Here's our summary of key economic events overnight that affect New Zealand with news of rising frustrations in China.
But first, we get the May American non-farm payrolls report tomorrow and analysts expect it to rise by +325,000 jobs. But today, the precursor ADP Employment Report only signaled +128,000 new jobs, and if the non-farm payrolls report comes in like that, it will be statistically disappointing.
The latest job cuts report delivered historically low levels. But for technology, fintech, construction, and the car industries, these all reported jumps in layoffs.
New US jobless claims came in at 182,000 and less than expected. There are now 1.26 mln people on these programs, yet another record low.
April factory orders rose, but not by as much as was anticipated. But they were up almost +13% from the same month a year ago.
US central bank officials were out speaking overnight, and all had the message that steep +50 bps policy rate hikes might be needed for longer than originally indicated, perhaps through to September.
And separately but related, an overnight New York meeting observed that digital money, a curiosity just a few years ago, is emerging as an intense concern among central banks with the potential to erode the power of monetary policy, and even in the best of worlds, likely to make control of interest rates more difficult.
Canadian residential building permits fell in April when a rise was expected.
In China, we should keep an eye on Premier Li's fortunes. There is historical precedent for a CCP deputy trying to fix a leaders mistakes, and in that earlier case it didn't end well for the deputy. The backdrop is that officials aren't seeing things turning any better on the economic front. Li is aggressively urging remedies.
All that talk has boosted copper prices in anticipation of vast new infrastructure stimulus (but iron ore not so much).
And in Shanghai, frustrations are building. As officials declare 'victory' over the pandemic, lockdowns persist for millions, and frustrations are rising fast causing protests and arrests.
In India, the monsoon has arrived a little earlier than usual in the south. That will be good news for rice production there especially, and possibly help keep a lid on food prices.
In Europe, there are signs that the extreme rises in their producer prices might be topping out in April from March. But there are still up savagely on a year-on-year basis led by German costs and restrained by French costs.
Australia has booked yet another AU$10+ bln monthly trade surplus in April, continuing a long run of these fat surpluses. That takes the annual surplus to +$129 bln, a record high for any 12 month period.
The UST 10yr yield will start today down -2 bps at 2.92%. The UST 2-10 rate curve is marginally flatter at +27 bps and their 1-5 curve is flatter too at +78 bps. Their 30 day-10yr curve is also flatter at +214 bps. The Australian ten year bond is now at 3.51% and up +2 bps. The China Govt ten year bond is little-changed at 2.82%. And the New Zealand Govt ten year will start today up +3 bps at 3.64%.
Wall Street is higher today with the S&P500 up a strong +1.3% in late Thursday trade. But despite that, this index has had its worst start to any year through May since 1970, not an encouraging benchmark. Overnight European markets all rose by +1.0% or more except London which is on a two day holiday. Yesterday Tokyo ended with a -0.2% slip. Hong Kong was fell -1.0%. Shanghai ended up +0.4% with a late rally. The ASX200 ended its Thursday session down -0.8% while the NZX50 fell -0.2% in its session.
The price of gold is up +US$23 today at US$1869/oz. Silver is up a similar proportion.
And oil prices are again firmer from this time yesterday, up +US$1 to just on US$115.50/bbl in the US, while the international Brent price is up at just under US$117.50/bbl.
The Kiwi dollar will open today up almost +¾c at 65.6 USc. Against the Australian dollar we are unchanged at 90.3 AUc. Against the euro we are a little firmer at 61 euro cents. That all means our TWI-5 starts today at 72.3 and a one-month high.
The bitcoin price has risen a fractional +0.1% since this time yesterday and is now at US$30,214. Volatility over the past 24 hours has been modest at +/- 1.8%. Meanwhile, the Winklevoss crypto whales are being sued by the US Commodity Futures Trading Commission for lying on their filings.
It is a public holiday in New Zealand on Monday, and this review will return on Tuesday.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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57 Comments
Currently not only construction sector but everyone in real estate be it investors or new mum and dad builders are in denial mode or taking comfort in thinking that in NZ house price always move up and any fall like in the past two decade will be short and shallow....are they correct in their thinking !!!!
https://www.newsroom.co.nz/shell-be-right-attitude-dangerous-for-strugg…
It is nothing to do with the price of materials. Housing has always been about the availability of credit. Turn off the tap and building stops dead.
Imagine a scenario where you are consented and ready to go, but the cost of building the house is more than the house will be worth when it is finished.
Trouble is memories are too short, we've seen this before post the 87 crash so we can be well informed of what is going to happen.
Blocks of flats real estate investor here - I locked in my mortgages for 5 years when it was cheap, have LVR of about 40%, and am cashflow positive after paying principal and the new tenant taxes.
If you had sleepwalked into this you would be nervous, and there will be a lot of p*ssed off people who fell for the low yield/low effort townhouse off the plans, property always goes up sales pitch from good looking young men with nice shoes, and will now be settling at 6% mortgages, possibly for a cost increase, when they bought planning on 3%.
But if you had planned for the Covid measures to start to unwind 6-12 months ago, tightened things up, not tried to time the bottom on rates, sold your lemons and been content to chill then she will probably be allright.
Rule #1: don't outsource your thinking
Yes there will be a few caught out by this, but it depends on when and how you bought.
I have a new townhouse coming on line in a couple of months that will have to fall in value 25% from today before I would be in negative equity. Not impossible, and maybe not even unlikely but then the amount I would be in negative equity would be small.
The servicing calculations we did at the time assumed 6% mortgages so unless rental returns fall by more than 10% we will be fine.
I don't think there are too many investors out there that will be unable to ride this out but there will be some as you say.
Grey Lynn close to transport, not a glamour location but an easy commute to the city and it will have new everything and a carpark. Not renting it out for 6 weeks is painful but not renting it out for 3 months would be a problem. This will be the first time for a lot of these new circumstances, but to the degree we are able we will be flexible with renters on price and conditions.
It's a business. Revenue in, costs out, tax on the difference. Until now. The costs of running the business have gone up and that gets passed on or the operator of the business exits the market and everyone shouts hooray until their kids leave home and try to find a rental.
'.........is emerging as an intense concern among central banks with the potential to erode the power of monetary policy, and even in the best of worlds, likely to make control of interest rates more difficult."
Now central banks will blame digital currency but themselves.
Admit that current economy turmoil / inflation is not because of pandemic but by over zealous action of central banks. One can argue that in March 2020, when pandemic hit, it may be required but than throwing everything and continuing despite all data / feedback suggesting otherwise was a blunder.
The word ' Transitory Inflation' was coined to manipulate and deflect, which is haunting.......
Money is a measuring stick of Energy and Time.
It should not be able to be manipulated by a handful of banksters and used to drain value from society to those that can manipulate the system.
Opt out of fiat and into the set monetary system that is Bitcoin, there will only ever be 21 million.
Bitcoin Block Reward Halving Countdown (bitcoinblockhalf.com)
Isnt it more like one pizza divided by however small a fraction can be sliced? you can divide a pizza as many times as you like, you just need to eat more of those slices to be full. Girlfriend Can't Understand Pizza Problem - YouTube always a good laugh
One dollar can be divided into 100 cents, or 1 cent can be divided into .1c lots, it just now takes 1000 of these units to represent 1 dollar.
1 Bitcoin can be divided into 100,000,000 satoshis, but they are still just a smaller denomination of the same thing. And being digital, if the value increases so much in the future that 1 Satoshi represents too much value, we can just move the decimal point.
The difference between fiat and Bitcoin is, you can increase the supply of Fiat currency so each unit purchases less, where as with Bitcoin, because the max supply is hard capped, each unit will be worth more and more value.
eg. average auckland house value March 2020: 625,000 New Zealand Dollars
eg. average auckland house value March 2020: ~47 Bitcoin (using a NZD price of $13,300/BTC)
eg. average auckland house value April 2022: 900,000 New Zealand Dollars
eg. average auckalnd house value April 2022: ~19.5 Bitcoin
So over that period, the value that each Bitcoin is worth has increased from about $13,300 NZD to $46,000 NZD.
Or each satoshi (0.00000001 BTC) has increased in purchasing power from 0.000133 NZd to 0.00046 NZD.
https://www.tradingview.com/x/DHF5GhDe/ log view of Bitcoins purchasing power over time in USD
When priced in Bitcoin, yep! Now just lengthen your time horizon a tad. Start wiht a 5 year minimum and your good :)
When comparing fiat money supply with Bitcoin I am not sure if there is any point in considering the possible usable fractions of Bitcoins.
If you decide to join the gamble and stake 5% of your net worth to buy and hold 1.0 bitcoins, you will hold (more than) 1/21,000,000 of the bitcoin supply. If the Bitcoin algorithm allows slicing that into millions of pieces for the sake of trading one day, you will still have 1/21,000,000 of the bitcoin supply to play with.
(Discussion of the odds of this gamble paying off are another matter)
That is exactly why the US Crony banks are concerned with digital currencies.They don't get to clip every transaction ticket, and get their computers to make them a fortune while they are asleep in bed. Governments back them up so they can tax transactions and do their ticket clipping as well.
It is interesting to see all assets being devalued by inflation in concert. Inflation is problematic for people already on social welfare it's a tough season in an already tough life. Inflation is also problematic for more financially successful people as their assets are devalued and they also face the increase in pricing.
Everyone shares the pain in this destructive period, I only hope that this pain results in some longer term upsides as previous depressions have, innovations launched through periods of tight access to resources.
Energy assets are doing well. Oil, uranium, etc. Not watching food assets, but expect they'd be doing OK as well. Some assets are inflation friendly... just stay away from leveraged ones like property.
My portfolio is easily beating inflation, even gold is beating inflation pretty well. I have no intention of sharing the pain of this inflationary period. For people who are well positioned, this is the time to make great gains (especially for people who want to buy a house eventually - they are gaining around 10k a month just by waiting right now). Some will come out of this inflationary period much wealthier.
Agree that it is a tough time for people on the lower half of the K-shaped recovery. Those folks have been kicked around for years already, unfortunately.
Yep, lots of commodities are experiencing a boom. So are many commodities producers. We seem to be starting a new commodity supercycle.
Unfortunately inflation is also eroding wages substantially which is a problem for consumers. We are about to answer the question "If everyone had a 5-10% pay cut how much would it hurt businesses?" and I don't think we'll enjoy the answer.
Some people for the rest of this year will choose to focus on the brain drain and read stories of Kiwis leaving the country.
Some people will choose to focus on growing talk of a property over-supply.
Auckland is on the cusp of having its population rate of growth switch from two years of negative to positive and a lot of the dwellings for which consents have been issued will not in fact be built.
Still, over-supply talk will encourage some people to not make a purchase.
Others may fixate on rising interest rates, some on unfounded rumours of a wave of mortgagee sales.
What will end up happening? The stack of buyers wanting/needing to make a purchase will grow and grow until one day the group psychology shifts. The queued buyers will pile back into the market at the same time.
Countercyclical buying when prices are falling is psychologically challenging to do. That’s why there aren’t many Warren Buffets.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at
Quit the TA bagging. Just keep an eye on what he says and see how wrong he has been. Better still ,check what he said over the last 20 or 30 years, and you would not be suffering from your Tony Alexander Derangement Syndrome. You would be quite impressed with how often his observations are correct.
Its not just Psycology though is it, its affordability!
There is no guarantee on where the OCR is going to peak and inflation can be a beast to contain. Who knows where energy prices are going and what pressure the NZD will be under.
This is a period of uncertainty that CANNOT be solved with money printing, so easily the most challenging period so far this century especially with the levels of debt in the system.
Some people for the rest of this year will choose to focus on the brain drain and read stories of Kiwis leaving the country.
Some people will choose to focus on growing talk of a property over-supply.
Auckland is on the cusp of having its population rate of growth switch from two years of negative to positive and a lot of the dwellings for which consents have been issued will not in fact be built.
Still, over-supply talk will encourage some people to not make a purchase.
Others may fixate on rising interest rates, some on unfounded rumours of a wave of mortgagee sales.
What will end up happening? The stack of buyers wanting/needing to make a purchase will grow and grow until one day the group psychology shifts. The queued buyers will pile back into the market at the same time.
Countercyclical buying when prices are falling is psychologically challenging to do. That’s why there aren’t many Warren Buffets.
- Tony Alexander is an independent economics commentator.
Classic: Buy, Buy, Buy
Property market is booming - buy now or you will miss out and houses will be more expensive later
Property market is tanking - buy now as you can bag a bargain, you can't time the bottom so don't try to just get busy buying, even if you lose money short term you'll make it back over the long term - Warren Buffet says so.
What would Warren Buffet have been saying when Tony was spruiking the bubble?
...digital money, a curiosity just a few years ago, is emerging as an intense concern among central banks with the potential to erode the power of monetary policy, and even in the best of worlds, likely to make control of interest rates more difficult.
I'd be looking over my shoulder as well if I'd just screwed people over by pumping up the market with massive quantitative easing programs for a couple of years and then letting inflation eat peoples earnings and savings for a year on some wild hunch about "transitory inflation." Reserve Banks have been their own worst enemies in undermining trust in currency.
Reserve Banks have been their own worst enemies in undermining trust in currency.
Currency accounts for a mere fraction of collective bank balance sheet components.
Assets ($m)
1. Cash (notes and coins): 662
9. Total assets: 681,519
Deposits and currency are not the same thing. The former is private bank shareholder promise to pay (IOU) backed by a borrower's promise to pay (IOU), while the later is a central bank promise to pay (IOU) collateralised by off market government debt issuance. CBDC will be the same as the later.
Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.
Ashley sort of backpedaling in claiming to be a property expert, getting ready to say hang on I'm just an ordinary guy why did you all listen to me, setting himself up to eat as little humble pie as possible
COMMENT: I’m always extremely uncomfortable at being introduced as a “property expert” and prefer to be described as a “property commentator” – a term which more accurately reflects that my views are simply opinions. That’s important because, as much as some of us have been observing the market for a long time, we’re all always at risk at being influenced by our own beliefs and worldview and allowing these to colour our judgement.
In my own case, while I’m proud of the high degree of accuracy of my annual predictions going back many years – I’m also conscious that, occasionally, the views expressed in some of my regular columns turn out to be wrong. For example, in an article I wrote back in October 2020 I made the argument that, while mortgage interest rates would eventually increase from their historically low levels, they would take a long time to do so and that we would have plenty of warning. As predicted, they’re now starting to rise, but at a much more rapid rate than I suggested.
https://www.oneroof.co.nz/news/latest-news/ashley-church-have-we-seen-t…
Same Ashley who definitely doesn't like to be thought of as an expert commentator (now that it's looking like many people who acted on his expert advice are going to be shafted) on how to be an expert commentator:
https://ashleychurch.com/how-to-be-an-expert-commentator-on-anything/
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