Here's our summary of key economic events overnight that affect New Zealand, with news markets are awaiting signals from the minutes of the late January Fed meeting.
In the US, mortgage applications fell rather sharply last week, down more than -10% from the prior week to be -13% lower than a year ago. A key reason for the sharpish pullback was an unexpected surge in mortgage interest rates which jumped +19 bps to 7.06% (plus points) for the benchmark 30 year fixed loan. That is their highest of 2024. These higher rates reflect the shift in market pricing as the chances of near-term Fed rate cuts recede.
Another assessment of Fed rate trajectories will come this morning (8am NZT) when they release the minutes of the FOMC's January meeting. The next Fed meeting isn't until this time next month. (But there is an RBNZ one this time next week.)
American retail sales rose +3.0% last week from a year ago at bricks & mortar stores in the Redbook survey. This is barely enough to keep up with inflation, a second straight week like this after nine weeks of significant volume growth. A hesitation was always on the cards.
Sharply lower oil prices, and exports at a 14 month high have combined to deliver Japan a sharply lower January trade deficit. Those exports were on the basis of good demand from both the US and China.
European consumer sentiment improved marginally in February even if it still remains quite negative - just less negative.
In Indonesia, their central bank kept its policy rate unchanged at 6%.
In Australia, wages rose +0.9% in the December quarter, and +4.2% for the full year, (marginally more than the CPI rise of +4.1%). That's its highest growth since 2008.
The UST 10yr yield starts today at 4.32% and up +6 bps from this time yesterday. The key 2-10 yield curve inversion is little-changed at -34 bps. And their 1-5 curve inversion is still at -70 bps. But their 3 mth-10yr curve inversion has lessened to -110 bps. The Australian 10 year bond yield is now at 4.20% and up +4 bps. The China 10 year bond rate is soft at 2.42% and an all-time low. The NZ Government 10 year bond rate is down -2 bps at 4.90%.
Wall Street in its Wednesday trade is down -0.4% on the S&P500. Overnight European markets were very mixed again with Frankfurt up +0.3% and London down -0.7%. Yesterday Tokyo ended its Wednesday session down -0.3%. But Hong Kong rose +1.6% in their Wednesday trade while Shanghai rose +1.0%. The China Securities Regulatory Commission has imposed a restriction that prevents sales in the first and last 30 minutes of trading for prices that are lower, part of increasingly drastic measures to prevent the Chinese stock-market slump from extending into a fourth year. The ASX200 ended Wednesday down -0.7% while the NZX50 rose +0.2% in a minor bounceback.
The price of gold will start today down -US$3/oz from yesterday at US$2027/oz.
Oil prices are +US$1/bbl firmer at just under US$78/bbl in the US while the international Brent price is up to US$82.50/bbl.
The Kiwi dollar starts today at just on 61.7 USc and unchanged from yesterday. Against the Aussie we are marginally firmer at 94.3 AUc. Against the euro we are still at 57.1 euro cents. That all means our TWI-5 starts today at just under 71.2 and little-changed.
The bitcoin price starts today at US$51,382 and down another minor -0.4% from this time yesterday. Volatility over the past 24 hours has again been modest at +/- 1.8%.
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64 Comments
NZ has to shift it’s investment focus away from property to more productive assets. Even National voters in the main don’t believe property investors should have both interest deductibility and no capital gains tax. For the long term good we need to have more equality through a fairer tax system that also shifts focus to a more productive economy.
I don't believe taxes will fix the issue. The effect would be the opposite, constrain the resources to be affordable only for the wealthy. The middle and lower brackets who have invested in housing would be forced out because the tax would break their back, and those wealthy would step in to stop any potential collapse and protect their own investments.
The only solution would be comprehensive regulation. The short term effect required is essentially a collapse of housing prices to affordable levels, but the long term result is a return to a point where renting or buying is a viable choice for the young.
Agree that comprehensive regulation is part of the solution. The underlying issue is the fact that property is seen to be always going up, hence why countries with a CGT like Aus or Canada still see huge gains. Whether you pay tax or not, a $300k gain from leveraging into your 7th shitty rental is still a gain.
However I don't accept that a capital gains tax would break anyone's back - it is a tax on a profit already realised, arguably even a windfall given most property investors are not 'buying with the intention of reselling' (wink wink).
I agree a CGT is absolutely necessary and should have been brought in ages ago.
In regards to crashing the market Murray, given our mortgage setup that will simply lead to 1,000,000 plus bankruptcies and the absolute destruction of our banking and investment sector so that needs a re-think.
It is a multi-variable problem, but credit availability does tend to drive the price now. some thoughts...
- Banking risk ratio's and government backing (to a percentage??) of business loans rather residential property loans and increased capital ratios for residential property (will increase the cost of interest for home owners and lower credit availability)
- No overseas buyers of residential property.
- Fix immigration - stop the open border as it is today and make sure we are very clear on the skills required by the country. (Spoiler, this is not retail staff). This will also require us to fix the long-term unemployed that won't look for work problem, but we should apply resources to make sure the rules only get applied to those who fit this profile.
- Throw the ComCom in the trash where it belongs, create a real productivity commission and break the duopolies. This needs appropriate financing and an ability to create regulation under an Act that allows for meaningful penalties for failure to comply and resources to support new entrants. Banking first on the list as the least productive industry that NZ has. 2nd on the list is the building supply industry.
- Create a housing corporation that is specifically charged and resourced to deliver new state housing using an end to end supply chain (pay Sam Stubs any amount of money to come and lead it).
Just some random ideas :).
The problem is that CGTs suck:
- They are easy to avoid by never selling
- If you do sell, the CGT should be inflation adjusted but that is difficult
- They should be comprehensive, but it would make it difficult for people to move
- If you apply them further than property, they are an absolute pain.
- They don't make much revenue for government in the first few years, so difficult to give a corresponding cut to other taxes.
I think the simple solution is to increase council rates and make them based off land only.
"absolute destruction of our banking and investment sector so that needs a re-think.
It is a multi-variable problem, but credit availability does tend to drive the price now."
The first sentence needs to be put alongside the absolute destruction of the non property owning section of society. And note that that group of adults is growing larger than the owners.
The second sentence is so damn correct, it's not about interest rates, that's affordablity, it's about the availability of credit that sets the price and is the power that the banks have taken for themselves.
There was always a CGT. it was just that the IRD did not enforce it. Before about 2000 though the tax payable wouldn't have been much. when the market went stupid though....
I think the recent regulation has muddied the waters somewhat.
The price of houses MUST come down and the government MUST take back control of the amount of money in circulation. That second part; if they don't they are effectively mortgaging NZs economic future to the private banks, because all those housing loans are a bet on future financial performance.
1,000,000 bankruptcies I think is a little too extreme. But people who paid too much for too many properties made a business decision, but they are trying to socialise the risk. Some FHBs may need some support though.
Immigration is another problem that must be fixed. I agree that foreign ownership of residential property should not be allowed.
Regulation doesn’t sit well however I think you are correct, it is worth a go in this situation. There are probably a few areas where the return of regulation would be beneficial. Remember the taxis. More expensive, however safer and more reliable? What did Auckland have? Co-Op and Alert, and that was it. Nice. Keep it simple.
And there it is JAO. Going for cheap and nasty rather than paying more for quality. Unfortunately it is now the way of the world. Do you know what the new age e-taxi drivers get up to on the back seats in their down time? 3am up the top of town if you know what I mean?
A massive tax system overhaul is way, way, way overdue if the goal is to make NZ Inc more productive.
Further, the RBNZ could do a lot more to facilitate the investment in productivity. But they - like far too many banking institutions in NZ - are overly fixated on residential mortgages.
No, the RBNZ are fixated on inflation reduction. Using the OCR is how they achieve their goal. Those who have, all by themselves, decided to borrow large amounts of money, are affected. All the bleating mortgage holders need to take responsibility for their actions. You can’t say “yeah I borrowed $800,000 but I didn’t realise the interest rate could go up”.
Noregrets,
" shift it’s" The only thing I disagree with in your post is the apostrophe in its. Otherwise you are right, but will have to wait for a long time to see any meaningful change. I think it quite likely that Labour will now resurrect a wealth tax as part of its(not it's) manifesto and that is unlikely in my view, to win it sufficient votes.
We certainly need some form of comprehensive tax on capital and my favoured option would be a stamp duty on all property sales. It would be simple to administer and could raise substantial amounts from the start.
Can I suggest you study a little psychology before flailing the word 'assumption' around? Open-mindedness, human behaviour and undersdtanding, are the words you will end up with.
by powerdownkiwiHide All | 22nd Feb 24, 7:59am
"Can I suggest you study a little physics before flailing the word 'productive' around? Extractive, dissipative and entropic, are the words you will end up with."
And the last three times this happened, someone was drunk enough to ask, “where did you get 200k from?” And the answer is inevitably a semi-ashamed, semi-relieved laugh shuffle of, ‘Oh, well, our parents are helping us out.’
https://www.stuff.co.nz/nz-news/350187327/its-national-belief-now-you-c…
Why 'feudal' HM? That denotes nobility holding land. But we are heading that way, but so are most if not all other countries. the problem is the banks and their apparent hold over politicians to not properly regulate markets.
No, I've changed my thoughts on this, I think you're right 'feudal' it is, but the power lies with the banks. Governments and MPs have become vassals to the banks.
A direct result of how much money there has been made out of property, how low risk its been and low capital its been for banks to ride this wave. If things turn bad normally banks starve developers of cash and immigration floodgates open, limiting the downside. But as David Hiscoe said way way way back, it always ends in tears.
what? This must be misinformation! No more team of 5 million & being kind?
Yes the reality is that (older) generations have comfortably sat back & sold the young down the river .... by happily consuming capital gains, encouraging rampant immigration and ever increasing tenancy rates while ignoring and freewheeling on existing infrastructure ...
Its a population Ponzi scheme which wont end well
https://www.stuff.co.nz/world-news/350188342/chatgpt-baffles-users-spea…
Clearly we should put AI in charge of autonomous weapon systems ASAP
Google does an incredible amount of work even if you ask it a simple question. Valuable ChatGPT does thousands of times Google's effort.
But neither deserve the "I" for intelligent. As you have known for google for many years you always still have to filter out the stupid. ChatGPT no different.
Oh no, I was hanging out to buy into their IPO ....
link: Court application to liquidate Du Val construction company : r/newzealand (reddit.com)
Will wait to see if Kenyon suddenly finds the money from his offshore stash to pay contractors.
$10993m is the latest estimate of the losses incurred on the RB LSAP asset swap programme. The LSAP was put in place by Orr/MPC, but with the support/imprimatur of Grant Robertson & the Secy to the Tsy. And it accomplished almost nothing of any value to justify the risks/losses. Link
The China Securities Regulatory Commission has imposed a restriction that prevents sales in the first and last 30 minutes of trading for prices that are lower...
Yes, but that doesn't help people. It just means that trading effectively ends 30 mins early for some shares.
Nice to think it is just China but there are a few markets that have 'handbrake' settings . China stands out perhaps because a few years back it started to wobble and they called on university nerds to steady it via state funding. Would comment further but no point...it is what it is...and im not going to say it.....lol
Looks like US interest rate affected markets have capitulated and see the current Fed rate as here to stay for a while longer. This 'capitulation' is of course a prerequisite before the Fed does actually cut. I.e. the Fed can't be seen as doing what the market wants or expects. Ergo, it can't be far away now.
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