What happened Friday

Economy / news

A review of things you need to know before you sign off on Friday; no retail rate changes, rental yields tick higher, PMI slumps, less ready-mixed concrete, swaps turn higher, NZD stable, & more

10th Nov 23, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).

MORTGAGE/LOAN RATE CHANGES
No changes today.

TERM DEPOSIT/SAVINGS RATE CHANGES
No changes here today either.

FROM POOR TO LESS POOR
Softer house prices and rising rents are pushing up yields for residential property investors. But they remain generally very low. Residential property is looking more attractive to investors, or perhaps that should be 'less unattractive'.

FROM BAD TO WORSE I
The October factor PMI dived today, now in a bit of a downward spiral. Demand is softening with new order levels quite low. Production and employment are under pressure. For a non-Covid reading, our manufacturers are in a tough spot that doesn't show it is getting better any time soon.

FROM BAD TO WORSE II
A fast-weakening in construction is evident too from the ready-mixed concrete data released today. In the September 2023 quarter, the actual volume of ready-mixed concrete produced was 1.05 mln m³, down -10.0% compared with the September 2022 quarter. For Auckland the drop was -7.5%, for Wellington it was -8.7%, and for Christchurch it was up +1.3%, the strongest result of any region. The worst results were from the Taranaki/Manawatu/Wanganūi/Wellington region which was down more than -15% year-on-year.

TRIBAL POINTS-SCORING
Yet another lobby group (LCANZI) are keen to impose their view on others. These lawyers are pressing for tough climate change standards. They seem to want more sacrifices made by others, knowing full well that they themselves won't have to suffer any personal cost or consequence. Whatever the 'others' do, it will never be enough, unless that planet starts to cool. Which is very unlikely based on what New Zealand achieves. They can hardly be surprised by reaction from those they target. It is just another case of "doing-something-by-getting-someone-else-to-do-something" and feeds the virtue-signaling narrative. The climate goals we need to achieve deserves better than silly tribal points scoring.

STILL TOP DRAWER
We should note that ratings agency Fitch has maintained Australia's AAA rating with a 'Stable' outlook.

BUT TOO-HIGH INFLATION WILL LINGER
And staying in Australia, the RBA released its Monetary Policy Review with updated data and forecasts and noting there “was likely to be less progress” in bringing down inflation in the quarters ahead than it had previously thought, and that had increased the risks of inflation remaining higher for longer. They now see inflation only down to 3.5% by the end of next year, and to just 3% by the end of the following year.

NO BRACKET CREEP/FISCAL DRAG
In the US we should note that they regularly adjust their tax rate bands for inflation, avoiding bracket-creep. This year they rise by 5.4%, following last years +7% rise in the bands. The IRS said today marginal rates for tax year 2024, will change with the top tax rate still 37% for individual single taxpayers but now with incomes greater than US$609,350 (US$731,200 for married couples filing jointly). The other rates are: 35% for incomes over US$243,725 (US$487,450 for married couples filing jointly), 32% for incomes over US$191,950 (US$383,900 for married couples filing jointly), 24% for incomes over US$100,525 (US$201,050 for married couples filing jointly), 22% for incomes over US$47,150 (US$94,300 for married couples filing jointly), and 12% for incomes over US$11,600 (US$23,200 for married couples filing jointly). The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly). The US income tax system is complex, and there are both some generous deductions available, but also some hard traps. Capital gains are taxed.

IT COULD GO EITHER WAY
Staying in the US, Fed boss Powell said it is too early for them to definitively announce the conclusion of its interest-rate hikes. But he didn't make a case for further rate hikes either. Powell was quite cautious acknowledging the dangers overtightening, while also noting the danger of being “misled by a few good months of data.” The tone reinforced they are not ready to declare an end to their tightening campaign, even though financial markets and many economists have concluded the central bank is done raising rates. He noted the supply-side benefits that have helped slow American inflation so far may have run their course, and repeated that stronger growth could warrant further tightening.

SWAPS MOVE BACK UP
Wholesale swap rates have probably turned up on global forces today. The real reaction will come at the close. Our chart will record the final positions. The 90 day bank bill rate is unchanged at 5.62% and now just +12 bps above the OCR. The Australian 10 year bond yield is up a sharpish +12 bps from yesterday to 4.63%. The China 10 year bond rate is little-changed at 2.67%. And the NZ Government 10 year bond rate is up +13 bps at 5.23% from yesterday, and the earlier RBNZ fixing was at 5.15% which was back up +7 bps today. The UST 10 year yield is back up at 4.63% for a daily rise of +15 bps from this time yesterday. The UST 2yr is now at 5.04% and up +12 bps, so that curve inversion is minorly flatter at -41 bps.

EQUITIES RETREAT, AND SHARPLY IN SOME BOURSES
The NZX50 is down -0.5% in late trade today and just holding on to a weekly +0.2% rise which might be hard to keep. The ASX200 is down -0.6% and heading for a no-change week. Tokyo has opened down -0.8% and will also be lucky to book a weekly gain. Hong Kong is down -1.7% at its open and on the way to at least a -3.9% weekly drop. Shanghai has opened down -0.6% and will also struggle to make a weekly gain. Singapore is -0.8% lower at its open. Wall Street ended its Thursday session down -0.8% in a growing late sell-off, and is now down -0.2% for the week so far.

GOLD A LITTLE FIRMER
In early Asian trade, gold is now at US$1958 and up +US$6 from where were this time yesterday. Earlier it also closed in New York at US$1958/oz. Earlier still it closed in London at US$1957/oz.

NZD STABLE OVERALL
The Kiwi dollar has moved -20 bps lower to 59 USc. But against the Aussie we are +40 bps firmer at 92.7 AUc. Against the euro we are a little softer at 55.2 euro cents. That means the TWI-5 is little-changed at 69.

BITCOIN RISES FURTHER
The bitcoin price is firmer again today, now at US$36,651 and up another +1.8% from where we were this time yesterday. Volatility over the past 24 hours has been high at just over +/- 3.0%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

Daily swap rates

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Source: NZFMA

This soil moisture chart is animated here.

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40 Comments

by Retired-Poppy | 10th Nov 23, 4:17pm 1699586247

"Residential property is looking more attractive to investors, or perhaps that should be 'less unattractive'."

Well put!

It reminds me of when RBNZ stated house prices were more sustainable and many took that to mean they were actually at "sustainable" levels.

Right now, as interest rate rollovers progress, unemployment increases and listings steadily increase, the correct question to ask is "are these tepid price increases sustainable as we approach 2024?"

by J.C. | 10th Nov 23, 4:17pm 1699586249

Not in Aussie apparently. 15% of properties being built are being sold to foreign buyers in NSW. These buyers don't even have an intention to live there. And according the the report, they will pay any price. Well that's a bit of an exaggeration, but it seems to be the case in the well-heeled parts of town.

https://omny.fm/shows/ben-fordham-full-show/china-takeover-foreign-buye…

by RickStrauss | 10th Nov 23, 4:22pm 1699586532

Buying a part of debt-farming the locals...

by J.C. | 10th Nov 23, 4:24pm 1699586667

Perhaps we're heading in to the biggest financial melt-up in human history. And it seems like it's going to be a war among the Angloid nations to get their share of capital flight from China.

by Chaosinflesh | 10th Nov 23, 4:09pm 1699585776

The no-ads has broken today? Noticed the ads appear, then [sometimes] disappear, but other times whinges about my adblocker instead (but I shouldn't be seeing ads as a contributor - so nothing for it to whinge about)?

by Foxglove. | 10th Nov 23, 4:28pm 1699586884

Log out and log back in using Press Patron.

by Chaosinflesh | 10th Nov 23, 6:15pm 1699593347

Ah, didn't even think of that. Thanks!

by Neutral_Observer | 10th Nov 23, 7:23pm 1699597402

Recently had same problem using Windows10. Deleted all interest.co.nz cookies then logged back in using PP. All better now.

by Jonny.Foe | 10th Nov 23, 4:21pm 1699586501

Sadly, the Fed Farmers seem determined to lead their members off a cliff.

by J.C. | 10th Nov 23, 4:31pm 1699587090

Very apt for the expression 'you couldn't make this sh*t up'

Ottawa paid nearly $670,000 for KPMG’s advice on cutting consultant costs

A document from Natural Resources shows the titles of reports provided by the KPMG consultants, but not the reports themselves. According to the titles, the consultants provided a final report on “IT cost optimization.” That report included supporting documents on IT contractors, domain utilization, printer consolidation, software asset management and suggestions for reducing costs in each area.

'Printer consolidation'?

https://www.theglobeandmail.com/politics/article-federal-government-kpm…

by GetFeeling | 10th Nov 23, 8:02pm 1699599746

I've been in offices overseas where every PC has a printer beside it. I kid you not. So quite valid in fact.

by Foxglove. | 10th Nov 23, 4:35pm 1699587357

LCANZ. When this group first emerged it seemed to me to be somewhat askew professionally. Every individual has a right to group with others to facilitate any direction that they favour. But not every group has the capacity to take it themselves to court. In other words if this was a group of let’s say farmers then they would undoubtedly need to employ lawyers to do so. Not getting into the question of the merits of the cause here, just that the vehicle itself does not seem quite right.

by powerdownkiwi | 10th Nov 23, 7:00pm 1699596047

Doesn't matter. The farmers have spent more time and money, than all LCANZ, and by several orders of magnitude. Let the truth out in the Courts - except that the Courts actually enact the Laws which Parliament (lobbyists, campaign funding, backsheesh and all) passes. All that's left is Natural Justice and Rights, vis-a-vis future generations.

But it is true - and I have long pointed it out, including to them - that to cease emitting carbon is to crash our 'economy', upon which they are parasitic.

by Foxglove. | 10th Nov 23, 6:39pm 1699594769

Agreed the eventual outcome rests with the judiciary. My point doesn’t concern money involved. More that it is an accepted practice in legal circles that lawyers do not represent themselves in court. As said though, every identity has a right to file any motion or whatever but there does seem to be here some conflict with the. ethos normally to be expected.

by J.C. | 10th Nov 23, 4:48pm 1699588128

China, Germany, Malaysia, Singapore, Taiwan, and Vietnam are in the dog box with the U.S. for running substantial trade surpluses, significant current account surpluses, and intervening in foreign exchange markets.

Why is that such a bad thing to look after your own national interests?

https://tuoitrenews.vn/news/international/20231108/us-adds-vietnam-to-c…

by AshwinRai1488 | 10th Nov 23, 5:10pm 1699589407

Seems like Japan is not on the list. Yellen said recently that it is reasonable for Japan to intervene. I guess its ok if its convenient and not ok when its not.

by J.C. | 10th Nov 23, 5:16pm 1699589794

Seems like Japan is not on the list. Yellen said recently that it is reasonable for Japan to intervene. I guess its ok if its convenient and not ok when its not.

The U.S. screwed Japan through the Plaza Accord. I'm guessing that allows Japan a free pass.

by AshwinRai1488 | 10th Nov 23, 5:20pm 1699590012

Oh boy. That was a long time ago, but yes I guess that counts. Japan never recovered after that.

I think BOJ is now the last major source of global liquidity still remaining so it gets a pass.

by Jonny.Foe | 10th Nov 23, 5:03pm 1699588983

Talking of rental yields, the detailed September rents data came out yesterday. Auckland and Christchurch up around 10% year-on-year, Wellington around 4% (public service pay restraint doing its thing). The NZ figure was a solid 8%. Looks like rents on their own could add nearly a full percentage point to Q4 2023 CPI (and it's all 'domestic' / non-tradable of course). My guess is that imported deflation will compensate.

by AshwinRai1488 | 10th Nov 23, 5:04pm 1699589080

So the US 10 year jumped 11 bps and the 30 year jumped 14 bps when treasury unloaded around 24 billion dollars of long dated bonds today.

Now the most conservative estimates say US will issue 2 trillion of debt every year. That is 38 billion every week. About 80% of this will be long dated. That is 30 billion every week.

Am I missing something here? Yields need to go through the roof. Gut feeling said yesterday that bond market is smelling a crisis around the corner and subsequent rate cuts.

Does anyone have a different explanation?

by Te Kooti | 10th Nov 23, 5:33pm 1699590813

If you are buying a 30y bond then you want higher cash rates, not lower. At least until inflation is well towards the lower end of target. You'd prefer low inflation and strong currency than positive carry in the near term. Positive carry is irrelevant if real yields are negative.

by AshwinRai1488 | 10th Nov 23, 5:47pm 1699591678

So you think buyers are holding back and will buy only when yields are much higher now. Could be. Thanks.

by Te Kooti | 10th Nov 23, 5:52pm 1699591927

I'm not really commenting on what buyers are/aren't doing. More that a 30y bond lives and dies on the real rate and not positive carry. Now may or may not be a good time to buy, hard to get excited given the supply.

by AshwinRai1488 | 10th Nov 23, 6:04pm 1699592646

Agreed

by MikeM | 10th Nov 23, 5:49pm 1699591744

I'm envious at the US personal tax rates...and no bracket creep.

by morepork | 10th Nov 23, 5:58pm 1699592314

What it's missing are the ~7.5% payroll taxes that you pay on top of those, plus many states have additional income taxes. Overall the burden was lower, but it's more complex than just looking at the federal tax rates.

by Foxglove. | 10th Nov 23, 6:18pm 1699593539

All that plus social security, medical. Worked out from every dollar paid, the take from both employer and employee, totalled $0.67.

by Pa1nter | 10th Nov 23, 6:07pm 1699592825

Except they usually have federal and state taxes.

And no public healthcare.

Or subsidised meds.

And a worse social welfare system.

by K.W. | 11th Nov 23, 11:43am 1699656202

In the USA you can deduct State income taxes paid from your Federal income tax bill. You can also deduct State personal property and real estate taxes, and sales taxes if you don't pay state income tax, up to a $10,000 for single filers. Before 2018 there was no cap on the amount of State taxes you deduct. Now that there is a limit, many people in high income tax States are moving to low or no income tax States.

by Chaosinflesh | 10th Nov 23, 6:55pm 1699595711

.. and At Will contracts.

by K.W. | 11th Nov 23, 11:36am 1699655800

From next year Australia's tax rate will be substantially lower - 30% rate on income from $45,000 to $200,000. Plus the ability to salary sacrifice. I expect a few more Kiwi's to depart these shores once they realise that Australia offers higher wages AND lower taxes.

by J.C. | 10th Nov 23, 7:42pm 1699598546

Flying between Sydney and Melbourne is generating more revenue than any other route in the world, even with lower passenger count. More revenue than the route between New York’s John F. Kennedy airport and London’s Heathrow.

https://www.afr.com/companies/transport/revenues-between-sydney-and-mel…

by Rob Reid | 10th Nov 23, 7:44pm 1699598667

I'd just like to take this opportunity to thank any property investors coming back to buy in these conditions.

As a renter I really need you brave souls to provide the capital for the rental market.

Aroha.

by Dr Who | 10th Nov 23, 7:55pm 1699599354

I think the criticism of LCANZI is a bit over the top. They are targeting key green house gas (GHG) emitters who successive Governments have let off emission reduction compared with other sectors - in this case the agricultural sector. The legal profession may be characterised by a certain amount of hot air, but its not contributing to planetary warming!

by redcows1 | 10th Nov 23, 9:19pm 1699604372

"Reducing agricultural methane emissions is critical if New Zealand is to meet its Paris Agreement targets and meaningfully reduce its emissions. "

The only reason it's critical is because we won't come remotely close to cutting fossil fuel use so it's critical to go for low hanging fruit.

Cut fossil fuels and bio methane will automatically drop as we can't farm as we currently do without it. But that will mean others, like lawyers will pay, can't have that.

by redtussock | 10th Nov 23, 9:41pm 1699605712

Could also work around the other way. The loss of export income resulting from a requirement to substantially decrease methane emissions from the agricultural sector would be highly likely to decrease NZ's fossil fuel carbon emissions as well. A big drop in exports will require an equally large drop in imports. Fossil fuels will be a part of that. All problems solved, or not. Not sure that the legal profession will escape that unscathed either.

by K.W. | 11th Nov 23, 11:48am 1699656533

As NZ (now Aotearoa) slides slowly and inexorably into becoming another dirt poor Pacific Island, and half the population that is not reliant on Govt welfare flees to Australia, you will find emissions will be significantly cut. #winner

by powerdownkiwi | 10th Nov 23, 9:29pm 1699604955

Actually, it is.

Sorry, but follow the logic; they charge 'money'; they go buy 'stuff' with it (more stuff than the average punter too; those who play with the rules tend to set them up to enhance themselves).

That 'stuff' is processed parts of the planet; there's no other source of anything. Those parts of the the planet were extracted, processed, transported, largely using fossil energy/feedstock. And when those lawyers junk those planetary parts, they don't close the circle either; despite virtuous 'recycling'. A 5g phone, for instance, is unrecyclable; takes too much energy to separate.

Yes, farming is avoiding CC - but remember that farming is the process of turning multiple fossil-energy calories into ONE food calorie - and fossil energy is finite. Only a handful of regenerative and organic types, are looking at that. Farming's bigger problem is that, as configured, it is unmaintainable.

by J.C. | 10th Nov 23, 8:00pm 1699599640

According to the tabloid media, "there are 200,000 homes on prime Sydney real estate sitting empty because foreign investors have bought them with no intention of living in them or renting them out, a leading real estate expert claims."

https://www.dailymail.co.uk/news/article-4270282/Sydney-200-000-homes-f…

by HouseMouse | 10th Nov 23, 8:19pm 1699600760

Housing is a sick joke on both sides of the Tasman.