Here's my summary of the key events overnight that affect New Zealand, with Brexit nerves having a ripple effect through global markets.
With polls suggesting Brits are in support of leaving the European Union, ahead of the official vote in eight days' time, US and European stocks are sliding and investors are retreating to safe haven assets. Uncertainty around a Brexit is also expected to see the Fed stall any rate hikes at its meeting which finishes tomorrow.
The New Zealand Institute of Economic Research (NZIER) estimates a Brexit could see the value of our exports to the UK could drop by around $190 million a year, as income growth is expected to slow. Yet our exporters shouldn't find it any harder accessing the UK market, as Britain is likely to default to using the EU's existing World Trade Organisation commitments on tariffs.
Uncertainty caused by the Brits leaving the European Union could see UK investors, which hold stocks worth over $4.2 billion in New Zealand, take a more risk-adverse approach and limit their investments here. The Institute also warns a Brexit could make it harder for Kiwis to get jobs in the UK if the political environment becomes more nationalistic.
The Brexit aside, data out overnight indicates some inflation pressures are building in the US. Retail sales rose strongly in May as relatively higher fuel costs didn't stop Americans from buying cars and a range of other goods. Retail sales were up 2.5% from the previous year. Import prices also recorded their largest increase in over four years in May, as the drag from a strong dollar and lower oil prices faded. Import prices fell 5% from a year ago - the smallest decline in a year and a half.
The International Monetary Fund warns China must curb its soaring debt levels to avoid “serious problems down the road”. At 225% of GDP, it says the level of debt in China is “very high by any measure”. Breaking this figure down, it warns corporate debt is rising at 145% of GDP. The IMF says Beijing needs to speed up financial reform to head off the risk of a systemic shock.
In New York, the benchmark UST 10yr yield has fallen again overnight to 1.60%.
The US oil price has inched back slightly to just under US$49/barrel. The Brent benchmark is just below US$50/barrel.
The gold price has increased to US$1,288/oz.
The New Zealand dollar has weakened overnight to 70.0 US¢, 95.1 AU¢, and 62.5 euro cents. The TWI-5 index is now at 73.7.
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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42 Comments
I don't understand why the bookmakers odds (very close between the two options at the mo) would be any better than a poll. One is trying to guess what others will vote for (so it's like a derivative) while the other is asking a sample of voters directly what their choice would be.
Three very good articles out this week from AEP of the D.Telegraph and our very own Michael Reddit.
http://www.telegraph.co.uk/business/2016/06/12/brexit-vote-is-about-the…
https://croakingcassandra.com/2016/06/11/brexit-thoughts-from-the-antip…
https://croakingcassandra.com/2016/06/15/cry-freedom-but-count-the-cost/
Best I can find at a quick glance.
http://www.oddschecker.com/politics/british-politics/next-uk-general-el…
Opinion polls have recorded a surge in support for the Leave campaign, forcing bookies to slash odds on the UK leaving the EU. Bookmaker William Hill predicts Brexit will be the favorite bet by the coming weekend.
Current polling indicates 51 percent of Brits back Brexit, while 49 percent support remaining in the union.
William Hill media relations director Graham Sharpe said the company is having to shorten its odds for a Leave on a daily basis.
If betting translated into voting, Brexit would win hands down, Sharpe added. William Hill’s current odds for Brexit are at 11/8. Read more
Odds shortened yes, but what are the odds? Look at the press release from WH as those details were left out by the RT article.
http://www.williamhillplc.com/media/newsroom/media-releases/2016/brexit…
WHs odds on leave are now 36% (from 18% originally) and remain is 69% (from 87.5% originally).
So whilst the odds have come down, they do still favour remain right? I mean, if the poll came out and said 69% for remain things would be seen differently?
And "if bets translated to voting" that's stupid. If bets translated to anything, ever, the outcome of anything would be completely different. Everyone takes a punt when betting, doesn't mean they win.
Here's are a few articles:
http://blogs.lse.ac.uk/politicsandpolicy/general-election-2015-odd-labo…
http://www.telegraph.co.uk/news/general-election-2015/11593973/Pensione…
It isn't particularly clear from either of these whether the bookies were more accurate than the polls, but I think the gist is that neither were particularly good.
If the Brits pull a few billion of investments out of New Zealand it will cause the NZD to drop so as to exactly offset the capital outflow with a balancing current account inflow. The change in the current account must exactly balance the change in the capital account, because of the double entry nature of modern money and accounting. So, if the Brits take $2billion of capital out, we will make $2billion on our exports minus imports.
Why is that scary? Because asset prices must fall when measured in other currencies than the NZD. So, basically probably a good thing for kiwis.
Really? That would only be the case if they sold up to a Kiwi company. If they sold to another foreign investor (the more likely case), the fx impact should be zero - they leave, the new investor arrives. If they sell to a local they will no doubt be doing so in a panic so the local investor will be getting the assets cheap. NZ wins.
Also I don't quite get why they would leave if things are going to custard in their home market. Wouldn't they figure a well-earning investment in New Zealand was a better place to keep their funds that in a depressed 'home' market. And besides, if things are not good at 'home' that will mean their currency will be falling relative to the NZD, which also means their NZ investment will be getting a currency gain in GBP. To sell up here doesn't make a lot of sense to me - unless their Kiwi investment starts to underperform, and there is not a lot to suggest that will be the case for the next few years.
And if the Brexit doomsters turn out to be correct, no doubt there would be a noticeable rise in returning expats who will bring their London money with them, and also be wanting to buy a house here. Neither of these impacts would push down the NZD, nor house demand/prices.
I always love your optimism David. While the world economies cave, NZ will be the safe haven... especially Auckland property. Prices to double in two years?
https://www.google.co.nz/search?q=optimism&source=lnms&tbm=isch&sa=X&ve…
Fair enough. But there are about 500,000 dwellings in Auckland (473,000 in the 2013 Census) and in the past 12 months there were 32,000 sales. Most of those were between people moving between houses. Few - far too few - were for FHBs. Some were certainly from people moving into the city from outside. But whatever way you look at it, the "average" house sells once every 15 years, far too long for a FHB to wait.
When only 6% of all dwellings change hands each year that tells you there must be huge unsatisfied demand. That demand is restrained by high prices, it hasn't disappeared.
Even if half the buyers 'disappeared' suddenly, I think they would be replaced rapidly by those who currently think they are out of the market. Price will be the signal for them to get back in.
The reality is, in my opinion, that 6% will never be less until supply issues are addressed. 'Demand' can be fiddled with politically (immigration, RBNZ rules, taxes, etc. etc) but all you will get is a short term blip.
The Auckland housing market is so distorted now that I reckon no matter what goes on in the rest of the world, it is unlikely to reduce real total 'demand' back to just 32,000 per year.
Besides, we are committed to $20 bln of new construction, (actually probably twice that), in the city now. That alone needs workers we don't currently have and will head here for the jobs.
Every reason for 'optimism' about rising Auckland house prices; every reason to be pessimistic about the public policy responses; every reason to really worry about FHBs; every reason to change the rules relating to rentals to allow for that to be a safer long-term option (ie more renter-friendly laws).
Every reason to see Auckland 'prosper' for years yet. When demand exceeds supply, prices go up. For NZ, 'Brexit' is a sideshow.
It is hard to imagine that current Kiwi expats would leave the UK in droves, if it indeed votes for freedom and democracy. Their rights will most likely be "grandfathered". People in the UK want to stop undesirable illegal immigration of the kind of the Calais mob or Albanians illegally crossing the Channel. They are surely not after legal Kiwis :-) ... in fact, once illegal migration from backward countries is brought under control, the opportunities for legal entrants can only improve.
On the other hand, would Key classify Kiwi Brexit leavers as refugees? Could they get free housing and services upon return, or would Key give a stuff about them? Hmmm ...
Another staggeringly high daily CO2 result:
June 13, 2016: 407.36 ppm
June 13, 2015: 402.58 ppm
Up 4.78 ppm (versus 2005-2014 average of 2.11 ppm per annum).
https://www.co2.earth/daily-co2
Extinction of most life on Earth by 2040 via industrial CO2 emissions and planetary overheating is looking ever more likely.
Needless to say, the financial-economic-social effects at the halfway point (say 2028, but probably long before then) will be more than catastrophic. Nevertheless, the most pressing issue of the times remains more-or-less completely unaddressed, and most official policy is geared to making the predicament worse faster. .
Lack of concern is probably due to the fact it is another of Wadhams fantasies that was butchered by the contemporary climate scientists, even the activist ones. "Catastrophic, widespread dissociation of methane gas hydrates will not be triggered by continued climate warming at contemporary rates (0.2ºC per decade; IPCC 2007) over timescales of a few hundred years. Most of Earth's gas hydrates occur at low saturations and in sediments at such great depths below the seafloor or onshore permafrost that they will barely be affected by warming over even 1000 years."
Given satellite warming rates are only 0.13 degrees/decade you will be waiting a while. Also have to explain why this scenario didn't occur in the early Holocene when there was less summer sea ice than 2012 and Arctic temps were 1-3 degrees warmer than today or earlier in the Eemian.
http://www.nature.com/scitable/knowledge/library/methane-hydrates-and-c…
Global Temperature record again set in May
https://robertscribbler.com/2016/06/13/may-marks-8th-consecutive-record…
I suspect you are right about positive feedbacks causing the release of massive burps of methane long before 2040. The huge craters in Siberia that have been erupting and growing in both size and number are very ominous.
I'm sure the next two or three years will bring dramatic developments.
Meanwhile, ignorance and complacency will continue to reign supreme.
Not pushing the Arctic "death spiral" any more Truthie? Guess it must be a bit of a struggle now - even the El Nino couldn't help your cause.
http://psc.apl.uw.edu/wordpress/wp-content/uploads/schweiger/ice_volume…
http://ocean.dmi.dk/arctic/icecover.uk.php
I love how you manage to use the fact that ice extent is below two standard deviations the average ice extent from 1980 - 2000 as proof that the arctic won't fully melt anytime soon.
In 15 years time you will be saying ha there is still some ice in the middle of winter in the arctic so much for climate change!
Peaky - I love how you pick 1980 when Arctic sea ice was at its peak and ignore the fact the sea ice was substantially lower in the early '70's compared even to the 1990's. I guess you get a lot more click bait if you start your standard deviation calculation from the recent high point.
This is what the IPCC had to say about Arctic sea ice in 1990 "Especially importantly, satellite observations have been used to map sea-ice extent routinely since the early 1970s. The American Navy Joint Ice Center has produced weekly charts which have been digitised by NOAA.These data are summarized in Figure 7.20 which is based on analyses carried out on a 1° latitude x 2.5°longitude grid. Sea-ice is defined to be present when its concentration exceeds 10% (Ropelewski,1983). Since about 1976 the areal extent of sea-ice in the Northern Hemisphere has varied about a constant climatological level but in 1972-1975 sea-ice extent was significantly less."
So chop out the bit where sea ice extent was substantially lower, narrow up the SD range and roll in the click bait headlines.
I also love how you manage to ignore Greenland sea ice SMB which is above average even in an el Nino year. Ditto Antarctic.
http://www.dmi.dk/uploads/tx_dmidatastore/webservice/b/m/s/d/e/accumula…
And ignore Arctic temps which are boringly on there 1958- average.
http://ocean.dmi.dk/arctic/meant80n.uk.php
I didn't pick the graph you did. Regarding the sea ice around Antarctica and Greenland we both know that is caused by the melting freshwater pooling around the coast which freezes at a lower temperature. Anyway this is boring we aren't going to change each others mind.
You post a graph of thickness which shows well below average thickness, and you post a graph of ice cover which shows way below average ice cover extent, and prefix them with an asinine comment which contains an innuendo of insult.
As previously discussed, you so desperate to disprove that which is blatantly obvious and which is also supported by the best scientific data available that you continue to dig a deeper and deeper hole for yourself and continue to present yourself as an idiot.
And, as previously discussed, we won't know until early September just how bad the ice-melt for 2016 will be, but current data indicate there will be little ice 3 months from now, and perhaps a record low.
Yeah Truthie you're the the one calling the "death spiral" - don't you think Arctic sea ice would be a little bit lower than non El Nino 2012 if it was a "death spiral"? Or that average ice thickness would be less than 2010 not greater or that the Antarctic sea ice would at least be going out in sympathy with all this "runaway" global warming.
"innuendo of insult" oh please! Should I just be insulting like you? You are so quick to call me stupid, ignorant, liar etc... but I suppose that all you've got when supporting data doesn't match your world view and as you said so yourself the other day "insults are always the clearest indicator of a lost debate.
I did not coin the term Arctic Death Spiral (I'm not sure who did); it has been in use for several years, and a search brings up about '176,000 results in 0.58 seconds'.
https://www.google.co.nz/search?q=arctic+death+spiral&ie=&oe=
As anyone who has studied the topic knows, the rate of melt varies according to many factors, including the weather over short time frames. And wind can scatter sea ice or cause it to concentrate, contributing to the short-term fluctuations we witness in ice cover area.
I doubt that many people are particularly interested in your armchair opinions about what should or should not be happening, or your interpretation of cherry-picked portions of outdated graphs. I certainly am not.
Of far more interest are current scientific articles informing us what is actually happening right now or very recently, likely causes for observed phenomena, and likely outcomes, such as this item from a few days ago:.
'Wobbly Jet Stream Is Sending the Melting Arctic into 'Uncharted Territory'
http://insideclimatenews.org/news/08062016/greenland-arctic-record-melt…
Good link Truthie. The Max Planck chap seems to have his head screwed on. Note the "probably recover" bit. At least he is interested in looking at the longer term - rather than just focusing on "what is actually happening right now or very recently" as you put it. A bit of historical context is healthy - you know the Eemian, early-mid Holocence, the early 1970's sat data...
"Dirk Notz, director of the Arctic sea ice research unit at the Max-Planck Institute for Meteorology in Hamburg, Germany, said he's not convinced that the recent jet stream shifts are directly linked to global warming, but said the new study is part of an important effort to explain connections between changes in atmospheric patterns and extreme climate changes.
"We need to understand why things happen," Notz said. "I think there's a public perception that Arctic science focuses on monitoring only extreme events. That's a dangerous perception, because even if there's a record sea ice low this year, it will probably recover. From a science perspective, it's not the extreme events that are most interesting but the long-term trends."
I fully accept that we are in for a world of hurt with climate change however short term extinction due to climate change is as much a nonsense as everything our resident denier profile spouts. Talk of short term extinction is really a way of us justifying to our selves why we don't need to make radical changes to our lifestyle. The thinking goes well its all over soon anyway might as well enjoy myself. Deniers justify not changing their lifestyles by convincing themselves nothing is happening - either way nothing gets done.
I recommend reading The Long Descent by John Michael Greer. I think this gives a more realistic view how things are likely to go over the next 100 years or so.
I used to read John Michael Greer's writings a decade or so ago but gave up looking at anything he wrote (writes) when it became apparent he was not keeping up with the rapidly-changing times and, in spite of the scientific evidence, was still talking about collapse taking centuries.
Atmospheric CO2 is now about 180 ppm above the most recent long-term average of 230 ppm, and is about 130 ppm above the pre-industrial norm of around 275ppm. And it has been increasing at an unprecedented rate.
If current trends continue (and why shouldn't they?) 'we' will break through the so-called upper safe limit (which is not safe at all) of 450 ppm before 2025.
The reason nothing gets done to maintain the habitability of the Earth is because bankers and industrialist control governments, and governments lie to the general populace on a continuous basis. Industrial activity ( especially on the scale that has been seen over the past 100 years) and a maintaining a habitable planet are mutually exclusive concepts.
Expect everything to made rapidly worse [by politicians and corporations]; that way you won't be disappointed.
Hi Brilliman, I understand it seems like I've made a silly comment given fuel costs are so low at the moment in the bigger scheme of things. However at around US$50/bbl, the price of oil is a fair bit higher than it was a few months ago when it dropped as low as US$30/bbl. On this basis, my comment refers to the fact fuel prices are higher now than they were a few months ago, not a couple of years ago.
Greater Germany's reaction to imminent Brexit: https://youtu.be/eHR8Lj3wb-o
What a farce the Brexit referendum is. It is not even binding. If the result is very close there seems to be no provision for a recount. People like me who are born and bred UK citizens have no say. While foreigners on the UK voting register can decide our fate. Why can the people of Gibraltar vote and those in the Isle of Man cannot?
The real issue is the future of the UK as a cohesive unit. If the vote is to leave the EU then a Scottish independence referendum is certain and the Northern Ireland issue is up for grabs and the border may be closed. Bye bye UK.
Today's EU is a deformed halfway house that nobody ever wanted
http://www.telegraph.co.uk/business/2016/06/12/brexit-vote-is-about-the…
German 10-year bond yields have fallen below zero for the time in history as Brexit fears send investors scurrying into safe-havens, and Europe slides deeper into the psychological trap of deflation.
http://www.telegraph.co.uk/business/2016/06/14/brexit-panic-and-deflati…
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