Here's our summary of key economic events overnight that affect New Zealand with news of a big bump in the road today.
Worries about spreading contagion from troubles in China’s property market is sending global equity markets into their steepest decline in months.
But the sentiment fall is broad, affecting currencies, interest rates, and commodities.
Meanwhile, Canada is voting today in Federal elections that could well tip their internationally-popular prime minister out of office on the basis that he has been ineffective at home. Canada's currency is falling.
And the market sell-off comes as both Japan (Old Age Day) and China (Mid-Autumn Festival) have had long holiday weekends. But that has not stopped angry investors in property developer Evergrande turning out to continue their besieging of the company's offices, even holding some managers hostage. The firm can't sell assets fast enough to service its impending bond payment obligations. The company blamed "ongoing negative media reports" that "have dampened the confidence of potential property purchasers". There is no sign yet of a Beijing bailout.
China's central bank is to issue a regular policy statement tomorrow and it may move to try and quell the crisis. The US Fed will be watching closely too, and they report in next on Thursday.
Elsewhere in the world there was not a lot of economic data released, but one lone bit deserves attention - German producer prices. They rose much more than expected in August, and are up +12.0% from a year ago. The month-on-month rise from July was at an even faster pace. German industry hasn't faced pressure like this in almost 50 years.
A good part of those cost pressures are from freight in the global supply chains, and that is not easing off with the Baltic Dry index rising yet again, now at a new 12 year high.
But there are reports that the iron ore price fell almost -10% yesterday alone, especially on futures markets.
Separately, just how far Hong Kong has slipped down the Beijing rabbit hole is revealed as Hong Kong police seized goods intended for prisoners held on democracy charges on the basis that M&Ms and baby powder were "security risks" "inciting subversion".
In Australia, RBA analysis suggests climate change could cut property prices across a major part of Sydney’s northern suburbs with many homeowners there facing declining equity in their houses and rising insurance costs.
And staying in Australia, there were another 935 new community cases in NSW reported yesterday with another 826 not assigned to known clusters, and these numbers are lower than recently. They now have 13,604 active locally acquired cases. Victoria reported another 567 new cases yesterday, so worse there. Queensland is reporting zero new cases. The ACT has 30 new cases again. Overall in Australia, more than 47% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
However, anti-vax agitation is apparently rife in building trades union ranks, bursting into rowdy protest in Melbourne yesterday.
The sharp drop the weekend futures market suggested might happen on Wall Street has happened. The S&P500 is down a major -2.2% in afternoon trade to open their week, and falling. Overnight, European markets fell hard, with Frankfurt down -2.3% and London down -0.9% to bookend their Monday trading. Yesterday, both the very large Tokyo market and the Shanghai market were on holiday, saving them the embarrassment. But Hong Kong traded and fell a sharp -3.3%, driven of course by Evergrande. Locally, the ASX ended yesterday down -2.1%, while the NZX50 got away relatively lightly with only a -0.4% fall.
The UST 10yr yield opens today at just over 1.31%, down -5 bps from this time yesterday. The US 2-10 rate curve is flatter at +110 bps. Their 1-5 curve is flatter too at +75 bps, while their 3m-10 year curve is much flatter at +125 bps. The Australian Govt ten year benchmark rate starts today at 1.25% and down a very sharp -8 bps. The China Govt ten year bond is at 2.89% and unchanged. The New Zealand Govt ten year is now at 1.91% and up +2 bps.
The price of gold will start today at US$1763/oz and up +US$9.
But oil prices have drifted another -US$1 lower overnight so in the US they are now just under US$70.50/bbl, while the international Brent price is now under US$73.50/bbl.
The Kiwi dollar opens today at just on 70.3 USc and little-changed since this time yesterday. Against the Australian dollar we are just under 97 AUc. Against the euro we are just on 59.9 euro cents. That means our TWI-5 starts today at 73.7 and now below the top of the 72-74 range of the past ten months.
The bitcoin price has fallen today and hard, now at US$44,055 and down -7.1% from this time yesterday. Volatility in the past 24 hours has been extreme too at just under +/- 6.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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109 Comments
China concerned now that they may lose their man leading Canada.
https://www.washingtonpost.com/opinions/global-opinions/how-an-attempte…
https://finance.yahoo.com/news/chinese-property-developer-halts-trading…
Chinese Property Developer Sinic Halts Trading After Sinking 87%.
I read this in the LA Times the other day, it ...
"Property giants like Evergrande have boomed in the last few decades on a model of vast borrowing and fast expansion, relying on cash flows from apartments it would someday build to construct apartments it had already sold"
https://www.latimes.com/world-nation/story/2021-09-18/china-evergrande-…
Is that not in itself the definition of a Ponzi scheme?
These whingers are kiwi citizens having their human rights (right of return) violated.
This power crazy government (which ironically only squeaked into power on the back of overseas votes) has made hundreds of thousands of kiwis overseas effectively stateless.
I wouldn't dismiss their plight so glibly, it could easily be you next time Ardern has a brain fart.
'Start with the simple fact s18(2) means I cannot even return to New Zealand and nor can any other New Zealander currently get on a plane without an MIQ voucher that no one can get. We therefore have no right at all to enter New Zealand.
18Freedom of movement
(1)Everyone lawfully in New Zealand has the right to freedom of movement and residence in New Zealand.
(2)Every New Zealand citizen has the right to enter New Zealand.
(3)Everyone has the right to leave New Zealand.
(4)No one who is not a New Zealand citizen and who is lawfully in New Zealand shall be required to leave New Zealand except under a decision taken on grounds prescribed by law.
The judiciary is silent. Human rights lawyers are silent. '
https://asianinvasion2019.blogspot.com/2021/09/new-zealand-lawyers-need…
This Legal challenge as discussed on RNZ re a right to enter and residents being overlooked by non res is worth a listen. Will be an interesting case.
Exactly! 3rd rate celebrities talking about their experiences/mates/opinions. Meanwhile real issues are happening across the globe. Let us talk about property prices whilst the local meedya write suburban newspaper rubbish collection stories. Journalism, thank God for the net and access to great critical thinking across the globe.
The biggest Ponzi schemes of all is the NZ housing market, where every new speculator needs to attract even bigger suckers into an over-inflated market in order to get paper gains that can quickly melt like an ice-cream in the sun, once the bubble bursts. Like in all Ponzi schemes, you need ever new suckers to keep the whole thing afloat.
Given there have been no Chinese buying up NZ property, just people with Chinese sounding names, it shouldn't be an issue!
Although if somebody with a Chinese sounding name has just lost everything domestically in China and needs cash, and they own Australasian property, where might they source some equity? Or if they have a Chinese creditor breathing down their neck for payment, and NZ housing has just gone up 30%, do you;
a) go insolvent and allow the liquidator to sell your other international property interests for you to pay your creditors, or
b) do point a yourself before the liquidator forces your hand?
The thing is they did both, invested heavily in China first to build their 'wealth' then those who were able to get their money out invested in Sydney, Auckland, Vancouver, that's why it's all interconnected. This could well be another Japan circa 1992, when that property bubble popped it had a big impact on NZ also
Zachary Smith, you are correct but one should remember that even a stopped clock is right twice a day and now their is no denying that asset class be it housing or stock market are both overvalued by heaps and is not based on economy fundamentals but have been proped up by generosity of reserve bank and untargeted reckless stimulus provided by government.
So you are correct that it could just be a hiccup as reserve bank and government are armed with printing press / money to throw - be ventilator for life OR fundamentals evantually overtake and if this narrative continues for few days / week could be bad.
I believe after a long bull run, slight correction will be healthy in the long run unless one believe that economy is one way street - up only.
But yes "Even a stopped clock is right twice a day" has that time come is to be seen.
Have you ever considered the possibility that predictions of a crash were "wrong" precisely because the people in power also had similar predictions?
If you're doing 100 km/h and you see a concrete wall 100 m in front of you, you think "s*** I'm gonna crash!" and step on the brakes.
Will you crash? No.
Was your prediction correct? No.
Now think about this: what if your prediction was "I'm not going to crash" instead and didn't step on the brakes?
Nope its called bad management and greed. According to Aljazeera there are 600,000 apartments in progress of being built and new owners pay 2 years in advance. This has lead to them buying more land before finishing the existing builds and them getting way ahead of themselves.
That’s exactly what we did in Auckland. A year and a half ago we bought a townhouse off the plans. Not finished yet. Won’t be finished by end of year. Be lucky to be mid next year. 2 years after we signed. Developer blaming it on Council and COVID.
Two other lots of friends as FHB’s just did the same three months ago on another development that would take who knows how long. The developers are several steps ahead. Having 3-4 other projects in a much earlier stage of ‘development’ that they’re taking/wanting payment for as we speak
Just be ready for them to come back to you at the end of the process with an additional request for money. One person got an extra $60,000 added to their bill and had no option but to pay it.
Citing "increasing costs, lack of supply of materials and other uncertainties"
Make sure you have the price absolutely locked down and talk to a lawyer
Yep that is standard practice by far too many builders. Here’s the final invoice and you won’t get possession until you pay it. Just remember the undisclosed extra $30k odd that now surprises you is not worth going to court for. Yes I know you have to leave your rental but that’s your problem not mine. Still not happy? See you in court then.
https://www.nzherald.co.nz/business/chinese-housing-giant-unable-to-pay…
It seems they not only have investment in China but also in Australia and other countries, so if the problem is not contained they may have to liquidate their properties in other countries and may have domino effect.
So Australia in not only worried about falling Iron Ore price that is already having bad effect on economy but now worried as to the level of investment this Chinese have in housing market in Australia.
This part of the problem when you allow foreign buyers into a domestic housing market. They bring problems at both ends of the market creating distortions that cannot be avoided. Not unlike a biological pandemic really (funny that - the housing market catching COVID19!). Foreign buyers bring in foreign market values and expectations, for example they can usually afford to pay higher prices cutting out locals and creating a distortionary effect which we already seen, and this can be very difficult to correct. At the other end those foreign buyers add the risk that foreign financial crisies will impact us to a greater degree and again this cannot easily be prevented. As HouseMouse indicates above, all the markets are connected.
If there is an implosion of this magnitude that knocks back the international prestige, “face” of the CCP look out some high level executives. Back in January a high ranking government asset manager, Lai Xiaomin, was executed for corruption. In the real world language over there, incompetence or failure translates easily into corruption.
Thank you for the link. It was very enlightening to follow some of the other related articles particularly from Bloomberg. On the hosing “Crisis” I mean. All around the world the same wild rise in prices, drop in affordability and drop in home ownership. Same problem everywhere, same measures used by authorities to ‘combat’ it. One would deduce that by all the regulators using the same measures to ‘fix’ it that they’re on the same page of actually creating it. As if someone ‘above’ them gave them the same script to follow. Crazy!
Blame landlords, foreign buyers, Boomers, COVID… Create a communist nationalisation of private appartments in Berlin to combat it…. I rackon it must be a bigger more central problem that I don’t know about/are being told about
Early Morning Survey of a Single Property to Determine Whole of Market Value, by General Comment.
Wellington properties have their new RV set this month. I have checked my own property through QV and the value now shows 10% lower than their own estimate at the start of this month, and up to 14% lower than estimates on PropertyValue, OneRoof, TM Property Insights and Homes.co.nz.
There may be a few upset people around come November when the valuations are mailed out. Pricing in a drop, or just playing conservative? YOU decide!
Just ride it out if you can.
We bought a (family) house in a smallish NI town in April 2008, which immediately lost about 20% of its value in the GFC. Things were very tight for a couple of years but eventually came back up. we sold in 2016 for 32% more than we paid, now it's supposedly worth more than double that again (which is way overvaluing it for what it is).
Since you bought an investment property you're obviously in it for 10 years+, and yield, not CG, so after all that time you should come out ahead.
HouseMouse re your question to me yesterday; would an economic crisis that causes public revolt be enough to trigger China's invasion of Taiwan? The world has danced on a knife edge for a long time now. Driven by authoritarian Governments and Governments where accountability is lacking (such as the US). As those in power seek to distract their populations from their mistakes, to preserve their power, prestige and wealth what extremes will they be prepared to go?
Good extension of our dialogue.
Yes, maybe. But the turmoil would need to be very significant, in my opinion, to potentially trigger invasion.
It's possible, but I think the CCP will do enough to prevent widespread social turmoil.
The economic fallout will be significant however.
Market always throw surprises and happen when unexpected, so may be 2022 happened a little early in late 2021.
Saying that valuation were overstretched is an understatement and feeling in the market was that it needs just one catalyst to pop the bubble and think have got one.
Government and reserve bank will switch to 'least regret policy' as anything to support the asset class. Why fear when fed is here :)
Are we correct Mr Orr , is this not the perfect situation to repeat what likes of you did last year in April/May 2020, will do now and again in 2022, 2023..........
Agreed. They've been waiting and waiting, delaying at any excuse. There will *never* be a time when there isn't a crisis of some sort, somewhere. I've said it before: they seem to genuinely believe that lower interest rates are 'good for the economy', so why would they ever raise them?
Well New Zealand had one of the biggest baby booms in the world and started earlier than most, in about 1936 a woman had about 2.1 children by 1963 that had ballooned over 4 children. NZ life expectancy is about 88 years (technically it's mean is 85 but that's skewed by young deaths, mode is 88 which is a fairer representation) so the early baby boomers would be best to have their affairs in order. What happens when you have more estate sales than home starts? Prices start to be driven downwards by supply. This is likely to be a three decade trend.
That's not to mention the workforce where we have fewer workers each year per consumer.
Been reading 'The 4th Turning' recently which is theory on generations, cycles and the interactions between cycles. Been a fantastic read and really puts into perspective what might be/is playing out at present.
According to the theory, we're in 'the crisis' part of the cycle. Each part of the cycle lasts around 20 years and there are 4 parts to the play, giving a total cycle length of 80 years.
In essence we're replaying the 1920's - 1940's and are nearing the end of the crisis phase. We have the 'Prophet' generation (boomers) being challenged by the 'Hero' generation (current millenials, but was the Greatest Generation in the previous cycle...Ronald Reagan, John F Kennedy etc). The boomer generation have set the terms of society for the last 50 years (since the 1960's/1970's) and are now moving into old age and losing power to the Hero generation. In that dynamic, we may see significant changes to the way society functions, from financial markets, to politicals, to the way we treat one another - ie is community interest more important that self interest. To the Hero generations, community is more important than self. To prohpet generations, the self is more important than the community.
Interesting...the dynamic/shift could be quite extreme here then when it happens relative to other countries.
What will be interesting to see is which way Gen X move as this cycle plays out. Historically they play the puppet of the Prophet generation (boomers) through young adulthood. I.e. as we've seen, they benefit from the boomers lifestyle (think housing wealth etc) and can't fight the boomers due to their strong influence and social position, but they can become unstuck as the Hero generation gain power and they don't know which generation to follow - they get sandwiched between two powerful generations.
The rise of the likes of Chloe Swarbruik is a sign of the rise of the hero generation - like it and her policies or not...that could well be the way of the future..Think of JFK rising to president in his early 40's.
The assumption that the next 40 years will be anything like the last 40 years could be a very bad idea. Boomers have spent their lives trying to undo the civic virtues that their parents generation wanted and now the Hero generation (if the book is correct) will come along now and undo what they've created. The only time in recent history this didn't occur was the US civil war where there was no rise of the Hero generation.
Very interesting IO, but i wonder if thee is an intrinsic assumption that is flawed here? As a boomer growing up I saw much community cohesion. There was very little wealth gap noticable, but there were apparent 'classes'. The Doctors and lawyers were all considered wealthy, but if one went to Uni anyone could break into those 'classes', and school scholarships were very egalitarian, based on results only. True some private schools ranked higher. But while many blame the Boomers for owning assets, in reality most just grew up in an environment that was not their making. There are many, many boomer today who do not own assets for various reasons. Also all boomers had promises made to them by the politicians of the time, about their retirement, and virtually all of those promises have been broken in one form or another. So when those promises started to be broken, Boomers with a good portion of their working life behind them, and having been taught to save, were generally in a good position to look to other means of securing their futures. But they alone were/are not responsible for the housing crisis. A large part of that problem was the Government. in the early 2000s I observed foreign buyers coming in and buying multiple homes in a week on average, before going back home. And when the word got out many more came and the market literally went stupid. Complaints to MPs went unanswered, as the Government claimed there was no issue here.
But that's the point; Boomers grew up with community cohesion (and a strong, competent welfare state) but they didn't value it. It was Boomers in charge in the 80s and 90s when it was decided that individual freedoms were more important than egalitarianism. They had their chance to make money, they're fully invested in a bunch of assets that have inflated wildly in value, and in the current political setup they expect those values to be maintained by any means possible (making them unaffordable to younger generations) while pensions remain politically untouchable. By force of numbers, democracy has privileged them.
"and in the current political setup they expect those values to be maintained by any means possible (making them unaffordable to younger generations)" How? The younger generations dominate parliament now. Just because you're not getting the outcomes YOU want, doesn't mean it is the boomers who are doing it. The boomers are simply not that big a voting block. I suggest you're just re-inventing the Bugis man myths of earlier generations. I'm a boomer and I want houses to be affordable for everyone. I don't believe I'm unique. Besides I suspect you're also equating something that is not true to houses. A house price is only relative to the market (which is unregulated), so there is no guarantee to a boomer or anyone else that a house's value can or will be preserved, and our Government despite saying they don't want prices to fall, have steadfastly refused to regulate the market so they can ensure that doesn't happen. The problems lie with investors and landlords (again operating in an effectively unregulated market), and the politicians, not boomers.
It is not an if, just a when. And I agree, most likely it is going to happen sooner rather than later. The NZ property market is a gigantic confidence trick built on sand and so completely divorced from economic fundamentals that any trigger, be it Evergrande or just an environment of raising interest rates, can easily topple it over.
Evergrande isn’t the only reason the stock market is headed for its worst day in 2 months. Here are 7 other reasons.: https://on.mktw.net/39j7IiQ
Market throwing tantrum, are down but why fear when reserve banks are their to support and market reaction happens at the right time as now fed will shit and instead of tapering some of the measures will throw more and the stock market boom will continues ever after.
Classic 'Lemon Socialism' if they do.
I'd like to see it, but I don't think it will happen. Unlike China, our government is *not* taking meaningful steps to rein in property speculation.
But it will be very interesting to see what the post-lockdown market looks like. It's an interesting test of correlation; last lockdown was followed by an absurd spike in property prices, but that coincided with the same in equities and crypto, a kind of unified bubble. We'll see if property can 'pop' when equities (and crypto) aren't.
I think the difference is that we all thought that central bank intervention is markets was due to COVID, when in reality the cycle was ready to reset regardless of COVID (2/10 inversion in 2019 before COVID) so central banks were ready to flood the markets with QE, and COVID provided an excuss for the insane/excessive amount of support/intervention they provided.
Given what we've seen with inflation numbers, and governments ability to load up with more debt, I just don't know what they will do this time if markets really start to flop.
What do they do if we see a significant recession with rising inflation because of all the $$ already pushed into markets? (not deflation). Dropping interest rates again, may only make the situation worse.
yip - totally right
The lockdowns/pandemic were needed to prevent financial meltdown ... less consumption, pump funds in but try to control hyperinflation
We are in the middle of collapse and they are trying to order it ...
And they are getting a nice feel for how to corral the sheep ...
Apparently some complete nutters think we will get back to normal if we dose up to some arbitrary figure with some more experimental injections .....
What do they do if we see a significant recession with rising inflation because of all the $$ already pushed into markets? (not deflation). Dropping interest rates again, may only make the situation worse.
They cut rates, of course. I maintain that inflation will have to get much, much worse before it motivates rate rises. Remember: these people believe strongly, without any evidence, that lowering rates and higher asset prices always good for the economy.
You're right of course, it would be more accurate to put responsibility on the post-COVID QE than on the pandemic itself. I do think there was more to it than the QE, though; something about the psychosocial atmosphere of Extremely Online, the idea of the Fed Put becoming mainstream, bored people turning to amateur stock pickers, etc. The bubble might not have inflated so much if everyone were at work.
The problem we face is that the grasshoppers, who have been chirping away for the last 20 years, think they are the ants. And the central banks reward chirping and not working/productivity.
People now believe there is no winter because central banks can prevent the seasons from happening.
'It hits very hard': Australian Olympic swimmer hospitalised with Covid-19 in Italy | Stuff.co.nz
"..writing on Instagram that she is “double vaccinated” and had followed protocols ..."
She went on to urge people to get vaccinated, saying in an Instagram story that “I have no idea how I would feel right now if I wasn't [vaccinated] and it's scary to think what this virus can do even when vaccinated. "
Righto
Convincing stuff
There is always going to be somebody who is unlucky to get a very severe case even when healthy.
The media swoop on that and use it to drum up fear in the simple minded.
For the vast majority of people, especially the under 45s and the non-obese covid is not that bad.
I agree you have to look at genetics and your immediate family as to how this is going to hit you. There are clearly several health factors that will make it very bad for you. As a country we do have a bit of an obesity problem but nothing like the USA when I went there, they take the cake and I mean the eat all of it.
Hmm, we have a Covid Virus causing a health collapse and now Housing Virus causing a financial collapse, both out of China.
Do you think they could be working together to bring about the downfall of the human race, or at least Western civilization?
Who needs nuclear subs when you have viruses?
After all, it can't be anything we have done to cause this.
Interesting report on Evergrande here.
https://www.youtube.com/watch?v=7UoiO51BIIo
Right at the end there is the suggestion that this could be the crisis the CCP could use to nationalise the industry. Kind of like a Chinese "Fed will own everything".
Yes, I think they have seen this coming (although weren't sure when) and have been saying for a year or two that RE speculation is getting out of hand and needs to be sorted.
They are probably hoping for a semi-controlled detonation. They have way more courage than our politicians.
What happens outside China is not their problem.
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