Here's our summary of key economic events overnight that affect New Zealand, with news markets are a lot calmer today and more willing to invest in 'risk'.
First, the Bank of England has rushed in a £65 bln bond buying surge to be concentrated over the next two weeks to steady a British economy that has been lashed by some very bad recent policy moves. "The purchases will be carried out on whatever scale is necessary to effect this outcome," they said. It is a move that seems to have calmed markets globally.
It comes after both the US authorities and the IMF urged their central bank to act decisively to halt the meltdown that those policy moves had initiated.
In the US, mortgage applications resumed their decreasing trend last week after the unusual prior week interruption. And American mortgage interest rates rose above 6.5% for the main 30-year benchmark rate, and that is about as high as it got in the real estate frenzy in the 2006-2008 period before the GFC.
American pending home sales fell in August, falling -2% from July to be down a whopping -24% from August a year ago. This fall was the third in a row and rising mortgage rates are getting the blame.
The US trade deficit rose in August in its usual seasonal pattern even it the rise wasn't as much as expected. Exports rose more than +21% above the same month a year ago, and imports rose +16% on the same basis. Month-on-month the rises were +2.3% and +4.5% respectively as holiday season goods started their seasonal inflows.
Those seasonal flows are making their inventory overhang worse. Wholesale inventories were up another +0.8% in August from July to be more than +25% higher than a year ago. Retail inventories were up +1.9% from July to be almost +22% higher than a year ago. Some of this will be inflation, but despite that, this inventory build is a serious overhang problem that would make any correction worse.
There was another US Treasury bond tender today and that featured an even faster rise in yields demanded by bidders. The 7-year US$36 bln tender was very well supported but the median yield rose +76 bps to 3.85% from the 3.09% at the equivalent prior event a month ago.
In China, their central bank has set the official yuan exchange rate noticeably lower again today, now down to 7.11 to the US dollar. That is a one day devaluation of -0.5% and a devaluation since the start of the month of -3.2%. Half of that has happened over the past four trading days. The central bank has warned against "forex gambling".
And staying in China, despite their weather and pandemic challenges, it looks like they will deliver record grain harvest volumes this year. Some southern regions struggled, but others in the north had particularly good results.
In Germany, their GfK Consumer Climate Indicator fell sharply again heading into October, hitting a new record low for the fourth straight month and worse than market forecasts. The latest reading highlighted mounting concerns over surging inflation and high energy prices as well as persistent recession fears, with income expectations plummeting to a new record low.
Aussie retail sales held up better than expected in August, rising +0.6% from July at an annualised rate of +7.2%. Year on year it was up more than +19% but a weak base affects that comparison. The August rise was also more than markets were expecting (+0.4%).
The UST 10yr yield starts today at 3.73% and -24 bps lower than this time yesterday in a sharp reversal of recent trends. The UST 2-10 rate curve is little-changed at -37 bps. Their 1-5 curve has turned negative again at -3 bp. And their 30 day-10yr curve is less positive +121 bps. The Australian ten year bond is lower, down -14 bps at 3.96%. The China Govt ten year bond is up +3 bps at 2.76%. The New Zealand Govt ten year will start today at 4.36%, up +6 bps and if the US rate drops hold, could well retreat from here later in the day.
Wall Street is up today in its Wednesday session, with the S&P500 up +1.5% in late trade. Overnight European markets all posted gains of about +0.3%. Yesterday Tokyo ended down -1.5%, Hong Kong dived -3.4%, and Shanghai dropped -1.6%. The ASX200 ended its Wednesday session down -0.5% while the NZX50 ended down almost -0.9%.
The price of gold will open today at US$1660/oz. This is up +US$30 from this time yesterday.
And oil prices start today +US$3.50 firmer at just under US$81.50/bbl in the US while the international Brent price has risen to be just over US$87.50/bbl.
The Kiwi dollar will open today at just over 57 USc and recovering almost +¾c than this time yesterday. Against the Australian dollar we are little-changed 87.6 AUc. Against the euro we are also unchanged 58.8 euro cents. That all means our TWI-5 starts today at just 67.6, and up +40 bps in a day.
The bitcoin price is now at US$19,522 and up +1.9% from this time yesterday. Volatility over the past 24 hours has been high again at just on +/- 3.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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More like the death knell of the UK Tories and Liz Truss.
I'm somewhat surprised she was stupid enough to espouse the trickle down theory as the justification for her tax cuts. Indicates that she is utterly out of touch of what has happened in the last 10 or so years around the world.
Their Labour paty has apparently expressed concern, probably justifiably, that their increase in popularity is because of the populations antipathy towards the Tories and Truss, rather than their own policies. Equally not a bright thing to admit - that you haven't got policies or even a vision for the future of the UK and its people!
It's such a shame that the right parties in the UK and the US have both become so extreme in their policies. They used to be centrist but have been further and further radicalised. Partly due to people becoming less open to challenging that everything their party does is good and everything the other party does is bad. Things become ideological rather than pragmatic. It hinders political cooperation and blinds people to when their own party starts to veer off course. You can see it in NZ with the vitriol against Jacinda and support for Luxon and vice-versa regardless of the policies they put forward. Political dualism is the enemy of progress, pragmatism and sound government.
We would to well to remember that our own National party has abandoned it's farmer and small town business base, and all those aspiring to be those, in favour of the Big Business and Multinational Crony Capitalists.
Meanwhile, Labour have abandoned the Working Class in favour of the Chardonnay Socialists, and Academics. Check how many Labour Party office bearers or MPs have ever had any dirt under their fingernails.
It is time for a new party to grab all these disenfranchised voters, and ride up through the middle of the electorate. The two above mentioned would then be scattered literally to the left and right.
So vote TOP. You want centre? They are considered radically centre, which is about being pragmatic and realistic, rather than idelogical/emotional, which is what you get from the current bunch. IMO pragmatic and realistic is exactly what we have needed, not the ideogogues and vacuous emotional thought leaders we have had in recent times.
TOP are another that seems to be trying to be too clever.
We need a simple return to traditional policies. Stuff like
- introduce a CGT (it works everywhere else in the world) not a clever land tax. orient housing towards owner occupied properties.
- reduce wasteful government spending
- focus the economy on productive businesses, orient investment to this end by having CGT and policies to discourage investment in property
- invest sensibly in infrastructure and sort child poverty
- reorient the RBNZ to achieve its stated inflation target
- sensible policies (not cogovernence) to better integrate all segments of society into one system, make fair historical land decisions and ensure we are all proud of our history
Every party has a list like this, and almost all of them go through and cross off the ones they consider too hard, too politically dangerous, too few chances to skim off, too likely to cause uproar with their majority voters, etc.
Usually that leaves policies to do with child poverty, emergency services, health and education as the "safe" options.
John Trz,
The party was simply unelectable with Jeremy Corbyn, just as it was in the 80s with Neil Kinnock and his merry band. It looks as though the UK is prepared to vote in a party well to the Right, but not one well to the Left. Perhaps it's the memory of the late 70s when under Callaghan, a handful of union leaders held the country to ransom I was there and saw it at first hand.
It culminated in the "winter of discontent with rubbish piling up in the streets for many weeks. That's what brought Thatcher to power and allowed her to take on the miners.
And now the government is talking about 10 years of austerity to pay for tax cuts for the super wealthy. I bet the common voter is really liking forward to some public service austerity to go with their household finance austerity. It's surprising the Tories are still as popular as they are.
Where to start? Maybe the duplicate bureaucracies for health, 3 waters, etc that have been set up for co-governance? The millions spent on PR (propaganda). $billion or so spent on motels as 'temporary housing'? Or the multitude of government services that are crowding out private businesses e.g. Kainga Ora driving up land prices by becoming a public property developer , NZTA, etc, etc.
I have worked in the public sector under National and Labour and have not seen any differences in efficiency under both. National tend to focus on carrying on the status quo but with job cuts which ends up backfiring as you lose institutional knowledge and end up having hiring people back at double/treble the rate as consultants. Under Labour I see things tend to get more focused on better social outcomes and changing the institutional system which is immensely more complex to achieve and therefore often inefficient.
It takes heroic assumptions, to believe that pension-expectations can be backed much longer. The margin by which they can't, is eye-watering.
Mass disbelief is the biggest threat, and if the heroic-ness of the assumptions becomes understood, mass disbelief is likely.
Then where's the floor?
Let's file this under Carlos67 reckons, with other such gems as "Australia will be uninhabitable in 10 years" and "Vladimir Putin is my personal hero".
The pound is still it exactly was against the New Zealand dollar, maybe even a touch higher.
They export lots of things produced with advanced manufacturing, such as aircraft engines and automobiles, to make up for the non-value added sheeps legs they import from NZ and flog for £4.99/kg at Tesco.
Besides, riots in the UK are good for those wanting a free pair of trainers from JD Sports. A bit like a Kiwi ram raid, but for the whole community.
They export lots things produced with advanced manufacturing, such as aircraft engines and automobiles
The same applies to high-value service exports as well. Despite all claims of Brexit costing London its title as Europe's leading financial centre, in 2021 the city managed to post record export earnings in financial services as well as in tech and innovation, being home to more than a quarter of Europe's unicorns.
Ironically, alongside the bloodbath that were the Brexit negotiations, London also increased its share of Fortune Global 500 firms by more than a third.
The same applies to high-value service exports as well. Despite all claims of Brexit costing London its title as Europe's leading financial centre, in 2021 the city managed to post record export earnings in financial services as well as in tech and innovation, being home to more than a quarter of Europe's unicorns.
Many foreign owned banks in the City of London export their profits to shareholders registered in tax havens etc. Not unlike our own Aussie banks.
True - although the fact that most of those tax havens are former or current dependencies of the UK, and still leverage these inherited global networks and legal structures.
Forgot to mention that the Fortune 500 companies moving to London are also using the UK as "conduit". UK ranks top 5 in global Conduit tax havens.
This hardly improves the lot of the lowly UK taxpayer.
Maybe the more important question than who is behind the alleged #NordStream2 event is - why does almost everything in this "special military operation" & beyond lead to the SAME destination - shortages, hardship, poverty for the 99% Just as the "pandemic" was intended to do? Link
Why would they increase their interest rate - their major problem is complete lack of confidence in the economy, and millions of families not being to afford their energy bills with winter approaching? How would increasing mortgage payments do anything about any of that?
Bank of England stepped in to prevent a pension fund disaster - the margin calls were coming in thick and fast. Clear article here from the WSJ. Remember that the main purpose of Govt gilts (bonds) is to provide safe financial collateral for the investment sector. Also worth noting that Bank of England will not have to buy many gilts to gain control of the market - the mere threat has been enough to change the prices.
Does that mean UK Treasury is in a better position to redeem the mounting public debt?
It certainly seems the private sector could not afford its direct liabilities:
As Nobel economist Thomas J. Sargent has observed about severe inflationary episodes, “once it became widely understood that the government would not rely on the central bank for its finances, the inflation terminated and the exchanges stabilized.” Sargent also observes that severe inflations have been driven not simply by the quantity of central bank liabilities, but instead by “the growth of liabilities that are unbacked, or backed only by government debt, for which there was never a prospect to retire.” Governments can typically expand their debt in line with the growth of the economy itself, without inflationary consequences, provided that the overall debt-to-GDP ratio is serviceable. But once the public loses confidence in government restraint, because of unrestrained government deficits, overly accommodative monetary policy, or both, inflationary expectations can become embedded. That’s particularly true if the economy also faces supply shocks. It’s also why Section 2A of the Federal Reserve Act mandates that the Fed “shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production.” Link - by Audaxes | 27th Sep 22, 11:21am
Rates follow nominal growth, which was boosted dramatically & artificially by massive money creation [sovereign debt issuance] for consumption in 2020, on purpose, by policy makers, causing the present massive inflation. Rates follow, they aren't leading indicator. For latter, need to see credit creation. Link
Somewhat surprised nobody commented on yesterday's snippet about record Christchurch housing consents. There are dozens of multi-unit projects and/or townhouses in various stages of completion across the city. Fletchers and Williams Corp dominate, but many more smaller developers are evident - some names which I've never heard of before.
Most of the products being offered seem targeted at investors, with the exception of the Fletchers developments which are well located and designed to appeal to down-sizers (but are priced >$1m).
I cannot see how this won't end in tears for people who bought in at the top - especially those who may have remortgaged or cross-collateralised with their PPR (which may also have gone down in value).
Anyone in CHC with better insight?
I am not a construction industry insider, but I am based in Chch and through my work have involvement with numerous businesses servicing & supplying residential construction, so here are some anecdotal insights:
- There is a particular development company I've been following (a 'Williams Corp JR' type outfit) because I know one of the directors personally. They have got some developments where they had listed all properties as being sold, but if you go past you'll now see 'for sale' signs on all of them. These guys were selling everything like hot cakes up until recently.
- Just in my area, when I bike around or take the dog for a walk I see an increasing number of these finished units from different developers that aren't sold.
- Various development companies (Williams, Wolfbrook etc) are all being increasingly aggressive with their advertising to try and generate new buyer leads. I can't remember the name off the top of my head, but there's one outfit that is paying the buyer's mortgage for a period of time, for example.
- My clients supplying into residential construction are finding the going tougher, and also waiting longer for payment from developers. For example one client offers two key product lines, one for civil/commercial and one for residential. The residential side is dead - the companies don't want to buy more equipment, but the larger project side is doing well.
- Totally anecdotal again, but in my neighbourhood I'm seeing more "private sale" signs on townhouses and other properties (there are three down my street actually) - I wonder if that is because the vendor believes they can sell faster by having a lower sale price but offset against no commission paid? None of them have sold yet though ... so not sure if that's working.
You don't have to spend much time in "the 03" to realise that every man and his dog is trying to play the Williams Corp game. Everywhere you look there's some new developer buying an old section and slapping up a dozen little townhouse units - all you need is to get together with an old private school mate, borrow some of dad's money, come up with a brand name (usually your last name and the other guy's) lease a couple of Ford Rangers and you're in business.
For me, the signal of the top was when I was in a cafe a couple of months ago, and there were about five different "Williams Corp JR" property developers all in the same place (I know them either through work or friends of friends etc).
"all you need is to get together with an old private school mate, borrow some of dad's money, come up with a brand name (usually your last name and the other guy's)"
Spot on. And that's not just Chch where that's happening. 07. (It can also be the two school mate's mothers' maiden names that take to the billboards as well)
Max Key took a slightly different approach in AKL,dads name & knighthood used to attract former brothel owners,the Chow brothers of Stonewood homes and formed a development company;
https://www.rnz.co.nz/news/business/461523/sir-john-key-to-partner-with…
Really enjoyed reading your notes. Seeing the same/similar things in my area.
I'll also add that if a meaningful % of the non-investment class (upper-end, PPR) developments that are nearing completion will be occupied by local down-sizers, that should bring a supply wave of existing family homes onto the market - on top of an already broad and increasing supply. Once downward pressure starts (visibly, and not just behind closed doors) hitting pricing in blue chip suburbs like Fendalton, Merivale and Richmond Hill, then I would be more confident that the Christchurch bubble is popping.
Good insight, thanks.
Agreed that the 'off the plans' townhouse/unit bubble will go first, and then that will start to weaken the more desirable areas.
We live in a small, established subdivision out Halswell way, and there are already a number of properties sitting around (the 'private sale' ones I mentioned) and even properties listed by agents are sitting for longer. These are not small units like Williams Corp or Wolfbrook - all standalone decent-sized homes or large family-sized townhouses like we own.
A nice four bedroom property sold recently at auction just down the road and I'm waiting with baited breath to see the sales price for this one; it would easily have cleared a million last year, but I wouldn't be surprised to see it lower. Open home traffic was very thin on the ground from what I saw.
They have got some developments where they had listed all properties as being sold, but if you go past you'll now see 'for sale' signs on all of them
Is this common practice? There is a block of 4 units I ride past (not ChCh) that all got renovated and then a For Sale sign went up stating that 3 are sold and only one left (ie be quick). Took forever for the 'last one' to sell and then next minute one of the others is back on the market?
What i've heard/seen is either the developer gets some real estate mates to make purchase agreements, enough to get the bank over the line to start construction. Towards the end of construction they collect their fee and pull out, and apply their available funds into the next project. The devleoper then re-markets the units, usually the market has moved in the interium and they can get much more for them now anyway.
Or the old sunset clause tricket where the developer cancels the contract unilaterally.
Plus releasing units or sections to market in stages. "Hurray last one", then a week later, "new stage released"
The 7-year US$36 bln tender was very well supported but the median yield rose +76 bps to 3.85% from the 3.09% at the equivalent prior event a month ago.
In case you don't follow it every minute of every day (am I the only one?), 4w Tbill rate was 2.71% today. Reminder, RRP is 3.05% and IOER [3.15%] (or IORB). Who is giving up 34 bps in free yield? Anyone stuck on the wrong side of crap collateral. Link
Many countries are or will be in same boat, it is a matter of time, when ?
Mr Orr didn't panic when high inflation "temporarily" hit us for ages. Why would he panic now?
Also, people who didn't do business through the '80s have no idea of how easy it is to do well in high inflation times. We all did it. Other people who are suffering when it is not my fault are no problem. Can't wait for all the upcoming opportunities. Won't be in a position to do so until second half of next year, which may be ideal the way things are going.
Maybe all politicians need to have a psychometric test before being able to act in any parliamentary capacity. They all seem to need so much praise and attention, perhaps their childhoods were full of neglect. Either way, it is daft to say the least to have politicians making core economic decisions based on getting the popular vote vs for the welfare of the citizens that elected them. Average education levels in the western world are on the decline, sadly it seems to be showing at the top mostly!
Nobody is yet saying because it's clearly the USA - possibly in cahoots with Poland. No reason for Russia to do it.
The rest of the EU knows this. When they cogitate that bombs were used to control their energy choices it will lead to a fundamental change in EU-USA relationships for decades.
The Americans have really shot themselves in the foot this time.
It's not clearly the USA at all, except for people who are anti-US who of course always blame the US for everything straight of the bat.
It could be US but it's not obvious at this stage. Russia would benefit from making people believe it was the US and they have a history of false flag manoeuvres. All speculation at this stage.
From Stuff https://www.stuff.co.nz/world/europe/300700789/vladimir-putins-deepsea-…
The suspected Russian bombing of two gas pipelines on the Baltic seabed has put Europe on high alert for a devastating attack on its critical infrastructure.
Military analysts said the Kremlin could easily wreak havoc by cutting sub-sea data cables or destroying another pipeline, as a British defence source suggested the "premeditated" sabotage could have been prepared by underwater drones that laid the explosives weeks beforehand.
Future targets could include the cables that carry sensitive financial information across the Atlantic, risking a market crash, or those that supply entire regions such as Orkney, Shetland or parts of Italy with their internet access, according to one former US Navy submarine warfare strategist.
And of course
Russia has denied responsibility. Dmitry Peskov, President Putin's spokesman, said allegations from Ukraine, Poland and other quarters that Moscow had orchestrated the attack were "predictably stupid".
Do and deny; the Russian way, with a thinly veiled threat if "we" don't let Putin annex Ukraine and beyond.
It is entirely possible to write the news story up in a way that avoids unjustified editorial and "experts" you have never heard of before.
https://www.newshub.co.nz/home/world/2022/09/ukraine-invasion-european-…
And I know you can just write off these mixed messages as next level deception but Putin was wanting to open NS2 less than 2 weeks ago.
https://www.reuters.com/business/energy/russias-putin-says-moscow-not-b…
Also this area is a NATO exercise location not some random unprotected part of the Baltic like the article speculates
https://sfn.nato.int/newsroom/news-archive/2022/baltops-22-a-perfect-op…
it's a long way from Ukraine in the Baltic (diagonally across Europe) so very unlikely, but not impossible.
I think the best rationale is for Putin to have ordered it in such a way he can say "it wasn't me" and point at everyone else. Cannot see what they expect to achieve anyway other than saying "see i told you the're attacking us!"
All of you who think Russia is likely to have done this need to look at where the pipe was blown up. The risks of this "false flag" going wrong are off the charts and for what? Offering to turn the gas back on was best bargaining chip Russia has to isolate Ukraine (the protests demanding this are already occurring).
It occurred in the entrance to the Baltic Sea, a NATO training hotspot (asserting this without MSM reference). There are a few European countries or other groups with motives to do this but few with the means to do it without getting caught unless you have US support. The US have officially stated that they don't want NS2 operational.
I know this challenges your world view and trust in Stuff's Telegraph republishes but come on... this one has to be too much to just soak up Russia has to have done it. You will note the suggestions they have done it are editorial and asserted opinions.
Probably shouldn't, but, this country is slipping into anarchy! Was this on the radar when the approach to Covid was decided..
Went to Taupo the other day, driving past Mourea I saw Police cars, bollards and a shot up 4wd. Apparently someone was shot at and injured... otherside of town there are burnout vehicles... this morning, a Rotorua dairy at Fenton Park a worker was injured as robbers took $5000 in cash.
Now I here the clarion call ... ram-raiders come from disfunctional families and that colonisation is a cause!
Pretty much - and I'm no wokie.
Europeans went colonising because Europe was 'full' in ecological terms. The places they went to and dominated (a small matter of packing more energy) saw themselves as 'full' too; but the Europeans saw them as empty.
So no surprise that the remnant culture sees the intruder as having commandeered the space. And only one way to fight back - given that the colonising culture set the rules up or itself....
Overpopulation - a planet capable of supporting 1-2 billion long term, currently groaning under the load of 8 billion. Ram-raiding is the least of your short-term worries...
Well that's a different perspective. I'd have to disagree as to it being 'full' other than if the landed gentry wanted more land to rule over. But colonisation at the time (near enough to 200 years ago) was pretty much national policy for the major powers of the time. It was a way to strengthen their economy, increase their wealth, and extend their power. Not much else. I don't think they even understood their impacts on the ecology at that time, because they went on to do a lot worse since then.
If you google a bit of history about the settlement of NZ it literally was a policy based on England being to full and overpopulated.
Building the empire etc was also their reason too. Question is, now that we know the root of the belief system embedded in "civilization", do we continue with it and keep justifying it as human nature or do we figure out as individuals and as a collective, that we have a choice to change and create a new way?
That would be evolution.
Federal government in Australia lifted the moratorium on the fuel excise tax today. (23 cents per litre). Bowser prices shot up immediately, plenty of servos hiked as much as .50 cents a litre, despite warnings from the ACCC, that price gouging would be dealt with. No more subsidies on fuel will likely mean another boost to inflationary pressures over here and a big increase in next month’s cpi is embedded in. The servo’s had long queues all this week as everyone tried to top up before the excise tax was reinstated today.
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