90 seconds at 9 am: Property drives crazy behaviour

US factories face higher costs; US personal lending nears 2008 record; property frenzy in China; Aussies tighten lending to investors; UST 10yr yield at 2.34%; oil down, gold up; NZ$1 = 70 US¢, TWI-5 = 75.1

4th Apr 17, 7:30am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of property frenzies in both China and Australia.

But first, in the US activity in their manufacturing sector expanded at a healthy pace in March even if it was slightly down from February. But factories are facing rising raw-material costs that could lift broader inflation.

However the pace may slow soon. Several top car companies posted March sales declines, heightening concerns about bloated dealer stocks and pricing pressure in an industry that has been central to American economic growth. The results were worse than analysts expected and come at the beginning of the spring selling season.

Just how important to the US economy car lending has become was revealed overnight in new data from the New York Fed. Personal lending is now back to 2008 levels of $12.6 tln. Of course, in that time incomes are now far higher so the relative load is less. But it is not housing lending that is driving the increase; it is car loans and student debt. Housing's share of this debt has actually fallen from 79% to 72% in those nine years.

In China, south from Beijing, they are eyeing a new city, to relocate polluting industry away from the Capital. Within 24 hours of the announcement hordes of prospective buyers poured into the region. Highways were clogged as they came to purchase real estate, with some camping outside property agent offices overnight. It fast became unmanageable and the Government had to ban all property sales in the area.

In South Africa, political upheaval from the President's firing of his finance minister and installing a loyal crony as brought a swift reaction from credit rating agencies; S&P have downgraded South African debt to junk status, BB+.

In Australia, both regulators and banks are worried about the property frenzy that has reignited in Sydney and Melbourne. One bank has stopped lending to investors altogether. And regulator including the RBA and ASIC are racing to install new lending restrictions on investors.

And the Credit Suisse tax evasion case in Australia is widening. First there were a few over 300 names under investigation. In just a few days that has zoomed to over 1,000. Police phone taps are a new way the evaders are being identified.

In New York, the UST 10yr yield is lower again today at 2.34%.

Oil prices are down slightly today to just under US$50.50 for the US benchmark, while the Brent benchmark is just under US$53.50 a barrel.

The gold price is higher however, up another +US$5 to US$1,252/oz.

And the New Zealand dollar starts today pretty much unchanged from this time yesterday at 70 USc. On the cross rates the Kiwi dollar is up to 92.1 AU¢ following their surprisingly weak retail sales data yesterday, and against the euro is at 65.6 euro cents. The NZ TWI-5 index is at 75.1.

If you want to catch up with all the 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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21 Comments

by sharetrader | 4th Apr 17, 7:55am 1491249338

bank regulators see the correlation between investor lending and house price growth but politicians can not or are happy about it. unless they are supplying new houses I don't see how they should get more benefits than a FHB.

by Factboy | 4th Apr 17, 7:58am 1491249527

Does anyone know the latest with the IRD's idea of imposing capital gains tax on Precious metal (typically Gold and Silver) sales?

They floated the idea about a year ago, but I can't find any further reports since then.

Cheers for any help/info offered

by Triple | 4th Apr 17, 8:41am 1491252063

No formal decision has been made public.

by Factboy | 4th Apr 17, 12:05pm 1491264340

Wow they're taking their time and not dropping any hints. Is that usual for them?
I agree with a lot of the comments made below about how unfair it'd be to tax any gains on Gold and Silver, for many many reasons, e.g. No similar tax on Property speculation, shares and the MAIN factor (IMHO), Gold/Silver are the ONLY real money. The rest is currency and have MASSIVE counter party risks in a world of mass printing (via digital input of zeros.....i.e. VERY easily done).
History is abound with such 'TOKENS' reverting to ZERO i.e. their TRUE value.
Currency is only 'valuable' because the law FORCES it so, hence FIAT currencies.

by Ocelot | 4th Apr 17, 8:58am 1491253106

Are they trying to disincentivise alternatives to property investment?

by fat pat | 4th Apr 17, 9:32am 1491255146

What a ridiculous proposition. AMD shares increased about 700% since the beginning of 2016 (no tax payable). Property in Auckland has increased 200-300% since 2009 (no tax payable). if you buy Japanese Yen with NZD and the exchange rate suddenly changes in your favour you dont pay tax on that either. Why the heck should anyone pay tax on an increase in the price of gold which practically hasn't moved since 2009?

by middleman1 | 4th Apr 17, 9:59am 1491256745

Yes, it would be very difficult to justify when other classes are not similarly taxed (although Cullens FIF regime on offshore investments is effectively a limited form of capital gains tax). To be consistent they'd have to restrict it to active trading.

by Advisor | 4th Apr 17, 9:04am 1491253481

Another piece of news that may have massive repercussions for the US economy in the near future is the recently announced crackdown on H1-B visas. This could put the fate of hundreds of thousands of expat computer programmers in jeopardy.

by Boatman | 4th Apr 17, 9:08am 1491253716

The chaos in South Africa continues , and if we thought South African migrants were financially poor and arrived with little or no money , you aint seen nothing yet .

Their currency is practically worthless already , almost having halved in value in the past 60 months , to the point where the proposed monthly minimum wage of R3,500 pm is equal to what a Kiwi on the minimum wage earns in just 19 to 20 hours .

by middleman1 | 4th Apr 17, 10:07am 1491257240

And more will be wanting to come here as the country's political system sinks further into nepotism and SA is swamped by economic migrants from African basket case states.

by dtcarter | 4th Apr 17, 9:11am 1491253916

Strange, trump said H1Bs were great and campagined on expanding the program. Why the sudden U-Turn?

by Stephen Hulme | 4th Apr 17, 9:26am 1491254805

Just how important to the US economy car lending has become was revealed overnight in new data from the New York Fed. Personal lending is now back to 2008 levels of $12.6 tln. Of course, in that time incomes are now far higher so the relative load is less.

Yeah right!!!!!

Given the stubbornness of consumers now as it relates to autos despite “reflation” all over the mainstream, it just may be that they have over the past few years started to agree with the bond market view of the economy after 2013. Read more

by David Chaston | 4th Apr 17, 10:19am 1491257967

The US debt data is 'nominal' and that has not yet quite gotten back to 2008 levels.

The equivalent nominal pay data shows it has increased +19% over the same period at an average rate of about +2% pa.

Personal debt declined from 2008 at US$12.67 tln to US$11.15 tln in Q2-2013. Since then it has risen but not quite made it back to the 2008 level yet.

by Stephen Hulme | 4th Apr 17, 10:14am 1491257653

Thanks to its bilateral trade balance with the U.S., and its current-account surplus with the rest of the world, Japan finds itself on America’s watch list for currency manipulators at a time when the Trump administration is turning up the heat on economic friends and foes alike.

While there’s no argument that Japan exports twice as much to the U.S. as it takes in imports, it has reason to grumble about taking flak over its current-account surplus, which also includes income from overseas investments.

Unlike the other nations on the watch list, Japan’s current-account surplus mostly comprises the returns from investments, in the U.S. and elsewhere, not the profits from trade. Put another way, Japan finds itself in hot water partly because it’s making money from such things as auto factories it has built in the U.S., creating American jobs. Read more

Certainly. But the opportunity to indebt those same employees to underwrite option loaded profit transfers back to Japan can hardly be cast aside.

Vehicles prices since 2008 are dramatically higher. A $28,000 vehicle in 2008 is now $50-$55,000 and loaded down with new standard equipment features such as backup cameras, WIFI, Seat Warmers etc to justify the higher prices. Prices that can only be sold via cheap credit financing terms. It was to be an expected marketing strategy to drive profits higher while money was cheap.

As a result:

1. Vehicle Purchases were financed out over periods that bordered on the useful life of the vehicle (based on non- warranted maintenance costs),

2.Vehicles were increasingly leased on 2-3 year leases with high residual values and mileage limitations.

The government wanted it, the central bankers wanted it and the industry wanted it. To achieve this it meant a sustained period of cheap money and creative financing. But it comes with a price tag that must soon be paid! Read more

by David Chaston | 4th Apr 17, 10:30am 1491258629

If the claim is that car loan debt is higher because car prices have doubled over this period, then the NY Fed data suggests borrowers have been very restrained indeed.

The NY Fed data (a national series) shows that non-housing debt has grown from US2.69 tln in 2008 to US$3.62 tln in 2016. That is a +35% rise over a period ZH claims car prices have gone up +100%. That means car loan loads are lower now than then.

And the 'non-housing debt' data is more than just for cars. It includes student loans as well. Given these are also reported to be rising 'fast', that must also mean consumers are buying cars with less debt now as well.

Always good to be sceptical of breathless ZH claims. The data shows US consumers overall are reducing their exposure to car loans. And American claims that other countries are shifting profits back to their shareholders is laughably one-sided.

by Stephen Hulme | 4th Apr 17, 11:46am 1491263208

Always good to be sceptical of breathless ZH claims

Claims from those hyperventilating in the US are certainly the 'ordre de jour'.

But on the mass hysteria front, we already have evidence enough to fill a dozen books. And if it doesn't freak you out, it probably should. Read more

by Roger Witherspoon | 4th Apr 17, 10:34am 1491258865

Clever lot the Japanese. They have a steadily rising GDP per capita, partly due to their reducing population. It seems that it is verboten to mention this.
http://www.tradingeconomics.com/japan/gdp-per-capita

Having said that, ours is surprisingly good too:
http://www.tradingeconomics.com/new-zealand/gdp-per-capita-ppp

by middleman1 | 4th Apr 17, 10:43am 1491259405

Except for manufacturing !

by Stephen Hulme | 4th Apr 17, 11:23am 1491261831

Clever lot the Japanese. They have a steadily rising GDP per capita, partly due to their reducing population.

And still capital retains a rising percentage of that GDP compared to that passed on to labour. Read more

by middleman1 | 4th Apr 17, 10:41am 1491259288

Unless there has been change in American borrowing habits, with more now using house mortgages to finance student loan and vehicle purchases?

by CJ099 | 4th Apr 17, 2:25pm 1491272725

I guess interest rates will go up again from the Ozzy banks: Bloomberg article; Australia Losing AAA Would Spark Turn to Bank Debt, NAB Says
https://www.bloomberg.com/news/articles/2017-04-03/australia-losing-aaa…