Here's our summary of key economic events overnight that affect New Zealand with news the Fed has pulled the trigger on tapering.
The US Federal Reserve said this morning that the US economy has made progress toward employment and inflation goals and that if progress continues broadly as expected, a reduction in the pace of asset purchases may soon be warranted. The Fed also signaled interest rate may need to rise faster than initially expected, with 9 of 18 policymakers projecting borrowing costs to rise in their dot plot for 2022. Their signals for the move higher from there is even stronger.
Meanwhile, the partisan standoff on the US debt ceiling continues. Congress achieved the easy part - getting the House to approve. The hard part looms, Senate approval. Janet Yellen is frustrated, as are most former Treasury Secretaries. If it continues, a credit rating downgrade is entirely possible for the US. It is not unprecedented.
US existing home sales slipped in August by -2%, dampened by high prices and low choice. There is 11 weeks supply at current sales levels which is low for them. But there is a stirring in their mortgage market with application levels turning higher recently while mortgage interest rates are flat. With recent data showing consumers expect quite high inflation to keep hitting them, perhaps they sense interest rates are as low as they will go in this current business cycle.
European consumer sentiment is holding on to its strong levels in September, far above their long term average. This has been the case for three months now, taking it back to pre-pandemic levels.
The Chinese central bank left its key interest rates unchanged again, but it has pushed NZ$25 bln in liquidity into markets to underpin the Evergrande confidence crisis. There are reports the home team is coming to the rescue of Evergrande with a "negotiated" coupon arrangement with bondholders. It will be very interesting to see if that deal applies to foreign holders or not. That interest payment to foreign bondholders is due later today.
In the rough-and-tumble world of trade negotiations, it seems that Taiwan has now formally applied to join the TPP. It is a move sure to anger China, which made its own quixotic application recently.
The pandemic pressures and uncertainties are driving Australians to save. According to official data, household had AU$162 bln in savings as at June 2021, double the previous peak of $80.5 billion saved by households in 2015. And separate estimates show that the surge is only just starting, rising to AU$230 bln by the end of this year. A level like that is expected to prop-up consumer spending and bolster their economy, once it emerges fully from lockdowns.
And staying in Australia, there were another 1035 new community cases in NSW reported yesterday with another 844 not assigned to known clusters, and these numbers are lower than recently. They now have 12,810 active locally acquired cases. Victoria reported another 628 new cases yesterday, and so worse there again. Queensland is reporting zero new cases again. The ACT has 16 new cases yet again. Overall in Australia, more than 48% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
The S&P500 is up +1.0% in afternoon Wednesday trade in a broad rally. That follows an even stronger rally in European markets where it was bookended by Frankfurt's +1.0% rise and London's +1.5% rise. Yesterday, the vert large Tokyo market ended down -0.7%, but Hong Kong was up +0.5% and Shanghai was up +0.4%. The ASX200 ended up +0.3% as did the NZX50 Capital Index.
The UST 10yr yield opens today at just over 1.31% and -2 bps lower from this time yesterday. The US 2-10 rate curve is a little flatter at +109 bps. Their 1-5 curve is marginally steeper at +77 bps, while their 3m-10 year curve is unchanged at +127 bps. The Australian Govt ten year benchmark rate starts today at 1.25% and down -2 bps. The China Govt ten year bond is at 2.88% and soft. But the New Zealand Govt ten year is now at 1.89% and up +2 bps from this time yesterday.
The price of gold will start today little-changed at US$1776/oz.
But oil prices have bounced higher overnight and compared to yesterday's levels are up +$1.50 to just under US$72/bbl in the US, while the international Brent price is now just over US$75/bbl.
The Kiwi dollar opens today at just on 70.2 USc and firmer since this time yesterday. Against the Australian dollar we are little-changed at just under 96.8 AUc. Against the euro we are firm at 59.9 euro cents. That means our TWI-5 starts today at 73.6 and moving back towards the top of the 72-74 range of the past ten months.
The bitcoin price has bounced back a little today, and is up at US$43,240 and a +3.4% rise from this time yesterday. Volatility in the past 24 hours has remained extreme at just under +/- 4.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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43 Comments
This is a somewhat cheeky gambit by Taiwan. Could conclude that developments amongst its supporters has provided them both comfort and confidence, and thus emboldened. Of course what has actually been published in this regard, will only be the tip of the iceberg. Security and independence India, S Korea, Taiwan, Japan now hugely important strategically, in the region, needless to say.
it might be cheeky but consider what we, and those other countries purport to represent; functional democracies, of which Taiwan is one, but china is not. We stand for democracy except where a counter country is so large, with the commensurate stick that we are cowed into silence? While i understand the risk, I also believe we need to understand what type of world we want, and I am reasonably confident China does not represent that!
Pushing, injecting and liquidity are physics definitions.
Google disagrees.
liquidity
/lɪˈkwɪdɪti/
noun
FINANCE
noun: liquidity
-
the availability of liquid assets to a market or company.
"the banks closed, causing serious liquidity problems for smaller companies"
-
liquid assets; cash.
"a firm may be unable to pay unless it has spare liquidity"
-
a high volume of activity in a market.
-
I wouldn't call it purloined. That implies theft or appropriation without right.
You'll find that words evolve from a common root when they reflect a common concept or meaning.
Liquidus is the Latin root and it describes a state in equilibrium. Liquidity in an economics context describes a important component of markets in equilibrium (not between solid, liquid, or gas) based on the ability to trade goods for cash.
Suddenly, out of the blue, the RBA has decided that the Aussie property bubble 'could' pose a risk to financial stability. They then go on to release statements with their typically oblique technocrat speak that reads like it's neither here nor there when you try to understand the situation.
Quote:
The central bank is finding it hard to judge in real time whether prices are out of line with market fundamentals, and said the macro-financial risks posed by growing household debt warranted close attention.
Then there is the mandatory ass covering by pointing out how rock solid / hunky dory is at the banks:
But while banks had strong balance sheets and lending standards were currently being maintained, “with the increase in housing prices and housing debt, risks to financial stability could be building”.
Very mixed signals.
shorturl.at/wHIX3
Chuckle - Micawber comes to mind.
Debt requires work to be done, so that something can be produced, in the future. Period.
I asked Steve Keen yesterday, if MMT took cognisance of future energy/resource-availability? (we both know that current economic assumptions don't - per Samuelson and derivatives)
He replied: It doesn't (yet): MMT itself hasn't engaged with the energy debate at all.
So we're still not measuring whether there's real underwrite for the keystroked issuance.....
Doesn't that mean then that every time that housing debt grows faster than GDP, we're one step closer to financial destruction? (i.e. debt cannot grow faster than our productivity rate in the long run...short term, sure, but long term no?).
Doesn't that sum up the last 40 or so years?...but we've managed to disguise that issue by pushing rates to zero.
Great to see our government now pointing out that a high vaccination rate is a game changer for the country. That's what we need long term to manage COVID without draconian lockdowns, very high vaccination rates. I don't normally agree with the government on much, but on this they are dead right. Spreading the vaccination message should be everyone's aim now, over 90% and we can go back to a relatively normal everywhere. While that normal is broken for all sorts of reasons (housing/climate etc), an extra layer of pandemic on top of that does not help.
As I said a few days ago, Chinese govt will come to the rescue of Evergrande, but not in the same way the West does (i.e. give everyone involved pay rises instead of criminal charges). They are all about social stability, so once they see that potentially unravelling, they will come to the party. You are right though David, I think it will be a big middle finger to overseas bond holders...
Houston. We have a problem.
There is enough empty property in China to house over 90m people, says Logan Wright, a Hong Kong-based director at Rhodium Group, a consultancy. To put that into perspective: there are five G7 countries — France, Germany, Italy, the UK and Canada — that could each fit their entire population into those empty Chinese apartments with room to spare.
https://www.ft.com/content/ea1b79bf-cbe3-41d9-91da-0a1ba692309f
The problem is not that they are empty, the problem is most of them are unfinished with cranes still sitting on the top of them. They have simply over extended themselves big time. Your looking at unfinished concrete shells which are essentially worthless at this point in time that could simply be abandoned.
Do you have a link for that?
I understand Everwhatever would have unfinished apartment buildings, running out of cash, but is that common and a large proportion of chinas building efforts?
I have seen discussions on Ghost Cities that occur before shops etc move in, but they then fill to a 20% vacancy level.
Uhhh, no. Having lived in China and seen multiple ghost cities first hand, plus lived in apartment blocks with all services attached but 10% occupancy rate, they aren't really unfinished (well, they don't have cranes). Most of them will be concrete shells in terms of internal decoration. They aren't concrete shells in terms of still being built/not having windows etc. It is common practice in China to leave apartments without internal decoration until someone wants to move in and is it's actually desirable. That's because internal decoration is cheap (around 10-30k NZD to fit out an entire apartment, we are currently in the process of doing just that) and having to change it just adds extra cost. When someone wants to move in, they then decorate it to the standard they want.
Yep, in NZ, we should definitely have more apartments, especially in the main centres. Wellington might need some better foundations on theirs, though one has gone up now with the same flexible foundations as found under parliament and Te Papa.
IMO a great idea for smaller/satellite towns (think Pokeno/Featherston/Pegasus) in NZ too is to build apartment blocks, but do it in a resort style. Having lived in some, they are fantastic. You have a wide horseshoe shaped structure, with heaps of apartments, depending on how high you build. Underground parking, then above ground within the horseshoe, a big public area with a swimming pool/barbecue area, playground and a small field or basketball/tennis courts. Great for families (providing the apartments are well laid out) as the whole area is usually fenced and they have friends within the complex. String a bunch of them together with the top of the U facing each other and you can make a fantastic suburb out of a bunch of apartment blocks. Satellite view this to see what I mean: https://www.google.co.nz/maps/place/George+Town,+Penang,+Malaysia/@5.33…
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