Here's our summary of key economic events over the weekend that affect New Zealand, with news a coming car crash may be a literal one.
First up today in China, their March car sales were strong. But they may have been at the expense of future sales because car makers are offering deep discounts to buyers. The fierce price cutting is endemic, and profits will be few. Some key suppliers are now reporting that orders have just suddenly dried up. The industry body is calling for an end to discounts, but with planned production expansion, that seems unlikely. It is a manufacturing sector that might wobble soon. After all, sales are now running -15% lower than their 2017 peak.
But we now have the private Caixin services PMI for China and that has confirmed the earlier reported strong rise in the official services PMI - showing a robust expansion there. It's the fastest pace of expansion in activity since November 2020, and comes with strong new services order intakes following the end of their pandemic restrictions. New orders rose at the fastest pace in 28 months, with new export business expanding at the quickest rate since the series began in September 2014. The contrast with the US is worth noting, but to be fair the US expansion has been going on for very much longer and without the volatility.
In the US, there were no surprises from the March non-farm payrolls report on the giant US labour market. The headline seasonally adjusted rise was +236,000 and very similar to the +240,000 expected. But in fact, the actual (not seasonally adjusted) payrolls rose +520,000 to an employed labour force of 154.7 mln and a remarkable +4.1 more people employed than in March 2022. This data is from employer payroll records. And it we look at the household survey, one that includes self employment, +605,000 more people were in work in March than February and the total employed workforce grew to 166.8 mln (again actual, not seasonally adjusted). None of this suggests the US labour force is wobbling yet.
That is not to suggest there aren't stresses; there are, especially in the tech sector. US-based employers announced 270,000 job cuts in the March quarter, the highest first quarter total since 2020. 90,000 of these were in March alone.
US initial jobless claims are hard to read this week. The number of Americans filing for unemployment benefits fell to 207,000 in the week ending April 1st from the prior week. However the previous week's data was revised up in their seasonally adjusted series and that got all the headlines. There are now 1.845 mln people on these benefits, a small decline, but not as low as the 1.7 mln expected.
Maybe because employment is strong, one area that is doing much better is car sales. New vehicle sales volume is expected to have a +5.7% year-over-year rise for Q1 2023. March is expected to see an +8.6% year-over-year sales volume rise. This performance has put 2023 on track to hit a 15 mln annual rate, a steep uptick from last year’s 14.1 million. Units sold in March hit 1.366 million. But at these levels the US vehicle market is a lot smaller than the Chinese market. And Americans don't seem to be taking out car loans any faster, despite the uptick in sales locally.
The next big piece if US data is due on Thursday this week (NZT) and that is their March CPI. It is widely expected to come in at under a 4% annualised rate in March from February, a slower pace than the prior month's 5% rate. But it is still well above the target the US Fed wants, so the actual result will be keenly watched.
American consumer debt levels rose an insignificant +US$15.3 bln in February and this was less than the +US$20 bln expected, but slightly more than the seasonally low January rise. Still, on a per capita basis, Americans have US$14,000 of non-housing debt, which is high when you compare that to New Zealand's NZ$2,560 per capita. The tables are turned on housing debt of course.
The US financial stress index has returned to its low pre-SVB levels. Meanwhile, an index measuring global supply chain pressure has not only eased suddenly, it has retreated to its lowest level since 2009.
But all bets are off in the giant American commercial property market. Bloomberg has calculated that a wall of US$1.5 tln of commercial property debt is due to roll over in the next 20 months, just when banks have lost their appetite for funding such debt. And you can understand why; Morgan Stanley reckon office and retail property valuations could fall as much as 40% from peak to trough, increasing the risk of defaults. And it is the smaller regional banks that hold much of this debt. They are unlikely to want to keep those exposures, and the big banks are likely to eschew them too.
From the US to Japan, real estate investment trusts that focus on office property have taken a hit from fears that financing will be harder to come by. The S&P 1500 Office REITs Sub-Industry Index, which tracks major office property REITs in the US, fell to 53 at one point in late March. It was down more than 20% from the end of 2022 and plumbed its lowest point since 2009. As of Thursday, the index still languished under 60. This is an international trend that is yet to arrive in New Zealand.
North of the border, Canada has delivered a better-than-expected March jobs report, essentially driven by much better full-time employment data.
Also much better than expected is the closely-watched Ivey factory PMI for Canada, reporting an improvement that we didn't see in the earlier Markit version. The Ivey version rise was based on expanding employment and inventory levels.
In India, their central bank kept its policy rate unchanged at 6.5% which was a surprise because a +25 bps rise was expected. India's consumer inflation likely eased in March to 5.8% thanks to softer food price rises, dipping below the RBI's upper tolerance limit, and this may have encouraged them to hold off.
In Germany industrial production surged +2% month-on-month in February and beating market forecasts of a meagre +0.1% gain. Production in vehicle manufacturing, which is the largest one in Germany, increased sharply. Industrial output went also up for both capital goods and consumer goods.
Australia posted another very large trade surplus in February for both goods and services. The surplus swelled by +AU$2.6 bln to AU$13.9 bln, the third largest surplus on record. A key reason was that imports retreated in the month, a shift which was expected, but the size of the fall was much larger than anticipated. The outsized February surplus takes their annual surplus to more than AU$145 bln, equivalent to +5.9% of their GDP.
And their central bank has released its Financial Stability Review. In it they say about 15% of borrowers are forecast to have "negative spare cash flow". About 9% are expected to run out of savings buffers by the middle of the year, even if they slash spending, unless rates fall. Specifically they say (p41) "... there is a group of borrowers who, even if they cut back sharply on non-essential spending, will be at risk of exhausting their savings buffers within six months unless they can make other adjustments to their income or essential spending. ... those on lower incomes and recent first home buyers are over-represented in this group."
Global food prices are still falling. The FAO March index posted the twelfth consecutive monthly decline since reaching its peak one year ago and down more than -20%. The decline in March was led by drops in cereal, vegetable oil and dairy prices, while those of sugar and meat rose.
The global economy is set to grow at roughly 3% over the next five years which would be the slowest pace since 1990, the head of the IMF has said. Her heads-up comes as they prepare to release an update to their World Economic Outlook later today.
The UST 10yr yield starts today at 3.41%, and up +12 bps from Thursday. The UST 2-10 rate curve is still at -58 bps. Their 1-5 curve inversion is unchanged at -113 bps. And their 30 day-10yr curve is still at -109 bps. The Australian ten year bond is not trading at 3.18%. The China Govt ten year bond is still at 2.87%. And the New Zealand Govt ten year is in abeyance at 3.97% and its lowest since the beginning of February.
The price of gold is at US$2008 and unchanged from Saturday's level. It won't start trading again until Asian markets reopen later today.
And oil prices are little-changed at just under US$80.50/bbl in the US. The international Brent price is still just over US$84.50/bbl.
The Kiwi dollar is unchanged against the USD and now at 62.5 USc. Against the Aussie we are still at 93.7 AUc. Against the euro we are still at 57.3 euro cents. That means the TWI-5 is at 70.4 and unchanged from Saturday.
The bitcoin price is little-changed again today, now at US$27,935 and virtually unchanged from Saturday. Volatility over the past 24 hours has been virtually non-existant at less than +/-0.1%.
And we should note that the American subsidiary of Binance, the firm being challenged by US Federal regulators is struggling to find a bank to handle its customers' cash after the failure of Signature Bank last month, the Wall Street Journal reported. Previously, the deposits were sent to either Signature Bank or Silvergate Capital, both seen as crypto-friendly banks. However, after both failed, Binance is struggling to find a bank willing to engage with them
Please note that New Zealand is on holiday today for the long Easter weekend.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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63 Comments
Quite a good report with more positives than negatives.
Thr extra Chinese car sales will not warm an environmentalists heart. Would be good to have a summary of EVs vs ICEs
Isolated cases of 40 pct fall in commercial property values is not unexpected if a lower grade property is sold vacant with fewer prospective tenants. Not widespread unless really bad recession.
Happy Easter Monday to all.
https://i.stuff.co.nz/marlborough-express/news/131573482/doc-cafe-manag…
So, you work 8 long years building up your business until its worth something to enable DoC to hand over to someone else &/or the Supreme Court to hand over to Maori.
There's apparently no shame in such a disgraceful lack of natural justice in NZ now.
Own something freehold. Successful commercial tenants do the landlord a favour
I don't understand. Do you think they should have the concession in perpetuity? They bought a15 year concession with 8 to go now that's ended . That's just business isn't it?
Yes and forgot to read the contract. The devil is in the detail. aka the fine print in the contract
Sounds to me like they want a break anyway, doc offered them another year and they turned it down. It's not necessarily the highest tender that wins, so if they are doing a good job, doc is likely to pick them.more to the story me thinks, it's not even clear what the 100 k represents.
Re-read it, 100k is the annual turnover.
incl gst or plus? 100k turnover is tiny, there would be nothing left after costs.
It says over 100k,and unless they employ someone, cafe costs are low, and mark ups high. I was told the high end franchise costs for a cup of coffee are around thirty cents.
The hotel inspector had a specialist do a breakdown for the cost of a £3.60 ($7.20) pint. They demonstrated using the coins so that the hapless business owners could focus.
Starting with VAT of 60p the costs kept coming. Eventually there was something like 12p left over as profit that was then taxable in their hands as owners. I think they were left with 8p, less than 3 percent of turnover.
Wow who told you that. Coffee beans alone are double or treble that then there’s the milk and the barista to pay, don’t forget the paper cup and lid (from memory that’s about 30c). My experience are that margins are very low on coffee, you need very large volume to make it work, or better still be selling alcohol to help with profit.
They make up with an exorbitant margin on the snacks/food. When i go for a cup of coffee with a friend, he'll order some food, I'll go without.
About 10-12 years ago when residing in Lower Hutt for a few months there was a cafe in the Queensgate shopping complex near the one main entrance where his coffee was cheaper and the food quite a lot less than the others further in. Frequented by oldies including myself. Then I was prepared to b a pay for a snack.
No necessarily handed over to Māori but I bet highly likely. Want a depressing read, go and look at the ministry of education curriculum refresh. But majority of NZers just don’t care. Beyond me but hey!
Dallas Fed - Loan demand declined for the fifth period in a row as bankers in the March survey reported worsening business activity. Loan volumes fell, driven largely by a sharp contraction in consumer loans. Loan nonperformance increased slightly overall, with the only notable rise over the past six weeks coming from consumer lending. Credit standards and terms continued to tighten sharply, and marked rises in loan pricing were also noted over the reporting period. Banking outlooks continued to deteriorate, with contacts expecting a contraction in loan demand and business activity and an increase in nonperforming loans over the next six months. Some contacts cited waning consumer confidence from recent financial instability as a concern.
American consumer debt levels rose an insignificant +US$15.3 bln in February and this was less than the +US$20 bln expected, but slightly more than the seasonally low January rise. Still, on a per capita basis, Americans have US$14,000 of non-housing debt, which is high when you compare that to New Zealand's NZ$2,560 per capita. The tables are turned on housing debt of course.
This week the Federal Reserve announced that the average credit card debt in the United States was $10,000. So the average credit card holder holds $10,000 in debt.
If you pay your credit card regularly, the rate is 20%. If you have a late fee, or you’re behind, then it goes up to about 30%.
All of this is counted as growth in GDP. The late fees that banks charge — and they make even more in late fees and penalties than they make in interest at 20% — is called “financial services” in the GDP. As if the banks are providing a service of charging their cardholders much higher interest and penalty rates.
So, you could say that, not only are the bank statistics fictitious, but the whole GDP accounting format that counts finance, landlordship, and economic rent as part of the product, even though it’s unearned income, it has nothing to do with production — even though interest and rent are charges that should be subtracted from GDP as economic overhead, they are counted as part of GDP growth.
Likewise, when people get sicker — as during COVID — and they have to pay higher medical costs and insurance, that accounts for 18% of GDP, which is medical overhead. As if somehow the economy is growing when people have to pay more for their health insurance programs or when they get sick. Link
"All bets are off in the giant American commercial property market"
Not just the commercial market and not just the USA - all market sectors, everywhere. That's what a normalisation of the cost of risk does to asset prices.
"Britain’s property market faces a reckoning – the house price plunge is only beginning. (Telegraph)"
Meanwhile australia. They must be unique
Something else unique is our superhero rbnz guvna. India of all places have left their interest rates on hold against expectation
Meanwhile australia. They must be unique
Yes yes HW. Aust and NZ are diffrunt. And just to hammer home the point, the AFR does 'The three rules that made Australia’s banks the strongest in the world'. This story has been told many times since the GFC. It's like the sheeple need reminding to keep the spirits highs.
https://www.afr.com/companies/financial-services/the-three-rules-that-m…
According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.
Banks have migrated away from lending to productive business enterprises because the risk weights can be as high as 150%. Thus around 60% of NZ bank lending is dedicated to residential property mortgages owed by one third of already wealthy households
..requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.
Its off topic but what happened to the theory of fractional lending. The above analysis smashes the idea of banks creating funds with a keystroke.
Has this 12 percent equity requirement been foreshadowed from about 3 to 4 years ago. I recall that Orr wanted to bring it in earlier and the banks protested. Edit I just checked and the article was from 2019.
Its off topic but what happened to the theory of fractional lending. The above analysis smashes the idea of banks creating funds with a keystroke.
Fractional reserve lending is a myth according to Werner. Banks create money out of thin air. All that is needed is a ledger that can be operated via keystroke.
What multiplier effect? There is no fractional reserve banking in NZ - the limiting control of bank credit creation moved from the asset side of the ledger to the liability side many decades ago
Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.
They basically can create capital for themselves and did, everything else follows on:
The link between bank credit creation and bank capital was most graphically illustrated by the actions of the Swiss bank Credit Suisse in 2008. This incident has produced a case study that demonstrates how banks as money creators can effectively conjure any level of capital, whether directly or indirectly, therefore rendering bank regulation based on capital adequacy irrelevant: Unwilling to accept public money to shore up its failing capital, as several other major UK and Swiss banks had done, Credit Suisse arranged in October 2008 for Gulf investors (mainly from Qatar) to purchase in total over £7 billion worth of its newly issued preference shares, thus raising the amount of its capital and thereby avoiding bankruptcy. A similar share issue transaction by Barclays Bank was “a remarkable story of one of the most important transactions of the financial crisis, which helped Barclays avoid the need for a bailout from the UK government”. The details remain “shrouded in mystery and intrigue” (Jeffrey, 2014) in the case of Barclays, but the following facts seem undisputed and disclosed in the case of Credit Suisse, as cited in the press (see e.g. Binham et al., 2013):
The Gulf investors did not need to take the trouble of making liquid assets available for this investment, as Credit Suisse generously offered to lend the money to the Gulf investors. The bank managed to raise its capital through these preference shares. Table 11 illustrates this capital bootstrapping (not considering fees and interest). Link
Further links:
https://sciencedirect.com/science/article/pii/S1057521914001070
https://sciencedirect.com/science/article/pii/S1057521914001434
JC, as Blackdog rightly pointed out on different article, there is a very important and large difference between NZ and OZ, they have a large trade surplus whereas NZ has a large account deficit.
Who owns that surplus - Aussie citizens or foreign nationals?
Using standard economic metrics and theories to assess the Chinese economy often leads to missing the point. For example, the Chinese car industry is performing perfectly - if you're a Chinese strategist. The car companies there are competing like hell having been incentivised with state subsidies, piles of scientific research, and no doubt a healthy dose of borrowing IP from the companies they let build cars there. The fittest will survive and China will be all set to dominate a market that is going to explode globally - having spent the last decade securing supplies of the materials they need to import to achieve their goals.
Don't know much about the EVs Jfoe but love Xiaomi products. Just noticed that Xiaomi almost makes SUVs.
https://www.gizmochina.com/2019/04/01/xiaomi-first-car-partnership-best…
The fittest will survive and China will be all set to dominate a market that is going to explode globally
This is the great seismic shift in the world economy. Asia Times webinar featured the World Bank's digital infrastructure chief plus experts from Huawei. Link
Some of the Chinese own brand cars I see look shocking after just a couple of years, bits falling off, fading, smoke out the back, ancient leaf spring technology protruding from the rear. I will stick with the ultra reliable Japanese thanks.
Yeah smoke out of the back. In need of a valve grind
Speaking of car crashes, good to hear our taxpayer dollars being put to good use on the radio this long weekend, with the god awful "Road to Zero" campaign ads. Talk about cringe. I can only assume they come from the same overpaid PR consultants who brought us the stomach-churning "Two Jabs For Summer" campaign, with the main angle this time being to remind us all that it's our collective responsibility to try and hit the ludicrous targets which this government has set for us. I might have to switch to Spotify.
The ads may be cringe worthy, I haven't seen them, yet almost all deaths and injuries are the result of criminally stupid driving so I don't see why we cannot at least try and approach zero deaths. It's not like most road fatalities are acts of God or even "accidents".
I think that's a bit of a simplistic view. Road accidents have a wide variety of causes, often multiple factors per incident. Regardless, whatever the cause, aiming for zero deaths and serious injuries on our roads is just pie in the sky thinking.
It's not a simplistic view at all. What percentage of fatalities do not involve, drugs, alcohol, speed, inattention, recklessnes, poor maintenance etc? 2%?
That's not what you said, though. You said "criminally stupid driving".
In any case, even if silly radio ads were all it took to stop people driving stupidly, 2% is still not zero.
All those things are criminally stupid and involve driving.
Right, so all we need to do is eliminate stupidity. Sounds reasonable.
Agree Chebbo, why have a target - zero - that absolutely nobody believes is possible?
Maybe it should have been "road to a hundred" or even "road to fifty". Not quite as punchy and retains the notion that a toll must somehow be paid. The idea was to get the message across that even a single death is a failure. Practically every death on the road is the result of a human failure of some sort. It is meant as a journey too, a road toward a target of zero. The first milestone to reach on that journey is to reduce road user death and serious injuries by 40% by 2030.
What should be our murder target? Should we ignore the first 300 murders each year and say they were unavoidable?
No, that would be ridiculous. But so would having a murder target of zero.
You don't set targets according to what you would like them to be, you set them according to what's achievable.
Zero road deaths are impossible simply because it’s likewise Impossible to make all the people perform perfectly all the time . Whether it’s dismounting a step ladder or driving a car mistakes will happen. Don’t have to have lived all that long or be over intelligent, to realise that inevitability.
It's just being childish getting hung up on the "zero deaths" thing.
As a society we should be absolutely intolerant of driving that risks people's lives and wellbeing.
Get my friend's wife off the road. Safety and security conscious until behind the wheel
Police also have a job to do to chase and apprehend crims and fleeing drivers. No police chases is a green flag
In terms of stupidity, there are stupid drivers who literally speed up to stop someone overtaking. They will squeeze you into the path of a truck and dont care.
Not really, an accident is just that, an accident. Reminds me of a HR person standing up at a conference and saying please don’t have an accident…..self insured and there had been a few. Like duh. Also, the people who drink and drive, speed, are reckless will do that with it without a stupid slogan. And yes it’s is ok to be hung up on this because the cost of stupid marketing is money that could be better spent on education and health.
Accidents are extremely rare. Fatalities are generally the result of deliberate actions like following too close, not driving to the conditions, driving while under the influence, speeding, driving an unroadworthy vehicle, road-rage... You will find the word "accident" is rarely used in news reports these days.
Agreed.
99% of road crashes involve driver error / bad behavior.
Why don't we have a road safety campaign that say "take responsibility for your own driving " and a compulsory re-sit of your licence every 10 years.
Indeed, the mindset that road deaths are caused by accidents needs to change.
Could start by doubling all the road fines.
All we have to do is follow the rules of the road. It shouldn’t be this hard.
Maybe it's just an excuse for the government to give media more money.This government has poured 10s of millions into media and they have most certainly received something back.
https://www.abc.net.au/news/2023-04-10/why-new-zealand-is-beating-austr…
An interesting perspective from across the ditch on recent RBA / RBNZ actions
Very good article showing why we need to look at OZ for what's ahead. (and funny video too).
London property: London’s rental crisis is barking ma
https://www.afr.com/property/residential/dust-off-your-pet-cv-london-s-…
Watch out folks, it has got bad enough for permabear Martin North to also be discussing this. Its interesting the reasons he gives. War on landlords, rising interest rates, landlords selling up
If Auckland is next, what's the solution for individuals? I won't give my solution just here as it will be roundly dismissed
You practicing victimhood and self pity HW? Hopefully not taking your cues from the Trans activists. Next you'll be using DGM, terf, and cooker interchangeably.
Excuse me JC? There is a certain commenter as well as an ex president who overplay their hand on that stuff. I just dont want to bore you with repeated comments but point taken
Its nice of you to comment nonetheless
There is a certain commenter as well as an ex president who overplay their hand on that stuff. I just dont want to bore you with repeated comments but point taken
Exercise your right to free speech and show the solution. Nobody will complain.
It appears to me car manufacturers are starting to get on top of their order books, you'll still wait 6 months or more for any popular models but it is stable rather than increasing. Consequently they are reverting to pre-pandemic margins to just manage demand to that level.
We are glad that one month after we called CRE the "BIg Short 3.0", one of the largest and most respected US banks agrees. We are not glad that if, or rather when we are proven right that with trillions in loan maturities which nobody wants to roll CRE is about to become the next Subprime, the US financial system will suffer another existential shock, or as some call it "credit event."
Morgan Stanley's conclusion: “commercial real estate needs to re-price and alternative ways to refinance the debt are needed."
And while it may not have been Morgan Stanley's intention, yelling "re-pricing" in a burning theater can be even worse than yelling fire: it's the green light for everyone else to start selling... something the collapse in real estate loans suggest may have already started.
The problem is something to do with a thing called construction cost
Yes you might find existing owners keen to sell for a loss.. in the short term. Who is going to pay to build replacement and new shopping centres if their re-sale value drops 20 or 30 percent
Over to you, you know more about this subject than me
People rarely want to sell for a loss, but people do decide that a past investment decision was wrong and they need to get out, it creates boom and bust cycles... Sometimes the lender assists their decisions.
Don't worry the world goes on , but someone gets to buy the assets cheap, I hope its you HW2.
You sound like you have been to a few rodeos...
One of the first rules of Real Estate is that you make the money in the buying.......
Yes mate I have learned to successfully buy at the top, the bottom and anywhere in between. Of course the best time is at the bottom eh.
You know about ripple theory and how price rises working their way out from the centre. I enjoyed riding that wave further out during the last big downturn and had some luck. Anyway I bet you have some good stories. Whats your best buy.
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