Here's our summary of key events over the weekend that affect New Zealand, with news markets greeted good US jobs data with considerable scepticism.
American employers added +250,000 jobs in October and above expectations, although that did not reduce its already low unemployment rate of 3.7%. Their key participation rate moved little and sits at just 62.9%. However average hourly pay rose +3.1%, the best in nearly a decade. Taking some gloss off the jobs result however was that September data was revised down by -16,000 to a low +118,000 in the month. Between September and October, the average rise is +184,000 and a quite ordinary result, about the same as the average in 2017 (+182,000). And it was hiring to deliver online parcels that underpinned the October level.
The higher than expected rise in wages brings forward the Fed's likely rate hikes and adds to their likely count. Consumer price rises are starting to flow into the economy. Wall Street fell -0.8% on the news while the UST10 year yield rose to back over 3.22%. The oil price fell. All that happened even though there seems to be some talk that a China-US trade deal is now possible - so clearly markets are sceptical.
The September American trade deficit has come in at -US$54.0 bln of which the Goods deficit was -US$77.2 bln and the Services surplus was +US$23.2 bln. That puts the overall annual deficit at -US$593 bln. They recorded their goods deficit with China at -US$37.4 bln and topping -US$400 bln for the year. The US goods and services annual trade deficit against all countries represents -2.9% of American GDP.
North of the border, Canada also reported better than expected jobs numbers. But they also came with a sting. In the 12 months to October, the number of employed people grew by +206,000 or +1.1%, with the bulk of the gains in full-time work (+173,000). Over the same period, total hours worked rose by +0.7%. But the October data showed a lower participation rate - fewer people are looking for work - down to 65.2%. Still, that is much higher than the American participation rate.
And in Vancouver, the slowing of their housing market is getting sharp. Sales volumes are down -35% year-on-year to October while listings are up +42%.
China has announced new job creation measures. Given the stresses their economy is facing, the announcement involved humourous language gymnastics to underplay the real reasons why such a new initiative is required. We should also note that the Shanghai stock exchange closed up an impressive +2.7% on Friday.
In Europe, the European Banking Authority has published results of a stress test it ran on major lenders from the EU and Norway, showing that a set of British banks and two lenders from Italy fared worst.
In Australia with their painful electricity price crisis, the installation of roof-top solar both residential and commercial has been supercharged and is running at all-time record levels. One consequence they will face however is that it will make their power distribution infrastructure uneconomic soon without huge reforms. Basically those on solar won't want to pay for that infrastructure, even if they want it there as a backup for when their micro-local systems fail or can't deliver what they need.
The UST 10yr yield is starting the week sharply higher at 3.22% and a +14 bps rise for the week. Their 2-10 curve is steeper at +31 bps. The Aussie Govt 10yr is at 2.70% (up +3 bps), the China Govt 10yr is at 3.55% and up +1 bp, while the NZ Govt 10 yr is at 2.62% and up +1 bp. New Zealand swap rates rose about +5 bps across all durations for the week. Our 2-10 swap curve returned to +82 bps, the general level it has been at since July.
Gold is down -US$4 overnight to US$1,232/oz. See this.
US oil prices fell today to just over US$63/bbl. The Brent benchmark is now under US$73/bbl also a pullback. Russia, Saudi Arabia and the United States all indicated they were pumping at record or near-record levels. The US's Iran oil sanctions are about to start, and they have issued waivers to eight countries to allow them more time to shift purchases. Japan and Korea are in the confidential list, and China may be as well.
The Kiwi dollar is starting the week noticeably stronger at 66.6 USc, and recall it was just 65.1 USc a week ago. On the cross rates we are also firmer at 92.5 AUc, and much stronger at 58.5 euro cents. That puts the TWI-5 at back up to 71 and its highest in three months.
Bitcoin is now at US$6,426 which is exactly where it was a week ago. This rate is charted in the exchange rate set below.
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21 Comments
i would think solar, a small wind turbine and battery backup for small towns in the far north of Australia will be cheaper over the long run that running power lines.
after all queensland has a LOT of solar polar so the argument comes down to is it cheaper to build big plants of to subsidize individuals to set up there own personal systems
https://maps.dnrm.qld.gov.au/electricity-generation-map/
In April the IMF published a report that stated global housing markets had become synchronised, which was also heavily reported across the world's financial media.
And yet, as we see the beginnings of a housing market downturn in other countries and cities... (Melbourne, Sydney, Vancouver, Toronto, Shanghai, Beijing etc) New Zealand property commentators stubbornly insist that even though Auckland was exactly synchronised with the global upturn, somehow, Auckland won't be synchronised to the global downturn.
https://www.imf.org/~/media/Files/Publications/GFSR/2018/April/chapter-…
One key question our governments have conveniently avoided is what happens with the newly-acquired permanent migrant population when the economy goes bust. Construction, retail and hospitality typically rise and fall in large swings with the economy; these are also the sectors where most migrants are employed.
Are we going to face a demographic disaster when the next downturn happens?
https://www.abc.net.au/news/2018-11-04/house-price-slump-weighs-on-econ…
Organised crime based around ethnic lines. It is already here, the foundations already laid. Then the Police have to recruit within those cultures to have at least some field capability thus opening the door to infiltration of the Police as they really have no ability to effectively vet interculturally.
Hi gingerninja
I think you need to look at what factors cause fluctuations in markets and how those factors are interlinked.
So yes, the upturn in the Auckland market was synchronized with many international markets(2012?) partially due to QE and a world awash with cheap money and consequently cheap interest rates. There were other factors involved - such as high immigration and land shortages - which further fueled the Auckland market but the cheap mortgage rates meant that Auckland was largely synchronized with other cities.
Is there a coming collapse in the Auckland market just because other cities internationally are falling?
I think that you need to look at the current drivers.
Yes, corrections in other cities will make purchasers nervous but this is CURRENTLY most likely outweighed by other factors significant to the Auckland market.
These factors include:
- continuing historically low (for NZ) interest rates most likely for the next few years due to RBNZ while interest rates increase in other cities around the world such as US Fed monetary policy (note that NZ bank funding is now less dependent on international sources)
- continuing very very high historically immigration rates (still at 60,000 annually) with Auckland being the gateway and seemingly preferred destination,
- shortage of both houses and available suitable land for development in Auckland (yes, solvable with a change in attitude in planning),
- prices have held despite demand being constrained by LVRs (especially for investors),
- very high planning and building costs and shortage of skilled builders, and
- a comparatively well performing NZ economy.
There are cases where house prices rises/collapses are not necessarily in sync; e.g. Iceland, Ireland and US especially which saw considerable collapses in house prices at the start of the GFC due to what had been reckless bank lending. This wasn't mirrored in other countries simply because that feature was unique to those countries.
Is there risk of a correction in the Auckland market?
Yes, but the cause of that will be a change in one or more of the drivers (e.g. either significant increase in mortgage rates, or significant change in immigration, or considerable increase in housing supply). A correction even in Australia will not necessarily on its own mean the same event here.
Personally, I see a stable housing market for the next few years as interest rates and immigration especially look to be continuing for the next few years at least.
In the event that there is risk of a significant correction (i.e. more than 10%) - which would lead to a degree of economic instability - you will find RBNZ easing LVRs while maintaining a low OCR to support a low dollar for exporters and low interest rates.
UPDATE: BT information released today supports contention that Auckland house market is not necessarily currently synchronized with those you quote.
Auckland now has 25 weeks of inventory, up from 18 weeks in March. When GFC 1 hit, Auckland weeks of inventory skyrocketed from 27 weeks (in Feb 08) to over 60 weeks (in April 08).
FED QE started in 25 Nov 08, NZ OCR went from 8.25% in Jun 08 to 2.5% in Apr 09. In Auckland housing inventory backlog almost halved in the 3 months from Jan 09 to Mar 09. Auckland house prices then embarked on a 10 year doubling process from $450k to $850k.
If there is another GFC event, will we see a similar increase in the housing backlog? This time with house prices at 10x average incomes, interest rates effectively as low as they can go.
Printer8/Nzdan...I think NZ interest rates can go a lot lower. And if there is any economic downturn that is what they will do. This will ease pressure on the heavily leveraged.
I think the more likely cause of a NZ property market downturn is not interest rate hikes but credit tightening, and it's a a feature of the credit cycle that we have seen reoccur over several decades.
I think the writing is in the wall for a global economic downturn coming. But, I still think NZ is in a better position to weather that storm than most. Our interest rate can and will be dropped to zero if necessary, which will help stem any serious housing downturn, unless unemployment rises seriously, which we can't rule out either. However, what tends to happen is that migration massively slows during a downturn and also, more Kiwis leave for opportunities elsewhere, which takes some of the pressure off unemployment figures.
I don't know how this one will roll out, there may not be a notable correction but the boom is certainly over, which means yield chasing elsewhere.
Personally, I think there will be a HUGE NZ property market crash when boomers start dying off, as they are holding a disproportionately high level of the housing stock. They are a much larger generation than the one they spawned so this will be an absolutely huge structural shift in NZ's economy. If NZ-ers have a high level of debt come the era that boomers die, then it will be a blood bath. May not happen if something else changes massively before then, but as it stands now, it's a property market time bomb for many world economies. There are cyclical downturns, but not all downturns are deep. I don't know what the features of the coming one will be, but if you look at the numbers on boomer generation size and wealth, then you have to conclude a major economic shift then unless something major happens to affect that before it happens.
China took on 3pp government debt to GDP each year despite growing at 6.5-7% over the past few years. These numbers were alarming enough before factoring in the ongoing trade war and the monetary and fiscal easing by their government to keep the economy out of harm.
https://www.transpower.co.nz/about-us/our-purpose-values-and-people/pla…
They see themselves as intermittent back-up by 2050, and localised generation the norm. Makes entire sense, least line loss. It may need spot-pricing at house scale - the sun is shining, power just got cheap here, the washing-machine turns on.
It may need spot-pricing at house scale
I'm intrigued as to why you think that is necessary, or even possible..
That seems like an exceptionally difficult task, with no real benefit at the local level given that neighbourhoods aren't ever going to be able to supply adequate redundancy.
This is about systems, you have to be able to see and understand the system before you can comment on it. If you had some engineering ability I might bother to give your comments the time of day, but it is clear you have a wonderful fantasy world going on in your head and very little practical ability. PDK is smart enough to understand he is an INTJ. The man is a fridgy, his qualitites give me a lot of faith in his systems analysis, and systems building capacity. PDK and I share something in common, but have both built a house from the ground up. You need to bugger off and spend a few years getting your hands dirty before commenting on here.
bahaha.
Okay. Just entertain me on this, then scarfie.
Tell me why we should create a spot pricing system for nested distribution networks under the main transmission network.
That is an extremely complex system. An exceptionally complex task for no real benefit. I'll put it into perspective for you, because obviously you cannot grasp the complexity despite your righteous practical experience...
We currently spot (shadow) price every GXP currently, which in itself is a very complex network given our infrastructure. You are supporting PDK's position that within each of those GXP localities we then go and set up a spot pricing for up to 100k households based on their own individual generation and supply capacities and the localised demand cycles.
I'm sorry. Think what you want of me, but PDK's comment that we need dwelling specific spot pricing was a bit far fetched.
It seems there is a disparity between what I think PDK is saying, and what you think PDK is saying. I don't think you have understood the problem, therefore don't understand the solution PDK proposes. But I would have to leave PDK to enlarge upon his proposal, should he wish to do so. One thing I am sure about is that if he does he won't be doing so for you, but for the benefit of other readers that may find it informative. Hopefully that will see that PDK is a builder, a creator, a solver, whereas you are a destroyer.
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