US inflation tame; US mortgage applications surge; Japanese machine tool orders strong; Shanghai house sales jump; Aussie job ad levels rise; UST 10yr at 1.10%; oil stable and gold up; NZ$1 = 71.9 USc; TWI-5 = 73.2

US inflation tame; US mortgage applications surge; Japanese machine tool orders strong; Shanghai house sales jump; Aussie job ad levels rise; UST 10yr at 1.10%; oil stable and gold up; NZ$1 = 71.9 USc; TWI-5 = 73.2

Here's our summary of key economic events overnight that affect New Zealand, with news one thing Americans and the Chinese agree on - now is the time to buy houses.

But first, there were no surprises in American inflation data released overnight with it coming in at +1.4% per year as expected and the core rate at +1.6%. There were some sharp monthly rises in oil prices however as winter bit in many regions.

One Fed policymaker does see inflation rising in 2021. More here.

One thing Americans are doing at this time is buying houses. Mortgage application levels are strong while interest rates are near record lows.

The US Treasury released its monthly budget statement for December and it was another shocker. It grew from just a -US$13 bln deficit in December 2019 to -US$144 bln in December 2020. For the full calenday year it was a deficit of -US$3.35 tln or a massive -15.8% of GDP.

The US Fed released its Beige Book and it is an uninspiring review even if it does describe some modest improvemnets. But they are countered by expectations things could well fall back in 2021.

Japanese machine tool orders continue to make a strong recovery, indicating the world's factories are looking ahead. They were up a strong +8.7% on a year-on-year basis in December although for the full 2020 year they ended down a massive -27%.

In South Korea, job losses in the December quarter rose sharply to more than -600,000 compared to the September quarter. This is a 20 year high. Hospitality was the sector hardest hit, but more than -100,000 factory jobs were lost as well. Their jobless rate rose to 4.6% from 4.1%. That was way worse than the no-change expected.

In China, they are scrambling to rescue the reputation of their COVID vaccine. A large Brazilian study showed it barely 50% effective. It is a vaccine that is being rolled out worldwide especially in developing countries with limited budgets. But its lack of effectiveness has brought furious denials from the Chinese.

In Shanghai, housing sales are sharply higher. They reached 39,000 units in December, rising +20.3% from November and surging +96% from December 2019. Other top tier cities are seeing a similar surge.

European industrial production for November came in better than expected showing a +2.5% rises year-on-year. No rise was expected following a good rise in October, but the improvement continued anyway.

In Australia, new official data out for job vacancies in the November quarter shows not only the expected very strong rebound from the previous (August) quarter, but also a strong rise from the year-ago levels as well, and far above expectations. It seems likely their jobless 6.8% rate is about to fall sharply.

Wall Street is little-changed today, up by +0.1% in early afternoon trade. Overnight we have seen similar muted action in European markets. Yesterday, Shanghai slipped -0.3% while Hong Kong slipped -0.2%. But Tokyo's rose a very strong +1.0%. The ASX200 ended its session up +0.1%, while the NZX50 Capital Index fell another -0.5% as the local correction extended.

The latest global compilation of COVID-19 data is here. The global tally is rising faster, now at 91,834,000 and up +747,000 in one day. We are heading for 100 mln within ten days now mainly because the UK variant is taking off worldwide now. It is still very grim everywhere except in our region. Global deaths reported now exceed 1,968,000 and +18,000 since this time yesterday as death rates rise everywhere.

But the largest number of reported cases globally are still in the US, which rose +222,000 for their tally to reach 23,394,000. The US remains the global epicenter of the virus. The number of active cases rose overnight and is now at 9,181,000 and that level is up +82,000 in just one day, so more new cases than recoveries again by a substantial margin. Their death total is up to 390,000 however (+4000), effectively a "9/11" every day there. The US now has a COVID death rate of 1176/mln, sadly comparing with the disastrous UK level (1245) which is rising even faster now.

In Australia, their community resurgence is back under control although officials are on high alert over the risks from the UK variant which is starting to show up in managed isolation intercepts. That takes their all-time cases reported to 28,650, and +16 more cases yesterday with most in managed isolation. 296 of these cases are 'active' (-15). Reported deaths are unchanged at 909.

The UST 10yr yield will start today down -6 bps at just on 1.10%. Their 2-10 rate curve is much flatter at +95 bps, their 1-5 curve is also flatter at +39 bps, and their 3m-10 year curve is considerably flatter too at +102 bps. The Australian Govt 10 year yield is down -7 bps at 1.06%. The China Govt 10 year yield is lower however, down -1 bp at 3.16%, while the New Zealand Govt 10 year yield is unchanged at 1.09%.

The price of gold is up +US$16 from this time yesterday in New York at US$1858/oz.

Oil prices are just under US$53/bbl in the US and little-changed, while the international price is at just on US$56/bbl and marginally softer.

And the Kiwi dollar is little-changed today from this time yesterday at 71.9 USc. It did rise in between however. Against the Australian dollar we are softish at 92.9 AUc. Against the euro we are little-changed at 59.1 euro cents. That means our TWI-5 is still at 73.2.

The bitcoin price has actually moved very little since this time yesterday and is now at US$34,786 and just a very slight net dip. We are back at levels we were at a week ago. 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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86 Comments

13
up

Tenancy laws are a minefield, evicting the tenant is almost not possible. He makes threats against his neighbours and landlord and just last week threw a party that turned violent causing severe damage and death. Just seven more days till his tenancy expires and he is not wanted back in future. House of Reps is debating to get rid of Trump for good.

IF it was a NZ Landlord they would simply give 42 days notice and move in a "member" of their family.

Well moving a member of the family in would not be anything new in America

The war on democracy, free speech, freedom and liberty has arrived - like all wars truth is the 1st casualty as they try to reset things to suit the new feudal system (socialism/ communism) that they are pushing for - aren’t we lucky that we are led by such a caring liberal leader who has our back and would never ever do anything to harm to it’s citizens?

Thankfully it will be over in 7 days after 4 years of it

I wonder what the world would be looking like today had trump and his mob succeeded... I hate to think but perpetual trump govt would be the start

Ah yes, all magically restored back to the American Dream.

at least the American Nightmare will be over and the bullshit and grifting coming from the WH will be back above the level of a primary school playground.

You don't seriously believe that all of a sudden the American political system is fixed??

seemed to work ok until 45 lost and now it's all rigged - why did the Republican Senate sit on the SAFE Act to ensure election integrity? why are conservatives frightened of direct democracy? Is it because as a population educates itself and becomes prosperous, social values tend towards progressivism?

https://www.congress.gov/bill/116th-congress/house-bill/2722?q=%7B%22sea...

Yea that's cool, but it won't solve the endemic corruption of the US political system. As we see in all democracies around the world, big talk with very little walk.

Who are the 'they' pushing feudalism, socialism, and communism, and where are they doing it? If you mean Democrats in America or Labour in New Zealand, truth is the first casualty of your own perception of the world.

Abolishing the electoral college is Communist?

The Dems are nationalising elections to solidify a permanent majority for their own agenda.

This is not 'Communism', unless you are buying into the right wing American agenda. It is democracy in it's most direct form. The president of the US being directly elected by the people of the US with no avenue for interest groups to derail the process through the electoral college.

This is but one step towards repairing the current issues in America. It is perhaps the easiest.

Another aspect that confuses me is the military's stance. In the US the oath of enlistment includes the words "to defend the constitution against all enemies, foreign and domestic". So I am curious as to the military's stance as to what defines a "domestic enemy".

Unsurprisingly things here are a bit cross legged. The Insurrection Act of 1807 empowered the government to use the military to intervene in domestic situations of conflict but then the Posse Comitatus Act 1878 prohibits the military from being involved in law enforcement. Assumedly the National Guard as a militia is there to cover that ground anyway. The arsenal for that in New Jersey, near to where we lived, was ginormous for example. And imagine if the National Guard couldn’t cope with any situation(s) the professional military would then be sent in regardless of any act.

Unfortunately democracy requires a well informed, educated and thoughtful voter. We are now are at the stage where one's narrative is constantly reinforced by a social media algorithm. This has created exaggerated the divide.

I am left wondering what sort of govt we will end up when the majority of voters are 'stupid' . There are masses of people now, sitting at home and becoming dumber by the minute as they occupy their covid reality world. They are encouraged to vote for social 'gifts' to themselves - with no thought as to where these 'gifts' come from.

It's an oldy but a goody.

M L Mencken in 1920:

“As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart's desire at last and the White House will be adorned by a downright moron.”

And before we all think Trump was 'it' and things will get better, I think with hindsight it will be the plural, 'morons.'

Well Tillerson, the outgoing president’s first Secretary of State, certainly endorsed that sentiment. Tks - nicely researched.

“Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.” – Benjamin Franklin

Franklin was complaining about the Penns (the proprietary family who ruled Pennsylvania from afar) and their reluctance to pay their share of tax to the legislature for frontier defense during the French and Indian War. He was defending the authority of a legislature to govern in the interests of collective security.

Totally agree with your first paragraph Ras. And this largely defines the role of the MSM, but they have abdicated their role so much due to bias that social media was able to take over, giving the conspiracy theorists fodder. But for good or bad, true democracy has to be the goal.

And to Dales post above - great one!

Outrageous - imagine a world where the President is always the person the most Americans vote for! Communism!

There is a flood of money in global markets right now and a lot more coming. Hence the value shift in fixed/finite assets.

Been that way for a while, as QE continues, what's new?

Of course the Chinese Government would be in furious denial.
They have a long way to go to match the technological status of the west.

13
up

Not true. China manufacture the lion share of the tech we use every day. They've very cunningly leveraged their manufacturing sector over the last 20 years to produce cheap goods for the West, and stolen all the IP in the process. When it comes to their own products their problem is one of creativity - they can't seem to innovate in the design space as well as the West can. In a totalitarian regime creativity doesn't seem to appear on the scale it does in societies where people are free. The biggest problem for the West, is IP leakage to the East.

I don't think we disagree. When talking about 'technological advancement' I meant the creative side, rather than the scale side.
On the creative side China clearly lags.

Their rise has been so fast there has been no time to innovate. So they just buy it or steal it.
By the way, their rise has been fast BECAUSE they have bought it or stolen it.

The Chinese are no different to the Japanese. The Japanese were way behind a couple of decades ago in creativity, look at where they are now. Its only a matter of time before China dominates the world stage across the board, its simply their attitude and strength in numbers, like them or not, they get things done.

Yeah maybe, although Japan is a democracy and China is not. To what extent the inherent lack of freedom in a communist state hinders creativity remains to be seen. I suspect it's a significant factor.

The technical creativity of US democracy:

On this day in 1962, the US military began its 11-year chemical warfare campaign against the people of Vietnam and Laos, dropping 19 million gallons of Agent Orange over 20% of both countries, poisoning at least 3 million people and causing over a million birth defects. Link

Tell a Japanese person that to their face and you'll get rocked

Westpac is forecasting Auckland and other big cities will share more in the economic recovery this year. “The red-hot housing market will be a big part of that.”

Some optimists thought we would move on to more productive means of growth in the absence of tourism and migration. We managed to find something worse to live off!

A win for the economy with NZAS announcing it will stay in operation until Dec 31 2024: https://www.stuff.co.nz/national/123944399/tiwai-aluminium-smelter-to-st...

Houses and Cows.

Wine and software

It's more of a brrrrr than a wine and the software is mostly deployed to create said brrrrr.
And the cows don't come close to competing with the houses.

12
up

So the road to riches really is buying each others house's.
Even though the long term affect of covid is unknown.

And swapping houses doesn't create anything.

True, It's only the influx of foreign money though Overseas Speculative Investors or falling mortgage rates to allow people to be in to huge debt that mainly sends house prices up. What we've been seeing in the last year or so is mass mortgage debt through falling mortgage rates. That can only last for a short while, if it continues the next stop will be banking collapse. Hence why this is a 'false economy'. We we need to support is our real economies.

10
up

The creation of bank credit is the driver of household residential property price inflation.
Bank lending to housing rose from $50,788 million (48.36% of total lending) as of Jun 1998 to $292,645 million (59.71% of total lending) as of November 2020 - source.

Yesterday, ANZ forecast the OCR could fall to 10 bps (0.1%). At that rate it would take a $10,000,000.00 bank deposit to save $10,000.00 per ann. And yet most NZ salaries and wages are hardly enough to get one into a $1,000,000.00 home.

Hence, banks extend 60 % of their lending to one third of already wealthy households to speculate in the residential property market because the RBNZ offers them an RWA capital reduction incentive, to do so.

QE is going to help boost the economy. How, you naturally ask? Don’t say. Keep it ambiguous. At most point to the “financial system” and claim “accommodation” will make things “loose” and “easier.” None of those terms, you’ll notice, really answer your question.

How, exactly, do these things work?

More than a decade of this in the Western world, there’s only more of it on the horizon. In England, Silvana Tenreyro, an outside member of the Bank of England’s Monetary Policy Committee, endorsed negative interest rates (NIRP) just yesterday. Giving a speech at a seminar in Bristol, Tenreyo said studies show NIRP has “worked effectively” while “some of the evidence point[s] to more powerful effects.”

This view is supported, according to the BOE, by “strong evidence of transmission into looser bank lending conditions.”

What’s omitted from these situations is the only thing which matters. Monetary authorities worldwide should have made this incredibly simple: we do QE, full recovery follows. End of story. Happy ending, no less.

Instead, this is what central bankers time and again hint at and then watch helpless as it always falls short. In the meantime, interest rates – over time – only fall because…

Why do they decline, exactly? If they do, why don’t they ever seem to come back up apart from small, temporary bursts?

According to the same nebulous doctrine utilized in the conventional narrative, interest rates follow along with whatever central bankers are doing; even if no one really knows what that is. Either way, low rates are “stimulus” in the Economics textbook, and no monetary authority will deny themselves the chance at such easy if incorrect correlation. Link

So in the end it's social welfare, but it's good social welfare because it enables asset holders to live in a fashion otherwise beyond their means. And it can only be sustained with yet more welfare.

**politicians and economists left the chat**

Were not just swapping house, plenty of new builds coming online in Tauranga. Construction everywhere down here now. Got to say I love the weather down here, makes Auckland look bad.

Carlos,

Anyone who hasn't seen Papamoa for say 10 years would be amazed. I cycle there regularly from the Mount and new developments seem to appear overnight. It's the same at the Lakes and Omokaroa. There are plenty of sections now at 300sqms or even less.

Of course, our roading infrastructure is ill equipped to handle the increased traffic.

Tiwai's staying for a few more years? You could have knocked me down with a wrecking ball. Same tactic they employed a few years ago, and the same one they'll employ in future. Pouting and foot stomping is an age-old bargaining tool, and very successful if one already holds the dominant position in the relationship.

Successive governments have failed (or done nothing) to stop or slow down the pace of de-industrialisation in our economy.

We have no bargaining chips when the handful of large industrial players here threaten to pull the plug on their NZ operations.

An interesting article, but disappointed it contains one of the speech/grammar mistakes that is so common in NZ - are there no proof-readers in journalism anymore?

He and Arcus had each gone out and brought electric vehicles – a bike, in Arcus’ case – though Schipper said he knew that was only one, small step to solving the problem.

https://www.stuff.co.nz/environment/climate-news/123931638/earths-lungs-...

At least they didn't write "brung".

Isn't it common practice to bring your electric vehicle when you go out? Doesn't seem like news to me.

Don't get me started on their use of "which" instead of "that."

Yeah that's infuriating, ridiculously basic. Primary school stuff.
Another infuriating one is the common use of 'To' rather than 'Too'.

Jeez give them a brake ;). It's taken them years to get to the point of realising that maybe offsetting is a scam, though not certain either journalists or scientists have quite got there yet.

There their Kate!

Where are they?

Their over they're

This electronic printing of Houses is so magical. What happens when the Ink runs out, or the" Well it all may be derived from, yes a Countries wide fraud dries up".

'House buying is a global fad.'

Well, the information provided showed that was a waste of a headline.

Fad, definition: 'an intense and widely shared enthusiasm for something, especially one that is short-lived; a craze.'

Yes. The key issue being it is clearly not 'short-lived'.

Considering that all property is owned by someone/thing, I'm not sure what point was trying to be made, from the information provided, that property sales have picked up in some countries.

Total Auckland sales (all) 2019 = 32,275
2020 = 37,865
Increase is 17.32%
For July to Dec only increase was 35.5%
Last 5m broadly comparable to 2014 sales figures.
But of course we have about 70,000 more stock than did then.
Bear in mind that these figures are ALL sales.
Tomorrow REINZ will announce residential only sales.

Does this include 'off the plan' unconditional sales, or only settled sales?

I believe it is only settled sales involving REINZ agents. What the figures won't show is the wave of off the plan conditional and/or unconditional sales in subdivisions where the buyer is dealing directly with a developer/builder.

And there's lot of that happening.

Just wanting clarification from mk29 as what the REINZ site says is, 'REINZ members submit a record of their unconditional sales to the Institute every month.'

The point I was going to make is that the presumption by many people is a sale today reflects today's demand, which is true in part.

But today's sale is made up of three demand types, the ratio of which can vary greatly and distort what really is happening.
1. Today's demand, IE was in the market to buy today regardless of any incentive/disincentive and does so.
2. Pent up demand. Wanted to buy earlier but delayed the decision to today.
3. Future demand. Was not in the market today but some incentives gave them the opportunity to buy today so they did.

I would guess we are getting a good lot of all three types at the moment, but especially future 'off the plan' sales.

The 'future demand pulled into the present sale' is an interesting one, as you are basically taking what would have been tomorrow's sales stats and recording them today. With the general inevitable result that at some stage in the future there will be a hole in the sales stats.

Of course, if you want to give the impression that sales are good, then you quote unconditional sales stats when it suits, and quote those same sales as settled sales when that happens in the future, ie double counting.

Seen it happen a lot with Ray White apartment sales, double counting whole blocks.

Hi Dale

Pulled forward demand due to financial goosing of QE and fiscal increase means a lot of extra sales made not involving a REAA person. Off pla yes. Can see this by looking at inventory and speed sells at. Plus what has been on market over 3m. This metric was about 32% 18 months ago. About a month ago it was 18% in Auckland. Basically people will buy any old shit for silly money even not built. Which is how you know it’s mania.

https://www.youtube.com/watch?v=J_eecYMLL34&feature=youtu.be&fbclid=IwAR...

Going back to yesterday comments on age demographics, great break down about future projections and what this means for NZ.
Very interesting watch, highly recommend :)

Started to watch but its from Aug 2019 - Covid has changed the assumptions especially for smaller regional towns growth but good link thanks

It's from Aug 2020. He mentions Covid.

None of this is new to those of us that follow this, and what he highlights, is that in 2010 you could have been looking ahead to 2020 and still been pretty much on the mark as to what has happened.

Yes Covid has changed some things, but for example, house prices have continued to increase, not just because Covid QE happened, but irrespective of Covid, Govt. policy is still 'yesterdays policy and they will continue with that into the future.

And this will include turning on the immigration tap, maybe even more, to make up for the interruption of Covid, and trying to turn us into something like the 'Switzerland of the South Pacific' due to their Walter Mitty complex, and on the way destroy 'the NZ way.' The irony of which is why most immigrants come here for.

Sorry my error. Need to factor in the export of the Generation M and Z after Covid calms down - no reason for them to stay here - especially if they want to start a family and have any sort high standard of living. We need immigration to fund the super payments...

But do we need the super payments?

Of course we do - Boomers have done the hard yards ..plus Gold Card ..but not CGT - never@!

Yea sorry forgot about that. Winston Peters deserves every penny

Yes, Same advice I give to my kids, while they can, go where they will be paid well for their knowledge, and where they will have more disposable income, which means places that have truly affordable housing relative to income, ie not NZ.

BUT what I would prefer is truly affordable housing relative to income was available in NZ.

Stopped watching immediately after the euphoric introduction of Paul Spoonley
Paul Spoonley distinguised professor, and leading academic, author of 27 books

Your time would have been better spent listening to what he had to say rather than the time you spent saying that you hadn't listened to him.

Ben Hunt on Covid in Ireland and whats coming in the USA.

https://www.epsilontheory.com/the-ireland-event-2/?utm_campaign=website&...

My faith that we are not going to get another lockdown this year is fading by the day - looking at these charts.

I think the other major that is not being openly discussed is that there is no 100% recovery from this virus if you get it. You will be impaired to a greater or lesser extent for years, possibly your lifetime. Things like fatigue, not being able to sleep and a number of others that will impact peoples ability to work and costs to the healthcare system. Despite the vaccine, I don't believe we have yet seen the full impact of Covid-19, its going to get worse and thats without any new strains popping up or any other unknowns suddenly appearing. People should be bracing for a nasty 2021-22. We have to keep this virus out of community transmission at all costs and we are still way to slow to take action.

I am feeling a bit pessimistic for the first half of the year but quite optimistic for the second half. I reckon with the vaccine roll out in the next 6 months the northern hemisphere will be in a much better state come the autumn / winter later this year.

I still haven't seen any claims as to how long any of the vaccines provide immunity for.
If it's like the annual flu shot then probably only a few months. - then what, re vaccinate the population every 4 to 6 months?.... and new strains??

I have read somewhere that it could be for a year, and resistant to a variety of strains.
Don't know which vaccine, and whether there was science or not for that claim.