Here's our summary of key economic events overnight that affect New Zealand with mixed news but the underlying vibe is positive.
First in the US, all eyes are now on tomorrow's August non-farm payrolls report. Analysts expect a rise of +160,000 jobs. But today's pre-cursor ADP Employment Report sharply undershot that level suggesting only +99,000 jobs will be added. If that is the case that would make it the smallest gain since 2021.
This data has clouded financial markets today.
A jump in reported layoffs in August added to the mood, but to be fair they only rose back to 'normal' levels.
But there was good news about the US economy too.
The level of jobless benefit claims last week fell, when a rise was anticipated.
The ISM services PMI rose more than expected, on the basis of better new order levels. That was backed up by the companion S&P/Markit services PMI.
And the latest update for American productivity (for Q2) was particularly positive with a strong rise.
So you would have to think there might be upside in tomorrow's US labour data. We will know soon enough.
Wages in Japan rose by +3.6% year-on-year in July, slowing from a +4.5% rise in June which was the highest in 26 years, since January 1997. Markets expected a July rise of +3.1%.
EU retail sales volumes rose in July, the fourth rise in the past sixth months. Better yet, they were higher than a year ago on a volume basis.
German factory orders for July were another overnight surprise. They bounced back in June and July was expected to be weak. But in fact a good rise was posted again in July.
And it might also surprise you to know that after being hooked on Russian energy, the Germans have made a substantial shift away, not to other fossil-fuel suppliers, but rather to renewables. More than 60% of electricity production is now by renewables. And the overall energy intensity in the German economy is declining (ie improving). Both are huge shifts for Europe's largest economy.
Australia's merchandise trade surplus rose in July to its highest since February as exports grew to a 5-month high while imports fell to a 3-month low.
But the iron ore price took a sharp tumble yesterday. While that isn't great news for Australia, it isn't all bad. They have advantages over their rivals in Africa and South America in both freight costs and mine productivity.
Although China's media mouthpieces are talking up the prospects for recovering steel production, their trade association is warning that any short-term bump will probably be just a "flash in the pan".
Bulk freight rates continue to rise however. And global container freight rates are still extremely high essentially because of the Suez Canal/Horn of Africa security issues. They did fall -8% last week, but they remain +236% higher than pre-pandemic levels. (China to Europe rates fell quite sharply, but trans-Pacific rates didn't move much.)
The UST 10yr yield is now at just on 3.73% and down another -4 bps from yesterday. The key 2-10 yield curve inversion has returned today but only -2 bps. Their 1-5 curve inversion is unchanged at -68 bps. And their 3 mth-10yr curve inversion is still inverted by -143 bps. The Australian 10 year bond yield starts today at 3.95% and down -4 bps. The China 10 year bond rate is at 2.11% and sharply lower by -4 bps. It is a move that Beijing is trying to prevent. The NZ Government 10 year bond rate is now just on 4.21% and down -2 bps from this time yesterday.
Wall Street has stayed lower with the S&P500 down -0.2%. Overnight, European markets were all down with London down another -0.3% and Paris down another -0.9%. Tokyo ended its Thursday trade down a further -1.1%. Hong Kong just fell -0.1% and Shanghai rose and equally minor +0.1%. Singapore was was up +0.5%. The ASX200 rose +0.4% in its Thursday trade. And the NZX50 outshone all others with a full +1.0% rise in a late surge.
The price of gold will start today up +US$10 from yesterday at US$2513/oz.
Oil prices are -US$1 lower at just under US$69/bbl in the US while the international Brent price is now at just on US$72.50/bbl. That has forced OPEC to delay is planned rise in production.
The Kiwi dollar starts today up +30 bps from yesterday at 62.3 USc. Against the Aussie we are +10 bps firmer at 92.4 AUc. Against the euro we are also up +10 bps at 56 euro cents. That all means our TWI-5 starts today at 70 and up +10 bps from yesterday.
The bitcoin price starts today at US$56,336 and down -2.7% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.3%.
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76 Comments
You think these guys need to "invest" more?
https://www.stuff.co.nz/nz-news/350405973/pandoro-wellington-close-afte…
Yes and most of the other financial news is continually wrong. Why anyone bothers to read those guys that continually predict economic collapse and are continually wrong is beyond me.
Seems to me that a good proportion of the Anglosphere is under severe strain from the cost of living. Or is this a mirage promulgated by the media.
If we're supposed to be the good guys and the economic rock stars of the world, how bad is it elsewhere?
Actually, there should be zero emotion attached at all.
But if you dig too deep, you find that 'economics' is nothing more that reducing the finite/limited stocks of finite planet (a Bounded System), measured in two things (GDP, $) which are artificially divorced from reality (which it calls: externalities).
To avoid digging too deep, one can slide away from reality, and one way of doing that, is via the use of emotive language. 'Good', 'encouraging', 'green shoots' - all should be warning-flags. If you peddle those emotions, then survey the recipients and cite the survey as proof... that's Emperor's Clothes territory.
Physically, you cannot grow forever.
If you're drawing-down resources, neither can that.
You CAN grow virtual conceptualisation indefinitely - it's called a ponzi.
And you can grow mentally-held forms of wellbeing virtually indefinitely :) as long as they're not based on physical consumption.
We don't know if the universe is a finite quantum, once time is factored in.
Earth seems to be a fixed entity.
But it's form is always in flux, it's changing nature (aided by humans changing it), is something with a variable value. We now have much value in things that don't physically exist, lines of code, or intellectual property.
Growth as observed has a set lifespan, but that doesn't mean it's form won't change.
By bounded system I suppose you mean all that sunlight just bounces off our planet without having any impact (such as helping leaves grow).
By its strict definition even the entire universe is finite but most children learn the concept of infinity it in the context of more goodies than they can consume even when shared with friends and strangers.
Bad news sells. Think disasters and doom. No one wants to read about people living happily and in harmony with their neighbours. We never get African farmer success stories, only drought, famine and species extinctions.
Same with the financial news. No-one is interested when someone says we will have steady mean growth of 8% for the next 5 years. Everyone wants to know when someone says 'We are in bubble territory and a crash of biblical proportions is imminent'.
"Same as Ever" by Morgan Housel is a good reference for anyone interested.
My schoolboy German couldn’t cope & couldn’t find the translation for the above article but if the EU etc is significantly weaning itself of Russian energy that then plays into the hands of China, India, Pakistan for a start and without sufficient diversification Russia is put in the unenviable position of being something of a weak seller, especially given the revenue needed to fund their invasion and alleviate all those sanctions. Kind of identifies the strategy of the Baltic sea pipe line detonation doesn’t it.
Let's see how far we can get with facts.
Firstly, gas will outlast oil (but not the lower grades of coal).
Secondly, no economy runs on the lower surplus-energy (EROEI, if you prefer) of gas. We ran at the complexity-level we did via oil, and we left coal (in many application) for EROEI reasons. Oil is still the key injection; the gold standard.
All three are finite stocks, all three have been extracted best-first. All extracting countries have use more and more of their less and less resource, internally. The result has seen a series of exporters becoming importers - and a corresponding series of incursions (mainly by the US, both formally and informally) to secure the oil stocks buried under others' land (Iraq, Libya, Venezuela). Fracking has temporarily extended the US gas supply, and short-term business requires a 'return'. Reducing Russian gas, upped the potential return, and increased the market (Hersh was therefore probably correct re Nordstream).
NZ and Australia - self-sufficiency rhetoric aside - are clearly panicked, and looking to import from a globally tightening arena. Good luck to us relying on that.
Labour paving the way for a capital gains or wealth tax
“Ultimately, if you look at a wealth tax and a capital gains tax, they're actually similar, they’re points on a continuum.”
- a continuum towards the lowest common denominator
https://www.stuff.co.nz/politics/350405328/labour-paving-way-capital-ga…
Haven't you read the Status Quo Dictionary? An envy tax is any tax that doesn't currently exist.
Quite simple. It's not envy when you take nearly 40% of a high earners money, which they spend 40+ hours a week of their time to make. But when you talk about taxes on inheritance (completely unearned), or capital gains (benefitting from the enrichment of society), that is envy.
Hope this helps. You might like to have a read next time you want to argue against something you don't like but you don't have any real arguments.
I don't accept that. Everyone needs a certain level of income just to survive, I think it is quite sensible to have an income tax system that acknowledges that and allows low income to be taxed less, or not at all. That first 10-20k is just much more important to the individual earning it than the difference between 150 and 160-170k.
"Progressive income tax regimes are fundamentally based on envy. Proportional tax is fair."
I don't accept that either.
Consider a doctor or lawyer. The bulk of their 'customers' earn way less than they do. They'd be unable to charge as much if the tax system didn't ensure their customers had greater disposable incomes.
Consider a business owner that employs 100 people in semi-skilled or skilled jobs. Did the business owner pay for those 100 people to become skilled? No. (The additional tax they paid might fund the up-skilling of a few but certainly no where near 100.) And yet the business owner gets to reap the rewards that we collectively funded?
Note that last example is a fine reason for why we should have a progressive company tax system. (Flat rate company taxes just screw the little companies while the big ones make off like bandits.)
A capital gains tax is hardly uncommon overseas but a wealth tax is. That is because the latter relies on annual valuations and that activity is an industry within itself and a platform for endless disputes and a monolithic government department to cope.By and large it seems those in favour of either of these taxes are targeting profits made out of housing & other property. This would not need to feature so significantly now if governments had bothered to make a distinction between household ownership and the rest. The last government to act on this was Kirk’s third Labour government with the simple and effective Property Speculation Tax. Subsequent governments with such as the inexplicable LAQC category did the opposite. It is highly unethical to tax a household for owning their home, the roof over their head, based on its value and in fact local councils with rates are already donkey deep into that with the ratio turning on valuations.Would wager that any political party proposing any tax as such on a family home will never find itself in office.
I've got no issue with a tax on realised capital gains (which should include taxing equity release for property investment as you are effectively realising that gain in a different context) - aside from the elephant in the room of "if a government is dependent on capital gains tax for revenue they will probably need to engineer an inflating property market".
The principle of my property having earned me $200k in the last 3 years, so I pay a percentage of that when I sell as if I had earned that income, seems fair to me.
Wealth tax (or any kind of tax on unrealised gains or value) you'll never convince me on. Too many issues/risks. I couldn't give a rat's arse what some dodgy algorithm or incentivised-to-overvalue quango claims my property is worth. It's worth what the market will pay, and you don't know what that market value is until you go to sell and a deal is actually struck.
It's also guaranteed to be some kind of frog boiling scenario. E.g. 'wealth tax on assets over $5 million' ... nek minute if you live in a paid off shoebox and have a car you're over the asset threshold and getting reamed.
What's next ... some bureaucrat deciding that although my actual agreed upon salary is $120k pa, he thinks (because he's paid to try and maximise tax revenue) I should actually be getting paid $180k so I get taxed on that rate instead.
"The principle of my property having earned me $200k in the last 3 years, so I pay a percentage of that when I sell as if I had earned that income, seems fair to me. "
I repeat my comment from earlier this week:
"Primary residence" CGT
There is no real "gain". It's just another envy tax proposal to clip the ticket on families needs & housing changes throughout their lifetimes.
It's the same home with the same market value relative to others. Money is simply the medium of exchange & monetary price changes reflect the re/devaluation of money for reasons outside the homeowners control.
I don't really know anything about trust law etc, but presumably you could make it that if such an event occurs it's the same as if you sold the property (e.g. I move my house into a trust, the declared value of that transfer is $2,000,000, I had paid $1,500,000 for the house so there's CGT to be paid on the $500,000 balance)
I mean in the event of unrealised wealth/gain tax, what's to stop the wealthy using expensive accountants and lawyers to argue their property/art collection/classic cars/whatever assets are worth far less than is claimed? Unless you're arguing for the government to be able to be judge, jury and executioner in terms of valuing assets (which seems very suspect as there is a clear conflict of interest insomuch they are incentivised to value everything as highly as possible).
Your point is one of the reasons I favour taxing equity release. The majority of the "wealthy" property investor types I know have done it all via leveraging one property into two, two into four and so on off the back of paper capital gains. They haven't sold yet - so a realised CGT on sales wouldn't affect them - but a tax on "realised equity gain" would.
Then if you can make your property hustle work in spite of that, you've still got to pay tax on the rental income.
Or you move to Australia, transfer your assets into a self managed super fund, and then pay zero tax on both income and capital gains once you are 60 years old. (And until then you only pay 15% income tax, and 10% capital gains tax). Guaranteed that Labour CGT and Wealth taxes will simply drive even more high income earners to Australia, taking their income tax with them.
"If you only tax realised gains, what stops the weathly [sic] never 'realising' them? Just passing properties around through opaque trusts without ever selling the property?"
Registries. Most things of value exist in registries. Makes tracking them so much easier. IRD has access to just about every one.
I've heard of a 3rd world country where the big man flies in his personal helicopter and boasts of his European investment advisors all because of his coffee plantation. However when at home he lives in the same bush house as the rest of his tribe and when the tax man arrives each coffee bush in his planation is the property of another tribesman. If a couple of generations from the stone age can fiddle a wealth tax I wonder what NZ lawyers and accountants can do.
A wealth tax is a great idea but unworkable. Stick to universal property taxes with no exemption for living in it. Like rates but bigger.
It's still on an unrealised basis ... so once again I could never support it out of principle. I accept land is probably easier to value - particularly compared to some more esoteric asset classes like art or classic cars - but still same issue applies of is that land really worth what some valuation system claims , until such time as it's actually sold on the open market for that value. E.g. some REA told me at an open home last month that the property was a great deal because it was selling for QV land value ($1.3 million). Well it's still for sale, so clearly the land isn't worth that. Wouldn't stop some jobsworth at IRD claiming otherwise if it meant them hitting their targets though.
We had all this with TOP anyway, as far as I remember they were basically pitching a sort of land tax equivalent, and on multiple occasions have been found to be as popular as the proverbial dog's turd on the bottom of your shoe.
I will never forget all the TOP enthusiasts over on Reddit NZ suddenly backpedaling when they figured out their tax would be going up because their house sat on a bit of land (yours truly would actually have been better off as I live on a postage stamp).
They will contemplate it publically to attract young actiists (who will be carrying student loans) but they won't enact a wealth tax since their finances depend more on fickle wealthy donors than they do on Trade Union donations. Of course a popular leader might push it through if they knew their next job would be overseas at the UN.
It is highly unethical to tax a household for owning their home
Maybe, but for a non home owner how ethical is it to tax interest on their savings?
Interest is the cap gain on the deposit, an attempt to hold value against inflation - it is not different than the gain on the value of the home.
Tax the home or don't tax savings.
A wealth tax set low becomes a bragging right for the very rich.
If it is set low then the cost of disputing one's wealth to save a tiny percentage of one's total wealth becomes seriously silly and uneconomic. (Although some will try to inflate it ... read on.)
But among the billionaire rich, imagine the following conversation:
Billionaire One: "How much wealth tax did you pay last year?"
Billionaire Two: "I paid $450,000 to those thieving b'stards! And you?"
Billionaire One: "Just $500,000."
[David Attenborough voice: "Billionaire One establishes themselves as the Alpha billionaire."]
And MSM could give up with the "millionaire" b.s. and just quote how much wealth tax they paid. Imagine the following news report:
"Donald Trump, who pays $300,000 in wealth tax, has returned to court ...."
Billionaire One & Two both gasp. "Wow. He's been lying about that too!"
Interesting (short) video on where we are at with the yield curve inversion and how it compared to other historical inversions.
https://x.com/gameoftrades_/status/1831648139230715942?s=46&t=MUwQeKa7M…
Retailer Walgreens trading under $9 a share and has plunged 90%+ from its all time highs and 66% down this year - a stunning collapse of a former blue chip company. Market cap of $7 billion. Debt of $34 billion. They assumed debt would be cheap forever.
So what now? After increasing interest rates, the Fed is going to have to flood the market with dollars to bail out borrowers like Walgreens and its lenders. If a company like Walgreens fails, it's like accelerating hyperinflation as goods become more scarce while dollars become more abundant.
https://www.retaildive.com/news/walgreens-shareholder-lawsuit-pharmacy-…
Crazy isn’t it. Crazy that a board of directors & executive would see fit to borrow $34 billion, purpose unclear, and crazy that the money was lent. What on earth was the intent. Putting pharmacies on the moon?
Well the cheap credit would bid up the stock price as Walgreens looked to grow and expand as a business. Not exactly the same as the Aotearoa Ponzi in terms of unclear purpose and craziness, but they both hinge on the issuance of and appetite for cheap credit.
What did they spend $34b on ? stock buy backs perhaps?
By my rough calculation they have 850M shares on issue, so these stock buy back levels are huge. Should have nicely juiced the earnings per share KPI for their performance based renumeration.
https://ycharts.com/companies/WBA/stock_buyback
https://companiesmarketcap.com/eur/walgreens-boots-alliance/shares-outs…
CEO earned $28M in compensation in 2021 after concluding that share buy back scheme.
CEO to median employee renumberation ratio 1084:1
https://www.salary.com/tools/executive-compensation-calculator/walgreen…
"So what now? After increasing interest rates, the Fed is going to have to flood the market with dollars to bail out borrowers like Walgreens and its lenders. If a company like Walgreens fails, it's like accelerating hyperinflation as goods become more scarce while dollars become more abundant. "
I find that logic unfathomable, J.C.
If Walgreens, or any big company company fails, the demand for their products does not just vanish. What usually happens is that the company keeps trading, while it is sold off piece by piece, or bought outright for a song, some lose jobs, lenders take a hair-cut, and prices may rise at tad and every competitor become happy as Larry. In exceptional circumstances, the company's assets do cease trading, but the competitors remain as happy as Larry.
About the only exception to that process is with banks. And yes. Then the Fed can step in. But, unlike some years ago, the Fed will ensure they'll be big losses all around for those responsible.
" it might also surprise you to know that after being hooked on Russian energy, the Germans have made a substantial shift away, not to other fossil-fuel suppliers, but rather to renewables"
If you remove the anti russian bias, its actually a shift away to doing less...
https://www.pmi.spglobal.com/Public/Home/PressRelease/a8579771f5cb4f739…
"The HCOB Eurozone Manufacturing PMI, a measure of the overall health of eurozone factories compiled by S&P Global, registered 45.8 in August, as was also the case in both June and July, thereby signalling another solid deterioration in operating conditions across the euro area manufacturing sector....Of the nations covered by the PMI surveys, it was the euro area’s big-two economies – Germany and France – that provided
the strongest drags on aggregate factory performance in August. In both instances, manufacturing conditions worsened. ...Factory performance was dented by a further steep contraction in new orders during August. The decline in total sales was the most pronounced in the year-to-date and broadly in line with that seen on average across the current 28-month period of shrinking demand. Weaker intakes of new export* business were also recorded, with the rate of decline its steepest for eight months."
https://edition.cnn.com/2024/09/02/investing/volkswagen-factory-closure…
Dire
“Things are going downhill, and fast. The manufacturing sector has been stuck in a rut, with business conditions worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting. New orders, both domestic and international, are slowing down even more, dashing any short-term hopes for a rebound. Adding insult to injury, input prices have been creeping up again since June. There is a silver lining insofar as companies managed to pass some of these higher costs onto their customers in August.
$625k for this , Really...? Those overhead lines really will be an overhead... FHB's priced out by a developer ? ... madness... lol
https://www.oneroof.co.nz/news/buyers-clash-at-court-ordered-sale-of-ot…
Dodgy Du Val goings on. Surprised anyone?
Receivers raise 'serious concerns' about Auckland property firm Du Val Group
"There is evidence of irregular accounting entries that have created assets that may not be legitimate and/or for which the recorded value is insufficiently supported."
there were also concerns about transactions involving a trust run by the Du Val group founders and directors,
https://www.rnz.co.nz/news/business/527157/receivers-raise-serious-conc…
A wealth tax set low becomes a bragging right for the very rich.
If it is set low then the cost of disputing one's wealth to save a tiny percentage of one's total wealth becomes seriously silly and uneconomic. (Although some will try to inflate it ... read on.)
But among the billionaire rich, imagine the following conversation:
Billionaire One: "How much wealth tax did you pay last year?"
Billionaire Two: "I paid $450,000 to those thieving b'stards! And you?"
Billionaire One: "Just $500,000."
[David Attenborough voice: "Billionaire One establishes themselves as the Alpha billionaire."]
And MSM could give up with the "millionaire" b.s. and just quote how much wealth tax they paid. Imagine the following news report:
"Donald Trump, who pays $300,000 in wealth tax, has returned to court ...."
Billionaire One & Two both gasp. "Wow. He's been lying about that too!"
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