Here's our summary of key events over the weekend that affect New Zealand, with news of more indications the top of the current economic cycle has passed.
The first estimate of American economic growth for the March 2018 quarter is out and shows an expansion of +2.3%. This was slightly higher than analysts expected (+2.0%), but well below the December 2017 quarter rate of +2.9%. This result is the slowest growth rate over the past year. Basically consumers reined in spending even though tax cuts improved take-home pay in many households.
The data also showed personal consumption expenditures (PCE), the inflation metric the Fed likes best, rose at a slightly faster rate. The 'core' measure, which excludes food and energy) was up +1.6% year-on-year although the q-on-q rate was at a more notable +2.5% rate. That is high enough for some analysts to change their forecasts to expect four Fed hikes in 2018 rather than three.
And the other major US consumer sentiment survey was out over the weekend, confirming the positive reading although the high levels are slipping.
Mortgage interest rates are rising in Canada. The new fixed rates are lower than here for terms shorter than five years, but similar at five years. Canada's central bank policy rate is 1.25% which is -0.5% lower than ours.
And the NAFTA negotiations seem to have stalled; reports indicate the US is wanting last-minute changes.
In Japan, their central bank has abandoned its attempt to predict when they will reach 2% inflation, another sign that country has yet to escape its long period of falling prices.
Norway's giant sovereign wealth fund is struggling to make gains now. It actually posted a loss in the first quarter of 2018, mirroring the difficulty other investors are having. Their equity portfolio was down -2.2% and their bond portfolio was down nearly -0.5%.
Argentina’s central bank surprised markets late on Friday by jerking its key interest rate up +3% to 30.25%, citing the effect a stronger US dollar is having and vowing to act again if high inflation persists. Inflation is running at +25% in Argentina.
In England, their growth rate slipped to just +1.2% in Q1-2018 and there is talk of 'stagnation' in their economy. Their currency fell on the news. And in March, 86% of all English properties sold for less than their asking price, the highest level seen since this metric started in 2013.
The UST 10yr yield is now at 2.96% and down -1 bp. The Chinese 10yr is up to 3.65% (+1 bp) while the New Zealand equivalent is at 2.91% (unchanged).
Gold is at US$1,323/oz in New York. That is up +US$7 since this time on Friday.
Oil prices however are little changed today at just over US$68 and the Brent benchmark just over US$74.50/bbl.
The Kiwi dollar is starting the week down at 70.8 USc after another retreat over the past week; it was 72 at this time last week, so a fall of more than -1c on top of the precious 1½c fall. On the cross rates we are at 93.4 AUc and 58.4 euro cents. That puts the TWI-5 on 72.8.
Bitcoin is however at US$9,301 and that is a net gain of +3.5% since Saturday.
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29 Comments
"The continued efforts by the ECB, BOJ and Swiss National Bank to keep their overnight rates at crisis-era levels is increasing concerns around the globe that central bankers in general do not have an exit strategy. ECB President Mario Draghi’s press conference on Thursday was a piece of obfuscation worthy of a teenager being interrogated by its parents. The EURO currency succumbed to the unequivocal dovish stance of President Draghi as he maintained that risk in Europe remains elevated. When a Handelsblatt reporter kept asking why the ECB had no road map out of the emergency measures that it implemented, Draghi answered that the ECB did not even discuss monetary policy at the meeting. WHAT? President Draghi made certain to present headwinds pertinent to the ECB: Fear of rising tariffs; the inability of European governments to devise a plan for unified risk sharing; and, of course, the continued failure of the EU to embark on a plan for fiscal stimulus."
https://www.zerohedge.com/news/2018-04-29/yra-harris-there-are-increasi…
As Andrewj has pointed out all the big central banks are doing it. We can only speculate about both the consequences and their severity. Which big economy will end up like Argentina or Venezuela?
In the end it all boils down to financial stability. Have we done enough in NZ? Maybe. Australia has had loose rules (light touch regulation) for a long time and are only just starting to understand how bad their financial system is.
I also wouldn't call the economic cycle natural as it is a man made process.
Westpac had an invalid risk model for mortgages in NZ. RBNZ isn't letting them use that model after review. Some have suggested it was to do with AirBnB income but I'm not sure of the details.
As such they are required to recapitalise. I would say they are more vulnerable but I don't know if they would fail or not. Given that 1/3 of the mortgages in Australia are fraudulent there's a risk they hold a disproportionate amount of dodgy loans.
Japan has wrecked its economy.
From website: https://www.ifitweremyhome.com/compare/NZ/JP
If Japan were your home instead of New Zealand you would...
be 35.94% less likely to be unemployed
live 3.53 years longer
be 74.48% less likely to be in prison
make 22.04% more money
spend 44.35% more money on health care
be 70% less likely to be murdered
be 53.59% less likely to die in infancy
sounds like the wreck we need. Now I'm retired I'd like more money, less crime and over 3 years longer life. Pity they are not keen on immigrants because it is tempting. I'm told it has an interesting culture too.
It's a confidence game. They should get onboard with the Swiss
The process began several years ago when the SNB swore that it would do what it could and using what methods were available to it to weaken the Swiss franc relative to the EUR and to the US dollar. It has succeeded, until recently, creating Swiss francs out of the thinnest of air, and selling those Francs vs. the EUR and the dollar, and then taking those EURs and dollars to buy European and US equities and debt securities.
"The SNB’s balance sheet is a CHf 813 billion (and given that the CHf and the US dollar are effectively at parity one with the other that CHf 813 billion is the same as $813 billion) and this is very nearly 125% of the Swiss GDP. By comparison, the Fed’s balance sheet of $4.5 trillion is but 25% of the US GDP. In other words, if the Fed is taken to task for being expansionary, the SNB is truly explosive!
Japan has perhaps one of the best standards of living in the world for ordinary workers and a huge comprehensive welfare state including amazing public services and much better disaster recovery. Nothing like our levels of deprivation - which is scandalous to my mind.
Japan has also proven most mainstream economics to be wrong. Huge fiscal expansion and massive public debt yet low inflation, pretty good real gdp per capita growth, low unemployment, and low interest rates.
By now Japan should be a banana republic by if you believed mainstream economists about the causes of fiscal crises, crowding out, bond vigilantes and QE causing inflation.
Funny how none of that has come to pass eh and Japan just chugs along nicely giving citizens a fairly decent standard of living.
Japan is problem free.
No debt problem.
http://money.cnn.com/2017/10/20/news/economy/japan-economy-election-abe…
Cash hoarding in their companies isn't a problem either.
https://www.ft.com/content/a439ddf8-b967-11e7-8c12-5661783e5589
There is also no problem with 25% of their population being aged over 65. Except that they are committing crimes because they want to go to jail.
http://www.newsweek.com/senior-citizens-japan-are-committing-crimes-bec…
The elderly being impoverished isn't a problem, they should just get more debt.
UK gets to Zero growth, central banks watch helplessly, perhaps more of the same that didn't work last time on the way?
https://www.telegraph.co.uk/business/2018/04/27/uk-economy-grinds-halt-…
http://www.alhambrapartners.com/wp-content/uploads/2018/04/ABOOK-April-…
https://www.theguardian.com/society/2018/apr/28/proportion-home-owners-…
You need to have a particularly dour outlook to conclude "it didn't work last time". The current expansion is now up to 30 quarters, if you start when the output recovered to be higher than before the 2008 recession kicked in (that is, counting the start from mid 2010). This is the second longest expansion since the 1900s, exceeded only by the 1991-2001 one (37 quarters), and the current one hasn't ended yet. This is data for the US.
The data for New Zealand is more impressive - we are in our longest expansion.
I agree this will not go on forever, but we have had plenty of time to "repair the roof" and I think the local ammunition to face another recession (they don't seem to last more than 4 quarters) is pretty good. Another recession will recharge the credit-addled memories of borrowers; another deleveraging period won't be bad for us, just as it wasn't last time.
Yes, a downturn is coming. They always do. But that will be followed by another upturn; they always do. Economic cycles are 'natural' despite the best efforts of politicians and regulators.
"The current expansion is already one of the longest on record. With another quarter entering the BEA’s books, it has been 35 since the last declared recession. At +2.3% for the current one, there won’t be another considered anytime soon putting this economy within reach.
"Yet, out of those 35 quarters only 10 have contained Real GDP growth meeting or exceeding 3%. In the late nineties, the tail end of the current recordholder, GDP advanced by at least 3% in fifteen consecutive. Now, it’s cause for hyperbole whenever this economy manages just two in a row (as it so rarely has). This is the scale of the current boom, the length of time alone."
http://www.alhambrapartners.com/2018/04/27/the-longest-falling-expansio…
Yes - and you have to wonder why?
Is it because they know the patient wont get up off the zero interest rate canvas if they stop pumping oxygen.
When this debt wall breaks countless promises about stability of debt servicing go under. Its not about so called wealth being written down ... the real problem lies in static incomes. A crash only makes this worse.
AndrewJ yeah, i'm not liking the prospects in the UK economy over the next couple of years...I don't envisage an ugly recession unless something else happens (another GFC or if Brexit negotiations suddenly go horribly wrong.. for example) but I do think the economy might retract slightly or stagnate for a longer time.
We've got a lot of money and assets tied up in the UK and have been taking steps to liquidate everything. We're just getting ready to sell our UK house (which was our home) for the upcoming selling season. We may get a bit less than we would selling in 2017, but have decided that selling now is better than waiting for even worse prices later. Prices in the UK Jan and Feb have fallen when adjusted for inflation already. (We will be paying our Capital Gains Tax to HMRC though before anyone asks... even though it's the only property we own anywhere in the world)!!!
GBP/NZD hasn't been looking too shabby lately either and we don't want to miss out on the opportunity cost of buying a house in NZ at some point now the market is cooling. No hurry though, we still don't see any urgency to buy in NZ.
Ms Ninja: it is the nature of a market that by definition you can never predict whether it will go up or down; you can predict movement but not direction. For example I clearly remember saying 4 years ago - Auckland house prices are to high they must go down and they did the opposite. Of course I can keep saying it and be right eventually.
So I recommend you decide where you will be spending in future (lets assume like myself you have chosen NZ) and then cash up and bring your money here. That is what I did and honestly it never bothers me that the house I sold in Spitalfields London would now have over tripled in price.
Hi gingerninja! My sister's friend sold her house in Queenstown way back in 2010. Their family rented thereafter and they never got a foot hold in the market again. Her stash got whittled down and she ran into health problems. They're basically broke and she's moving to her mother's place in Nelson soon.
Like Lapun says, don't sit around waiting for too long. Just think, every week everyone around you is paying off a little bit more of their mortgage. If the market goes down, then that's the new price. If you buy, then it won't hurt if you like where you live.
My advice is to build a nice house in the place you want to be, and be mortgage free as soon as possible. That would be a huge step toward your income independence.
Passed the cycle top, but Petrol Vehicles had better watch out.....You are being screwed as usual...
Boycott BP...for your own good......is my Firm... Belief..
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
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