Here's our summary of key economic events overnight that affect New Zealand, with news the Fed has held its policy rate unchanged at 5.5% but given strong signals cuts are coming - but later than markets were expecting. However they still see three cuts in 2024.
The UST 10yr yield fell slightly on the news. The US dollar fell slightly too. Wall Street moved higher.
Meanwhile, American mortgage interest rates rose back to just on 7% last week for their benchmark 30 year fixed rate following the prior week's surprise drop. That came as mortgage applications ticked lower again last week and are now -14% lower than the same week a year ago.
China held its prime loan rates unchanged at record lows in its review yesterday. You will recall they cut its 5 year prime rate (the reference for mortgage lending) by an outsized -25% bps last month.
Taiwanese export orders slumped more than -10% in February, a surprise because markets had expected a +1.3% rise following a +1.9% gain in January. But it was not to be. Orders for heavy equipment fell, especially from the EU, Japan and China, and these falls overwhelmed their rising AI chip exports.
The EU sentiment rose to be less negative in its March survey. It is now at its least-weak level since February 2022, amid a gradual slowdown in inflation and optimism surrounding potential interest rate cuts by the ECB later in the year.
Britain's inflation rate dropped to 3.4% in February, down from 4% recorded in both January and December and slightly below market expectation of 3.5%. It was their lowest rate since September 2021.
In Australia, a recent swell in business failures in construction, hospitality and retail has pushed up the number of monthly insolvencies to the highest in almost a decade. The absolute levels aren't high, but the trend will worry officials.
New Zealand has slipped one place in the World Happiness Report rankings, and now sits just outside the top ten (at #11) in 2024. Australia moved up from 12th last year to 10th this year.
The UST 10yr yield started today at 4.28% and down -2 bps from yesterday. After the Fed's decision it fell to 4.25%. The key 2-10 yield curve inversion is less at -40 bps. And their 1-5 curve inversion is unchanged at -77 bps. And their 3 mth-10yr curve inversion is a bit more at -117 bps. The Australian 10 year bond yield is now at 4.05% and little-changed. The China 10 year bond rate is lower at 2.31%. The NZ Government 10 year bond rate is now at 4.65%.
Wall Street opened its Wednesday session little-changed, awaiting the Fed. Then it jumped +0.3% immediately on the Fed news. Overnight, European markets saw London unchanged, Paris down -0.5% and Frankfurt up +0.2%. Yesterday Tokyo ended up +0.7%. Hong Kong was little-changed, up a mere +0.1%. Shanghai rose +0.6% however. Singapore ended up +0.1%. The ASX200 ended its Wednesday session down -0.1% while the NZX50 was up +0.1%.
The price of gold will start today little-changed from yesterday at US$2157/oz.
Oil prices are lower today at just on US$81/bbl in the US while the international Brent price is now just on at US$85/bbl. Both are -US$1.50 lower than this time yesterday.
The Kiwi dollar starts today at just on 60.4 USc and a small -10 bps dip from yesterday. After the Fed news, it rose to 60.6 USc. Against the Aussie we are still at 92.4 AUc. Against the euro we are still at 55.6 euro cents. That all means our TWI-5 starts today at just on 69.6 and marginally firmer.
The bitcoin price starts today at US$64,620 and up +1.6% since this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.8%. There seems to be an outflow rush underway from some key ETFs.
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108 Comments
"The halt isn't due to the current rate itself, it is due to the difference from the rate 3 years ago where we clearly went way to low."
Sorry. This is wrong.
Mortgage interest rates (thanks to the OCR) haven't been this high since 2009. That's about 15 years!
And as I've pointed out before - albeit the degree is a subject of some some argument - central bank actions ensured the GFC was far worse than it should have been. (And they're doing the same now - especially in NZ!)
Interest.co.nz provides some great graphs on many subject. I suggest you consult them before posting half-baked assertions.
OCR graph here: https://www.interest.co.nz/charts/interest-rates/ocr
Um, have you looked at the graph? it 100% shows exactly what I said.
Record low 3 years ago, rapid increase. In fact biggest, fastest increase in over 20 years.
In 2019 the OCR was 1.75%. Over 12 months it was dropped by 85% (1.25bp). We have now raised OCR by 2,100% in about 18 months (5.25 bp)
While the basis point change may seem minor (particularly on the way down), the actual movement is massive - you cannot run an economy with those sort of changes in that sort of timeframe.
So I stand solidly behind my original statement "It is the constant change that causes the issues, particularly when we go up/down at the speed we have the last 5 years."
I don't regularly go down to the local (big) courier hub warehouse in Auckland, but every time i did over the last 10 years there was always a big stack of goods ready to go somewhere and trucks and people all over the place.
Yesterday i wandered in with my one parcel and the shelves were empty, my parcel was very lonely, there no goods at all on, or being loaded or unloaded from trucks, there were no people moving stuff around, there was one very bored office lady at her desk in a big empty room.
What does that tell you about the pace of business
Guaranteed.
The GDP figures today will confirm this. Even if by some miracle GDP is positive it will be so anaemic that no amount of spin about HFL or 'sticky' inflation will stop the inevitable.
The OCR - after 3 cuts of 0.25% - will still be contractionary at 4.75% with mortgage rates at 6.75%. (Assuming a 2% bank margin, and the inevitable and extremely slow passing on of OCR cuts that banks do to maximise profits. Sure, some people will get better than 6.75% but only if they negotiate them, or are new borrowers, and aren't fooled by bank speak about how risky their mortgage is due to high unemployment.)
Yep, Everything i'm hearing through work is saying the same thing. The business next to use has let a 1/3 of his workers go, and is on the verge of closing his business down and retiring due to low orders and a significant lease increase. Reps from some of our suppliers are out trying to poach customers, and lead times have dropped from 10 days to 4 for Laser cutting.
Agreed. Capital needs a cost to ensure it is used wisely and assets are price correctly. Enabling the junkie like property gamblers with ever cheaper debt is the real problem. Yes some of those strung out on debt will suffer a cold turkey period.
Property developers are the most visible addicts, as only a few actually have their own money. Du Val group anyone...
Just a reminder that when private debt is 145% of GDP, the econony can't run for long with the OCR at 5.5% - there is no 'getting used to it'.
Think about it - average yields on loans are around 7%, so we have about 10% of GDP ($40bn) transferring from debtors to savers / bank shareholders (in broadly equal measure) per annum. That's 25% of *total wages* being given to people with low / zero propensity to spend!
My April 24 first cut prediction looks optimistic now given that RBNZ is clearly just waiting for the Fed and pretending to have an independent policy. Good job the Govt have woken up to the threat of major recession and are prepared to fire the big fiscal guns... Oh, wait.
.."given that RBNZ is clearly just waiting for the Fed and pretending to have an independent policy"
Yip
Reality is it all comes down to holding the value of the kiwi peso up so we dont import even more inflation
small players like NZ must be squeezed so the US can party on a little longer
Just saw somewhere that building consents are way low in Tauranga too. That's a lot of industries all in trouble at once and they won't be buying new clothes or dinners out.
I think those here saying we need interest rates to stay high forever and punish ze home owners don't have to make payroll every other week.
It's not a matter of if now, it's when, and no temporary cost of freight increase is going to change a thing.
I see you edited your post to change it to "purchased BTC". Yet you haven't learned the lesson, since you posted: "You could have brought a few more motels"
"Brought" is the past tense of "bring"
"Bought" is the past tense of "buy", and the verb you're wanting to use
"I think everyone on here who want OCR cuts have vested interests in the RE industry."
You'd be way wrong there Blackbeard!
My biggest concern is for the 000's of businesses that make up NZ Inc. The RE industry is but a tiny part of that when measured from an actual productive point of view!
"Twiddling with the OCR won't change b all."
Sorry, you're wrong. All the economic theory I've learned over 30+ years confirms this. (If the OCR is cut, banks will charge less interest. I.e. many people, especially the younger, will have more cash left over after each mortgage payment. Most will spend it, thereby picking up the economy. Sure, savers will get less - but they're not spending so businesses can't get the sales from them.)
It will change things. But so would an overhaul of our tax system to reward real investment (where new stuff is created).
Hey! Here's an idea ... Why not do both?
"Britain's inflation rate dropped to 3.4% in February ..."
One notes that their government raised taxes on the middle and above in the 'inflation busting' budget a couple of years back while their central bank also raised rates. A double-pronged attack. This is how it should be done.
Another way to look at why their inflation rate has fallen faster then NZ's is that tax increases have a much more immediate effect and they can more easily target those who are most likely to 'bid up the price' of products. (No need to add that our new government is doing the reverse in that the higher income earners will have much larger tax cuts than those at the bottom.)
I would say its to late for a tax raise to be effective now as a policy tool
and falling tax revenue may actually prolong the current deficit spend which could be a positive influence if we get some infrastructure built to support future growth/productivity improvements
"I would say its to late for a tax raise to be effective now as a policy tool"
Yup. Way, way too late.
Government should have moved (as UK's did) once the RBNZ announced they were on the inflation war path. (Another reason why I didn't vote for L. That said, this current lot are no better and are making things worse!)
We shouldn't tolerate a Minister of Finance that doesn't have an either an economics degree and/or a solid and demonstrable history of understanding economic cycles.
Oil prices are lower today at just on US$81/bbl in the US while the international Brent price is now just on at US$85/bbl. Both are -US$1.50 lower than this time yesterday.
Despite even more significant production cuts from OPEC well into 2024, oil prices have remained generally stable. To help understand why, we need to revisit the dynamics of the 2008 oil crisis which will give us insights into the 2024 world beyond crude. Link
Chief property economist Kelvin Davidson said, despite the increase, yields were low by historical standards and rental property offered less income than other investments, such as term deposits.
"In a nutshell, it remains tricky to get the sums to stack for 'Mum and Dad' investors at present."
That could drive rent increases, he said.
Or prices are too high,,,, Fixed it for you …,
The RE industry is waking up to the fact that prices are unsustainably high, based on cold hard dollars , sense, cashflows....
Rents normally increase by 3% a year but are running 6%.... Higher for long enough to stop this I suggest, then the prices fall to get yields back to long run averages....
Reversion to the mean anyone.
We are already being clear with our Property management team that this is something to look out for. 2 beds for kids is one thing but 4 beds for 4 adults in a room sized for a queen sized bed is the issue. Floor weight over spec and a single toilet for 8 people....
I bet the Councils never factored in that you don't need extra houses built to overload infrastructure.
Double the amount of people in a house, convert the garage and throw up a sleep out and you have the equivalent of another 3+ equivalent houses all drawing on the infrastructure. Apply that to even half the homes on one street and you have real problems..
But immigration is great huh!
We can't aspire to have stable and normalised interest rates until debt levels are reduced.
Until that happens interest rates will continue to under/overshoot in a vain effort to fight the instability created by debt.
Ultimately debt forgiveness will need to be part of the solution, but our current society and politics aren't currently equipped to navigate this sort of approach.
The American economist Michael Hudson is a proponent of a debt jubilee, writing in a Washington Post op-ed that it was an alternative to a depression.[3][4] Similarly, anthropologist David Graeber pointed to kings' historical use of debt jubilees during regime changes to suggest that a debt jubilee would have been an appropriate response to the 2008 financial crisis.[5] Australian economist Steve Keen is a proponent of debt jubilee.[6]
agree
We have been can kicking
The trouble is you can't divorce financial trickery from actual resources drawdown/consumption indefinitely...
You can print money but you cant print resource bases.
And we are up now against some hard limits on "suitable" consumption ... which is going to snap the debt models
A debt jubilee is a ‘nice’ idea (and is apparently used in some other cultures), however the bank owners won’t consider that unless they were forced to. Using the owners of ANZ as an example – their philosophy is unlikely to consider forgiveness. I suspect Blackrock etc are so big they have more influence than governments.
From Wikipedia
The major shareholders of Australia and New Zealand Banking Group are BlackRock Inc, The Vanguard Group and Norges Bank Investment Management.[26]
So you are suggesting there could be a bank bailout in the future? Lets hope it's after the Depositor Compensation Scheme comes in in 2025, make sure you don't have over 100k in a bank account. The government is more likely to extend, pretend and play down inflation, let it run, drop the OCR at the same time as the US moves, to protect our currency from more imported inflation and incomes will rise to increase debt paying ability.
"US Fed stays on track for 2024 rate cuts"
Seems like the news headlines more often focus on the dot plots - but how often have the US Fed's predictions on inflation and rates been correct in the last few years?
Jerome Powell - 20 March, 2024;
“Inflation is still too high. Ongoing progress in bringing it down is not assured, and the path forward is uncertain. We are fully commited to returning inflation to our 2% goal.”
"And keeping our longer term inflation expectations well anchored"
"We did mark up our growth forecasts"
"The inflation data came in a little bit higher"
The real reason..and so glad the new Government has us back on the right track ..I trust them !
To begin, one of the leading contributions to the happiness of Nordic countries is the high level of trust between citizens, which leads to social cohesion. This so-called social cohesion leads to an increased level of trust, which can make living in a community a more pleasant experience
More trust, knowing your neighbours, more community and less individualism, well run publicly funded services such as tertiary education, public transport in cities, warmer houses despite a colder climate. High taxation yes, but utilization of said taxes in a very efficient and egalitarian way giving greater support for government.
Social cohesion via a unique language that isn't taught to foreigners. Immigrants who are not fast and fluent language learners will feel alienated.
The NZ solution is Te Reo. Of course it would be difficult to get all Kiwis fluent and it would sabotage immigration of skilled engineers and doctors. But it doesn't have to be universal; just used in the places that discourage low wage immigrants. Govt publications, road signs, etc. We will need newspapers and TV reporters who will say "Hello, welcome to Auckland, New Zealand" without a single English word. That will flummox foreigners and leave us happy.
Could be because there Nordic population has been much more static than the NZ population. There immigration has been a trifling of what NZ has experienced since 2000, whereas NZ's population has increased by nearly 40%. They have industry to produce Productivity versus People for GNP growth.
Could be because there Nordic population has been much more static than the NZ population. There immigration has been a trifling of what NZ has experienced since 2000, whereas NZ's population has increased by nearly 40%. They have industry to produce Productivity versus People for GNP growth.
No rail link starting to look like a distinct possibility. Who could've seen this coming (or intended it to happen)?
I think it's broader than that and involves pandering to the trucking lobby.
Without an inter-island rail link the rest of the rail network also becomes much less attractive as a freight option. It may well be the beginning of a huge loss of existing rail infrastructure.
Take dodgy weather and dodgy ships out of the equation. Bring on the tunnel boring machines. Shane Jones - go south young man with your infrastructure fund.
https://www.stuff.co.nz/national/101228096/is-it-time-to-tunnel-across-the-cook-strait
...
"But what about the earthquake risk?" some would say. The Seikan Tunnel linking Hokkaido and Honshu islands in Japan sits in an area prone to earthquakes but has withstood many major earthquakes unscathed. The shortest and most practical route between Wellington and Picton ferry terminals would avoid the Tinakori fault and stay west of the continental fault.
“I would also remind investors that market rent is pegged to tenants' income and not landlords' costs.
Sarina Gibbon, general manager at the Auckland Property Investors Association
I thought Luxon said the reinstatement of interest deductibility was to put downward pressure on rents ... Interesting
I guess Sarina Gibbon is part of the MSM making up stuff to discredit the govt...
https://www.stuff.co.nz/money/350220152/investors-have-top-rent-payment…
*** For KH *** my regular small dig of the current govt's policies but this time I choose something we agree on. And yes I saw the stuff article about the super rich who donate to Labour and I disagree with that too. How much money you have should not determine which policies get implemented (even if I agree with some of those policies).
Sounds a bit of racist selection policy but the kaumatua are all happy now with their needs/wants being met
https://www.waikatotimes.co.nz/nz-news/350219156/bowling-green-forever-…
No doubt all those who were incandescent about the government allocating itself temporary powers during the Covid pandemic will be up in arms about this coalition's affront on democratic process. Or then again maybe not because it's their team who are side-stepping democracy.
https://www.rnz.co.nz/news/national/512259/the-unprecedented-power-the-…
More lies from Luxon, he really is the worse National leader ever.
Luxon told Morning Report in early December that the remaining tobacco retailers "will become a massive magnet for crime and we also believe that it will drive more of the market into the black market as well".
And yet he had been given evidence that the opposite was true:
As a result of the entire suite of laws coming into place, "dairies and other small businesses may be less subjected to robberies"
Of course this is just the bias MSM reporting facts ...
https://www.rnz.co.nz/news/in-depth/512253/pm-christopher-luxon-s-tobac…
KH** I'm still waiting for you to give me something that the coalition has done to support.
Someone raised this "evidence" with him and he said something like, "I reckon the evidence is not correct. I reckon, I am." I mean, the guy has his firmly held "beliefs" so facts don't really matter to him. He and Winnie are the reckon twins (or should that be wreckin' twins) - at least Seymour pays lip service to "evidence"
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