Here's our summary of key events overnight that affect New Zealand, with news US-China trade tensions are rising.
Firstly however, the US Federal Reserve held short-term interest rates steady today and offered an upbeat assessment of the economy’s performance, suggesting another interest-rate increase is likely at its next meeting.
That upbeat assessment was reinforced by the data released in the ADP employment survey, a pre-cursor to the upcoming non-farm payrolls report. That showed a rise of +219,000 new jobs, the highest since February. But in a long-run perspective, an increase at this level is pretty average. Plus or minus +200,000 has been the norm since 2010.
There were also two separate American PMI surveys released overnight for July. Both show the expansion at a high level but slowing. In one, the slowing is minor (even though it is now at a five month low), in the other more widely reported survey, was even more marked. And perhaps the slowdown will continue. Major American carmakers have reported lower new vehicle sales for July from steep declines in passenger cars.
Data for US contruction spending for June was up a strong +6.1% above the same period a year ago. It was boosted by private spending; public infrastructure spending is on a downward trend.
The American Government need for new debt is rising. Today they said they will raise the amount of long-term debt it sells to US$78 bln this quarter and at the same time launched a new two-month T-bill. The new borrowing estimate for the third quarter is the highest since the same period in 2010 and one of the largest on record for the July-September quarter.
The US Administration is now expected to announce beefier 25% tariffs on a proposed US$200 bln in imports from China, up from the original plan of 10% tariffs, pressing harder on what it sees as an effective lever on the Chinese. Wall Street has shifted lower on the news, despite a banner result from Apple. China has reacted with anger and vows retaliation. It has already reacted by setting its currency lower today - and over the past two months has effectively allowed a -7% devaluation.
Away from the US, it is clear that factories around the world are facing some headwinds with output, exports, and employment rising but at a slower rate.
But it is not all bad for companies outside the US. American beef exports are being substituted in China for others, and that means our prices are rising.
In India, as expected, they have raised their policy rate again, this time by +25 bps to 6.50%. Inflation concerns are growing and they are also increasingly concerned about the effects of the trade wars.
In Canada, they are about to roll back their plans for a carbon tax. They fear their jobs market can't handle the impact.
In Australia, an interesting debate is gaining traction; it challenges the idea that recent virtue signaling by boards of directors, saying the pressures for 'modern governance' cause companies to both lose focus, and incentivise managers to twist direction away from their core function. The new head of AMP is blaming this top-driven social trend as a core reason his company lost its way and eventually failed its customers, its staff and its investors.
And staying in Australia, the expert opinion seems to be mounting that a severe house price reduction is on the cards. The falls have been very minor recently - down -1.6% in the past year - but some see this as a precursor to an overall -20% drop. (It's not a new idea, however.)
The UST 10yr yield is up at 3.00%. Their 2-10 curve has steepened slightly to +31 bps. The Chinese 10yr is at 3.50% (down -2 bps from this time yesterday) while the New Zealand equivalent is now at 2.82%, up another +3 bps. And in Japan, bond traders are bidding up yields there, unconvinced their central bank's stay-the-course policy is sustainable.
Gold is down -US$7 at US$1,217/oz in New York.
US oil prices have fallen back again today and now are under US$68/bbl. The Brent benchmark is down even more sharply to under US$72.50/bbl.
The Kiwi dollar will open today at 67.9 USc, a little lower than this time yesterday. On the cross rates we are unchanged at 91.7 AUc and at 58.2 euro cents. That puts the TWI-5 at 71.4.
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18 Comments
"The market now predicts house prices could fall by more than 10 per cent in Sydney and Melbourne from their peak by the time the market stabilises in 2019. They have already been falling for 10 months straight."
lucky this will never ever happen in Auckland as we have been told time and again by many a property spuiker
The end of the global housing boom; https://www.bloomberg.com/news/articles/2018-07-31/are-house-prices-fal…
Spruikers take note, the exits are closing fast and buyers no longer fear they'll miss out!
Predicting the size of a fall is absolutely impossible. To do so, implies that the author can predict what happens to that countries' economy and sentiment, other countries economies and sentiment with multiple interactions. Not only that, it implies that their prediction can be made accurately with respect to the time base as well.
Endeavour Equity Strategy said in a detailed 30-page report that more evidence had emerged to support its claims that about 40 per cent of all mortgages were "non-prime", based on the level of borrower's income relative to debts
I hope the Aussie government has enough room to borrow when the time comes to bail its banks out.
And in the United States Wells Fargo has just agreed to a fine of 2.09 billion, for misrepresenting the quality of mortgages in the lead up to 2008.If the housing market starts to tilt further ,our Australian banks could be facing a little scrutiny from disgruntled investors in the years ahead.
Lumber Futures Dump As US Construction Spending Slumps - Worst June Since 2000
https://www.zerohedge.com/news/2018-08-01/lumber-futures-dump-us-constr…
"Without a global economic rebound to create new demand for what China might produce, what are they left to do? We know the answer here in scattered decimation throughout our own country, America. Such one-trick towns used to be booming, too, but now they are collectively known as the Rust Belt.
Not so, says Western Economists. The Chinese are brilliant, a level of envy that is both a part self-loathing as well as jealousy. Economists fancy themselves as the engineers in Plato’s Republic, the enlightened geniuses who could properly order society (they actually call them “optimal” outcomes) if given the power and authority."
http://www.alhambrapartners.com/2018/08/01/rebalancing-decoupled-booms/
In Canada, they are about to roll back their plans for a carbon tax. They fear their jobs market can't handle the impact.
Who'd a guessed?
https://www.theguardian.com/environment/2011/dec/13/canada-pulls-out-ky…
What an absolute waste of time Paris is looking like. Trump is sure to be vindicated on that one. He's becoming the only politician the world over who can't be accused of virtue signaling!
They are no longer defending traditional values of national character and continuity, but rather catering to big business
https://www.theguardian.com/commentisfree/2018/jul/25/conservatives-bre…
Great article - an analysis in the Marxian (i.e., political economy) vein.
Loved this point:
When transnational corporations cannot be blamed for ripping apart communities and national character, immigrants must be blamed instead.
Fascinating proposition - not one that I'd contemplated previously.
Did you read this Kate?
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12099578
"The changes are consistent with what was flagged when new property valuations were released last November, showing house prices had risen on average by 46 per cent since the 2014 valuations.
Properties which rose by more than the average increase of 46 per cent will pay more in rates, and vice versa."
Anyone who thinks normal is a %46 increase in house prices in for years is living in some bizarro world, this is a nightmare, we could see prices retrench back to before 2014. Anyway no one can spend like a council.
Yes, sure did. The QV revaluations for council rating purposes take place every three years (so the revaluations in this case were actually done in 2017), not four... making the point you make even worse :-)!
The 2007 peak to the 2008 trough (i.e., the last external shock affecting our housing market) saw a 22-23% decline in Auckland;
https://www.interest.co.nz/charts/real-estate/median-house-price-growth
This time round, it's looking to me like we'll have another external shock (where AUS goes we'll go) and added to that the local initiatives relating to changes to immigration settings and the foreign buyer ban. So I'm guessing a correction possibly half again as much in magnitude as in 2007/08 - maybe double (or anyone's guess) depending on what form that external shock takes.
We've already seen a 7-8% drop in the median since when those revaluations were done (i.e., March 2017) - so let's say with this correction we get the 'half again as much as the last' - that would equate to a 33% drop from the 2017 median.
BTW - Liam Dann's recent opinion piece in the Herald is already talking about the RBNZ having room to move rates down in response to this falling housing market... will we never learn.
What is Trump's thinking on these global tariff actions?
I keep going back to the last global crisis and the little discussed/understood magnitude of the Feds emergency lending to offshore institutions;
https://www.nytimes.com/2011/04/01/business/economy/01fed.html
Perhaps the most surprising revelation in Thursday’s documents was that foreign banks quickly became the largest and most frequent borrowers. On Sept. 15, 2008, the day that Lehman Brothers filed for bankruptcy, the Austrian bank Erste Group borrowed $4 billion. By the end of that week banks from Spain, France and Japan had also borrowed billions.
An analysis of discount window lending from February 2008 to February 2009 shows that the vast majority of the loan volume went to foreign institutions.
Much of which I believe related to the spread of their domestic crisis into international trade finance and trade credit arrangements. From what I recall, letters of credit and other non-US bank/institutional arrangements were suddenly not being honored and hence goods couldn't ship - morphing the US liar loan/mortgage backed securities crisis into an all out global trade crisis. So the Fed opened the window to get world trade moving again.
This paper discusses research on how (had that trade crisis not been diverted by the Feds actions) the level of imports in to the US would have been affected;
https://www.dallasfed.org/~/media/documents/institute/annual/2009/annua…
U.S. imports would have fallen by 25.6% more if interbank rates had remained at their peak September 2008 level through April 2009, essentially doubling the actual percentage decline in trade volumes observed after September 2009.”
In other words, imports in to the US would have declined by around 50% (instead of the 25% that they did decline).
It does give food for thought.
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