by middleman1 | 15th Dec 23, 2:14pm 1702602893

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.

by ChrisOfNoFame | 15th Dec 23, 2:24pm 1702603465

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.}}

https://www.investopedia.com/terms/a/annual-return.asp

by Pa1nter | 15th Dec 23, 2:42pm 1702604540

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.

by ChrisOfNoFame | 15th Dec 23, 2:53pm 1702605184

re ... "That'll factor in for some people, but ..."

The mortgage brokers and mortgage bankers I know say it's a factor for most people.

by GetFeeling | 15th Dec 23, 7:08pm 1702620514

LOL. No. It's all about the land. The land goes up in value. The house goes down.

Golly you post a lot of drivel.