Here's our summary of key economic events overnight that affect New Zealand with news inflation data in both the US and UK keeps rate cuts in play.
The widely-anticipated July American inflation rate came in largely as expected, dipping slightly to 2.9% from 3% in June. That is its lowest level since March 2021. The "core" rate dipped to 3.2%. Rents were up +5.1% in the year but petrol was down -2.2%. Financial markets saw little to worry about in this data and seem to feel comfortable that it won't deter the Fed from the rate cuts in the rest of 2024 they have priced in.
More falls may be due in August; American petrol prices are now down more than -10% from a year ago in a respected national survey.
Meanwhile US mortgage applications leaped more than +16% last week from the prior week, the biggest one-week rise since an outlier in early 2023, and before that, pre-pandemic. Triggering this was a sharp pullback in mortgage costs from the prior week as the rate on benchmark contracts fell nearly -30 bps since the start of the month, now 6.54%, and tracking the sharp decline in yields of long-dated Treasury notes and bonds due to the increasingly dovish expectations for the Fed.
There seems little reason for the US Fed to delay the market rate cuts priced in by financial markets, although those markets do seem to be doing that for them. They next meet on September 19 (NZT).
I know we have pointed this out before, but there are still two weeks to go in the US summer holiday season, one that end with their Labor Day on September 3 (NZT). It is after that that financial markets 'normalise'. In the meantime, central bankers will be getting ready for their annual retreat to Jackson Hole, WY, August 23-25 (NZT), which has become a bit of an economic obsession.
It is not only the holiday season in the US, it is also a national holiday in India today, their Independence Day.
In China, their leaders are at their summer retreat at the seaside resort enclave at Beidaihe.
But in Japan, Prime Minister Fumio Kishida has resigned after nearly three years in the role.
In Europe, there was CPI inflation data out for England. That remained low at 2.2% in July, but up from 2% in both May and June. They got higher rents (+8.6%) and their core inflation is running at 3.3% and kept down by lower petrol costs.
And we should note that both steel rebar and soybean prices are still moving sharply lower, both in response to tough conditions in China. They are not the only falls, but are the commodities leading the retreat.
Locally, the CBA profit result release heralds the start of the local earnings season reporting, one that is sure to colour where both the ASX and NZX goes from here.
The UST 10yr yield is now at just on 3.83% and down -3 bps from yesterday. The key 2-10 yield curve inversion is slightly deeper at -12 bps. Their 1-5 curve inversion is also marginally deeper at -77 bps. And their 3 mth-10yr curve inversion is now at -149 bps. The Australian 10 year bond yield starts today at 3.92% and down another -8 bps. The China 10 year bond rate is down -4 bps at 2.16%. The NZ Government 10 year bond rate is now just on 4.21% and down -5 bps from yesterday.
Wall Street has held on to Tuesday's jump with the S&P500 up +0.4% in Wednesday trade, and suggesting the CPI result was priced in. Overnight European markets were all up about +0.6%. Tokyo was also up +0.6% yesterday and also holding the prior days very big jump. But Hong Kong fell -0.4% and Shanghai fell -0.6%. Singapore however was up +0.9%. The ASX200 ended its Wednesday trade up just +0.3% but the NZX50 took off, up an outsized +2.1% in a reaction to the OCR cut.
The price of gold will start today down -US$24 from yesterday at US$2441/oz.
Oil prices are -US$1.50 softer at just over US$76/bbl in the US while the international Brent price is now just on US$79.50/bbl.
The Kiwi dollar starts today down -¾c from this time yesterday at just on 60 USc following the OCR cut. But to be fair it is only back to where it was last week. Against the Aussie we are down -70 bps from yesterday at 90.9 AUc. Against the euro we are down -80 bps at 54.5 euro cents. That all means our TWI-5 starts today at 68.5 and down -70 bps.
The bitcoin price starts today at US$59,138 and down -3.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.4%.
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97 Comments
Last chance! Final week!
All must go to make way for new memes!
HFL hankies, buy 3, get 2 free.
"10% by Xmas 2023, guaranteed" Adult onesies, out they go.
Spend $30 and get a set of "this time it's different" salt shakers, ABSOLUTELY FREE (saltiness not included).
Please note: some items show signs of light usage/tear stains.
If we're going to put up with spam daily for months on end on this hyper serious, grown up level financial website, might as well have some fun with it.
Growing up is ridiculously over-rated. Look at me, with my bank account, and my insurance. I am a serious person. You can see this, by my scowl and my divorce.
That's the great thing about "higher for longer". There's no definition, so there's probably as much inflation beating scaremongering there, subduing demand, as there is from the actual higher rates.
We must never forget that the rhetoric of these institutions is in itself a form of economic control.
The job market is too hot.
You're all spending too much.
We're raising the rates for an undefined period of time.
The rates not likely to drop, it's still too hot out there.
It might be banter, and most I think can tell, but there is learning in it too. Much of the discussion in the past has suggested that what Orr is doing will not solve the long term problem, and even possibly exacerbate it. We watch with interest....(no pun intended)
There are lots of good things:
- Most my friends in NZ are millionaires (or at least half way there), most my friends outside NZ own virtually nothing.
- We have the 6th highest median wealth in the world: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult
- Unlike other wealth, housing wealth is much more distributed (again 6th highest median wealth, better than oil countries etc)
Of course there are plenty of bad things too!
I never said it was good on balance, just that it isn't all bad.
You can argue the same thing about any wealth, its nice for the haves and not for the have nots. Housing seems worse because the wealth is so distributed that the haves are a bigger group, compared to say oil wealth where the haves are a tiny group of people that you will never meet.
By the way, no one I know is a property developer (well not directly), they all just own a family home in Auckland. Most of them did a good degree and get paid a good salary, those houses were never easy to obtain (well not in my lifetime). But similar friends that live in countries where there is little aspiration to own a house (its a cultural thing here) have tended to own very little in comparison despite their good incomes.
I personally also believe in trickle down to an extent (god I can just imagine the nasty comments I am going to get). Without housing wealth I doubt we could afford the 2nd highest minimum wage in the world (https://en.wikipedia.org/wiki/List_of_countries_by_minimum_wage). We really don't have much else going on; in fact its possible that most people would be worse off if our houses were very cheap.
You must’ve been on a flash street Baywatch?! I don’t remember our 80’s neighbourhood being full of boats and batch owners…but we didn’t go without, and mum had the luxury of being home while us kids were pre school age, so that is definitely better for the “average” family I think…although I look at the “average” family now it’s Fiji holidays, flash phones and 75” TV’s etc…there were still poor families on the street who struggled just like I’m sure there are now…but “average” looks shinier now I think and there is a cost to that yeah 🤷🏻♂️
Interesting on the did a good degree mention. When my boys played rugby for a prominent Auckland club I used to observe the other fathers and say to myself (usually out loud) “how come all these f…wits are so rich?” And I always meant f…wits in an endearing way as I actually admire most wealthy individuals. Anyway the common denominator was that they’d all been to university. So yeah, not sure what I’m trying to say here and I don’t want to delete everything I’ve typed so I’ll carry on further. Whilst I think most of them were pretty happy with their wealth I know that at least 2 of them still went on to destroy everything due to the attraction of the glass BBQ. A few others (including myself) with broken relationships which always causes a financial hit. So in summing up I’d just say that I’m unsure about what I’m trying to say. Disclaimer: It was pretty full on in the pub last night. I’m medicated because of the hangover, I ate things I shouldn’t have eaten, and it is overcast and gloomy outside.
This is where there is disadvantage ... OCR cuts likely to cut some slack to those with mortgages but renters seem to be caught in a trap . Maintaining reasonable deposit rates likely the only way of offsetting that disadvantage somewhat. If folk cannot save enough to enter the market the market suffers and I suspect those rejoicing and anticipating rapid OCR drops have yet to realise the pool of liquidity is likely akin to our current electricity reserves . Not likely the cashed up are gonna jump into RE on a 1/4 cent either . RE still has some serious weight on it and that will not be shifted in an instant. Keeping inflation contained will limit options.
I’d suggest we are living beyond our means if you are taking pride in being part of the 6th wealthiest nation in the world (that wealth is an illusion as it’s mostly in frothy asset prices not justified by cash flows).
We are nowhere near 6th when what really counts in terms of real wealth - which is what we produce per person and the associated cash flows/benefits that produces ie GDP per capita.
I don’t think we are even top 20 in the world in that respect. So no we aren’t as great as what you suggest - we just have artificially inflated asset prices that make some people think they are very wealthy while the average worker does not feel that way.
Why would the 6th wealthiest country in the world desperately need to cut interest rates so people don’t default in their mortgages?! Sounds like everyone is desperately poor if that is true - ie they are struggling to stay afloat on a weekly cash flow basis (when interest and mortgage rates are not high but simply at or around historically normal levels).
For sure, wealth is not the only metric in determining a good country by any means. The good thing about median wealth however is that it is distributed, not just a few rich pricks, so I think it is one of the better indicators.
If you take a look there are some fairly good places to live at the top:
- Iceland
- Luxembourg
- Belgium
- Australia
- Hong Kong
- New Zealand
- Denmark
- Switzerland
- United Kingdom
- Norway
And not so good places at the bottom:
- Haiti
- Central African Republic
- Lesotho
- Sierra Leone
- Congo
- Burundi
- Chad
- Togo
- DR Congo
- Burkina Faso
Jimbo, you dont appear to have thought through where the "wealth" has come from/represents or that Wealth is entirely Debt
Its all Leverage and Credit!
We have leveraged the balance sheet for 40 years to keep consumption growing and its now so fragile that a 0.25 basis cut is hailed as the second coming
Its no coincidence this is happening; faked growth is running out of road
https://www.smh.com.au/culture/music/end-of-an-era-bluesfest-falls-sile…
https://www.smh.com.au/politics/federal/boomers-spend-zoomers-struggle-…
The boomers are paper "wealthy" and consuming ... but you dont get to inherit their past consumption
All thats happened is they have ridden a leverage wave which doesn't work in reverse
Yip those nations with high wealth also likely have very high debt (either government or private) relative to GDP. So we’ll developed capital markets that are trusted allows those citizens to become highly leveraged and we call that ‘wealth’ (when it’s also a lot of debt).
NZ household debt has exploded the last 30 years making Jimbo and his mates think everyone is wealthy - when all they’ve done is loaded up young people with housing debt that has been received by Jimbo in the form of housing capital gains.
https://tradingeconomics.com/new-zealand/households-debt-to-gdp
The young peoples (and leveraged housing investor) high debt is Jimbos asset/wealth.
Exactly
And to go back to the Bluesfest (as an micro example of the implications in the wider economy), this is what the organiser correctly states as the problem
"“my greatest fear is what our live music industry is going to look like in a couple of years if we don’t get disposable income to a point where people will spend their money”
Basically, the festival cant afford to run for just Jim and his mates (no offense Jim)
Yip Jimbo missed my point completely that is is GDP and incomes that make a nation wealthy (ie they actually have money to spend in the economy in things other than interest expense, rates and insurances) instead of paper wealth that is tied up in one asset class that is illiquid (property).
Saying ‘oh look we’re the 6th richest in the world’ could also mean ‘oh look how dangerously elevated/leveraged our house prices are relative to our productivity/GDP/incomes’.
It’s not really a rational way to view wealth in my opinion - but each man views the world the way he wishes to do so.
https://www.ft.com/content/0b8a1c88-c670-4166-823c-7999f3f032bc
'The biggest villain, he argues, is the “unbundled” electricity markets that governments have introduced round the world. These divide the market between generation, distribution and retail, permitting competition to take place at some points in the chain — especially generation. Yet this very process throws up prices that are too volatile to support the upfront capital investment that renewable generators (or, rather, their lenders) require.'
Had to laugh....
NZ used to have the cheapest electricity in the developed world. It was a major competitive advantage we had over just about every other country.
Then along came the big US banks who sold the promise of untold riches to those with enough money to buy these assets at rock bottom prices that were based upon the low revenues at that time. -The revenues could be easily ratchetted up due to NZ's small size and the natural oligopoly (really a monopoly) that formed.
How was this sold to an ignorant public? Two ways. The promise (a lie) that private enterprise is always more efficient. And the promise (another lie) that electricity prices would remain low.
NZ has a fine track record of selling public owned monopolies to private enterprise owned oligopolies which do nothing more than slowly ratchet up prices to enrich themselves at the public's expense while pretending competition exists. We're really not that bright a bunch.
Can we say 'less' rather than 'worse'?
Emotions are best left out of it.
Given planetary depletion, the real 'interest rate' should have been below zero for some time. That is because the physical home for the debt-bet that is money, is permanently decreasing with time. Yet the numbers representing the debt, are increasing with time. The graphs cross, a reconciling must therefore happen. What fits thereafter, is an exponential decrease in the overall buying-power of money. Divvy it up as you will.
Nah its a genuine "inflation has been well beaten" cut.
God knows why the US are thinking of cutting, they have sticky inflation that is unlikely to go back to 2% and their economy is still humming. Our CPI will almost be 2% when the next stats are delivered, and ours has a steep downward slope not a sticky flat slope.
Orr has actually done a fairly good job this time around IMO.
So latest Inflation is sitting at 3.3% = outside the band and Orr cut ...
He is talking up Business Surveys about pricing expectations ... as if that is all of a sudden the key piece of policy guidance... Ridiculous. You cant think your way out an imported price increase no matter how hard you try
The US will keep running massive deficits and exporting that inflation
Best hope is the kiwi peso doesn't import too much of it
Next CPI read is likely to be quite high, Q3 is usually high, it's the quarter when rates get recognized so that alone is likely to be worth close to 0.3% for the quarter, plus all the rest of the goods in the basket. If the exchange rate doesn't pick back up fuel will give it a nudge too.
Financial markets saw little to worry about in this data and seem to feel comfortable that it won't deter the Fed from the rate cuts in the rest of 2024 they have priced in. Hmmmmm.... Bank Credit, All Commercial Banks
This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:
[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar.
Chief Spruiker has Spruiked
https://www.oneroof.co.nz/news/tony-alexander-the-reserve-banks-rate-cu…
But listings are ahead over 33% from a year ago, job security is poor and set to remain that way, net migration flows are falling away very quickly, the rental market has recently shown new weakness, plenty of potential home-buying young Kiwis are leaving the country, and businesses are likely to keep their investment levels low until well into 2025.
Before the end of this year house prices are likely to be rising again. But it pays to remember that while interest rate levels are extremely important when it comes to housing market strength, so too are employment and access to credit. These areas will still take some time to improve.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
Another shot at being almost sensible; the first paragraph in your link, especially. But then he just can't help himself. If he'd left out the words "Before the end of this year house prices are likely to be rising again. But it pays to remember that while" he'd have more credence.
Yip even when it’s looks the most grim (ie current economic data) house prices will be rising again in a few months.
I agree in 12 - 24 months after yield curves normalise - but I think it’s just as likely that we see further significant falls in house prices over the next 6-12 months than anything else.
The interest rate cut means $25 a week less on $500000 mortgage. Will that inflate house prices? Who knows? The Aussie banks sure know how to pressure Mr Orr to help them out. Now they have to get a whole lot more house loans out before the obvious coming increase in inflation is noticed, and the rate has to go back up. Maybe TA is correct. Maybe now is the best we are going to do in terms of bottom of the market.
Hilarious stuff. Anyone that backchecks what he claims he said one, two, or three years ago will realise this current article is making grandiose claims about his predictive competence that have no basis in fact. So should we believe his predictions at this time? That depends on the reader's cognitive biases. Many will.
All high performance turbo engines, JDM or performance motorbikes, high compression 2 stroke Karts built myself taken to the limits here not some lumbering old V8. Your V8 would still run better on 98, it not "designed" for 91. I suppose you use old 30-40 mineral motor oil as well. Old cars were made for leaded gas or the valve seats crapped themselves, tech has moved on and so has fuel and lubricants.
I haven't tried it, I suspect it's an ethanol blend but they don't mention the mix on their website. This is the first time I've spotted it locally, I normally run 98 in my "fun" car (NA, high CR, high rpm, big smiles).
Edit: Kept reading, and...
NPD 100Plus is a specially formulated unleaded petrol with no ethanol content.
where do you see 3%? I just read Trump 4.7% ahead in florida. But shes ahead in most of the swing states, so if this holds, Trump is toast.
https://www.natesilver.net/p/where-harris-has-improved-the-most
I wouldn’t confuse your own opinion with the views of the rest of the world.
(and don’t get me wrong I’m neither a Trump nor a Harris fan - I think both represent the worst attributes of each side of the political spectrum and will not bring forth the unity and stability the world and America need to solve the current financial/social and geopolitical issues we have - we need something far more moderate than either Harris or Trump - just my view and not to be confused with what the rest of the free thinking world thinks..).
The whole of the world except for half the stupid people in the USA are praying for her to win.
You forgot to mention a majority of ACT and NZ FIRST voters who also want Trump to win. Complete outliers to the rest of New Zealanders. And these are the people the coalition are bending the knee to.
Source Curia poll, August 2024.
https://www.curia.co.nz/2024/08/us-2024-presidential-election-poll/
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