Here's our summary of key economic events overnight that affect New Zealand with news of the unavoidable reporting of a Chinese economic stumble.
But first up today, we should note that Fed boss Powell was speaking and said the three American inflation readings in the June quarter do "add somewhat to confidence" that the pace of price increases is returning to the Fed's target in a sustainable fashion. They were remarks that suggest interest rate cuts may not be far off for them.
In their real economy, the NY Empire State survey of factories wasn't particularly positive, although to be fair it was little-changed in June. And expectations in this survey continue to be quite positive however.
Indian goods exports in June were little-changed from a year ago at a modest US$35 bln, up +2.6% from the same month in 2023. Services exports rose +8.9% however. Services exports are at about the same value as for goods, in India.
China's economy faltered in Q2-2024, keeping alive expectations Beijing will need to unleash even more stimulus.
Despite expectations that CCP discipline would press China's Q2 GDP result to the party's target, in fact they published a much lower than expected growth result. The Chinese economy expanded +4.7% in Q2 from the same period in 2023, missing market forecasts of +5.1% and slowing from a +5.3% growth in Q1. It was the weakest yearly advance since Q1-2023, and comes amid their persistent property downturn, weak domestic demand, a falling yuan, and trade frictions with the West. It also comes on the opening days of the CCP "Third Plenum", a huge set piece of Chinese policy making. Real reform is not anticipated however.
Underscoring the real estate industry problems, China said new dwelling sales were -25% lower in June than a year ago. New house prices in 70 cities declined by -4.5% year-on-year in June, after a -3.9% equivalent fall in the previous month. It was the 12th straight month of retreat and the fastest pace since June 2015. Only one of those 70 cities recorded a year-on-year rise. None recorded rises for secondhand home sales. Some cities are now recording -12% sales price falls.
China also said June retail sales were up +2.0% from the same month a year ago, up +3.0% in you exclude car sales. At least this is better than inflation, so it records 'real' gains.
And China reported that electricity production rose +2.3% in June from year-ago levels. It is crude, but this may be a better indicator of 'growth' than the official GDP data. Still, they claim industrial production rose +5.3% in June on the same basis. It seems unlikely unless they are making impressively large energy efficiency gains nationwide. (Maybe readers know how to reconcile these various data claims better than us? Please clarify for all in the comment section below.)
The EU reported May industrial production levels in May, and those fell -2.5% from the same month a year ago, down -2.9% in the Euro Area..
And perhaps we should note that the electrification of the world will require more copper than can be produced, according to a recent study. EV demand to meet 100% net zero by 2050 would need that. But if instead vehicle demand shifted to hybrids, there may be enough copper to achieve the goal.
In Australia, all eyes seem to be on how a major union, the CFMEU, turned itself into a bikie gang complete with standover tactics. This isn't 'news' as such, just that it is now in public discussion in efforts to clean out their leadership and culture.
The UST 10yr yield is now at 4.22% and up +3 bps from yesterday. The key 2-10 yield curve inversion is much less at -22 bps. Their 1-5 curve is also sharply less at -53 bps. But their 3 mth-10yr curve inversion is little-changed at -115 bps. The Australian 10 year bond yield starts today at 4.35% and little-changed. The China 10 year bond rate is still at -2.26%. The NZ Government 10 year bond rate is now at 4.49%, and down -6 bps.
Wall Street has opened its Monday trade up +0.4% on the S&P500. Overnight, European markets closed their Monday trade down about -1%. Yesterday Tokyo ended down -2.4%, Hong Kong ended down -1.5% and Shanghai was little-changed. Singapore was also little-changed. The ASX200 rose +0.7% and the NZX50 ended Monday down a minor -0.1%.
The price of gold will start today up +US$12 from yesterday at US$2422/oz.
Oil prices are down -50 USc at just on US$81.50/bbl in the US while the international Brent price is just under US$84.50/bbl.
The Kiwi dollar starts today sharply lower at 60.8 USc and down nearly -½c. Against the Aussie we are down at 90 AUc. Against the euro we are down at 55.8 euro cents. That all means our TWI-5 starts today at 69.5 and down -40 bps from this time yesterday.
The bitcoin price starts today at US$63,314 and up +5.4% from this time yesterday. Volatility over the past 24 hours has been high at just on +/- 3.2%.
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65 Comments
Prices at an Auckland apartment development drop 25%. This is why the next 6 months could be a good window of opportunity for some FHBs:
https://www.nzherald.co.nz/business/property-insider-how-to-get-10000-o…
Read a bit further, they will struggle to get much for these now.
Many owners were in the position where they could not accept low prices offered because their mortgages were higher than that.
“It’s a very sad situation.”
This month, the Herald revealed how litigation was launched alleging defects in the building.
Owners represented by three bodies corporate engaged lawyers Jonathan Wood and Jeanne Heatlie of Court One to prepare a statement of claim, where a detailed list of alleged roof and deck, walls and joinery, weather tightness, structural, fire protection, services and interior defects appears.
That has been lodged naming many defendants, including Auckland Council, Infratil and Beca. Spokespeople for those entities did not wish to discuss the situation but no hearing date has yet been set.
Do you think the timeless dance between changes in mortgage rates and house prices is going to stop?
But you're forgetting. '08 and '09 is never going to happen again. And it won't. It's always something different, as it will be next time. Otherwise, all the past unexpected events would have been prevented. All we don't know is what, and when, is 'next time'. (A clue: The Bigger the Debt bomb, the worse it is going to be.)
I don't think nz had any room left to continue the merry dance and start a boom period so early. Trying to raise house prices now as a means to kickstart the economy would be really messy.
We would wave goodbye to the entire next generation of skilled workers (who wants a future of expensive house prices, crappy infrastructure and crime etc when Oz is next door) at the same time we have a glut of retirees and super beneficiaries coming up. Let alone the money we need to upgrade and maintain infrastructure.
I also think pumping it now would raise domestic inflation at the same time we have numerous imported inflation risks to watch.
Nz property ponzi is well cooked. Attempting to restart it won't end well in the medium term as the country starts to crumble with crime, social divisions, public services etc etc.
We have to face some economic and social realities and find a new path. Probably to dissuade property investment and target $ payments to specific sectors. It's actually the perfect time to intro CGT to raise more tax and drive money out of property. I reckon the majority of public would welcome it (given most now want affordable housin
If it were me I would also force local govt (and nzta) to control spend and rates.. but I suspect the next round of elections will sort that as candidates who focus on cost management will likely win and focus on must have spend and fixed contracts over nice to haves and a gravy train (see the reports today about nzta CEO also being a director of a supplier).
I still think its all about interest rates. If they don't go down at all, or don't go down by much, the housing market will tumble further, even if you get what seems like a good deal today.
I personally feel interest rates will fall enough for the housing market to pick up very slightly (it might take a while), but there is a definite risk that they don't.
Some things are definitely cheaper than 12-24 months ago.
However as I said long before this, the cheaper prices coincide with a less healthy employment market and economy. So some will get a bargain, while many others will find themselves in a worse position to service, or even secure a mortgage at all.
It's all highly relative.
I doubt anything manufactured in NZ will due to the lack of competition and increase in labour costs.
There will be deals by some contractors but some of those people will simply be trying not to go under so it’s a risky game.
I have seen on LinkedIn that some developers are saying costs are down $500/sqm but that’s just construction. All the other associated costs are higher.
Anybody else out there notice that as times get tough - a lot of businesses are cutting out the perks. My daughter who works as a manager at a restaurant chain (no not Mcdonalds - slightly more upmarket) that they are removing her free meal on shift - managers will need to pay for a meal - albeit at a discounted rate from now on.
My other half has also had perks cut, the couple of mental health days they get and catered staff farewells have all gone.
Now I know times are tough and the above businesses are cutting costs just to survive, but it feels like only yesterday that businesses were bending over backwards to attract staff and now are heading in the opposite direction.
I do wonder when the economy picks up - how these businesses will fare when their employees have more choice, in my daughters case she is thinking of heading to another business - they'll pay her an extra $80 a week for the same conditions she now has.
Staff had it too good for too long. It bred a sense of grandeur and entitlement. Since when was 10 sick days a year not enough? Now with some balance shifting back to the employer, staff will recognise that job scarcity is real and they can’t take the proverbial anymore.
Yep, at my Mrs' place of work which is largely staffed by younger folks (aged under 35), they pretty much all make sure to use every last day of their sick leave before the end of the year. It's simply viewed as an extra 10 days off per year over and above their annual leave of 4 weeks.
I make no apologies for not paying my staff Australian pay rates. If I paid Australian rates, guess what. I’d get no work and they’d be out of a job. I’m not out to tar every worker with the same brush, there’s damn hard working kiwis out there that I will bend over backwards to keep employed and pay well during the down times. The ones that have been coasting for years due to it being near impossible to find staff, as soon as the work dries up which is now, I can’t wait to see the end of them, maybe that will give them a reality check. Redundancy is a hell of a lot easier than dismissal from a legal standpoint. Time to burn the dead wood!
If this cost cutting measure doesn’t work it’s layoffs, followed by closure, hopefully the new business she goes to is stable…the weird thing is it sounds like your daughter isn’t a property developer who over leveraged trying to make a quick buck out of the “PoNzi”…but yet somehow she is still being negatively effected…businesses won’t have to worry about things when the economy picks up because all the experts on here want to raise rates/keep rates higher longer…make lending more affordable, use tools to limit house price growth…do this kinda now (a wee while ago would’ve been ace) & hopefully things will level out over the next 12-18 months 🤞
Hopefully your daughter & wife aren’t too stressed mate, it is tough going out there for sure.
Strangely the best way for you daughter to make it is to work very hard and help her employer succeed regardless the economy and rewards.
Guess who are the people bosses promote and pay more in the booms and hang onto in the busts. And promote for that matter.
Those that move around based on intermittent small bonuses and immediate pay rises tend to do well in the short term. But in the long term get frustrated watching others grind away, stay loyal and accumulate assets and build careers.
Places I've worked invariably "reward" good employees with a 2-3% payrise then act shocked when they move on for 20-30% pay increases. Loyalty and good performance in NZ seems to mean nothing to NZ employers in my experience (at least at large corporations), since they know so many people will stick with what they're comfortable with rather than taking a risk with a new job, even if brand new people end up on better salaries than them.
People frequently get 20-30% pay rises by jumping jobs, but that happening where I work without a major promotion is completely unheard of.
I wish those things were true. But in my experience the people who get promoted and paid more are not the people who work the hardest at all, but the people who are good at faking working hard (e.g., hyping themselves up, taking credit for others work) and sucking up to management. And it's not really the case any more that 'staying loyal' has benefits for employees. Moving around is really the only way to get decent pay rises in most careers.
A conversation I had with a union rep many years ago and i suggested to him that it was in the union's interest for the business to succeed. He actually challenged me aggressively on that one. So I asked him how many of his members would be employed by the company if it went bust. He started to waffle about then and quickly stopped wanting to talk to me. Probably because I refused to join his union.
I feel every worker should understand the principle, but employers also need to understand that success requires them to treat their staff well. The blade is double edged.
Uhhh, no. There's a disproportionate number of people able to come across well in interviews and their early stages of new employment, and employees capable of consistently high levels of attendance and performance.
No one's going to say in an interview "oh yeah, and by the way, I have a tendency to randomly go awol and just not give a shit about work some days".
Sounds it. Employed hundreds of people. Outside of age and ethnicity profiling, never got it much better than a coin toss.
Now I only engage people I already know of. Less of them, and concentrate on only a specific sector of the market than trying to be all things to all people.
Yes I've experienced this too. Sometimes you know, either way. And sometimes it's impossible to tell. Those who are well spoken tend to do well in interviews, if there's a test or trial involved, that can weed out the fakers. But even then in my industry, you can hire well spoken and well educated people who simply cannot transfer those skills into productive work beyond the induction period. It's frustrating for everyone but it is what it is.
would you rather the business close or cuts meals for staff?
Sure when competition becomes higher, business might need to come to the table with better conditions.
I suppose you will also get the businesses that are struggling having to get by with lower quality staff if there current staff leave and they don't have much to offer, or they just snap up other people who really need a job.
an extra $80 per week, could be worth it if its a good restaurant.
Yes heard from a friend who works in a large medical services practice with a number of branches that they have stopped providing tea & coffee to staff
This business is not struggling by any means and recently was purchased by a large Australian medical corporate
Seems counterproductive to me as already some nurses have found jobs elsewhere, it’s not so much the cost of tea and coffee ,in the scheme of things it’s petty cash , it’s the signal it sends to staff
"RNZ is looking back at the handling of the 'iReX' Interislander replacement project, closely examining 44 documents that reveal the advice and information provided and how it led to decisions across multiple governments - culminating in the project's cancellation."
https://www.rnz.co.nz/news/political/522218/interislander-how-labour-s-…
Had the government delayed the tax cuts by a year and used that money to pay for a world class ferry service, do you think that would have been a worse outcome than getting the tax cuts and some broken down ferries? How do you think that decision will be judged in 20 years time?
I have never even used the ferries, but I would still prefer they did something decent than give me $20 a week. If they had used that $3 billion a year to start a very major infrastructure project like that every year, I reckon we would end up much better off than we will with that $20 in hand.
Regarding Powell's comments - he may not have the opportunity he thinks he does.
The economic program of the Republican Party, including universal tarifs and mass deportations,
has been modeled by Moody's to raise inflation in the US from from roughly three per cent this year
to 3.6 per cent in 2025, which, in turn, would prompt the Federal Reserve to keep interest rates on hold,
rather than reducing them, as markets currently expect.
Polling suggests that the Republicans gaining control of both the White House and Congress is a very
real possibility. Should that come to pass in November, then the much anticipated lowering of the NZ OCR
would likely be a much less certain proposition. Lowering our rate before the US drops theirs would likely raise
tradable inflation, and combined with the stickiness of non-tradables, place us back into a high-inflation
environment.
Rock <> Hard Place.
Good point. I don't trust Moody's modelling, that seems very low to me. The cost of labour would increase dramatically, as would the cost of many goods. Even goods still made in the USA, would they stay the same price, or increase their price to a similar level as the imported and tariffed competitors?
Another day, another story about corruption and lies from the coalition.
https://newsroom.co.nz/2024/07/16/jones-staffer-arranged-undeclared-din…
I am picking 0.3% quarter, 3.2% annual.
But I also think there is an outside chance of 0% quarter and <3% annual (with deflation to both food and fuel), putting CPI back in target. If that happens there will be huge pressure on the RBNZ to reduce rates rapidly, and if they don't the market will anyway.
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