Here's our summary of key economic events overnight that affect New Zealand with news equity markets are under severe pressure today, in 'extreme fear' mode. And that is despite the current economic activity signals being relatively sanguine.
First in the US, the widely watched ISM service sector PMI bounced back to expansion in July with a better reading than was expected. The new order component expanded. The companion S&P/Markit services PMI told a similar story featuring rising output.
The US Fed's Loan Officers Survey for July noted that while credit standards were little-changed for consumers, demand was weaker especially for real estate loans. For businesses, banks tightened credit standards overall but demand for loans was holding positive and little-changed. This survey is not picking up any special sign of credit stress, for either borrowers or banks.
The Caixin services PMI suggests the Chinese service sector picked up the pace of its tepid expansion, coming in better than expected and better than the official measure.
In Japan it was the same. Japan's service economy returned to growth during July, following the slight dip recorded in June. Gains in both total activity and new business were solid amid improved customer numbers and demand conditions
In India, business confidence rose in their services sector and it maintained its rapid expansion. But inflation pressures from this high demand are now showing through and a warning flag that they may not be able to keep up the pace.
And in other big economies, like Brazil, their service sectors are also expanding at a positive clip. There are others like this, but you get the picture.
But in Australia, their services sector is easing back, no longer expanding. New order levels fell. And of course it will be a sharp contraction in New Zealand when we get the July services PMIs.
Later this afternoon the RBA will release the results of its monetary policy meeting today. A rate hike, talked about until recently, seems to be off the table now. A cut also seems unlikely as well. In fact markets aren't actually pricing in a rate cut there until November. That is in contrast to New Zealand where a full -25 bps cut is priced in for next week's RBNZ MPS - and another three cuts by the end of this year. That is a sharp repricing by markets in just one day.
The UST 10yr yield is now at just on 3.77% and down -2 bps from yesterday. The key 2-10 yield curve inversion is deeper at -15 bps. Their 1-5 curve is holding at -75 bps. But their 3 mth-10yr curve inversion is staying deeper at -157 bps. The Australian 10 year bond yield starts today at just on 3.89% and down -16 bps ahead of today's RBA review. The China 10 year bond rate is staying down at 2.12% and still their all-time low. The NZ Government 10 year bond rate is now just on 4.19% and down -7 bps.
Wall Street has started its week with the S&P500 down -3.2%. Overnight European markets were down about -1.8%, bookended by London's -2.0% drop and Paris' -1.4% fall. Yesterday Tokyo fell an amazing -12.4%. Hong Kong was down -1.5%, Shanghai down the same but Singapore fell -4.1%. The ASX200 fell its own very sharp -3.7% and its worst day since the pandemic, but the NZX50 got away relatively lightly with 'only' a -1.5% retreat in Monday trade.
We do need to remember it is 'silly season' in most markets with relatively light summer trading. Changes get magnified when volumes are light and many people are 'at the beach'. However, the sharp rise in fear has drawn in unusually heavy trading volumes now.
And in Japan, their central bank is copping the blame because of its recent rate hike, triggering a sharp rise in the value of the yen. All it's done though is fall back to year-ago levels. (You do have to wonder if cashed up investors like Warren Buffet will be buying up big during this Japanese market meltdown.)
The price of gold will start today down -US$39 from yesterday at US$2404/oz.
Oil prices are -US$1 lower at just over US$72.50/bbl in the US while the international Brent price is just under US$76.50/bbl.
The Kiwi dollar starts today down -10 bps from this time yesterday at just on 59.3 USc. Against the Aussie we are down -20 bps at 91.3 AUc. Against the euro we are down -80 bps at 54.2 euro cents. That all means our TWI-5 starts today at 68 and down -60 bps. A sharply rising Yen had influence on this too.
The bitcoin price starts today at US$54,584 and down another extreme -6.2% from where we left it yesterday. That is a -US$3,600 drop in a day. Volatility over the past 24 hours has been ultra-extreme, at +/- 10.4%.
Daily exchange rates
Select chart tabs
The easiest place to stay up with event risk is by following our Economic Calendar here ».
125 Comments
From New York to London and Tokyo, equities got pummeled. Just as markets were starting to celebrate signals from the Federal Reserve about a first rate cut, they were hit by a perfect storm — weak economic data, underwhelming corporate earnings, stretched positioning and poor seasonal trends. While the S&P 500 pared some of its losses, it was on track for the biggest drop in almost two years. Trading volume was 65% above the past month average. The tech-heavy Nasdaq 100 headed to its worst start to a month since 2008. Wall Street’s “fear gauge” - the VIX - at one point registered its biggest spike in data going back to 1990.
An emergency cut in interest rates feels highly unlikely, as things currently stand. Last week’s job report was bad, but Monday’s US services sector report pointed in the opposite direction by showing a strengthening in business activity and new orders. Thus plan A for the Fed will surely be to wait until its next scheduled meeting in mid-September. Anything else would be an admission of a mistake. But September suddenly feels a long way off. The S&P 500 index, despite it all, is still up about 10% this year, which leaves plenty of room for further wild days if investors decide the Fed has made a terrible error and the recession odds are worsening. August could be a long month.
I think it's fundamentally different. Barfoot/Barefoot is a typo, one often induced by autocorrect. Writing "should of", "would of", or "could of" is a fundamental misunderstanding of the english syntax. "Have" is a verb, it can never be replaced by "of", which is a preposition. The two get mixed up, because they sound similar when spoken. "Should of", "would of", "could of" are totally nonsensical, they're not a spelling mistake.
Here we go again. Millions of traders caught out of position by (amongst other things) a marginal BoJ rates rise and the threat of an earlier than expected Fed drop... so, back we go to the wild swings up and down, instability amplified by layers of hedges and counterbets, and, paradoxically, by the very monetary policy mechanisms that are supposed to ensure price stability.
What a thoroughly stupid world - 95% of trade (at least) in currency and financial instruments. It's not an economy; it's a casino.
The global unwinding of carry trades internationally and the resulting impact on the FX and equity markets was bound to happen. Investors will always seek safe haven currencies when the tide changes. Market makers especially will be hedging their positions and covering their deltas. In many cases there will be large positions being unwound (much bigger than our reserve banks foreign currency “war chest”.)
These investors and market makers will unwind their short positions and currency exposures to hedge their risk and in some cases to offset loses (or lock in gains). The governance of these institutional investors dictates that they not only undertake these actions but provide internal commentary through their controls team to their internal accountants and auditors.
You are right, it is a casino. The casino always wins and the game is fixed.
Our reserve bank, our OCR and much less our housing market, pale in comparison to the market forces driving international equity and FX markets.
Yes, NZ economy is a feather in the wind of the global financial system. And, yet, we enthusiastically build up massive piles of global financial 'assets' to pay for real things in the future - rather than investing in the actual things we will need. I fear we will be left holding piles of worthless paper, wishing we had seen sense.
They are operating with incomplete knowledge - think they're flying high.
Then they backcast to self-justify (and it's funny as a fight, they have to deny more and more, until they're denying the 2nd Law of Thermodynamics).
Which they know nothing about, will go to great lengths not to learn about, but will make wild/loud assertions about our ability to transgress same.
Deep down, presumably they're quelling internal fear?
Whatever - from the outside, they just look look like a bunch of cliff-blind lemmings.
I've read a few articles on derivatives, the most recent in the last couple of days (linked by Audaxes?) My conclusion is that they are a BS ripoff by banks, offsetting their risks with no upside. My advice if you're approached by a broker trying to sell you a derivative investment is don't just tell him no, but HELL NO! And then suggest he participates in sex and travel, because he is trying to rip you off with high risk offer with little return.
Bollocks
So-called professional traders are just people but with other peoples 'money' to play with. All sorts of pressures push them - particularly the pressure to deliver some kind of return.
Ultimately, if they had knowledge perfect enough, they wouldn't need to hedge.
Think about it. It's no different to an each-way bet, psychologically. But the amount of betting done daily, so far outranks the actual daily production (the real) that it is in fairy-tale land. Good luck being a professional in that.
I had a private client who gambled and dined at a London casino to minimise his tax presence in the UK. His residence was owned by a Swiss corp and the sister casino in Monte Carlo paid all the utility and maintenance invoices. His wealth was estimated at ~$6billion.
Jfoe, Not much to do with the BoJ. All down to the US Fed and the Sahm Rule. One notes that the VIX reacted violently while Buffet, like he always does, has played the economic cycle to near perfection. Central Bankers are friggin' morons. They always hold rates too high for too long. (To help the rich get richer.)
Agree 100% Jfoe.
A bunch of overpaid bankers and fund managers load up on stocks at the highs for the carry trade and expected easings and then squeal the moment we get smarter money taking profit. In fact, stocks are just off intra year highs ffs.... But no, we need some corporate welfare from central banks to help us out.
I have as much respect for real estate agents as I do for investment bankers and fund managers, very similar professions. Infact, investment professionals and traders are really just real estate agents with a few first year maths papers.
I can throw in a bag of rotten tomatoes, free.
The bigger question is one that becomes clearer, the longer the timeframe you countenance.
Look at it short-term and in an energy/resource/entropy-blind manner, and you can make comments like DC's.
Look at if long-term, and we have made an ever-bigger collection of bets on the future, based on a hockey-stick graph which tracked the left-hand-side of a (total) Gaussian curve. We are now at the inflection-point where the Gaussian wants to track flatter, whereas our bets want to keep tracking vertically. You can fudge that for a while (taking area from the right-hand-side of the Gaussian, and filling the widening gap, top/left) but inevitably that steepens the drop-off side.
To all of which, 'economics' is blind.
For a visual representation, see the first graph on the right here: Skew normal distribution - Wikipedia
The pink line is your standard distribution. If you pull from the future, you end up with green or light blue line. Note that the more you pull, the steeper the drop becomes down the other side. This is the unwinding of all the future bets coming home to roost. This will happen unless you can find the equivalent of all the energy used by civilisation to date in the next 30 years.
Some misery porn from the investors Facebook page over the weekend.
What on earth is wrong with the rental market?
Recently purchased a brand new townhouse in West auckland. Nice area. We have it listed for rent at an average price, yet there is no interest at all!
We also have friends who have recently purchased townhouses in Flat Bush, manurewa, and papakura, and it's the same story.
Rental market is a ghost town.
We got a rental appraisal, and the property is closer to the bottom value, with not many options cheaper.
Hi All - after surviving okay with the interest rate hikes I'm about to feel the pain with tenants vacating my IP in Wgtn in a month - in a rental market that is not great (understatement?). I can cope, but need to do the maths as if I don't find tenants within a couple of months (at a reduced rent) I will look to sell - otherwise just throwing hard earned $$ down a bottomless pit.
We’re currently trying to sell our property due to our interest rate going up end of October, no movement on the sale so far and tenants have just moved out so we’re now having to cover the mortgage ourselves. With interest rates already decreasing, how much lower are we expecting them to be by October?
Do we change game plans and hold onto it? Currently fixed at 4.39% and can’t afford much more than that as rent was only just covering everything as it was.
No, there is not.
Landlords are 100% parasitic on tenant incomes.
Tenant incomes may be either parasitic (a knock-on stage) or based on real production of real stuff (which is the end-stage for money; buying something).
There is a very real set of Limits to the whole shebang; the Limits to Growth. As we peak and drop away, the average real production will decrease. Knock on to tenant incomes. Knock on to landlord ability to repay mortgage. Knock on to bank viability. House of cards.
You don't upset me - people I respect the cranial capacity of, might be able to; but not you.
Do you not understand draw-down?
Is it possible to do that?
If we got to 8 billion WITHOUT DRAWING DOWN THE RESOURCE STOCKS/CAPABILITIES OF THE PLANET it might be something to crow about.
We - very obviously - haven't.
Ignorance must be an amazing state of mind - can't imagine it, myself.
Goes well until it doesn't REINDEER ON ST. MATTHEW ISLAND (arizona.edu)
Funny, People instinctively get that a paddock will have an upper limit to it's stocking-rate. All farmers know this; you can force it a bit with nutrient and water application, but an upper limit there is.
Then they will turn around and - when you get right down to it - fail to realise that the planet is just a bigger paddock. On which we are farming 40% of all land already (and much of the rest we have turned into desert in the last 10,000 years).
Yet idiots like Julian Simon - and yes, for all his spectrum brilliance, Musk - suggest(ed) we can increase the carrying-capacity of the global paddock until we're standing shoulder-to-shoulder.
Go figure.
Even if it was possible to transport an infinite amount of stolen phosphate across the planet, while burning an infinite supply of energy, the living conditions in the paddock deteriorate once the sh!t piles up and flows out the gate.
https://fortune.com/2023/12/16/jeff-bezos-elon-musk-human-population-ou…
Yes with sharemarkets overpriced to the same extent they were in 1929.
See Hussman’s chart:
https://x.com/hussmanjp/status/1820474934843646316?s=46&t=MUwQeKa7MkEJ7…
Not saying it is going to happen, but there is always the possibility that we are walking into the big one (with >50% losses).
It looked like it was going to happen in 2020 until the extreme fiscal and monetary policy intervention under the guise of ‘COVID’ as the cause of the instability (even though in 2019 yield curves predicted inbound recession/market instability). What will be the justification for the next extreme intervention from our central bankers and politicians that transfers even more wealth from middle/lower class to the already excessively wealthy? Or will we finally have the pullback that we desperately need to level the playing field and restores hope to the average citizen - that if they work hard (instead of speculating with debt) that they might be able to afford and home and a family and prosper in this economy.
In your opinion the pullback will crush the average citizen - I disagree. I think it will do everyone a lot of good (collective suffering builds character and cooperation - those I talked to who live through the depression and ww2 appeared to be far more resilient (and had much more character and good qualities) than any people I talk to today).
Living beyond our means is what has been crushing us in recent years (or even decades).
In your opinion the pullback will crush the average citizen - I disagree. I think it will do everyone a lot of good (collective suffering builds character and cooperation - those I talked to who live through the depression and ww2 appeared to be far more resilient (and had much more character and good qualities) than any people I talk to today).
But they went to a war, won, and basked in the afterglow.
Plus they fell from a far lower ledge.
What are the plausible scenarios that'll have everyone better off, in say 10 years?
I can only think of more magic money.
The average citizen has already been crushed - under massive, lifelong Debt. Mortgages used to be paid off in an average of 7 years. Then it became the 25 of the normal mortgage term; then 30. Soon it will be 50. Next, Intergenerational Debt - pass it on to the next lucky inheritors.
And what cause all of this? Non Productive Debt.
Not saying it isn't going to happen, but if we have a debt problem why didn't this all unwind with events like the global pandemic or the sharp increase in central bank rates? If it didn't then, why now when lending is about to get cheaper? Interest.co commentators have been saying the economic Armageddon is coming any day now for decades! They may be right some day, it might even be today, but I won't lose sleep over it just yet...
Bingo
Close to zero interest rates was a response to an event that many thought could result in depression era economic conditions. We also had a benign inflationary environment at the time.
The inflationary environment now is not benign and we don’t currently face the likelihood of a depression-era event (in my opinion, some clearly think we do)
by far the most likely outcome is that we will see the OCR cut down to around 3 to 3.5% by this time next year. This will help stabilise the economy but it won’t be anything like a repeat of 2020-2022
we also have an austerity government now
This event makes your stagnation call more likely, sure there will be a considerable drop lower then stagnation for 10 years while negative equity is paid back to the banks at perhaps lower interest rates. It's called a crash and the stagnation occurs because we have recourse lending and many houses will be withdrawn from the market as the mortgage holder will not let the sale settle unless the negative equity can be paid up in full.... you are sort of stuck working for the bank....
An equity crash of the scale unfolding means no soft landing.
Then I can fairly confidently guess that N is not your second Myers Briggs letter?
re ... "What will be the justification for the next extreme intervention from our central bankers and politicians that transfers even more wealth from middle/lower class to the already excessively wealthy? Or will we finally have the pullback that we desperately need to level the playing field and restores hope to the average citizen - that if they work hard (instead of speculating with debt) that they might be able to afford and home and a family and prosper in this economy. "
You seem to be implying that if things really tank and central banks to do nothing then the rich will suffer more than the average hard working citizen.
Where on earth did you get that idea? All recent history - both before and after the creation of central banks - shows the rich get richer and the average hard working citizen gets poorer when things tank. (Why? One theory: The rich employ economists. The average hard working citizen only gets the 'economics' they are fed by vested interests.)
At some stage, 'we' are going to have to let the markets clear.
Mucking about with the cost of Debt is what got us here. Doing more of the same will get us, more of the same.
Slash The Fed Rate, the OCR or any Central Bank reference rate to 0% by all means, but unless the underlying problem is addressed - what we all use Debt for these days - then nothing is going to change. And those riots we see in the streets everywhere? Expect them to amplify, as those left behind realise they have nothing to lose, and so whatever they do, they can't be worse off.
If 'they' have any sense, they'll stand back and let the markets actions play out. But will they. No. They can't help themselves, and besides, it's 'them' that have it all to lose.
Exactly - our monetary and fiscal policy of the past 20 odd years has created increasing fiscal and social instability which is the exact opposite of what it is meant to do.
Primary objective of fiscal policy is social cohesion (ie healthy democratic process). = fail across the western world.
Primary objective of monetary policy is financial stability (ie no booms or busts of sudden changes in interest rates so investors have trust in the system). = fail across the western world.
And yet we keep doing the same thing (dropping rates) expecting a different outcome (financial and social order) = definition of insanity.
I think you meant "definition of stupidity".
I.e. stupid central banks being too slow to raise and too slow to normalize. But that's what the very rich asset collectors want central banks to do. It makes playing the game so much easier for them.
Which kind of begs the question: Is it us - the majority - that is stupid? I.e. allowing an unelected, obviously secretive and mysterious, group of people who 'consult' to the very rich, to control monetary policy?
And then what? Do you take that opportunity to sell everything you have; which, even after this hiccup, still has an inflated value? Or do you jump in 'before prices rise again' and buy more? If there's one thing this turmoil if reminding us of, it's that when any asset is overvalued, the correction can be savage. Because the next buyer might not be there at anything like the last price quoted.
To cover maintenance etc we used to want a 7% gross yield, and that was on brick and tile which had virtually no maintenance required....
Todays shiteboxs will not last 50 years.
If the average rent is $650 pw at 7% average rental should be worth 482k, if mortgage rates fall to 4% mortgages and you only want to cover the mortgage and hold your breath that's 845k, quite a difference 363k...
place your bets
Welcome to crunch-time. All the nonsense about being nearly 100 renewable - when really we are 28% rebuildable (how often, if ever, have you heard/seen that fact?).
And the Energy Cost of Energy has begun to rise, as it was always going to. The difference between us and overseas markers, will likely be subsidies (tax-derived, or because more FF is used to generate).
'Regional Development Minister Shane Jones said the price of electricity needed to lower. Last week, he said New Zealand was paying the most for electricity in the developed world.'
He misses the point - and there are NO tools in that toolbox; energy underwrites money, not the other way around. As I said a long time ago, we are traversing the period where society, as constructed, can no longer afford itself.
Dams. generators, windmills and solar PV.
We claim near 100% renewable, but the harnessing (of solar, and solar derivatives like wind, rain) is by rebuildable tech. 100-year life for dams, 25 or so for windmills and PV. Nobody - but nobody - has built rebuildable using rebuildable-only. It's ALL been subsidised by fossil energy (compacted fossilised sunlight). The other 60% of NZ energy is fossil - mostly imported. Begs the question...?
Even the academic/green types witter on about 'doubling the grid' - but we'll be hard-put to maintain what we've got. I'm no knocker - I saw this coming decades ago and did the early-adopter thing. Been off-grid over 20 years now, one way and another, low-cost, low-tech, passive-solar (which is as close to direct solar capture ex-tech that you can get). But I haven't taken my eye off the bigger picture; what I did was hopeful 20 years ago, now I seriously question what we can long-term maintain.
For those that aren't aware ... The Sahm Rule.
https://www.barrons.com/news/what-is-the-sahm-rule-behind-the-market-pa…
Somewhat self fulfilling - but CBs, were they smarter, could head them off. (Remember recessions usually follow rate inversions.)
edit: Better link: https://en.wikipedia.org/wiki/Sahm_rule
Jesus Christ, I hope not. The only thing keeping the world afloat is bull shit. That’s just how it is these days. All the intriguing ins and outs the economists learnt at university are now irrelevant. We now operate on emotion, manipulation, greed, selfishness and yes bull shit. As much as I agree with IO in that we need a 50% proper crash, I suspect that next week there’ll be some bull shit positive spin and off we go again ra, ra, ra, party on.
Great example here. Years of building up of middle and senior management and what has it all delivered?
https://www.rnz.co.nz/news/national/524140/postcode-care-killing-rural-…
Blair - who is president of the New Zealand Association of General Surgeons - said one thing that had not changed in the 10 years since her mother's death was the "lack of accountability" from those at the highest level for the lack of care.
"It's like a form of gaslighting to the medical profession that these are new or sudden crises. These are problems that have been brewing for several decades in our regional workforce."
I'm still a bit confused. Only last week the US economy recorded an impressive Second Quarter GDP result of 2.8% (growing far more than expected). This was in particular boosted by robust consumer spending, which makes up approximately 68% of their GDP. This was in turn then bolstered by a US services sector report which showed strengthening in business activity and new orders
The FED also essentially confirms a September rate cut, but on the back of a weak employment report (which in itself isn't wasn't particularly bad at 4.3%), there's all this fear of a recession based on this?
Isn't the definition of a recession two consecutive quarters of negative GDP? As mentioned, their last quarter (Quarter 2) GDP read was 2.8%, up from 1.4% for Quarter 1.
Imagine what they would think of state of the NZ economy with our inevitable negative growth and rapidly increasing unemployment???
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.