Here's our summary of key economic events overnight that affect New Zealand, with news Wall Street retreated today after realising that the US Fed won't be deterred in their inflation fight. It is them, and their valuations that will have to change. Their hope that the Fed would blink isn't likely now.
The giant US economy added more jobs than expected in September even if the gain was the lowest in 18 months. The headline gain was +263,000 when a +250,000 gain was expected. Holding it back was a -41,000 fall in Government workers. Apparently schools are finding it very difficult to recruit teachers in the charged political environments in many communities. But as regular readers will know, we also look at the raw data that is not seasonally adjusted. That shows overall payrolls rose +431,000 in September and taking the paid workforce to 153 mln.
The jobless rate fell to 3.5%. Their participation rate rose to 62.3%. Average weekly earnings rose +4.8% pa but at a +7.8% pace in September from August.
By any measure this represents a tight American jobs market. And the US central bank will know it can keep targeting inflation on the back of a resilient labour market that shows no sign of being hurt by that press. In fact the 'real' +431,000 rise in employment will bring even more spending impetus to the American economy. Rising wages do to. So the Fed isn't easing up on the rate rises any time soon.
The prospect of another +75 bps hike has equity and bond markets retreating as they revalue their asset holding to reflect the lower P/E ratios this implies.
Data out on American consumer debt shows that it grew by +US$32 bln in August from July, a much faster +8.3% pa rate than was expected. American now owe US$4.7 tln in this type of debt, or 21% of their annual economic activity (GDP).
Canada also delivered a positive employment report, a bounce-back in September from their August slip. They added both full- and part-time jobs with their participation rate rising to 64.7%, wages rising +5.2% pa, and their jobless rate falling to 5.2% which is 'average' for them but it is below pre-pandemic levels.
China's week-long holiday is ending and it is clear many people were staying at home this year. Travel data reflects that with activity down -36% compared to last year - which itself wasn't a strong event either.
China's foreign exchange reserves were expected to fall to US$3 tln in September, a -US$55 bln retreat. But they didn't actually fall that hard, only declining -US$26 bln to US$3.029 tln. (Note that China's foreign exchange reserves only run at two-thirds of American consumer debt.)
Taiwanese exports dived in September, down -5.3% when a +1.5% rise was expected. This is a big and maybe important miss,
German retail sales fell -4.3% in 'real' terms in August, the retreat they were expecting. In nominal terms, like every other country reports, they rose +5.4% due to the effects of inflation..
In Australia, they are getting close to deciding whether to stop the impending tax cuts for high earners. This is a policy left over from the Morrison Government. The new prime minister has come out supporting the rollback by implication at least. No formal decision has been taken on that yet, however.
The UST 10yr yield starts today at 3.88% and up another +7 bps from this time yesterday. The UST 2-10 rate curve is little-changed at -42 bps. But their 1-5 curve is less inverted at -6 bps. And their 30 day-10yr curve is a little flatter at +91 bps. The Australian ten year bond is +5 bps steeper at 3.91%. The China Govt ten year bond is unchanged at 2.76%. The New Zealand Govt ten year will start today at 4.30%, and up another sharpish +12 bps.
On Wall Street, the S&P500 is fearful the goods jobs data will keep the Fed on track with sharp rate rises and has fallen a sharp -3.2% in late Friday trade there and that has trimmed their weekly gain to just +0.4%. Overnight, European markets were all about -1.3% lower, except London which was unchanged. But for the week, Frankfurt booked a +2.7% gain, Paris a +3.0% gain and London a +1.4% gain. Yesterday Tokyo ended its Friday session down -0.7% but that capped a strong +5.2% weekly rise. But Hong Kong fell -1.5% yesterday but still managed a weekly rise of +3.3%. And of course Shanghai has been closed all week for public holidays. The ASX200 ended Friday down -0.8% but that capped a very strong +5.8% weekly rise. But the NZX50 ended down -0.2% and could only manage a +0.4% weekly rise.
The price of gold will open today at US$1700/oz. This is down -US$12 from this time yesterday.
And oil prices start today +US$4 higher than this time yesterday at just under US$91.50/bbl in the US while the international Brent price has risen to be just over US$97/bbl.
The Kiwi dollar will open today at 56.2 USc and another -¼c lower than this time yesterday. Against the Australian dollar we are little-changed at 88.1 AUc. Against the euro we are a tad softer at 57.6 euro cents. That all means our TWI-5 starts today at 66.7, and -20 bps lower than this time yesterday.
The bitcoin price is now at US$19,449 and down -3.2% from this time yesterday. Volatility over the past 24 hours has been modest again at just under +/- 2.0%. Binance has revealed yet another gigantic crypto hack where 'investors' have lost almost NZ$1 bln.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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155 Comments
might be the greatest recession ever for the working people -- after all it looks very likely to be a huge revaluation down in assets -- houses stocks and shares - alongside smaller business margins and profits --- but continued low levels of unemployment and higher wages - after all there is still a huge number of vacancies and a desperate shortage of workers so even if a few businesses go under or need to lay off staff -- still heaps of opportunities for those people - yes some homeowners may feel some mortgage pain - but as long as they can make their payments -- a loss of value and some of the massive equity that 90% plus gained in teh last couple of years will offset that pain.
Actually feeling pretty good about this - especially if inflation can be curbed a little -- as wage rises are set to continue for a significant time with the current labour shortages
Hold up, you can't conflate CrYPto and other shitcoins (the centralised shitcoin Binance Coin got hacked for about $600m) with Bitcoin and then go and complain about Bitcoin not moving from the 20k range for the last 4 months. Especially considering how volatile the global bond, credit default swap and national currency market has been!
https://twitter.com/zerohedge/status/1578489043171807232?t=plCaWJLWG8UQ…
And Bitcoin is actually less volatile than the Dow Jones index for the first time ever LOL! Temporarily.
So please tell me what you have confidence to buy and hold for the next 5 years? Because I'm backing Bitcoin all the way.
Hold up, you can't conflate CrYPto and other shitcoins (the centralised shitcoin Binance Coin got hacked for about $600m) with Bitcoin and then go and complain about Bitcoin not moving from the 20k range for the last 4 months.
Yes Gally. And what many don't realize is that our coins are as far away from the exchanges as can possibly be. You can try to hack my BTC but good luck getting it. It would be like me burying a $100 note 1/2 a meter deep in the sand on 90 Mile Beach and someone coming back a week later and using a kid's plastic spade and bucket trying to find it. Even one with quantum computing and the smartest Cosci people around, there are relatively simple, straighforward ways to protect yourself.
Agreed. Let the property market reset. The stupidly in debt seminar believers are far from the the majority voting block. Let them as the risk taker burn, v.s. make every member of society do so thru inflation.
Speculative debt without supporting yield is about to be poison. Bring. It. On.
I had been expecting unemployment numbers to be rising by now. While I think they will over the next 12 months, I am much more bullish now on the labour market than I was. I think it will hold up ok, at least in 2023, if not 2024.
I think the RBNZ will only be concerned with house price falls if they get to more than 30% overall, and start to genuinely affect financial stability. At an overall fall from peak so far of about 12% in NZ we are not anywhere near 30%.
I have changed my view. OCR to go to at least 4.75, as per ANZ’s forecast.
Yes I think Kiwibank with forecast max 4% OCR could be wrong. Habits havent changed much in NZ yet. I know a few that have mortgages between 100k and 450k, they are in good jobs and 6% mortgage rate wont be a problem for them. They are planning overseas trips next year. Very low (almost none) mortgagee sales at present. No sign of recession in NZ at this stage. Biggest problem now for RBNZ is the exchange rate.
have you also changed your mind on inflation ?-- or are you still of the mind that its peaked and will drop away over the next few months? just asking as you have been very consistent in that opinion up to now
I dont see any change in the Labour market for even longer --- the number of current vacancies is huge - and in my field Healthcare / Social Services/some Corrections stuff -- we dont see much hope of being fully staffed for at least 5 years -- and thats only if Governments implement radical changes NOW -
I agree re house prices too -- 30% drop from the top before they start to be concerned -- after all for 90%+ they just had that type of rise over two years so a 30% drop only comes back to 2020 prices -- so very few people actually impacted by negative equity or mortgage stress on payments yet
Yep same view on inflation. Down to 3-4% annual by May 2023. But without unemployment rising significantly, there won’t be a reason not to keep hiking to get the CPI under 3%.
The basis for me thinking they would stop hiking at circa 4% was rising unemployment. However it hasn’t kicked in as I thought it would.
The problem is, is that if house prices fall by 30% (on average, across the country), the probability that they fall by 50% increases dramatically.
In order to try and turn that ship around, it may require another massive QE package, with no increase in the quantity of goods and services produced in the economy (actually it will be reduced because we are in a severe recession) = even more inflation. So even more of the problem that we already have.
Could be... greenies will be happy as less people driving. Cost me 178 to fill yesterday but that will take me 800-900 kms. Still hurts and I remarked to my mate that maybe we have been spoilt rotten with cheap fuel. For one reason or another we are addicted to personal travel and using the car for small trips. My grandparents only had one car and their kids did not get taken to school. They walked bussed cycled. Damnit today you could even take a scooter but nowadays so many school kids are given a car by their parents and many streets nearby schools are full all day during the school term with cars parked in them
I personally love e-bikes as an alternative form of transport. I just don’t like getting killed by grandma in a V6 Land Rover.
Until serious investment is made into cycling infrastructure which will involve converting off street parks to cycle lanes. I doubt people will be able to drive less
As a bike commuter in Welly, the biking infrastructure needs a major upgrade on main routes to/fro downtown. I def feel a little sketched out in places, and no doubt most people just don’t feel comfortable biking on NZ roads depending on where they need to go. We’ll see how the ‘Let’s Get Wellington Moving’ projects turn out, it’s definitely a step in the right direction but needed to happen years ago.
well dont leave Wellington then! Its awesome compared with the rest of NZ --- i spent a week there for work - stayed in my motorhome at teh wind wand -- was able to cycle in to work for the first time in 15 years in NZ -- and then used public transport to go to work and out in the evening -- again for the first time in 15 years --- its just not viable in most of New Zealand --- Wellington is like paradise compared to Auckland or Christchurch
I Love it in Welly. My comment did come off as a bit complain-y, but it’s def one of the better cities in Nz to bike in. Improving the bike-ability and safety will do wonders for improving (e)bike commuting numbers.
I spent a fair amount of time as a bike commuter in Portland, Oregon, which has a fantastic bike network, so my standards are pretty high.
I was born and bred in Wellington. The climate there is awful.
It’s kind of a cool Place though, putting aside the weather. Large chunks of the CBD are very run down though.
Also I think Auckland’s hinterland beats Wellington’s hands down.
Also far too many bureaucrats for my liking.
But each to their own 😀
This comment made me so happy. It's finally starting to sink in that we'll be driving less and need to invest in cycle infrastructure, public transport and better walking facilities. We could have got ahead of the curve here which is frustrating but at least opinion is changing.
Read this excellent article to understand where we need to go
https://thespinoff.co.nz/society/03-10-2022/european-cities-were-once-a…
As Fuels become more expensive there maybe more people ride sharing.. If it goes beyond this point, to the magical place where we are all push biking, push biking to where? Don't bury your heads in the sand about the other consequences, we will become hungry peasants.
I wouldn't be surprised to see the NZ$ fall into the 30s, and I am positioned accordingly.
NZ$ fell to the 40s during the GFC. We are facing a potentially much worse situation for NZ than the gfc.
We have been living in a la-la land where we thought that every Joe Blog was a real estate millionaire. The unwinding of that, coupled with the crippling debt repayments (rising rates) and a potential global recession could see our $ fall to its lowest ever. Much lower than during the gfc.
It's worse. We have an everything bubble created by bogus monetary policy, and now embedded inflation. Most of the dodgy debt products were not known about until after the poo had hit the fan. We even just had an oh shite moment in the UK (which seems to be plugged).
Yes as the risk of default increased (as we got ever more leveraged relative to incomes), the risk premium for the product reduced! (mortgage rates were going down while the risk was increasing of eventual default - something I've been banging on about on this site for a while).
Which is completely arse about face.
The required rate of return for mortgage lending should have been increasing over the last 10 years as people took on ever more debt relative to their incomes. its been becoming riskier, so the banks should have been requesting high risk premiums for lending on those loans....but they haven't been....they've been dropping the risk premium....makes no sense at all - other than to suggest that central bank QE programs completely destroy the concept of risk and return and how functional financial/asset/debt markets should work.
Imagine a scenario where a giant storm is approaching , and getting bigger the closer it comes : yet as it does so , insurance companys slowly reduce the premiums on storm protection ...
... its nuts , isn't it ... completely 100 % insanity ...
And yet ... that kind of is what the banks have been doing with house mortgages over the past 2 decades ...
Flying High, we didn't enter the GFC under the delusion that every Joe Bloggs' house was worth a million bucks.
That is one key difference between now and the GFC.
Another key difference is that inflation & interest rates are on the way up, not down, this time around.
Those who are exposed (ie high debt and vulnerable income) as this economic game of musical chairs finally ends, will pay the rest of their lives (literally). The dark clouds gathering now are over every market in a globalised economy, and most worryingly, pensions and mortgages (the two main financial instruments that define the quality and comfort of peoples lives) so it’s quite bizarre to find anyone blasé about risk.
Yes, debt has been a problem for decades but our ability to push on that string as long as we have, most assuredly does not shield anyone from the inevitability of physics or recency bias and wishful thinking. If everyone can afford the rising cost of debt throughout this inflationary cycle …. if you think this degree of flux and strain won’t show up in further geo-politcial shocks…if you think that trust in governments and leadership is healthy so that hardships and geo-politcial instability won’t somehow also lead to domestic instability, further impacting trade and economies and that this isn’t already happening all over the world, well… then you should be sleeping soundly, breathing easy and not wasting your time arguing in comments. Just pat your self on the back and go and enjoy your housing market smugness. Those who understand risk have priced them accordingly.
And in the USA, debt is on every level, from HOA's, City's, County's, State's, Student loans, credit cards, the federal government, corporations, the whole country is built on debt. NZ has gone down the same slippery slope, we are just about 10 years behind them, but catching fast.
I see your logic. The NZD is currently at a similar value as when the market bottomed in 2020. It won’t take much for it to devalue to .50 where the market bottomed in 2009. It got just below .40 during the dot-com crash. If this is a valid correlation, then the NZD may not bottom in value until the stock market bottoms, which could be a ways from here.
Safe to say the NZD is not a safe haven at the peak of economic downturns/stock market crashes. I wouldn’t rule out a value in the .30’s again, depends on whether this is a once in a decade crash/correction or once in a century event, or something in-between like a 50-year storm. 🏄♂️
The trajectory of the nzdusd is determined by what is happening in the US rather than here. It is movement of global capital towards safety and/or yield in times of stress. An 800 % increase in UST yields is the current driver. Currency trades and 'carry' are larger than all other markets.
Where doesn't that leave the RBNZ and the OCR? Matching the rise, or seeing the NZ$ into the 40's (56 the figure, as I write)? Neither is a good look for a local economy dependent on debt, new or old.
Exposure to the gold price is proving to be a hedge for NZD losing value at the present time:
Past 1 / 3 month(s) - +7%
Past 12 mths - +19%
Past 3 years - +37%
Past 5 years - +68%
Proving to be much better than cash in the bank. That being said, things can change. Anytime.
An impressive chart:
https://twitter.com/northmantrader/status/1578472445694345222?s=46&t=Gf…
By not letting the free markets correct in 2020 (and debt levels reduce), central banks and governments have made (actually encouraged) a complete train wreck out of our economies (in my opinion).
I fear we’re being governed by fools. And until we collectively experience pain, we are unlikely to learn anything from it.
The alternative view is that their 30 year fixed mortgages will allow them to go nuts with FED hikes without crashing the housing market. This would be really bad for us. Discretionary spending in NZ is going to hit a brick wall shortly, things could change very rapidly. Personally I'm in a great position to weather the storm but am still quite worried about the future.
Raising rates discourages people from taking on more debt (and encourages paying down debt). Every time a bank issues a new loan it creates deposits - that is the true mechanism that interest rate changes impacts inflation.
You keep pushing the idea that central banks raise rates to reduce disposable income for consumers via higher debt payments. Its just nonsense as for every loan payment that goes up, you also have a depositor than is earning more in interest. The real change comes in peoples willingness to take on new loans, and thus generate "new money".
Exactly. Its about reducing money supply, need to create less debt that is being repaid each month
Also fed up about this argument about squeezing mortgage payments as the mechanism, I think this is a political message. Corporate lending and corporate debt reduction is key
I agree that banks create deposits with loans. But let's tackle some of the investopedia reckonomics...
"Raising rates discourages people from taking on more debt" This can be true in the housing market - but usually because house prices fall when interest rates rise, and people are less likely to buy when they are worried about falling asset values. However, there is no correlation between business loans and interest rates, nor between personal consumer loans and interest rates. Look at 2012 to 2015 - OCR was flat, growth rate in loans was accelerating like crazy. Or, when interest rates were on the floor in 2020 - the only time that appetite for loans went down since the GFC! The empirical evidence shows clearly that the primary determinant of whether someone will borrow or not is not interest rates, but their confidence in their investment paying off (as per your last sentence).
"[Raising rates] encourages paying down debt". This has been discredited many times... look at RBNZ C35 data on mortgages - overpayments went up after the OCR was reduced in 2015, and again during 2020. Interest rates have gone through the roof in recent months - no change to overpayment rates (business loans or mortgages). People pay down their loans when they can afford to.
"Every loan payment that goes up, you also have a depositor than is earning more in interest". What? There are $538 billion of outstanding loans in NZ, and households and businesses have $111 billion in crappy savings accounts, and $147 billion in term deposits. Banks currently collect more than twice as much interest as they pay out - to the tune of around $6 billion per year in NZ.
The resilience of employment in the USA is quite striking. I think it was JimboJones or IO who recently talked of structural labour market factors keeping unemployment low, even in the face of economic headwinds.
Employment, and economies in general, have been far more resilient than I certainly expected.
These are truly bizarre times - high inflation, weak economic confidence and yet very low unemployment. And crashing property markets.
I am still pretty sure unemployment will start rising in NZ in 2023, but I am less sure by how much. It might be quite minor.
In which case, assuming inflation remains above the target band, the RBNZ has every right to keep hiking.
It will all crash down eventually, but perhaps that is a 2024 story rather than a 2023 one.
On top of the OCR setting New Zealand also has to fund its deficits. We have a current account deficit of 27.8 billion$ and a government cash deficit of an almost equal 27.9 billion$. All that money needs to be raised overseas and those investors require increasing risk premiums.
Currently we can't do much about our current account deficit apart from enticing more tourists to come here and quicker. The government needs to rethink its capital cash deficit part of its total cash deficit whether it proceeds with the new policies requiring that capital to be spend. I believe austerity is required to survive the coming years and there is no room for tax cuts.
Interesting article a couple of days ago about this.
Best quote in it was something like “ everyone will outwardly appear just fine…..until they suddenly are not”
financial struggles are notoriously private and most live closer to the breadline than they appear.
The longer rate rises must go on. The harder the result will be.
I don’t think it’s that surprising given the level of de-globalization and decoupled supply chains that has happened over the past couple years. Plus employment is a lagging indicator and international supply is still constrained. Thus more local production is required. US are rapidly turning the China taps off and moving more production in house. That’s major inflation right there. It’ll eventually fizzle out as you suggest but employment will come off after we’ve already screwed the pooch.
End of 2022 to Mid / End 2023 will be the darkest time / worst before some sense prevail and can say that it is the darkest at the end of the tunnel.
Any fall in house price or interest rate rise has not yet had effect as too much of money is flowing - cheap and easy and will be a while before it hits average person. Currently sentiment has been hit but not the pocket, so is manageable.
Million or 1.5 million or 1.2 million has been so casually mentioned in last two years that has lost its weight but was fine as last year a million dollar could be serviced as repayment would have been appox $800 per week but today is a ppoz $1400 -$1500 per week and still rising.
Interesting time ahead and real effect will be when dominio effect take place, which could trigger any moment from now on.
WHAT? #Germany's relief plan could trigger UK-style bond meltdown in Euro nations. German Chancellor Scholz last week announced package worth €200bn designed to help w/soaring energy prices, including gas price brake & a cut in sales tax for fuel. https://cnb.cx/3ekWK2i Link
5-Year Breakeven Inflation Rate falls as Real Yields march higher.
https://twitter.com/GoldTelegraph_/status/1578498408842555392?t=RoLFQtc…
UK companies are collapsing at their fastest rate since the GFC....
Winter is coming
There’s currently 60k kiwis living in the UK. Of those living there, can probably be assumed to be our best and brightest.
Will they be impacted by a softening market? Probably less than the general population. Will less go fair assumption.
Australia is keen as for more immigration and will take all kiwis willing. And there will be plenty of jobs here. Depending on what people are willing to accept in regards to location/industry.
Correct IO. I think the UK economy is more perilous than here.
As per my posts above, I have become somewhat more bullish on NZ employment in 2023. I still think the day of reckoning will come, but it might be later than I was previously thinking. A 2024 story rather than a 2023 one.
Another good post/chart:
https://twitter.com/epsilontheory/status/1578362779165040640?s=46&t=BgX…
Asset prices growing faster than productivity by dropping the cost of capital to zero.
Its insanity.
... that chart tells a $ Trillion story's ... equally evident in NZ , where land & house prices have been on a multi decade bull run , outstripping our GDP , our savings , our productivity , wages ..
A bull run built on speculation & cheap credit ...
... if anyone still thinks " this time is different " ... watch closely , a lesson in financial butt kicking is only just beginning ....
Spot on.
And where did it all start to go wrong? The Greenspan Years - '87 - '06. The graph shows it. And what does Alan now believe?
" Greenspan conceded he might have been, as he put it, partially wrong in not moving to regulate trading of some derivatives that are among the root causes of the credit crisis. He also admitted his free market ideology may be flawed."
https://www.npr.org/2008/10/24/96070766/greenspan-admits-free-market-id…
Wasn't a massive fan of Collins but I think he would have been way better than Brown. You see these guys come in talkig shit about how they are going to fix everything, bring business thinking to the Council. They nearly always fail, running public sector services is nothing like running a business, the whole reason there is a public sector is because the private sector can't deliver those services. On top of that, he will not be CEO, he'll be one vote at the council table. Collins at least recognized this and seemed to want to bring people together.
Anyway I hope he does well and proves me wrong because I really like Auckland and hope we get the deferred investment we need asap.
... often , the inarticulate candidates are the " can do " go getters who're not skilled in political chicanery ...
The smooth talking confident ones are career pollies ... them with no real world experience ...
... I've heard Collins policies , and was appalled by him ... really really appalled ...
Pay cuts make me laugh, you just lose talent and then have to hire them back at double/treble the price as consultants as they have both the talent but more importantly the institutional knowledge. I've worked in public sector and private as consultant back to public sector. I get paid 3 times what I got paid in public sector for the same job that I would have happily continued doing were it not for not being able to stomach yet another restructure to try to get "efficiencies".
Yes all those people that were outraged at how many council staff earned 100k+ or 200k+ - but that is just the going rate for someone who designs roads or pipes or project manages. God the guy laying the pipe earns that. And of course the number of people earning those wages was going to increase massively with the building boom and inflation in general. I don’t see how Brown sacking them all will help, he’ll just end up contracting them back. People are idiots, fall for this one over and over again, and most of those voters would’ve been old, you'd think they may have learned by now.
More likely low turnout of his core voting block as a significant portion are the ones hit hardest by the cost of living crisis. Local elections probably rank quite low on your priority list when you're struggling to put food on the table. Many boomers have nothing better to do than whinge and Brown tapped into that
The S&P500 is still well ahead of trend: https://www.advisorperspectives.com/dshort/updates/2022/09/07/regressio…
We are still living in the ZIRP era with interest rates having barely advanced into low single digits. Hell, bank of England and the ECB are still buying bonds and stimulating their economies even as inflation surges.
Or, and just for fun, "We find that the S&P500 is currently..... Fairly Valued."
https://www.currentmarketvaluation.com/models/s&p500-mean-reversion.php
US Debt Clock just suddenly surged over 31T. It was creeping up from 30T steadily for at least weeks and then kapow!
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