Here's our summary of key events overnight that affect New Zealand, with news investors are suddenly heading for the exits, seeking safety.
Volatility returned to Wall Street with a vengeance overnight with the VIX jumping a 24 day high, and the UST 10yr benchmark bond yield slumping to a 45 day low. Driving the mood swing was downbeat guidance from JP Morgan, and rising worries over the Italian situation. Wall Street is having its biggest one-day drop in a month.
The Dow is down almost -2%, the S&P500 down more than -1.5%. These are major retreats in confidence by equity markets. They come after -½% falls in Asian markets yesterday, and more than -1% falls in Europe but the later Wall Street dump will likely add to drops in Asia again today. Australia and New Zealand won't be immune.
The American drop came after data was released showing consumer confidence actually rebounded in May, but households were a bit pessimistic about their short-term income prospects even as they expected strong job growth to persist. And house prices keep rising faster than expected, driven by low inventories of houses for sale.
But, then the White House seemed to double down on its anti-trade agenda, particularly targeting China. The Chinese aren't happy.
In Italy, the head of their central bank warned overnight about the risks of losing their "asset of trust" (see p19). He has hit the nail firmly on the head there. It is a comment that has not gone unnoticed by markets who have trashed their bonds today, suspecting the voters of Italy have already damaged that trust. The spillover to Wall Street was swift. And the stakes for the euro are rising.
In Australia, consumer confidence has taken a "substantial" tumble, driven by homeowners concerned about falling house prices in Sydney and Melbourne. It fell by -3.2% last week, falling for the first time in seven weeks.
And the unintended consequences of the Hayne Royal Commission are starting to be realised by the wider community. There is a growing understanding that its approach may actually trigger something worse that what was set up to fix.
The UST 10yr yield has slumped to 2.79% down -14 bps as Wall Street reopened after their long weekend break. The Chinese 10yr is at 3.64% (unchanged) while the New Zealand equivalent is at 2.76% (up +2 bp). I doubt either of these levels will hold today given the changed Wall Street mood.
Gold is up another +US$6 to US$1,303/oz in overnight trading, a modest rise in the circumstances.
Oil prices are marginally firmer and holding at the new lower level. They are now just over US$66.50/bbl in the US and the Brent benchmark is now just over US$75.50/bbl. In China, natural gas prices are rising as regulators push energy companies to reduce coal use.
The Kiwi dollar will start today just under 69 USc. But on the cross rates we are also weaker at 91.9 AUc and 59.8 euro cents. That puts the TWI-5 down to 72.2.
Bitcoin is now at US$7,504 ending a four day weakening run and is now +3.7% higher than this time yesterday.
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51 Comments
Yep, as I have predicted/commented before. World economy not that healthy. The US bond rates that financial people put so much emphasis on for interest rates guidance going down. 3.0 was supposed to be the big crunch point. It's been moving backwards since as the Fed rate hike chances are disappearing. My bets on interest rates going down here is looking good now.
Chessmaster, a lawn mowing contractor we used predicted a year 1/2 ago our heavily indebted global economy could easily stall with higher interest rates. I agreed with him. Now a person of leisure, I mow my own lawns but I still agree with his prediction. Given the darkening global outlook, have you also revised the outlook for property from up-up and away to something more earthbound? As we comment, the forward thinking RBNZ is considering the use of "unconventional" weaponry.......
Hi RP, my comment was for interest rates. Overall, longer term fundamentals (immigration, low rates and supply demand) on property have not changed and it will go up.
Anyway my area of interest is central Auckland surburbs where I've had massive gains every single time even in GFC. My opinion they are still going up in central surburbs with all the sales of decent properties with freehold land I have followed.
Do you seriously think people can get ahead any other way. Share investments complete hit and miss, better chances at TAB. Shareholders get fed very limited information and the so called experts advising really base decisions on limited press releases. Good way to lose money. Commodities are massively manipulated by the big players in the world and the common folk can lose a lot of money. Savings and term deposit why bother with that low interest rates. Mate, I've invested in all these areas and I'm speaking from personal experience. At one point, I had a significant amount of cash sitting in bank earning sub 2% as I thought property prices will crash - Dumb decision.
Owner-occupiers - if they are in a position to buy a family home they should go for it and choose not to wait for prices to crash. It simply won't happen in the good surburbs, even if it does they don't have to sell as long as they are in stable jobs. Buy your family home and start paying it off. No better, safer way to get ahead.
For investors, if rental yields work for you and property has some subdivision potential, I reckon investors should go for that as well. At least you have something tangible you own, safer than shares, commodities and crappy bank deposits.
What do you recommend people do with their money mate. Also all you other guys bagging property, share your thoughts on making money some other way.
Banks are more likely to hold their cash in a market crash situation and hand out loans very carefully out of fear of widespread defaults and delinquencies.
The pre-GFC mortgage approval rates in the United Kingdom ran at around 110k a month and soon after the flash crash fell to around 30k in 2008 and remained around 40-50k a month till early 2014. This came despite the Bank of England cutting interest rates from 5% down to 0.5% in the span of a year.
Time will tell I guess. This is likely to be the start of a 'debt beauty parade' where the biggest, or prettiest (most diverse economies with low debt to GDP levels and lower household debt levels) get the support of low rates in the bond markets and the others, well in simple terms, don't.
Someone commented to the article on Stuff about people earning over $100k a year and finding it tough
https://www.stuff.co.nz/business/104269224/highpaid-families-feeling-th…
"The next recession is going to be glorious."
Badrobot, that article makes for some grim reading.
"He said mortgages should not be a major factor because interest rates were still low. However, if people have overstretched themselves to get into a property then, given the current environment of minimal wage growth, it's possible that some are struggling to make ends meet". Gareth Kiernan.
Ya think? What an idiot comment. Quite obviously a large number of people have overstretched themselves to a buy a house at record prices.
2007, I remember people selling credit cards in The Palms mall, Shirley, Christchurch, basically to exploit a certain low, middle income demographic.
The stuff about payday lenders, jumbo mortgages, mobile phone contracts, is reminiscent of that time. Only it seems to have trickled up to high income earners.
Phew, just as well only 3% of our sales went to foreign buyers, according to that unintended consequences link, 40% of applications were made by Chinese in Australia. I'm so glad that National assured us that foreign buyers weren't a problem in NZ, just imagine if they had been - wow that'd be an iceberg for our titanic housing market to circumvent...
It might be an idea for Maxwell Smart of Control be brought out of retirement to combat Donald Trump of Chaos (forget the K.) What happens next? The last person who would seem to know that is Trump himself, but the man is in his seventies, not much likelihood of change.
hmmm .. how systems collapse
https://www.oftwominds.com/blogmay18/system-collapse5-18.html
"When buffers are paper-thin, a crisis that would have been overcome with ease in the past triggers the collapse of the entire system. Everyone who based their faith in the system on its surface stability is stunned by the rapidity of the collapse, for how could such a vast, apparently robust system implode with so little warning?
We are only one truckers strike away from meltdown in our JIT world. As 70 million chickens just found out.
"With the strike entering its second week, truckers on Monday ignored an offer from Brazil’s President Michel Temer to cut the price of diesel by about 12 per cent, leaving cities in Latin America’s biggest country without fuel at petrol stations and with growing shortages of essential goods, from fresh fruit and vegetables to medicine.
The strike, which forced the reduction of public transport services in key cities and the culling of more than 70m chickens due to lack of feed in the world’s largest poultry exporter, was set to worsen with oil workers saying they would down tools on Wednesday."
https://www.ft.com/content/7e6b0e4c-62c9-11e8-90c2-9563a0613e56
Change the process order and change the answer. The climate models our zero carbon utopia is based upon are largely impacted by process order. Might pay to sort these details out before we go stone age on our economy. Perhaps we could set up a working group?
"The work shown here has demonstrated that changing process order can have a very large impact on
model behavior. Comparison of model solutions against observed data for a set of 24 simulations with different process orderings has shown that the impact of process order can be dramatic."
https://agupubs.onlinelibrary.wiley.com/doi/full/10.1002/2017MS001067
The various models used by climate scientists provide results that vary from situations where we need to be cautious about our future world climate to scenarios that cause immense concerns. Fortunately there are other signs that tell us very clearly what is already happening. These are ever increasing volatility in weather, melting ice - especially in the Arctic and now an acceleration in the rise of the levels of our oceans/seas.
Ice melts and sea levels rise during an inter-glacial. Better to spend you money on research and resilience than stone age you economy based on a few dodgy models.
As the IPCC put it regarding sea level rise - "While it is likely that extreme sea levels have increased globally since the 1970s, mainly as a result of mean sea level rise due in part to anthropogenic warming, local sea level trends are also influenced by factors such as regional variability in ocean and atmospheric circulation, subsidence, isostatic adjustment, coastal erosion, and coastal modification. As a consequence, the detection of the impact of climate change in observed changes in relative sea level remains challenging."
AR5 WG II 18.3.3
Actually I have faith in our biologists not so much in other fields of science. It will take rather dramatic impacts upon human populations to stimulate the changes required to stabilise our world's climate but there is hope. For example; we can change most of our deserts back to greenery, build terra preta soils in our tropics, increase the suberin component of plantation plant species, get farmers to stop the stupid burning of high carbon organics. Also move to more holistic land management policies. Sadly there will be more catastrophes before stupid humans really wake up and start to fund such. policies.
Good grief Didge. Do yourself a favour and read a bit more widely.
Nature Rebounds
https://phe.rockefeller.edu/docs/Nature_Rebounds.pdf
Ourworldindata.org
Good grief Profile what an arrogant claim on so little data. I probably read enormously wider than you and I surely have both the money and time to do so. Indeed, I am well aware of the thrust of the article you quote but must admit that a little of the non essential detail was new to me. Incidentally, I am a fan of re-wilding and although it is a force in the right direction, there are very serious doubts that it could possibly be among the leading forces we will need to be able to counter climate change. Sadly, the moderate benefits of increased carbon dioxide to plant life is too often used as an excuse for humans NOT to reduce our climate change inputs.
You just strolled through ourworldindata.org inside of an hour... You must have a lot of time and money! Speaking of arrogance - people who think that they can control/counter climate change by government decree arrogant much? Given you are so knowledgeable may I ask what is your preferred rate of inter-glacial warming?
I'm a fan of re-wilding too.
My thought after several market crashes, including 1987, is that there is about a year of warning. Market jitters about all over the place for a while, like described above for today, followed by the big bump down later on. Your thoughts ?
(disclaimer - never been keen on the chartist approach)
I think you're right, and it's reflected in the charts. Take a look at S&P500 for 2007 to May 2009.
"Short the Kiwi, long the Aussie". Hmmm....In the SHTF scenario, I think it's better to be short both. You won't be hearing that story at the BBQ. The sheeple believe that the Antipodes are some kind of "save havens." as opposed to speculative targets.
https://www.bloomberg.com/news/articles/2018-05-08/-141-billion-manager…
A half of voters was a generalization.....I was aware of his "shortcomings"...via Electoral College count...
I am also well aware of the reason Trump won.....and America lost, Two wrongs do not make a right .
Electoral College is probably the term needed by ALL of Americans...a lesson we should all learn.
Nit picking...and picking the biggest Nit....a real doosy.
Deep Debt, deep doodoos...corrupt Leaders....never yet met a poor pollie....as I have said many times.
the problem in the USA is they can't back off anything or work anything out. It's the whole lot of them, don't just blame Trump.
In the world order they cannot solve anything either and become the troublemaker. Maybe that's what happening between them and China about trade. The USA just make trouble and it ends in SNAFU.
In regards to Iran the USA is blowing it's trumpet and messing up big time. So the European leaders last week gathered together and tried to work past the USA. A significant change and the USA is becoming isolated.
The two Korea's seem to be operating together (yes we know there are lots of buts to that) but it looks more and more that the USA is isolated from any progress and has made itself the outsider and trouble maker in finding progress there.
Italy is a long way away for the average Kiwi - but I think it is going to be the powder keg that explodes the current neoliberal settings in the EU. What's going on there could destablise the whole neoliberal Euro project. And about time. Unfortunately it will be accompanied by a national socialist politics that will be brutal for immigrants and those outside the conservative moral frame. Watch Italy.
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