US service sector cools; China service sector growth stalls; airfreight growth down sharply; Chinese investors lose on Australia property; UST 10yr at 3.20%; oil and gold unchanged; NZ$1 = 66.6 USc; TWI-5 = 71

Here's our summary of key events overnight that affect New Zealand, with news the economic expansion around the world is slowing very noticeably especially in international freight volumes, and the change is quite sudden.

But in the US, data was released today on the expansion of their services sector in October. The Markit survey indicated no change from their earlier flash result at a healthy level while the more widely reported ISM survey of the same thing showed a slippage. The Markit one indicated input price inflation up its fastest since September 2013, and the rate of job creation dipping to a nine-month low. The ISM one has the pace of price rises slipping back a bit, while the employment component dipped again. Overall, the US services sector is still expanding but at a slower rate.

Mid-term election results are awaited by markets; the S&P500 is level-pegging today and will probably do so for the next few days.

In India, their services sector's expansion is picking up with a strong boost in jobs growth.

In China, and unlike the official one, the private sector services PMI is flashing strong warnings signals. It fell significantly, dropping from 53.1 (similar to the official one), to just 50.8 and barely recording any expansion. That is now its lowest since September 2017. The subindex for new business dropped to its lowest point since November 2008. There has been a very sharp weakening of demand for services in China over the past month. And don't forget their factory PMIs are also near a stall.

This may not change soon. The US Administration's indications that it wants new negotiations with China and anticipates a deal soon is facing being ignored by China. China has got some American farm products on the ropes.

In Japan, their services sector activity is picking up and expanding faster. New business growth is up to near five and-a-half-year high. But they also report higher input costs. Even Singapore's PMI has bounced off its recent sudden dip.

However, China's slowdown is being matched in Europe and is showing up early in airfreight volumes. There were up only +2.0% year-on-year to September and well below the five-year average of +5.1%. International freight growth in the Asia/Pacific is down to just +1.4%, in the USA it is down to +1.5%, and in Europe to +1.2%. As regular readers will know, these are suddenly very low growth levels and undoubtedly reflective of trade tensions. Interestingly, even internal North American domestic airfreight growth has slumped to just +1.5% as well.

In Australia, there are reports that Chinese mainland investors in residential property in "the lucky country" are taking a bath. The only 'lucky' players are the Aussie developers. It seems, far from Chinese investors winning in these markets, they are turing out to be losers, with a net flow of funds and control away from China to Australian sellers. The Chinese got property that is worth less than they paid and comes with heavy liabilities; the Aussies got their cash.

We should also note that iron ore prices are currently firm and up almost +20% since mid July.

The UST 10yr yield is marginally lower at 3.20%. Their 2-10 curve is back under +29 bps. The Aussie Govt 10yr is at 2.73% (up +3 bps), the China Govt 10yr is at 3.56% and up +1 bp, while the NZ Govt 10 yr is at 2.67% and up a substantial +5 bps.

Gold is down -US$3 overnight to US$1,229/oz.

US oil prices are little-changed today to just over US$63/bbl. The Brent benchmark is now over US$73/bbl also little-changed. This stability shows that markets have fully priced the US Iran sanctions which are now in effect, and prices are lower now than a few weeks ago.

The Kiwi dollar is starting today unchanged at 66.6 USc, and exactly the same as this time yesterday. On the cross rates we are also unchanged at 92.5 AUc, and much the same at 58.4 euro cents. That leaves the TWI-5 at 71 and near its three month high.

Bitcoin is now at US$6,414 which is virtually unchanged from this time yesterday. 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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43 Comments

Trade me cracks 13000 listings in Auckland, currently at 13010 and rising

Last summer the inventory topped out at about 12500.

There seems to be a renewed enthusiasm to exit.

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Chinese investors will soon lose big on NZ property too. As at 2016, Auckland's 6.6 per cent "ghost house" vacancy rate was higher than Sydney (5.2 per cent) and Melbourne at (4.8 per cent). Many spruikers here were quick to marry Auckland up with Sydney and Melbourne as an international city on the way up, but conveniently choose the divorce option on the way down. Expensive real estate is no longer in short supply in any of these cities.

I still find the stats for the so called "vacant houses / ghost home-owner around 6 to 7% very hard to believe .

The absolute numbers dont seem to stack up

There are circa 550,000 homes in Auckland , so the suggestion is that somewhere between 35,000 and 40,000 houses are vacant ?

That equates to one heck of a lot of empty houses , and I just dont see it .

Where are these 40,000 unoccupied houses ?

I've got about 10 within spitting distance of me. This is from 2016 - https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116... census data is out soon I think? That'll show a whole load more.

Millwater

The electricity retailers and water-care could tell you that - but they won't

I can count three down my street, been no one in them for ages, pity we don't have a squatters right law I would move in and claim one

There are few holding the levers of power with squatting form, back in the day, so you never know what might play out.

Everywhere!

Once you start looking you see them all the time, they stick out like dogs balls

Barfoots
Volumes UP,
Prices UP in October

October 22 now passed
Looking forward to November

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" The Chinese got property .... the Aussies got the cash."
That was always the idea! And will continue to be so. Swap 'paper' for property, farms, companies, gold, utilities, software developers, toll roads, railways - the whole lot!
Instantly created CCP paper, disseminated to ex-pat citizens was swapped for tangible assets. The price and the future 'value'? Irrelevant...

bw understands how this works. No different from offering beads, blankets and axe heads in exchange for large areas of land.

“The Chinese got property that is worth less than they paid and comes with heavy liabilities; the Aussies got the cash.” - How long do the Chinese suffer this for before selling and exacerbating the AU housing losses?

I guess when the economic situation in China worsens even further and offshore investors in Australia and NZ properties have no alternative but to hit the 'emergency exit' button on their property portfolio.
A gentle reminder: the great housing investor exit of 2008 did not happen because market prices were falling. No speculator in their right mind would exit their position when the market is at its low.
Instead a slowdown in economic activity followed by more layoffs and less hiring impaired the ability of household borrowers to service their debt. So many of the flash listings were from foreclosures.

A lot was because it was near impossible to get the banks to lend any money at the time.

Yep - that's the whole point. Property is real (and limited) whereas cash? Isn't. And digital representations of cash held in the computers of fallible institutions, is worse isn't.

As to whether they sell, the question is whether their 'debt' back home is forgiven. Command economy. Could happen. We should have never done the opium thing - payback was always going to be inscrutable.

Well, monetary conquest has been going on a long time. You would think that if their debt was forgiven back home it would be a one off as no one would trust China again. All our debt based economies are held up on is the belief that debt is backed by future labour/production and if the debt was written off then you would feel a complete sucker for accepting the paper. Time will tell I guess.

Is that Trump a fool or a genius? If his trade war with China reduces China's trade surplus to a deficit, the cost of financing US government over spending goes up as they lose a customer for their government debt (the purchase of which by China is the engine that pulls Chinese trade out of China). This puts pressure on Congress and the Senate to reduce their wasteful habits and drain the swamp, something Trump cannot do directly.

Of course, the Chinese can just continue to purchase Western government debt in order to pull Chinese goods out of China. Is this why our government debt and the Aussies' is so low yielding? Are our government's wasteful ways being enabled by the CCP?

Yes.

Conquest by any other means Take a look at China's threat to us

Deleted - dual post

Interesting comment from a landlord on another forum.

There has been some comment about the end of letting fees, which I support, and as I predicted my property manager informed everyone that there is now a fee to commence a new tenancy for the landlord and its approximately half what a normal weeks rent is.

Now that the fees are being charged to the person that makes the hiring decision on the property manager they have halved. Fancy that, when the person that pays the bill is the one making the decision about who gets the work it becomes a lot cheaper.

This comment was aimed at government but equally as relevant here - “There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.”

I'd say its more relevant here, whereas its just a huge load of cobblers when aimed at govt. Typical right wing tosh.

Yes, of coarse... The government is perfectly altruistic, beyond reproach in anyway, practically Jesus incarnate....

Not what i said.

Economies of scale, the ability to organise and execute long term plans, the ability to regulate to get desired outcomes.

There is a bit more to it than Govt = bad, Me = good, simplistic right wing thinking,

Good to see your leaping to conclusions again. You said “a load of cobblers when aimed at gov” hence my response. I acknowledged that it was true for both business and gov but didn’t say anything about me.
I do believe I could spend my money better than others could spend it for me but I’m not so arrogant as to want to spend other people’s money for them.

Anyway, I was trying to agree with you and point out why but alas, you can’t see the forest for the trees.

I cbf with this shit again, have a nice day.

Describing the Chinese investors in Australia as "taking a bath" gives the wrong impression to readers. Who reading that wouldn't think it was due to plunging property prices or something? Yet the article is about people being swindled out of their money by a dodgy property company that misappropriated their investments.

How many of the commenters above read the article?

This seems like a typical example of fake news. Not entirely fake but entirely deceptive as the details in the paragraph that mentions Chinese losses bears no resemblance to the article linked to.

I agree, it appears the Aussies did NOT get their money. The funds were swallowed and never seen again by Ausin China.

Yes, but the insight into just giving Yuan to the real estate agent to get around the rules to prevent capital outflow is interesting. Very entreprenurial of the real estate agent, who presumably is now undergoing "re-education" having handed over his gains to the authorities in order to save his life.

Actually, all the reports cite that Ausin China branch was helping Chinese citizens smuggle money out of China into Australian property markets to get around the capital controls, so I think everyone entering the Real Estate deals via Ausin China must have known that they were up to something dodgy.

Also, "taking a bath" refers to an investor taking a big financial hit, which is not inaccurate. According to the few reports I have read on this nasty bit of business at Ausin China, the company has tanked because of the various changes in the property market (regulation, credit tightening etc). Ausin China was clearly operating in the high risk zone (often the kind of firms that fall first when the tide turns). High risk, high returns and high risk of losses. Investing 101. None of the Chinese investors quoted were n00bs, they have all been investing in Oz property for years, own multiple investments and have been financially profiting from the loop hole Ausin China provided them for smuggling capital out of China.

They seem like n00bs to me, giving hundreds of thousands of dollars to someone and getting no receipt. All my property transactions are done by solicitors and banks. My solicitor would have sternly advised me not to proceed.

The paragraph should have some links to articles detailing how Australian property developers are getting lots of Chinese cash and how investors are losing bigly in a legitimate way.

Well, from the 3 or 4 reports I read and various interviewed, they all had bought several owned several Oz investment properties, including having bought via Ausin previously over a decade with no problems.

I think if you enter into an investment using dodgy cash smuggling loop holes, there tend to be less ticks in boxes and receipts.

100% fake news.

The average Chinese person has 6 showers and 3 baths a week.

...whereas the British religiously take one bath a week whether they need it or not.

I haven't had a bath in years!

Zachary, if you'd taken a bath already you'd have the luxury of being a much wiser specuvestor.

Comparing Barfoots metrics to burger metrics and purchasing power . The average Auckland home is now 151000 NZD below its October 2016 peak when adjusted to USD .Having peaked at 706717 USD in October 2016, the average is now at 611104 USD, a level last seen early 2014. How many extra burgers can you buy with 150K

Maybe the Auckland Chief Economist can throw some light on this given he has access data we don't have ?

This story about tens of thousands of allegedly empty houses in Auckland continues to trouble me .

Surely there is a reliable source of data available from the authorities such as Auckland Council ?

Barring empty holiday homes , I find the rumour of tens of thousands of empty homes ......... unbelievable .

You are either lazy or stupid.
You can answer this question in literally 30 seconds.

http://archive.stats.govt.nz/Census/2013-census/profile-and-summary-repo...

It would be interesting to compare these numbers with power or water use age. And one would think something councils/gummit would want to know before making all sort of policy and legislative decisions?

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