Here's our summary of key economic events overnight that affect New Zealand with news the world's largest economy is now bigger than its pre-pandemic level but the push up isn't what they had hoped.
The US reported its Q2 economic growth as +6.5% pa which was slightly higher than the +6.3% Q1 expansion. But this was a major miss when +8.5% growth was expected even though the US economy is now larger than its pre-pandemic level. While household consumption roared back, this was undermined by smaller new house building activity, smaller federal government spending than a year ago, and the surge in imports, all factors we have covered in these daily reports. The size of their impact has caught most analysts by surprise. But being underpinned by strong core household activity lessens the concerns about this miss. This is 'advance' data, so two more updates are due and may push the final result back up toward the expected result.
US PCE (personal consumption expenditure) prices rose more than expected, up +6.4% and well above expectations. This is the inflation measure the US Fed looks to more than the CPI.
Initial jobless claims came in high again last week, extending the higher levels we reported for the prior week. The actual level was +345,000 taking the total number of people on this support to 3.2 million. Until it gets down to 2 mln, they won't be able to claim the pandemic's impact on their labour market is behind them. There is a long way to go on this front.
US pending home sales levels for June disappointed too, falling -1.9% from a year ago when a slight rise was expected. Sharply higher prices for residential housing is taking the top off demand faster than thought.
There was a US$68 bln 7-year US Treasury bond auction overnight, of which the Fed took US$6 bln. US$138 bln was bid for the rest which was -5% less than the equivalent auction a month ago. But despite the lower demand, the median yield fell to just 0.99% pa from 1.21%. Investors are eyeing the debt-ceiling limit problems counting on USTs getting priority.
Despite the S&P500 rising to a record level, the IPO of fad-trading platform Robinhood, which because a favoured millennial 'gambling' platform for equities and spawned some weird meme-stock activity, this IPO looks like it may be the worst debut ever for investors, losing -16% in a grim first day of trading.
In China, a new type of electric battery has gone into production, one that uses less expensive mineral components.
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The German inflation rate jumped sharply to +3.8% in July, far above the +2.3% in June, and well above the expected +3.3%. The cost of goods were up a rather startling +5.4% year-on-year, and if it wasn't for quite low rises for services, the overall result could have been much higher. However, there was an unusual base effect here because a year ago, Germany reduced its VAT by -1.6%. Despite that however, the rise was more than analysts were expecting.
German employment grew strongly in June however, and their jobless numbers fell far more than expected. The employment gains were the largest since the pandemic affected them. Their jobless rate is down at 3.7% although that is unchanged from May.
Globally, aircargo markets are strong. June industry-wide cargo tonne-kilometres (CTKs) were almost +10% above June 2019 levels and air cargo drivers point to further growth ahead. But most of that strength was in North American markets; Asia/Pacific markets are flat on that basis.
In complete contrast, June air passenger traffic was very weak, especially international travel. Even domestic travel is still down -22% from equivalent 2019 levels. In Australia, it is -40%. But surveys show almost 60% of potential passengers would like to travel "within a month of COVID containment".
We report today's gold price below, but overnight the June gold supply & demand stats were released and that shows flat demand. Jewelry demand remains very weak, down -24% from the average of the five June quarters before the pandemic. Demand by investors for bars and coins are relatively flat, up +6% on the same basis. Demand by ETFs is always volatile but is was minor in Q2-2021. However, government buying by autocrats rose sharply in the period back to levels we saw in 2018 and 2019 after a lull in between. Supply from both mines and recycled scrap sources remains at elevated levels.
There were 239 new community cases in NSW yesterday with a record 126 not assigned to known clusters, so still going backwards fast there. Their lockdown has been extended by four weeks and masks are mandatory there now. Queensland has closed its border with NSW, which is a last-resort action for them.
ANZ is reported as saying that they expect tens of thousands of Sydneysiders will lose their jobs because of the new strict lockdown measures and the length of time the new lockdown could last. They say between 50,000 and 60,000 workers in NSW could lose jobs.
On Wall Street, the S&P500 is higher and up by +0.5% so far. That takes it to a new all-time record level. So far in 2021 it is up almost +20%. Overnight, European markets were up an average of +0.5%. Yesterday, Tokyo rose a healthy +0.7% on the day. However Hong Kong roared back, up +3.3% on the day, and Shanghai rose +1.5% in their come-back. Beijing's 'the home team' pep talk after the earlier losses has had some of the desired effect. But even after such a heady daily bounce Hong Kong is still down -5% for the week and Shanghai is still down almost as much. The ASX200 ended yesterday up +0.5%, while the NZX50 Capital Index ended up +1.1% in its Thursday trade.
The UST 10yr yield starts today at just on 1.27% and a +1 bp change. The US 2-10 rate curve is to now at +106 bps and marginally steeper. But their 1-5 curve is flatter at +67 bps, while their 3m-10 year curve is little-changed at +123 bps. The Australian Govt ten year benchmark rate starts today at 1.18% and unchanged for a second consecutive day. The China Govt ten year bond is at 2.91% and down -3 bps. The New Zealand Govt ten year is now at 1.49% and another -2 bps lower.
The price of gold is now just over US$1831/oz which is up almost +2%, or a large +US$34/oz higher than this time yesterday. We are now back to levels last seen in mid-June.
Oil prices have risen by +US$1 and in the US they are now just over US$73/bbl, while the international Brent price is still just under US$75/bbl.
The Kiwi dollar opens today just on 70.1 USc and more than +¾c higher than this time yesterday. Against the Australian dollar we are +40 bps higher at 94.8 AUc. Against the euro we are also higher at 59 euro cents. That means our TWI-5 starts today at 72.8 after the overnight turn up.
The bitcoin price is now at US$39,771 and up +1.2% since this time on yesterday. Volatility in the past 24 hours has been moderate at +/- 2.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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28 Comments
https://www.nzherald.co.nz/business/simply-bonkers-house-prices-now-105…
If house prices 10.5 time median income and more FHB buying can imagine the level of debt that many are committing for life. DTI should be implimented without further delay to protect many buying under FOMO beyond what they should be as any change in situation will be disaster, no margin unless government bails out.
With DTI, not able to buy a house will be bad but buying and repenting afterwards if circumstances changes will be a disaster as now many are buying under FOMO created by Orr and Jacinda government.
DTI won't fix it.
Stop allowing equity to be used as a deposit.
Anyone that wants to buy another place needs to save up the deposit just like a FHB.
Sure there will be some that have umpteen thousand rentals that have a spare x million sitting in the bank but the vast majority of buyers won't.
Imagine if they'd done that 15 years ago....
Nothing has been done AND nothing will be done, specially now as entire NZ depends on Housing. Orr and Jacinda have promoted a Monster and now supporting, which will be bad in times to come.
Their may come up with excuse that is happening in other developed country but not at this level besides they also have other industries / economy unlike NZ, where by RBNZ and Government support only industry / economy is housing industry.
Housing is a basic necessity which has been turned into speculative stock by our masters and to keep voice down throw some social houses not realising that not everyone into social housing thereby killing the dream and aspiration of many hard working kiwi.
David Chaston, let me know if any of the comments are not valid. Ready to discuss.
We could fix our outdated infrastructure, reform broken economic policies, mend our perverse welfare system, pivot our migration strategy from bringing in anyone with a pulse towards retaining more skilled Kiwi workers, and so on.
However, the drive towards all this can't match up to the vested interest from a concentrated group who see economic progress as a threat to their dream of owning everything and everyone in this country.
How does this work in practice? How do you stop an investor from re-mortgaging an existing property and taking that cash to a different bank as the deposit on another property? I'm not necessarily against it, just sounds a little niggly to write decent rules for it.
DTI can achieve much the same - once you have a couple of rentals at current yields you need an astronomical income to take out any more debt. Even more powerful if you decide to exclude rental income from the 'I' side of the ratio.
Yes. 10 houses earning $25k would be roughly $800k each, so $8 million portfolio with a maximum of $2 million in lending as you say.
The banks couldn't even lend for an 11th property using equity, as they'd extend $200k ($25k x 8) which at a 60% LVR will buy nothing.
Nominal wages up in the US but real wages actually down 2% in June 2021; this comes after months of US employers crying over worker shortages. Certainly similar trends occurring in our job market here.
https://www.cnbc.com/2021/07/27/wages-are-rising-but-has-inflation-give…
You are quite wrong. You are confusing 'real' GDP results with nominal PCE/inflation results.
In Q2-2021, the seasonally adjusted US GDP at an annual rate was US$22.723 tln and that is +16.7% more than the Q2-2020 seasonally adjusted US GDP at an annual rate of US$19.477 tln.
You can deduct the PCE from that +16.7% if you want. But the real GDP rise of +6.5% involves an inflation deflator already (along with some other adjustments), and double-counting is completely invalid.
The price of gold is now just over US$1831/oz which is up almost +2%, or a large +US$34/oz higher than this time yesterday.
#Gold climbs as real yields sink to record low after Fed meeting. Broader Fed dovish narrative was underpinned by Powell’s emphasis on optionality, rather than taking more hard-line stance. US 10y real yields hit record low of -1.18%. Negative real rates tend to benefit gold. Link
US PCE (personal consumption expenditure) prices rose more than expected, up +6.4% and well above expectations. This is the inflation measure the US Fed looks to more than the CPI.
Comparing Two Measures of Core Inflation: PCE Excluding Food & Energy vs. the Trimmed Mean PCE Index1
Trimmed Mean PCE Inflation Rate
Let's see if the Chinese government realises it's shooting itself in the foot big time by cracking down on the very sector they want/need to boom, in order to become a real power. If they do, there's some great bargains to be had with many Chinese tech stocks at the moment, super low PE ratios of less than 5 in some cases. For tech stocks, that's ridiculously undervalued compared to their peers in the US. (e.g. 7.5 for Baidu vs 21 for google)
If you adjust the S&P 500 price for the 33% increase in M2 money supply over the last year, it is actually sitting at the previous highs but still lower than pre 2002.
https://twitter.com/BTCization/status/1420795297182240772?s=19&fbclid=I…
Are you referencing this Fed H6 data release?.
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