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US mortgage applications dip as interest rates rise; Taiwan exports zoom; Hong Kong hikes stamp duties; China launches huge stimulus; UST 10yr at 1.38%; oil up and gold down; NZ$1 = 74.1 USc; TWI-5 = 75

US mortgage applications dip as interest rates rise; Taiwan exports zoom; Hong Kong hikes stamp duties; China launches huge stimulus; UST 10yr at 1.38%; oil up and gold down; NZ$1 = 74.1 USc; TWI-5 = 75

Here's our summary of key economic events overnight that affect New Zealand, with news our currency is on a fast elevator up today as the reflation trade picks up too.

But first, mortgage applications fell away sharply last week in the US, held back by rising interest rates, especially the 30yr fixed. The weather isn't being mentioned as a reason but it must have had some impact, in Texas at least.

Sales of new homes are staying high, up +19% in January from the year-ago level. New home sales make up 17% of their annual real estate transactions but you would have thought this strong driver would be keeping mortgage application levels up. But they aren't.

Taiwanese export orders are up a remarkable +49% in January on a year-on-year basis. That is much better than expected and better again than the December outcome. By any measure, this has to be the most successful pandemic recovery stat anywhere.

In Hong Kong, they are hiking taxes with their first rise in Stamp Duty in 18 years which sent their share market tumbling by the most in five years. It is all part of paying for stimulus programs after the city comes up to two years of recession. Even with this, Hong Kong is budgeting on a deficit equivalent to -4.8% of GDP.

China is launching a wave of infrastructure projects totaling NZ$5.3 tln as part of a broader effort to stimulate consumption and growth. This new and enormous program is getting little attention in the West but it is world-scale stimulus, and is more than double the US Biden plan of US$1.9 tln (NZ$2.5 tln).

And staying in China, the owners of the infant formula brand Enfamil are putting it up for sale. It is a heavy-hitter in China but since the British company Reckitt Benkeiser bought it two years ago it has struggled to deliver the gains they planned on. China's birth rate slumped dramatically in 2020 and other big brands like Nestle and Danone are also reportedly reassessing their infant formula business in China.

China is relaunching its international manhunt for its fugitives, mainly for graft reasons. In 2020 a total of 1,421 fugitives, including 28 Red Notice fugitives, were captured are brought back to China. In the past, some key figures were said to be hiding out in New Zealand but no data is available on how many were spirited out of here in 2020.

And China is rolling out minimum pay increases in many of its regions, averaging about +10%. That will take these minimums up to NZ$90/week. Shanghai has the highest minimum pay in the country at $120/week. The difference between these levels and what the Party bosses earn is enormous. China has extreme inequality and it is getting worse. So it is no surprise graft is a real problem. Beijing is making big efforts to "eliminate poverty" and while extreme poverty is reducing fast that is having no noticeable impact on inequality.

Commodity prices are rising faster overnight with copper prices now at a decade high and nearly at their all-time high. Iron ore prices are moving up again.

Wall Street has turned higher today and ending their losing streak, with the S&P500 up by +0.8% in early afternoon trade. Overnight European markets were up an average of +0.4%. Yesterday Asian markets fell very hard, getting worse as the day wore on. Tokyo was down -1.6%. Hong Kong fell a full -3.0% and Shanghai fell a full -2.0%. The ASX200 fell -0.9% yesterday giving up all the prior day's gain and the NZX50 Capital Index ended its session also down -0.9%.

The latest global compilation of COVID-19 data is here. The global tally is still rising but at a new rising pace, now at 112,283,000 and up +405,000 in one day. But it seems to be easing in some notable places in the first world. Global deaths reported now exceed 2,489,000 and +11,000 since yesterday.

More countries (109) have started their vaccination programs. About 216.2 doses have been given so far (+4.1 mln in the past day). There is clear evidence the vaccines are working to reduce or even eliminate deaths for those who have taken it.

The largest number of reported cases globally are still in the US, which rose +72,000 over the past day for their tally to reach 28,908,000. The US remains the global epicentre of the virus although there is clearly an easing there. And the number of active cases fell overnight and is now just on 9,178,000 and -21,000 fewer overnight, so more recoveries that new infections again. Their death total is rising at a much slower rate and is up at 515,000 (+2000) in one day. The US now has a COVID death rate of 1551/mln, and that compares to the disastrous UK level (1787) where deaths are also rising a bit more slowly now their vaccinations are rolling out.

In Australia, their community control remains impressive. Their all-time cases reported is now 28,939 and only +2 more case overnight, but with no new cases in the community and the rest new arrivals, and all in managed isolation. 36 of these cases are 'active' (-5). Reported deaths are unchanged at 909.

The UST 10yr yield is up +2 bps at 1.38% today. Their 2-10 rate curve is marginally flatter at 122 bps. Their 1-5 curve is little-changed at +52 bps, while their 3m-10 year curve steeper at +135 bps. The Australian Govt 10 year yield is up +5 bps at 1.68%. The China Govt 10 year yield is little-changed at 3.28%, while the New Zealand Govt 10 year yield has raced up +6 bps to be at 1.70%.

The price of gold will start today down -US$7 at US$1801/oz.

Oil prices are up by about +US$1.50 and are now at just over US$63/bbl in the US, while the international price is just over US$66/bbl.

And the Kiwi dollar opens at 74.1 USc and up +¾c from this time yesterday. This is its highest in more than 3½ years and is up +2c in just one week. Against the Australian dollar we are up as well, up to holding at 93.3 AUc. Against the euro we are up at 61 euro cents. That means our TWI-5 is now up at 75 and a 4½ year high. It's been a dramatic rise overnight.

The bitcoin price is now at US$49,647 and +4.7% higher than this time yesterday and ending the recent fall. It did get up to US$51,446 in between but couldn't hold it and is drifting lower now. Volatility in the past 24 hours is still very high at +/- 6.8%. 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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49 Comments

I'd love a rational theory on why gold continues to take a drubbing while the USD is getting weaker.

There some decent theories out there. The macrovoices podcast is worth subscribing to if you haven’t found it already.

Cheers Rastus, I'll Google.

Obviously the pressure on interest rates is putting dampener on gold, but that only tells half the story because rising interest rates are here due to higher inflation expectations so gold should do well on back of that.

It just doesn't make sense.

Rastus: I really rate Jesse Felder, and this podcast just arrived in my email, so I'll be listening to it this morning ... looks related and interesting:

*James Davolos On Protecting Yourself Against A Paradigm Shift In Inflation.*

https://thefelderreport.com/2021/02/24/james-davolos-on-protecting-yours...

Might be because J-Pow talked aboyt it taking 3 years for the US to hit the 2% inflation mark.

Powell may have a rather nasty lesson in reality coming. The Fed's projections are historically dreadful ... they get nothing right.

My theory is that people are seeing analog gold for what it is, an inferior alternative to digital gold.

Thats why Bitcoin is growing and gold isnt.

Well I'm holding equal Bitcoin to Gold. Yes, Bitcoin has huge convenience advantages over physical gold, albeit I've got around that via buying physical gold through Pax Gold (PAXG): one of the best uses of tokenisation.

Which wins is undecided at this point. Bitcoin is worth nothing other than a collective contract playing out to treat it as a store of value (it can never be a currency under US and NZ tax rules). But bottom line, I'm also a 'realist' ... there is nothing new under the sun, I want the insurance of physical gold alright.

People are selling Gold to pay for rapidly increasing debt in fiat ?

The NZX 50 index has gone down almost 10% since January 7th. If that was property prices it would be described as a crash. I thought people would pile into shares that had dividends considering the low term deposit rates but those shares seem to have gone down the most.

Stick with real estate if you can is my advice.

13
up

Yep investing in productive New Zealand businesses isn't guaranteed by the government.

Take a look at MEL and CEN - the ETF buying frenzy peaked on the 7th January caused by a global clean energy ETF giving both a 5% weighting. They've since revised this down after seeing the craziness caused to the underlying shares which has brought the price back down. These are big components of the NZX50.

Secondly, interest rates have jumped quite dramatically lately which has dampened the effect you were expecting. Government 10 year yields started flying in Jan too.

https://www.interest.co.nz/charts/interest-rates/government-bond-rates

Just a blip - right now the NZX has only crashed back to where it was last November. Likely to be all forgotten in a few years time. That or there's a major sale coming on shares and you should get some cash ready to spend accordingly.

But really, if you're unable to stomach a 10% drop over a month then shares are probably not for you and you should stick to lower volatility, lower return assets like property.

True, I doubled down on my shares in early January as my first foray went well. Bought right at the peak. Luckily just dipping my toe in and only invested 0.6% of my wealth. I've now lost 0.028% of my wealth. It's just not good enough!

Just sell your shares and crystalize your loss........

Nah, not selling until I get my money back.

Many of the power companies are bought for their relatively high yields yet they pay dividends way higher than their EPSs. Surely these dividend rates are not sustainable in the long term? Anyone got a take on this?

They tend to pay from cashflow rather than profit, the difference being they are not putting aside money needed for renewing their power plants as the old ones need replacing or significant work doing on them. For example, Contact are building a new geothermal plant and raising capital to do so. The money wasn't set aside, it was given out to shareholders who are now being asked to give it back to fund the needed investments.

I guess they get away with it because the major investments are on quite long cycles, and noone likes a 'lazy balance sheet'.

Thanks mfd, that makes sense. I also wonder whether Genesis, Mercury and Meridian are "encouraged" to support a healthy dividend by their 51% shareholder!

Yeah I sold my Contact shares after a previous capital raising. Capital raising is the absolute worst thing about being a shareholder.
Personally I doubt that these renewable sources of power are as cheap as they are made out to be. Wind farms would get an absolute hammering in NZ. Sure, the blades feather when the wind really gets up but a high load levels just below this there would be some real forces and stresses involved. And in some places the wind is really gusty.
eg Meridians' farm in the Wairarapa had to have blades replaced some time ago. No fanfare on that one. Previously the holding down bolts on the Brooklyn one needed replacing. Just a couple of examples. There will be more.

Zachary,

We are now experiencing a technical correction-a fall of 10%-and while I didn't pick it, I am not at all unhappy to see it.

Fortunately, I wouldn't dream of taking your advice. I have both rental property and a share portfolio(largely NZ based) and have been able to compare them over the past 16 years. i have all my tax returns. While my non-mortgaged Mt. Maunganui property has done very well, my share portfoio has done even better. With over 30 holdings it is far more flexible, I can easily sell shares to reinvest or raise cash, the costs are minimal while Insurance and rates on the property keep rising.Unlike property, there are no maintenance or complaince costs.

You're a rare breed linklater. Good to hear that there's folks like you still out there though. Over a 100 year timeframe property does 12% p.a. and shares do 16%. Kiwis are mostly financially illiterate when it comes to this sort of stuff though. Still worried about 1987.

Financial literacy=ignorance.

While growth was physically possible, there was room to carry non-productive betting like Linklater's and Mark Hubbard's. But the energy surplus has gone and debt is still being issued. Only one way that ends, and it is unsurprising to see the process manifest in those who try and examine it, but through several lenses, several more filters and around a couple of corners. Meaning, through using debt-issued money as their marker.

Does anyone want to fact check this one, it's kind of up there with the Progressive Home Ownership Scheme, worse once you consider the impact to growers;

....government – in their infinite wisdom – decided unemployed New Zealanders would fill the gap.
....a scheme, available to anyone who moved off a benefit, offering up to $200 a week for accommodation costs and a $1,000 incentive payment for workers, who completed jobs of six weeks or longer....54 unemployed people took it up...

https://www.ruralnewsgroup.co.nz/rural-news/rural-opinion/hound/unemploy...

Not sure why your link doesn't work. See if mine does:

Unemployable

Something about this is deeply worrying.

To be fair horticulture is jolly hard work and not suitable for the chronically unemployed.

The orchardists are bleating they are a $9 billion industry
Their options are to leave the fruit on the trees and rot

You live in Hamilton or Rotorua or Tauranga
You are unemployed
You are not fit
You live in a flat paying weekly rent of $500
The Carmel Sepuloni scheme offers an accomodation subsidy of $200 pw
Do you relinquish the lease on your flat, or continue renting
You will get $60 a bin of fruit picked
You might earn $300 pw for each of your first 2 weeks

The 6 week bonus of $1000 doesn't cover the rent on your flat

You’re right, it just does not add up for anyone who lives in NZ, even subsidised. You’d have to have a lifestyle as a migratory worker, like shearers - which could work, but requires infrastructure of a different kind.
Simple suggestion — make seasonal horticultural labour an exemption from benefit rebates. Then local people have an incentive to get in there for a few weeks without being worse off overall.

I was wondering whether they could shuffle the tertiary school year a bit so that more of the picking season(s) overlap with tertiary breaks? Could be a win-win?

Even simpler suggestion brisket, growers pay enough to attract able workers. Your idea effectively is a taxpayer subsidy to wealthy orchardists. A bit like the accommodation supplement is to landlords.

Well yes it’s a subsidy. If the industry is genuinely unable to function with a ‘normal’ employment setup it might be worth it though. It’s not like orchardists can offer full-time employment contracts for harvesting. It’s the impermanence and wide-ranging locations that make it hard to employ people, more than the wages. Pragmatically speaking it could be a win-win — more money in the pockets of some low-income households, and a viable local food production industry.

Yes I agree brisket that it would be a pragmatic solution. But subsidising the orchardists I know would really stick in my craw. To generalise, they are not short of a dollar and have bred a generation of princelings and princesses that spend up large and refuse to be weaned or work on the family owned orchards. All the while they have been paying wages too low for locals to ever get ahead in life.
Now that they see a looming shortage of pickers they are are holding their hand out to the taxpayer. Effectively they want some of the tax paid by a cleaner working a second job at nights. NO.

Winz must also come to the party, and every branch manager must be able to explain why any able bodied client is not out doing orchard work while they are waiting for their job of choice.

When one of my relatives was a picker they received free accommodation from the orchardists. It was understood that alternatives were not affordable or viable and would result in a shortage of workers. The orchard owners were happy to stand on their own two feet and pay what was necessary to function in a market without handouts. My relative also received the equivalent of $28 per hour as lead picker / supervisor in his team of 10 pickers.

Zach... two issues with the scheme. First the extra payments are only for people coming off benefits and secondly the Govt are paying so it is a type of corporate welfare for business owners, many of whom are well off.

"who completed jobs for six weeks or longer"
Very lucky to get six weeks work in these sorts of jobs. Reality is they have created a industry in which permeant residents are not wanted for work.

If we simply and clearly signaled to "slave labour migrant employers" that the party is over for good they would need to offer attractive enough conditions (including increasing wages as much as needed) to kiwis in order to allow their businesses to continue to function. When they know that cheap and compliant foreign workers will be able to return there is absolutely no incentive for them to address the problem by paying kiwis a fair wage.

We need to have a limited and specific list of genuinely high skilled jobs that foreigners are allowed to do. There should be huge fines for companies who employ aliens in non approved roles and any migrants caught doing non approved jobs should be automatically deported and banned from NZ for 10 years.
An integral change should be that rather than prove "you tried to find a kiwi" before being allowed to employ a migrant it needs to be "no kiwis can do this job because they lack skills (or qualifications) in this specific area." While we ensure kiwis are trained for this position we need x number of foreigners to do this job for x amount of time and after x date this position will no longer be part of the foreign worker approved list of jobs.
There is not one job in all of the hospitality, age care, horticulture or retail industry that kiwis cannot do. Kiwis can be trained to do any type of driver or machine operation job. Even in medicine we can train more than enough kiwi doctors and nurses if we want to. There is no more than a handful of IT jobs that kiwis cannot be trained to do.
And if we have to pay an extra dollar or two for pizza delivery or for a coffee, and pay the costs associated with training our own people then it is a small price to pay in order to help our own struggling people into good jobs with attractive salaries. Time to put kiwis first.

Young relative heading for Central Otago was told by WINZ no labour shortage there. So no subsidy.
And there is no labour shortage there, despite the media releases from the industry.
He has a secure established job there every year. A number of friends contacted him for help as they could not secure jobs in Central Otago.
Go figure.

KH...there are plenty of workers in Central Otago, in particular in Queenstown. The restaurants, bars, cafes, reception desks, hotels and shops are full of foreign workers, most in full time, non temporary and almost completely unskilled jobs. I would say they outnumber kiwis at least 4 to 1. And of course these people need a roof over their heads so they increase the rental problems (cost and shortage) and many will end up living here with PR, which will often be closely followed by assisting several people from their native country to move here and after a few more years a number of them will be purchasing their own home adding to the demand for housing and making what is already a problem into a much bigger one. And for what? To assist exploitative employers and landlords and continue the virtue signaling policies of open borders and a global village. I cannot think of any better way to divide our country and ensure fewer and fewer NZers are ever part of an inclusive society.

Yes Karl. I see at first hand employers proclaiming to the media - and politicians - about labour shortages and in the same week saying to enquirers "no jobs available"

This is the fruit.....https://www.tevel-tech.com/

Zerohedge is asking whether this is the Great Reset? :-).

NZD is booming, not looking good for our exporters. Sure many will be hedged still, but the longer it's up, the worse it is for us, being an export driven economy and all. We are almost up 10c against the US$ in less than 6 months...

Who is betting the FED will act to keep interest rates down still with more money printing. We can see what has happened to markets recently as long term interest rate expectations have begun to rise - sizeable drops considering. Pension funds etc have been taking a drubbing, while the economy is still in the toilet. $1.9T of printing would have been absolutely spectacular just 1 or 2 years ago, now it's probably not enough and may not make a dent.

GME up over 100% over night. Back to the moon!

End of Month expiry of serial options - again

If you view the hearings, one stupid Congresswoman asked Keith Gill (DFV) if he thought GME shares were worth their value. He replied "I love the stock". He then purchased another $50k worth.

A2 Milk shares in a bit of strife after their H1 results announcement, down 17% already.

Never understood A2 milk personally. Pretty fussy on the taste of my milk as well and by far and away Medowfresh Original bluetop is my go to. Don't like any of the Anchor products to start with, refuse to buy their milk it tastes over processed would rather have the really cheap budget brands over theirs any day.