Here's our summary of key economic events over the holiday that affect New Zealand, with another quick news wrap-up so you can get back to 'time-off'.
After the sharp fall in the two week Christmas holiday period, American mortgage applications recovered as strongly last week. Average mortgage rates were little-changed at 6.81%, plus points.
More generally, Bloomberg is reporting that most large economies are about to issue very large volumes of bonds, almost US$2.1 tln worth and a +7% rise from 2023. This comes at the same time central banks are selling down their own holdings. It will be up to private investors to take up these unprecedented volumes and there is likely to be strong upward pressure on interest rates as a consequence. European bond sales have already hit a record this week at more than €108 bln, and there’s still two days of issuance to go.
Meanwhile, an ECB official says the eurozone needs to be ready for another downturn.
Tomorrow we will get the US CPI data and that is expected to come in little-changed at 3.2% and well above its policy targets. This, along with still-strong labour markets probably means the bond market pricing of five -25 bps rate cuts in 2024 might be somewhat aggressive.
And we are also likely to get China's new bank loan data for December which is widely expected to come it at +¥1.4 tln (+NZ$315 bln) and a sharp increase from the November ¥1.1 tln. That would take the 2023 bank debt increase to a massive +¥23 tln (+NZ$5.2 tln) which incidentally is more bank debt issued than the 2023 GDP of countries like the UK. Beijing is pushing out new debt at scale as a way to keep its economic activity expanding, using its five big policy banks as the funnel for most of it.
In Australia, they released their November monthly CPI indicator which rose at a 4.3% rate. That however is down from 4.9% on October and 5.6% in September; going the right way but still far above where they need it to be.
Interestingly, the fastest rises were for insurance premiums, up more than +16%. And a new report out overnight noted that more than ½ mln Aussie homes will be uninsurable by 2030.
That same report identified the top five risks for New Zealand, in order, as the cost-of-living crisis, rapid and/or sustained inflation, natural disasters and extreme weather events, an asset bubble burst, and a debt crisis.
Locally, we will get November building consent data later this morning. Yesterday, ANZ said 2023 ended with a little momentum in card spending in their monitoring of customer card use. However they noted that spending on durables and clothing was particularly weak, while spending on utilities and miscellaneous spending is growing faster than other types of spending. However they put some of this 'strength' down to outsized inflation.
Meanwhile commodity prices ended the year on the up. The ANZ World Commodity Price Index gained +2.4% in December from November, seeing it end the year down just -1.8% from a year ago. Dairy prices improved to drive the index higher, more than offsetting weaker aluminium prices. In New Zealand dollar terms, the index lifted a lesser +1.9% from November as the NZ dollar gained +2.4% against the trade weighted index.
With job ads falling rather quickly locally it is perhaps surprising that the latest employment data for November reveals an expanding workforce. Most of the recent growth was from the primary and factory sectors, also somewhat unexpectedly given the economic struggles in both. The slowdown in earnings per filled job growth reflects a labour market that is loosening from its tight stance earlier in 2022 and early 2023, with the war for talent more or less over and reducing the pressure for higher wages from “high” to “moderate”.
Globally, demand for air cargo seems to be recovering well. No doubt it will be getting a further boost with the Red Sea / Suez problems. Volumes were up +8.1% in November from a year ago and now down only -3.1% from November 2019. Asia Pacific volumes are up +9.8% from a year ago, but have more to climb to get back to equivalent 2019 levels.
Global passenger traffic seems fully recovered. Total traffic in November rose almost +30% compared to a year ago. And that almost matches its November 2019 levels. But there is still some way to go in the Asia/Pacific region where we still lag -17% for international travel, almost all due to Chinese tourists staying at home.
The UST 10yr yield starts today at 4.00% and down a mere -1 bp from this time yesterday. The key 2-10 yield curve is little-changed, still inverted by -34 bps. Their 1-5 curve inversion is also little-changed, now by -86 bps. And their 3 mth-10yr curve inversion is still inverted by -137 bps. The Australian 10 year bond yield is now at 4.14% and up +4 bps. The China 10 year bond rate is now at 2.56% and up +1 bp and just off its lows. The NZ Government 10 year bond rate is +7 bps higher at 4.75%.
Wall Street has started its Wednesday session with the S&P500 up a minor +0.2% from yesterday. Overnight, European markets were all little-changed except London which fell -0.4%. Yesterday Tokyo ended its Wednesday session up another impressive +2.0%. But Hong Kong was down -0.5% and Shanghai followed suit, also down -0.5%. Singapore ended its Wednesday session down -0.6%. The ASX200 ended down -0.7%, and the NZX50 matched that with its own -0.6% retreat.
The price of gold will start today down another -US$4/oz at just on US$2026/oz.
Oil prices have slipped -50 USc to be now just over US$72/bbl in the US. The international Brent price is now just over US$77/bbl.
The Kiwi dollar starts today at 62.2 USc and -20 bps softer from yesterday. Against the Aussie we are down -¼c at 93.3 AUc. Against the euro we are -¼c softer too at 56.8 euro cents. That all means our TWI-5 starts today just under 70.7 and and -20 bps lower from this time yesterday.
The bitcoin price starts today lower, now at US$45,494 and down -2.9% from this time yesterday. Volatility over the past 24 hours has been quite high at just under +/- 4%.
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76 Comments
Ownership of equities suggests that US democratic shareholder capitalism is more myth than reality: While it's true that a record high 58% of American households do own stocks via mutual funds or as individual shares, in the aggregate the amount of stock most of these folks own is tiny. The wealthiest 10% of U.S. households now own nearly 93% of the stock market. https://axios.com/newsletters/ax Link
More generally, Bloomberg is reporting that most large economies are about to issue very large volumes of bonds, almost US$2.1 tln worth and a +7% rise from 2023. This comes at the same time central banks are selling down their own holdings. It will be up to private investors to take up these unprecedented volumes and there is likely to be strong upward pressure on interest rates as a consequence.
Hardly - banks are already buying the safest and most liquid securities (government debt) in recent weeks in preference to risky corporate and household lending.
Yen Plunges After Japan Wage-Growth Collapses, Crushing Hope For BOJ Hikes
....real wages crashed 3%, the biggest drop on record, and much deeper than the consensus call for a 2% drop, as well as a drop from October's -2.3%.
Banks will be forced to commit more risk weighted capital or avoid real estate not eligible to be insured
Asset bubble burst #5 on list of biggest risks facing NZ, and sea level rise as well as weather events will impact the insurability of a lot of properties. So the threat has to be real.
Governments and banks have created the mess and have no idea how to fix it. My suggestion is create the burst. The sooner it happens the sooner the recovery and rebalancing can happen. Delay it and the pain can only get worse. Younger generations are being denied ownership opportunities because the banks and Government persist in propping up house values. That absolutely has to change. The sooner the better.
I totally agree, the sooner the better, sometimes you just have to swallow the bitter pill. Sure it will hurt some people but mainly people who bought into the idea that a shack is somehow worth over a million dollars. Unfortunately bad decision need to be punished otherwise they just keep happening.
Unfortunately no party seems willing to allow this to happen, not national, not act, not labor, not the greens.
I think this is a failing of a political system, possibly human nature, we seem need a crisis to force us to do anything. From the asset bubble to fixing water pipes, its just kick the can down the road until our legs fall off.
"I wonder how that will play out" - its mostly the rich that will end up with uninsurable houses (e.g. coastal), so I am sure there will be some kind of bail out for them (there always is). Perhaps insurance companies will be forced to insure them with the cost paid by the rest of us plebs.
It will be up to private investors to take up these unprecedented volumes and there is likely to be strong upward pressure on interest rates as a consequence.
So have I got this correct? As inflation is down around the world central banks are easing their OCRs, but because of the bond issuance being left to the market sovereign bonds will be paying higher interest rates? Will this have an effect on bank loan interest rates? E.g. because sovereign bonds are getting a better return bank bonds will be lower?
The bond market isn't ''pricing in 6-7 cuts this year'' It's pricing in a base case of only ~3 cuts And adding in a lot of uncertainty and bidding for recession hedges - this is what skews pricing down Thinking in probabilities is really important to become a better investor Link
Do our politicians need a pay rise? Shop lifting - things must be tight on a salary of $150k +/- https://i.stuff.co.nz/national/politics/301037952/green-mp-golriz-ghahr…
To reach that conclusion the police would need to prosecute and she be found guilty. Whole barrage of shoplifting throughout NZ but you really only see prolific offenders end up in court. This one of course is high profile but regardless of that is still unproven and likely a misunderstanding, no actual intention way out will be found and the complaint withdrawn. Certainly not a good look but not yet a killer either at this stage.
I would not expect anything better from the Greens. They are biggest sanctimonious hypocrites of all.
Shoplifting... LOL, not all that surprising, after all, coming from a representative of a Party that does not have any respect for private property and individual entrepreneurship.
Casts an unfortunate slur on the calibre of individuals attaining a LL.B doesn’t it. Yes of course there is the old one that 90% of lawyers give the rest a bad name but even so, in NZ recently at high level the Minister of Justice no less, and now a reasonably senior MP, in sufficient trouble with the law to involve the police.
Bit much gloating going on here. Ghahraman has MS, diagnosed in 2018.
Symptoms include, problems with thinking, learning and planning, and depression and anxiety. Progression can be rapid. If there's anything to this case then I would imagine it's down to her personal health issues! My father had MS. I am quite familiar with the damage it causes to a persons functionality!
Really 150k is not that much, it can easily be spent if you are not careful. Really by a 60,000 car every 3 years assuming you pay cash, have million dollar mortgage at 6% that's 60,000 in interest alone you as spending 80,000 a year of you 102,890 after tax and Kiwi Saver income doesn't leave much for things like food and clothes. She is currently on holiday that can easily cost $20,000 if you go luxury, a single return business class ticket to New York on Air NZ can cost $14,000 alone.
We don't teach financial responsibility, and we are constantly surrounded by advertising teaching us not to be.
Also if she did steal this we don't know if its some sort of addiction or she didn't have the money.
Quick, kill some cows and buy an EV.
"In a bid to meet growing demand and avoid power shortages, the Indian government intends to double coal production by 2030, reaching 1.5 billion tonnes, Bloomberg reported. Furthermore, plans were unveiled to add 88 GW of thermal power plants, primarily coal-based, by 2032."
As a oil/coal champion profile have you thought of moving to the capital...great sunsets..
I feel Huntly should be closed down as quickly as possible and its not for environmental or climate change reasons. More about energy/demand supply issues. Its burning a tons of low quality Indonesian coal according to WP in a parliamentary speech in the last month or so. Labour of course was to blame for this and why didn't Huntly buy good quality NZ coal. Scoring political points without having any idea about Huntly's coal or gas supply situation or how the high potential for rolling blackouts (aka load shedding) there are. A bit like the German Greens. When push comes to shove put those coal power stations back into operation.
My understanding is that the good quality NZ coal is too good to burn and turn into electricity - much more valuable to use it for other purposes and buy in cheap stuff.
Your power bills would be higher if we required NZ coal at Huntly, simply put.
While I'm not a particular fan of the exploration bans Labour brought in, I don't think we can blame them directly for high coal use at Huntly. It's a factor of weather (it tends to make up for low hydro generation), issues with existing gas supply, and lack of investment. Labour were at least slowly pushing us in a viable direction where Onslow could make Huntly obsolete, but NACT have shut the door on that.
Maybe Genesis will save the day with their Biomass at Huntly experiments? If you have read anything they have produced recently, they are desperate to get away from coal and gas and are going hell-for-leather building renewables to give them a sustainable financial future.
I don't know a number, but no doubt cheaper than Onslow. Doesn't really solve the same problems though - Huntly is used as an intermittent top up when the renewables aren't going strong enough, with big seasonal variations in use. Manapouri doesn't have enough storage to operate like that. Meridian are only allowed to run the lake level over a range of a meter or two so they don't really have much choice on when to generate, and they certainly can't hold on to a load of summer water to deal with higher winter use.
Yes, no doubt it would help. But we would likely still need that extra reserve of Huntly to top-up every now and then, especially to avoid black-outs in dry years.
The beauty of Onslow is that it can suck up extra power when intermittent renewables are pumping, and then spit it out when they stop. This buffer means we can build a whole lot more wind and solar, which are quick, cheap and non-controversial to build but don't always generate when you want them.
The alternative is a whole host of options that Meridian and Contact have been pushing for a few years (due to the threat Onslow poses to their profits). This includes things like small (compared to Onslow) batteries, industry being paid for variable demand, hydrogen plants that only run when power is abundant etc. This will also have a cost in infrastructure and on-going inefficiencies.
Have the best of both worlds. Keep the smelter (nationalise it if we have to) and turn huntly into a biomass burner using the central NI's waste forest products as its input. We would need to construct a pellet plant nearby (Tokoroa probably), transport the pellets to Huntly and convert Huntly to biomass. Then its fuel is essentially carbon neutral: https://www.genesisenergy.co.nz/about/news/genesis-biomass-trial-succes…
Admittedly have never understood the concept for the smelter. Thought it was simplistically Aussie ships in the raw material and NZ sells them the power to smelt. If NZ doesn’t get any more than that then surely the power would be directed for the use of the nation itself?
Its a big employer and produces green aluminium. If they replaced it with another smelter somewhere else (somewhere cheaper), likely it would be powered by coal. Rio Tinto are a dodgy company though, they make ~$120m a year from it but cry like babies if they don't get cheaper power, calling it "unsustainable". Bollocks.
Last time I looked (the last time RT were threatening to walk until the Govt blinked again) in addition to the multimillion dollar taxpayer topups every negotiation the smelter was receiving ~$80M pa in emission grants.
NZ would be better off to let RT go & the taxpayers will find it a lot cheaper to pay jobsearch welfare than continue indirectly subsidising all the $100+kpa jobs. There are parallels with the historical un/economic politics of the ANZ vehicle assembly industry.
Nobody has any idea what Onslow pumped hydro will cost.
A sinkhole, toxic gas and the $2 billion mistake behind Snowy 2.0's blowout - ABC News
"The pumped hydro project, trumpeted as a grand "nation-building" scheme, was first estimated to cost just $2 billion. It's blown out to $12 billion."
Transmission lines from Manapouri to NI were estimated a few years ago at around half a billion.
Huntly generators are dual fuel. Able to burn coal or gas. Gas is half as polluting as coal. But we can't burn gas because we stopped looking for it. So we are running out. Because of that we import cheap dirty coal and burn that instead. Even though the Rotowaro coal mine is just next door.
There is a reason the plant is in Huntly in the first place.
Not true. There is still gas fields that could be developed onshore, and explored in the Taranaki. The reason they are not is because it is just plain uneconomic too. Anything further away is going to be even more expensive to develop.
The world is awash with gas , it's just not economic to transport it.
profile,
No surprise there. India will do what it thinks is necessary to keep its economy going and so will China, the US, Russia, Indonesia and so on. You and I may differ considerably on climate change, but I think we share a highly cynical view of much of what might be called the climate change industry, like COP.
I find the standard of journalism shockingly poor-senior journalists like Rod Oram present a totally one sided view and seem content to just bash NZ farming. I would write more but I have Covid and have so little energy that this is all i can manage.
I can't believe someone got paid to write that WEF report. The analysis in the Bloomberg article on NZ had much smarter analysis. The key text is below...
“The RBNZ’s hawkish stance is unrealistic, and won’t last long in 2024. The full effects of 525 basis points of tightening since October 2021 are being felt, with the economy contracting, unemployment rising and inflation cooling. BE expects the boost from strong migration will fade fast in early 2024, and a shift in economic reality will drive a policy pivot. Rate cuts are likely to arrive sooner than anticipated, in 1Q24, as the focus switches from fighting inflation to reviving demand.”
Bonds still look relatively good value. US treasury’s give you exchange risk to a capitulation in the local economy if u believe this is possible. It’s a good time to have cash and not debt as far as I see things. Quality problem to be where to put it. Luckier than most I’d hazard a guess. I have a chunk of some of my retirement cash in retirement home shares. It’s a long term play but with an aging population and more than half of people now retiring with debt they will have no choice but to unlock equity. Structurally speaking this will benefit retirement villages more than almost anything IMO. Chris Joye runs a fund in Australia called Coolabah I’ve been aware of this guy for over 20 years comes across as one of the most astute fixed interest managers around maybe worth a look that way. I’m not a financial advisor so these are all just my opinions but small ideas always help I hope.
It's a logical prediction of which I hold the same view, however anecdotally there appears to be an increasing appetite for 4bedroom properties that can house mum, dad, the kids and the elderly parent or parents of one side. The sheer cost of rest homes is gargantuan and many will look to preserve the family wealth instead of drain it to a retirement village.
This comes at the same time central banks are selling down their own holdings. It will be up to private investors to take up these unprecedented volumes and there is likely to be strong upward pressure on interest rates as a consequence.
I'll take that bet David. This analysis is based on a flawed premise. When Govt deficits spends, large cash reserves are created in the private sector, and that cash is always looking for safe haven (typically Govt bonds). When interest rates are forecasts to fall (and when they actually start going down), that cash will rush into fixed-rate bonds as investors try and lock in a decent rate of return. Bonds are auctioned, meaning that the actual interest rate paid on bonds goes down the more competition there is for them.
Bitcoin ETF day today
Big deal for kiwis.
Potential kingmaker trade - sell BTC (maybe 1 April to defer tax) and buy the top BTC ETF. You'll pay the FIF tax (1.3% effective or so) but all gains are tax free! (not financial advice but have had accountants tell me this) Magic.
Yes. This is true. I'm purely interested in the speculative potential / opportunity of crypto. So whether ETH or SOL win is kind of irrelevant to me. Obviously on the speculation front, SOL is a no-brainer, But I have a vested interest in ETH as I was buying it close to USD100. So can he hard to fight those internal biases.
Interesting - NZ Mint do not buy their competitor's Gold products (NZ Gold)...
Lesson of the day, I am sticking to digital gold (BTC)
Gold is generally considered to be fungible because one gold ounce is equivalent to another gold ounce. But when otherwise fungible goods are given serial numbers or other uniquely identifying marks, they may no longer be quite as fungible.
I’m not following lonewolf. Let’s say you sell some BTC that has been held for a while. Assuming cost is effectively zero. Tax is due on those gains.
Then you use the after tax profits to buy into the ETF. Where’s the advantage? That your future gains from that point on are FIF only?
So better to pay 39% tax now, and hope that long term the ETF gains will make that loss back and more? Thus saving you a lot more tax over the next decades?
With the downside of losing control of your keys of course. It would need some complicated calculations and assumptions about future price to determine the risk/reward there I would think.
I also still think we are highly likely to get a capital gains tax in NZ at some stage. In which case you will no longer have to pay your marginal tax rate when you sell your BTC. Long term holdings will likely be more in the 20% tax range. That’s if you would even want to sell BTC for fiat by that stage…
Airlines can probably purchase some attractive fuel hedges at the moment and get some (non refundable) revenue from their customers. When winter comes around they hopefully still have the jobs and income to stump up for the accommodation and car rental in their sunny spot of choice. If not they can always tap the home equity line of credit or the credit card to extend and pretend.
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