Here's our summary of key economic events overnight that affect New Zealand with news markets sense the end of a long golden run. Or perhaps it is only because the Northern Hemisphere is turning its attentions elsewhere - vacations and Olympics. It is hard to know in thin trading.
The US economy added only +114,000 jobs in July, well below a downwardly revised +179,000 in June and forecasts of 175,000. It is also the lowest level in three months, below the average monthly gain of 215,000 over the prior 12 months, signaling the their labour market is in fact cooling off. But most of the weakness was in the tech sector with almost all other sectors holding their own.
Pressure on wages is easing too, with weekly earnings up only +3.3%.
Their jobless rate rose marginally to 4.3%, up from 4.1% in June. (s.a.) There are now 162.0 mln people employed, a record high, in a 169.7 mln labour force. (not s.a.)
This weakish American report actually had little impact on global markets because they were mostly sharply lower before this release and there was no added change after. You can claim it was 'priced in' and perhaps it was. But there is a broader re-ranking going on with a settling back in risk appetites. We shouldn't be surprised - markets never go up forever. The US Q2 earnings season reporting has been strong, but it is the less than stellar outlooks that are influencing investors.
Check back soon for an article to be published here (at 9am) putting recent moves in the global capital markets into perspective.
Meanwhile, US factory orders, which were expected to show a dip in June, did just that but the dip was larger at -3.3% than the -2.9% correction anticipated. The June fall comes after four consecutive rises however.
But American new vehicle sales rose more than expected in July to an annual rate of 15.8 mln, a good bounce back from the 15.2 mln vehicle sales rate in June.
The Bank of Canada's Q2-2024 market participants survey shows that these industry insiders see their central bank next cutting their 4.5% policy rate in October and then taking it all the way down to 3.0% by the start of 2026. This is on the back of lackluster economic expectations.
In China, their central bank said it will be pushing commercial banks to "do more" for the "real economy". It wants to shift the financial sector’s focus to "benefiting people’s livelihoods and boosting consumption" over the coming months. This change in emphasis follows pressure from the CCP Third Plenum meeting chaired by President Xi earlier in the week. The practical impact? Perhaps more debt issued for projects that have immediate effects but little long-term gains.
There are calls for monetary authorities to allow higher inflation as some sort of spur to 'growth'. Meanwhile, commodity prices keep on sinking as the overall stall extends. None of this is coming at a good time for China and they take their summer break. That tends to be when the leaders 'relax' at their seaside compound at Beidaihe. If they don't return with better plans and actions, there will be some grumpy countrymen.
Meanwhile, flooding pressures are not easing. And that has implications for food security and agricultural output, especially for gains.
In India, lenders to near-bankrupt education and training giant Byju are seeking to block the company from making its sponsorship payments to the BCCI, India's cricket authority. Billions are involved.
Singapore's widely-watched local PMI was modestly positive in July, but far less positive than the internationally-benchmarked version.
The UST 10yr yield is now at just on 3.79% and down another sharp -19 bps from yesterday. A week ago it was at 4.20% so down -40 bps since then. That is a very big move. The key 2-10 yield curve inversion is shallower at only -9 bps and also a big weekly move. Their 1-5 curve is lesser at -75 bps. But their 3 mth-10yr curve inversion is much deeper at -157 bps. The Australian 10 year bond yield starts today at just on 3.99% and down -9 bps. The China 10 year bond rate is down -2 bps at 2.12% and a new all-time low. The NZ Government 10 year bond rate is now just on 4.26%, and down a modest -4 bps from yesterday. A week ago this was at 4.41% so a net -15 bps drop.
Wall Street in Friday trade on the S&P500 is down a hard -1.8% and that makes it -2.4% lower for the week. Although this seems led by tech falls, in fact it is broad-based. Overnight European markets were all lower by between -1.5% and -2.5%. Yesterday Tokyo ended its Friday trade down -5.8% to be a humbling -5.9% lower for the week. Hong Kong fell -2.1% for a weekly loss of -1.5%. Shanghai was down -0.9% for the day but up +0.6% for the week. Singapore fell another -1.1%. The ASX200 was down -2.1% in Friday trade, but up a net +0.3% for the week. The NZX50 dipped -0.3% on Friday for a weekly rise of +0.8%, starring again among the markets we follow.
So it will be no surprise the Fear & Greed Index ends the week hard over in a 'fear' range, a big shift from the 'neutral' reading last week.
The price of gold will start today down -US$3 from yesterday at US$2432/oz. But it is up +US$49 from this time last week, a +2.0% gain. A one point overnight it hit a record high before falling back.
Oil prices are -US$2.50 lower at just over US$73.50/bbl in the US while the international Brent price is just under US$77/bbl. A week ago these price were US$76.50 and US$80 respectively.
The Kiwi dollar starts today another +10 bps firmer at just on 59.6 USc. A week ago it was at 58.9 USc so a net +½c recovery. Against the Aussie we are holding at 91.5 AUc. Against the euro we are down -½c at 54.6 euro cents. That all means our TWI-5 starts today at 68.4 and down -30 bps from yesterday. A rising Yen had influence on this too.
The bitcoin price starts today at US$63,058 and a smallish +1.2% recovery after yesterday's big fall. But it is down from US$67,495 a week ago, a net fall of -6.6% or -US$4437. Volatility over the past 24 hours has been moderate, at +/- 2.6%.
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119 Comments
Things look like they could start unraveling quite quickly now.
Here’s a chart showing US unemployment vs recessions. Looks like the world is about to get the recession (and asset price falls) we were meant to get in 2020 but was masked by the extreme covid fiscal and monetary response which avoided that proper recession from happening. There is the potential for this to be a really deep recession because of the actions that have been taken to avoid it at nearly all costs!
https://x.com/gameoftrades_/status/1819365032641073488?s=46&t=MUwQeKa7M…
Anyone with any sense will take whatever 'opportunity' that provides to - SELL. And if that's the case, who wants to remain at the back of that queue? As any retailer with excess stock to clear will tell you (e.g. the bloated residential property market we have For Sale), if your customer has a tad more money to spend, CUT YOUR PRICES to make sure they spend it with you. The name of the game is "First out, best out"
You are confusing enslavement with serviceability …. It’s about what people will pay now, not what they can borrow
OPEN your eyes, your head is stuck up your PONZI!
Also consider that when rates where 1% lower, many could not afford that either, and now at 7% people are bleeding, rates have to get below 5% for anyone to consider things at normal levels, A $500k loan at 5% and 25 year term is $2950 after tax a month for 25 years!!!
and what does 500k plus deposit buy you in AKL? Probably not even the shity rental you are in.... and that's after rates have dropped 2%
NZers don’t seem to understand that if the market thinks prices are going to be cheaper in a few months time, then they won’t pay current prices. Hence the current standoff.
We are obsessed/fixated on that it is impossible for house prices to be cheaper in 12 months time - even if every fundamental shows that they are extremely overpriced.
All those who are unemployed or unsatisfactorily employed or unemployable drift into the vocations in which standards are least definite or in which aptitudes and acquirements of a different order count. They swell the host of intellectuals in the strict sense of the term whose numbers hence increase disproportionately. Link
We are obsessed/fixated on that it is impossible for house prices to be cheaper in 12 months time - even if every fundamental shows that they are extremely overpriced.
It's all time-frames.
The economy is sick so houses could be cheaper in 12 months, as much of your buying competition have less to spend, and more sellers are also financially stressed.
HOWEVER
Longer term, none of the costs to produce more housing are going to significantly reduce in any lasting permanent fashion (outside of the short term requirement for some trades to drop prices to buy work).
So short of a permanent, economy wise period of malaise, we are unlikely to see lasting affordability return - you would actually need to address the countrys terminal tendency to continually add cost barriers to housing. Be it regulations, labour supply, land availability, etc.
Some of the population with little or no memory of what a downturn is like, will get their fingers burnt, and be gun shy.
But it's hard to rule out that with a little bit of low interest rate here, a bit extra optimism there, improved global sentiment (at some point) and a future government happy to pump the migration gas pedal, that there won't be another round or so of froth.
Remember, some people went batshit crazy when we had 3% rates. Japan's been sitting on around 0% for quite some time with no traction.
Will we retain traction back at 3%? 2?
"In 2018, among the census usually resident population, more than a quarter (27.4 percent) were born overseas, following the upward trend from 22.9 percent in 2006 and 25.2 percent in 2013."
https://www.stats.govt.nz/news/2018-census-data-allows-users-to-dive-de….
Not only have many not experienced a downturn, many (most?) do not even understand the previous nature of the NZ economy
Yes, this is the output from a very basic model of GDP and private debt. Private debt increases of around 4% per year could support house price growth of around 5% per year once the OCR is back around 2.
We are likely to now experience a significant spike in unemployment. If Joe Bloggs doesn’t have a job he can’t afford any mortgage at all.
And if wages are experiencing deflationary forces (which is why the central bank will be dropping rates) everyone will likely to find paying debt problematic regardless of what rates are - my assumption is that this is not a repeat of 2020 where the government is going to intervene and employ everyone by paying their wages and stopping all business failures (eg look at companies that are already failing - No government response - I think this will accelerate from here).
Last sentence is spot on. Govt look set to watch things burn through 2025.
Worth remembering though that unemployment hits much harder at lower ages, and on renters who tend to be in less secure employment. Things will have to get really bad before we see significant stress amongst home owners. Here is the jobs gains and losses by age for example.
In the 70s in the UK this scenario played out very badly for landlords and Govt stepped in and bought tens of thousands of houses at cheap prices for social rent. 'Thankfully' we have accommodation supplement to stop rents collapsing.
Zwifter that was an anomaly and not the norm. Normally, the cutting cycle is when the economy has shit the bed so asset prices still slide until the recovery phase starts which has a lag to it. The coming cuts will be more about those OO’s who bought near peak trying to hold on rather than any explosion of new housing demand like Covid.
The US 2/10 yield spread could potentially normalise next week. Hold onto your hats people. It could get bumpy the next 6-12 months.
I was trying to explain to my dad at dinner last night on why a bounce back to prosperity is unlikely for NZers.
We don’t have the high-value sectors to support high living standards and our labour force can only work so many hours to make up for low productivity.
Whole milk and meat export prices are at long-term averages and yet our trade balance is down in the dumps because the consumption side of our economy outpaced production for decades.
People talk about NZ Becoming more productive, I look at our IT Systems here and many have to make them modern before they can even consider world class. In this world where you sit in the boardroom, cost control looks more effective then endless transformation projects with only possible small gains and risk reduction.
As Tina says, not here, the internet is everywhere......
Still nothing beats a remote NZ Beach, a few snaps and a crayfish etc. NZ has a lot that in other countries money cannot buy. But little opportunity to service large loans to increase so called productivity. Around here cost reduction triumphs over productivity in a recession.
Peeling back layers of private debt stats in NZ, you quickly see 70% is consumer and housing. Most of the gross capital formation among businesses in recent years has been in commercial and real estate as well.
In summary, the overwhelming majority of private debt has been sunk into betting on property in recent decades, which explains why the needle on real productivity in this country hasn't moved despite all this extra money slushing around.
The current state of bureaucracy as I've seen in my time at MBIE is a bloated back office (HR, IT, comms, finance, layers of excessive management and leadership) and not enough SMEs to actually help deliver quality service.
This makes the sector overly reliant on consultants and contractors creating a seller's market situation for even basic capabilities such as risk and governance.
Paying back stupid debt levels relies on people spending their savings. The people who took out the debt to buy houses have *spent* the money the banks created. That money worked it's way quickly through the economy into savings and term deposit accounts. Around two thirds of term deposit savings ($130bn) are in accounts with balance above $250k.
So the only way we pay down private debt is by mostly wealthy people handing over their savings, or we could reverse the 20 year debt swap between 1990 and 2010 when Govt was able to reduce its debt to nearly zero *because* households and businesses increased debt from 60% to 160% of GDP.
Our trade balance is down in the dumps because import prices went up. We are not really importing any more stuff. Worth noting that our CPI has just tracked import prices (with a lag) for the last few years while everyone has been agonising over whether RBNZ should pull their little lever this way or that.
I agree that our terms of trade have retreated since mid 2022 but are still high compared to long-term average.
Our terms of trade spiked from 2016 to early 2022, yet our trade deficit grew wider over that period as we borrowed more to spend and imported consumers by the planeloads (except a brief pause during Covid).
Either way, our low export complexity (and high import complexity) means we have to ride global commodity price trends on the bulk of our exports and keep using debt to fill the consumption gap.
The President of Burkina Faso in Africa is launching a government bank based at the state Treasury, to increase financial & economic independence. Africa is waking up and ending IMF-World Bank-Western banking neo-colonialism. Next, drop the Ricardo "comparative advantage" advice to be only commodity exporters, nurture higher value activities, import raw materials, export finished goods. Link
I was trying to explain to my dad at dinner last night on why a bounce back to prosperity is unlikely for NZers.
We don’t have the high-value sectors to support high living standards and our labour force can only work so many hours to make up for low productivity
Probably the most depressing thing about interest, is the amount of supposedly bright, motivated people giving commentary about what "they" are and aren't doing for our trade, economy and productivity.
"They" is actually "you". If everyone's waiting for some political sky daddy to come and provide something that adds value to "us", only disappointment will ensue.
Where we have punched about our weight, someone's usually taken some mad cap idea and thrown their weight behind it, often off their own back.
You can't do this thing via legislation and spreadsheets.
"Intel currently employs over 125,000 workers, so lay-offs could be as many as 19,000 people.....as part of a new $10 billion cost savings plan"
https://www.theverge.com/2024/8/1/24210656/intel-is-laying-off-over-100…
And locally, where do we place our bids for The Warehouse opening on Monday? 80 cents?
We’re at a civilizational split. What kind of society and what kind of economy will the world have? Will it be a neoliberalized, privatized economy, or will it be, I hesitate to say socialized, let’s just say a progressive, real kind of democratic economy? Michael Hudson
But American new vehicle sales rose more than expected in July to an annual rate of 15.8 mln, a good bounce back from the 15.2 mln vehicle sales rate in June.
Too late for what? To stop property prices falling? If that's the case, the RBNZ will hold for longer than it otherwise would need to. If we used whatever 'savings' a lower OCR delivered to do anything other than property speculation - drawing down more mortgage money/debt before the 'inevitable' rise in prices happens - then fine. But we don't, do we? And until we do, then we have an unnecessarily painful lesson to learn. And it's a problem of our own making over many decades.
That's going to happen at some stage. We can't keep going on as we are. Every fiat system runs up against the same constraints and eventually collapses. But I remain hopeful that we can do what has to be done, 'voluntarily'. Because, as I suggest, it's going to happen anyway. And if Government won't act, the body that it has duck-shoved all the hard decisions over to will have to. The RBNZ.
"Reducing private debt involves reducing rich people's savings, increasing Govt debt, and / or running a decent current account surplus. None of the above look likely - Govt would have to explicitly decide to sort things out and they won't."
Absolutely Jfoe ! That's why I can see only one outcome for 2025, SHARPLY LOWER CB INTEREST RATES! I'm not saying it's the right thing to do, I prefer dealing with what is and will be, rather than what should be. To me, it's obvious the world can't function with the current level of debt (which as you rightly pointed out will not reduce), so the only way for economies to function, is to reduce the cost of this debt.
To me, it's obvious the world can't function with the current level of debt (which as you rightly pointed out will not reduce), so the only way for economies to function, is to reduce the cost of this debt.
Here's an idea Dr Y. You could crowdfund for the marginal buyers on their housing deposits by tokenizing the existing housing stock. Too lazy to do the numbers, but let's say an average of 2-3% of equity. Sounds a little madcap, but if you really want to preserve the Ponzi and make it thrive, possibly time to get a little creative.
I've played with idea of holding rates / LTV high and Govt offering to buy land under any mortgaged house (to rent it cheap back to the home owner). Govt purchase would only ever pay off debt (with any surplus going to kiwisaver). This would manage house prices and private debt down, and expand Govt balance sheet. Add in some changes to tax system and we could wind down our private debt over 10 years or so.
That sounds interesting Jfoe and kind of feels like a debt jubilee while transferring land ownership from private to public. A reset so to speak.
But what happens then? You would have to restructure the whole private banking system as a primary reason for existence has more or less been neutered.
You do well with the numbers stuff - but (a bit like Labour) stumble on the Limits to Growth.
We aren't going to do 'massive electrification' from here; we started too late.
Triage, by all means.
And full employment in terms of everyone doing something (useful, not parasitic) but not in terms of 'getting paid'. Because paid expects to buy processed parts of the planet.
"should", deals with ideology bw. In the real world, what is going to happen is quite simply that CBs will sharply lower their interest rates, much quicker and to lower levels than many think. If you ask "what about inflation then?", my reply is and has been for over a year, that CBs will have to accept to live with a higher target range.
@bw Too late for the economy. You just assume everything is to do with house prices for some weird tunnel visioned reason. 🚂
The velocity of money is gone, no spending means no GST, businesses shut down, no income tax, no business tax, more people on the dole and crime will increase. Society and civility will be gone.
but yeah house prices… 😂
Something like 60% of mortgages need to be reset over the next 9-10 months, and nearly 40% over the next 5-6 months.
Unless the OCR comes down quickly - which it won’t- even more discretionary spend will be sucked out of the economy.
There is every chance that 2025 will be worse than 2024. Which makes a mockery of ‘survive until ‘25’
The OCR will come down quickly and it really doesn't matter if it doesn't because the banks are already dropping rates. Like others have said it could be down 1% by Christmas no problem at all. A 2% reduction is more than enough to see house prices going up steadily again in 2025.
The OCR will come down quickly and it really doesn't matter if it doesn't because the banks are already dropping rates. Like others have said it could be down 1% by Christmas no problem at all. A 2% reduction is more than enough to see house prices going up steadily again in 2025.
All depends Z. Your hopium might sound good on talkback radio - and be circulating among REAs to 'sell the sizzzle' - but in reality it's an entirely different backdrop now and you would be foolish to not understand how things work outside lil ol' Aotearoa and how we fit in to the machine.
TBH, I don't see how the marginal buyer is going to be motivated to load up on debt, no matter how cheap it is. But stranger things have happened.
If it's any consolation, we might see a shortage of kitchen sinks very soon. However, I have such little trust in our ruling elite to act fast and decisively. So I won't be any predictions on how quickly they will be throwing them.
‘The OCR will come down quickly’
What’s the basis for that view?
Inflation is getting much lower but there’s still no guarantee it’s totally dead and buried.
FWIW - I think there will be 1 or 2 tentative OCR cuts this year, but they will accelerate from March ‘25.
So I do generally agree with you, but not until March (in terms of more aggressive cuts)
yet I think it’s unlikely the OCR will drop below 2.5%
Iran will not do anything except continue to posture and tell its people the regime is strong, while continuing to use proxies to disrupt the world. The USA has an arsenal that can rival God and with trump being back in office in a few months no one is going make any moves as deterrence will be back in full force.
So what do we reckon will happen then? 30% pay demands in anticipation of many years of above target CPI rises? I'd better get a pair of flares from Farmers this afternoon! (The 70's calls...higher Inflation, followed by massive % rate rises to try and catch that bolted inflationary horse.)
Interest rate repression to deflate outstanding debt at depositors expense.
Most people who wanted to be are already donkey deep FHBers can hardly afford the first rung , who do you guys think will fund the ponzi restart ?
You guys are dreaming the global recession has still to wash over us in NZ . We are f….d, too much private debt if you own a house here and want to offload it …. How easy is that right now ?
Markets are at 1930s levels of stupidity plus derivatives…. China will not save us this time ….
Graduate jobs in NZ Inc are down to a trickle and young Kiwis are having to fight for the very few advertised roles with older experienced migrants willing to do entry-level work to get their foot in the door.
The effects of such structural labour market issues are lasting - Spain, Italy, Greece, etc. never fully recovered from the last crisis.
People ignored the JPY carry trade. Now it might be a hot topic at the water cooler and neighborhood BBQs - might even get a mention in Granny. The Comb and all the NZ property groups on social media start blaming the Japanese for the sh*tshow
Now that the inverse carry trade is possibly playing out, so let's hope people are paying attention. How's this scenario:
1. BOJ increases rates a smidgen, JPY surges
2. ME troubles spike oil prices
3. Oil priced in JPY spikes
4. Japan panics and strengthens JPY triggering a short squeeze
5. Reverse carry trade really kicks in
6. Global margin call
Right on cue, MSM picks up on the JPY carry trade and highlights how little the sheeple understand what's "potentially" (via the mighty Russell Napier) going on. Just don't kid yourself and think this is isolated to US stocks.
“That there is such a strong relationship between the structure of monetary policy in China and Japan and US assets prices will come as a huge shock for most US investors"
“The narrative for the past few decades is that the US is, in economic and financial terms, an island largely un-impacted by such global trends.”
https://www.cnbc.com/2024/08/02/carry-trade-how-japans-yen-could-be-rip…
Some good news:
Palm Beach housekeepers are making $150,000 a year due to massive demand from the wealthy.
"Most housekeepers are asking $50/hour or more. Staffing agencies say some executive housekeepers...are topping $200,000/year."
“I have been placing staff for 30 years, and I’ve never seen anything like this,” said April Berube, founder of The Wellington Agency.
https://www.cnbc.com/2024/05/23/palm-beach-housekeepers-massive-demand…
Welcome to friendly NZ. Sarc.
https://www.nzherald.co.nz/nz/another-auckland-bus-attack-asian-woman-a…
An agent calls the bottom of the market. Who would have thought:
https://www.oneroof.co.nz/news/im-calling-it-agent-says-aucklands-lates…
"They don’t ring a bell at the top of the market, or so the old saying goes. But often, they do utter a simple four-word phrase. This time it’s different.
Why recession panic is gripping the markets. But there’s a key reason it threatens to turn into panic."
https://www.afr.com/chanticleer/why-recession-panic-is-gripping-markets…
Interesting timing. SHTF and Morgan Stanley tells the foot soldiers that they will soon be allowed to pitch BTC ETFs to their clients.
Morgan Stanley on Friday told its army of financial advisors that it will soon allow them to offer bitcoin ETFs to some clients, a first among major Wall Street banks, CNBC has learned
The firm’s 15,000 or so financial advisors can solicit eligible clients to purchase shares of two exchange-traded bitcoin funds starting Aug. 7, according to people with knowledge of the policy.
https://www.cnbc.com/2024/08/02/morgan-stanley-wealth-advisors-bitcoin-…
If anyone wants a peep into the future of what the coalition's approach leads to, look no further than the UK at the moment.
Years of pulling up social safety nets, erosion of state supplied public services, tax policies that benefit the already wealthy, narratives that blame the 'other' (in NZ, swap Maori for Muslim), policies that benefit party over country, penalizing and punishing those that are disadvantaged by the system ... this is where it leads to
https://www.theguardian.com/uk-news/article/2024/aug/03/government-warn…
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