Here's our summary of key economic events overnight that affect New Zealand with news that costs seem to be rising fast in both the US and China.
But first we should note that the giant container ship that was blocking the Suez Canal has been refloated and has moved under its own power to a passing lake (Great Bitter Lake) where it will be inspected. Now the task is to clear the 437 waiting ships that built up in the seven days of this crisis. Industry experts say it will take 4 or 5 days to clear that backlog. But the work of the lawyers and insurers will take much longer to resolve.
The Dallas Fed is the latest American region to report a sharp improvement in their factory survey. New orders help power this survey to its highest level ever. But they also reported fast rises in costs and payrolls.
In Washington, a US Fed official has directly said it will not keep policy interest rates low to save the Federal Government budget cost, nor will it buy US Treasuries just to fund the Federal Government. The claim is that monetary policy has economic goals only, and won't consider the fiscal impact on government. (So, it won't bail out their government in the same way some think it bailed out the banking sector?)
Meanwhile on Wall Street, a very ugly liquidation is taking place. A fire sale of stocks from a large investor slammed global investment banks, which said they could incur substantial losses related to the trades approaching US$30 bln. This is a huge systemic risk. Credit Suisse and Nomura are especially at risk. The equity market slumped on the news, but has recovered since.
In China, it is becoming clear that exporters there are raising prices sharply. Not only are shipping costs behind the shift, steel and aluminium prices are key contributors too, in fact most commodity prices. After being a source of global deflation for decades, the tide has turned in 2021 and buyers are expecting China to be a source of goods inflation.
Real estate auction activity is surging in Australia. There were 3,791 homes taken to auction across the combined capital cities last week, the busiest auction week since the week ending 25th March 2018.
With ten new cases overnight, Brisbane has been plunged into a snap three-day lockdown. The NSW Government has urged its citizens to cancel Easter holidays to Queensland.
In the UK, they are finding that City of London financial firms are mostly signing up to EU regulations to keep their EU-related business. This is annoying British officials who actually can't do anything to stop the trend. In addition, a new trade fight is brewing between the US and the UK.
Wall Street opened with a sharp fall, but it has since recovered and the S&P500 is now down just -0.2% in early afternoon trade. Overnight, European markets closed about +0.5% higher, except London which recorded a small loss. Yesterday, Tokyo closed with a +0.7% gain. Hon Kong was flat. Shanghai closed with a +0.5% rise. The ASX200 ended its session -0.4 lower which the NZX50 Capital Index ended +0.2% higher.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 127,319,000 have been infected at some point, up +408,000 in one day. Global deaths reported now exceed 2,786,000 and +6,000 in one day. Vaccinations in the world are also rising fast, now up to 552 mln and in the US more than 40% of their population (142.2 mln) have now had this protection (+3.3 mln in one day) as they achieve a very fast rollout. The number of active cases there fell to 6,997,000 (-17,000 in one day) despite fears of an unwelcome spike in infections and talk of a "fourth wave" in some states.
The UST 10yr yield is up +5 bps at 1.71%. The US 2-10 rate curve is a tad steeper again at 155 bps. Their 1-5 curve is also a little steeper at +81 bps, while their 3m-10 year curve is unchanged at +166 bps. The Australian Govt 10 year yield is also up +2 bps at 1.75%. The China Govt 10 year yield is unchanged at 3.22%. And the New Zealand Govt 10 year yield is up +4 bps at 1.69%.
The price of gold starts today down -US$20 at US$1713/oz.
Oil prices have risen by more than +US$0.50 and are now at just under US$61.50/bbl in the US, while the international price is now just over US$64.50/bbl.
The Kiwi dollar opens today firmer at just on 70.1 USc. Against the Australian dollar we are also firmer at 91.8 AUc. Against the euro we are also firm at 59.5 euro cents. That means our TWI-5 opens today up to 72.6.
The bitcoin price will start today at US$57,637 and up another +2.5% from this time yesterday. Volatility in the past 24 hours has been high at +/- 3.3%. 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
Barfoot's auction today in Manukau will highlight that all this noise till now was and is just a distraction to stop government and RBNZ from firing the silver bullet ( Nearest possible) to stop Interest Only Loan.
Buyers fatigue (temporary) should not be confused with latest announcement - though good but meaningless till government and RBNZ targets speculative demand, which for some reasons are silent after a passing remark in announcement and their intent reflects that is to avoid and delay though accepting the importance of restricting Interest Only loan to contain speculative demand.
https://www.stuff.co.nz/life-style/homed/real-estate/123635705/market-l…
Surprising everyone along with government, be it opposistion, economist, experts, media.....are silent for know that it can be a real effective tool and as many if not all deep into interest only loan, do they even want to raise the issue or highlight it for fear of government actually targeting it ( conflict of interest).
https://www.stuff.co.nz/life-style/homed/real-estate/123635705/market-l…
Don't worry Kiwis, it is shaky. But rest assure for 2021-25 RBNZ & govt will keep the lid on that.. naturally occur inflationary pressure, after massive stimulus. Just unsure how long they can artificially float up/float down the game now - the game participants, started to smell distortion/rigged game at play.
Well.....inflation is it a true reflection....it seems...my barber who use to charge $20 is charging $25, bread that use to but for $2.20 is $2.50, takeaway dish that use to buy from $12 is $15 besides grocery bill and all have gone up STILL inflation is..........
Friend just informed that he use to pay rent of $580, which has been increased to $620 though may be due annually but still...
Not to forget that all FHB who buying houses at premium are paying higher every week in mortage despite low interest, so for an average person, amount of money paid for same good and service extra is an inflation, which is sitting in double digit.
All data collection and interpretation is all to suit the purpose, ignoring the real effect on family.
Our local cafe has a sign up saying prices increased due to increase in price of supplies and increase in minimum wage. Not sure how happy the staff are having it advertised they are on minimum wage, but this just shows the effects of increasing minimum wage. There is trouble building with people like nurses being offered about 1% and differentials being eroded.
New graduate nurses also have a student loan to repay after 3 years study. Minimum wage is not far behind them, not forgetting nurses have people’s lives in their hands and are responsible for their practice. How long before people think I will just go for minimum wage and have no responsibilities or risk.
... well , no need for a morning coffee , they have my attention 100 % , I'm wide awake to see which innocent person/industry this government is going to decapitate next : offshore gas drillers , an innocent staffer accused of rape , the tourism industry , farmers , a 19 y.o. with Covid-19 who went to her work , landlords .... they're amassing an impressive list .... who's next .... who's left !
Fundamentally, I agree.
And the first place the Government and the RBNZ should keep its noses out of is, the cost of money.
Let supply and demand create a free flow of ideas and goods, and the risk associated with those be reflected in the cost of debt.
The sooner we have a freely operating financial system, the better off we'll all be.
But don't tell me. That's the one area of society where you think the Government should interfere, right?
When thinking about the banks BW, do you really believe the financial system operates freely and without manipulation?
You really can't be serious! Government regulation is required. The banks are a big driver of the current situation which is cause by a lack of regulation!
Government and the Central banks have a role to play in the smooth running of the financial system. Not the manipulation of the price of debt.
There's a big difference.
They set the rules, and the players abide by them or lose the capacity to play.
But the rules should not include the price of participation (the cost of money) or the inability to lose (there's always a backstop ie: the GFC bailouts).
Commercial competition should control; the price of debt, and not Government dictate.
That is different to overseeing the financial system of a country.
If the price of debt controlled market excess, do you think we'd have to be doing other things (LVR rules; tax changes etc) instead?
What is the scientific basis for the claim by almost all economists that lowering interest rates stimulates the economy, while raising rates slows economic growth?
There isn't any. Took years to get this published in a ranked journal - they hate the facts Link
The rate of interest – the price of money – is said to be a key policy tool. Economics has in general emphasised prices. This theoretical bias results from the axiomatic-deductive methodology centring on equilibrium. Without equilibrium, quantity constraints are more important than prices in determining market outcomes. In disequilibrium, interest rates should be far less useful as policy variable, and economics should be more concerned with quantities (including resource constraints).
Hence:
The fuel is bank lending. Banks have migrated away from lending to productive business enterprises because the risk weights can be as high as 150%.
Thus around 60% of NZ bank lending is dedicated to residential property mortgages held by one third of already wealthy households.
Bank lending to housing rose from $50,788 million (48.36% of total lending) as of Jun 1998 to $298,830 million (60.22% of total lending) as of January 2021 - source.
The OCR has always been considered the 'risk free' cost of money, essentially the charge that Government puts on money issued by it.
In part I agree that the rules should not preclude the ability to lose or make money. But I disagree with this statement "Commercial competition should control; the price of debt, and not Government dictate." If we have learnt anything from the 'free market' is that the big players manipulate any market that has no rules. In other words there is no such thing as free competition allowing a natural balance to be arrived at (as all the theory supposes). For competition to flourish, there must be rules to set the bounds, and it is the Government's role to ensure that ALL players get a fair shake. The current mess proves that very well.
"The OCR has always...."
Really?
How long has the OCR mechanism been around? 20 years?
Before that we had a Quantity of Money System, not a quality ( the price; % rates). The RBNZ etc regulated the amount of cash in the system and what it's maturity dates were.
Central banks controlled the true definition of inflation that way - the Quantity of Money in the system.
https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/what-is-…
... the issue with housing supply shortage is a result of central & local government meddling ... too much interference .... now , to " solve " a problem largely of their own making , they're targeting house investors ... not targeting the supply problem ... 78 % of landlords own just 1 rental ...
"a problem largely of their own making'
Yes. But 'their', plural.
It's taken ~ 40 years to create this problem, and it's been recognised as such along that timeframe, and ignored for the last 20.
That Labour is doing 'something' now is to be applauded.
Some may not like it, others disagree, but I, for one, am encouraged by the fact that 'at least they've started' and if National has any sense, they'll stand back and watch. They have nothing to lose and everything to gain in whatever changes may now happen.
Aye the house horse bolted alright but the stable door had been off its hinges long before. Governments of all hues contributed with immigration outstripping housing supply being created. But also significantly a public general distrust of other investment options underscored by the collapse of such as Broadbank, Securitibank, and then the crisis 1987,2008. For example the august Dr Cullen, whilst in power, bemoaned the poor investment attitude of investors favouring property over the share market. Only a matter of days later his protege Cunliffe, pulled the trigger that collapsed the value of Telecom thus wiping $ millions off what was a cornerstone investment generally for all and sundry. But overall from government, there has just been too much fiddling while watching things going on fire.
tks for the nod & accept my proneness to generalise. I should have gone on to say re investment trends, that given the public’s wariness re equity or similar debt market investments that when interest rates dropped to a point where Bank TDs were more or less pointless, small wonder then that property became the mecca. For instance we have friends in their eighties who bought one of those 70s ownership flat thingys, you know summer hill stone two bedrooms and a garage in between them, and rented out their four bedroom family home. First time ever owned anything more than what they lived in, and yes, financial market forces certainly caused that action.
I agree Foxglove. As an old scutter myself, I have a number of friends who did the same thing and who can blame them? With ever increasing rates, electricity, petrol, food and groceries (to name a few), retirees are struggling and their interest from TDs were becoming necessary rather than a 'nice to have'.
Sums up part of the problem GV27 - boomers who are mortgage free and receiving superannuation (i.e. not a worry in the world...) think that because term deposits are so low, that their desire for more cash flow is greater than the needs of young people who simply want a place to call home in order to raise a family. Won't catch me doing it (but as most know I'm ethically/morally against people farming).
Another reason why the sooner we exit this lunacy of low interest rates and QE....the better. Its destroying the fabric of society. Lets get rates back to 5%+ to give boomers some return on their savings and encourage them to vacate the housing market. It will result in a significant fall in asset values, but long term that is a desirable thing.
Part of me worries, IO, that it's not just the big returns that have tempted people into housing, it's the pseudo-government guarantees that were, until now, water-tight. They've had the entire monetary and fiscal policy direction of the country protecting them, it was a license to print money. And we're going to have to offer mighty returns on cash in the bank to get people out of property - and that would mean an interest rate that would imperil a lot of recent FHBs, who took on more debt than they probably ever wanted to.
Maybe we should aim to end the era of the passive investor once and for all.
Absolutely - and the RBNZ should have never lifted LVR's last year. That was just insanity. And investors piled in at an extraordinary rate and took on massively amounts of debt (as well as desperate FHBs as you say). Feel sorry for young people who might get wiped out if/when this all falls apart - couldn't give a toss about the investors who as the marginal buyer, helped push prices higher and forced FHB to take on more debt than they would have otherwise needed to. Greed isn't worthy of reward.
Such a shame we've allowed to get ourselves in this position - but when you warn about the financial and social outcomes of this you get labelled a doom, gloom, merchant by those who are profiting from it in the short term/benefits their self interest. Bit sad really.
Remember it was the saving of (primarily Boomer) lives that drove down rates and asked then of RB to pump support into economy.... ironic then isn't it that the very same cohort 'the team of 5m' saved then twisted the cord to strangle life out of the younguns further!
Right. Those poor down trodden landlords. Enjoying growth profits and gains for decades that far outstrip natural productivity. Enslaving future generations with debt burdens due to marginal buyer purchase power.
And what, some tinkering at the edges and all of a sudden these landlords are what completely destitute now?
Comments like this show how low we've sunk as a nation. Total lack of perspective.
We as a global society have some MAJOR problems we need to Address in the next 50 years, and our current solution of "sooo... Let's raise more debt?" is not the solution!
GBH,
So, the government has decapitated the tourism industry-absolutely nothing to do with Covid-they just decided to ruin the industry. Why?
If that seems a touch improbable, then your claim that they have decapitated-killed off- landlords is just bizarre. Take another pill and lie down in a darkened room.
GBH,
So, the government has decapitated the tourism industry-absolutely nothing to do with Covid-they just decided to ruin the industry. Why?
If that seems a touch improbable, then your claim that they have decapitated-killed off- landlords is just bizarre. Take another pill and lie down in a darkened room.
Boaty McFloaty
https://www.marinetraffic.com/en/ais/home/shipid:5630138/zoom:10
I'm quite blown away by the volumes; zooming out makes the shipping lanes look like ant trails.
"In Washington, a US Fed official has directly said it will not keep policy interest rates low to save the Federal Government budget cost, nor will it buy US Treasuries just to fund the Federal Government" and "In China, it is becoming clear that exporters there are raising prices sharply".
Higher interest rates are coming, NZ included, like it or not. International bond traders have waken up to this, for some time now. The music has not stopped yet, but there are signs that the orchestra conductor is getting fidgety.
One cannot be in ventilator support for life.
Have to face the consequence of excessive over reaction by reserve bank and government all in the name of being pro active.
Difference between support and what has been done over last one year - Debt based economy but to what level and for whom.
Jacinda Arden can lead by calling out and taking action on artificially created bubble but problem is, will she and does she actually wants to......as announcement till now are good but ......
All this ventilator support is not for economy or average kiwi but is to support themselves/ power and agencies are trying to maintain their importance and relevance.
All thinking and plaining is not to save the economy or average kiwi but themselves and for the same reason avoid taking hard decession which will be good for long term though painfully for a short time.
Yup, I believe Aussie is faring much worse with its housing bubble.
A mate recently borrowed at 93% LVR to invest in a land and build property in regional Vic (advertised as up and coming suburb of Melbourne).
It comes to me as a shock that some bank found him creditworthy even after he bought his first home in a similar far-flung location less than a year ago with only 10% deposit.
Interest only loans just have to be stopped in May. Interest only loans add significant risk to the banking system and it is completely unfair to expect TD holders to suffer increased exposure to loss to accommodate borrowers who weaken the strength of the system through their borrowing practices.
In summary interest only loans pass excessive risk on to deposit holders who have decided to opt for (one of) the safest options in terms of planning for their financial security. It is reprehensible that TD holders are forced to accept higher risk so that investors can structure their loans in an irresponsible manner. And as with the banking capital requirements, it is neccessary to regulate to ensure our banks are as insulated as possible against (what is at this juncture in time) is an extremely uncertain time for the property market and therefore for the inextricably linked banking system.as well. Most TD holders hold funds in banks out of a desire to avoid being exposed to the risks of the NZ property market and their wishes need to be respected. And that means banning interest only loans.
Agree but fail to understand that though everyone is talking about housing crisis and role of speculator but still everyone is silent on one major contributing tool / supporting speculator to speculate beyond - Interest Only Loan.
In May they are expecting advise ( delaying tactics) and will than decide in couple of months what to do and if at decide to go ahead will be after couple of month - Question is what is Jacinda Arden waiting to hear from RBNZ and ALSO What is it that RBNZ is waiting to produce before Jacinda Arden, that has not already been predented.
So what Jacinda Arden and Mr Orr are doing is passing the parcel to delay as much, hoping that they do not have to take action on i, ever or is forgotten by some other issue but doubtful and saving issue for both could be corona virus, so are they hoping for it.
Real shame.
alittle...Yes I also strongly believe speculators or investors that are building need to be given support and I even suggest an exception to the banning of interest only loans is made for them. We need to encourage new builds as much as we need to discourage investors from buying existing houses. Speculators/investors who are building are part of the solution while investors buying existing property are (while not the biggest part) nonetheless part of the problem.
I really don't see the problem with interest only loans. As long as you have the equity to back it up what does it matter if you aren't paying off principle? How is a loan any safer if the borrower promises to pay off a small percentage every year compared to if they don't?
The problem! If interest rates a zero then lets borrow a squillion and buy a house or three. And in thirty years time sell them and the next buyer borrows a squillion squillion to do same.
We are close to zero so it's a matter of degree but same effect.
And you don't see a problem?
Do you also frequent the skycity casino Jimbo? Or do you just like gambling in the housing market. With no principle payment, people are speculating on the direction of the market and its pushed prices higher than they would have been without that input/influence.
jj...with respect it should be obvious that the more you owe the bigger the risk and when you never pay principle your debt never decreases. And we will not even go into how interest only loans create an uneven playing field for investors over FHBs, which is a social disaster for NZ. Up until quite recently banks flat out refused to do interest only loans and for good reason. I know because I tried hard to get them from multiple banks in the past. It has only been out of pure greed (and a lack of regulation) that has seen them allowing swarms of investors to obtain them.
In Washington, a US Fed official has directly said it will not keep policy interest rates low to save the Federal Government budget cost, nor will it buy US Treasuries just to fund the Federal Government.
Wall Street suspends restraint and principle in the quest to enrich corporate senior officers, while over leveraging the company on behalf of outside shareholders.
https://www.newshub.co.nz/home/politics/2020/08/the-number-of-propertie…
https://www.nzherald.co.nz/business/sasha-borissenko-what-property-does…
One should know, How many properties each MP owns to understand where they stand why.
A bit more detail of the "ugly " event Mr Chaston refers to.
Comparisons to housing leverage and margin calls by brokers or banks anyone??
https://wolfstreet.com/2021/03/29/archegos-implosion-is-a-sign-of-massi…
Mike...margin lending or leverage on shares and property is very very similar. The main difference between the two is in the (incorrect) perception of risk in relation to leverage on property in NZ. I think the reason for this is that over the last 40 years the NZ property market has gone through such an unbelievable period of growth without any real downturn. These amazingly positive times are unlikely to ever be repeated but because all investors have lived through is this extraordinary period most believe that it is the norm and will be repeated. A deep dive into the psyche of the average investor would also help to understand investors mindsets when it comes to property and leverage but would be another topic.
On the other hand the vast majority of investors involved in stock market leverage(margin lending) are well aware of the risk partly because there have been serious corrections and also partly because the average person using leverage to purchase shares is infinitely more financially literate and able to accurately assess risk than the average property investor using leverage. Using leverage to invest in shares is the PGA Tour (these guys are good) while leveraging to invest in property is like playing mini golf with the Mrs and kids.
Looking forward to an article about the end of the Mortgage Deferral Scheme tomorrow https://www.rbnz.govt.nz/news/2020/08/reserve-bank-extending-mortgage-d…
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