Here's our summary of key events overnight that affect New Zealand, with news rising inflation risks and economic shock risks are on policymakers minds.
Firstly, a big bounce back in lending by finance companies especially for cars has seen American consumer credit grow sharply in July. It was expected to show good growth, but the data shows growth way above that expectation.
A conference organised by the Boston Fed seems to be arguing that faster rate rises are now called for and that Fed interest rates need to move up quickly to act as a restraint on rising inflationary pressures. The head of the Boston Fed has said he will start voting that way.
In China, inflation is rising. Consumer prices in rose at their fastest pace in six months in August as flooding and African swine fever drove up vegetable and pork prices. Apart from two single food-related spikes, it is now at its highest level in nearly four years, and rising. Meanwhile, producer prices are cooling off, but they are still rising at nearly double the rate of consumer prices. Given the trade risks China faces, officials there have limited tools to deal with the twin threats of slowing growth and rising inflation.
And staying in China, there appears to be steel in policy makers spines to enact a national tax on property soon as a way of reining in housing speculation. It's a risky move at this time, but such a tax has been declared a priority to be enacted this year. The threat to sentiment will be the thing to watch. Yesterday, both the Shanghai and Hong Kong equity markets fell more than -1%.
The latest reading on EU investor confidence has also seen a fast weakening, driven by emerging market concerns. This index came in way below expectations. If investors follow through, it will become self-fulfilling.
In Japan, a key economic sentiment survey has come in more optimistic that expected, especially for the outlook data.
In Australia. the RBA is warning their households and the financial system are over exposed to an economic shock with their debt levels very high by international standards. And they say the Australian banking system is potentially very exposed to a decline in credit quality of outstanding mortgages.
The UST 10yr yield has settled in at 2.94%. Their 2-10 curve is tighter however at just under +22 bps. The Aussie Govt 10yr is at 2.58% (up +1 bp), the China Govt 10yr is at 3.67% and up +2 bps, while the NZ Govt 10 yr is at 2.58%, up +3 bps.
Gold is little changed at US$1,195/oz in New York.
US oil prices are a little lower and now just under US$67.50/bbl. The Brent benchmark is higher, now just on US$77.25/bbl. The gap between the two is unusually wide at present. Normally it is about US$4. But fears of oversupply in the US is driving their price lower.
The Kiwi dollar is starting today lower at 65.2 USc, as the US dollar rises. On the cross rates we are at 91.8 AUc, and at 56.3 euro cents. That puts the TWI-5 at 69.2 and its lowest since October 2015. We are also at our lowest against the GBP since June 2016 and the Brexit vote.
Bitcoin is now at US$6,268 and down another -1.8% on the day.
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20 Comments
why are the RB surprised by the increase of debt to households over business? they are the referee and can rein that in if they want by raising the capital requirements for that class of loan, why dont they, because they want spending so are quite happy to look the other way until its almost too late.
Infuriating and laughable by turns. They preside over massive destruction of citizen equity without noticing, then wake up and issue dire warnings over the consequences of their own ineffectiveness.
The mechanism of substituting debt for equity by shareholder dilution seems to escape the very people who should be most alert to it. Instead of being the guardians of the value of the nation's treasure, the RBA and RBNZ have chosen to be merely the willing modulators of the interest rates on the debt farm. Their mission has become seeking to ensure maximum sustainable extraction at all time, and even then they aren't too good at the sustainable bit. Thus wealth is transferred from the productive populace to the banking system and banking becomes a parasitic technology rather than an adaptive and productive one.
Thanks. The juices were flowing there. I never know whether I will read it the next day and cringe at what I wrote. I am still in mild shock at finding this out yesterday, posted after reading and reflecting on the new governor's manifesto:
Hmmm, having reflected on the self satisfied nature of this discourse I thought I would have a quick check of the figures here:
https://www.interest.co.nz/charts/real-estate/qv-house-price-index
In 1992 the QV house price index was 460, it is now 2562. So the RBNZ has presided over an 82% reduction in the purchasing power of the NZD since it gained its independence. Unfortunately, it could have been worse, like Argentina, but it is hardly a record to be smugly complacent about. So here we have the head of a veritable shareholder dilution machine lecturing investors about thinking long term. Look in the mirror there guvnor.
Everyone sort of knows it in their bones. I was genuinely shocked when I saw those figures. Shareholder dilution is a hard concept to grasp intellectually, but we are all familiar with it. Hopefully I will get better at explaining it as time goes by. Taking 20 minutes to get the beach from central Nelson, instead of the normal 5, is a different example of shareholder dilution, only from more people and more cars rather than more money. "Watering the milk" is another description I have heard. It is a fascinating exploration of strangely familiar rabbit holes.
also our currency has suffered, in the 80's I was in the States and getting $1.05 US for every Kiwi$
Perhaps it's our currency thats going to suffer even more?
Mises
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Thanks JC, Roge, sharetrader and Andrewj.
A very good read... these types of imbalances have historically preceded revolution or war, it's all far too concerning for me today so I'm going to head back to the property section to play with the fools that leveraged themselves into it.
Why would you ever earn wages when they depreciate like that. Asset owners are winning all the way to the bank. I have numerous friends who paid 600k for farms 30 years ago that are now worth 6 mill while the wage earners are driving 30 year old cars
Fair comment, but if you're suggesting that the road to neo-serfdom will not come without negative consequences, I think you'd be misguided. It won't happen that easily, even though it's not clear that NZ is interested in any other alternative. And honestly speaking, I think part of this "road" partly explains why NZ has a problem with rampant meth enterprise. Call it "keeping up with the landowners."
Boston Fed
In September 2008 the death throes of the 158-year-old US investment bank Lehman Bros triggered ever more desperate, and increasingly unconventional, responses from regulators and central banks. Critics described those policies as "kicking the can down the road". Today, a decade later, that poor old can, battered and misshapen, is still rolling.
The major central banks still have their unconventional monetary policies in place, with interest rates still historically low and their balance sheets still stuffed full of the bonds and mortgages they have acquired since the crisis.
Between them the US Fed, ECB, BoJ and the PBoC expanded their balance sheets via post-crisis asset purchases by around $US18 trillion ($25.3 trillion). Only the Fed has so far begun the process of normalising rates and shrinking its balance sheet.
The GFC aint over yet
You should add the link to the source article for your verbatim post to avoid plagiarism claims, not that SMH IP lawyers frequent the comment section of Interest.co.nz. Just in case!
https://www.smh.com.au/business/the-economy/one-word-that-created-the-g…
...and where has that $18 trillion worth of new debt ended up? Answer: "Consumer credit grows sharply in July... the data shows growth way above expectation."
You have a bit; I have a bit; Blind Freddy has a bit. We all have taken on 'our share' of the debts run up by others over the past decades, and now we all have to repay it, one way or another.
That's the fallacy of QE; Low-Interest rates: Consumption Debt - you name it. It's all designed to transfer the debt to 'us' from those who actually incurred it. A good little System if you are in on it! The trouble is, most of us aren't....Most of us have more debt backed by the mirage of asset price increases; shares and property. That worked once. It may not do the trick next time, if there is another financial emergency....
They never factored the dollar, to appreciate why slowing from near 30% to near 20% might have instead confirmed some serious destructive influence for the whole worldwide economic system. In orthodox terms, the dollar is a simple price no more material than something like Amazon’s stock. It moves and is moved by buyers and sellers.
In the eurodollar system, however, the dollar tells us quite a lot about what really matters. If it starts to go up, that’s never a good sign. And if economic data begins to move the same way, that’s just confirmation.
http://www.alhambrapartners.com/2018/09/10/a-long-dollar-story-chinas-s…
The purpose of this year’s gathering was to decipher if there might be any lingering effects from “long spells” of low interest rates. From what I can tell, nobody addressed the biggest one – why there were long spells of low interest rates. They’ve moved on from all that to fretting over what that might say about the ability of Economists to decipher the major economic problems confronting the global economy.
http://www.alhambrapartners.com/2018/09/10/prefiguring-the-expected-exp…
I'm not one for conspiracy theories, but I wonder if internal combustion engine (ICE) vehicle manufacturers have goaded finance companies into increased and cheaper lending for vehicles as a way of flooding the market with ICEs as a way of combating the rise of electric vehicles? New ICEs have a half life of about 12 years, and definitely longer in NZ...
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