Here's my summary of the key issues over the weekend that affect New Zealand, with news it will be a big week in New Zealand with all eyes on the Reserve Bank and their OCR decision on Thursday. Markets think a cut is almost certain. The question is, how big?
But first, American consumer prices rose for a fifth straight month in June as the cost of petrol and a range of key services increased. These signs of firming inflation strengthen the case for an interest rate hike this year. But the jump also pushed down 'real earnings'.
And American consumer confidence slipped in early July. The small loss reflected a rise in concern about international developments but were partially offset by continued news of job gains.
In Greece, their banks will re-open tomorrow (Monday, their time), three weeks after they were shut down to prevent the system collapsing under a flood of withdrawals. The EU support being provided will allow loans to the ECB and IMF to be 'repaid'. But the mess is not resolved, merely deferred. In fact Greece's ex-finance minister is pouring scorn on the deal, certain the 'reforms' are going to fail. Apart from the surviving politicians, no one thinks this is going to work.
But things in Europe are not all tainted by Greece. Sales of new cars were up +15% in June, continuing a trend that started 22 months ago and this was the largest month-on-month increase since December 2009.
And from the 'odd' file; here's a role some central bank's play; In Hungary they are buying art, hotels and castles. Apparently, its part of an effort to keep some assets out of the hands of those dastardly foreigners.
In China, the scale of official intervention to 'save' their equity markets is now becoming clearer. The country’s biggest state-owned banks supplied more than US$200 bln to help prop up equities. That undermines the view that the 'recovery' is sustainable. Just another case where frightened regulators take private market risk on to the public balance sheet.
And in Australia, a paper out there on Friday (locked) shows that ANZ economists think the skyrocketing rise in house prices is more to do with the low interest rate policy of their Reserve Bank than tax concessions or other factors. (That matches some earlier comment by Mike Smith.)
In New York, the UST 10yr yield benchmark fell slightly on Friday to 2.35%.
Oil markets are lower after the US-Iran deal. The US benchmark price is now just above US$51/barrel, and Brent crude is just above US$57/barrel. Rising supply is dousing prices.
The gold price is also down sharply again, now at only US$1,134/oz.
The Kiwi dollar continues to decline. We are start the week at 65.1 US¢, at 88.5 AU¢, and at 60.3 euro cents. The TWI-5 is at 70.1. How much of the expected OCR cut on Thursday is priced in is hard to assess, but it is likely most of it is.
If you want to catch up with all the local changes of Friday, 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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16 Comments
Yes indeed, and an admission of unearned wealth transfer from the haves to the hitherto have nots.
The paper acknowledges that multi-year low interest rates have driven house deposit affordability to an "all-time low. At the same time, those low mortgage rates have improved affordability for mortgage holders, and, as rents have stabilised, for renters, as well as boosting household wealth for owners".
you'd be looking at that longer term staus quo then - technically.
McWilliam said on the plus side, interest rates were coming down, and banks were supportive of farmers, providing they were provided with regular and timely information about the balance sheet. "Banks' longer term status quo lending criteria is still very generous in my view. It's over $6 (kg) so that's making borrowing against that long term view easier."
McWilliam said his firm had been advised by some banks they were budgeting on farmers' receiving a status quo milk price of $6.10 plus a dividend of 25c long term. "They're lending more against the value of land and stock than in the past and they are better resourced, with more managers available. "They are assisting clients a heck of a lot better than they did in 2008-09."
http://www.stuff.co.nz/business/farming/dairy/70313662/all-eyes-now-on-…
If its an asset lend, sounds like it could go boot (Build Own Operate Transfer) given the servicing.
You Need To See How The 1% Spends Wildly While Wall Street Suppresses Retail Sales Reports
http://wallstreetexaminer.com/2015/07/you-need-to-see-how-the-1-spends-…
This is not to say that all is well in retail sales land. Jeff Snider at Alhambra Partners showed that the growth rate of retail sales ex autos has turned negative. That means that the growth in total sales has been driven by surging auto sales as other retail sales have slowed. People who can get credit, or have the marginal income or wealth to buy cars are spending more, a lot more. Some of those sales are due to the growth of questionable non-prime credit growth.
Likewise, we know that top line sales growth per capita is not due to the majority having growing incomes. Wage growth is slowing. Real median incomes are stagnant. Sales growth has been driven purely by the growing wealth at the top of the income spectrum. They are spending their stock market gains. Bernanke was right about that. It was probably the only thing he was right about. Where he was wrong is that there would be trickle down effects. Instead the wealth pooled at the top. The trend of rising retail sales can persist only as long as the stock market keeps rising. When that stops, the dam will break and the fictitious wealth created by central bank driven stock market gains will disappear. Retail spending will collapse, without any of the gains having reached the majority of people.
Obviously, neither of these trends is good for the economy or sustainable retail sales growth. But the Fed will look at the top line numbers and see that the purported slowdown in retail sales is "transitory." It will not be deterred from attempting to raise interest rates sooner rather than later.
well I hope the 1% spend up - because the coin does no good in their pocket, and their systems ensure it keeps coming - good on them. Just need ways to _construct_ the trickle down (that doesn't involve taxation) that theory said should have been there.
hence my push for no GST on essential items (food, electricity, as mentioned elsewhere childrens shoes and some clothes (rebate it) )
and starting to address behaviour of price setter organisations.
You would think so. Governments put new money in the system when they spend more than they tax back. Spending more puts money in, taxing back takes money out. This is why the seventies were so inflationary. Only a fiscal deficit puts net new money into the system, private debt creation does not.
US politics are so disfunctional they cannot agree on a budget, which to us is the very definition of being able to form a government. Thus they have stagnation and drift on a political level. The Federal Reserve is thus forced to lower interest rates to compensate.
Low US interest rates cause widespread capital misallocation worldwide, plus the spread of silly ideas about economics, finance, and money.
Inflation is really easy to create, just tax back less than you spend, either by taxing less or by spending more. as your political inclination leads you.
Collapse in commodities has commentators pointing the finger at Australia:
http://www.telegraph.co.uk/finance/newsbysector/industry/mining/1174970…
Where does that leave NZ I wonder?
Are the details true though? Or is it media looking for copy, and finger pointing gets facetime.
What's wrong with "The System" Gina R mentioned as "Richest Woman in Australia" implies she knows what she's talking about....... where isn't she just the "Widow of the Richest Man in Australia"? If I go by her decisions to get success I need to shack up with some wealthy connect bloke gunning for the top (and get bad dress sense...)
Gina inherited the mines from her daddy.
.
And let's be clear: she opposes paying tax, at the same time as calling for a cut in the minimum wage.
.
http://www.ibtimes.com.au/gina-rinehart-suggests-lowering-minimum-wage-…
The Aussi house spend-up is actually linked to self-enforcing "captial gain".
If a property is bought for 200k, and jumps to 500k (150% gain) on paper. It makes good sense to realise that 150% flat gain and put all that imaginary equity in your pocket.
Then with the 500k the person can buy three 500k properties, with 150k (which would have almost paid of the first house), and it leaves a postive cashflow to service the loan.
If each house goes from 500k to 750k (50% gain) then with three houses it makes sense to cash out that 2.2M "captial gain". As that extra 250k paper equity will take a _lot_ of rent and a lot of _wages_ to make equivalent return.
And in theory it can be done again. Each time the % gain is lower but the bigger number makes it worthwhile. Yes the lines convergerce, and the market cycles, but as long as one isn't over exposed it's just a matter of waiting it out.
Low Interest rate doesn't really come into it - as long as the rent is able to service the interest rate.
LVR also doesn't really come into because we're not negative gearing so we need more than 30% LVR anyway.
Time and "nest egg" income are two factors which come into it.
And the cost of liquidation is also a factor...but extra taxation just lifts the _price_ and _rent_ on the _entire_ market (so just acts as an inflationary force).
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