US new home sale surge; equities shine; IMF warns on China debt; Aussies give supermarkets the finger; foreigner restrictions could backfire; UST 10yr yield 1.88%; oil up, gold lower; NZ$1 = 67.3 US¢, TWI-5 = 71.3

US new home sale surge; equities shine; IMF warns on China debt; Aussies give supermarkets the finger; foreigner restrictions could backfire; UST 10yr yield 1.88%; oil up, gold lower; NZ$1 = 67.3 US¢, TWI-5 = 71.3

Here's my summary of the key events overnight that affect New Zealand, with news markets are accepting more risk, just as some giant economic risks seem to be rising.

But first, sales of new single-family homes in the US surged to a more than eight-year high in April and prices hit a record high. This comes after earlier data showed that sales of existing homes moved higher as well. This is reinforcing evidence of a pick-up in American economic growth that could allow the Fed to raise interest rates soon.

Some say that while the US economy can handle rising rates, the rest of the world can't. Big bond investors are worried, and are talking up their book risk.

Wall Street is markedly higher today. The Dow and the S&P500 indexes are more than +1% up in mid-day trading, the NASDAQ is up almost +2%. It's quite a rally.

In China, the IMF has sounded an alarm that China lacks a of sense of crisis and urgency in dealing with its current round of debt overhang. Apparently, on average Chinese companies now pay their bills in an average 72 days. The IMF estimates that puts a total 14% of all Chinese company debt at risk of becoming uncollectible. On that basis they say, it would equate to a reduction of 7% of the country’s economy. Yikes, that's some warning.

In Australia, there is an interesting grass-roots push-back underway in their major supermarkets. Consumers are boycotting supermarket-own-label milk in favour of regular brands. This is a way consumers can support higher prices for dairy farmers and stick it to the supermarkets for championing their low-ball A$1/litre milk products.

And staying in Australia, a new report says that if NSW imposed a 15% surcharge on foreigners buying in their real estate markets, it could end up hurting affordability for locals more. The claim is that the foreign buyer demand helps get may more new-build projects over the line and in construction, adding to market supply. Restrict the foreigner component and there will be much less supply coming on advocates say, and locals will be scrambling with fewer options.

In New York the benchmark UST 10yr yield is basically unchanged at 1.88%. There seems to be a switch out of bonds and into equities going on in financial markets.

The oil price is a little higher today with both the US benchmark and the Brent benchmark just on US$48.60/barrel.

The gold price is down sharply, down US$22 to US$1,229/oz.

And finally, the NZ dollar will start today just fractionally lower at 67.3 US¢, at 93.9 AU¢, and at 60.4 euro cents. The TWI-5 index is now at 71.3.

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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Or maybe the locals could purchase / build sections and new builds themselves without being outbid by laundry money?

Bloomberg
Depends on who is doing the counting
Foreigners accounted for 20.9 percent of Australian home sales in the year through June 2015
https://au.finance.yahoo.com/news/aussies-tax-foreigners-extra-for-buyin...

you have to look at who framed the report, its like a lot of reports you can get it to say what you want by asking certain people the right questions.
i.e developer how many of your builds are sold to foreigners A most of them.
conclusion without foreigners we can not build as many new houses.
or own report comes to mind here with the question that allowed the truth to be clouded and guess what no one believes it

At least aussie are trying to do something and realise there's a problem. Here our government still haven't acknowledged an issue.

One thing that concerns me about the Aussies is they have let their budget spiral when they didn't need to. Might have serious repercussions further down the line.

I think Penguin you'll find that outrageous Government debts and spending is the new black!!

AU Budget deficits
One large difference accounting for the extraordinary AU budget deficits is their military spend

Total annual spend $23 Billion - per stockholm research
https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

The Joint Strike F-35 Fighter Planes order $17 billion
http://www.abc.net.au/news/2015-10-21/australia's-joint-strike-fighter-purchase-unaffected-by-canada/6874660
http://www.abc.net.au/news/2015-10-21/australia's-joint-strike-fighter-purchase-unaffected-by-canada/6874660

NZ doesn't rank in the spending stakes - trousers it instead - should be living high

But first, sales of new single-family homes in the US surged to a more than eight-year high in April and prices hit a record high. This comes after earlier data showed that sales of existing homes moved higher as well. This is reinforcing evidence of a pick-up in American economic growth that could allow the Fed to raise interest rates soon.

Hmmmm....

The trend of millennials returning home to live with their parents has even gotten to the point where one out of six home buyers have or plan to have a grown child at home, and home builders are building to accommodate that fact.

Stunningly, according to new Pew Research Center analysis, 32.1% of all millennials are living with their parents now, which is more than any other time since the great depression! Read more

Moreover,

Is this enough? Recall that on November 24, one month before the Fed did hike rates by 25 bps, a whopping 9 regional Fed requested a Discount Rate hike With only four regional Feds on the same page as of this moment, it is very unlikely that June is when the Fed's rate hike will take place, and with July missing a press conference, it remains to be seen just how the Fed can proceed with the much touted rate hike in the coming 2 months, without some major surprises. Read more

"But first, sales of new single-family homes in the US surged to a more than eight-year high in April and prices hit a record high. This comes after earlier data showed that sales of existing homes moved higher as well. This is reinforcing evidence of a pick-up in American economic growth that could allow the Fed to raise interest rates soon".....

Hmmmmm is right!!.....Prices going higher is seen as a good thing all around the world......it must conjure up images of an improvement but are people not just fooling themselves........how much equity in these higher home prices is there? How much surplus income is left after servicing the debt and other related home costs???

Service the debt? That sounds like anti-growth talk.

Prices going higher is seen as a good thing all around the world......it must conjure up images of an improvement but are people not just fooling themselves...

An end in sight, maybe? - a shortage of greater fools is apparent in the UK.

“We believe the nation has now neared the limit in terms of price rises. Our data is already showing a slowdown in both house price growth and transaction levels. In order to maintain healthy sales levels sellers need to be much more realistic with their asking prices – properties are in danger of being overvalued and these homes will struggle to sell.” Read more

Is the NZD going to parity against the AUD. if it breaks 1.0550 in the coming 2-3 weeks , I believe this will be the case. Which again leaves the RBNZ with a conundrum .

dp

If professional Australian interest rate traders get what they price for, it might be a done deal? Read more

Thanks Stephen

People have such short memories -'liar loans', the sub-prime mortgage meltdown and all that.

But this time it really is different.

"sales of new single-family homes in the US surged to a more than eight-year high"

The US South region alone accounted for 57% of these sales. This is the region where planning restrictions are lightest and yet population growth rates the highest. This region suffered least during the sub-prime crisis with the lowest rate of defaults and virtually no change in property valuations.

But yes even in Texas property values are rising. Interestingly The Woodlands, a poster child for the Municipal Utility District form of development, had easily the lowest rise in valuations compared to surrounding areas.

Regrettably the Aussie milk story does not apply here , the farmer is getting utterly screwed already and so is the consumer .

A boycott is fruitless , unless of course we boycott all Fonterra products for their extreme rent-seeking, monopolistic , market dominant pricing behaviour

Fonterra refuse to disclose what they pay the farmer per litre , instead referencing the milk solid price , but the farmer actually only gets about 32 to 40 cents a litre for his milk , and consumers pay an eye watering $1.85 a litre , and in some cases over $2 per litre in Auckland

It takes 12 litres of raw milk to make 1 kg of milk solid .

Now that a monopolistic pricing model if ever you saw one . There is not anywhere on the planet where such profits are made from the consumer by a business , which in this case , the culprit has the ear of Government

Its criminal , its wrong on every level , and in many countries with weaker legal frameworks , you could not get away with this unfair , uncompetitive behaviour.

Over the past 10 years milk has been so expensive we have had to ban our children in their teens from drinking it from the fridge .

How can that be right ?

And I challenge Fonterra to come clean with us about this terrible situation that they are perpetuating to the detriment of poorer New Zealanders