US suffers from economic corrosion of pandemic, chooses to invest in houses; Canada house prices to fall; AUSTRAC just getting started; UST 10y at 0.67%; oil stable and gold firm; NZ$1 = 65.6 USc; TWI-5 = 69.2

US suffers from economic corrosion of pandemic, chooses to invest in houses; Canada house prices to fall; AUSTRAC just getting started; UST 10y at 0.67%; oil stable and gold firm; NZ$1 = 65.6 USc; TWI-5 = 69.2

Here's our summary of key economic events overnight that affect New Zealand, with news the chronic economic weaknesses from the pandemic aren't going away.

American new jobless claims came in higher than expected at +870,000 last week and higher than the prior week. (Analysts expected +840,000.) Continuing claims were lower by -167,000 in the week as benefits expired for increasing numbers.

Sales of new homes however were a bright spot, surging up to a 14 year high and mirroring the rising activity in the existing homes market. The median sales price of a new home is now US$312,000 (NZ$475,000).

The Kansas City Fed said its regional factory survey shows their expansion continuing but fading. But activity there is still about -20% below the levels of a year ago.

In Washington, the US Treasury Secretary is raising expectations that more fiscal stimulus is possible soon. Wall Street noticed and was up on the expectation. But that expectation is fading fast now.

In Canada, Moody's is predicting average house prices will fall by -6.7% in 2021 as their recovery stalls, economic stimulus fades and debt problems increase. Toronto and Vancouver won't be spared, they say.

This comes as new data shows that employment, earnings and hours worked in Canada have been rising recently.

In Australia, it turns out the huge AU$1.3 bln penalty that their AML regulator hit Westpac with is the world's largest fine anywhere outside of the US. And the regulator says they have another large non-bank institution they are targeting.

In New York, the S&P500 is up +0.1% in early afternoon trade after hopes for some new fiscal stimulus were raised. It was up +0.8% earlier. They follow European markets that were generally lower by about -0.6%. London fell -1.3%. Yesterday Shanghai ended its session down -1.7% and Hong Kong was down -1.8%. Tokyo was down -1.1%. The ASX200 ended down -0.8%, and the NZX50 Capital Index ended down -0.1%.

The latest global compilation of COVID-19 data is here. The global tally is 31,993,000 and up +279,000 in one day. Global deaths now exceed 978,000 (+5000).

Just under a quarter of all reported cases globally are in the US, which is up +46,000 overnight to 7,159,000. The number of active cases are stable at 2,538,000 so they have as many new cases as recoveries and making no progress. Their death total is now just over 207,000 and back rising at +1000 per day.

In Australia, there have now been 26,983 COVID-19 cases reported, and that is only +10 more cases from yesterday. Deaths are up slightly at 861 (+2). Their recovery rate is now just on 90%.

The UST 10yr yield is down -1 bp at just under 0.67%. Their 2-10 rate curve is down slightly at +53 bps, their 1-5 curve is unchanged at +15 bps, while their 3m-10 year curve is marginally flatter at just on +59 bps. The Australian Govt 10 year yield is unchanged at 0.86%. The China Govt 10 year yield is also unchanged at 3.11%. And the New Zealand Govt 10 year yield is down another -2 bps at 0.46% and a new record low.

The price of gold will start today up by +US$10 at US$1865/oz. And silver has had an outsized gain overnight.

Oil prices have inched up again and are now just under US$40.50/bbl in the US, while the international price is little-changed at just under US$42/bbl.

The Kiwi dollar starts today at 65.6 USc and a small firming overnight. Against the Australian dollar we are also firm at 92.8 AUc. Against the euro we are marginally firmer at 56.2 euro cents. That means our TWI-5 has inched up to 69.2.

The bitcoin price is up +2.1% from this time yesterday, and now at US$10,686. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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50 Comments

Friday Book read.

https://www.amazon.com/Bonfire-Vanities-Tom-Wolfe/dp/0312427573

Masterful Unmasking of the Human Condition
Wolfe is a genius of unmasking our oh-so-carefully constructed fictious lives. Bonfire of the Vanities, so aptly named, scorches the network of lies, deceit, and hubris that we dare to call "society." The under belly Wolfe exposes runs the gambit from the justice-free judicial system to corrupt civil rights activists, and the hipocracy of upper middle class elitism. A devastating, yet entertaining novel that will wake you from your smug confidence that "all is right with the world."

My current reading list:
Kunstler 'Living in the Long Emergency'
Kotkin 'The coming of Neo-feudalism'
Ridley 'Innovation'
Friedman 'Storm before the Calm'
Adams 'Loserthink'

Everyone's a critic

11
up

'Economic progress hard to find'

?????

For us Economy = Housing

AND

Housing market is not only progressing but booming = economy is booming.

Booming no one can deny !

Also even earlier predection was that affect of lockdown/virus will be felt not before end of year or early next year but currently housing market is so so high so to have doubts or think about it softening seems doubtfull /unthinkable but it is always is the case when any market is booming at that time hard to imagine a downfall, so is the case now.

Wait and watch.

13
up

and somehow NZ is immune from house price falls?

What goes up must come down

11
up

Economics isn't subject to the laws of physics

You've just got to believe in it and have faith.

Just heard an interesting and informative analysis of the Swedish Covid response here.
https://www.bbc.co.uk/sounds/play/m000mqpv

16
up

You should report tent sales David now that they are becoming home for so many people.

Pop up the road to Hadfields Beach one day & take a look.

22
up

Can a real estate agent please logon to their database and tell us exactly how many houses Adrian Orr owns. Its hard to believe that somebody would be willing to destroy so many young lives for absolutely no reason?

10
up

To be honest Andy I've been saying here for years that central banks don't control interest rates. They follow the market trend, which is down. Sure they tweak the peaks & troughs a bit, but the trend is beyond them.

What could be influenced a little is the distribution across asset classes.

14
up

He is tweeking the peaks and troughs in favour of the rich. Thats the problem.

Indeed. A different RWA rating for housing could be one possibility, Bigger brains than mine can confirm or deny.....

So, two tiered interest rate policy?
It is an idea, but an extremely scary one.

The real problem that blanket monetary policy faces is that asset markets are relatively supply inelastic. In the case that this wasn't true, monetary policy tools would not have the huge pumping effect we are currently witnessing.

So, in the case of housing it is not a monetary policy issue but a supply issue.

Do you think the favorable tax status plays a part?

Definitely. A huge part.

But, again, it only plays a part because housing supply is so inelastic.

A central banker does not follow a 'trend'. They operate in an environment where trends are explicitly removed due to their nuisance in developing any model that makes even a smidgen of sense.
A central banker acts to influence the short/medium/long run outcomes from a change in interest rate policy. In that respect, they 1 - do control interest rates and 2 - don't follow any 'trend'.

Unless of course you know any bank running models that ignore fundamental principles of time series statistics, let us know.

Like hell they don't. Difference is they are too stupid to understand there is a trend.

No. They know there are trends - i.e. many higher order trends. And much of their work is devoted to accurately removing them.

Why?
Because they understand that they are bad when you are working with tools which explicitly require that they are not present.

Mr Scarfie sitting in front of his excel spreadsheet and forecasting the number of interest comments he is going to make in the next month based on a 'trend' is very different to what actual forecasters do in dynamic environments.

We've been over the forecast angle before. I've made one and it is proving highly accurate. If they knew the trend then their only reason for going to work is to pay the mortgage, which I concede could be the case.

Not a real estate agent, but there are three titles in his name.

Overnight, UK Chancellor announced a revised wage subsidy scheme that will not save all businesses, expected to sacrifice Tourism and Hospitality

10
up

The UK needs to headhunt Jim Boult, quicksmart, and get him over there explaining why those parts of the economy are more deserving than those that actually make and grow things.

Payday Filing Data
Week ended 17 May 2020 = 2,199,000 total paid jobs
week ended 16 August 2020 = 2,191,990 total paid jobs (up 4,010)
week ended 23 August 2020 = 2,189,220 total paid jobs (down 2,770)
Paid jobs holding up

may to august is a decrease of around 7000 jobs is it not?

Whats the average hours worked?

The simple problem is that people will die rather than change their ideology. Applies to all lifestyle choices, and it is the consumer choices we make collectively that matter.

Had a retired, but still registered in Germany, urban designer stay the other day. He described a problem of "over transportation" as a competing theory to over population. For an example he used the scenario of getting to work. People are happy to travel one hour, and some upto two hours commuting. But there is a limit to what is practical. By building transport systems we expand the area covered by an "hour". As the radius grows the population supported by that network grows disproportionately. And example he used is the 300km/h train to Paris, which allows people to live in Lyon and commute to Paris. Always interesting to have another perspective.

Responsible lending laws that fuelled a bitter court fight between the corporate regulator and Westpac will be scrapped for banks, which will now be subject to less onerous credit rules to encourage the flow of loans ...In a shift from "lender beware" back towards traditional "borrower beware"

If The Rules cost you money, change The Rules....
Disgraceful.....
https://www.afr.com/policy/economy/responsible-lending-laws-to-be-axed-2...

Well put:

...a climate in which house prices were perhaps twice what they really should be in a functioning market…one of the most egregious policy disasters in modern New Zealand history ….50 years of real economic underperformance aren’t just about house prices – but it would make an enormous difference, and (not incidentally) turn houses back into a (lifetime) consumption item, not something to stress about or speculate on the value of it. Fear of missing out – which has, reasonably enough, driven many younger people – would be a thing of the past... that’s just a disgrace; a shameful reproach on both major parties (and their sidekicks)…

Agree should ask hard question to PM on housing which under coronavirus they have been able to keep it down as National party has no face to raise that issue (not pioneer but played a major role in ponzi) and somehow experts/journalist/media too is not grilling government on it.

Last election debate was a total waste as was not asking hard questions and even if did, moved on quickly without getting full response - was trying to make both of them feel comfortable instead of grilling for answere that people want to know.

The masses are being ignored. They have total contempt for us and its showing.

ECB Pays European Banks 1% To Give Them €174 Billion

And so, after €1.3 trillion was the taken-up last time three months ago, today Euro-zone banks took up just €174.5 billion, or $203 billion, in the latest TLTRO even as the ECB gave banks every possible incentive to keep lending to the pandemic-stricken economy, including rates as low as -1%. In other words, the ECB is paying banks to take cash which they should then lend out, at least in theory. According to Bloomberg, this suggests that "most lenders now consider themselves well-financed."

The latest facility brings the total TLTRO amount outstanding to €1.75 trillion...

... and was priced at -1% for Year 1, and -0.5% for Years 2-3. As such these loans fully compensate banks for the official policy rate of minus 0.5%, which works as a charge on their reserves and erodes their profitability. Without TLTROs as a counterbalance, that could eventually curb lending. Instead the ECB is effectively paying banks to lend. On the other hand, with the ECB almost fully offsetting the punitive effects of negative deposit rates, one wonders why the ECB still pretends to have NIRP?

I'm no financial genius. But I would just take the money collect the 1% interest then give it back.

BBC article: Trump booed at Supreme Court as he pays respects to Ruth Bader Ginsburg. "US President Donald Trump has been greeted with boos and chants of "Vote him out" by the crowd outside the Supreme Court."
https://www.bbc.com/news/av/world-us-canada-54286558

Did Ginsberg ever rebuke Israel for squashing 6 million Palestinians into Warsaw-ghetto-like conditions?

Just askn.

Trump (& son-in-law) has successfully brokered normalised relationships between Israel and some Arab states, & now Palestinians are trying to unify themselves to also make realistic deals with Israel.
This is quite a break through which media are largely ignoring.
https://www.aljazeera.com/news/2020/9/15/palestinians-unify-as-arab-stat...

This is quite a break through which media are largely ignoring.

Because Turkey, Iran and Iraq are not parties to the supposed reconciliation with Israel.

Iran would never normalise relations with Israel as Iran’s main mission statement is to destroy Israel.
https://www.israelhayom.com/2020/07/06/iran-vows-to-stand-by-palestinian...
However, some Arab states have realised that they are better off recognising Israel and allowing travel and trade with the only democracy in the region. Egypt also benefitted when it formed a peace treaty in the 70s - since then however Obama completely messed up Egypt with his supporting the Arab Spring so-called.

Nothing more than an Arms deal - stop pretending Trump cares about anything other than the grift.

Ruth Ginsburg did a huge amount for women's rights, You know that other half of the worlds population, not something that you would care about.
They booed Trump because he ignored her dying wish to appoint a Supreme Court replacement after the election which is only a few weeks away.

Oh right, was she behind women getting the right to drive in Saudi?

Well their car insurance premiums would be a lot lower since women a statistically safer drives then men, hence why they get lower insurance costs. :)

Most of the women I know are busy trying to undo them again, completely captured by the virus thing. I do at least know a few guys that see the risks.

Last time I checked, a "dying wish" carried exactly zero legal weight.

It matters if the woke say it does.

That's why maybe USA pursued the opening of NBA which is now back on track.
Come to think of it:
The NBA makes about $8 billion a year, most of which comes from television contracts, merchandising, sponsorships and gate receipts. Unpacking each of those areas reveals how much the COVID-19 crisis could affect the business of basketball.
Though they are playing in an empty arena, tickets are not the largest source of income for the league; according to Forbes data gathered by sports economist Rodney Fort, they made up somewhere between 20 and 25 percent of league revenues in 2018-19. Still makes sense!
As for Australia, I think they are doing well on their economy, not same before but they are on it.

North Shore Auckland
JackMarrow
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