Here's my summary of the key issues from over the weekend that affect New Zealand, with news our Business School is turning out top property strategists.
But first, American job growth accelerated impressively in May and wage growth picked up to +2.3%pa, both signs of improving momentum in their economy, and boosting prospects for a Federal Reserve interest rate hike sometime in the next few months.
At the same time, consumer borrowing in the US rose by US$20 bln in April from March, up +7.3% year on year. At almost US$3.4 tln owed, that represents a bit over 20% of US GDP.
In Taiwan they have just imposed a property gains tax of up to 45% which will take effect in 2016. Any gains over NZ$185,000 will be taxed. This new measure comes after they suffered tripling of house prices in the past 12 years.
In Europe, the Greeks turned down a proposed aid offer from lenders, calling it 'absurd'. The Greeks acknowledge they are following an economic 'game theory' strategy in these talks but it is not clear the creditors are playing the same game.
Surely someone will blink soon, but it is looking unlikely it will be the creditors.
However, a previous basket-case, Ireland, seems on the mend. S&P have upgraded their sovereign credit rating again and it is now at an investment grade A+. Growth has returned to Ireland and it is expected to top +3.6% this year.
And staying in Europe, the co-CEOs of Deutsche Bank quit overnight, an abrupt and unexpected move that throws into question the future direction of one of the world's largest banks. Rising legal woes and declining profits did them in.
In Australia, all eyes will be on their May unemployment rate which is due out on Thursday.
In New York, the UST 10yr benchmark yield was higher again on Friday, up by another +8 bps to 2.41%, its highest level in eight months. That should push our local long-end swap rates even higher.
The US oil markets will start marginally higher with the US benchmark price at US$59/barrel, and Brent crude is at US$63/barrel. Over the weekend OPEC decided to keep pumping oil at current rates, maintaining higher supply into international markets.
The gold price is down another $6 to US$1,170/oz.
The New Zealand dollar is also lower this morning, currently at 70.4 US¢, at 92.5 AU¢, and at 63.5 euro cents. The TWI-5 is just under 75.
And finally today, a story that goes to the heart of modern day kiwi business 'excellence', something that reveals our DNA. In Hong Kong over the weekend, the University of Auckland scooped the top prize at the annual HSBC/HKU Asia Pacific Business Case Competition, after an intense three-day contest aimed at finding future business leaders. Cut off from internet access, the contestants from 18 countries had to design and draft marketing and growth strategies for a Hong Kong property developer.
The winners - Alex Churchill, Kandarp Dalal, Brittany Rea and Nathan George - have brought home a cash prize of US$10,000 for their strategy named "fix and capture". We are apparently leaders in the property business.
If you want to catch up with all the local changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here »
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10 Comments
"American job growth accelerated impressively in May and wage growth picked up to +2.3%pa".
Maybe so, but it's all about the trend........
http://www.economist.com/blogs/freeexchange/2015/06/americas-jobs-market
There is a persuasive article in the Telegraph this weekend:
Why is Athens still refusing the free lunch of a Grexit?
http://www.telegraph.co.uk/finance/comment/rogerbootle/11658135/Why-is-…
There are good reasons why the other European countries, and in particular Germany, should want Greece to stay in the Euro, but the Europeans are not acting like it. The US is clearly telling the Europeans to sort it out- including now Obama to Merkel. An acceptable solution is apparently clear to everyone, other than the Germans.
Interesting times.
Australian Greens plan to abolish negative gearing.
http://www.afr.com/real-estate/residential/nsw/greens-plan-to-abolish-n…
I assume by this they mean you could not charge interest as a deductible cost on your tax return, when applied to property investment. The property industry unsurprisingly is not keen on the idea.
But Bank of America Merrill Lynch chief economist Saul Eslake said there was a lot to like about the plan.
"I've long argued that negative gearing costs a lot revenue and does not do what its supporters claim it does," he told Sky News.
its amazing what it costs in lost revenue. I like they have also recognised that they will have to make up the shortfall in rental stock.
its makes sense to me to use the revenue to build more houses wouldn't care if they were sold, it would keep house prices in check and support the local building industry
Everyone, everyone who owns property has an investment. It just depends on how the word is interpreted. But as everyone has an investment, then Negative Gearing should apply to ALL property owners or NONE AT ALL. It is the unequal treatment of taxation laws between two different classes of participants ( owner-occupiers and landlords) in the one asset segment that creates the distortion. And seeing as our Government ( and the Australian one) needs revenue to plug all sorts of revenue holes, then NO ONE should be allowed Negative Gearing. If there are losses to be applied on speculative investments, then quarantine them by all means, and allow them to be applied against any tax payable on realised income at point of sale. But in the meantime? If you make a loss, the rest of the country's taxpayers shouldn't subsidise your decision to make that loss.
Owner occupiers cannot claim a tax deduction on the interest of the mortgage on their family home. I have owned three homes, all of which I've lived in and have never been given the opportunity to claim the interest on my mortgage as a tax deductible expense!
However we can talk about farmers who get to claim back the GST on their groceries?
Stephen L
Clever politics
The message we are getting here is that they are not proposing to abolish negative-gearing altogether
What is proposed is to close the negative-gearing-door as at a given date, so that anyone who is negatively-geared prior to that date retains that benefit
Very clever politically - The current crop with their snouts in the trough can't and won't complain
So who could complain?
There are many ways to curb negative gearing - to prove they are an intentional landlord
(a) Quarantine the losses against future rental revenue - carry losses forward
or
(b) allow the tax benefit at the lesser of a fixed rate of (say) 10% or the actual individuals rate
That treats every negatively geared taxpayer equally
A different view from either side of the Tasman
Diana Clement - NZ Herald - It's Australians coming to NZ with mining tax refunds
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…
Ian Verender - Fairfax - Australian Financial Review
Who's the real culprit behind soaring house prices? (Hint: it's not Chinese buyers)
The real culprit is right here at home
The foreign incursion into Australian residential real estate - and the unwillingness of Australian regulatory bodies to enforce the law - is part of a broader malaise that has seen regulators from the FIRB and the Department of Immigration through to the banking regulator, the Australian Prudential Regulatory Authority, and the Australian Tax Office reluctant to act. As easy as it is to point the finger at Chinese buyers amid rising tensions over housing affordability, the real culprit is right here at home.
A full passing parade of property affects around the Pacific including Auckland
http://www.abc.net.au/news/2015-06-08/verrender-whos-the-real-culprit-b…
Not another captured central bank? When will the formal investigation begin, if ever? When was it ever appropriate for a central bank to contrive to affect fiscal initiatives under the guise of monetary policy actions, and under instruction from whom?
A major reason for the official inaction is that this is a bubble that has been deliberately contrived.
In 2012, when the Reserve Bank began its easing bias, it was determined to create a housing boom - so residential construction could fill the gap created by the decline in resource project construction.
But as investors, rather than owner occupiers, plunged in almost from day one, APRA and the RBA should have taken action. Instead, they were happy to watch the bubble inflate and now, rather than admit a mistake, reluctantly are playing catch-up.
A large portion of the investor action emanated from self-funded retirees, taking advantage of changes to superannuation rules that allowed them to gear up their super funds.
While as a nation we boast about the extent of our national savings pool, little attention has been devoted to the fact that a significant amount of that pool is now exposed.
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