Here's our summary of key economic events overnight that affect New Zealand, with news the prices for some commodities - and that includes real estate (both residential and commercial) - are on the edge in the face of low confidence, high interest rates, and excess supply.
China's new house prices fell the most in almost a year in January with prices in 60 of their 70 largest cities retreating. For resales, this official data only showed two of the 70 cities in their survey with a month-on-month gain, none with year-on-year gains. For such pervasive declining prices to show up in official data probably means the situation is much worse, and it is now quite difficult to sell a house. Buyers have vanished, unwilling to buy a depreciating property.
Recall that in February, the Chinese central bank chopped its 5 year MLF rate by a record -25 bps to its lowest ever. This is the rate on which home loans are based. They also cut the reserve ratio earlier in the month, another easing that might help their property sector.
Also falling sharply in official data was foreign direct investment in January, down more than -11% from the same month a year ago. That is their biggest retreat since the GFC. And the more recent data is even worse, falling more than -20% from December.
EU inflation expectations are essentially holding at 3.3% for the next twelve months. The ECB would have been disappointed at that, and the fact that the "last mile" is proving very sticky. However, it is not a problem that they have alone.
The German economy slipped into recession in the second half of 2023 if you buy into the "two negative quarters" rule on GDP changes. The retreat is minor however and was as expected.
In Australia, Rio Tinto has given the go-ahead for a big new iron ore mine. It is in West Africa. The iron ore price has held relatively high, encouraging miners, and Rio Tinto's decision is just one of many. But the cumulation worries some. Iron ore prices are not factoring in the wave of new supply, leaving it vulnerable to the same collapse that smashed battery metals like nickel, some say. If that were to happen, that would rock Australia.
A few weeks ago we noted the cocoa price and its stunning rises. Well it has only risen from then. It is up +8.5% just overnight, up +14% in a week and since the start of the year this core chocolate ingredient has risen a massive +57%. (Bitcoin is only up +21% in the same time.) This soaring has far exceeded its previous frenzy in 1977 (although perhaps not on an inflation-adjusted basis). Adverse weather in Côte d'Ivoire and Ghana, the two main producers, is the root cause.
Most food commodity prices are not rising. Going the other way is the soybean price, falling sharply and nearing a four year low. Good growing conditions in South America, high inventories, and falling Chinese demand for it as animal feed are all conspiring to drive the price lower. Although not as dramatic, global wheat prices are trending lower as well.
The UST 10yr yield starts today at 4.26% and down -7 bps from this time yesterday, down -5 bps from a week ago. The key 2-10 yield curve inversion is deeper at -43 bps. And their 1-5 curve inversion is also more at -72 bps. And their 3 mth-10yr curve inversion has deepened sharply to -115 bps. The Australian 10 year bond yield is now at 4.13% and down -6 bps. The China 10 year bond rate is now 2.41% and a new all-time low. The NZ Government 10 year bond rate is up +1 bp at 4.92%. A week ago it was also 4.92%.
On Wall Street, the the S&P500 hit a fresh record high and is up +0.3% in their Friday trade and looks like it will finish the week up +1.4%. European markets ended up +0.3% except Paris which was up +0.7%. Yesterday Tokyo was closed for a holiday and ended their week up +1.5%. Hong Kong dipped -0.1% after a strong opening, to finish its week up +1.4%. Shanghai rose +0.6% yesterday to finish the week up +4.1%. Singapore had a tough day yesterday, down -1.2%. The ASX200 was up +0.4% in Friday trade but ended down -0.2%, while the NZX50 booked a +0.3% gain yesterday allowing it to finish the week unchanged.
The Fear & Greed index is still at the "extreme greed" level where it was a week ago and two weeks ago.
The price of gold will start today up +US$19/oz from yesterday at US$2038/oz and up +US$28 from a week ago.
Oil prices are a sharpish -US$2 lower at just over US$76.50/bbl in the US while the international Brent price is up to just under US$81/bbl. Both levels are -US$2 lower than a week ago.
The Kiwi dollar starts today at just under 62 USc and little-changed from yesterday. But it up more than +¾c from a week ago. Against the Aussie we have settled back to 94.4 AUc. Against the euro we are unchanged at 57.2 euro cents. That all means our TWI-5 starts today still just over 71.3 but that is +60 bps higher than a week ago.
The bitcoin price starts today at US$51,019 and down a minor -0.8% from this time yesterday. But it is down -1.9% from a week ago. Volatility over the past 24 hours has remained modest at +/- 1.4%.
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43 Comments
The distinguishing feature of the paper money you have in your pockets that’s different from bank credit is the paper money doesn’t have to be repaid. Nobody is going to somehow repay your currency and say, I’m going to cash it in. You cash in a $10 bill, you get two $5 bills. But bank credit does have to be paid and comes with interest.
The Treasury credit does not have to entail this huge increasing debt overhead that banks create. That’s basically it. It’s this debt overhead that actually, as we will discuss later, deflates the economy instead of inflates it. Bank credit inflates prices for assets, for houses, for stocks and bonds. But it deflates the economy by making people spend more and more of their income on debt service to buy the higher-priced houses or to buy the higher-priced retirement income that the banks bid up. Link
Yes that makes sense. Interest rates can be used for short term stimulus or demand reduction, but if left at those levels they become the norm and then they just affect asset prices. We’d be better off leaving the OCR at current levels and weathering this storm IMO.
not sure, interest rates shyrocketed during the 1980s and house prices boomed, I think because of the shift from single incomes servicing the mortgage to double income servicing it, even though interest rates were above 20%. And then as has been said on this forum before people just purchase to the maximum they have available to borrow. The stuff post GFC seems to be related to lower interest rates but also to the (misguided) belief that house prices would only ever go upwards.
Our residential bubble - and that of the broader Anglosphere - far outstrips that of Japan. It's always explained away to me at the neighborhood BBQ by something related to their ageing population. If the illustration weren't so visually amusing, it would be terrifying.
I don’t buy that. My understanding was that Japan’s property was bonkers expensive. Here a couple can buy a house for 35% of the average household income, not exactly bonkers.
The aggregate value of Japanese residential property reached a multiple of 3x GDP. Ours has been close to 5x. Furthermore, Japanese h'hold debt never surpassed 70% of GDP, even at the height of their bubble.
Japanese commercial property and prime land was far more overpriced than residential housing.
At the neighbors BBQ did they tell you that outside the demographics, Japan had a bubble that burst due to over extending on growth and severe malinvestment that couldn't be sustained?
They did in 30 years what took the West centuries. They weren't able to develop a healthy enough consumer economy before they started becoming uncompetitive as manufacturing exporters.
China is currently doing the same, 20 years of high growth, and another 10-15 years trying to sustain that growth, and instead have over invested in real estate and infrastructure to juice higher than normal GDP figures.
That's not to say countries like NZ can't fall over, just that is fairly problematic using such binary comparisons without first tracing all the cords back to the wall.
At the neighbors BBQ did they tell you that outside the demographics, Japan had a bubble that burst due to over extending on growth and severe malinvestment that couldn't be sustained?
Japan's demographic issues were known in the 70s and 80s. They did not appear overnight.
At the time of Japan's peak economic might and the bubble, the neighborhood BBQ-ites would only talk about $10 coffees in Tokyo. They had no idea about demogs. It's just something thrown at them from Ashley Church-type influencers.
F'more, Japan had massive migration from the 60s. Not foreign migrants. But rural to urban migration.
Japan's issues started with the Plaza Accord, thereby devaluing USD / JPY.
Japan's issues started when they forced isolation in the Edo period, locking themselves in a feudal state while much of the world advanced.
Then they had to play catch-up in the mid 1800s, and outgrew their ability to resource themselves, whilst too quickly upending their traditional culture.
Then they embarked on a fairly brutal conquest in East and South-East Asia, everyone knows how that ended.
But that's an aside. Demographics are against them as your BBQ mates have said, but there's also something fairly precarious about rapid economic expansion - they grew too fast using means that could easily be done elsewhere. Ditto China.
In the anglosphere, we have low levels of growth (even negative growth, depending on how you want to slice it), but also more mature markets less reliant on manufacturing exports. That's not to say that doesn't come with issues, just that making comparisons between newer, fast growing economies and those more established is fairly problematic. It's like comparing a company like wework to Coca-Cola.
This is a neighborhood BBQ narrative chockful of half-baked understanding. Most of which is best not addressed. For ex
Japan's issues started when they forced isolation in the Edo period, locking themselves in a feudal state while much of the world advanced.
Then they had to play catch-up in the mid 1800s, and outgrew their ability to resource themselves, whilst too quickly upending their traditional culture.
Japan has always been influenced from the outside. Far before the Edo period and industrialization, Japan was importing ideas and knowledge from countries like Korea and China during the Nara Period (710-794).
Regardless, Japan is now reached a level of industrialization and has better infrastructure than the Anglosphere nations.
The current people known as Japanese are actually largely of Korean extraction, marginalizing the indigenous Ainu people. Not that that, or pre Edo activity bares much relevance to the experience of post industrial Japan.
You can pass me off as BBQ speak, but I've got a knowledge and education of Japan that is significantly more extensive than yours. You're actually my own water cooler.
Japan has nice stuff, which you'd expect from a highly organized, homogenized culture that had to rebuild from scratch. But they hit a ceiling decades ago, they'll never get back.
Interesting insight, from actual Japanese people:
You're welcome to challenge me on any of the comments I wrote about Japan. And I will point what what I see to be half-baked understanding.
I do not deny Japan's demographic issues. But it is nothing new. Nor did it prevent from popping or lead to pop Japan's economic bubble, including property. Furthermore it could very well be that the Anglosphere bubble is 'sustainable', however you want to define 'sustainable.' All I'm pointing out is that the Anglosphere housing bubble is far bigger than the Japan housing bubble.
You're welcome to challenge me on any of the comments I wrote about Japan. And I will point what what I see to be half-baked understanding.
When we're both doing that, there's no common ground.
You're pinning the woes (or at least the origin of them) on the Plaza Accord. Which would seem logical, on the surface, because their bubble burst shortly after and they've not recovered.
I'm claiming the roots of their prosperity malaise were there well before then. Really large exponential growth in short periods is rarely sustainable.
China look to be going down an errilly similar path. On the surface, they seem to have been holding steady, but much of their GDP growth of the past decade or so has come from speculating in more property than there is people to live in them, and super marginal infrastructure that'll become a dead weight for them. And no Plaza Accord necessary (sounds like they've actively been choosing to suppress the value of their currency, on their own).
Most headlines are usually end results of much longer chains.
I don’t know where to start with your nonsense.
Non-Ainu Japanese, the Yamato are just as indigenous as the Ainu. The ainu were the indigenous people of Hokkaido and northern Honshu.
The theories suggest the Yamato and Ainu share common Jomon people ancestry. The Jomon theories suggest that they arrived on the Japanese archipelago a very long time ago (thousands and thousands of years before Christ), and were a people that pre-dated the split between north-east and south-east Asian people. Theories diverge significantly on the potential origins within Asia.
Influences from Korea were much later.
Incidentally, Japan was quite arrogant about their economic success and thought the bubble (stocks/land/property) was based on how superior they were. They did believe that this was related to Japanese culture based on "half-baked" ideas on cultural superiority. But remember, at the time, Westerners were actively studying Japanese management culture and economic structures because they were extremely successful industrially (that is still very much the case today). Few actually predicted that Japan was in a bubble. Eammon Fingleton being an exception.
Our superiority basis is more shallow. We generally like to explain why we do not have a property bubble. It might just be a defense mechanism.
There isn't much of a superiority basis other than history, and ability to have slower falls in birth rate, and a better ability to absorb migrants.
Well, that and while our agriculture is boring and relatively finite, it's less portable as an industry than manufacturing. You can make things almost anywhere, but you can't grow squash everywhere economically around the end of the year.
That is an ultra- simplistic and reductionist take on the origins of Japanese ethnicity
Are you expecting a 1000 page thesis from one point in one post.
The Ainu pre date the Yamato by 10-20,000 years, and ranged through Honshu. Dispossessed up north by the Yamato in the middle ages.
The Ainu pre date the Yamato by 10-20,000 years, and ranged through Honshu. Dispossessed up north by the Yamato in the middle ages.
Ainu have always been an ethnic minority who populated Northern Japan and islands such as Sakhalin. Their influence on the development of Japanese society through the ages is non-existent.
Hunter gatherers have populated Japan for 15,000 years. And they're not Ainu.
"You can pass me off as BBQ speak, but I've got a knowledge and education of Japan that is significantly more extensive than yours. "
Lol. Yeah. Sure you do. (lol, lol, lol) ... The Edo period was between 1603 and 1868. And that's somehow relevant to understanding Japan's economy post WWII? (lol, lol, lol)
Being an expert here is some sort of arbitrarily derived self title. You've never really laid out how one gets qualified above pub level knowledge and expertise (super handy). So potentially my education and experience doesn't account for much.
Not every bubble gets popped at the same point on an axis, nor does every economy recover in the same way. The why and how of that usually has a long tale and the story of post industrial Japan defines how they've inherited their present, while others have something else.
Possibly the fastest evolving and changing civilisation known. From feudalism to coloniser to nothing and then world leading manufacturing and infrastructure in a century and a half.
Not every bubble gets popped at the same point on an axis, nor does every economy recover in the same way.
You haven't done a great job of explaining
1. Why the Japan bubble is worse than our current bubble
2. Why our bubble is not actually a bubble (of course it may not be)
The unforeseen hazards of working from home.
Husband 'made over a million' by eavesdropping on BP wife - BBC News
BP demonstrated it's unethical corporate culture clearly in it's extremely shabby treatment of this principled woman who whistleblew on her own husband.
The German economy slipped into recession in the second half of 2023 if you buy into the "two negative quarters" rule on GDP changes. The retreat is minor however and was as expected.
Good Morning from #Germany where fewer & fewer companies seem to want to invest. GDP was dragged down by a slump in investment in Q4 — putting Europe’s biggest economy on course for 1st recession since pandemic. Investment in machinery plunged by a whopping 3.5% QoQ. https://bloomberg.com/news/articles/2024-02-23/german-economy-suffered-investment-slump-at-end-of-last-year?utm_source=website&utm_medium=share&utm_campaign=twitter?sref=R17xFhjo Link
Has "H" been declined a US green card
https://www.nzherald.co.nz/lifestyle/prince-harrys-us-visa-at-centre-of…
🤣🤣🤣🤣😍
https://www.nzherald.co.nz/nz/gang-crackdown-government-to-introduce-le…
NOW WE'RE TALKING.... GO HARD PAUL AND MARK
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