Here's our summary of key economic events overnight that affect New Zealand, with news the OECD doesn't see New Zealand's OCR being cut until 2025.
But first, American mortgage application levels were little-changed last week from the prior week and are now running -19% lower than a year ago as the lower base settles in. Mortgage rates dipped again, but this time only slightly.
The second estimate of Q3-2023 US economic activity has brought something of a positive surprise. It expanded +5.2% in this revision, higher than 4.9% in the preliminary estimate, and forecasts of 5% and that marks the strongest growth since Q4-2021. Driving the improvement were both higher investment levels, and better-than-expected company profits (even if they were -1.7% lower than the same quarter a year ago). This is the best the US economy has performed since late 2021 when they had the post-pandemic rebound. Prior to that, you have to go back to the post-GFC rebound. For a non-rebound comparison it is the best since pre-GFC levels. Although it isn't getting any credit, Bidenomics is actually working rather well.
That expanded activity is actually shrinking inventories, both retail and wholesale inventories. That is not a sign recession is imminent.
Singapore's producer prices show an extended era of deflation in their manufacturing sector. They have been in this all 2023.
Germany said its consumer inflation is running at 3.2% in November. (On an EU harmonised basis, it is running at 2.3%.) It is falling fast; you may recall it was running at 6.1% in August. The ECB will be pleased to see this progress in the bloc's largest economy.
Meanwhile, economic sentiment in the overall EU turned up in November, albeit it is still quite low.
Australia releases a monthly inflation indicator, and the release late yesterday was for October with a 4.9% rate. That is down from 5.6% in September and well below the expected 5.2% rate.
Australian construction work completed got a late burst higher in the September quarter, rising more than expected to be +8.5% higher than in the same quarter a year ago. But most observers now expect lower levels in future because the construction project pipeline is light.
More generally, the OECD said global growth is projected to be 2.9% in 2023, and weaken to 2.7% in 2024. As inflation abates further and real incomes strengthen, the world economy is projected to grow by 3% in 2025. Global growth remains highly dependent on fast-growing Asian economies, especially India. Europe is at the bottom of their list. They see New Zealand expanding just +1.3% in 2024 and by +1.9% in 2025, both at about the same for the average OECD nations. (And that is very similar to the modest forecasts for Australia.) In their view our OCR will need to remain at 5.5% until the end of 2024 and then can be cut gradually to 4.25% by the end of 2025 as inflation approaches the middle of the Reserve Bank’s 1-3% target range. They don't see any further rate hikes in Australia either.
The UST 10yr yield is down another -9 bps from yesterday, now just under 4.28%. The key 2-10 yield curve is less inverted, now by -37 bps. Their 1-5 curve is unchanged at -89 bps. Their 3 mth-10yr curve inversion is now -109 bps and marginally more inverted. The Australian 10 year bond yield is now at 4.36% and down -9 bps from yesterday. The China 10 year bond rate is unchanged at 2.71%. And the NZ Government 10 year bond rate is down -5 bps at 5.01%.
Wall Street has opened its Wednesday session with the S&P500 up a minor +0.2%. Overnight, European markets were mixed with Frankfurt up +1.1% but London down -0.4%. Yesterday, Tokyo ended its Wednesday session down -0.3%. Hong Kong ended down a massive -2.1% and Shanghai fell -0.6%. The ASX200 ended its Wednesday session up +0.3% while the NZX50 was unchanged.
The price of gold will start today just on US$2042/oz and up +US$2/oz from this time yesterday.
Oil prices have risen +50 USc since yesterday at just over US$77.50/bbl in the US. The international Brent price is now just over US$82.50/bbl.
The Kiwi dollar starts today at 60.7 USc and falling back -¾c from yesterday. Against the Aussie we are +20 bps firmer at 92.4 AUc. Against the euro we are back down -40 bps at 55.5 euro cents. That all means our TWI-5 starts today just under 69.6 and down -30 bps from this time yesterday. The RBNZ hawkish message brought a very brief spike yesterday afternoon, up to 70.3, but that evaporated quickly overnight.
The bitcoin price starts today at US$37,795 and almost unchanged (-0.1%) from this time yesterday, and extending its meandering. Volatility over the past 24 hours has remained modest at just on +/- 1.1%.
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37 Comments
The second estimate of Q3-2023 US economic activity has brought something of a positive surprise. It expanded +5.2% in this revision, higher than 4.9% in the preliminary estimate, and forecasts of 5% and that marks the strongest growth since Q4 2021.
TBoond/TBill funded government deficit spending?
....government spending contributed a whopping 0.94% to GDP, or a 5.5% contribution. This was the highest in almost three years and one of the highest prints on record. Or in other words, "presenting Bidenomics." Link
Yep exactly. Also it is well understood that the structural revisions required were done under the trump administration, Biden is simply riding those policy decisions to victory (while suppressing wages by allowing uncontrolled immigration into the Southern States). Nothing to congratulate him for with the possible exception of his clean energy agenda which is an important step even if it is not actually going to deliver.
Meanwhile, economic sentiment in the the overall EU turned up in November, albeit it is still quite low.
Goliath falls: Sudden bankruptcy of financial empire exposes Europe’s real estate bubble
'That is not a sign recession is imminent.'
Justification?
Bidenomics has continued a trend to increase internal manufacturing; it is irrespective of personality and regardless of where the manufacturing is done, it requires feedstock, and energy.
So I presume, before making the comment, DC has located a reference for sustained supplies of both?
'That is not a sign recession is imminent.'
I heard Kianga-Ora-Housing-New-Zullin is pulling back. Something to do with paying too much for so long being unsustainable.
If you look at recent consents and building activity they are keeping a lot of guys afloat. 6.9% of GDP. Next year is going to be tough (which is why I'm not buying the RBNZ stance yesterday).
https://ecoprofile.infometrics.co.nz/new%20zealand/Gdp/Structure
Yeah going in and outbidding ever property developer by huge amounts for land and sections was always going to backfire at some stage, now they know they probably have to work to a budget rather than an open cheque book I'm not surprised they are going to have to pull back.
The damage KO have done by overpaying is irreversible. They have driven many genuine developers to the wall simply because they don’t need to manage their returns.
KO spending should always have been counter-cyclical but instead they tripled down.
What a bunch of idiots. They have shown zero restraint.
Sure, in an ideal world they'd be counter-cyclical. (Which is probably not what we'll see with the new government, who will no doubt cut KO budgets as capacity opens up.)
But that means they'd always be sitting on their hands at exactly the time they're most needed, when supply is tight and rents are spiking. If they can't outbid anyone, they can't build. And if they're overpaying it's because everyone else is overpaying too, it's not as if they're the only party in the market.
If developers have been driven to the wall, it can only be because *they* overpaid in the same stupid market - one which they are not obliged to participate in.
Funny this. We have a decent sized KA housing complex being built up the road (maybe 300m away). The average house in that street is probably $2m. $3m for a nicer one. Can't imagine how many houses they could have bought / built if they had bought in even an average area.
Yep and the special sauce here is that when they are operational and house values in the area take their traditional dive they will worth even less than they paid for them.
EDIT - "Findings – The research found that private houses that share boundaries with public housing are discounted by 1.7%–3.3% depending on the socio-economic status of the submarket. The authors find that wealthier submarkets are better equipped to absorbing negative externalities attached to social housing. Proximity measures tend to peak at 250 m, with houses discounted up to 5% within that distance. Concentration levels of social housing had a greater influence on the private residential market. At low levels of concentration, houses in areas of high and low socio-economic levels were discounted by approximately 6.5%. The discount does not remain uniform and the gap between the two areas is apparent at medium and high concentration levels. The negative effect was the highest - 23% – in the neighbourhoods that were socially and economically deprived."
It's a terrible idea to have social housing concentrated in one area. They become ghettos. So KO have to build in all sorts of different locations. I know rich pricks hate this, as they want to have publicly funded gated communities but overall that is really bad for social cohesion.
Not all public housing is occupied by feral gangbangers. There is a genuine need for ordinary people who have been priced out of the market.
Many of the people living in social housing also worked their whole lives.
Many of the rich pricks that want to live in publicly funded gated communities have never done a hard day's work in their life, they inherited their money from daddy or smuggled it in after embezzling it abroad.
Newsflash, not everything is black and white.
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