Here's our summary of key events over the weekend that affect New Zealand, with news the trade war consequences are now starting to bite in economically significant ways.
But first, Canada and the United States are in intense 'last-minute' negotiations over NAFTA and seem to have narrowed their differences. But there is no certainty an agreement will be reached according to various sources in Ottawa and Washington.
A measure of the US dollar's influence internationally, the IMF's quarterly review of global foreign exchange reserves, shows a rather sharp fall in holdings of the greenback, down to 62% and a sharp fall from over 65% at the beginning of 2017, and its sharpest fall ever. This data is on top of data showing the US is, for the first time, failing to attract foreign investment - in fact, there is a net outflow - and this will become a fast-growing problem for a country that runs huge deficits unless it is reversed quickly.
In Canada, housing affordability is at its worst ever. It now takes an eye watering 54% of household income to afford Canadian housing - on average. It is much higher in Toronto (76%) and Vancouver (88%). And the situation is expected to get worse before it gets better because interest rates are rising there. It's grim in Canada for first-home buyers. (The New Zealand average is 34% for FHBs, and the Auckland level is 43%.)
In Japan, and in somewhat of a market surprise, retail sales there turned up strongly in August. Factory output data came in positive as well. Their unemployment rate fell to 2.4%, and new data shows that 70% of Japanese women of working age are now employed, a new high.
In Europe, Italian stocks and bonds fell sharply at the end of last week as investors took fright over the fiscal stability of a country that is continuing to weigh down European markets. The immediate cause is an October budget from the new antiestablishment "Italy-first" coalition government, which has pledged spending and tax cuts that will likely put the country’s debt on an unsustainable course.
In China, the Caixin PMI signals a sharp slowdown in China's factories in September. Outbound investment fell in August for the first time ever. Mostly, that was a sharp pullback from investing in the US, but there is a redirection towards the EU. But the EU is also starting to push back.
China is on its Golden Week holiday this week and travel activity will likely reach gigantic proportions.
Pakistan is the latest emerging economy to raise official interest rates. And it has been the most aggressive so far. Over the weekend it raised its 7.5% rate +100 bps to 8.5%.
In Australia, their banks have been shamed for their sales culture which bred 'greed' according to the interim report from their Royal Commission into financial services. But the long-running inquiry stopped short of recommending any penalties, sending bank shares rallying. The main sectors in the Hayne cross-hairs are advisers and brokers, as well as insurers. Conflicts of interest in the way industry staff are paid are likely to change dramatically.
But one important consequence of the Hayne Report for banks is that they are going to be held responsible for borrower's claims about their income and expense commitments. If a borrower (or broker) lies about that, it is the lender who will be responsible if they don't pick it up on their verification process. This is almost certain to slow the approvals process to a crawl. Mortgage approvals are going to be a very much slower process.
Sydney and Brisbane are on holiday today.
The UST 10yr yield is at 3.07%. Their 2-10 curve is now under +24 bps.
Gold will start the week up +US$8, now at US$1,192/oz in New York.
US oil prices are up at just under US$73.50/bbl. The Brent benchmark is now just over US$82.50/bbl.
The Kiwi dollar is starting the week at 66.2 USc. On the cross rates we are little changed at 91.6 AUc, and at 57 euro cents. That puts the TWI-5 at 70.2.
Bitcoin is now at US$6,606 and and a dip of -1.3% over the weekend. This rate is charted in the exchange rate set below.
This chart is animated here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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29 Comments
IMF's quarterly review of global foreign exchange reserves, shows a rather sharp fall in holdings of the greenback, down to 62% and a sharp fall from over 65% at the beginning of 2017, and its sharpest fall ever.
Couldn't this just be indicating a sell-off in USD holdings to prop up a range of EM currencies over the past year or so? If your currency is getting smashed it's the first thing you'd do. And therefore there will probably be a lot more of this as the Fed shrinks it's balance sheet as there will be less USD floating around.
The difficulty of having people understand monetary theory is very simple—the central banks are good at press relations. The central banks hire people and the central banks employ a large fraction of all economists so there is a bias to tell the case—the story—in a way that is favorable to the central banks.
https://www.alhambrapartners.com/2018/09/28/incredibly-simple-economics/
If a borrower (or broker) lies about that, it is the lender who will be responsible if they don't pick it up on their verification process. This is almost certain to slow the approvals process to a crawl. Mortgage approvals are going to be a very much slower process.
More likely this will speed the process towards open banking. Suddenly your personal financial data will be sloshing between banks and insurers without anyone's knowledge, and a machine will decide what you can afford and predict whether you will default. In time, they will probably be able to predict the moment you pass away, with godlike accuracy.
Exactly. Banking seems to have become a more sophisticated version of the one armed bandit robot "gaming machine" industry. Lots of cover stories and legitimisation stories, but in the main, entirely parasitic. Just targets a different tribe of hosts. How do they do it? What went wrong? What to do?
Interesting re Canadian house prices. It seems to a worldwide issue in any desirable city.
https://www.telegraph.co.uk/news/2018/09/29/foreign-buyers-targeted-sta…
This is is how the UK plans to deal with foreign 'investors'. I think governments in the West have up to a point welcomed house price inflation as it produces a feel-good factor for many, and the perceived wealth boosts consumption. But the chickens come home to roost eventually. Wheeler's LVRs and Labour's foreign buyer measures hopefully will see us avoid anything like the Vancouver situation.
The above link is from the UK Daily Telegraph. If you follow it, you will also see how radically Jeremy Corbyn would tackle housing affordability.
Well, they focused for a long time on selling things off to foreign investors to benefit those born at the right time...and now they're finding out about the downstream effects they avoided thinking of. Seems an incredibly dimwitted approach to 'prosperity'. Why did so many in NZ politics likewise see it as a great approach?
See stamp duty rates for UK here, eye-popping
https://www.stampdutycalculator.org.uk/stamp-duty-rates.htm
Banking Industry Exposed & Solutions Presented - Dublin
https://www.youtube.com/watch?v=MechH0ebs_c
What's with the Naughty Italy stories? Who has been drinking the EUSSR kool-aid? A budget deficit of 2.4% of GDP seems downright miserly when you have 25% unemployment and your industrial production has been reduced by 25% since you became a colony.
Hotel California seems more appropriate than Ode to Joy.
Because with 60% of loans due for renewal over the next 12 months we collapse overnight if rates rise. Banks now selling fixes at lower rates to protect themselves and the economy and when rates go up next year will be suffering reduced margins for years. The daft (and there are loads of those) will think short term and fix for a year so the headache will come from Q3 2019 onwards when RBNZ rates are all higher and borrowers get a nasty shock for short term thinking.
It looks like banks are finding it increasingly hard to obtain assets (i.e. write mortgages). They're now scrapping over a limited pool of punters willing to take on housing debt.
Credit growth slowing maybe? Ask Steve Keen what happens next if you're at the tail end a credit fueled housing bubble.
Depends if you come from a culture where circumventing the rules is an essential survival skill? We might take a red sign seriously, but then we feel these things are part of what makes our society work. If you come from a society where the rules are made by a greedy power hungry elite, the you probably think differently.
The equivalent of a detached home in Vancouver is probably $1.5m in Auckland. Auckland median household income is $76,500. To pay that mortgage would be 115% of after tax income (assuming 20% deposit, 3% Kiwisaver, no student loan payments and incomes equally split).
You can get a single home in A reasonable Auckland suburb for less than $1.5m, and a lot less in some suburbs. A friend sold a sub dividable five-bed brick home on 800sq m in Browns Bay for $1.2m in February. Only two bidders though, and well under what it would have got in 2016. Simple problem now is that so many have mortgaged up to the hilt on cheap money that raising interest rates will body slam the economy. It will be interesting to see how history judges JK. The way he left was very odd. And in hindsight, it's a great shame that Bill English has been lost to public service. Cool hand Luke. No one in National comes close.
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