90 seconds at 9 am: Alibaba's rental platform

US inflation subdued; Tesla junk bond popular; China consumer confidence up, Alibaba offers full rental service; Putin uses Schröder; electric cars get boost; UST 10yr yield at 2.19%; oil unchanged, gold up; NZ$1 = 73.2US¢, TWI-5 = 75.6

14th Aug 17, 7:08am by David Chaston

Here's my summary of the key events over the weekend that affect New Zealand, with news the Chinese are leading the way in transforming the house renting process.

But first, American inflation was quite subdued in July, coming in at +1.7% pa and held down in part by weakness in the value of used cars traded, which perpetuates a soft trend that is puzzling Federal Reserve officials who expected an improving economy to be pushing consumer prices up at a faster rate. Services inflation is up +2.4%, and medical care up +3.7%. But it is the globalised 'Amazon effect' that is making it very difficult to win or afford price increases in most areas of their economy. Fortunately for the US incomes are rising at +2.5% pa.

On Wall Street over the weekend, bond investors lapped up the Tesla junk bond offer. The company sought US$1.5 bln, but got offered just under US$1.8 bln at 5.30%. The offer has been rated B- by S&P.

In China, consumer confidence is rising. The Nielsen Consumer Confidence Index (CCI) for China reached 112 points in the second quarter of 2017, up four points since the end of 2016 and the highest score since Q4 2013.

And their huge e-commerce platform Alibaba has signed an agreement with its home city government to use the company's technology to create an online system for housing rentals. The system will cover apartments put up for rent from all sources - the government, individuals, real estate developers and agents, according to the agreement signed earlier this week. People seeking rental housing the city will be able to use the application and website created by Alibaba for every stage in the process, from searching for apartments to signing contracts and payment. Information on apartments, user reviews, and credibility ratings of owners, renters and agents will all be shared.

In Russia, an official government decree published over the weekend nominated former German Chancellor Gerhard Schröder to join the board of the Russian energy giant Rosneft, a sanctioned enterprise. The company is majority-owned by the Russian government and has its headquarters near the Kremlin in Moscow. Schröder was the German Chancellor before losing to Angela Merkel in 2005 and was the leader of the German Social Democrat Party for seven years. It seems Putin has owned Schröder for quite some time, and will become the company's western voice to get those sanctions removed.

In the UK, the squeeze on local agriculture from urban voter priorities has pushed their local food production its lowest level in decades and raised concerns about 'food security'. Essentially, they may just be exporting their responsibility for sustainable agriculture, and refusing to pay the price their local standards require. Out of sight, out of mind. Inside supermarkets, prices trump the environmental impact for those same urban voters.

Locally, the National Party (rather than the Government) has committed to having one third of its total car fleet as electric vehicles by 2021. That will involve over 5,000 cars. That will jump-start the national goal of having an electric car fleet of 64,000 by the same date. At present, that electric fleet is only just over 4,000, so it is an ambitious target.

In New York, the UST 10yr yield ended last week lower again and will start today at 2.19%.

The price of oil has is basically unchanged and will start the week at just over US$48.50 a barrel, while the Brent benchmark is now just over US$52. The IEA has noted that OPEC members are not meeting their output restraint commitments. That is a signal prices may fall from here.

The price of gold has continued to rise, up another +US$6 to US$1,290/oz.

And the Kiwi dollar will start today a little higher at 73.2 USc. On the cross rates we are also higher at 92.7 AU¢, and at 61.9 euro cents. As a result the TWI-5 index is at 75.6. And bitcoin soared higher over the weekend, up to over US$4,200 at one point and is now at US$4,124. That is an impressive +20% jump in just three days.

If you want to catch up with all the changes on 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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19 Comments

by bw | 14th Aug 17, 7:17am 1502651836

".. the Chinese are leading the way in transforming the house renting process."
Could be. And....
"Beijing's regulatory crackdown on capital outflows is starting to cause some Chinese money to exit .... Even without debt, when you have the outsiders buying properties if the outside money pulls out and prices fall, there are innocent bystanders who took on debt and end up underwater, which could lead to defaults.Twenty per cent moves in house prices isn't crazy anymore."
http://www.afr.com/real-estate/residential/house-prices-face-china-exod…

by sharetrader | 14th Aug 17, 7:59am 1502654351

that's ok because national and there lead RE have told us they make up a small percentage of NZ buyers so wont happen here, cough cough

by RickStrauss | 14th Aug 17, 9:37am 1502660267

Fair point. I have never known Bill English or John Key before him to lie to us.

Cough.

by CJ099 | 14th Aug 17, 10:25am 1502663101

That's an excellent article BE thank you. This confirms what both myself and a number of other commenters have been trying to warn you about for the last year.

We all know that Ackland' s housing market has been dominated by overseas investors and Speculators in the last few years, decoupling it for wages and residents buyers.

Now that the foreign capital is highly likely to be extracted back out again. It's not just that the Chinese government needs to shore up their existing fx reserves, they also need that money for their 'One belt one road' business initiative that's going to take a lot of funding.

by Stephen Hulme | 14th Aug 17, 8:40am 1502656812

Fortunately for the US incomes are rising at +2.5% pa.

Not enough to overcome the current consumer malaise overwhelming the buyers of US goods.

In a fascinating article, Edward Luttwak contends that the car prices explain why Trump won and why he’ll keep winning. Hint: It’s because the majority of Americans can’t afford even a “mid-range friendly” car (emphasis mine):

Long-term processes of income redistribution from working people to everyone else, non-working welfare recipients as well as the very rich, had been evident for at least two decades.

Read more

by Stephen Hulme | 14th Aug 17, 9:10am 1502658627

It seems Putin has owned Schröder for quite some time, and will become the company's western voice to get those sanctions removed.

LOL - maybe it's part of wider plot.

Don't expect to read about these secret Beijing-Seoul talks on Western corporate media. And that's only part of the equation. The source adds, "there are secret talks between Germany and Russia over the US joint sanctions against those two nations and a realignment of the German position back to the Bismarckian Ostpolitik of a new Reinsurance Treaty with Russia." Read more

by profile | 14th Aug 17, 9:20am 1502659223

Where have all the young men gone? Why buy a damp over priced house when you can 'live' in a castle?

"the unemployment rate in America is at its lowest level for 16 years; if it drops a little further it will be at its lowest level since 1969. Yet some people — young men in particular — are completely disengaged from the labour market. (They don’t count as unemployed because they’re not looking for work.) In 2016 — excluding full-time students — 15 per cent of men in their twenties did not work a single week in the entire year. In the year 2000, the last time unemployment was this low, the comparable figure was 8 per cent.

One explanation is that they think there is no hope, but another explanation is that they would rather be playing a game. Food is cheap; living with your parents is cheap; computer games are cheap. Why work? Distinguishing the two hypotheses is not easy, but Prof Aguiar and his colleagues make a good case that the pull of video games is an important part of the story.

Joblessness is usually a reliable predictor of misery, yet men under 30 are far less likely to be unhappy than in the early 2000s. The proportion saying they’re “very happy” or “pretty happy” has risen from 81 to 89 per cent, almost halving the rate of unhappiness. The reverse is true for men over 30."

http://timharford.com/2017/08/fantasy-gaming-can-be-better-than-reality/
http://www.nber.org/papers/w23552

by bw | 14th Aug 17, 10:49am 1502664575

Anyone with even a passing acquaintance with the statistical pulse of the real-world economy knows the numbers are softening.

-- Auto/light truck sales: either down or off a cliff, depending on how much lipstick has been applied to the pig.
-- Restaurant/dining sales: down.
-- Tax receipts: down.
-- Retail sales: flat, stagnant or down, depending on the sector and if the numbers have been adjusted for inflation/loss of purchasing power.
-- Rents softening after years of relentless increases.
-- Consumer debt: hitting new highs.
-- Corporate profits: stripped of gimmickry, stagnant or down.

Those who study recessions know that employment often tops out just before the economy rolls over into recession. Strong employment is the last gasp of an expansionary phase.

(CH Smith)

by profile | 14th Aug 17, 11:58am 1502668717

So if we look at 1969 which was a level of comparable unemployment there was no recession until four years later. So to state employment tops out before an economy rolls over into recession is a fairly weak claim based on comparitive employment level of the two eras. In this case strong employment wasn't "the last gasp of an expansionary phase."

"the unemployment rate in America is at its lowest level for 16 years; if it drops a little further it will be at its lowest level since 1969."

https://en.wikipedia.org/wiki/List_of_economic_expansions_in_the_United…

by dictator | 14th Aug 17, 12:22pm 1502670166

Of those that are happy there's always a proportion of "poop sockers" who take MMOs too far. That crosses into unhealthy addiction.

That said I did have some fun playing GTA V over the weekend after getting some gardening done (before the rain hit). Something of significance is that PC gaming has gotten very cheap in recent years with the rise of humblebundle.com and heavily discounted games on Steam. Your money goes a lot further with gaming than what it used to.

One thing that I've noticed in NZ is that a lot of people's kids living at home are either studying or working. Just because they live at home doesn't mean they are unemployed.

by CJ099 | 14th Aug 17, 10:03am 1502661784

Actually that Alibaba ecommerce platform for rentals does sound like a good initiative if they're responsible for the contracts as well. If it gets expanded out to property purchase as well, then it should provide a good method to prevent money launders from entering in to the property market.
Since they can be easily vetted by one company.
No where for them to hide.

by Tom Joad | 14th Aug 17, 10:41am 1502664092

Ah diddums!

The assorted property spruikers and their "cheerleader in chief" Anne Gibson cry crocodile tears. Oh my heart bleeds that they care so much for the FHBs and the long suffering investors.

That headline for a start is a load of b******s as usual. At 20% deposit that's 100-120k for an entry level home in Auckland.

However, there's another possible solution to this so called "problem". Perhaps house prices could fall and become realistic vis a vis wages then people can save the deposit and take on a realistic amount of debt to fund their purchase.

Sorry - did I speak the unspeakable.

by RickStrauss | 14th Aug 17, 10:51am 1502664666

True. Bring down house prices and suddenly many things 20-30 years down the track become more manageable. Pension and retirement savings balance, the welfare load that'll be needed to look after those without a house, health costs born by the taxpayer (owner-occupied homes are warmer and dryer than rented houses).

And the ability to avoid the long-term stagnation trap of simply continuing to print more money and lower interest rates...

by ham n eggs | 14th Aug 17, 11:26am 1502666768

Unfortunately not quite that simple.
The financial system by nature mandates constant issuing of new debt. The (new) debt creates demand so that actual stuff appears like OIL & FOOD so that the economy (which is just resources being distributed) ticks over. Thats the system we have...
But you don't get your money for nothing (unless you continually reduce interest rates...) ... at some point you need MORE resources to get real growth to catch up.... And fighting that all the way is diminishing returns on just about everything .. abundant land, the scope of any technological breakthrough, new fisheries, easy Oil fields, the impact of pollution ...

So if the new debt cant magically help conjure up more resources (to grow the real pie), it has to pile in to asset prices. But as we are finding out, asset prices don't make an income (unless you are a slumlord). The pie doesn't grow per $$ ... the unit of the pie that each $$ has a claim on is just reduced.

Pension plans require a future bigger than today to function ... (a return on the saved "investments"). In other words (highish) positive interest rates ... but this impacts on the demand side due to debt servicing ...

Debt is a call on NET ENERGY & the net energy vice is squeezing us.

by Hardly | 14th Aug 17, 11:23am 1502666614

I find the organised campaign attacking deposit requirements interesting. It smells of desperation.

You have to ask what serves FHBs better - lower prices (and therefore less debt) or the ability to take on more debt.

As someone who bought a house with a $75K (~15%) deposit, I understand their concern .... but ..... the real rub is the cost of servicing the mortgage. Dropping the deposit to $100k leaves a $900k loan and that's $76K in repayments at 7%. Now they might be able to service that but if they can afford $76k a year I suggest they can save a extra $100k in a couple of years and should for their own safety and that of the financial system.

by Hardly | 14th Aug 17, 11:26am 1502666760

Maybe we should get rid of the LVRs and have a 4.5:1 debt to income ratio instead :)

by Boatman | 14th Aug 17, 12:08pm 1502669295

We would be remiss if we were to not recognize that the Next Big Thing i.t.o. technology could just turn out to be electric cars .

I was blown away at how many electric vehicles are on the roads in Europe and particularly the UK today compared to just 24 months ago (when I saw none on the roads ) .

Even courier vehicles are electric with FEDEX running Nissan EV 200 vehicles all over the place

by ham n eggs | 14th Aug 17, 12:53pm 1502672025

Yes - electric cars are a beautiful thing

www.dailymail.co.uk/news/article-4764208/Child-miners-aged-four-living-…

by Kaper2 | 14th Aug 17, 2:40pm 1502678436

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