Here's our summary of key economic events overnight that affect New Zealand with news global trade distortions seem to be growing.
But first, after three weeks of gains (some quite minor though), last week US mortgage application levels fell again, and are now down -13% lower than the same weak week a year ago. The push back up of benchmark mortgage rates - above 7% - is an effective barrier for many potential house buyers there.
Another well supported UST 10yr bond auction brought a median yield of 4.22% and sharply lower than the 4.37% at the prior equivalent event a month ago.
In the Wall Street equity markets, both the S&P500 and the Nasdaq hit new all-time record highs today. Ditto Tokyo. All this comes ahead of tomorrow's US CPI data for June when a 3.1% rate is anticipated.
Meanwhile in Hong Kong, equity markets are going the other way. They peaked in 2018 and it has been downhill from there since. It's gloss has certainly faded the closer it is tied to the PRC. And Shanghai's peaks were back in 2007 and 2015. Neither are places to find equity gains recently.
In China, their CPI inflation is still positive, just. It came in at 0.2% from a year ago in June. Analysts had expected it to rise +0.4% from the April and may rates of +0.3%. Beef prices are still falling hard, now down -13% from a year ago. Lamb prices are down -7% on the same basis. Milk prices are down -1.8%.
China's producer prices are still deflating, down -0.8% in June from a year ago. That was as expected and less than the -1.4% annual rate in June.
'Ordinary' demand and the coming on-stream of new supply, especially from Chinese-owned mines in West Africa, has the prospects for the iron ore price to slip below US$100/tonne soon. There are implications for Australia here although their high-grade product and shorter shipping distance are advantages that won't go away.
Tomorrow we will get China's export data for June, expected to be strong in advance of new American tariffs. But Chinese over-capacity is causing a spreading backlash and countries from Mexico, Brazil, Chile, and the EU are racing to protect themselves from the dumping flood. And now Southeast Asian nations like Indonesia, Thailand, Vietnam and South Korea are also weighing restrictions on Chinese exports. But some countries are so closely tied to China's orbit that it will be hard to resist China's pushback. This is a trade pressure that just won't go away and may reshape the global trade landscape - again.
Stubbornly high freight rates, partly in response to the over-capacity/export imbalances, aren't helping either. De-risking has a long way to go, it seems.
The UST 10yr yield is now at 4.28% and down -2 bps from yesterday. The key 2-10 yield curve inversion is marginally more at -35 bps. Their 1-5 curve is less at -77 bps. And their 3 mth-10yr curve inversion is little-changed at -104 bps. The Australian 10 year bond yield starts today at 4.38% and down -1 bp. The China 10 year bond rate is now at 2.28% and unchanged. The NZ Government 10 year bond rate is now at 4.64% and down -5 bps from yesterday.
Wall Street has ended its Wednesday session with the S&P500 up +0.7% and at record-high levels. European markets were up a similar +0.7%. Tokyo ended its Wednesday trade up +0.6% too. However Hong Kong ended yesterday down -0.3%. Shanghai was down -0.7%, but Singapore managed a full +1.0% gain. The ASX200 fell -0.2% but the NZX50 rose its own +0.8% rise in Wednesday trade.
The price of gold will start today up +US$21 from yesterday at US$2372/oz.
Oil prices are +50 USc firmer at just under US$81.50/bbl in the US while the international Brent price is little-changed at just on US$84.50/bbl.
The Kiwi dollar starts today -40 bps lower than this time yesterday and now at 60.8 USc after the RBNZ MPR. This takes it back to the level we had at the start of the month. Against the Aussie we are fallen almost -¾c to 90.2 AUc. Against the euro we are down -½c at 56.2 euro cents. That all means our TWI-5 starts today down -60 bps at 69.9.
The bitcoin price starts today at US$57,692 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has stayed modest at just on +/- 1.8%.
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50 Comments
Agreed at a local level we should be filling our boots :); but we are a bit shy of the infrastructure to pipe any overflow safely back to the Grid. We are not close to Brisbane levels of sun or PV penetration but their grid brown-outs illustrate a how-not-to on residential solar.
I find it just never stacks up at a financial level.
I am on a perfect site, perfect aspect, in NP (i.e. higher sun areas of NZ). My payback period with any sort of battery is 12-15 years as of yesterday. 10 years ago it was about 21 years.
So yeah, costs are dropping. But 15 years just to break even. That sort of infrastructure price at a consumer level is ridiculous.
Further, if the grid fails, usually you also fail, as you can't be isolated to run independently unless you go completely off-grid. Which means extra batteries and panels further increasing the payback.
Solar in NZ at this point is nothing more than a signal. Micro hydro is the most useful, but not really practical in most urban, suburban, and even rural areas without specific geographic features.
Sigh.
So late in the trajectory, and so many thinking in a linear 'all else will be equal' manner.
The energy cost of energy is rising now - the real cost - and is being reflected in the more-than-inflation costs of many items. (If they're trending lower, something is changing but just in that arena - lower wages/standards, dumping etc). The overall picture will be one of either increasing 'prices' for energy, or recession (the way it gets damped). Either way, immunising yourself is a valid move.
Having been on PV this last 20 years, I can tell you it's cheaper. Period. My initial outlay was circa 5k, even notw it wouldn't be much past 10k. Haven't used the generator in years. Savings? Say power bills would have been 2k/year, so 5yr break even. That's 15 years ago...
So you are running solely PV? Or do you have other forms as well?
Solar itself, including batteries are inherently unrenewable. I can neither maintain nor replace myself. So no, not viable at the price.
Consents, materials, labour, and "margin" make it very hard to do for 10k in Suburbia.
Be honest, the grid is just there when you need it and the only time you think about power is during a cut. On solar you are constantly worried about the weather and what you have turned on an for how long. The cost of a solar system that matches the grid would cost you a fortune, we have periods of up to a week without any decent sun at all, worst has been like 2 weeks your solar system will be stuffed. It has uses in non critical areas, I would say if you had gas for hot water and cooking then a solar system just for the LED lights in your house and the TV etc would work, spec'd so it could handle the vacuum cleaner, toaster and electric jug but not all at the same time would work as long as you don't like roast chicken. Winter is the time of year you need the most power, its the time of year you get the least sun. I have a solar system powering 15W of outdoor security lights and that will not even run all night in winter.
We have two modern fully automated solar systems on different sites and they are awesome. No power cuts. No power bills in the future. With a back up generator which seldom runs it is no different to being on the grid. Way to go.
Of course we need to take advantage of China's surplus. Silly if we don't.
Just to add after reading Zwifters comment, if you are on the grid just keep paying the power bills it is way cheaper. How ever if one has the spare coin then for self energy security I highly recommend a good solar system with batteries and back up generator.
You can't complain about the cost of batteries, and in the same breath complain that u fail if the grid fails. Not if you have paid for batteries.
If you want quicker payback then don't install batteries
If you want power during a blackout, then install batteries.
Also, consider a hybrid inverter that supports off-the-shelf 48V batteries. These are about NZ$300/kwh, far cheaper than Telsa Powerwall which is about $1150/kwh. There's a reason most solar installers can throw in a 'free' TV with a Tesla
I beleive (and I could be wrong) that even if you have batteries, as long as you are connected to the grid, you essentially get turned off so as not to accidently provide to the grid during maintenance etc..
It requires additional work (i.e. funds) in order to be isolated so as to become completely off grid.
I think you are confusing a no-battery install, where during a grid outage you have no power as the grid-tie inverter will shutdown. There is no where for the power to go, so it shutsdown to prevent grid feed. So even though the sun is shinning, you have no power
However most modern hybrid inverters with batteries can keep running during a grid outage. There's various options, whether to power the whole house or have only some circuits powered by battery.
If you have a battery, then you don't go down when the grid goes down. You will last as long as the battery which could be days depending on size and usage - plenty long enough to see you through most outages and certainly puts you in a better position than someone without a battery.
I would add a small battery now and wait for EVs to fully implement V2G (probably a few years away, following the implementation of the new CCS standard from 2025) will give you many days of extra power from your car battery.
If you are solely after a return, then solar alone will payback in 7-10 followed by a further 30 years of profit. Probably one of the best investments you can make.
I am expecting payback in ~8-10 years for my new system, will see if reality matches my calculations (so far so good). This is thanks to a decent buy-back rate from Meridian, 17c guaranteed for 5 years (and my power prices and daily charge are reasonable, also fixed for 5 years).
Compare that to other investment returns - you'd need pre-tax returns well into double figures to get close.
edit: should have said, no battery - I think the pay back is much longer if you go that way, paying for grid stability insurance
The supplier in China I got may last panels from (450W) just quoted me USD$63 each. I agree with battery but just running panels and selling back to the grid (if you really can't use it to charge car, water heating etc) at 8c per kW/hr isn't too bad considering the cheap purchase price.
We have only got a small solar panel set up and they work out well for us. $30-$50 per month in summer and at most $140 in winter. Batteries are not a sensible proposition. When I did the sums the cost of the batteries was barely covered by the value of the energy stored over its whole life. Should be a bit better now, but still marginal in our very uncompetitive market. The far better option for surplus solar generation is to divert it into your electric hot water with a solar diverter. This monitors the excess solar power being exported to the grid and diverts just enough power to your hot water to keep exported power close to zero. Unlike a battery these will not wear out.
Depends on your situation. I too have a perfect spot for solar with good angles and sunshine hours, and with power due to increase for the next 5 years at least, the cost of solar now if purchased will slowly be eroded away with inflation, and the payback time will get shorter and shorter as the price of power increases, plus as we will likely be a fuller household in the next few years, increasing power consumption, this will add to the drop in payback time.
Great headline well done to Stuffs waikato-times: "Judge decrees Hitler must die"
https://www.waikatotimes.co.nz/nz-news/350338100/hamilton-judge-decrees…
Oh China, please increase the price of the technology you sell us. It's too cheap.
No seriously, you're not playing by the rules. What you're supposed to do is let your companies merge into lazy, rent-seeking, oligopolic behemoths who stop investing in R&D and 'innovate' with financial shenanigans, share buy backs, and lobbying to secure ever greater marker power.
Do better.
Given the investment in African resource mining, I am not sure they will not take too long to march this final mile to market ownership.
As for innovation, I had a good conversation with someone yesterday about China not innovating, I asked them to find me an academic AI paper that did not have 50-100% Chinese academic authorship. China has had more than it's fair share of IP theft for sure, but their STEM focus means they have a large number of folk who can still innovate. The West will innovate in important ideological battlegrounds whilst they do so.
The unnecessary jabs that Western media and politicians have been taking on East Asia is getting old and boring.
All that chatter about a looming population collapse in SK, Japan and China is true but I believe countries in the West that have imported boatloads of refugees and low-skilled migrants have it much worse.
Population "collapse" is a positive, not a negative. Just think, climate destabilisation, and all other ecocidal activities can be scaled back. No need to cover the planet with nuclear power plants, synthetic organisms, transgenic yeast vats producing food like products, travel without the other thousand individuals waiting to view fading scenic wonders. The planet wouldn't need to be turned into some huge industrial site to satisfy the weird urges of a psychopathic minority. Bring collapse on I say. The invented voodoo activity of "economics" can adjust accordingly, to preside over the reduced levels of destruction.
Of course collapse is a dramatic word intended to frighten us into shagging for the super organism, but based on current demographic trends only, the global population will be greater at the end of the century, not smaller.
See the graph here to see just how far China is ahead of everyone for everything battery and renewable: Not made in China: the US$6 trillion cost of shifting the world’s clean-tech manufacturing hub | | Wood Mackenzie
Also here for their overall tech dominance: The global technology race: Is China truly ahead of the West? - PreScouter - Custom Intelligence from a Global Network of Experts
Why wouldn't it be ahead in batteries? Their largest battery manufacturer, CATL spent nearly US$3 billion on R&D in 2023, which is over 5% of its net revenue in the same year.
In the West, tech industries are less competitive due to overly restrictive IP laws designed to stifle competition and not for protecting innovation.
Residential construction costs fall ~ a little.
Inflation is pretty much snuffed out.
https://www.nzherald.co.nz/business/house-building-cost-drops-for-first…
"Eurozone wage growth picked up last month, prompting speculation from economists that the European Central Bank could struggle to cut interest rates as much as investors expect..... salaries for jobs advertised rose 4.2 per cent in the year to June, accelerating to the fastest pace for a year..The ECB has regularly referred to the wage tracker as a forward-looking indicator of where overall pay growth is heading."
https://www.ft.com/content/a4cfeffa-9989-4789-aab7-4201510dd21d
So wages, arguably, starting their breakout yet the clamour for interest rate cuts continues? It's all going according to the script....
Yes, wages eventually respond to the cost of living. Now, what has been a major contributor to the cost of living increases in Europe and NZ?
I am increasingly of the view that CPI will slowly gravitate towards the interest rate over time. Why wouldn't it? The interest rate is the price of money.
You know my view. It's not about the Cost of Money (Debt) as such, but what we use it for.
Cut the OCR here, and you can add +$100k to the price of every property currently in suspended animation at every real estate office across the country. That will make the 'saving' of whatever $ each week on mortgage payments irrelevant.
Change what we lend money for, and cut the OCR to 0% if you wish. But as long as we allow it to go into "just one more renter for my portfolio" we are headed nowhere backwards. And backwards, isn't where we want to go.
Houses are not selling now, so you can imagine the commission income if all the prices go up $100k, you would see agencies closing by xmas.
Agents cannot justify house prices moving higher relative to funding costs, otherwise they have to face the elephant in the room for rentals...
Price to yield.
The price of building is still somewhat high "So if you add the average cost of building a home in NZ ($442,132) to the cost of an average section ($400,000), you get: $842,132."
This will keep the price floor in on housing until these costs go down.
Agreed on the different risk ratios the Banks are compelled to use, but these are based on new business failures etc supposedly creating a risk across the lending portfolio and therefore both the size of that book and the rate charged are different.
100k would about cover the paperwork and council costs to do the subdivide, inferring that the developer would then give away the land...
Sure the underlying land may get cheaper, but there is a big fixed cost to create the site, put services in etc etc.
There are considerable costs , it would be good if Interest did an example guest article about these costs .
I don't think this can be the only factor considered by the ECB, these increases relate only to the 10% (2.4% per qtr) of people who change jobs each year. Only they are getting this increase, perhaps some of that is to pay for new skills required. 10% of salaries getting 4.2% more is a 0.42% increase across the whole, they will need other surveys to determine actual salary increases, tax take perhaps?
'Expectations need to be reset': Is golden age for property investment over?
https://www.rnz.co.nz/news/business/521831/expectations-need-to-be-rese…
..and the denial persists. Sideways???
".....If any material upswing in house prices is, say, three or more years away, then the question starts to become whether investors have the means - and the stomach - to keep topping up the mortgage while the value of their asset is drifting sideways."
Yes, the facts must speak for themselves surely.
I think this is a waiting game, not so much for prices, but for mortgage rate easing. A lot of investors bought their properties at prices lower than they are today and LVR ratios mean they can only have had a mortgage for 60% of the purchase value at the time. Some, like me that bought new properties as well and so will be propping them up for a while.
New Investors need to be bad a maths lol.
Corelogic research head Nick Goodall agreed investors were buying for long-term growth.
"It's hard to see if you purchased an investment property today how you would make that stack up based on how much you're paying on mortgage interest."
But he said debt-to-income ratios could change the trajectory of capital growth, because they would tie how fast house prices could rise to incomes. Price growth rates could drop from 6 percent to 7 percent, to more like 3 percent or 4 percent a year over the longer term, he said.
"Investors cannot build the size of their portfolio as fast because their income has to keep up with the increases in debt levels. Expectations need to be reset."
well well well old Nick Goodall turns into a DGM, many of us here have been saying this for some time now.
Oh my god New York City paid McKinsey $4,000,000 to do a study on if trash cans work
Crazy number shared by US Deputy Secretary of Defense Kathleen Hicks at the NATO summit (https://defense.gov/News/Speeches/Speech/Article/3832532/deputy-secretary-of-defense-kathleen-h-hicks-keynote-remarks-strengthening-the/): "U.S. investments in defense R&D-plus-procurement over the first term of the Biden-Harris Administration — totaling $1.27 trillion — is the highest amount that DoD has invested in these areas across any four-year period throughout the entirety of the Cold War" Anyone who's rational would see such an unprecedented ramp up in weapons as worrying news for the world but not the Pentagon neocons: Hicks presented it as if it was amazing news, "yeah, we just added $1.27 trillion worth of new weapons on this earth! " Link
Uranium prices jump as Kazakhstan upheaval stokes supply concerns
The US purchased uranium from Russia for a record amount In May, the United States significantly increased purchases of enriched uranium from Russia, reaching the highest levels since March last year. According to the US Bureau of Statistics, the total value of uranium supplies was $209.5 million. Link
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