Here's our summary of key economic events over the weekend that affect New Zealand, with news this week brings the final chance by central banks to tackle inflation.
In the upcoming week, some influential data and policy positions will be released. First we will get the REINZ housing transaction data for November tomorrow and it is widely expected to be weak. Next we will get Chinese new yuan loans data on Wednesday which is expected to swell as Beijing pushes its state-owned banks to shore up struggling property developers. Then the US will release its November CPI data which is expected to show inflation easing somewhat. And that will be followed by the US Fed who will raise its policy interest rate, probably by +50 bps. But their commentary will be hugely influential. Bond markets have already priced in a more dovish stance.
That will be preceded by the New Zealand current account position (which should be important, but it is unlikely to move markets), then the NZ Q3 GDP which might show a +5.5% growth rate off a low base, and followed by Australian labour market data for November.
We will end the week with US retail sales data and an ECB rate review, expected to bring a +50 bps rise to 2.5%. That ECB rate hike will be the last official central bank effort to tackle inflation in 2022. 2023 will start with the Bank of Japan's first review on January 18 who will kickstart a year of tough choices for central bankers.
However, investors are now favouring funds that would benefit from slowing inflation and falling rates, in a sign that markets think a soft landing is now the more likely outcome in 2023.
Over the weekend, China said its CPI inflation fell to +1.6% in November from 2.1% in the prior month. This shift lower was as expected. It was the lowest level since March, mainly due to a sharp slowdown in cost of food, rising +3.7% which was down from the +7.0% in October. A lot was due to pork prices which eased further after authorities released national reserves into the market. Beef and lamb prices changed little in November, milk prices eased up slightly.
On the factory front, producer prices are deflating now in China. They fell at a -15% annualised rate in November to be level-pegging with year-ago levels. That is two consecutive months of a sharp deflation in their PPI, and it is hard to see it ending any time soon. The only 'positive' in these November numbers are that analysts had expected an even sharper fall.
There may be some positive signs emerging for China's economy however. For example, deliveries of the construction equipment, rose +2.7% in November, breaking a 10-month losing streak. But it also should be noted that this gain is off a depressed base. Separately we need to be careful of Chinese reports of economic gains; many local jurisdictions are turning to subsidies and incentives to try and restart their retail impulse.
But their shift to trying to treat Covid "like the flu", which will undoubtedly be welcomed locally because of the reduced heavy hand of the State, is likely to reveal a widespread hesitancy about venturing out, for large numbers of people. That will stunt their recovery until confidence in safety returns.
Also over the weekend, American producer prices rose a bit more than expected. But they rose at an annualised rate of just +3.6% in November to be +7.4% higher than a year ago. Both were lower than the +8.1% year-on-year rise in October. Markets had expected the November annualised rise to be as low as +2.5%. Producer inflation is ebbing, just not as fast as expected.
American wholesale inventories also rose, and slower than expected at an annualised rate of +6% and probably still tracking inflation. However they are +24% higher than year-ago levels, so this overhang remains substantial.
Improving is the mood of American consumers, at least according to the widely-watched University of Michigan survey. It also reported lower inflation expectations. These improvements weren't expected.
In Europe, they seem increasingly confident that their electricity supplies will be stable at reasonable prices over the coming winter. The disengagement from Russia has taught them valuable energy supply lessons, even if the costs have been high and wouldn't otherwise have been chosen.
The UST 10yr yield starts today at 3.59% and up +6 bps from this time Saturday. The UST 2-10 rate curve is little-changed at the lower -76 bps inversion. Their 1-5 curve is also little-changed at -95 bps, while their 30 day-10yr curve is still inverted by -14 bps. The Australian ten year bond is up +1 bp at 3.37%. The China Govt ten year bond is unchanged at 2.94%. And the New Zealand Govt ten year will start today also unchanged at 4.10%.
The price of gold will open today at US$1798/oz and down -US$2 from Saturday. A week ago it was at US$1796, so little net movement from then.
And oil prices start today up +50 USc from this time Saturday at just on US$71.50/bbl in the US while the international Brent price is down to just over US$76.50/bbl. These are down -US$10 from a week ago and are back to year-ago levels. In fact we first were at these levels in 2006.
The Kiwi dollar will open today at 64.1 USc, and little-changed from Saturday. Against the Australian dollar we are still firm at 94.4 AUc. Against the euro we are still at 60.9 euro cents and holding its Saturday rise. That all means our TWI-5 starts today at 72.5 and little-changed.
The bitcoin price is now at US$17,164 and essentially unchanged from this time Saturday. Volatility over the past 24 hours has also been very low at just +/- 0.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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89 Comments
In Europe, they seem increasingly confident that their electricity supplies will be stable at reasonable prices over the coming winter.
I wouldn't be so sure about that...
The UK currently has 40GW of demand with 25 GW wind capacity. No wind so windmills currently producing 0.95GW and 0 GW solar isn't helping either. Nuclear currently 14%, gas 59%, coal 3% and rest from Europe. The Greta grid.
UK battery firm Britishvolt near collapse as it seeks funding
https://www.bbc.com/news/business-63457813
Windmill economics aren't much better - and exclusively China dependent - "Nordex chief executive José Luis Blanco stressed that even before the Ukraine war, the economics in the wind industry had been destroyed due to price pressures from competitive tenders coupled with a low visibility of wind capacity pipelines due to failed government policies.
...Steel for offshore wind towers is currently being purchased at over $2,000 per tonne, Hickok gave as example, adding that the prices of copper, carbon and logistics had also soared.
...Currently, some 85% of the industry’s components are, however, coming from China, he said.
“The energy independence is supported by a supply-chain dependency policy. This a huge risk.”
Blanco was not only referring to rare earths, but said “normal things” such as metallic shafts in turbines, 95% of which are sourced in China.
I’ve been eagerly anticipating the Fed’s Q3 Z.1 report. As expected, Credit growth slowed somewhat. At a seasonally-adjusted and annualized (SAAR) $3.284 TN pace, Non-Financial Debt (NFD) growth slowed from Q2’s SAAR $4.318 TN and Q1’s SAAR $5.438 TN. NFD ended September at a record $68.463 TN, or 266% of GDP. Unless Q4 Credit growth surprises to the downside, 2022 debt growth will be second only to 2020’s onslaught. Link
https://i.stuff.co.nz/life-style/homed/real-estate/130677426/are-we-on-…
Exactly the type of articles that floated just prior to 2008
The last two times both China's PPI and factory gate prices turned negative on a y/y basis, global recession followed very closely after. April 2012 and again July 2019. That just happened in November 2022. Not likely random coincidence global recession fears are pretty high. Link
I've been watching three properties for sale in my subdivision in Christchurch (fairly central part of town).
3x townhouses have been for sale, all within about 250m of each other. All three are post-quake builds, and very nice homes with generous bedrooms, good parking, nice outlook etc (not volume developed shoeboxes)
Two were for sale by private vendors, and both sale signs are now down. Looking at homes.co.nz data neither appears to have sold, so I'm assuming they have been withdrawn from sale due to lack of interest. I'll check again though, in case private sales take longer to report?
The one for sale via an agency is now listed as having had a fallen through sale, so it's on the market with a price. I've walked past when open homes have been on and there appears to have been little activity.
A larger standalone home down the road has now got its sale price listed on homes.co.nz - I would have thought it would have gone at auction for at least $950k, but it sold for just over $850k. Last sold in 2017 for just under $700k.
Nail and Head.
The question that needs a logical answer is, "What happens if we do go back to what we had before?" - credit inspired asset appreciation backed by nothing but a set of figures on a spreadsheet.
Whatever it is, if it's a redux of what we see today, multiplied by some factor, that becomes a bit unsettling. So a better answer seems to be (your point) "We don't go back. We go forward - in a different direction"
It's hard not to think housing needed a reset...it took a once in a generation event to trigger it.We were like drug addicts,unable to stop ourselves,now we have been forced into rehab,but like any recovering addict,we could easily be drawn back in.One would like to think that systems would be put on place to try and prevent a runaway market again,such as ever decreasing DTI's down to a manageable level,keeping the brightline & removal of tax deductions in place....I fear though,with a likely change of government,that like drug peddlers,the new government will be looking to feed our addiction and get us back to our 'happy place' of ever increasing capital gains.
It was enabled by somebody who once said they don't see the relationship between interest rates and asset prices and his woke obsessed appointee that was literally joking about asset bubbles while simultaneously promising to remove all lending safeguards for a year.
Let's call them Tweedle Dumb and Tweedle Dumber.
There's no point quibbling about the last thirty years because you're right, but these arsonist buffoons took it to the next level.
The whole rotten lot of them need to be turfed out. It is unfortunate it's such a sad bunch of options to replace them.
Well at least in that regard the present government has markedly reduced the options.That being the electorate’s major priority will be to vote Labour out. That in turn raises the rather counterproductive motivation of “whatever it takes.” National in my opinion has much work yet in front of them to assemble both a convincing body of politicians in depth, and substantive policy. From all accounts, for the former, the new MP in Hamilton is a step in the right direction.
We know friends who are selling their house, cost about $1m a year ago, in Murray Ansley area, in CHC highest bid was $825, only one bidder, now on the market
Property sale transactions dont always pop up on homes dot co dot nz , not sure why, but there is a process, lawyers have to advise council, I think within a month, and agents have their input too.
Time will tell, Labour is getting twitchy with losing ground in Hamilton and generally going backwards in polls - I heard good old Cindy is looking again at immigration settings and other ways to win the election. The bulk of voting kiwis like the status quo... seeing their captial gains evaporate isn't going to win their vote. Cindy knows this, heck she was backing the gains across 2020/21...
It's more likely the same, you're just a lot newer to the market.
I remember stopping bidding on a place in Ponsonby 15 years ago at 400k on the assumption I though house prices were nuts and I should double down growing my "real" businesses.
This time seems little different, with the exception of a pandemic that caused general hysteria across virtually every asset class.
Anyone saying X asset will be Y priced at Z time is going to be mostly wrong, and I don't try and make a living that way. Less about balls and more about experience and rationality. I am reasonably convinced stability is some way off.
I agree prices will fall, and interest rates will increase. I'm less convinced either will be as permanent as your assertions.
I'm also from Canterbury and getting tired of seeing so many unpriced homes. I asked one realtor to at least give me a price range before I travel an hour to view one property that looked appealing. His response , "from $1m to $2m". Needless to say, I removed it from my watchlist.
I'll suggest even if you stick a bid in at $1m, you'll bet a common response from the agent, "I'm not even going to submit that. They won't consider it"
Whether or not they have to advise the vendor of your bid won't affect what they'll say. It must be part of their current marketing - try to shame the buyers into feeling they aren't up with the play, and they - as the experts - are. Stage 2 stuff, still.
The vendor can instruct the agent (which the agent should confirm in writing) NOT to present offers below a certain amount, but in lieu of that all written offers are required to be presented, and at any time any information the potential purchaser may have told the agent about, especially if it is about what they can afford.
Not sure 'show a clear price so that the market can judge the value against other properties' is tyrannical in any way that isn't an insult to people who have lived under actual tyranny, but it does show the entitlement issues so many have around properties that the idea they can't manipulate an imperfect market to stop consumers from establishing a fair value provokes such an over-the-top response.
Trying to portray 'Put a price next the thing you're apparently trying to sell' as 'envy' is pretty lazy dude, especially when you've already managed some pretty detailed responses further up.
If it were mandated by law to put a price where you commit to selling then vendors will just put in high prices and everything would be settled by negotiation. What does that solve?
The other thing to consider here is that there can be conditions attached to offers so the highest monetary offer doesn't necessarily win if its conditions are less favourable.
If it were mandated by law to put a price where you commit to selling then vendors will just put in high prices and everything would be settled by negotiation. What does that solve?
It lets you see a huge amount of unsold stock with stupidly high prices, which is more information than consumers currently have when dealing with a large number of 'by negotiation' listings. It does not take a genius to figure out why some people would be against the idea of visible pricing at a time of high inventory and long selling times, but my response to this is 'So what?'.
All of this ignores the fact that as listings increase and cheap credit dries up, people will have more choice and the 'by negotiation' crap won't fly anymore.
I agree for most things there is a price, but the vendor doesn't need to tell you what theirs is. They may get a better offer from another wannabe purchaser that's higher than their reserve. That's why vendors do not to tell people what their reserve price is when selling by auction.
I agree. In my comment (above), I was wanting a hint of what the vendors were looking for before travelling for an hour to view (a ballpark). The property went to 'deadline', no takers, so now 'by negotiation'. The $1m - $2m range the realtor gave me is nuts. In this market I think the propety is worth $1.1m, but I don't want to play the game. Perhaps sellers in Canterbury still have their heads in the sand? Is it for sale or not?
Hopefully as the market continues to tighten the vendors will take a more reasonable approach and give some indications of the ball park figure they are looking for (and that figure may be falling by the day). However, my position is that the punishment for vendors that do not engage in negotiations or set their reserve price way above market is that they are not able to sell. I do not think the Government has a right to make a vendor set a reserve price and tell all prospective buyers what that is. A free society includes freedom to sell your property as you please (obviously that does not include fraudulent misrepresentations).
More transparency is required, for sure.
Put an offer in for a dealine sale. Agent responds saying two other offers submitted are within +- 5% therefore vendor is requesting everyone resubmit. Firstly, isnt the highest offer meant to be accepted in a deadline sale? But more to the point, the goal posts started moving, how does one verify there are actually two other submitted offers. No transparency there.
If they run a no reserve deadline sale then that may be true. However, I have never heard of a no reserve deadline sale when selling a house.
The last thing the vendor wants is transparency, they obviously want a bidding war so as to get the best price, if you do not want to play the game stay out of it.
I know at auctions it is illegal to use phantom bidders. However, a vendor can make a bid but the auctioneer has to make it clear that it is a "vendor bid" which is clearly a way to drive up the price.
With tender or deadline sales I would think that making up tenders to push up the price would be illegal as fraud. However, getting the evidence to prove this would be hard unless you had some grounds to base your allegation on.
See https://www.settled.govt.nz/selling-a-home/preparing-to-sell/understand…
Yes, I arrived at your conclusion as well, evidence. Spoke to REINZ who could not really offer a clear indication on the correct way to handle.
Clearly room for improvement in this area, given nearly every other detail requires your first born child to proceed with the negotiation/S&P.
Vendor bids are hilarious. Sure there's nothing stopping a standard bidder ceasing bids, but certainly in this market a vendor could quite easily bid themselves out of a sale.
I.e. the vendor wins the auction, the highest bidder walks away and purchases elsewhere, the vendor then struggles to find another buyer that is as attractive.
That will be preceded by the New Zealand current account position (which should be important, but it is unlikely to move markets)
Current account position is a sign of relative economic competitiveness.
Southern European economies ran deep current account deficits and became noticeably uncompetitive in the run up to the GFC. Because prices and costs increased in southern Europe, it was more attractive to import from northern Europe.
The biggest concern for a current account deficit is when it is financed by borrowing, but a crisis of confidence causes this borrowing to dry up
Treasury has reported that the largest source of foreign investments in NZ is through foreign purchases of our debt securities and this trend is steadily on the up - great!
Dirty Urbaning.
"Auckland’s beaches have been impacted by high levels of faecal bacteria after recent heavy rainfall.
The city’s water quality monitoring website, Safeswim, has warned the public against swimming at the majority of Auckland’s beaches due to the increased risk of illness."
https://www.nzherald.co.nz/nz/aucklands-beaches-impacted-by-high-levels…
Watch the useful idiots scramble to justify this as a reason for 3 Waters and more Wellingtonisation, despite a) it being a direct result of central government population/migration policy not being backed up with infrastructure spending support to the areas taking on most of the population burden, and b) huge Auckland waste projects already underway to mitigate this under the existing/old Watercare set-up.
A sensible comment from Oz this morning:
What has been surprising is the number of people and commentators who appear to wish that extreme monetary policy might return as soon as possible, even as the damage it has caused is abundantly clear. Record household debt and rapidly growing public debt as well. The best explanation of this inability to accept that extreme monetary policy is broken is simply a lack of imagination and a limited understanding of the alternatives. But then neoliberal ideology was always insistent that there was no alternative, so tunnel vision is a consequence. The whole point of extreme monetary policy is to crowd out fiscal policy as a tool of economic management.
Funny aye, how extreme monetary policy ie printing money or QE, has become the new normal for so many.
It's what makes this normalisation so tricky for central banks. Who will be out in force this week doing a little more normalisation.
It's clear we will see a few mines go off along the way.
Some interesting equity predictions for 2023, including a bottom in the S&P 500 of 3000. All based on expectations that EPS are still way to opptimistic going into a recession.
I will pipe up for PDK. We are all living beyond our physical means and it's human nature to grab as many resources to use today and screw the future. The crazed monetary system of the past decade and a half was setup to support the psychopath side of our human nature, but its pretend support which will eventually have to reconcile with the underlying physical systems.
But my bet is we will elect more people who will double down on extend and pretend.
You cannot go against human nature unless you have a gun to peoples heads. Successive governments are just going to go with the flow as to what gets them the votes to get elected. If nothing else the "System" is predictable and will continue to go flat out until it hits a brick wall, the wall that was clearly visible but we all chose to ignore.
Auction failing to get bidder across Australia as well..... from AFR
The auction clearance rate dipped to its lowest level in almost five months over the weekend as homebuyers factored in the impact of another jump in interest rates.
On one of the busiest weekends of the year – 2667 homes were taken to auction this week, the highest number since May – the combined capital city auction clearance rate dipped to 57.9 per cent, according to CoreLogic, pointing to further price falls heading into next year, after dwelling values fell 5.2 per cent over the first 11 months of the year.
Blair House in Toorak sold for $75 million, making it the second most expensive in Melbourne.
Next week will be the last big auction week for the year – around 2300 homes are scheduled to go under the hammer – before the market enters its summer hibernation.
AMP chief economist Shane Oliver said Tuesday’s interest rate increase to decade high of 3.1 per cent meant the buying capacity for someone with average earnings and a 20 per cent deposit had fallen 27 per cent since April.
“As Finder has calculated for a $500,000 loan, you will now need a minimum pre-tax income of about $181,000, up from $122,000 in April,” Dr Oliver said.
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