Here's our summary of key economic events overnight that affect New Zealand, with news it is looking clearer that the inflation battle has been won in the US.
The main data release overnight came from the US, revealing November personal income and spending levels. And from those they can extract a view of consumer price inflation, the PCE.
US personal spending was up but only because of services like rent, utilities and eating out. Spending on goods actually fell in November from October. Overall spending was up +2.7% from a year ago. American petrol prices are virtually unchanged in a year.
Meanwhile, personal incomes rose slightly faster in November from October and at a faster pace than spending. They were up +4.3% in a year.
The PCE inflation measure was up +2.6% from a year ago, its lowest year-on-year rise since early 2021. Today's data will feed the idea that the US Fed has successfully gotten on top of inflation without a recession (the "soft landing"). So now the task turns to keep the expansion going.
And that is on the way according to business decision-makers. They are ordered durable goods at a significantly faster pace in November, up +5.4% from October's levels and up +10.0% from a year ago - although you need to see this data as including inflation. However, that is still the best month-on-month rise (apart from the pandemic recovery) in six years. Orders for capital goods were up a startling +28% from the same month a year ago. Decisionmakers are assuming the future is brighter.
US new home sales in November disappointed however with an unexpectedly sharp drop. We recently noted a good pickup in new homebuilding starts (but not consents). Homebuilder may have misread the demand signals. That sector isn't out of the woods yet and won't be a driver of any American expansion.
In Japan, their consumer inflation rate in Japan dropped to 2.8% in November from 3.3% in October, and the lowest level since July last year. Core inflation fell to 2.5%, the lowest in 16 months, from 2.9%. This was as expected but was outside the Bank of Japan's 2% target for a 20th month.
In China, the move started by ICBC is extending with most banks now cutting term deposit interest rates for savers. You will be unlikely to get a 2% rate there now, more like 1.5%.
Updated IMF data as at September shows very little change on how the world's countries hold their foreign exchange reserves. The US still dominates with just under 60% followed by the euro at just under 20%. Other currencies like the Chinese yuan are insignificant (2.4%) and little different to Australia's dollar (2.0%). The only major to rise was for holdings in Japanese yen (up to 5.5%) and passing the retreating UK pound. But from a long perspective, the US dollar's dominance has fallen from a 70% share back 25 years ago.
In Australia, they (meaning their banks) are lamenting weak loan growth. But at +4.0% rise, that is much stronger than our +2.9% expansion. Their business loan growth was a more impressive +6.4% (although to them they think that is weak given it expanded at almost +14% a year ago). New Zealand business lending expanded just +0.1% in November.
Locally, Greenpeace's bid to stop the green hydrogen projects in Taranaki using the Treaty of Waitangi as a way to get at the dairy industry have been dismissed by the Court of Appeal.
Also 'positively' in an economic sense, there is a noticeable upswing in local retail activity in the final week before Christmas. Worldline's transaction data shows spending this week lifted to take the first 21 days of December value activity to more than $2.6 bln, which is up +2.9% the same period in 2022 and up more than +17 above the same days in 2019. Expectations are that Friday and Saturday will be the busiest shopping days of the year.
The UST 10yr yield has risen a minor +1 bp today, now at 3.91% and little-changed from the 3.93% a week ago. The key 2-10 yield curve is marginally less inverted, now by -42 bps (it was -50 bps a week ago). And their 1-5 curve inversion is little-changed, now by -97 bps. And their 3 mth-10yr curve inversion is marginally more at -147 bps. The Australian 10 year bond yield is now at 4.02% and down -4 bps from yesterday. The China 10 year bond rate is still down at 2.63%. And the NZ Government 10 year bond rate is also little-changed at 4.56%. A week ago it was at 4.67% so it has fallen -11 bps in that time.
Wall Street is up +0.4% on the S&P500 in Friday trade and heading for a +0.9% weekly rise if they hold this level. Overnight, European markets were all little-changed. Yesterday, Tokyo was also little-changed in Friday trade and ending the week up a creditable +1.2%. Hong Kong had a tough afternoon yesterday falling a sharp -1.7% on the day to end the week down -2.0%. Meanwhile Shanghai dipped just -0.1% with home-team support at the end and finished their week down -0.7%. The ASX200 ended its Friday session little-changed in thin trading in its Friday session but up +0.8% for the week. The NZS50 was also little-changed yesterday, also in very light trade, and ended the week up +0.7%.
The Fear & Greed index we follow has moved well into the 'extreme greed' side as risk appetites embed deeper. The VIX remains unusually low but in past recessions it holds at this level for 3 or 4 years before the recession hits and it has just started that process in this cycle. (The past is not always a good guide to the future however.)
The price of gold will start today up +US$18 at just on US$2058/oz. A week ago this price was US$2033/oz so a +1.2% gain since then. the gold price might be high, but the price of diamonds is on the skids.
Oil prices are +50 USc firmer at just on US$74/bbl in the US. The international Brent price is holding at US$79/bbl. From a week ago these prices have gained a net +US$2/bbl.
The Kiwi dollar starts today at 63 USc and up +20 bps than yesterday. A week ago we were at 62.2 USc. Against the Aussie we are marginally softer at 92.5 AUc. Against the euro we are firmish at 57.2 euro cents. That all means our TWI-5 starts today just on 70.9, up 10 bps from yesterday but up +50 bps from a week ago.
The bitcoin price starts today still high at US$43,745 although a minor +0.3% firmer from this time yesterday. However that is a +4.4% gain in a week. Volatility over the past 24 hours has been modest at just under +/- 1.1%.
Merry Christmas all. This curation review will return on Wednesday, December 27, 2023.
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42 Comments
As we watch other countries ease out of their inflation episodes, without really increasing unemployment, restraining consumer demand, or cutting govt spending, should we perhaps be asking why our inflation is so sticky?
I mean we have followed the economic doctrine religiously. We have reduced disposable incomes by hiking mortgage costs, made borrowing so expensive that business investment has literally stalled, and slammed the brakes on govt spending.
My theory is simply that workers are pushing hard for wage increases because mortgage / rent costs are so high, and businesses are simply passing on the higher cost of wages, debt payments, (and insurance, rates etc) to consumers, and accepting a bit less volume to maintain margin.
The economists I know just tell me that I might be right in part, but the answer is still the same: reduce household income until businesses can't pass on higher costs into prices. What kind of crazy plan is this? How deep into recession would we have to get before wealthy New Zealanders can no longer afford to spend $15 on a block of Tasty? Do the economists in charge not realise that high interest rates actually benefit households in aggregate (households receive more interest than they pay)?
Anyway, Merry Christmas and try and survive the guaranteed sh*t show that will be 2024.
Our inflation isn't sticky, we just don’t measure it enough, and we mainly look at the annual value and not the annualised quarter. I’m picking we are already back in RBNZ target.
I guess we will find out in Jan what happened 4 months ago, and then we will compare it to 16 months ago and get a headline CPI that tells us how bad inflation was back then.
Stats have started publishing about half of the CPI components (by weight) on a monthly basis, and, yes, inflation has clearly moderated. You can see the monthly CPI broken down by contribution on this graph here. Look at how much the monthly data gets dragged around by price spikes / slumps (petrol, air fares etc). The last two months have been negative overall on this selected indices thanks to falling global food prices and international air fares / hotel prices.
But, other countries cooled down much, much quicker: Spain, Denmark, Switzerland, US etc - and they did so without slowing consumer demand, increasing unemployment, or reducing govt spending. They certainly didn't feel the need to blow up the economy and cause a sustained recession as we seem intent on doing now.
Fixed, eh?
You need to remember that energy underwrites money, and that there has been more than $1 of debt issued for every $1 of GDP, for quite some time.
So what is a dollar, and why are you still valuing energy in them? They've been proven to be un-anchored. Yet the vast majority - you included - still believe. Why?
NZ has to be one of the least competitive countries in terms of grocery prices, building materials, anything we import, petrol. We get ripped off at every turn. My theory is this makes our prices more sticky. We also have abysmal productivity, so in an era of workforce scarcity our go to move of seeking more cheap labour is counterproductive.
Locally, Greenpeace's bid to stop the green hydrogen projects in Taranaki using the Treaty of Waitangi as a way to get at the dairy industry have been dismissed by the Court of Appeal.
When I read this I think GP does not care about people as much as they make out. Absolutely disgusting
Chemicals are bad for us... wait a minute. This year 2024 I plan to look into the alternative arguments to the environmental nutters. One of which is that the world (and nz) population is expanding, we have to feed, clothe and house these extra people. The sandle wearers dont consider that human need or do they?? Even the paris climate agreement stated that countries should meet the carbon reduction targets but food production should not be affected.
Sorry I talking about the climate when I asked PDK to give it a rest, I had to answer the point in this mornings report. Over and out
That soil moisture map is starting to look a little desparate. 110-130mm deficit zone here. We keep getting 2-3mm every few days with cool overcast and the occassional life sucking hot day. Last night rain came on strong about 3am and I thought great, sounds like at least half an inch and fell asleep again happy, got up this morning and.....another 3mm. It's keeping grass green, but when these little showers stop, it'll become burnt in a week!
Have to say, the neighbours crops are looking great. Wheat, peas, brassica, maize. All looking a picture of health.
Yeah, I know some people have done it tough with the wet Zwifter. Hasn't really rained properly in our locale since winter. Drought is a creeping weather disaster that tightens it's grip each passing day. We had plenty of growth through spring and made an enormous amount of baleage, so yes we can manage. Can't fatten young stock on baleage though and they're the cashflow.
Down here in South Canterbury I would say we've actually had three years of below average sunshine hours. That's usually the case with La Nina weather, when we get onshore breeze from the NE, but this year, although it's meant to be El Nino with SW dominating, we're still getting 4 days out of 5 NE. Certainly noticing it with the solar power. Without checking I'd say it's at least 10% down on 4+ years ago. Just like today. It's heavy overcast, cool, with NE breeze.
We're in a 130+ deficit area.
We had a decent pea crop this year despite (funnily enough) rain affecting the sowing in September. Rain also delayed harvesting, but since then (13/12) we haven't had a drop. Bringing in the hay in 30+ degrees was less than pleasant, and now we'd be happy to get a few days of rain.
Our grazing paddocks are just holding on, and we'll be stoked if the forecast Christmas Day rain turns up, although the 32 degrees forecast to come with it is much less appetising.
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Seems like housing bust is possibly in full swing in Germany.
House prices in Germany dropped by a record 10.2pc in the third quarter in a further sign of the struggles faced by Europe’s largest economy since the pandemic.
It was the fourth consecutive quarter of declines compared to the same time a year earlier, and the biggest since Germany’s statistics office began keeping records in the year 2000.
The drop comes amid the biggest property crisis in decades in Europe’s largest economy.
Konstantin Kholodilin of the German Institute for Economic Research said: “Until 2022, there was a speculative price bubble in Germany, one of the biggest in the last 50 years.
“Prices have been falling ever since. The bubble has burst.”
https://finance.yahoo.com/news/german-property-prices-plummet-housing-1…
Germany has had a property bubble? I seem to remember some commenters here holding Germany as the great white hope in housing bubble crushing policy? Something to do with responsible Germans not treating housing as a magic money printing machine? The wonders of CGTs and PTTs, a culture of renting rather than owning, along with huge protections for tenants?
This bubble can never have existed, to be now deflated . Germany is a beacon, nay, a wunderland for those seeking an affordable roof over the head!
U.S. banks are pocketing real money by borrowing money from the Fed's newest backstop facility, which charges a lower rate, and then parking it at another unit of the Fed, which pays a higher interest rate.
Banks are borrowing record amounts from this new facility. A kind of regulatory arbitrage. Making 'free money' at the expense of the public.
https://www.bloomberg.com/news/articles/2023-12-21/demand-for-fed-s-ban…
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