Here's our summary of key economic events over the weekend that affect New Zealand as the world waits for high tide and a full moon in Egypt.
While dramatic, and the so-far six-day Suez Canal blockage will have a global impact, especially on shipping issues and costs, it is a crisis that will affect Europe the most (and play heavy in their media). It will have a much lesser impact on us. And we shouldn't overplay it at this time.
The Baltic Dry Index, which tracks rates for capesize, panamax and supramax cargo ships, fell -22 points on Saturday, or -1%, its lowest since March 17. But it is still at an 18 month high in a run-up that started five months ago and essentially doubling since then. Pre-pandemic it was an index at 400; now it is at 2178. But recall that just before the GFC it had reached its record high of 11,793. The pricing for these heavily capital intensive vessels can get very extreme very quickly. It is a market that is 'normally volatile'.
According to a new upgraded forecast by the World Bank, China’s economy is expected to increase +8.1% this year, after growing +2.9% last year.
To help keep up the momentum, China announced 24 new measures to boost new types of consumption, including accelerating "new infrastructure" construction, and a rollout of pilot programs for the sovereign digital currency, all as part of efforts to drive domestic demand.
Chinese industrial profits surged in the first two months of 2021. Of course, a year ago they were battling their pandemic so the comparison with 2020 isn't terribly relevant. But compared with 2019, this latest update is +31% higher, so is actually quite impressive.
South Korean consumer confidence is rising in March and faster than was expected. Especially encouraging for them was the indication consumer spending is about to rise even faster. This is the first time sentiment is net positive there since before the onset of the pandemic.
Singaporean industrial production continues to expand at a fast clip, up +16% year-on-year although some of this is because the 2020 base was pandemicly low. Still, the February result was higher than expected.
In Saudi Arabia, it said it will plant 10 billion trees in the coming decades as part of an ambitious campaign to reduce carbon emissions and combat pollution and land degradation. Six months ago it started with a 10 mln goal, but this has been raised 1000 fold now.
In the US, personal income fell -7% in February from January, after the +10% stimulus-boost it got in January. Of course there is the current additional stimulus going out so it will get a March boost as well. Personal spending fell -1% in response in February after the +3.4% January rise. We will be seeing distorting stimulus changes for a few months yet, so it will be hard to tell the background progress, if any, they make in household incomes or spending.
US PCE inflation is essentially unchanged in February from January, but it is up +1.6% from a year ago and that is a rising pace.
The more current surveys of consumer sentiment are quite positive, with the latest UofM survey up more than +10% in March from February, and now to its highest level in more than a year.
The American merchandise trade deficit for February came in at -US$86.7 bln, its worst ever. Exports fell -7% year-on-year and imports rose +8% year-on-year. This means they are running their goods trade deficit at the rate of -US$1 tln per year. Of course they have a trade surplus in services, and the net of the two is equivalent to -3.2% of GDP.
Australian household net worth hit a new record high in Q4-2020 according to official data. It was pushed up by property prices and their superannuation accounts, rising +AU$½ tln in just three months to AU$12 tln and an average of NZ$510,000 per person.
But things are not so positive in the small business community there. Business insolvencies are expected to spike in the wake of JobKeeper’s end with credit analysts Equifax warning the end of the subsidy was one of a number of factors that were about to trigger a wave of 300,000 to 400,000 business failures across Australia, with the pain felt overwhelmingly among small and medium firms. And especially in Victoria.
The latest global compilation of COVID-19 data is here. The global tally is rising and at a faster pace, now 126,911,000 have been infected at some point, up +1,164,000 in two days in a resurgence in Brazil and other South American countries, India, and mainland Europe. Global deaths reported now exceed 2,780,000 and +21,000 in two days. Vaccinations in the world are rising fast however, now up to 541 mln and in the US more than 40% of their population (138.9 mln) have now had this protection (+6.8 mln in two days) as they achieve a very fast rollout. The number of active cases there fell to 7,014,000 (-20,000 in two day) despite fears of an unwelcome spike in infections and talk of a "third wave".
The UST 10yr yield is up +1 bp at 1.67%. The US 2-10 rate curve is a tad steeper at 153 bps. Their 1-5 curve is little-changed at +80 bps, while their 3m-10 year curve is also a tad steeper at +166 bps. The Australian Govt 10 year yield is also up +1 bp at 1.73%. The China Govt 10 year yield is unchanged at 3.22%. And the New Zealand Govt 10 year yield is also unchanged at 1.65%.
The price of gold starts today little-changed at US$1733/oz.
Oil prices have plateaued with a softish tone and are now at just over US$60.50/bbl in the US, while the international price is now just over US$64/bbl.
The Kiwi dollar opens today at just under 70 USc. Against the Australian dollar we are holding at 91.6 AUc. Against the euro we are also holding at 59.4 euro cents. That means our TWI-5 opens today unchanged at 72.4.
The bitcoin price will start today at US$56,218 and up +4.6% from this time Saturday. Volatility in the past 24 hours has been low at +/- 1.2%. 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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Australia threatens to take China to WTO and backs Boris Johnson's stance on Uighur abuses
Scott Morrison says China’s 116.2% to 218.4% levies on Australia’s wine imports are ‘retaliation'
The Trump administration has undertaken unilateral trade measures that appear to be specifically forbidden by the WTO Treaty. These include punishing China for its intellectual property practices, and imposing extra tariffs on imports of steel and aluminum. The rules of the WTO prohibit countries from acting unilaterally in response to what they perceive as violations by other countries.Link
Indeed, this has momentum but given the propaganda war already underway how likely is it to go ahead?
https://www.reuters.com/article/us-china-rights-un-idUSKCN2AU0Z3
US PCE inflation is essentially unchanged in February from January, but it is up +1.6% from a year ago and that is a rising pace.
Graphic core evidence
Data Downgrading Uncle Sam’s Helicopter
Pleasing to see two economic turbines in SE Asia, Sth Korea & Singapore, gearing up. At the same time though we have Nth Korea more bellicose. This not long after the strategic Quad meeting of USA,India,Australia, Japan. Nth Korea is China’s vassal, high probability they are being used as a poker, likely to escalate matters.
Agreed. When I was doing business there in the 70/80s had many valued and good ethnic Chinese friends, highly efficient and reliable. Also at the time, despite Bumiputera, would suggest the Chinese formed the latent backbone of the the commerce in Malaya. Not sure what your actual point is, but I for one would not easily relate a Chinese identity who grew up under Lee Kwan Yew, to say a seventy year old today, who has had a complete life indoctrinated by the CCP.
"as the world waits for high tide and a full moon in Egypt."
I've said all along that economics is little better than a primitive belief system.
'And we shouldn't overplay it at this time."
Now who else says things like that, around here? Actually, it shows that when you pare down your resilience margins, you run into statistical chance sooner or later. In the silly attempt to prolong growth, we've pushed it too far on too many fronts - Cat Stevens was dead right about those longer boats.
And all that growth-projection, David? See those containers on that ship? That's what growth is; more bits of the planet shifted in ever-bigger vessels to ever-bigger ports, for ever-more folk to consume and throw away so they can consume more, faster. There's another description of that; madness.
But it would be good if someone evaluated whether compound growth of the claimed rates, is even possible, and - as I've asked before - how many dollars of keystroke-issued debt now underwrite a $ of 'GDP'?
The short answer is......Absolutely nuffin......That is why I call em wastrels.....A total waste of time, effort and Taxpayers Munny.....NZ should be perfect by now..
Sadly it is not. And we have issues, that never get resolved. All talk, no action. ...nuff said. Cannot blame Covid.....it goes back years.....
Another leaky building debacle, but its buyer beware - one look at this and I wouldn't touch it with a barge pole.
https://www.nzherald.co.nz/business/whacked-with-huge-costs-163m-estima…
Hoping we start to see some signals around a soft-landing state lending program for owner-occupiers and aggressive RBNZ actions around DTIs and interest-only lending so we can get back to 5x income prices for median homes. For the first time in years, it seems possible that people may accept house prices coming down to sane levels.
Got to be reasonable here. Jacinda inherited this problem from decades of political failure. The greatest fail being JK who had the financial nous to understand what was happening and the electoral support to deliver, but did nothing - not even accept we had a problem. She is not the cause of this property debacle.
I suspect Jacinda is getting a lot of positive feedback over the recent announcement. This will be giving her the green light to do even more.
Hi GV,
I don't understand what you mean by state lending program for owner-occupiers; is this just your hope or is there some reading I can do?
I agree prices must come down and I think (and hope) they will now. Removing interest only lending for investors will have an impact about %50 again as big as not allowing the interest to be an expense I think. Would they wait six-nine months to see the rate of reduction in prices before the next measures? If they don't see enough reduction then fair play and bombs away, if they do then a managed fall might be better leaving some powder dry?
The fly in the ointment is the recently introduced tenancy regulations means if investors are to sell they will have to find a buyer able to take the tenant on until their fixed term expires. A lot of tenancies are timed to come off fixed term in Jan to catch the summer and new job moves so we may not see much movement before then perhaps?
As an owner-occupier, it's mostly self-interest - if prices went back to sane levels, I'd be almost wiped out. But I also know that I'd severely retrench spending and things like holidays etc if that were the case, and many others would too until they got their heads above water. We don't want that to happen as it would likely lead to stagflation or even a deflationary environment, which is worse.
The question we need to ask (and no one wants to ask because it involves accepting an uncomfortable premises) is "would we be better off offering state-subsidised loans to owner-occupiers so that people can keep spending and then aggressively reigning in house prices, and is that cheaper than decades of accommodation supplements and the ongoing social costs of house prices at current levels?". I think the answer at this point is probably "yes" so it's time to think about ways we could do that without financially ruining everyone.
The Helen Clark Foundation proposed it (or something like it) as a means for keeping low income earners from going totally underwater, but low income earners generally aren't the ones buying houses these days anymore and I think it would have to be a pretty wide-ranging program to keep people spending, even as their house prices go backwards - because that's the reality we'd need to accept if we want to get back to some semblance of sanity. Like I say, I'd be adversely affected - but with a state-backed low/zero interest rate refinancing option, I'd still be able to make headway without too much hassle on my inflated first-home mortgage - with the added benefit of my next family home being substantially cheaper than what it would be now.
"Only those who are highly leveraged" is going to include every FHB who has managed to buy in the last two years. Given that they are highly unlikely to have caused the problem, I'm not sure why they should be the ones taking the pain. If the expectation is that those who spent years watching deposit requirements increase faster than they could earn money before finally getting a modest home are the ones who should then sit back for a miserable life of being stuck underwater, then I suspect you'll be quite surprised when many choose to simply leave for somewhere like Australia. Maybe some will figure it out when they only see their grandkids once every few years. I hope it doesn't come to that.
Not a disaster, but very hard to recover from. I'd be unable to move until I was back to square one, and even then I would have no cash to move to another house should space become an issue; which it may well do, because I bought a modest starter home because that was the prudent thing to do. So not out on the streets, true, but definitely with ongoing effects that would be substantial - and certainly hard to justify given the tax-free gains others who caused this mess were able to pocket.
OK fair enough, I appreciate the explanation. I think (as you point out) that such a scheme would not be that impactful, low income earners are not generally able to raise the deposit. Maybe however, if they made them 100% mortgages then a rent-to-buy scheme would be born.
I think we may see a reduction in house prices, which will only affect you if it is still below your purchase price when you come to sell or want to trade up. If you have paid more for your house that it's current value trading up to another house, even if it is cheaper than your current one will not work. A very tough position to be in. My hope is you can hang on for long enough to get back to parity if house prices do dip.
All the best.
I'm 100% for a reduction in house prices. I'm in an unenviable position either way - at some point my current house will be no longer fit for purpose and I'll need something bigger and in a different area. A rising tide lifts all boats and my next home is increasing in price faster than my current one. But negative equity will see me trapped and, given the amount we had to save to get into our house, with little available to us to help us clear our debt.
But I also know that NZ, as a low wage economy, cannot endure house prices about 7x for much longer if we ever want to get out of this mess. Better to restructure things on our terms than have an external shock do it for us. The issue for me will be that after repaying a student loan, working for low wages and facing ever-declining standards of living and the large mortgage we had to take on to secure a house, I can't really justify going backwards much further than we already have. It may well be that New Zealand is just too hard to get by in, and I'd have to look at what is best for my family.
Good illustration GV, thankyou. I think it's a common situation.
You are in a 'starter house' and thats probably a good thing. If you were in bigger, with an ever bigger mortgage it would be bigger trouble.
I think back to me as a young person and to my parents As low income we were able to live in places and houses that would be a dream to young low income now.
It's time New Zealand looked to be a high income low cost country. But we accepted instead a population explosion and foreign ownership of business which was not in our interest.
No, and I think we have to tread very carefully as we open back up to the world post-Covid19. All the intervention in the world won't count for much if the plan is to fling open the doors post-Covid and I understand from articles here that Treasury is modelling a gradual return to +50,000 p.a. - which would be good for my house price, but bad for my commute, my children's schools, the next house I want to buy, and so forth. I'm eagerly awaiting a journalist to ask the question of Ardern - perhaps it's one Jenee can take on?
I always get a giggle when my parents tell me that Howick was the "grin and bear it" option for First Home Buyers in Auckland at some point. Puts the 'lower your expectations, move further out' comments in a bit of perspective, doesn't it?
Many common tatters here on linked in are investors or speculators in residential, and whilst displeased with the new rules, they have been relatively restrained compared with other forums.
Some talk I have seen has been furious, enraged and worse. With a sense of entitlement that makes even their business judgement questionable.
The under lying issue here is trust, Labour not only denied any change to bright line test but never mentioned anything about interest deductibility and some will fear this is the thin edge of a wedge to deny interest in calculating taxable profit generally. As it stands Labours current policy on interest is vindictive and aimed at small property investors who likely have purchased to provide additional income in retirement, if this is not the case then Labour should deny interest deductions for all . On the other hand if Labour maintain that residential property investment is not a business then surely it is a hobby and not taxable at all? I accept that an unforeseen change entitles a Govt to propose policies not in their election manifesto and in this case Electors should also have the right to reconsider their vote - ie the power of recall which is exceedingly powerful so Labour may have unwittingly opened a Pandora s box of explosive change.
Props to Liam Dann for being real about housing in the Property Herald™ https://www.nzherald.co.nz/business/liam-dann-the-great-new-zealand-hou…
Any one knows if petrol prices has the potential to hit $4 /L? I'm contemplating on switching to Tesla- not happy paying more tax whenever there's a rise in petrol prices.
I'm keeping a close eye on the ship on this site if you guys are interested.
I am mystified at the price of crude & fuel prices in a world were consumption is clearly down yet prices are up so I conclude that the answer is price manipulation and Govt will turn a blind eye to anything they do not initiate that increases the tax take. Last year WTI was under US$40 a barrel and is now over US$60.
In the two years or so I have been on this site I have rarely seen comments on the impact of inheritance on financing housing. In this last year or so in my own extended family I have witnessed two instances of younger members receiving very large amounts of money left to them by their" boomer" parents finally doing the right thing by dying. Prior to that one set of said relatives was very vocal in their expressing Zoe Swarbuck-like criticisms of "boomer'. Since then they have gone quiet, I daresay bethey are busy settling in to their very nice new Auckland home or investing in the boomin property market. Funny that.
but ultimately Kids need to inherit JOBS
Not houses
and for that you need resources to plunder
which is our problem
leverage alone cant deliver income for long
A built house an income doth not make. (even slumlording it means the tenant needs an income... )
Of course the Bitconnners think their wee Ponzi is a new way round this. Who needs ships? trade? actual goods and services when you have digital currency
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