Here's our summary of key economic events overnight that affect New Zealand with news equity market investors are waking up to the risk inflation will have to asset values.
But first in the US, there was more evidence overnight of a strong jobs market with job openings reaching an all-time high in the latest March data. There is a growing a gap between open positions and workers willing and able to take those roles.
Perhaps a reflection of the much better jobs situation, Americans are paying off their credit cards at the fastest rates in years.
But their Federal government isn't following suit. There was another very large UST debt auction overnight, this time for their 3yr note. It was well supported raising US$89 bln from the $171 bln bid. The Fed was allocated US$31 bln of it. The median yield was 0.3% pa and that compares to the 0.35% at the prior equivalent event.
US retail sales in early May are still showing positive gains on a year-on-year basis, good ones month-on-month.
In Germany, economic sentiment among businesses improved markedly, reaching its highest level since 2000. That is not to say current conditions are great, but the expectation they will improve sharply as the pandemic fades there, is strong.
In an eagerly awaited release, the official 2020 Census data was revealed for China yesterday, claiming a population of 1.412 bln, and a tiny rise from the 1.4 bln in 2019. Others suspect it actually declined. In any event, it is a turning point for their population. Their fertility rate dropped sharply in 2020, -22% lower than in 2019. Only 12 mln babies were born in 2020, down from 14.7 mln in 2019. Men outnumber women by an even larger margin. And only 63.4% of their population is now of working age, down from over 70% ten years ago. Now 91% of the country is Han Chinese. with minority communities (Tibet, Uighur, etc) shrinking as they are swamped and marginalised. (See Keith Woodford's comment below.) Their overall median age is now 38.4 years. (For perspective, New Zealand's working age population represents 65.3% of the total population. Our median age is 37.6 years. New Zealand is a younger place.)
China's producer prices jumped again in April, up a fat +6.8% year-on-year and a big rise from the March rise of +4.4% pa. In the past, the flow-through to consumer prices wasn't that strong. But this time it is expected to be more direct. However, April consumer prices aren't yet showing that impact, with them up just +0.9% year-on-year. But watch out for the flow-on impact over the next few months, something that could have a global impact.
The expectation of an impending sharp rise in inflation is behind today's sharp equity market retreats as markets start to realise rising yields will mean lower asset valuations.
Meanwhile, China is still trying to hurt Australia with trade retaliation. Some Chinese LNG importers have apparently been told informally by Beijing to avoid buying Australian cargoes, posing a potential threat to Australia’s huge export trade in this fossil fuel.
In Australia, their 2021/22 Budget was released overnight and it is aggressively expansionary. It ratchets up a lot more Federal spending than expected, risking an overheat situation, and possibly earlier RBA rate hikes than currently anticipated. This is an 'election budget' even though an election isn't anticipated until about May 2022. There is a lot of new spending, especially for aged care, NDIS (their ACC), mental health, the extension of the business tax write-off concessions. A consequence is that their fiscal deficit won't improve as was expected and deficits will remain large. The credit rating agencies might have some concerns as net debt-to-GDP will now rise for the next five years when they were expecting it to fall.
On Wall Street, the S&P500 is down another -1.0% in afternoon trade building on yesterday's decline as their selloff broadens. Overnight in European markets most fell -1.9% although London dived -2.5%. Yesterday, the very large Tokyo market tanked by -3.1%, Hong Kong was down -2.0% for the day, but the Shanghai was the global outlier and rose a modest +0.4%. The ASX200 ended down -1.1% while the NZX50 Capital Index slipped a relatively small -0.2%.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 159,127,000 people have been infected at some point, up +646,000 in one day, still largely driven by rises in India and Brazil. Global deaths reported now exceed 3,308,000 and up +11,000 in one day. Vaccinations in the world are also rising fast, now up to 1.32 bln (+19 mln per day), and in the US almost half of their population (46.6%) have had at least one dose as they keep up their fast rollout. Now more than one third have been fully vaccinated (117.1 mln people). The number of active cases there has fallen to 6,415,000 (-31,000) with fewer new infections than recoveries recently and improving progress.
The UST 10yr yield starts today at 1.62% and back up +2 bps from this time yesterday. The US 2-10 rate curve is little-changed at +146 bps. Their 1-5 curve is also little-changed at +75 bps, while their 3m-10 year curve marginally steeper +162 bps. The Australian Govt ten year benchmark rate is up +10 bps at 1.73%. The China Govt ten year bond is down -1 bp at 3.16%. And the New Zealand Govt ten year is up +1 bp at 1.79%.
The price of gold starts today at US$1835/oz and that is down -US$2 since this time yesterday.
Oil prices start today still at just over US$65/bbl in the US, while the international Brent price is just under US$68.50/bbl. Neither are big movements either way.
The Kiwi dollar opens today at 72.7 USc and a little lower overnight. Against the Australian dollar we are little-changed at 92.7 AUc. Against the euro we are lower at 59.8 euro cents. That means our TWI-5 starts today at 74.
The bitcoin price is now at US$56,465 and -0.9% lower than this time yesterday. Volatility in the past 24 hours has been a high +/- 3.5%. 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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72 Comments
Thinking of more tools as wants to play with time. Why not use the tool that can be a missile to target Speculators - Interest Only Loan
https://www.newsroom.co.nz/pro/little-known-4th-tool-in-housing-kit
It is crystal clear that most speculators, if not all are able to fund their speculative only because interest only loan so why ??????
Time to discuss is over and is now time to act and act fast.
8014
Don't let emotion over-take you thinking things through.
Your suggestion will simply bloat banks already fat profits considerably further . . . and I bet your bottom dollar landlords will be passing those costs on to tenants.
Banks determine interest rates on risk to protect their loan - compared to property investment "business" loans are higher risk of failure and usually have far less security.
This question has been answered several times. A factor in determining an interest rate charged by the banks is the security provided. Houses are great security which minimises the risk of loss of the banks money leant to a landlord. If ANZ went out and said all landlords will pay business rates of 10% despite being low risk they would get slaughtered by the other bank's who are happy to lend at 3%.
The question seems emotive because it shows a lack of logic and understanding and appears deliberately obtuse.
stuart
"It is crystal clear that most speculators, if not all are able to fund their speculative only because interest only loan"
What is the source of your information?
It would seem to be just emotive speculation on your part as RBNZ mortgage data doesn't support that.
Ground reality my dear Watson.
Talk to anyone and their are many who are now into most popular and lucrative business of buying and selling house and will know. Also let authorities in power to do real analysis, wether it is FHB or Investors who are into interest only loan and even in investors, most investors who are in for long term wants to repay principal and interest and be debt free as soon as and from those investor group it is speculators who are mostly, if not fully into interest only.
Also Mr Orr not acting is an indicator otherwise as Jacinda Arden also mentioned wants to target speculative demand than how hard is it to stop interest only to new investor purchases instead of throwing new ideas to play with time.
Interest Only as a tool should be for emergencies ( required and must) but not to fund speculative demand.
No point in meaningless argument wether the glass is half full or half empty as it all depends on the intent and eyes will see it accordingly and unfortunately it is very evident from Mr Orr resistance, where he stands.
Can anyone also be blind to see their perfomance on 5th May, their body language was .........as were not confident and trying to put forward a spin, which even they know is hard but being in power can get away - not with valid reasoning but because of their posistion.
Even if one goes by RBNZ data, is one third not a big number ?????
OO ....yes but not sure, how many of those OO have sperate investment property and manipulating.
If FHB wants ( not advisable) but even if they wants, how many bank will fund them and in Auction room is Interest Only helping FHB or so called investors.
Let their be level playing field and if tax changes were done to eliminate advantage that investors had over FHB than interest only loan should have been top on the list to ban interest Only to investors, wether ponzi or no ponzi, it should go to bring fairness ( as PM wants) and may be for this very reason Mr Orr is not interested as it may actually contain the ponzi.
Target interest only to investors and guaranteed that it will contain the price and thereby FOMO ( FOMO has to go to contain ponzi otherwise fight over toilet tissue will also continue).
Stuart
Re: “Not sure how many of those OO have seperate investment properties and just manipulating”.
No - the data is on new lending. A lender with an existing mortgage registered against the property (no mater what the balance was) converting to IO would not be counted.
It is new mortgages only.
Stuart
Yes things are tough for FHB.
However, again a bit of objectivity by RBNZ new mortgage numbers:
- the number of FHB in November and December last year was the highest since RBNZ first collected and published data in August 2014, and
- recent numbers of investors (prior to 23 March announcements) over the past four years has been lower than that in 2016 early 2017.
Exactly, it makes no sense to speculators and that proves the point that IF government wants to target speculative demand than interest only should be stopped as many are able speculate only because of IO. Though will be others who will still continue but definitely some percentage of speculative demand will be killed by stopping IO.
Agree that you will not see any logic as it does not serve your purpose and it is exactly this resistance as mentioned earlier also that government and RBNZ has to rise above and act - think long term, to control speculative demand but you do not have to worry as Mr Orr is also of the same opinion as you are and will never act to harm the ever growing ponzi.
Yvil
Stuart is another just knee jerk reaction not thinking things through either.
There is a tendency on this site to call all investors as speculators.
But if he/she is talking about short term buyers (true speculators) looking for capital gains . . . well then need to consider two factors, firstly even the pretty naive can see that the days of capital gains are now gone, and secondly we now have the brightline test extended out to ten years to discourage that.
Stuart
Make sure that you are not being blinded by REINZ and CoreLogic headline data of increasing house prices over the past couple of months.
Those results relate to sale and purchase agreements entered into prior to the Government announcements.
You will start (note “start”) to see the effects of those announcements in REINZ data due out (I think) later this week, and the likely full impact will not become fully obvious until June REINZ data.
I think that you will find that the announcements have cooled the market from which price increases were not sustainable.
I have no doubt RBNZ have rightly adopted a wait and see attitude until the impact becomes clear (and I think they said that). That is simply being prudent - I see recent calls from those on this site for immediate action as implying RBNZ being foolhardy. The RBNZ will already have most likely taken action by initiating the four main banks introduction of self imposed LVRs last October.
Whatever one feels about current house prices, for a significant sudden correction/collapse of housing is not in the wider interest.
Rubbish.
First,
You've fallen victim to the rhetoric that all those buying houses are speculating. Investors/Landlords are not always speculators. That's Labour Government BS to blame others for their massive failings, and for their clear inability to understand the implications of lowering interest rates. This outcome was planned!
Second,
I've used interest only loans, and changed them to P+I to pay down the debt, I used interest only loans to upgrade the properties. I'm not a speculator, and have held properties longer than the extended bright line test. I used it to fund renovations at my own house too.
Already, the impacts on landlord are going to hurt tenants, the blame from PR queen Ardern and her finance lapdog for others should be sheeted back to them for not knowing what the hell they were doing.
"That's Labour Government BS to blame others for their massive failings, and for their clear inability to understand the implications of lowering interest rates. This outcome was planned!" I thought the Reserve Bank was in charge of interest rates? Sorry no the FED is..so you think the FED have a hotline to the beehive and answer to them?
The DOW has plunged today but has a lot further to fall. The US is saturated in ‘stimmy’, they are trying to ‘print, borrow and spend’ their way to wealth, it won’t happen. You can’t carry on that way indefinitely without inflation starting to kick in. Inflation is the needle that will pop the ‘everything bubble’.
Investors are ignoring a ticking-time-bomb stock market, says this money manager: https://on.mktw.net/3uEIrZA
Agree that something has to give way as anything promoted artificially cannot continue for ever and the sooner the reserve banks stops taking advantage to panademic emergency, the better to bring normalcy to craziness all round despite the worst crisis in over a century.
As they print more money the value of their dollar declines.
a year ago the NZD bought 60 cents US and now its 72 cents, which is a 20% drop in value.
As their dollar devalues it pushes up the price of imports, so you can be certain "real" inflation is already hitting the US.
It also means that the capitalization of the stock market is worth 20% less than it appears from a year ago. So if the Dow is currently at 34000, that is equivalent to 27200 a year ago (ignoring how overvalued equities are in terms of price to earnings)
So yes, printing more money is suicide by a billion cuts
Without a strong USD, America will be impotent. War is extremely expensive.
https://www.crowdfundinsider.com/2021/03/172786-iran-is-reportedly-plan…
if you overlay the price increase in oil in USD terms over the last year it closely replicates the devaluation of the USD, so the price of oil in say NZD terms has hardly changed over that time.
In other words the price of oil even though sold in USD also dynamically changes in price to closely match the value of the USD.
Not sure about direct linkage between FED printing and cross-rate for NZD/USD.. I'd thought biggest factor is traders looking for growth in terms of Interest Rate differential.
In terms of USD and imported inflation... well that probably depends on major trading partners currency... NZD here is immaterial for US. I'd imagine the biggest is China, SEA, Euro etc.
DOW deflated in real terms... again, it depends what currency you mainly spend/invest in rather than simple NZD v USD rate.
‘No doubt…that we are in a raging mania in all assets’, says Stanley Druckenmiller: https://on.mktw.net/3y4ZwxW
https://www.cnbc.com/video/2021/05/11/stanley-druckenmiller-fed-policy-…
How True and it applies to not just Fed but to most reserve bank specially to our friendly governor Mr Orr ( Meesiah of speculative community) , who is blindly following the Fed or still in emergency least regret mode, not realising that whenever reserve bank will act, some sort of reaction is inevitable and may also be good for the economy in the ling run.
"Fed shouldn’t be in emergency mode after the emergency has passed. They warn that the distortion of long-term interest rates is risky for the economy and for the Fed itself."
There was another very large UST debt auction overnight, this time for their 3yr note. It was well supported raising US$89 bln from the $171 bln bid. The Fed was allocated US$31 bln of it.
... not surprisingly "well supported" as the Central Bank took 35% of it!
The euphemism they will use is "growing their balance sheet" but in reality didn't the CB just conjure up another US$31bln and hand it to the US Government?
Half-aware that there is an issue with the issuance, so he turns to digital issuance....
Case of issuance bitten twice shy?
Seriously, I made a submission to my local Council yesterday, urging them to earmark physical resources for future maintenance; not some token, regardless of denomination.
Breakfast briefing: Inflation risk dawns on equity investors
It’s never a good thing when overvalued, double-counted chickens are being purchased with borrowed money. With margin debt at the highest level in history relative to GDP, with the most extreme valuations on record, with bullish sentiment at lopsided extremes, with the S&P 500 pushing its upper Bollinger bands at every resolution, with divergence and deterioration in our measures of market internals, and with the S&P 500 strikingly overextended relative to widely followed moving averages (e.g. 200-day), I believe that the market is at clear risk of a vertical “panic” or “air-pocket” much like we observed in 1987 and 1998. Neither of those panics was associated with a recession. They were just points where overextended investors attempted to reduce their leveraged positions into a market where the bids were insufficient to absorb the selling without large price discounts.
Let’s assume that in the coming 5 years, S&P 500 revenues grow at the same 4% annual rate as in the two decades leading up to the pre-pandemic highs. Suppose that over that 5-year period, the S&P 500 price/revenue ratio retreats from its current multiple of 3.1 to a level no lower than the 2000 bubble extreme of 2.2. Given a dividend yield of just 1.4% on the S&P 500, the following average annual total return would result:
1.04*(2.2/3.1)^(1/5)-1+.014 = -1.5% annually. Link
Brilliant
"Quantitative Easing! is the product of pure mental perception, distinct from the need for any accurate link to reality. It isn’t constrained by historical evidence or any well-defined “limit.” It exists flawlessly and exclusively in the minds of investors, it is reinforced by constant repetition, and it has only one message: “The Fed holds the market up. Ignore everything else.” Period."
Beware heightened risks of ‘fragility shocks’ in a market too dependent on the Fed, BofA warns: https://on.mktw.net/33xFkXd
Dopey economists will keep reporting 'healthy economic data' which is really just nonsense GDP growth - a set of numbers correlating to the central bank and government continuous 'print, borrow, and spend' regime, which is now in overdrive. There is no growth in productivity - we are in a steep decline.
The government is artificially lowering child poverty figures by “topping up” the household incomes at the lower end of the scale, instead of raising their socioeconomic prospects organically.
This inter generational dependence on state welfare is yet another ticking timebomb.
David,
The statement that China's ethnic minority population is shrinking is not correct. Here is the Google translation of the census report
"Ethnic population. The population of the Han nationality is 1,286.31 million, accounting for 91.11%; the population of the ethnic minorities is 124.47 million, accounting for 8.89%. Compared with 2010, the Han population increased by 4.93%, the population of ethnic minorities increased by 10.26%, and the proportion of ethnic minorities increased by 0.40%."
This increase has actually been an ongoing trend for a long time because the 'one child policy' was not applied to the non-Han ethnic groups.
KeithW
The Chinese figured out a very long time ago that their key population issue was that they had too many not too few people. When I first visited China in 1973, there was a strong policy of birth control across most parts of the country. This was well before the 'one child' policy of 1979. However, for practical reasons the one-child policy was not enforced in rural regions and for policy reasons it was never applied to national minorities. One of the challenges now is that many of the regions where the minorities live are also the most natural-resource constrained areas of China.
The issue of an overall declining population is one that many East-Asian countries now face, with Japan leading the pack and others not far behind. However, those issues are less daunting than the problems of Africa and West Asia where population growth is unchecked.
KeithW
It rightly highlights, if one has to pay
https://i.stuff.co.nz/business/money/300305269/new-zealands-new-39-capi…
Look who is talking... Afraid what happens if investor demands falls and so does FHB.
We need a list of anyone who owns more than one house so we can send them all thankyou cards for working so hard by allowing poor renters to stay in their spare homes. Landlords are so important to NZ. I don't know how this country could survive without them sacrificing so much. Lets start a list!!!
Can we own a bach, or ski lodge? Maybe someone would rather have a modest Auckland house and a bolt-hole in the Coromandel? Would you penalize them vs the person who has the same equity tied up in a single expensive Auckland house. Get over yourself and the bitter envy. Society is full of folks who get ahead financially vs those who don't. I look at a Ferrari and think "nice car, but I won't work a day extra in my life for it." No envy on my part. Want more, work harder and smarter.
Not always about envy. The situation in NZ is now at a point that anyone born in a family that does not own a home and preferably several, will need to be exceptional to end up as an owner themselves or rise above the poverty level. The policy and tax settings are severely biased towards asset owners and are hammering those who don't -(aided by mr orr-full)
And as for working hard. i have visited 'poor' houses at dawn to find mum not home as she is still at the night cleaning job, dad already gone to work, and mum to head off again once home after brekky on her day job. The idea the poor don't work hard is pure rubbish - perpetuated so we can blame the poor rather then accept some responsibility. NZ was once an egalitarian society we were proud of. Not now.
It's not about envy, but justifiable resentment that Governments since the late 70s have engineered the current mess at the expense of most middle and lower income Kiwis. The mess is such that working harder and/or smarter is not enough to cut it now, and now the government has said that workers are not worth a pay rise. The political elites are returning us to a class system by stealth. The cut off will be two or more houses.
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