FDI falls hard, recovery data good prior to new pandemic bite; Australia goes all-in on housing debt; Wall Street takes fright; UST 10y at 0.86%; oil down further but gold rises; NZ$1 = 66.1 USc; TWI-5 = 69.7

FDI falls hard, recovery data good prior to new pandemic bite; Australia goes all-in on housing debt; Wall Street takes fright; UST 10y at 0.86%; oil down further but gold rises; NZ$1 = 66.1 USc; TWI-5 = 69.7
Tane Mahuta, the most famous and oldest kauri tree in Waipoua Forest, Northland
Image sourced from Shutterstock.com

Here's our summary of key economic events overnight that affect New Zealand, with news the building October pandemic is overwhelming the recovery from the March-April one.

But first up today, the OECD is reporting that foreign direct investment sank sharply in the first half of 2020, down by -50% to its lowest since 2013. Pullback of investment by foreigners into the USA fell by -74% and drove the trend. Their data shows a -60% decline for New Zealand so investment here was lower than the average. It was an even larger proportionate decline for Australia.

American data on household incomes and spending from before this latest pandemic crisis shows both were recovering in September from the March and April hits. But without a fiscal program to cushion incomes this time, it could get very ugly to round out the year. Hopefully their election result will allow something to be done.

Japanese industrial production rose more than expected in September from the prior month but is still -8% lower than a year ago.

In Singapore, their latest survey of business confidence in Q3 was still very negative, but not quite as much as in the prior quarter.

Taiwan’s economy grew with unexpected speed in their third quarter, with GDP rising +3.3% year-on-year and the highest rate in more than two years. It was growth built on both strong exports and a rebound in consumption after successfully taming the pandemic.

Hong Kong reported a year-on-year GDP decline of -3.4% for its Q3-2020 period. But at least that was not as tough as their Q2 result.

The latest updates on debt data in Australia show broadly the same patterns as we reported here yesterday for New Zealand. Housing debt is growing, but other personal debt is falling sharply as BuyNow, PayLater schemes eat into this business fast. Business lending is also declining on lack of customer demand. And large corporates have the option to go directly to the very cheap bond market for their liquidity reserves. Those investors are much less stringent about financial resilience than bankers.

In home loans, ANZ-Australia made the biggest gains in September from August of the big four, but year-on-year it is CBA that is the real market share winner. The market laggard is Westpac in Australia.

But the immediate economic conditions are turning bad again.

Wall Street has continued its decline today after yesterday's pause. The S&P500 is down -1.2% and looks like it will close out the week with a -5.6% retreat. That is large and involves a loss of capitalisation exceeding -US$1.6 tln in just one week. This is the largest since the March rout. Overnight, European markets were less affected with only small declines averaging -0.2%. (Paris actually rose.) Yesterday, Shanghai fell -1.5% in a late session retreat and that locked in a weekly fall of -1.6%. Hing Kong fell almost -2.0% on the day for a weekly fall of -3.3%. Tokyo fell -1.5% on Friday to be down -2.3% for the week. The ASX200 fell a grunty -3.9% for the week, and the NZX50 Capital Index retreated -3.1%.

The latest global compilation of COVID-19 data is here. The global tally is 45,304,000 and up a record +620,000 since yesterday. They now record highs daily now. It is very grim in Russia and Western Europe with serious stress on their hospital systems. Global deaths reported now exceed 1,185,000 (+8,000). A sharp rise in deaths is now expected by this time next week now this third wave has taken hold.

The largest number of reported cases globally are still in the US, which rose +98,000 since yesterday to 9,244,000 in an accelerating trend. The number of active cases is higher at 3,019,000 so many more new cases more than recoveries. And a new trend is the sharp rise in hospitalisations. Their death total now exceeds 235,000 and now rising at much more than +1000 per day. Their public policy decisions at the national level are fueling this rise.

In Australia, they are not getting any resurgence. There have now been 27,582 COVID-19 cases reported, and that is +13 more cases than we reported yesterday split across most states. Reported deaths are unchanged at 907.

The UST 10yr yield is up +2 bps today at just on 0.86% as the US Treasury sell-off resumes. Their 2-10 rate curve has moved steeper again overnight to +70 bps, their 1-5 curve is also a little steeper at +25 bps, along with their 3m-10 year curve, now much steeper at +77 bps. The Australian Govt 10 year yield will start today up +1 bp at 0.83%. The China Govt 10 year yield is up +1 bps at 3.21%. And the New Zealand Govt 10 year yield is also up, by +2 bps to 0.54%.

The price of gold has started moving back up, and is now at US$1880/oz and a +US$12 gain overnight but still a -2.3% loss for the week.

Oil prices have also fallen again today, down less than -US$1 to now at just under US$35.50/bbl in the US, while the international price is now under US$37.50/bbl. These prices are nearing those we saw in March at the start of the first global set of lockdowns.

And the Kiwi dollar is unchanged this morning at 66.1 USc but has devalued by -1.3% over the past week, shedding almost -1c. Against the Australian dollar we have appreciated for the week, but are unchanged from yesterday at 94.1 AUc. Against the euro we also holding at 56.7 euro cents. The anti-commodity currency mood is also reflected in a rising yen. However that all balances out and means our TWI-5 is unchanged at 69.7.

The bitcoin price starts today virtually unchanged at US$13,524. Over the past week it has risen +4.6% in US dollar terms, and almost +6% in New Zealand dollar terms. 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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76 Comments

11
up

Funny world.

Economic conditions are turning bad...and In dire situation what solution does reserve bank and Government has to come out of it .....Borrow more and spend.

In uncertain times when people losing jobs - should one not be saving and spending wisely BUT in today's time reserve bank and Government message is borrow as much as possible for we are their to cover your risk.

So the new mantra is that opt for risk free debt as it is not individual who wants loan but is government pleading to borrow to spend as they do not know what else to do.

This new mantra...
Yep could be
PragerU gives ideas- perfect weekend stuff

https://youtu.be/jsfei6ynZ7I
Here Douglas Murray, chatting of "When Childish WorldViews Takeover"
- be happy in unhappy times.

13
up

Agree. Now FHB who were borrowing X amount are now extendin their limit and borrowing X plus 20% to 40% more and in period where earning and jobs are at stake and possible because of distribution of money by government and very cheap loan....Anyone can sense where all this is leading to in long term and than the same government and Mr Orr who will come out to point that one should have borrowed within limits but who is prompting by allowing to borrow without much support/deposit and also who is responsible for creating FOMO.

LVR is needed now more than before to protect.

All this has to end badly unless government in their obsession to prevent business/economic cycle keep on printing and distributing money but again this may delay but not avoid and bigger the delay bigger the crash.

For that very reason, now government and reserve bank have no choice but to continue supporting the ponzi as long as it takes, as they have entangled themselves by their narrow short term thinking of herd mentality.

Mr Orr and other governors follow fed to play safe, for if and when actions misfire will not be blamed.

Mr Orr has lost and his actions are now only based on Hope and have lost the opportunuty with forward looking thinking - Short term pain for libg term gain - reset.

May be time to reset agencies and Mr Orr to bring reset in NZ economy.

Why does everyone blame Orr? He has a clear mandate to keep inflation at 2% via interest rates. He’s just doing his job.
If you don’t like it blame the finance minister who sets that mandate.

That would be under normal economic circumstances - these are not normal economic circumstances - you must look at it under the prevailing economic conditions.

Because extreme RBNZ monetary policy actions have produced little in the way of economic growth that reflects a shortage of production capacity in need of expansion to meet overwhelming consumption demand.caused by said actions.

by Audaxes | 23rd Oct 20, 2:53pm
The OCR has been cut in half five times since July 2008, when it was 8.0% to 0.25% today.
A basket of goods and services that cost $1.00 in quarter 2 of 2008 would have cost $1.21 in quarter 2 of 2020 - compound average annual rate 1.6% - courtesy of RBNZ inflation calculator.

Interesting that house prices were escalating in the mid 2000s despite high interest rates and mortgages at 11%

Check out the quantity of bank residential property mortgage lending during this period. You might find that the level of interest rates is immaterial to the price direction of this asset class.

.. the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. Link

MB where did you get that figure of 11 percent, very overstated.

Check the rbnz chart
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates
Interest rates do not dampen house prices in NZ

Very short period in 08 and Not eleven percent. To be fair a huge percentage (2/3rd ish) were on the 2 year fixed rate which peaked 9.6 also for a few months only. As such Brash was powerless to affect inflation through the floating rate, your narrative is a bit misleading.

FH..I seem to remember the floating rate was 11% and with rates looking like falling dramatically many people actually chose the floating rate waiting for rates to drop before (re)fixing. You might want to look at the graph he linked you showing rates were over 10% for about two years in mid 2000s

You may be right... interest rates signal the required return given risk free rate, expected inflation and risk profile of default vs opportunity cost.
Supply of money has not been in question, only risk expectation and marginal investment returns. Shall we see our banks become housing risk adverse when market conditions change - as they’ve done with dairy...

Because we have the benefit of seeing how these policies pan out as other countries (e.g. Japan, the US) have been running them for years. And still no inflation. Maybe it will be different here! Yeah right.

That is what concerns me. Currently LVR's are to be reintroduced in May next year - what happens to house prices then. Those that have recently bought face the prospect of a sudden drop in house prices / equity because of a constraint that should never have been removed. What does Orr do - not reimpose LVRs......

OCR needs to be increased to 3% overnight and lvrs for fhb brought back at a higher rate of 30%... ban any banks lending to investors purchasing existing residential property... the pain needs to happen now otherwise the pain felt further down the track will be catastrophic....

While I agree, I am sceptical that neither the government nor the RBNZ are willing and will only extend and pretend until they can't, then adopt MMT to extend and pretend some more. The pain will be imposed upon us by something external - most likely a war.

The problem is the general public are blind to what is happening..... not enough basic economics taught in schools... for anyone that has studied economics at a high level the current economic situation is insane and economic suicide...

I thought it was those who had studied to a high level that are the problem. The rest of us uneducated just walk round shaking our heads in disbelief and/Orr joining the ponzi.

No - the problem is those who have studied to a high level can't admit that they don't know what they are doing and that they have got something wrong.

They know what they are doing... kicking the can down the road... its all political... without thinking of the overall good of the country long term.. it will all crash and burn eventually... going to be very messy when it does... my grandfather would turn in his grave looking at this country now after risking his life for it...

Nail and head

https://www.realtor.com/realestateandhomes-search/Phoenix_AZ/beds-3/type...

I suggest all young new zealanders think about leaving New Zealand... send a message... if you are skilled and can get get access to a green card leave for the states... dont believe the media crap... look at house prices in Phoenix, Arizona... great city... much bigger than auckland and house prices half of auckland or less... nz will slowly become a third world backwater...

yeah, NZ has been converting into a retirement village for years. I don't know how it will pay the health care bills. The pressure to open immigration floodgates will be irresistible. This from last year: https://www.junoinvesting.co.nz/personal-finance/2019/8/15/the-baby-boom...
It’s a gigantic problem, says economist Cameron Bagrie.
“Steven Joyce’s NZ$11.7 billion fiscal hole is small change compared to the fiscal hole we face from the impact of an ageing population,” says Bagrie.
It’s not just ballooning bills for NZ Superannuation and healthcare that are the problem, he says.
Housing and wealth will also feel the impact.
The irony, says Bagrie, is that government policy views many issues, such as the environment, sustainability, and housing affordability from an inter-generational perspective, but not the ageing population.
Without some levers being pulled, such as increasing the retirement age or hiking tax rates, we face being NZ$2 trillion in debt by 2055, he says.

Only nz citizens should be able to receive superannuation and free public healthcare... not permanent residents... extend time living here from 10 years to 25 years... no refugees or immigrants should allowed into new zealand for the next decade so we can catch up with housing, education, health and infrastructure... take a breather and look after our own....

I strongly agree (event though I would not go as high as 3%, as this would probably be too traumatic: I'd think that an OCR at around 1.5% might be a reasonable balance in the current economic circumstances).
Unfortunately the current inept and incompetent management at the RBNZ will never do that, and the Government does not care.
It is easier to parrot failed loose monetary policies from Europe and Japan, hoping for a magically different result in NZ.
But do not worry, when the times come for NZ to pay for these mistakes, Orr & Co. will be nowhere to be seen.
People forget that a fundamental part of the RBNZ's mandate is to keep the NZ financial system sound, it is not just about inflation rate and unemployment levels. The current policies are in clear breach of this mandate and Orr should be sacked immediately.

3% short and sharp... get it done i say...

The problem I see is NZ will be against world tide of cash flooding around the globe looking for a home to eek out a return... can they hold out against that? They bump up ocr and demand for bonds goes through roof then NZD skyrockets and export sector suffers

ML Smith,
Yes, If NZ were to raise the OCR to say 3% then this is exactly what would happen. The RB would need to need to require the banks to fund most of their lending from NZ-resident entities. This could be done but by itself will not be enough. The key problem right now is excessive QE rather than the OCR. If the RB were to step back from QE, and combine this with requirements of banks to source most funds from NZ-resident funds, then this would raise internal market interest rates without creating these effects on the the exchange rate. The RB could then allow the OCR to be a follower rather than a leader with its role being to facilitate stability of the system as was originally envisaged. However, it won't happen as long as the RB is wedded to the mantra that further lowering of interest rates can stimulate the economy.
KeithW
KethW
KeithW

Any stimulus provided by unparalleled low interest rates lost its steam long ago. The RB is flogging a dead horse. Worse still is the commercial and personal peril of encouraging spending by encouraging borrowing. Self defeating in every regard, a dangerous sea, brewing storm, leaky boat and rocky shore on the lee.

https://m.realestate.com.au/buy/property-house-between-375000-500000-in-...

Young new zealanders leave while you can... nz will be third world before you know it...

The problem is that an investor who already has significant equity in other property is almost always a far better risk for banks than a FHB. When an investor with a 7 figure freehold house wants to borrow for a rental the risk for banks is extremely low.
Example: $1M freehold house, borrow 100% for 700K rental. Borrowers two properties would need to fall 50%+ before banks risked losing but for FHBs.... Sad but true.

Well that's it, housing isn't an investment (investment has risk and return) - there is no risk anymore....the powers above have taken that away. That's why everyone is pilling in. At the end of the day, money is created from nothing, everyone knows it - the genie is well and truely out of the bottle.

But ask yourself this. When very few people are being forced to sell, mainly because of the fake economy we currently have, why are records numbers actually choosing to do so? By selling in the middle of a boom I'm guessing many feel there is indeed significant risk.

Trump and Biden showing they care more about being elected than the health of the people they are supposed to be governing by holding massive rallies during a huge outbreak. At least Biden is wearing masks and has encouraged his supporter to do so while Trump is still a massive idiot around the issue (mocking wearing masks and claiming they are rounding the turn with record daily cases?). I am sure they will look back on Trump rallies to find out they are super spreader events.

Let's hope the markets can get back to some fundamental valuations so we can keep going with capitalism instead of the zombie central bank socialism we currently have.

Still if Biden should win that should at least make for an extremely entertaining inauguration day next year, if there is one?

If biden wins... say goodbye to the sovereignty of Taiwan, Hong Kong and Philippines... many pacific countries also... new zealand sooner than anticipated...

Why ?

Biden will be chinas lacky... china basically already owns the phillipines plus china will have the green light from him to take back taiwan... hong kong is already a goner... ask any taiwanese who they want in power in the USA... answer will be trump... they know what is coming under biden...

But is that is true why did Trump not protect Hong Kong...keep digging that rabbit hole?

He did more than any other leader... but ww3 over hong kong.???.. taiwan on the other hand...

How is Biden China's "lacky"? Present some evidence.

Laptop, son.. enough said... will not criticize china... china are the new japan... the demented old fool...

What about the supposed laptop. Has it been subject to any form of scrutiny except by those who have a vested interest. Has it been proven that the laptop does actually belong to Hunter Biden. You call Joe Biden a "demented old fool" but Trump has his problems as well. Thrice he claimed that his father was born in Germany.

https://www.washingtonpost.com/politics/2019/04/02/trump-wrongly-claims-...

Washington post says it all... corrupt paper and journalists within... he clearly has form of dementia/alzheimers...

Again based on what.... You really should get out more.

Info wars..and Zero hedge...sorry but you need to up your game Kiwi

Seriously Infowars and Zerohedge - please put your tin foil hat on. Echo chambers for the Rabid Right.

Business partner verified the emails and context.

And yet this report casts doubt on the validity of the emails and if they say what the Republicans are wanting them to say

https://www.nbcnews.com/politics/2020-election/here-s-what-happened-when...

Yes, yes, have read all that. The problem that the Democratic party has, is they keep electable prospects down and keep pushing obviously criminal candidates for the highest office.

If you trust the democrats you essentially trust the CCP... they are as bad as the nazis, communists in the ussr and Japanese during ww2...

Sorry you lose - Godwin's law - an Internet adage asserting that "as an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1"

Kiwilad45,

Does your name suggest that you were born in 1945? If so, perhaps it is you suffering from if not dementia, then conspiracy theory syndrome. Your posts have become more and more silly-simply unverified rants. I can imagine you having voted for Advance NZ.

Google "Kiwilad45" if you want to know more about him.

This is some pretty extraordinary claims. They will require some pretty extraordinary evidence.

NZ is going to lose it's sovereignty? Philippines? Hilarious...

Phillipines is pretty much owned by the chinese... I worked there for 2 years.. they own everything.... the banks.. the malls (pretty much the biggest industry there...) hospitals... pharmacies... the roads.... all it would take is china saying no more money for you unless we take control... you do realise how little power new zealand has?? China could take us over so easily... unless we have a powerful USA ready to step in... Biden is not that man... he will bend over completely to china...

Kiwilad45, i agree with you totally! I also lived and worked in Manila in the late 80's. Even back then it didn't take me long to figure out that the Chinese owned most of anything worth owning. They were ruthless and treated the local workforce like slaves. Since witnessing this I have always warned about the building threat of China - they are starting to become expansionist. If the US pulls its navy out of the SC Sea then Taiwan is a goner! I bet most of your critics above have never spent time in Asia!

or PNG, Vanuatu and so on

A lot of new zealanders have their heads in the sand over what a threat china is to us... baffles me... ask the average filipino here what they think of china... ps they won't hold back...

Masks only reduce the rate that you can spread the disease when you cough. They are simply spit suppressors. A virus on aerosol particles will go through a mask like a mosquito through a chicken-wire fence.

The latest updates on debt data in Australia show broadly the same patterns as we reported here yesterday for New Zealand

For the month ending September 2020 the collective financial footprint of NZ banks diminished. A trend we can ill afford. Monetary policy impact is missing in plain sight.

The government, not a rebound in the private economy, is what’s keeping things afloat, a truly precarious aggregate position to which businesses are, right now, acting upon. Without this “stimulus”, it’s unbelievably ugly right now – as the rest of the GDI, and some GDP figures, will attest. Links - here and here

Its not hard to see the impact of injected government aid in the NZ economy - checkout the growth of the RBNZ's balance sheet from Sep 19 to Sep 20.

Nasdaq is approx 14% down from all time high and another 6% down, which is possible next week will term it as crash being 20% down from high.

Interesting time ahead.

Predicting 20% drop in dow from current level, and 20% drop in nasdaq from current level next week... it could get worse than these predictions i feel...

Kw45, you have been with us here on this site for just three days. Welcome! Just curious though, you are not a reincarnation possibly of GBH who has been MIA of late, much to my regret I would add.

Hmmm..something to do with an election perhaps or just your "gut" feeling?

No more than the intuition that comes with the senior years. In other words something you know for certain without being sure.

Q: If you’re going down a river at 2 KPH and your canoe loses a wheel, how much pancake mix would you need to re-shingle your roof?
A: Trying to figure out what we need to fix the holes in our economic roof when nothing makes sense is not easy. But making the holes bigger isn't part of the answer.

I am cashed up and ready to buy, once the US elections turn into custard, Trump refuses to leave, riots spread in many US cities, and the US army readies for intervention.
If the Dow goes down by 20-25%%, I am ready this time. I missed the March plunge because I was stupidly waiting for things to reach a bottom, before buying, so I ended up not buying. I am not doing this mistake again. The gains I made by buying during the GFC is something I remember with great fondness.
I am also about to buy European infrastructure shares (like Vienna Airport) in a couple of weeks' time: they are now being massacred due to the Covid pandemic raging in Europe.
I have also gone slightly overweight with precious metals.

Gold will skyrocket in 2 weeks... the collapse on Wall Street will be immense...

The USA will continue to go down the toilet regardless of a Trump or a Biden win. The USA peaked in the 50's and 60's and has been slowly going down hill ever since, it was their failure to adapt. Their failure was most evident in the Automotive industry against what Japan were producing. China is the new power, we had better get used to it and adapt accordingly. Pretty good chance of a full on Civil War post election in the USA, China doesn't need to do a thing just watch them self destruct.