Here's our summary of key economic events overnight that affect New Zealand with news that while the global recovery is certainly underway, investors seem nervous about where to from here.
The Conference Board is reporting high but unchanged American consumer sentiment levels in May.
Sales of new single family home sales in the US stumbled in April, mirroring the hesitation in the existing homes market. After jumping to a new higher level in June/July 2020, it has been a slow trend shift lower since. And the level of unsold units is creeping up. Meanwhile, March brought a high annual rate of price growth in home prices, up +13.2% pa and the highest since December 2005, according to the Case-Shiller index.
The next US regional Fed manufacturing survey, this one from the Richmond Fed, shows activity is holding high in May, but that price pressures are unusually extreme. Employment levels are little-changed.
There was a UST 2yr note auction earlier today and yields fell. This one went for +0.11% pa for the US$71.6 bln offered (the Fed took US$11.6 bln). At the prior equivalent auction the yield was 0.15% for identical amounts raised.
The Chinese yuan has hit its highest level against the US dollar in three years, as it appears Beijing is using the appreciation as a way of limiting inflationary pressures at home. But it will have a tough impact on their goods exports if they keep this up. It won't hurt New Zealand exports however.
And after falling marginally on Monday (and many media reports highlighted that slip) the iron ore price resumed yesterday with a small rise on Chinese futures markets. Given Beijing's weekend instructions, that rise is somewhat unexpected. The same turn higher happened for coking coal prices.
Singaporean industrial production data for April disappointed, undermined by an unexpectedly large fall in their biomedical sector.
In Germany, sentiment among managers has improved considerably. A widely-watched survey reached its highest value since May 2019. Companies were more satisfied with their current business situation. They are also more optimistic regarding the immediate future. The German economy is picking up speed.
In Turkey, the President has done it yet again, firing senior central bank managers because they can't bring price or exchange rate stability with his crazy economic settings.
In Australia, the lockdown again in Melbourne is a wakeup call for all of us that we are risking a lot with our complacency on the risks of the global pandemic. Europe and the US may be tolerating high levels of community infection, even if they are falling, but here a re-emergence would have sharp economic impacts. Normalisation in the travel sector seems a long way off.
The OECD is reporting that the international trade in goods reached record levels in Q1-2021. The rises was fast. Compared with the previous quarter, exports and imports increased by +8.0% and +8.1%, respectively. Prices for agricultural commodities, including cereals and vegetable oils, increased by over +10%. They say the UK was the only G20 economy to record negative merchandise trade growth, both for exports (-5.7%) and for imports (-10.5%).
On Wall Street, the S&P500 lazing around unchanged today in afternoon trade. Overnight, European markets were mixed but little-changed in their Tuesday sessions. Yesterday the very large Tokyo market ended up +0.7%, Hong Kong ended up +1.7%, while Shanghai ended its session up a very strong +2.4%, a rise driven by strong foreign demand. The ASX200 rose a full +1.0% but the NZX50 fell -0.9%.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 167,454,000 people have been infected at some point, up +469,000 per day. Global deaths reported now exceed 3,476,000 and up +9,000 per day. Vaccinations in the world are still rising but at a slower pace, now up to 1.7 bln. In the US half of their population (49.9%) have had at least one dose. Almost 40% of Americans have been fully vaccinated (132.4 mln people). The number of active cases there has fallen to 5,755,000 with fewer new infections than recoveries recently and steady progress.
The UST 10yr yield starts today -5 bps lower at 1.56%. The US 2-10 rate curve is at +142 bps and flatter. Their 1-5 curve is also flatter at +73 bps, while their 3m-10 year curve is flatter at +156 bps. The Australian Govt ten year benchmark rate is down -3 bps at 1.60%. The China Govt ten year bond is unchanged at its new lower level of 3.09%. And the New Zealand Govt ten year is down -2 bps at 1.81%.
The price of gold starts today up at US$1899/oz, a rise of +US$16 today. And that is a five month high.
Oil prices start today unchanged at just under US$66/bbl in the US, while the international Brent price is just under US$68.50/bbl.
The Kiwi dollar opens today marginally firmer at 72.3 USc. Against the Australian dollar we are up at 93.2 AUc. Against the euro we are unchanged at 59.1 euro cents. That means our TWI-5 starts today at 73.7.
The bitcoin price is now at US$37,936 and a trivial +0.4% higher than this time yesterday. However, volatility in the past 24 hours has still been very high at +/- 4.8%.
Locally today, there are some major economic events due, including a Fonterra update and a Reserve Bank monetary policy statement. We will have full coverage.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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55 Comments
Hear the noises. This is how RBNZ has put themselves in a situation where can be blackmailed :
https://www.stuff.co.nz/life-style/homed/housing-affordability/30031622…
With low interest rate should have acted fast to put policies in place to offset side effect of doubling house prices, which were as it is high and not they were not warned as far back in October, just after few months when it was evident but it took them six months to reintroduce LVR and god knows how many more months of Wait and watch.
https://www.stuff.co.nz/business/opinion-analysis/300143715/reserve-ban…
Today they will be forced to speak on housing but will be lip service only - something like : "We are concerned and monitoring the situation for now"
If concerned and were just going with policy of Wait And Watch, could have announced it earlier on 5th May itself , why the delay - tactics to play with time as no intent and no media raises a question.
I agree the in increase in the interest rates will hurt pockets but hasn’t the bank stress tested the affordability to something like what will happen if the IR rises to 5-6%. Yes it will cost more to service their mortgage but surely it is affordable based on the tests the banks conducted prior to lending?
If you are a owner occupier thankfully you are still in the home and not renting so even if there was negative equity, it’s your residence and will get back to positive equity as we go through the motions of inflation.
If you were just pure greedy, gobbling up more than you can chew and you are not the owner occupier then it is just a bad investment. As with any investment you need to brace for the ups as well as the downs. Hang tight or sell before your investment makes loses.
Thanks Nzdan and frazz for sharing. In the commercial/rural area our bank is loading any borrowing over 2 years with a significant premium over and above the difference in their funding cost as they look to front load the anticipated Reserve Bank capital requirements. The 5 year rate is back up to pre Covid levels.
That's full percentage point above the 1 and 1.5 year rate, rates would have to rise significantly and soon for that to work out better. But it does give certainty.
Seems to be the 5yr rate they are offering to existing customers, we have the same option. Its a toss between 2.39% for 18mths which takes us to the end of our lockin with ANZ, or the long term fix incase rates rise.
I don’t know, it could be wishful thinking. Today seems to be a good day! I feel like finally the day has come that RBNZ staff will actually do some of the work they are paid to do. I’m expecting a strong signal from RBNZ today. I’m expecting OCR hikes starting much earlier than Aug 2022. Hope it’s not just wishful thinking.
Wrong its worse than that they are unable to smell the smoke so they are waiting for the smoke detector to go off but the problem is the battery in it is flat. This is just turning into a blame game pure and simple, hey look over there its his problem. The only outcome is a few resignations after being on stupid high salaries for years once the shit finally hits the fan.
William McChesney Martin Jnr: The job of the Federal Reserve, he famously said, is "to take away the punch bowl just as the party gets going"
Modern day central bankers: "Our job is to bring a punch bowl the size of the Pacific Ocean to the party, and then just keep it there indefinitely."
John Key doesn't need income from TD's, and he doesn't need to worry about inflation. He's got wealth most people can only dream of. He is worried about his bank however. Did his bank lend money in the full knowledge that interest rates can go up? If the "one thing saving some mortgage holders (is) record-low interest rates" then hopefully it wasn't his bank lending to what looks to be sub-prime lenders. What an extraordinary thing for Key to say, just gob-smacking.
'John Key told Stuff the one thing saving some mortgage holders were record-low interest rates, and if they rose to combat inflation recent buyers may struggle to afford repayments.
Key said a rise in mortgage rates would also cut more first home buyers out of the market, effectively reducing demand.'
China Stocks Jump Most Since July Amid Record Foreign Purchases
Meanwhile, the offshore yuan climbed 0.2% against the dollar, breaching the 6.4 level. The gains spurred attempts by state-owned banks to slow its appreciation. At least three institutions were seen bidding for the dollar in onshore markets below the 6.4050 level, traders said. This followed earlier attempts in the day to slow the advance, traders said.
From the Stuff article:
The Reserve Bank also estimates new mortgages taken out for house purchases in the past two years represent approximately 30 per cent of all current mortgage lending.
If that is correct it is truly scary. CB's obsession with the so called "wealth effect" has led us to this point where the whole illusion of "wealth" is a house of cards predicated on an artificially low price of credit.
It is scary but it would be helpful to know the split between FHB and speculators and what percentage overall are severely over leveraged because not the whole 30% will get into difficulty even if rates hit 6%. If rates go over the stress test threshold however it will get ugly very fast in percentage terms. I would say hit 8% interest rates and 90% of that 30% are in deep shit.
Why the need for this QE review?
Because even today you continue to hear how it is central bank bond buying which is right now responsible for holding down yields, and that because it is QE doing so therefore we can just throw them out for any sort of useful financial and economic signal as an artificial product of intentional and even helpful monetary policy.
As we can easily see, however, absolutely none of that is true nor has it been from the very beginning. Yields go up when the market believes there might be a better chance of growth and inflation (less tight money) at times (more in the early crisis aftermath) conflating central bank policies with more positive chances. But then yields go down when it becomes painfully clear there really aren’t (m)any positives.
What the nearly forgotten Greek episode established/proved/reminds us are these global factors to money therefore inflation and recovery. When UST yields plunged in April 2010, it wasn’t because of troubles in Greece, it was because global market money players realized what havoc money troubles in repo would cause for the entire global system.
[my emphasis]
Dealers exchange cash earning 0.0% at the Fed reverse repo window for $432.955bn US government securities.
The price of gold starts today up at US$1899/oz, a rise of +US$16 today. And that is a five month high.
The UST 10yr yield starts today -5 bps lower at 1.56%
Money Correlations
I'm actually impressed with the vaccine. The UK is down to 6 deaths per day which is about the same level as car crash deaths and that's with only 44% of people full vaccinated, a further 28% having only had one vaccine. Vaccine uptake among the over 50s has exceeded 95% proving that scepticism about uptake was unfounded.
New Zealand will get to that level by the end of August. It's probable that New Zealand could have administered vaccines to everyone who wants one by the end of this year and move into it's first phase of reopening. :-)
NZ cannot reopen even if 100% of the population are vaccinated. The efficacy is just over 95%. Therefore 5% of the population will be at serious risk of death if Jacinda opens the borders. Do you think that will win an election? If not she won't do it because thats all she cares about.
Yes, that's what many people don't really realise. For us to throw open our borders, the whole world basically needs to be vaccinated and community transmission has to be basically zero (i.e. COVID defeated almost everywhere). It will have a very long tail, is what I am betting, so I expect at least 2 years more of closed borders, with more travel bubbles between now and then. Possibly with China the UK and the US, the way they are going with vaccinations/virus control.
There is also a massive moral issue happening where rich countries are looking after their own populations first. And often using the vaccines produced in poorer countries to do it. The ethics of the vaccine rollout will be debated and dissected for years to come and will likely (or should) have far reaching consequences for globalisation of core medicines and goods.
Your figures stack up https://coronavirus.jhu.edu/data/mortality. And 0.1% is about the usual mortality rate for the seasonal HN flu.
About 25% of the population where born outside of NZ and about 20% of New Zealanders live abroad. The continued requirement for 14 days of Managed Isolation and Quarantine is extremely onerous on those people. MIQ was always going to be a short-term measure.
We can reopen cautiously by requiring people to present proof of full vaccination when booking, get a PCR test before travelling, using lateral flow tests and PCR at the border and instructing people to self-isolate when they arrive. Reopening is bound to be cautious but there is no reason to delay it beyond the end of the vaccination program.
I suspect many will not vaccinate. Most here seem to not fear the covid as such.
We will no doubt need an outbreak, death scenes and fear spreading before there is much motivation. Expect full scale media hysteria when the Indian strain (we really need another name as this of course is offensive to Indians) breaks out.
It's a personal choice. In many ways I think being clear about border reopening dates could help spur people to be vaccinated who might otherwise be complacent. Government needs clear messaging, both on when people need to be vaccinated by and to issue advice to anyone unvaccinated after that date (presumably along the lines of "stay home, lock the doors, wear a mask and recite the family prayer.")
So far reserve banks have been successfull in artificially manipulating the economy but a time will soon come when they have no control over it and are forced to act :
https://www.nzherald.co.nz/business/glut-of-cash-in-us-financial-system…
'reserve banks have been successfull in artificially manipulating the economy but a time will soon come when they have no control over it'
In 2018 The Fed started to raise interest rates & unwind their balance sheet, and US equities started to tank, so The Fed was 'forced' to reverse course.
So who is really in control, and who is dictating to who?
Central banks - due to their own foolish actions - have lost control at can be held hostage by markets. Our Reserve Bank has stupidly followed The Fed down the same blind alley, even when it should have been obvious that there was no apparent exit strategy.
The federal funds rate is hovering at 0.06 per cent, well below the middle of the 0-0.25 per cent rate the central bank is targeting. A sustained tick lower to 0.05 per cent could be sufficient to prompt action from the Fed, said Kelcie Gerson, a strategist at Morgan Stanley.
The Effective Fed Funds Rate (EFFR) is stable just below the Interest on Excess Reserves (IOER- 0.10%) policy rate and above the Fed Reverse Repo 0.0% policy floor rate.
What is not stable is the new, potential short term Fed bench mark rate Secured Overnight Finance Rate (SOFR) and general repo rates at zero - which implies an extraordinary demand for pristine US government collateral and in particular US Tbills - the most pristine. Think collateral rehypothecation chains.
Shout Out to Waikato DHB.
Dumb as a bag of hammers
The doctor, who the Herald agreed not to name, works in Waikato Hospital's cancer centre. They said the situation was a national health crisis and far worse than the DHB was making out.
https://www.nzherald.co.nz/nz/waikato-dhb-cyber-attack-cancer-patients-…
Meanwhile:
Minister of Health Andrew Little is refusing to front, only issuing a statement saying ransomware attacks are a crime, and that he has been in touch with the Waikato DHB Commissioner Dame Karen Poutasi "about any assistance the DHB requires to support people whose information may have been held in the DHB's systems".
https://www.rnz.co.nz/news/political/443354/waikato-dhb-cyber-attack-se…
Who was to know? Everybody....
https://www.rnz.co.nz/news/national/443364/2020-stocktake-found-health-…
The government and district health boards were warned last year the country's health IT systems are vulnerable to "significant" cyber threats.
"The issue is we need to find a way in our public sector for this to stop happening - it's a purely preventable problem.
"If it wasn't a preventable problem we wouldn't just have just one DHB with this problem right now."
'The Covid-19 vaccine roll-out for the general population has been moved to the “end of July”, pushing the start of the population-wide campaign back by weeks.
The Ministry of Health updated its vaccine rollout plan on its website last week, showing that Group 4 – the general population – would begin receiving the Pfizer vaccine from the “end of July”.'
https://www.newsroom.co.nz/charting-new-zealands-vaccine-rollout
Scroll down to the last figure. The distribution ramp up is outrunning supply.
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