Here's our summary of key economic events over the holiday period that affect New Zealand, with another quick news wrap-up so you can get back to 'time-off'.
The closely-watched US ISM factory PMI contracted again in December, but by less than expected and less than in November. But the number of months in contraction is now mounting; now its 14th straight month, the longest string since 2000-2001. New order levels remained weak.
But despite a key strike, and chip shortages earlier in the year, America's General Motors came out on top in their 15.5 mln vehicle sales market in 2023, edging out Toyota for the top spot - again.
US job openings eased slightly in November from October to 8.8 mln. This caught the attention of financial markets because this is now a 13 month low, but to be fair it is very little changed from October and has been hovering at this level since July.
Also falling, and quite sharply, were mortgage application levels in the US. And that was even after adjusting for the holiday period. Mortgage interest rates were stable at 6.76% plus points.
But expanding, and at a faster pace now were retail sales at traditional outlets. They were up +5.6% from the same week a year ago in a rising pace, solid real increases and much more than can be accounted for by inflation.
India's factories ended 2023 with a good but easing expansion. However that expansion remains above its long-run trend levels. They had substantial rises in new orders and production, and managed to keep its input cost inflation down, now its weakest rise in more than three years.
In China, it is now very tough being a new graduate and looking for work. Average starting pay offered to new hires in 38 key Chinese cities fell -1.3% to ¥10,420 per month (NZ$2,350/month) in Q4-2023 from a year ago. That was their worst drop since at least 2016 when this data started to be collected, according to data from a national online recruitment platform. And it is worse in some very big centers. In Beijing, starting salaries decreased -2.7% from a year ago and they have been falling all year. In Guangzhou they fell -4.5%.
In Australia, the house price juggernaut seemed to run out of steam in December. Sydney prices were little-changed and Melbourne prices actually fell. But for all of 2023 they did manage an +8.1% rise overall, with Sydney up +11.1%, Melbourne up a much more modest +3.5%, Brisbane was up +13.1% and Perth roaring ahead, up more than +15% for the year. Although Brisbane, Adelaide and Perth maintained the pace in Q4, that was not the case in either Sydney or Melbourne and questions are rising about a 2024 reversal.
Rising, and at a faster pace is the price of iron ore, now up at US$145/tonne, a gain of +18% in a little over a month, and up +30% in six months. Australia's budgets (state and federal) are all being fattened by this rise.
The UST 10yr yield starts today at 3.90% and down -5 bps from this time yesterday. The key 2-10 yield curve is now inverted by -41 bps, marginally more. Their 1-5 curve inversion is also a little more inverted, now by -91 bps. And their 3 mth-10yr curve inversion is still inverted by -145 bps. The Australian 10 year bond yield is now at 4.05% and +3 bp higher. The China 10 year bond rate is now at 2.59% and down -1 bp. And the NZ Government 10 year bond rate is +3 bps higher at 4.56%.
Wall Street has started today down -0.3% in Wednesday trade on the S&P500. The Nasdaq is down another -0.6% so far. Overnight European markets all fell sharply, with London down -0.5%, Frankfurt down -1.4% and Paris down -1.6%. Yesterday Tokyo did not trade as it is a standard holiday there. They should be back today. Hong Kong fell another -0.9%. Shanghai however rose +0.2% as the home team came out to stabilise things. On the other hand, the ASX200 fell -1.4% yesterday. In its first day of trading this year, the NZX50 closed down a more modest -0.3%.
The price of gold will start today down -US$29/oz at just on US$2033/oz.
Oil prices are +US$2.50 higher at just under US$73/bbl in the US. The international Brent price is now just over US$78/bbl.
The Kiwi dollar starts today at 62.4 USc and only marginally different from this time yesterday. Against the Aussie we are nearly +½c higher at 92.8 AUc. Against the euro we are marginally firmer at 57.2 euro cents. That all means our TWI-5 starts today just on 70.7 and up +10 bps.
The bitcoin price starts today much lower at US$42,945 and retreating -4.8% from this time yesterday, suggesting yesterday's surge was overdone. Volatility over the past 24 hours has been extreme at just under +/- 5.7%.
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45 Comments
India's factories ended 2024 with a good but easing expansion. However that expansion remains above its long-run trend levels
What I feel about the ‘Bharat narrative’ in India
I recently visited India twice, marking my first visit in four years. During the trips, I found that India's domestic and foreign situation have changed tremendously compared to four years ago. India has achieved outstanding results in economic development and social governance, and its great power strategy has moved from dream to reality. However, potential risks and crises have also begun to unfold.
Rising, and at a faster pace is the price of iron ore, now up at US$145/tonne, a gain of +18% in a little over a month, and up +30% in six months.
Why We Are NOT Going Into A 1970s Type Of Inflation
For quite a while there, you couldn't go long without hearing about how the 2020s were about to repeat the 1970s. That was never any real risk, but why? What is inflation? Where does it actually come from (spoiler: not the Fed)? Most important of all, how can we tell? The answer to all those questions are painfully clear, but once more Economics has the public thinking only backwards.
Dealer hedging at record levels of inversion
#SOFR futures and options traded 1.28 billion contracts in 2023, surpassing the highest annual volume ever recorded in Eurodollars. Link
The US Govt is currently deficit spending at around 8% of GDP - completely overpowering the Fed's pathetic attempt to slow the economy with their limp monetary policy. NZ Govt has only run 8% fiscal stimulus twice in recent history (2011 and 2020). The new NZ Govt is aiming to drop from 2.5% stimulus this year, to 0% in 2026/27 (about the same track as their equally idiotic predecessors).
The US stimulus is stimulating new supply at the same time as supply chain problems fully unwind. The result? The economy is strong, jobs are being created, wages are increasing moderately, and inflation is basically back in target range. The US are not alone - some of the Scandinavian countries are achieving the same miracle recovery.
Meanwhile, foolish ideologues in NZ and the Euro zone seemed determined to plunge their economies into ever deeper recession - desperate for their own Volker moment in the sun. The stupidity is breathtaking.
Overseas ownership of US debt is 25% to 30% of total compared to around 60% in NZ. The net impact of this is that NZ Govt sends a greater proportion of interest payments overseas relative to the US. This is not that big a deal to be honest - weighted average interest rate on NZ Govt bonds is about 3% so govt debt in bond form is still deflating away. This is why govt net financial worth is still positive - govt is earning as much in interest and dividends as it is paying in interest.
You are spot on here Jfoe. If you look at public debt dynamics across UK, US, Aust, NZ and Cad, there has been an extraordinary transfer of wealth from the State to a relatively small number of private citizens. Public debt to GDP is up around 20% to 30% in 4 years through unprecendented fiscal and monetary stimulus. As just one example, prime Sydney house prices are up around 80% in that time.
It's kind of obscene, most Joe public are too stupid to realise but then again the ones that do understand have made a fortune so it's kind of all good.
China's 'president' Xi Jinping made a startling admission in his New Year address. For the first time he said the economy struggled last year. The confession merely underscores the difficulties the country is currently facing and has so far been unable to surmount. But why? As more data pours in, we see how the answer to that question isn't actually Chinese. Link
Oops - is NZ about to be dragged into a war?
The United States and eleven other nations issued a joint statement on Wednesday demanding a cessation of Houthi attacks in Yemen in the Red Sea, as announced by the White House: "Houthis will be held accountable for the consequences if they continue to threaten lives, the global economy, and the free flow of trade in critical shipping lanes in the region." Link
What are the commenters mood here? Anyone want to go to war to protect Israel's right to ethnically cleanse Palestinians?
Israel's kicking all the hornet's nests it can find to escalate the situation so the US is forced to get involved.
https://www.zerohedge.com/geopolitical/least-20-dead-after-twin-blasts-…
The hostile nations that border Israel are seemingly more compatible with Russian and China alignment than the West. Perhaps that then conveys an understanding that Israel might adopt Putin’s declaration of a policy of nuclear weapon deployment in the event of a perceived existential threat
I give you two examples of very recent reckless Israeli aggression/terrorism and you post this off topic response? I'm struggling to find relevant coherent thought here.
Do you want to send NZ soldiers and pay extra taxes to support Israel? Do you think NZ has any obligation or good reason to support them?
“Israel’s kicking all the hornets nest.” Your words. So what exactly is happening about that and about which you sought the mood of others. Accordingly simply a post in response, theorising as to why the “hornets” are not aroused sufficiently to meaningfully strike back and why the rest of the world is observing this particular theatre of war, but physically offering little of significance.
Try and look at it strategically in so much that Israel is conducting this campaign in such an aggressive and ruthless manner because it can, and then ask yourself why is it, that it can. There have been numerous conflicts in the Middle East, the first Gulf War for instance, where opposing Arabic armies have crossed neighbouring borders but here, so far, there is no sign of any sort is serious retaliatory incursion being mounted against Israel. So again, ask yourself what exactly is stopping all the allies of the Palestinians from actually intervening.
Go and read read the opening post about NZ being dragged into a war because we signed up to something to do with the Red Sea. That's the context here.
Your now on my list of people: Who, when they read a comment they don't understand, they neither ask questions or just move on and read the next one but instead full in the gaps in their head with incoherent talking points and waste everyone's time.
Edit: "what exactly is stopping all the allies of the Palestinians from actually intervening."
I'm not fixing your ignorance on this.
Well I did suggest one rather critical factor but obviously you have one better than that.
ps. For all the worthy links adx posts here, most realise, as in the hypothetical question here, that being a bit provocative is part of the nature. A gigantic quantum leap to envisage NZ troops embarking and on. Stand at ease!
I'd go to war to protect Israel Tim, I suspect that doesn't align with your thinking.
I'm embarassed at the number of Maori who are pro-palestine based on the lazy assumption we were both "colonised". They, like most, have not studied any history and are entirely ignorant of the geo-politics of the region.
Anybody care to guess Israeli/Jewish Nobel prizes vs the entire Arabic community?
An old European acquaintance, way back, ventured that New Zealand is a small country with a big opinion. That I thought was rather unfair given New Zealand’s forthright commitment to such as the two world wars. But in truth any opinion from a small country at the south east end of nowhere, of less than 200 years of international history, about a region that is distant, century on century of history steeped in continual conflict, as evidenced by being the actual locality of the bible itself, needs to be offered with a great measure of forethought.
".......In China, it is now very tough being a new graduate and looking for work...."
https://www.spectator.com.au/2023/01/elite-revolt/
Spells trouble.
The closely-watched US ISM factory PMI contracted again in December
Yes and the price component was down 4.6 percent over the month... if this means deflation the fed will have to cut earlier.
Correction, down 4.7 percent "The Prices Index registered 45.2 percent, down 4.7 percentage points compared to the reading of 49.9 percent in November"
Peter Zeihan gives his reckons on Aussie, and despite pouring on the love about US-Aussie mateship, it's bad for Aussie. And no doubt bad for us. Zeihan believes the following is going to wreck Aussie
1. Completely dependent on raw materials sold to China
2. Didn't industrialise the economy. Needed to be done as far back as 1989
3. Subprime problem in Aussie will be 5x worse than the US GFC.
https://www.youtube.com/watch?v=8hSYixFjZWM&t=3s
Zeihan also said rat poison was going to zero. Take his reckons with a grain of salt. Mind you, Aussie h'hold debt to GDP / Income is off the richter. He may have a point.
Anyway, Maccy B drops some nuggets of how screwed Sydney is. Some serious policy failure.
Meanwhile, the bulk of the homes that were built during last decade’s boom in construction were high-rise apartments, many of which turned-out to be poorly built and riddled with defects:
According to the Strata Community Association NSW, four out of every ten newly constructed apartment complexes in NSW had significant flaws as of October 2021.
Fifteen years of pre-pandemic hyper-immigration fueled the proliferation of defective apartments by requiring the annual construction of tens of thousands of homes.
This led to a compromise between quality and speed, resulting in a sharp decline in building standards
https://www.macrobusiness.com.au/2024/01/sydneys-housing-market-is-pure…
Aussie building inspection examples (not Sydney apartment buildings but a consistent picture)
https://youtube.com/@Siteinspections?feature=shared
One of the reasons for this is the language around house buying. It's designed to hide the fact the buyer is is taking on debt and paying vast amounts of interest over a long period. Even on this site they use an affordablity index which ignores the actual price paid entirely in favour of a per week/month cost.
This leads to a lack of recognition that the wealth effect propping up the economy is in fact debt. And the cost of that debt is effectively borne by the whole economy.
If you desire (need) to expand the money supply and all money is asset backed then asset values must increase....it all becomes problematic when output is insufficient to service that (ever) expanding debt.
Money supply may be unlimited, output however is not....we have reached the point where those with the ability to expand money supply realise that current (and future) output means the ability to service has disappeared and nobody wants wants to be the first to fall over....ever hopeful that if they can hold out they may survive the first step down, but its only the first step of many.
According to Fox, 45% of real estate agents in the US are struggling to pay rent on their offices. On of the key reasons is that the Fed has killed the property market.
Hiro Brands, mnfr of Australia’s most popular supermarket cleaning brands, collapses.
This is the result of mnfers unable to produce products at price points suitable for target shoppers.
Good indicator that the pressure is on for nice-to-have FMCG products.
Comment from a professional colleague:
So many FMCG businesses are struggling and I expect to see more brands enter VA this year as they struggle with a combination of factors: higher input costs, rising interest rates, suppressed consumer demand, margin squeeze, expansion of home brands, and tighter capital markets (reducing their ability to find additional working capital and investment funding).
After 18 years of successful trading, my business went into VA in September last year after we couldn’t secure additional funding to support our growth. With margins becoming tighter, cashflow getting squeezed and increasing COGS, it became an unsustainable position without further external investment.
https://www.news.com.au/finance/business/manufacturing/hiro-brands-whic…
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