Here's our summary of key economic events overnight that affect New Zealand, with news both China and Japan are making background moves to raise the value of their currencies after long weak periods.
But first, American inflation expectations for the year ahead were little-changed at 3.6% in August from 3.5% in July, but it was the first increase in five months. Expectations for rents rose to 3.1%, the highest since July 2022. Also, price pressures were seen for petrol, food, medical care, and education but these were all also very minor. Three-year ahead inflation expectations slipped slightly to 2.8%.
Across the Pacific, Japanese machine tool orders inched ahead in August from July, an improvement. Orders from local customers fell less and export orders rose. But they still haven't gotten back to year-on-year gains yet.
Meanwhile, Japanese bond yields rose to their highest since 2014 as remarks by the head of their central bank suggest they want to push back against the very low value of the Yen.
China's central bank moved to raise the value of the yuan on Friday, and held its higher fixing yesterday.
New vehicle sales in China in August were strong at almost 2.6 mln in the month, and this level is near the highs for the month over the past ten years. And it is somewhat unusual that these peaks are occurring in August - usually the peak of the year for them is in November. The NEV segment is now dominating and their total fleet has made a big enough shift that air quality in major cities is improving noticeably.
There was a bounce-back in new lending in August after the unusually low levels in July. New yuan loans rose by nearly +¥1.4 bln which was actually slightly more than the bounceback expected (+¥1.2 bln). From the perspective of the past five years however, the August increase was modest - only 'high' because July was so low.
More major Chinese cities are removing all restrictions on home purchases and resales to revive their sluggish housing markets.
In Europe, the EU said their economy is likely to grow by +0.8% in 2023, which is lower than the previously projected +1.1% expansion. It is being held back by persistent inflation which is hurting consumption and bringing tight monetary policy restraints economic activity.
Locally, all eyes will be on the Pre-election Economic and Fiscal Update (PREFU) and the updated bond issuance required. We will have full coverage from about 1pm this afternoon.
The UST 10yr yield starts today up +2 bps at 4.28%. Their key 2-10 yield curve is less inverted at -70 bps. And their 1-5 curve is now at -101 bps and little-changed. Their 3 mth-10yr curve inversion is still inverted at -111 bps. The Australian 10 year bond yield is now at 4.17% and up +5 bps from yesterday. The China 10 year bond rate is unchanged at 2.68%. And the NZ Government 10 year bond rate is now at 5.05% and also up +5 bps.
Wall Street is up to start its week with the S&P500 up +0.7%. Overnight, European markets all rose about +0.5%. Yesterday, Tokyo ended its Monday session down -0.4%, Hong Kong was down -0.6%, but Shanghai ended up +0.8% after Beijing "suggested" that local insurers 'buy'. The ASX200 ended up +0.5%, but the NZX50 ended its Monday session down -0.4%.
The price of gold will start today at just on US$1921/oz and up +US$2 from yesterday.
And oil prices are also little-changed from yesterday at just over US$86.50/bbl in the US. The international Brent price is still just over US$90/bbl.
The Kiwi dollar starts today nearly +½c firmer from this time yesterday at 59.2 USc. Against the Aussie we are -¼c lower at 92 AUc. Against the euro we are little-changed at 55.1 euro cents. However the TWI-5 is actually unchanged, still at 68.5.
The bitcoin price is lower again from this time yesterday, and is now at US$25,157, a net fall of -2.1% overnight. Volatility over the past 24 hours has been moderate at just on +/-2.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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16 Comments
Not quite, very annoying and suck up bandwidth if you are on limited download capacity. I think they are Bloomberg economic videos and have found a way to bypass my browser settings. I don't mind the other ads but this one makes for an annoying experience. I was also getting a pop up saying I had blocked ads which is not the case as I realise many websites need advertising revenue and so conventional page ads don't worry me.
Rightly or wrongly Stuff going after landlords again.
It would be interesting if investors had to gear, capped ant say 60%, against RV and that was it. If they wanted to regear they had to get a valuation done and pay the appropriate level of rates.
No asset pooling, just individual titles with a loan.
It would stop a lot of the shenanigans.
Yes. My ex-partner attended these forums regularly and came back with "valuable" insights like these. Property managers often choose the path of least resistance, i.e., tenants with pristine records and good credentials, locking out beneficiaries.
The landlords willing to take in beneficiaries are usually mum-and-dad investors who demand a premium for their scarce goods that MSD is happy to pay. The taxpayer also picks up the tab for no-fault repairs and replacement without much of a fight because value for money is certainly not a priority for MSD.
An interesting read:
September 7 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of New York President John Williams said US monetary policy is ‘in a good place,’ but officials will need to parse through data to decide on how to proceed on interest rates. ‘I think we’ve gotten monetary policy in a very good place in terms of we have a restrictive stance of policy,’ Williams said… The New York Fed chief said policy is having the desired effects of bringing demand and supply more into balance and easing inflation, adding that the Fed has ‘done a lot’ by raising interest rates significantly.”
I often ponder how closely Fed officials “parse through” their Z.1 report. Friday’s release of Q2 Credit and flow data made for interesting parsing. Seasonally adjusted and annualized Credit growth of about $4.5 TN. One-year Treasury debt expansion of almost $1.7 TN. Non-Financial Debt-to-GDP exceeding previous cycle peak levels. The ratio of Total Debt Securities-to-GDP is significantly higher than prior peaks. Household holdings of Financial Assets above previous peak levels. Household Net Worth inflating $5.5 TN in three months. Household Equities holdings as a percentage of GDP higher than previous cycle peaks. Analyzing the data, I don’t see our system in a “very good place.”
Non-Financial Debt (NFD) expanded at a 6.34% rate during Q2, up from Q1’s 3.78% to the strongest pace of Credit growth since Q1 2022 (8.34%). As has become commonplace, system Credit expansion was driven by heady growth in federal borrowings. Federal Debt expanded at a 12.67% pace, the strongest growth since the crazy Q2 2020 pandemic borrowing binge (64.61% annualized). Household borrowings expanded at a 2.73% rate, up from Q1’s 2.40% - but less than half of Q2 2022’s 6.89%. Corporate borrowings slowed from Q1’s 4.95% to 2.06%, the weakest reading since the pandemic. And after back-to-back quarters of annualized double-digit growth, Financial Sector borrowings contracted at a 6.36% rate.
In seasonally-adjusted and annualized (SAAR) dollars, NFD expanded $4.445 TN during Q2, up from Q1’s $2.625 TN. For perspective, NFD expanded $2.433 TN during (pre-Covid) 2019, while averaging $2.032 TN annually during the decade 2010 through 2019. Prior to 2020’s $6.764 TN, the mortgage finance Bubble period’s $2.506 TN 2007 expansion was the all-time high. At 266%, NFD as a percentage of GDP exceeds previous peak levels 228% (Q4 2007) and 186% (Q1 2000).
Federal borrowings expanded SAAR $3.440 TN during Q2, second only to Q2 2020. Household Borrowings increased SAAR $532 billion, with Corporate borrowings up SAAR $266 billion.
In nominal dollars, system Credit expanded $795 billion during Q2 to a record $96.327 TN, with NFD expanding $1.111 TN (to $71.248 TN). Financial sector borrowings contracted $329 billion (to $20.350 TN), while Foreign borrowings were little changed. System Credit posted one-year growth of $4.193 TN, or 4.6%. Over the 14 quarters since the onset of the pandemic, System Credit has surged $21.457 TN, or 28.7%. NFD has inflated $16.722 TN, or 30.7%, since the pandemic - and has doubled (plus $35.675 TN) since 2008.
Total Mortgages expanded nominal $158 billion during the quarter, up from Q1’s $143 billion - but less than half of Q2 ‘22’s $422 billion. Total Mortgages expanded $894 billion over four quarters (4.7%), with three-year growth of $3.351 TN, or 20.3%. Home Mortgages expanded $2.263 TN over the past three years, or 19.7%. Multifamily Mortgages expanded $61.6 billion, or 11.9% annualized, during Q2, with one-year growth of $153 billion, or 7.7%. Over three years, Multifamily Mortgages expanded $420 billion, or 25.2%, with Commercial Mortgages increasing $579 billion, or 19.0%.
Bank (“Private Depository Institutions”) Assets contracted (nominal) $233 billion during Q2 to $25.865 TN, a sharp reversal from Q1’s $506 billion expansion - but a slightly smaller contraction than Q2 ‘22’s $251 billion. Reserves at the Fed declined $137 billion (to $3.047 TN) and Debt Securities holdings fell $159 billion ($6.128 TN). Treasury Securities holdings declined $59 billion (to $1.434 TN) and Agency/MBS dropped $78 billion ($3.167 TN), while Corporate Debt holdings were little changed ($968bn).
Bank Loans expanded $101 billion (2.9% annualized) during Q2 to a record $14.239 TN, up from Q1’s $86 billion, but down significantly from Q2 2022’s $549 billion. Bank Loans expanded $893 billion over the past four quarters. For perspective, Bank Loans expanded on average $363 billion annually over the 20-year period 2000 through 2019 - and $466 billion annually over the decade ended 2021. For the quarter, Mortgage Loans increased $64 billion (3.9% annualized) and Consumer Credit rose $44 billion (6.7% annualized) – with other loans (including business) posting a small contraction.
Things are a little more interesting on the liability side of the Bank balance sheet. Total Deposits contracted $77 billion during Q2, less than Q1’s $428 billion decline, Q4 ‘22’s $140 billion, Q3 ‘22’s $179 billion, and Q2 ‘22’s $257 billion. Despite five straight quarterly declines, Total Deposits were still up a whopping $4.662 TN, or 30.0%, over the past 14 quarters.
Following Q1’s gangbusters $433 billion, Broker/Dealer Assets expanded only $5 billion to a record $4.809 TN. Loans were down slightly ($5bn) to $638 billion, while Miscellaneous Assets rose somewhat ($4bn) to $1.715 TN. Broker Loans inflated $209 billion, or 48.5%, over 14 quarters. Q2’s $23 billion decline (to $1.638 TN) in “Repo” Assets reduced one-year growth to $292 billion, or 21.7%.
GSE Assets declined $131 billion during Q2 to $9.409 TN. FHLB Loans fell $187 billion during Q2 to $855 billion. Still, FHLB Loans posted one-year growth of $335 billion, or 64.3%. Over six quarters, FHLB Loans expanded $520 billion, or 155%. GSE Assets expanded $1.117 TN, or 13.5%, over six quarters, and $2.279 TN, or 32.0%, over 14 quarters.
Treasury Securities expanded $792 billion during the quarter to a record $27.748 TN, with one-year growth of $1.697 TN. Agency Securities declined $69 billion during Q2 to $11.972 TN, while increasing $777 billion over the past year. Treasury Securities inflated $9.934 TN, or 55.8%, over four years, with Agency Securities gaining $2.708 TN, or 29.2%. Combined Treasury and Agency Securities inflated a staggering $12.642 TN, or 46.7%, over 16 quarters to $39.720 TN. Combined Treasury and Agency Securities ended June at 148% of GDP, up from 92% to close 2007.
Total Debt Securities expanded $687 billion during Q2 to a record $60.296 TN, with 15-quarter growth of $13.795 TN, or 30.2%. Total Equities jumped $3.743 TN to $72.893 TN. Total (Debt and Equities) Securities surged $4.430 TN, or 14.3% annualized, to $127.985 TN, with 15-quarter growth of $31.472 TN, or 32.6%. At 482%, the ratio of Total Securities-to-GDP compares to previous cycle peaks 387% (Q3 2007) and 368% (Q1 2000).
The Household Balance Sheet remains at the epicenter of Bubble analysis. Household Assets jumped $5.664 TN, or 13.4% annualized, during Q2 to a record $174.419 TN. With Liabilities increasing $170 billion (to a record $20.138 TN), Household Net Worth inflated a notable $5.494 TN to a record $154.282 TN. It’s worth noting that Q2’s Net Worth gain is the fifth largest ever, lagging only Q1 2019 ($6.242 TN), Q2 2020 ($7.811 TN), Q4 2020 ($8.364 TN), and Q2 2021 ($6.644 TN).
The value of Household Real Estate holdings jumped $2.480 TN to a record $48.870 TN, lagging only Q1 2022’s $3.561 TN increase. It’s worth noting that the largest quarterly Real Estate gain during the mortgage finance Bubble period was Q3 2005’s $864 billion. Over the past 15 quarters, Household Real Estate holdings inflated $15.809 TN, or 47.8%.
Household holdings of Financial Assets jumped $3.084 TN, or 10.8% annualized, to $116.874 TN. Total Equities increased $3.392 TN during the quarter to $59.680 TN. Household Equities holdings as a percentage of GDP increased to 223%. This was down from Q2 2021’s 266%, but compares to previous cycle peaks 146% (Q2 2007) and 172% (Q1 2000). Treasury holdings rose another $154 billion (28.6% annualized) to a record $2.307 TN, with unprecedented one-year growth of $1.462 TN (173%). Agency Securities were little changed during Q2 at $1.259 TN, with record one-year growth of $559 billion, or 80%.
Total Household Deposits dropped $203 billion to $14.180 TN, less than Q1’s $406 billion contraction and the smallest decline in four quarters. The $1.197 TN one-year decline in Total Deposits reduced 15-quarter growth to $3.578 TN, or 33.4%. Money Fund holdings rose another $137 billion during Q2, with one-year growth of $696 billion, or 24.6%. Money Fund holdings jumped $1.374 TN, or 64%, over the past 15 quarters. This puts 15-quarter combined Deposits, Money Funds, Treasuries and Agency Securities at a staggering $5.992 TN, or 39.2%. There’s no mystery surrounding the resilience of consumer spending.
Rest of World (ROW) holdings of U.S. Assets jumped $2.154 TN (19.8% annualized) during Q2 to $45.747 TN, with one-year growth of $4.416 TN, or 10.7%. Total (Equities and Mutual Funds) Equities jumped $1.136 TN for the quarter and $1.752 TN y-o-y – to $13.708 TN. FDI rose $1.056 TN ($1.948 TN y-o-y) to $12.316 TN. Debt Securities holdings increased $114 billion during Q2 to $13.081 TN, with one-year growth of $417 billion, or 3.3%. Over the past year, Treasury holdings increased $203 billion (to $7.620 TN), Agency/MBS $113 billion ($1.317 TN), and Corporate Bonds $64 billion ($3.864 TN). Total ROW holdings inflated $12.995 TN, or 39.7%, over 13 quarters.
Rather than a “good place,” the latest Z.1 further corroborates the Bubble Thesis. Link
JPM's Jamie Dimon at Barclays Investor Conference: “I wouldn’t be a big buyer of bank stocks” (he made the comment not in the light of the collapse of the Citi share BUT in the context of onerous and inchoate regulations, making the point that regulators are making the industry uninvestable). Link
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