Here's our summary of key economic events overnight that affect New Zealand, with news both the US and China are both back from holiday breaks - to lackluster prospects.
But first, the GDT dairy auction earlier today resulted in little overall change (+0.5%), although the strengthening NZD did push the result in local currently lower (-1.1%). This auction did record a big drop in the cheddar cheese price (-7.6%) but a good rise for mozzarella (+5.3%). SMP also rose (+1.3%) but the key WMP price fell (-1.8%. Today's result does not interrupt the general trend of rising prices that started in September last year and is probably an inconsequential hesitation at this point. No farm gate payout prices are likely to be affected by this, even if it is the weakest result since November.
In the US, the Conference Board's index of leading indicators slipped again in January. It has been slipping slightly for a while, but this update was the least in the series.
The FT is pointing out that large banks have more commercial property bad debt than they have reserves for it. The steady discounting of commercial property values as interest rates rise is catching out even the majors now. Their analysis shows that the average reserves at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley have fallen from US$1.60 to 90 cents for every dollar of commercial real estate debt on which a borrower is at least 30 days late, according to filings to the FDIC.
Canadian CPI inflation fell to 2.9% in January from 3.4% in December. The Bank of Canada has a formal target to keep inflation at the 2% midpoint of a 1% to 3% range. The move lower is seen as a positive development in their battle against inflation.
The Chinese central bank has surprised markets somewhat with its Loan Prime Rate moves. They didn't change their one year rate, holding it at 3.45% when a -15 bps cut was expected. But they did cut their 5 year LPR by -25 bps when a -15 bps cut was expected. That is the biggest cut they have ever made to this rate. The five year rate underpins their home loan market. The one year rate is more of a reference for other consumer and business lending. These changes show that Beijing's worries about their failing property sector are front-of-mind. However, despite its boldness the moves met with yawns in the market.
Prices for steel reinforcing bar (rebar) fell in China yesterday, and sharply to their lowest level of the year. These buyers have not returned from their New Year break in a positive mood, it seems. The retreat isn't overly large but it does essentially wipe out the gains built up in the expectation of major new infrastructure stimulus.
The UST 10yr yield starts today at 4.26% and down -7 bps from this time yesterday. The key 2-10 yield curve inversion is unchanged at -33 bps. And their 1-5 curve inversion is still at -70 bps. But their 3 mth-10yr curve inversion has deepened to -114 bps. The Australian 10 year bond yield is now at 4.16% and down -4 bps. The China 10 year bond rate is soft at 2.44%. The NZ Government 10 year bond rate is down -3 bps at 4.92%.
Wall Street has returned from its long weekend holiday with the S&P500 down -0.9%, mainly on tech company concerns. Overnight London and Frankfurt fell marginally, but Paris was up +0.3%. Yesterday Tokyo ended its Tuesday session down -0.3%. But Hong Kong rose +0.6% in their Tuesday trade while Shanghai rose +0.4%, both with late session surges which look suspiciously like home team interventions. The ASX200 ended Tuesday down a minor -0.1% while the NZX50 fell -0.7% on more soft earnings updates.
The price of gold will start today up another +US$11/oz from yesterday at US$2027/oz.
Oil prices are -US$1.50/bbl lower at just on US$77/bbl in the US while the international Brent price is down a bit less to US$81.50/bbl.
The Kiwi dollar starts today at just on 61.7 USc and up +¼c and its highest in more than a month. Against the Aussie we are also firmer at 94.2 AUc. Against the euro we are still at 57.1 euro cents. That all means our TWI-5 starts today at just on 71.1 and up another +20 bps from yesterday.
The bitcoin price starts today at US$51,608 and down a minor -0.6% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.8%.
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61 Comments
I'm expecting the RBNZ to come to a similar conclusion and raise the 'neutral rate' from 2.75% to 3.00%.
They may even use that guesswork as justification to conclude they need a higher OCR to maintain the contractionary nature of the setting. (Idiots if they do. But that never stopped them dropping to 0.25% either.)
Labour did call them out a few times. The threat of the government doing something about it is much better than nothing. I know someone who works in a self regulated industry and the continuous threat of regulation is always in their thinking, they would behave a lot differently if they knew the government would leave them alone.
The FT is pointing out that large banks have more commercial property bad debt than they have reserves for it.
This is a very serious problem, and as I've stipulated before, the most likely source of significant trouble in the USA. Whilst it's true that working from home is part of the problem, the main issue is higher interest rates, because commercial properties are valued mostly by their yields. As interest rates go up, so do the commercail propery yields, thus driving their values down.
Safety and liquidity is the primary concern of the bond market making community.
In the domestic rates market, as expected, NZDM launched the syndication of a new 30-year bond with price guidance for the 2054 nominal bond -1bps to +6 bps over the 2051 bond. The overnight update showed very strong demand, with a firm order book of around $16.5b for the $2b-$4b issue and price guidance narrowed to 0bps to +2bps. Link
I'd be pushing to get it fixed. In 10 years of renting I only ever had one landlord who was difficult at actioning repairs (and that was at a total dive student flat that cost next to nothing) but all others were good at sorting repairs to things like hot water etc.
You're entitled to get it fixed, so take up that entitlement.
Winston - on the money as he often is
https://www.newshub.co.nz/home/politics/2024/02/tributes-flow-for-forme…
" Deputy Prime Minister Winston Peters wished Robertson well but also criticised his handling of the COVID-19 pandemic.
"The second time around in '21 and onwards, the handling of that was a disaster. And that's why as time goes by the inquiry will find that out, and the level of indebtedness was massive, unjustified," Peters said.
He also joked that Robertson was well suited to Otago University because of the institution's debt.
"I think he's well-fitted, he's going off to a university that's $100 million in debt, having left this country in debt, so he's well-practised as to what he should be able to do now. But I wish him all the best," Peters said
well yes it is easy to criticise ....
Hmmm ... Thats a hell of lot of wage subsidy??? Are you sure
All an ill advised rort .. the whole covid fiasco was a mismanged disaster ... yes i know he saved BILLIONS of lives & businesses - some modeller confirmed this. Thats why we are such are a good position now
(ps National Labour - i dont care - its the one at the wheel who is accountable ... and his largese and reckless spending on pretty much zilch infrastructure is shocking
Ah did they? In 2015 the RBNZ estimated the total cost of the rebuild to be $40 billion. By September 2015 $26b had been paid out by insurers. So at most, $14b for the rebuild if insurers just stopped paying out.......
The Reserve Bank currently estimates the total construction cost of the rebuild to be about $40 billion (in 2015 dollars), comprised of slightly more than $16 billion each for residential and commercial construction and around $7 billion for infrastructure.
Five years after the damaging February 2011 earthquake, insurance claims have yet to be fully settled. As at 30 September 2015, insurers had paid out $26 billion,
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/…
Those are some very expensive rats.
The announcement comes as Woolworths released its latest profit results, which showed a $781 million statutory loss as the company booked a $NZ1.6 billion ($1.5 billion) writedown in the value of its New Zealand grocery business
https://www.abc.net.au/news/2024-02-21/woolworths-brad-banducci-retires-announcement/103490636
You say "we THINK we won't be able to earn as much going forward" and have your cosy "Auditor" agree with you. Then boom you can write off the asset value and avoid the depreciation you should be paying. Which "surprisingly" will lead to a "boom" in profitability leading to an increase in the asset value that you then sell to another of your companies returning the capital to the shareholder and having imaginary debt to write off against your profit.
Opps, inny-thoughts.
Georgia DA Fani Willis smacks the Trump attorney right between his eyes where he deserves it. How the hell can you compare the situation with Donald Duck Trumps actions
And this... republican case against Hunter Biden built on outright fabrication and lies
https://youtu.be/lmLmmNs69c8?si=6E960GSKtRcR6zks
This is only a small insight to what life could be like if trump re-elected. We've seen what he is capable of, even more so now
What expertise did Hunter Biden have that required him to be in Ukraine, around the time Victoria Nuland was stirring up proxies?
Simple question.
They - and the Clintons, the Bush's, and, and, and - are all part of the in-pirate Elite. Don't rock the boat, keep the gravy coming, tell the plebs to be meek and they'll inherit (oh, but in the next life). Trump is an out-pirate; Elite but not of the Elite. Out-pirates strive to be in-pirates; something to do with sexual-appeal, deep down. The disgruntled disenfranchised tend to get to a point where they cease believing the peddled narrative, and look to alt voices.
Those who position themselves in that space, get votes. Both 'sides' attempt to smear the other; neither are 'clean'. So taking sides is fraught... I regard Hunter Biden as untalented, untrustworthy and unimpressive. I regard Trump as randomly talented, randomly impressive - and also untrustworthy...
GDP and tax take numbers for next quarter are going to be atrocious the way the government is mishandling things. Unemployment is skyrocketing (check out linkedin for how many people have "OpenToWork" in their profile) and government revenue is going to fall off a cliff. I suspect National are about to turn our mild recession into a depression by not understanding counter-cyclical government spending. But when you have a English Lit major as a finance minister who think balancing your families budget is same-same as running a country and a property investor leader who thinks rating agency scorecards don't matter and that those on a benefit are there because of choice... I aren't holding out much hope for a turn around any time soon.
Starting to get a feeling that the coalition partners are waiting for their chance to take (more) control. Luxon is a genuine idiot as a politician. He may have been a decent CEO but those essential instincts of the politician are absent. Looking at the rest of his party you’d struggle to find anyone vaguely capable of a leadership challenge so watch for Winston and Seymour to increasingly set the tone. God help us.
Mark Mitchell seems to be contradicting him publicly a lot. Last night on the news was about pseudoephedrine and whether he had talked to Seymour about it. But there have been a few other times when he has done similar. Luxon will have to get tough soon or it will start to unpick .
Republicans playing charades, and other games
So National didn't scrap 3 waters, scrap the ferry upgrade, scrap major infrastructure projects all around the country (in favour of restarting RONS), introduce benefit sanctions, ask almost all government agencies to reduce headcount and government spending by ~8% etc etc? Man, I must have a good imagination, I swear thats what they had in their 100 day plan.
The military have been asked to reduce spending by by 6.5% when we can't even man our 2 frigates, nor our patrol vessels. Plenty of blame to go around (Labour underfunded the military hugely) but a further reduction will see us barely able to function. Again, government spending should be counter-cyclical, if we are going into a downturn, its time for the government to increase spending, not decrease. It threatens an economic doom loop if they don't.
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