Here's our summary of key economic events over the weekend that affect New Zealand, with news China seems to have managed to arrest its deflationary mood with solid consumer spending in their Lunar New Year holiday.
But first, in the week ahead, we get the important US CPI inflation rate on Wednesday, along with retail sales, producer inflation, the Michigan consumer sentiment index, and industrial production data this week.
In Japan we will get a Q4-2023 GDPO update and it will likely be more positive than the shrinking first estimate. In Australia, the NAB business confidence index will also come this week. Also, the inflation rate for India is due along with its industrial production data.
From China, the focus this week will be on monetary indicators including new yuan loans, car sales, and the house price index. They will also review their one-year medium-term lending facility rate.
In China over the weekend they reported February consumer prices and they rose by +0.7% from the same month a year ago, above market forecasts of an expected +0.3% rise and a turnaround from the sharpest drop in over 14 years of -0.8% in January. Seven of their past twelve months have reported zero inflation or deflation. The latest result was the first positive consumer inflation since last August, hitting its highest level in 11 months. This was due to better Lunar New Year holiday spending. Food prices declined the least in eight months. Beef prices fell but lamb prices turned up from the prior month. Milk prices are still falling however.
Meanwhile they still have producer price deflation. This sector is wallowing in -2.7% deflation, marginally more in February than January. A year ago their PPI ran at -1.4%.
Another large property developer is showing signs of struggle. And they aren't the only one. The issue is spreading into signs of stress in the local government bond market now.
Separately China's Ministry of Finance data shows that interest on debt obligations are rising fast for the Chinese government - in fact a jump of +7.8% in interest payments this year is a bigger relative rise than for their defense spending (+7.2%). If, as some expect, Beijing suffers a ratings downgrade this year from "A1", that cost will only grow.
Taiwanese exports are still expanding on a year-on-year basis, although not as fast in February as they recorded in January. After a longish run of decreases, this is the fifth month in the past six where exports have risen.
Japanese household spending fell more sharply than expected and continuing a run of retreats, this one the largest in six months. Japanese policy makers might be a bit worried about this latest data trend.
Across the Pacific and at the headline level, the American economy added +275,000 jobs in February, beating forecasts of +200,000 and higher than a downwardly revised +229,000 in January. But their unemployment rate ticked up as more people joined their labour force, and wage growth slowed.
Behind the headline numbers (and looking at actual rather than seasonally adjusted numbers), employer payrolls rose by +1.1 mln to 156.5 mln people now employed. That is +2.7 mln more than a year ago. The household survey, which includes self-employed people, rose +665,000 from the prior month to 160.3 mln, and up +602,000 from a year ago. The shift from self-employment to payroll employment continues.
American consumer debt rose by nearly +US$20 bln in January, following a +US$1.6 bln rise in the previous month and way above market expectation of a +US$9 bln rise. Revolving credit, like credit cards, increased by +7.6% on an annualised basis from the previous month. Non-revolving credit, typically auto and student loans, rose by +3.6% on the same basis).
According to the USDA's March World Agricultural Supply and Demand Estimates, the Chinese might be back buying soybean in larger volumes, suggesting the Chinese are struggling with expanding their local output. The same report reveals American beef imports are rising. And that American milk production is slowing.
Canada also released labour force data over the weekend. They added +40,700 jobs in February, following a +37,300 rise in January. This was double the forecasted +20,000 increase. February brought a notable bounce back (and more) of full-time positions, up + 70,600, while part-time jobs decreased by -29,900.
German industrial production rose +1.0% in January (in 'real' terms) from December but that still leaves it -5.5% lower than the same month a year ago.
The UST 10yr yield starts today at 4.08% and down -1 bp from Saturday. The key 2-10 yield curve inversion is holding at -40 bps. And their 1-5 curve inversion is marginally deeper at -89 bps. Their 3 mth-10yr curve inversion is holding at -130 bps. The Australian 10 year bond yield is now at 3.99% and unchanged from Saturday. The China 10 year bond rate is also unchanged but still near its all-time low. The NZ Government 10 year bond rate is up +1 bp at 4.70%. (A week ago it was at 4.82%.)
The price of gold will start today down -US$7 from Saturday at US$2179/oz and just off its record high. But that is a +4.9% rise for the week. Why is the gold price rising just now? Some think it is new demand out of China as investors there start to fret that the economic management by Beijing is leading down a not-so-good path.
Oil prices have stayed down at just over US$77.50/bbl in the US while the international Brent price is now just on US$81.50/bbl. Both are -US$2 lower than a week ago. Weakening demand out of China is getting the blame.
And here's something you might not have expected. Saudi Arabia is in recession. It's GDP shrank -3.2% in Q3-2023, and it has now followed that up with an even sharper -4.3% fall in -Q4-2023. MBS is no saviour. Aramco, which Saudi Arabia partially listed (10%) in 2019, has raised its dividend despite a retreat in energy prices and lower production, a boost for Riyadh as it faces a widening budget deficit.
The Kiwi dollar starts today at just on 61.8 USc and little-changed from Saturday. But it is up +¾c in a week. Against the Aussie we are firmish at 93.3 AUc. Against the euro we have remained at 56.5 euro cents. That all means our TWI-5 starts today at just on 70.5 and unchanged over the past four days.
The bitcoin price starts today at US$69,652 and up +1.2% from this time Saturday. That means for the week it is up +11%. Volatility over the past 24 hours has been modest at +/- 1.3%.
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58 Comments
The infrastructure bonds link was great, safe to assume that interest costs are going to march higher in China.
And from TA
When we look at how factors driving investor buying have changed over time, we see that this month there has been a noticeable decline in expectations that prices will go up.
The biggest change however has been a firm lift in the proportion of agents saying that actually, investors are not interested in buying.
In this month’s survey a net 26% of agents have reported that they are seeing more investors looking to sell their property. This is the highest reading on record and tells us that cash flow pressures and other factors are outweighing the potential positive impact on willingness to hold of the return of 80% interest expense tax deductibility for investors from April 1.
Maybe it also tells us even investors think prices are going to fall and they want to be the first to dump there falling value asset...
This is where we start to get to the heart of what may be going on in the NZ residential real estate market at the moment. Last month a record net 76% of agents reported that they were receiving more requests for property appraisals from potential sellers. This month that measure has eased only slightly to a net 61%. What this result tells us in conjunction with the surge in listings so far this year reported by realestate.co.nz is that the queue of sellers on hold since late in 2021 has become more activated at the moment than the queue of frustrated buyers which has built up from that time. The increase in supply has taken away feelings on the part of buyers that they need to hurry.
The time to get out was 2022 or early 2023. Those that hung on thinking the govt would save them are coming to the realisation that they may lose more value if they don't get out soon and with the bright line date coming up soon there will likely be a decent supply increase, putting downward pressure on prices. Those looking to sell now are finding that if they don't have a lot going for their properties such as insulation, amenities, nobody wants them. Everyone knows now that buyers can sit back and wait until later in the year so why buy now when prices are still high.
Why is the gold price rising just now? Some think it is new demand out of China as investors there start to fret that the economic management by Beijing is leading down a not-so-good path.
It isn't retail buyers or investors from China.
https://www.gold.org/goldhub/gold-focus/2024/02/spring-festival-sees-he…
I think you know what is behind the surge but won't tell 😆
While the propaganda behind the govt economic figures is getting easier to see. I’m guessing the latest price rise is just another cycle where the bullion banks have allowed the price to rise encouraging the managed money to go long on the COMEX. The BB will go short after a short term high price, force the price down and get the managed money traders to sell and the commercials can cover their shorts.
Long term the trend is up. However I doubt the commercial shorts are being over-run and starting to lose control – that would be a first time if that happened.
BTFP ends today (US time). What does it mean? BTFP loans marked collateral at par value (book value). But from today, banks must use the Discount Window at market value.
Any bank with garbage assets (treasuries, mortgage-backed securities, etc) will no longer have access to liquidity.
The ruling elite wants bank failures and the US financial sector to consolidate. We just don't know what will be triggered and how this will play out.
The working from home thing counts of course. But is it a shift of business generally out of the CBDs into suburbia and towns.
Downtowns in big cities (including Auckland for discussion) are both difficult and expensive.
I see articles about New York but none about smaller places. In my thriving southern town there does not seem to be any significant numbers of empty offices. Buildings here are relatively new though. Older buildings (aka dumps) in similar towns are often empty.
We do have many very busy folk working at home and mobile as well. But that's are often on their own business, not for corporates or government.
Any comment?
Companies are restacking their office space around a 2/3 day WFH type experience, so more breakout areas, spaces with white boards etc. If agile they do sprint planning and retros in office. Many software teams are only in 1 or 2 days now. My son codes at home 4 days a week.
I do not think it's going back any time soon. Companies just need less space and configured differently
I was in a management team that made the switch to open plan, and to be fair it was better than the cubicles it replaced. For concentrated work it is a total nightmare and as this can now be done at home this makes perfect sense.
I think it also is a good worker-employee relationship builder, the flexibility of one is rewarded with the loyalty and often higher performance of the other.
Entirely depends on the role. I'm a civil estimator, my role largely revolves around sitting in isolation performing take offs and pricing from comprehensive design documents. An open plan office space is kryptonite for me and the switch to work from home has been a huge productivity upswing.
I live in Wellington. After Covid finished & return to work permitted, much of the Public service stayed at home for many months/year & subsequently their managers made agreements to WFH for some days/week which continues today. You might recall that the topend David Jones store in the old Kirkcauldies building closed in mid 2022.
The other negative conditions in Wellington include several years of an unsafe CBD with ferals in emergency accommodation & the uneconomics of earthquake strengthening (unless ratepayers are funding it). I won't start on the Heritage nutters.
not the only hole in the ground...(a list I have published before)
- Town Hall music venue $340 million
- Rebuild central library rather than use existing ones – $189 million
- A $13 million carpark building
- Cycleways $226 million
- Convention Centre $169 million
- $32 million corporate welfare for Reading Cinemas
- $139 million on the Golden Mile (removing cars)
- $236 million on food recycling
Looks like the cycle ways are fairly cheap for the amount provided and as a form of congestion reduction.
Convention centres are always weird things for govt to fund, as they were when John Key and co stumped for Auckland.
The library and town hall are interesting challenges, seems like something has to be done with them as they're big buildings in the CBD, can't simply be left to rot.
What do water and roads sit at - circa $3 Billion each?
It was the WFH that started the death of the Wellington CBD. Without the money flowing in on weekdays the businesses started shutting up shop one by one. When you have to work in the CBD Wellinton was a cool place with energy. Now it is a shadow of its former pre-COVID self. Can't say I regret leaving.
I may also be leaving in the next couple of years. My late wife & I were already considering a move to Christchurch when she passed away unexpectedly in 2021; I've since been sorting out extended family matters. However if I do move, I want to be more settled by the time I'm 70.
My opinion, for what it's worth, is that some time soon we'll see management consultant studies 'confirming' office worker productivity is much higher when the drones are all resident in the office. And the situation will reverse. WFH will become the domain of the privileged few that work for companies that can actually make WFH work. (Some of the offices being converted to condos (apartments) will soar in value as highly desirable places to live.)
There already was a big rush of articles proclaiming that.
Dig into them, though, and the examples were all drudge work such as developing country call centres and the very slight differences in productivity were possibly because people could more easily take toilet breaks at home.
Hybrid seems better for knowledge workers, with time in the office for forming team culture and time at home for doing work that requires concentration.
Very pleased to see this @nuseai @AsiaLeiden publication on the consequences of US-China decoupling out: https://leidenasiacentre.nl/dealing-with-d Link
American consumer debt rose by nearly +US$20 bln in January, following a +US$1.6 bln rise in the previous month and way above market expectation of a +US$9 bln rise.
Americans spent more than $1.1 trillion on interest payments alone last quarter
Regardless, the issue is we can not run a industrial economy on wind and sun.
Its not the availability (finiteness) of an energy resource thats ultimately the issue. Its the payoff to support the system as a whole.
And we are past a point now where we rely entirely on Debt and leverage to keep the energy equation afloat.
We could replace oil if we covered the equivalent size of all urban areas worldwide with solar panel. Good luck being able to manufacture that many panels plus all the batteries to run anything that moves or needs uninterrupted supply.Wind Fights Solar; Triangle Wins | Do the Math (ucsd.edu)
Also, at 2.3% growth then after 400 years the whole world (land and sea) would need to be covered in solar panels to meet our energy needs. So we can only harvest a finite amount. Galactic-Scale Energy | Do the Math (ucsd.edu)
Tidal also won't move the dial Can Tides Turn the Tide? | Do the Math (ucsd.edu)
Those links are god-awful bits of analysis. High school kids could drive truck through the gaps. Taking the tidal links as an example, Murphy would do better calculating how much energy could be harnessed by a specific location, e.g. Cooks Straight, and then figuring out how to harness it. His analysis using tidal heights - rather the tidal flows which contain far more energy then even the worlds largest rivers - indicate a substandard understanding of what can be done. To be honest - I can't help but think he's having a laugh to see how often this link is re-posted.
Here is a second opinion about the so-called strength in the US Labour market. https://www.youtube.com/watch?v=UX6NpZ_UJcc&ab_channel=EurodollarUniver…
According to his research full time jobs are massively replaced by part time jobs and tehrefore the average hours worked is on a downward trend.
The US stats point to an economy showing signs of stress and at an inflection point before bad news reigns supreme. Don't be fools by rising payrolls - many people are being forced back into work to make ends meet. The Fed will move in the next few months.
RBNZ will follow at the next MPS - if they haven't moved already. Remember NZ was recently in a technical recession, followed by a short period of anemic growth and we're almost certainly in another 'technical' recession now. And no matter what the RBNZ do now - we'll experience a full blown recession for many months.
Has NZ Inc. has moved backwards faster than the RBNZ anticipated? No. I don't think that's the case at all. We've been going backwards for far, far longer than the RBNZ understands.
Good example of the global pecking order for Tech companies - NZ-based Plexure shifted over to Aus to combined with Task a few years back, and today looks like the combined group is being bought out by US-based PAR.
Decent offer and a nice windfall for me. I wonder if those quality jobs will remain in NZ? Most of the profit will now flow overseas.
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