Here's our summary of key economic events overnight that affect New Zealand with news the OECD's global minimum tax deal is now much closer.
But first in the US, last week's initial jobless claims report was a positive one with 359,000 added in the week, well lower than what was expected and a post pandemic low. However there are still 3.4 mln people on these benefits and until this level gets down to under 2 mln, it won't be back to pre-pandemic levels. They are getting there, but slowly now, with job cuts announced in June at a very low level and now at a 21 year low. All eyes now turn to tomorrow's US non-farm payrolls report and a +700,000 gain expected.
Around the world, there was a solid upturn in global manufacturing extending but stretched supply chains are driving up costs nearly everywhere. The dominant driver of this expansion is in the US where they recorded their equal fastest expansion ever in the Markit survey, and a minor pullback from very high levels in their ISM survey. Both surveys recorded strong order intakes and very elevated cost pressures. Both reported labour shortages.
In Europe, they set a new record high factory PMI, driven in large part by Germany - but many other large countries are doing very well too, including Italy, France, the UK and Spain.
In China, the Caixin PMI dropped back last month and adds to signs from the official PMI released yesterday that momentum in industry is waning. The surveys point to a levelling off in demand and easing of price pressures, even as supply shortages continue to constrain output. This was a larger decline than the fall in the official survey released yesterday. The average of the two continues to point to a timid expansion in industry, now at its lowest since February.
Japan's business confidence survey has hit its highest since 2018. But like China, Japan's factory expansion continues at a more modest pace too, but it is still much faster than in China. Ditto for South Korea and Taiwan. And even Australia. (An alternate Aussie report records a record expansion.) All of them report supply-chain pressures but cost pressures are not as pronounced as in the US or Europe.
Australia's trade balance for both goods and services was AU$9.8 bln in May and has been in surplus for 41 consecutive months, from the start of 2018. The annual surplus has swelled from +AU$23 bln for 2018 to +AU$74 bln for 2020 - with rising commodity prices the key driver of the improvement. Their trade surplus is expected to widen further in Q2 2021 on still higher commodity prices.
Australian dwelling values rose +1.9% in June from May, taking annual growth to +13.5%. This was led by houses, which rose +15.6% over the year, compared to a +6.8% lift in unit values. (For the year to June, New Zealand dwelling values rose +22.8%.)
Internationally, 130 countries have endorsed setting a minimum 15% tax rate for global companies. It is a deal that could start in 2023. Two holdouts are low-tax jurisdictions like Ireland and Hungary, but China, India and Turkey who were thought to be sceptical have now signed on.
Bank in Washington, a return of an old problem is about to emerge. During the pandemic the debt ceiling law was suspended. But at the end of July it is reinstated and that means US federal debt becomes a political football again.
And in Australia, they too have the return of an old problem. A waterfront union has won an agreement that up to 70% of new recruits must be sourced from employees’ ‘families and friends’ and a union list of names.
Wall Street is starting the new month positively with the S&P500 up +0.4% so far in a rising trend. Overnight European markets ended up an average of +0.5% except London which was up +1.3%. Yesterday both Tokyo closed down -0.3%. Hong Kong was down another -0.6% and Shanghai both closed down -0.1%. The ASX200 closed down a sharp -0.7% but the NZX50 Capital Index was up another +0.2% in the end.
The UST 10yr yield starts today at 1.48% and back up +3 bps. The US 2-10 rate curve is marginally steeper at +1.22 bps. Their 1-5 curve is also a little steeper at +82 bps, while their 3m-10 year curve is steeper at +143 bps. The Australian Govt ten year benchmark rate starts today at 1.46% and down -3 bps. The China Govt ten year bond is up +2 bps at 3.12%. And the New Zealand Govt ten year is now at 1.78% and unchanged.
The price of gold is now at US$1774/oz which is up +US$5/oz from this time yesterday.
Oil prices are up +US$1 today. In the US they are now at just on US$74.50/bbl, while the international Brent price is still just on US$75.50/bbl.
The Kiwi dollar opens today just on 69.7 USc and a -¼c softer since this time yesterday. Against the Australian dollar we are firmish from yesterday at 93.4 AUc. Against the euro we are little-changed at 58.8 euro cents. That means our TWI-5 starts today unchanged at 72.6.
The bitcoin price is now at US$33,505 and down another -3.5% from this time yesterday. Volatility in the past 24 hours has remained high at +/- 3.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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70 Comments
First create a monster ...than....all policies and measures to keep him happy otherwise......
https://www.newshub.co.nz/home/money/2021/07/reserve-bank-won-t-hike-in…
Now all policies (action as well as inaction) are taken keeping in mind to ensure that come what may, housing ponzi continues.
Now RBNZ will not raise interest to support overall economy but it is to avoid fall in house price as per the experts. With this logic interest rate has to be low forever as whenever they go up, market will fall and longer the delay, bigger the fall as ponzi is touching new height on weekly basis.
So what is the exit strategy, if they have one, for this fear of prrice falling will not go away instead will grow with time ?
Characteristic of ponzi is such that it has to be kept alive or it will burst as their is no middle pathway and Mr Orr and Jacinda knows, so now have no choice but to keep on supporting the ponzi.
Are they not responsible for putting themselves in a hole where are being allowed to be blackmail or do they wanted to be blackmail so do not have to take action to control the ponzi ?
Has anyone heard any comment or any politician or experts raising concern on ever growing house price, the very issue that was raised by Jacinda to get power and now us silent thanks to media as no one is raising it, why ?
With delay in controlling government and RBNZ are screwing FHB ( If not already) of the country as is no more an economic issue but social issue which in time to come may lead to bigger issue.
Well if it is a Ponzi it may be then deliberate method in its madness. Many NZrs now have homes that have escalated in value, on a scale probably unimaginable say even five years ago. That must be the tax target The Greens covet in their wealth tax surely. Next election it looks certain Labour will need the Greens if to form a government. That is of course when the coalition necessity card is played. In the meantime the more homes that roll on up to said value, the more the tax potential. QED.
How many times will people spout this rubbish. FHBs are currently making up a larger portion of the market than they have in over 10 years. The housing market is all about choice. People pay what they will and they live where they want. You want a cheap house and a decent wage, move to Christchurch. Auckland was always a struggle. Govt policy I think is understandable and I believe in time it will work. RB policy to a large extent has to follow overseas RBs.
When and if it does drop, even a little, the people you think you are protecting are the ones who will cry the most.
Reality is that house price is holding RBNZ and government to ransom otherwise would not be hard to take action and will not go for wait and watch approach forever even though data suggests otherwise.
The very thought that housing ponzi may stop send ........
Sometimes when economist overcome their love for housing ponzi...talks sense...as are just pushing the issuing by saying that inflation is temporary as no one can argue with them now and it gives them breathing space.
Ask Orr or experts, what happens if they are wrong, will they just come out with sorry or will find excuse to justify why their analysis failed
https://www.nzherald.co.nz/business/reserve-bank-of-nz-needs-to-raise-o…
By throwing money can keep it going but for how long. Mr Orr of the world.
Even a dead company with no business will keep on runing the show as long as it keeps on receiving money and in doing Mr Orr is creating more such dead company.
As per them if economy is doing better than should start the process of withdrawing emergency measures taken earlier as whenever they do, now or after a decade should be prepared for some reaction. When tax changes were introduced, so much hype and tantrums were thrown by so called investors but finally things have to settle down.
There is no such thing as 'the wider economy'.
Take away houses and the stuff we put in them, you got nuthin'.
And house 'prices' are a result of QE-et-al debt-injection, trying to jolt the corpse into life. There was nowhere else for it all to go, and the repercussions are being staved-off by folk with no idea what to do. And, to be fair, folk with no options left.
"You want a cheap house and a decent wage, move to Christchurch. Auckland was always a struggle."
Calling bullshit here. In Auckland, it had been possible to pay a mortgage on one middle class income - now two middle class incomes are barely enough to stitch together a deposit. Why do people persist with this level of disprovable bullshit?
It is immoral that Aucklanders should have to leave the city they were born in, just in order to afford a house. Where is the 'choice' in that?
The one where "lower your expectations and move further out" meant suburbs like Howick. Now it means "move to another region altogether and commute in, and pay 10x your annual income for the privilege". You can pretend that things have not gotten objectively worse, but you are intimately flogging yourself at best.
Typical specuvestor / real estate agent BS/propaganda, containing groundless claims. Not even worth a detailed reply.
The solution for Aucklanders ? Move away from Auckland. Brilliant - who needs doctors/teachers etc. in Auckland - we can be all happy with just a bunch of unproductive and parasitic specuvestors. This will make the Auckland economy and society grow nicely for sure.
I'm not an agent, an Aucklander or an investor. I have a family member who bought half a house in Auckland in the 80s. Fixed it up themselves, made a buck and bought her own. Now owns a few around the city. It was never easy, if you thought it was you were probably quite sheltered.
That's not envy - it's just fact.
The house was already there, the price to FHB's would have been much less if they weren't competing with the landlords who are 100% reliant on tenant incomes (another word for which is? Parasitic). The only other reason to be in, is to tap into the ponzi.
Sad to arrive on your death-bed and say 'I took' rather than 'I contributed'.
Just an opinion....
That's a pretty loose handle on the concept of facts PDK. A generalisation is not a fact. I assume you are not an landlord as that would be counter to your ethos.
Landlords are not responsible for the wanton immigration policies that have far and away had the greatest impact on house prices in this country. Landlords are not responsible for the RBNZ making credit historically cheap further driving prices.
Landlords are not responsible for government policy regarding mortgage interest expense right offs that made investing in housing absolutely the best performing asset class to invest in.
Here is my generalisation to counter yours and this is my experience. Landlords are people who started with their own capital, earned from their own labour, they invested that in a house (most often to live in) primarily to remove their rent expense while saving into an appreciating asset. When the asset increased in value they leveraged the equity. Was this unfair on people who did not invest or where unable to invest? No. Was this unfair on people not even born yet? Yes. Was the Landlord able to do anything about this? No.
In closing I have built 80% of the houses I own and I know I have contributed to the housing stock in this country.
yes, he changes the argument. And even then is wrong.
Landlords are parasitic - doesn't matter if I was or wasn't one, that the fact.
As for immigration; how many have TWO houses, one empty 50 weeks of the year? And how many of those 'holiday home' owners levered their way there via tenant-incomes from rentals?
I am enjoying this, as being an actual landlord, I have experienced things you have not. Landlords are not parasitic and that emotive term is plainly wrong. To be a parasite you have to have a host that supplies their blood for you to survive. No landlord survives on their rent otherwise they would never have passed the serviceability tests for their mortgage(s). So the term is wrong and to use it is to broadcast your ignorance.
Tenants are not parasites despite requiring the landlord to have bought a house for them to live in. The are simply trading their labour for the right to occupy their landlords property that they secured via their labour and then the equity that has been created over time in the property.
Lastly many, many immigrants are landlords, in fact in some regions of Auckland they are quite clearly in the majority. How do I know? I belong to two different property investment groups and the membership of those groups gives me that view.
On Big Mac Index a house in central Auckland was around 80,000 Macs in 1995 - when the index started. If you take $1.67 mill for the median house in Remuera today that is 246,000 Macs. Forgoing 166,000 Macs is a big ask so yeah you probably do have to look at options outside of Auckland/NZ - and give up farming beef.
https://www.economist.com/big-mac-index
https://blog.homes.co.nz/property-homeowners/property-market-insights/a…
"Another parasite." Rastus, I need to dial you back a little. Just owning multiple houses, does not make one a parasite. It is what one does with them, that needs to be in question. Long term house owners as has been described here are likely to have paid any mortgage off, and are able to charge affordable rents. And this is where the dividing line occurs. 'Affordable' is not 'market', so justifying exorbitant rents by saying it is the market is not an excuse. Parasites use 'market' rather than affordable.
Owning "passive income streams" does ultimately make one a parasite ... That income stream has to come from somewhere
And now we have had leverage and more leverage, and then more leverage ... to keep INCOMEs ticking over
But the end point in the road is no more ability to leverage the future to provide incomes
And then everyone, including the "wealthy" parasites will see a house in in self doesn't generate an income
Resource burn does.
What is a "Passive income stream"? is it the rental income, or is it the capital gain when a market goes up? The word 'passive' implies doing nothing, so therefore suggests that it is just about capital gain, but capital gain means nothing unless something is done to realise the change in value. Thus if it is only the capital gain, then the position you are taking is one of rank jealousy. Mean spirited and covetous. However when one takes action to capitalise on a capital gain, by selling or even borrowing against it then there is the opportunity for that realised gain to be taxed. These apply to share market investments too.
Rental incomes are not 'passive', but require work to maintain. But I maintain the parasites are the landlords who demand exorbitant 'market' rents.
"Rental incomes are not 'passive' .... debateable
Is it equivalent to effort versus $$ earned by a wage earner doing a 40 hour week? Not in the same ballpark
Its a form of more leverage ... lock in an income flow for a few hours here and there ... and thats ignoring capital gain and releveraging
Passive is basically setting up a flow of funds where the input is minimal
Interest / rentals ... just money breeding its own money
Not sure I agree. I used to have a few rentals, and the income was definitely not with minimal effort. There was quite a bit of work involved managing them. And the income was not the equivalent of a full time wage either. But the capital gain did make up for that.
Passive income can be derived from many sources, share market for instance. But I would suggest that the level of income from very exorbitant rents could be very high, and therefore liable for considerable taxation?
I don't own rentals so may be ill-informed, but what does this "quite a bit of work" actually entail?
I'm sure you might come back with the hyperbole that is constant maintenance/repairs and chasing bad tenants for payments etc. But really, if you select good tenants and your rental property is not a hovel then how much work is there in receiving weekly direct debit payments and making mortgage/rates payments?
You are just mincing with words Murray. By doing this you miss the principle. I'd suggest a bias blinds you, as that saying goes about not understanding something when his income depends on him not understanding.
Use engineering first principles and boil things down to basics. I've got a really simple system to lay the moral down as a line in the sand: If you didn't make it or grow it then you didn't earn it.
Now you can dance around this endlessly with exceptions but all excuses are equal. Sure we might need Doctors or Teachers but someone has to pay, someone else has to grow their food. You either give, or you take, there isn't really any middle ground. In reading "The History of the Far North" by A H Reed the roaming teachers were paid directly in cash by the farm owner, the lines a little less blurred in those less complex times.
The real debate isn't around what unearned income is, it is about who, and how many, we allow in a society to partake. You are jus saying landlording is okay, and you are entitled to that position, but don't deny the unearned income. The debate is a little easier while there is enough food, it becomes a bit more heated when there isn't.
Further, as PDK rightly points out regularly, it is the one off hit of non-rewable energy that is providing everyone with a whole bunch of figurative slaves. The argument is also about who partakes of that and how much, until there isn't any.
You're being somewhat specious Scarfie. I do believe there will always be a need for landlords, and when you manage your own rentals, there is/can be quite a lot of work involved. However this argument around 'passive income' is very distorted. I do not disagree that the overly inflated house prices have meant that some speculators have profited excessively (they will need to have sold or borrowed against those inflated values to have done so) without paying any tax on those gains. And equally many landlords have taken a parasitic position and are charging 'market rents' when they could be charging 'affordable rents' and still not lose any money. Owning rental properties is not necessarily a free effortless source of income (outside of capital gains). Such generalisations are straight BS.
I do agree with this; "The real debate isn't around what unearned income is, it is about who, and how many, we allow in a society to partake." and I do agree that the current situation is out of control, but clearly with most foreign buyers blocked from the market it is not just them, and the stats also are suggesting FHBs have a part to play too. But let's not tar an entire group for the actions of just part of that group.
This is another loose description, the hand-wringing today must be up to full speed as it is so cold?
Your definition of parasite as per above will include every single beneficiary from the unemployed and sick to the retired. Also anyone that is in Kiwi Saver or owns a share of anything.
If you are worried about leverage then we have to fix and reverse inflation. Once that is done it will be possible to ensure that the only money to be spent will come from selling assets and labour. Until then leverage is a critical part of the economy.
No one is saying it was easy, you're the one who thinks the fact that it was hard then means that we should be at peace with it being borderline impossible now, and then having the cheek to talk about what is 'fair'.
I can smell the tax free gains on your breath as you lean towards me.
But sure, accuse us of being sheltered. I'll let other people figure out which one of us is more out of touch with the realities of what FHBs are dealing with in the market.
Is this debate gong off to far on tangents? Big city living is and has always been, more expensive than else where. In many places in the world that has often meant that you could also expect a higher level of income to compensate for that. Not so in NZ, and especially in Auckland. To make it worse, this government has sent a clear message that they want to drive down wages, lowering living standards. The net effect being more people will become dependent on Government handouts, increasing poverty. The Government's dismal performance on housing, combined with other actions has countered it's stated policies of working to address poverty, particularly child poverty. Again outcomes of all this are predictable as increased family, and personal stress, increased violence and crime. We can also predict essential failures of other policies, unless they change radically, as the fundamental ability of people to afford higher costs are just being eroded across the board! Even more scary - none of the alternative parties seem to have grasped this either.
Sorry PDK, they CAN, but as you say they are too scared to. I agree that the Greens, but would add that it is all of them, don't really understand.
But to do what is needed would be seen as extremely draconian, and the real money would squeal long and loud. Can't see any one in politics with the understanding or the courage to make these kind of decisions.
Talking about Fed but applies to most reserve banks as many like RBNZ are blindly following fed - interesting perspective, must watch Keiser Report :
Another interesting reading : https://www.politico.com/news/2021/07/01/powell-biden-fed-interest-rate…
The thing I took away from that Keiser Report was the not often enough repeated disgust at the fraud of management share allocation on performance measures triggered by their share buy-back scheme. It's just bare faced fraud but no-one of any profile or influence can call them on it as those that are most influential (funds) are beneficiaries. How these guys can look at themselves in the mirror is beyond me.
I am no Trump supporter - far from it. But Biden represents the incumbent Elite - as did Obama, both Bush's, Clinton.... They couldn't accept a maverick stomping around in their carefully-set-up system. And the 'Mueller Report' - after much time-wasting - came up with nothing. Whereas Hunter Biden?
We have to be careful about going down the rabbit-holes that the MSM (both slants) go, by following personality (rather than content) politics. Trump - like Brexit - represented mass angst having reached a threshold. That may be held in abeyance by more debt-issuance and a bit of PR for a while, but the problem is unsolvable, so will resurface.
In China, the Caixin PMI dropped back last month and adds to signs from the official PMI released yesterday that momentum in industry is waning.
What's really ugly in latest China PMIs is new *export* orders. Weakness is being chalked up to some new COVID in Guangdong when new export orders indicates more trouble in global rebound than COVID inside China.Link
Yep, its all about the supply chain, and just when the shipping volumes are returning to normal the upwards pricing spiral will create a long bubble of increased shipping costs. There has been no mass sinking of container transports so it really is just about managing through this demand/price bubble to the other side.
Good Morning from #Germany where the financial repression enters its 62nd month. Real yields (10y Bunds-inflation) rise slightly to -2.47% after inflation eased to 2.3% in June from 2.5% in May. Real yields are now NEGATIVE for 62 consecutive months, another fresh historic record. Link
Why can't this all work out? I am in a positive frame of mind this morning :).
The Housing Ponzi (yeah not a great term but actually pretty accurate) can be solved over time.
1) It appears a lot of people here, like me, think there is no chance that interest rates can climb above 1.5/2% due to debt servicing issues. If this is the case then the cost of servicing will stay achievable for a 2 earner partnership with no dependents. This won't change for a decade or so.
2) Labour is very tight at the moment and if we can apply some intelligence (this is doubtful but bear with) to immigration this will remain the case. This will raise wages and this will occur somewhat quicker than most think (in IT it is already happening).
3) The combination of investors already being removed from existing housing stock and a new policy set of DTI and removal of interest only mortgages for investors will seem them out of the market full stop. (lol ok, yeah another moon-shot). Then this "super govt" will slap the person responsible for their current developer support policy and implement a policy of more general infrastructure support (not just consulting and scoping support for the love of all that's good!!!) so that there can be a real uplift in new housing numbers.
These three factors will combine to ensure we enter a period of static to slowly depreciating house prices while we see some increase in wages and therefore make serviceability easier.
Have a nice weekend all :).
"then the cost of servicing will stay achievable for a 2 earner partnership with no dependents. This won't change for a decade or so."
Assumptions stacked on assumptions.
https://surplusenergyeconomics.wordpress.com/ First two or three posts are your weekend reading. Come back n Monday saying there's ten years left.... I reckon we're ten years past the inflection.
PDK I knew I could rely on you to take the pessimistic angle and fair enough.
On a related note, I spent a couple of fantastic summer months in BC Canada 20 years ago, it was heavily forested, muggy but not uncomfortable. The concept of 49 degrees is completely beyond my comprehension. I have been in that temperature in Delhi India which is on the edge of a desert and it was unbearable. The idea of 49 degrees and some humidity is nuts.
I applaud your positive tone. Here is my two pennyworth.
I love this country New Zealand.
From the beginning I loved it’s informality and common decency.When we came here in 2008 we opened a bank account in 20minutes based on trust and no funds. Similarly we bought a car with very little checks other than trust in another human being and we settled in a community that accepted us. Now things seem to have changed so much. The level of bureaucracy has multiplied in the belief that system trumps trust. We see divisive influences everywhere. Some people want special treatment and consideration based on their percentage of pre and post colonial genes. There is confusion over what being a New Zealander means. There are voices denying the basic divisive effect of money printing (whatever the name) - those who have assets have seen their paper wealth grow, those who have no assets have seen the purchasing power of their income decline. Blame games abound. Common values are diffused and changed and previously accepted behavioural norms seem to be less accepted. The Government seems to believe that decency and fairness in society can be achieved by legislation. They cannot. Society is in a divisive rather than integrative mode.
Unfortunately I have no ready made solutions but I am hopeful that our grandchildren will live in a society where behaviour guided by a more contemplative and cohesive value view - however sourced, Christian, Jewish, Muslim, Buddhist, Taoist, Animistic or anything based on apparently forgotten wisdom will reassert itself. The alternative seems to be a version of the world portrayed in Soylent Green.
Well folks, if you do not recognise the biggest scam in World History, then I feel sorry for your mental incompatability. Funny Munny is no laughing matter. And the Governments of the World are complicint in this debt defying sccheme. The Serious Fraud Squads are as blind as a bat. (Wuhan Version notwithstanding).
I am sure the Dual Benefit Government will fix the problem here in NZ.
(Unless you are 'actually working' that is.)
They only "Look after" not working schemes they have envisged...and "Not Employed"
And where is your maths?
Stats NZ average wage (June 2020) $55,120 NZD.
Stats Aus average wage (November 2020) $89,003.2 AUD.
Exchange rate used; 0.931.
So looking in NZD, Aus average wage is $95,599.57 NZD.
Difference is $40,479.57 NZD.
Now if you divide $95,599.57 by $55,120 = 1.7344.
Multiply by 100 and you get 173.44%.
Aus average (full-time) wages are 173% of that of NZ.
Edited based on the input below.
Front page of the ABS, average adult wage Nov 2020, $1,711 AUD weekly, multiply by 52 gives my figure.
For comparison, here are Australian "Median" earnings for employees:
https://www.abs.gov.au/statistics/labour/earnings-and-work-hours/charac…
AU $1150 per week, or around AU $59,800/year
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