Here's our summary of key economic events overnight that affect New Zealand, with news all eyes are in the latest inflation updates.
But first, mortgage applications in the US fell -0.8% last week, following a -2.9% drop in the previous week and hitting a new 27 year low, since December 1996. This was even after adjusting for their Labor Day holiday weekend. Getting the blame are higher mortgage interest rates, with the benchmark 30 year rate edging up by +6 bps to 7.27% plus points, getting close again to high levels not seen since December 2000.
The American CPI inflation rate for August came in perhaps only slightly higher than expected. But it was a rise for a second straight month, taking the annual rate to 3.7% from 3.2% in July, above market forecasts of 3.6%. Oil prices have been on the rise in the previous two months, which coupled with base effects from last year, have been the main reason. The more recent month-on-month change was a rise of +0.6% and exactly as expected. Stripping out the volatile food and energy items, 'core inflation' fell to a 4.3% annual rate, its lowest in two years.
The Americans release their producer price inflation levels tomorrow and they are expected to be about half the consumer levels.
Will these price numbers motivate the US Fed to make another hike? We won't know until today week after their next review meeting. Markets doubt another hike is coming although there are some talking up the possibility.
There was something of a surprise in the August release of the US monthly budget statement. It recorded a monthly deficit of -US$221 bln in July with spending exceeding income. A similar deficit was expected in August. But in fact they reported an +US$89 bln surplus for the month. Despite that improvement, they are still reporting a -7.2% deficit to GDP, up from -5.3% the previous year. Still, that is nothing like the Trump-era deficits of -14.8% of GDP. Or the GFC-era deficits of -9.8%.
In Japan, producer prices rose by 3.2% in the year to August, slowing slightly from a downwardly revised 3.4% gain in July. It was the lowest rise since March 2021. The latest figure also marked the eighth consecutive month of a slowdown in producer inflation in Japan.
Meanwhile, business sentiment in Japan rose its most in August of any month in 2023, especially large businesses.
And in South Korea, their jobless rate fell to its lowest ever to 2.4% of their workforce (or 2.0% on an unadjusted basis).
In Hong Kong, there is a lot of value destruction in their commercial property market. One way to look at that its to see the changes in the Hang Seng REIT index. Since the start of 2023 it has fallen -32%. And that is just the start of it. Since its all-time peak in 2019 it has fallen -60%. Currently it is now down to levels last seen in 2009.
Globally, ratings agency Standard & Poor's said the number of new corporate defaults reached 16 in August, the highest August monthly number since 2009 and a sign that corporate stress is building. This brought the global corporate default tally to 107 for the year so far, with most of the defaults coming from Europe and the United States.
The UST 10yr yield starts today down -2 bps at 4.24%. Their key 2-10 yield curve is still inverted at -74 bps. And their 1-5 curve is now at -104 bps and a little more inverted. Their 3 mth-10yr curve inversion is more inverted at -115 bps. The Australian 10 year bond yield is now at 4.12% and down -5 bps from yesterday. The China 10 year bond rate is little-changed at 2.66%. And the NZ Government 10 year bond rate is now at 5.05% and down only -1 bp.
Wall Street is unchanged in its Wednesday session with the S&P500 after giving up some earlier gains. Overnight, European markets were down -0.4% except London which was unchanged. Yesterday, Tokyo ended its Wednesday session down -0.2%, Hong Kong was down -0.1% and Shanghai ended down -0.5%. The ASX200 ended down -0.7%, but the NZX50 ended its Wednesday session up +0.5%.
The price of gold will start today at just on US$1910/oz and down -US$2 from yesterday.
And oil prices are -50 USc lower from yesterday at just under US$88/bbl in the US and off its ten month high. The international Brent price is now under US$91.50/bbl.
The Kiwi dollar starts today +¼c up from this time yesterday at 59.2 USc, settled in to a tight range. Against the Aussie we are similarly firmer at 92.1 AUc. Against the euro we are also fractionally firmer at 55.1 euro cents. The TWI-5 is +20 bps higher at 68.6.
The bitcoin price has moved higher from this time yesterday, and is now at US$26,127, a net rise of +0.5% overnight. Volatility over the past 24 hours has been low however at just on +/-1.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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49 Comments
The banking system is based on debt and interest so will grow exponentially. The doubling time for USD is about 10 years.
See the read box here U.S. National Debt Clock : Real Time (usdebtclock.org) - US total debt is currently $102T (with public debt at $33T).
Also interesting from that page - assets per citizen $585,633 and debt per citizen $577,057.
For those who missed this link that was posted yesterday:
oftwominds-Charles Hugh Smith: Here's Why Housing Is Unaffordable for the Bottom 90%
Note that in the previous housing and stock market bubble circa 2006-08, Household Net Worth only exceeded GDP by $5 trillion. A nice chunk of change, to be sure, but an order of magnitude smaller than the gargantuan $55 trillion in "bubble wealth" created in the current central bank Everything Bubble
Wow. So your investment bias is a headge requiring global financial debt overreach, to the point it triggers a mass printing bailout. The leadup to this has a name, it's trading while insolvent.
You realise leveraged housing not supported by income is a key part of this problem, not just here but globally...?
I'm just giving an observation about what's going on, and what'll likely happen. Correctly framing reality improves your ability to operate in the world.
That's not the same as "how I'd like to see the world", or any sort of endorsement.
Maybe check out "stoicism" as a philosophical position, once you're done nailing psychological pathologies.
I haven't really ever shared much about how I invest. But I'll give you a hint, it's not dependent on raising and servicing debt. That's a game other people can play.
Your ability to read people seems to be about as accurate as your ability to read the wider world.
Maybe not everyone, but many people will take opposition to their thoughts and views as an automatic endorsement of whatever runs contrary.
I usually just don't like overly flawed reasoning. That's not to say I pretend to have all the answers (not even close), but I like to get a feel for what should be eliminated or discarded, as soon as.
So your investment bias is a headge requiring global financial debt overreach, to the point it triggers a mass printing bailout. The leadup to this has a name, it's trading while insolvent.
Well this is not entirely some new way of thinking and it's becoming more normal for people to have an "investment bias" towards central bank actions. But it typically focuses on assets without counterparty risk or 2nd-order exposure to counterparty risk.
Central banks aim for 2% inflation. That mandate hasn't changed, and is still being cited. That is going to coincide with cash rates just above that figure. Will the central banks get that inflation figure? Hard to tell, but they're going to make some carnage finding out.
Which part of history dictates that an interest rate must always gravitate to long term averages?
So you think once inflation is down to a mandated 2%, the official cash rates will revert to just above 2%. In NZ. When interest rates averaged 6.73 percent from 1985 until 2023. The RBNZ has published Analytical Notes on neutral OCR interest rates, which fall between 4-6% depending on the modelling. The trend since the early 90's has been an OCR drifting lower. During covid, we reached the zero bound. Most assets are still priced at the record low interest rates from covid times (which we know now were highly stimulatory). So either inflation climbs and incomes catch up, or the OCR goes negative, following the drifting lower OCR long term trend. It's looking like inflation will stay here. The fact is the economy is still bubbling, with immigration, jobs..and a housing market that won't stay down.. !
So you think once inflation is down to a mandated 2%, the official cash rates will revert to just above 2%. In NZ. When interest rates averaged 6.73 percent from 1985 until 2023.
Maybe not just above, but fairly close. The 2% mandate is a product of the 2000s, so factoring in interest rate averages from before then is probably not overly beneficial.
Also worth noting is the target inflation rate is for an average of 2%, but it doesn't say over what period - so potentially the central banks are aiming for a period of negative inflation to get a 2% average.
keep future annual inflation between 1 and 3 percent over the medium term
sustainable employment. Historically, the RBNZ has interpreted the medium term as the second half of a three-year forecast horizon.
From the RBNZ monetary policy handbook (and the first line basically mirrors the RBNZ Act). It's far less lenient than I thought (though allows room for the RBNZ to interpret as they wish - I'm still fairly certain the time period discussed during last year's review was 5 years, but I've misplaced the discussion documents).
By this metric, they are doing an apalling job (and if sticking with the forecast., when would they then ever forecast anything outside of remit?)
Or simple terms - Money is Broken
There are over 160 different currencies in the world, each with a local monopoly over its own jurisdiction. But aside from the top handful of them, most currencies rapidly devalue over time and have little acceptance outside of their own borders. With various cross-border frictions, bottlenecks, and currency conversions, the global financial system is practically a barter system in this regard. Being born in the “wrong” country makes saving money harder than it needs to be.
‘Far too many commentators are concluding the increase is not too bad. Do not be fooled. The forecasts are not realistic. They are too optimistic.’
https://www.nzherald.co.nz/business/dr-bryce-wilkinson-the-prefu-foreca…
The world is running into multiple hard limits. That is being deflected, ignored, belittled by those who have something to lose - but is happening.
This is further obscured by GDP - which counts negatives as positives - but we can reasonably expect ultimate scarcity (not recognised in economics) to induce a bidding war, so inflation.
As you say, funny how it's Labour's fault. They did many things wrong, but they had no ability to impact reality. Nor have the other lot; the sole difference is in who they think should sup at the table of reducing menus.
Sorry Powerdown they have been abysmal at Health, Crime and Education, things that are human intensive not necessarily energy restrained..... I have time for your thoughts but CoGovernance by itself has caused the 65% of NZers to say the country is heading in the wrong direction..... Its all too late now, people have already decided they are out, its just the makeup of the new lot we are arguing about now.
If the outcomes are wholly determined by the elected political party and the individual ministers, then what a great gig it must be to work in the public sector. Do a shit job, it's fine, everyone will blame the face of the nation. Not saying Labour aren't culpable, but it goes a little deeper than the elected individuals who can only direct funding and ask for an action to be undertaken of the various departments.
What if hypothetically the senior leadership team at say Immigration NZ are huge National supporters? Labour promises to reduce migration, yet "personal political agendas" get in the way and they ramp up approvals.
If hypothetically the senior leadership team at say Immigration NZ are huge National supporters then they would put all electoral literature into their in-trays and then ignore them until next year then ask for a new police clearance.
Your argument would be stronger with any other department. Some are actually competant.
Employers step up to help scammed migrants find work (msn.com)
The full-day event organised by the Ministry of Social Development (MSD) took place at the Māngere Memorial Hall.
Sounds like one government department (INZ) generating work for another government department (MSD) - a nice little boost to GDP.
Lanka hoped all of the workers would get jobs as many had families to support back home.
That sounds better for the NZ economy than training and employing one of locals. The sooner they get residence and bring their family over the better.
Sounds like one government department (INZ) generating work for another government department (MSD) - a nice little boost to GDP.
Hate to say it but one big virtue signal. Fake concern and trying to deflect any accountability whatsoever for such appalling public sector incompetence.
As my earlier comment suggests, maybe the unelected public sector are the real reason why the country is so incompetent. And they get away with it because the general public just rips into the individual ministers, who are definitely elected to be held accountable but what can they do?
Immigration NZ for example. What are the consequences if Andrew Little instructs them to reduce visa approvals to below 50k, and they don't follow through? "Oops sorry Andy LOL just doing our jobs".
Ouch, you may have tapped the vein there! So we are mega incompetent, perhaps deliberately so, but if you express and frustration outside of a very formal and complex consulting process I will cry to Ministerial Services about bullying.
I feel like you have pulled back the curtain here! This is almost as bad as the Justice "system".
Immigration NZ for example. What are the consequences if Andrew Little instructs them to reduce visa approvals to below 50k, and they don't follow through?
I agree that could and possible is an issue, but only to a point. If the rules are being twisted away from the government's intentions, the government may change the rules to make it non-negotiable (e.g. boarders closed, no aged parents allowed a few years back). The government has largely been complicit with INZ's actions to date, indeed, Woods loosened things multiple times and it sounds like the message from on high was also get more in asap (based on this: The Front Page: How a simple visa change became an immigration nightmare (msn.com)).
So ultimately no, I wouldn't blame INZ, other than to say perhaps they should have approved employers more slowly by doing the 'proper checks' no matter how long they took.
The price of gold will start today at just on US$1910/oz and down -US$2 from yesterday.
Listen to this if you are interested in the price differential between China and the US
U.S. begins nationalization of gold
The Biden administration is recommending changes to a 151-year-old law that governs mining for copper, gold and other hardrock minerals on U.S.-owned lands, including making companies for the first time pay royalties on what they extract.
https://abcnews.go.com/US/wireStory/biden-plan-overhaul-151-year-mining…
Lots of questions re: National’s foreign buyer tax:
https://www.nzherald.co.nz/nz/politics/election-2023-beyond-comprehensi…
Hard to see things getting much better from here for the next 12-18 month cycle - globally I mean. We're only two tinnies in a very big tank, but it would sure be great to have a new skipper & a fresh crew for the next sailing. Food is a big one from a consumer point of view & it's still pretty expensive out there. You gotta eat. Big govt [especially woke western elite] is trying to kill it [fools] and mother nature trying to wash [& burn] it away, is not helping.
I still think the banks are going to feel it over the next 12-18 months, especially the smaller/regional ones. NB: We are all small & regional in NZ.
I'm also not liking what I'm hearing out there in rental land [NZ] either. Lots of big numbers [$800-$1,000 a week] for some very average houses. One rental manager said to me last month ''I don't know how people can afford them."
All in all, no boom times ahead is my pick.
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