Here's our summary of key economic events overnight affecting New Zealand, with news that although active talk of a coming recession in 2023 is growing, there are still no real signs of it in global labour markets.
We are less than ten days away from the next US Fed rate review. Markets are pricing in a full +75 bps (and a bit more) for that meeting, plus another +125 bps and taking their official rate to 5.0% by March 2023 and assumed it will level out at that point for the rest of the year. That is a rapid-fire set of increases expected and already priced in. The big question now is, when to slow down? (Markets have priced in a New Zealand OCR at 5.5% by August 2023.)
The US Federal Government booked a -US$1.78 tln deficit in their full fiscal year to September, a huge improvement on the -US$2.78 tln in the prior 2021 year. Still, this deficit is still -5.4% of US GDP. That is back to the average levels of the past 35 years, and a steep and fast recovery from the disastrous Trump years.
We should also note that the US Fed's balance sheet has retreated to US$8.7 tln (34% of GDP) and back to levels first reached in December 2021. That is a reduction of --US$220 bln from the peak in mid April 2022.
Canadian retail sales didn't slip away as much as expected; in fact they rose in August after a slip in the prior month.
As widely expected, Japan's government and central bank intervened in the currency market earlier today to support a falling yen, The yen soared the most against the US dollar since March 2020 on the intervention, rising +2.7% in just a few hours. It was an intervention timed for the final few hours of trading in the US, so it should hold things until Tuesday NZ time, at least.
Japanese inflation came in at 3.0% in September, unchanged from August and holding near an 8 year high. Food prices were up +4.2%. Electricity costs were up 21%. Without food and energy costs, 'core' inflation there was only 1.8% however.
In China, the exhortations of the Party in Beijing this week are exposing a serious generation gap. The "last generation" movement among China's under 35s is becoming quite embedded with a suspicious and cynical generation emerging. The political theater in Beijing means little to increasing numbers of younger Chinese expected to carry the weight of Xi's "modernisation" dreams despite increasingly dire career prospects in a sputtering economy. At Xi's coronation, the signs of rot should not be dismissed. In the end demographics are destiny, and Chinese demographics tell a story of decline that is already underway. Xi is also expecting a country with deeply embedded values of hard work resulting in financial security to set them aside 'for the greater good'. It is likely to just build frustrations.
Buyers are shunning residential real estate 'investment' in most Chinese cities now. Local authorities are raising emergency funding to complete stalled projects, but buyers remain suspicious of what they will get. Some cities are trying to entice them back with sub 4% mortgage interest rates. In fact one city is now offering 3.7% mortgages.
Prices for iron ore and copper are falling, mostly based on weaker prospects in the Chinese economy. And despite war disruptions from Russian supply, neither aluminium nor nickel prices are going anywhere either. Sanctions should have raised prices for these key commodities, but it isn't happening. The reason is weak demand, especially from China.
Next week (Wednesday) Australia releases its September CPI data. It is expected to rise to 6.9% from 6.1% in August. But analysts like CBA reckon it will be over 7%. At that level, the RBA may not be as sanguine about how they have handled monetary policy so far.
For the long weekend, if you want to read a genuinely serious assessment of where the world stands in its struggles to transition to a sustainable energy and climate future, this review is worth your time.
In freight news, the backup of container ships off Southern California’s coast that was at the heart of American supply chain congestion during the pandemic has effectively disappeared. The queue of ships waiting to unload at the ports of Los Angeles and Long Beach fell from a peak of 109 ships in January to just four vessels this past week. This doesn't mean all American logistics pressure is over, but it is an early sign that it is fading, and fading fast. And after peaking in early January this year, the share price of global shipping giant Maersk has fallen -35%. Super profits from logistics stress are no longer there.
The UST 10yr yield starts today at 4.22% and unchanged from this time yesterday. But it is up +20 bps from this time last week. The UST 2-10 rate curve is much less inverted at -27 bps. And their 1-5 curve is also less inverted at -23 bps. But their 30 day-10yr curve is flatter at +75 bps. The Australian ten year bond is up +21 bps at 4.22%. The China Govt ten year bond is little-changed at 2.74%. And the New Zealand Govt ten year will start today also unchanged at 4.69% but up +17 bps from this time last week.
Wall Street is much higher today with the S&P500 up +2.5% and enabling a respectable +3.0% rise for the week. Overnight, European markets fell about -0.5% on average except London which rose +0.4% on the day for a +1.6% weekly gain. Frankfurt ended its week up +2.1% for the week and Paris ended up +1.4%. Yesterday, Tokyo ended down -0.4% but rose +0.4% for the week, Hong Kong was also down -0.4% yesterday but it fell -1.6% for the week. Shanghai slipped -0.1% in its Friday session to be -0.7% lower for the week. The ASX200 ended its Friday session down -0.8% on the day, and down -1.2% for the week. And the NZX50 was down -0.5% yesterday to be -0.8% lower for the week.
The price of gold will open today at US$1654/oz. This is up +US$18 from this time yesterday and up +US$11 from this time last week.
And oil prices start today down -50 USc from this time yesterday at just over US$84.50/bbl in the US while the international Brent price is just over US$91.50/bbl. A week ago these prices were exactly the same.
The Kiwi dollar will open today at 57.6 USc and about +½c firmer than this time yesterday. And it is almost +2c higher than this time last week. Against the Australian dollar we are little-changed at 90.3 AUc. Against the euro we are slightly firmer at 58.4 euro cents. That all means our TWI-5 starts today at 68.1, and up +20 bps from yesterday but +160 bps higher than a week ago.
The bitcoin price is now at US$19,220 and a mere +0.3% higher than this time yesterday - but -1.1% lower than this time last week. Volatility over the past 24 hours has however been modest at just +/- 1.5%.
Finally, please note that Monday is a public holiday in New Zealand. Banks and financial markets will be closed. Most businesses outside the retail sector and hospitality will be closed.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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100 Comments
Man with private jet says house prices will always go up over a 10 year period: https://www.stuff.co.nz/business/property/130228759/golden-days-ending-…
I'm glad you've got this covered for us Jimbo. Cheers bud.
"External Debt in New Zealand averaged 195828.01 NZD Million from 1993 until 2022, reaching an all time high of 318791 NZD Million in the second quarter of 2022"
"The deficit for the year ended June was $27.8 billion equating to 7.7 percent of gross domestic product, the biggest since 2008.
"New Zealand has long been used to running external deficits. However, they have rarely gotten as large as they are now," BNZ senior economist Craig Ebert said.
"The point is that New Zealand still owes far more to non-residents than non-residents own of it. And, so, as interest rates rise ... the nation will be paying more and more interest as the debt rolls over for refinancing. Cheap debt doesn't mean cheap forever."
https://www.rnz.co.nz/news/business/474757/new-zealand-s-account-defici…
Read the first half of the article and he seemed quite plausible. Got through the second half and thought yeah they're screwed. Gonna be a lot of hurt there with 20% of the hurt in Singapore to spread the pain. At least he can talk to likes of Hanover and bridgecorp owners for how to escape.
I in absolutely in no way implied that he'd get hurt lol.
Had a distant relation own a large construction firm that went bust. Really nice guy but it did bug me that the nice house and the Beamer along with the easy retirement life was way beyond many of the creditors.
Interesting that a lot of their demand is coming from Singapore, which with Australia, is excluded from the overseas ownership rules. And the houses are empty apparently. I wonder whether, prior to those rules being in place, much demand came from Singapore? Or whether, it is actually money coming from elsewhere, using Singapore as a conduit?
If we accept the Hobbesian insistence that government is here to prevent disorder, then what can we say about the record of the pan-European project, which we can define as the combined efforts of the European Union, the euro and the Eurogroup, the hidden but legal and accountable banker cabal which rules the euro and thus a score of European nations? Their record is one of shameless pride in unabashed failure for Europe’s working-poor class, which used to be called the “middle class”. Link
The UK’s political parties are becoming uniformly right-wing organisations which represent a very narrow spectrum of views – those of the corporate sector and billionaire donors; who also of course own the mainstream media, which thus has precisely the same narrow spectrum of view.
This is a fundamental change in what a political party is – it no longer is a free association of citizens holding a common political outlook and working to elect representatives to support that philosophy. This great change in society – which renders western “democracy” entirely meaningless – is being consolidated before our eyes. Link
From bloomberg intillegence........1929 scenario
Public debts are spiralling out of control. Central banks are trying to prop up the currency. And the markets are losing confidence in political leaders addicted to printed money. As a description of the UK over the last few weeks, it is painfully familiar. And yet, here’s the twist. Over the last few weeks, it has started to apply to Japan, to China, and it may very soon apply to France and Italy as well. In reality, the “British disease”, as we might as well call it, is already spreading across the world. A whole series of major economies face the same toxic mix of rising indebtedness, soaring interest bills, ageing workforces, and bloated, unaffordable welfare systems that can only be kept afloat by central banks that keep the printing presses running until the financial markets call time on them. The UK may well have collapsed first – but it won’t be the last.
https://www.telegraph.co.uk/business/2022/10/21/british-disease-already…
Follow the thread Carlos, start with KHs post, and work downwards. They aren't paying tax once WFF is taken into account, and even Auckland rents aren't $1000/week for a modest 2 or 3 bedroom house. Bit of a fancy house if you are paying $1000/week for 3 bedrooms.
The breakdown of who pays what is pretty clear at this point, it's been documented by the TWG and yes, we are extremely reliant on a small group of core net taxpayers. Whether that figure is inconvenient or not is irrelevant, it's still objective reality. It just tends to get ignored because it completely screws the whining about people not paying a 'fair share'. Your argument also ignores the fact that higher earners spending more pay more GST.
The reason a tax-free threshold sucks is because everyone qualifies. That means that everyone would get bugger all, and the people who need it the most get the same, while people who don't need it get it too. A $2b tax package that everyone qualifies for goes nowhere near as far as one that moves the brackets so the people who need it most get to keep more of it.
People keep trying to have this both ways with tax and at some point people need to be honest about whether they want a progressive system or not - because I get the feeling many people actually just want certain people to pay tax, and it's usually not them.
Income tax is just so much of an easy target it becomes irresistible to politicians for what they see obviously as political gain. Last real attempt at a significant restructure was the Lange/Douglas lot who introduced GST, and then raised it, with compensation in income tax on the way to a flat tax that never eventuated. Under the shield of Jim Anderton the Clark/Cullen lot readily raised income tax again. Key reduced income tax but raised GST to balance that out, sort of. This Labour lot then repeat their history & raise income tax again. Personally that makes me highly suspicious that the introduction of any tax, such as land and/or wealth, that is compensated by a reduction in income tax, will inevitably just see income tax ratcheted up again at a comfortable future date.
The people that benefit most from bracket adjustment are the people that earn more than what the top bracket is adjusted to. If the 33% bracket went from 70k to 80k then you need to be earning 80k plus to get the full benefit. I’m not convinced that is the people who need it most. A tax free threshold on the other hand benefits everyone equally.
but I do agree that if they never adjust the brackets then we end up with an almost flat tax system.
I’d say it’s time to give the whole setup a rethink, it’s the people over say $120k that are doing pretty bloody well out of it, rather than an adjustment I think they should change the whole lot, both rates and brackets. And I say that as someone who will lose out.
That's the beauty of indexing all of the brackets, not just dicking around and moving one of them to make a point and then dressing it up as 'tax reform', or bringing in a massively high one to placate your activist base and then acting like you've pioneered some genius set of tax reform, as minimum wage earns get closer to hitting a 30% bracket that hasn't moved in a decade.
Yep. They sure do. But in Australia, I think you'll find the fundamental truth of having a finite amount of money to spread around in tax relief means people get less if more people are eligible still holds true.
And you know what? The Australians still don't leave their tax brackets sitting where they are for a decade or more at a time. They move them around as the need arises.
I see national pulling this one out of the hat before the next election. So easy to change and also to calculate the result at the click of a mouse. The first $15K in NZ should be tax free now and adjust the rates and thresholds to give everyone some relief. By not changing anything for years and wages rising the Labour government has been ripping you off.
He didn't foresee how perverse society's "values" would become? He missed the memo that unfettered self interest, greed and selfishness, "wealth" accumulation and egoic status raises the tide for everyone.
I think the idea was that we could work less and have more time pursuing self actualization, family and community interests, being alive...
It's still possible, unfortunately we'd have to forego a bunch of conditioned economic beliefs and I'm not having much faith we're capable of making the changes.
He was British & at that point his nation had more or less stuffed itself fighting WW2 & still owed the USA billions from WW1. Putting that to one side though, perhaps in his psyche there was a notion that great wars would always feature, clean out the hoi polloi, resurrect wealth for the upper classes, and set it all in motion again. Understandable given Britain had hardly ever not been at war viz in that time recently. America, Napoleon. Crimea, China, Sth Africa& the WWs.
Another wobble another set of fools predicting Japans imminent demise (and betting - again - against the BoJ. It's been 20 years now - ain't happening. With reasonably balanced trade and a central bank firmly in charge of interest rates they look solid.
Plenty of people out there fretting about Japan Jfoe and betting against JPY has been a profitable play. Not sure I fully agree with your position that it's all hunky dory, but at the end of the day, Japan is still a net creditor nation, Not sure if that's a good or bad thing. People have been suggesting perpetual current account deficits is the way for a nation.
This is the consequence of funneling populations into the same areas and have them compete with each other for a finite amount of resource.
Unless you had a significant amount of leverage (i.e. rare skills or networking), most will end up coming off second best in that dynamic.
And that is why the median income multiple to house prices is so significant as it signals the relative balance between the price of both income and house price. And in jurisdictions with functional housing markets, this is approx. 3x median income, just like it used to be in NZ prior to 1992 and historically as far back as you can go,
And as you say both need to occur although house prices need to come down more than incomes need to go up.
Crude oil prices only half the story.
"While margins on gasoline collapsed in August as demand faltered in the face of high pump prices, heating-oil cracks blew out this month to more than $80 a barrel (the front-month spread is around $74 currently). Inventories are at multidecade lows and the closure of refining capacity during the Covid crisis, exacerbated by a spate of recent outages, has created a perfect storm.
Refiners stateside are also benefiting from whiplash in the natural gas market, where benchmark Henry Hub prices have almost halved since hitting double digits in August, reducing the cost of a key input. At the same time, even though panic in Europe has eased somewhat, the benchmark Dutch TTF gas price is still almost seven times Henry Hub. That nets US refiners a competitive advantage and, as European consumers seek alternatives to expensive natural gas, creates extra demand for diesel across the Atlantic."
In the end demographics are destiny, and Chinese demographics tell a story of decline that is already underway.
In many ways a declining population offers many new and interesting opportunities as well. For example reduced pressure on resources and assets may actually improve quality of life. Not to mention the environmental benefits.
Buying off plans falling off the cliff as I have been saying for a while, building projects will slow down:
https://i.stuff.co.nz/business/property/130219256/only-10-of-buyers-wil…
Apologies in advance, what follows is high octane DGM stuff.
What would happen to the markets if Russia used a couple of tactical nukes in Ukraine? I think the chances are somewhat higher than many are making out. The conventional wisdom seems to be less than 5% chance, I reckon it could be up around the 20-30% chance.
Let’s assume, to reduce the DGM, that NATO responds with some very strong and surgical conventional strikes against Russian forces in Ukraine, and that does not escalate to a nuclear exchange.
so let’s keep it at use by Russia of a couple of tactical nukes. Presumably that is highly likely, in its own right, to trigger a major stock market crash?
I genuinely don't think so.
Nothing short of full nuclear war is going to really bite. You'd get a day of circuit breaking but before the markets re-opened, someone somewhere (UN/EU/Any number of places) would be calling for cooler heads and you'd get a pretty immediate cooling off. The only alternative if that doesn't happen is full-blown hot war, and no one is in a position to fight one of those.
That's the thing about mutually assured destruction - it's mutual. Russia may feel the US can't get dragged into a tit for tat situation so they may feel happy to just make a statement with something low-yield but in a very public way. Then they get to look like the good guy for just coming to the table.
Re, the chances of.
Working this out relies on rational thought but obviously war itself is irrational as is mutually assured destruction.
But what were the nukes designed for if not use in exactly this war situation. So logic here would suggest a 100% chance of use if that were a correct statement.
I guess I'm trying to so the chances may be very high t my mind when I actually think about it.
Waffle.
Yeah who knows. I feel like me saying 20-30% is optimistic.
Putin is getting cornered, and things could get ‘existential’ for him.
An ex military guy was saying yesterday that if Ukraine win back Kherson then they could effectively cut the water supply to Crimea. He reckoned that could be a potential trigger for Putin going nuclear.
Crimea survived without water from the Dnipro in Kherson from 2014 to earlier this year, so maybe not so existential?
Putin appears invested in the war, as much as cornered. Appears to be digging in for the long haul: mobilisation, drones from Iran, martial law, dragging in more and more of wider Russian resources even as they throw them away on the battlefield.
Rather than nukes, other possibilities for responding in asymmetric and/or unexpected ways: incursion from Belarus and/or blow up the Nova Kakhova dam and flood most of Kherson as he retreats.
I’m the modern financial environment, bad news is good for markets/asset prices and good news is bad for markets/asset prices.
Given how insane this has became (based upon the assumption that bad news will bring a Fed pivot and reduce discount rates against cash flows), use of nuclear weapons by Putin may actually cause asset prices to rise.
Granny Herald and Jack Tame take a stab at some of the 'bigger picture' stuff surrounding inflation. Shallow stuff. But that in itself is insightful.
https://www.nzherald.co.nz/business/jack-tame-if-jacinda-ardern-does-de…
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