Here's our summary of key economic events overnight that affect New Zealand with news inflation is easing in the world's largest economy.
First up today, the American August CPI inflation rate slowed for a 5th consecutive month to 2.5%, its lowest since February 2021 and below market expectations of 2.6%. But it was up +0.2% from July, which was as expected. Meanwhile, their core inflation rate steadied at a 3-year low of 3.2% but this core rate was up +0.3% from July. So some mixed signals here. Energy costs were much lower, rents and travel costs a little higher.
There were only modest market movements after this data. Benchmark bond yields firmed slightly, the USD rose, and Wall Street took it in its stride shaking off the pre-release jitters.
None of this will change the Fed meeting discussions a week from today. Today's data probably locks in a -25 bps rate cut rather than the option of a -50 bps cut.
American mortgage application levels were little-changed last week, continuing at a low level. But mortgage rates fell with the benchmark rate falling to under 6.3%. However, that was not enough to entice any significant change in housing market activity.
Lower yields were also on full display in the UST 10yr bond auction. Today's event was strongly supported with a median yield of 3.61%, down from 3.98% at the prior equivalent event a month ago.
Across the Pacific, China's August vehicle sales were soft. They were 2.45 mln units in the month, -5.0% lower than for August 2023. And this was despite a Beijing program to boost this key domestic market. 1.1 mln of the sold units (45%) were EVs or hybrids. In July, sales were -5.4% lower than a year ago. Without the support, you have to wonder what levels they would be at.
Chinese long-term government bond yields hit a fresh low yesterday, underscoring strong investor appetite for these expected capital gains even as the central bank intervenes to tamp down what it considers a bubble. The yield, which moves inversely to price, on the China government 10 year bond fell to 2.106% at one point. That is its lowest level since 2015, the starting point for comparable data. That has Beijing officials scrambling (and threatening traders).
And that is not the only problem they face in their financial sector. Recently Beijing cracked down on banks offering higher than official rates for deposits. That had the perhaps-predictable outcome that depositors - especially corporate depositors - withdrew their deposits from banks and shifting them to places they get better returns. The effect on bank balance sheets was substantial. And there is a new scramble on to shore up this sudden distortion.
In a key update from an RBA official yesterday, they reinforced their guidance that the tight labour market is a key element in their hawkish views on inflation and its likely trajectory. They see it staying tight enough to prevent inflation from falling to where they need to get it. That reinforced last week's comments by Governor Bullock who said that monetary policy will need to remain sufficiently restrictive until inflation actually moves toward the central bank’s 2-3% target range on a sustainable way. Clearly they don't think they are there yet. Rate cuts are a ways off in Australia.
The UST 10yr yield is now at just on 3.65% and up +1 bp from yesterday. The key 2-10 yield curve is now flat at 0 bps. Their 1-5 curve inversion is more at -67 bps. And their 3 mth-10yr curve inversion is little-changed again at -142 bps. The Australian 10 year bond yield starts today at 3.89% and down -6 bps. The China 10 year bond rate is at 2.13%, unchanged. The NZ Government 10 year bond rate is now just on 4.18% and also down -6 bps.
Wall Street is up a mere +0.6% on the S&P500, adding to yesterday's similar rise. Overnight, European markets mostly fell a minor -0.1% except Frankfurt which was up +0.4%. Tokyo ended yesterday also down -1.5%. Hong Kong was down -0.7% and Shanghai was down -0.8%. Singapore rose another +0.5%. The ASX200 ended its Wednesday session down -0.3%. The NZX50 ended virtually unchanged again.
The price of gold will start today up an insignificant +US$1 from yesterday at US$2514/oz.
Oil prices have recovered +US$1.50 at just under US$67.50/bbl in the US while the international Brent price is now just over US$70.5/bbl.
The Kiwi dollar starts today at 61.3 USc and -20 bps softer from this time yesterday. Against the Aussie we are down -40 bps at 92 AUc. Against the euro we are -20 bps softer at 55.6 euro cents. That all means our TWI-5 starts today at 69.3, and -30 bps lower from yesterday.
The bitcoin price starts today at US$57,692 and up +0.9% from this time yesterday. Volatility over the past 24 hours has been moderate at just under +/- 2.2%.
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73 Comments
Wall Street is up a mere +0.6% on the S&P500, adding to yesterday's similar rise.
Why is it necessary to write "mere"? +0.6% seems pretty good for a daily rise, especially with the market being near an historic high and especially as it rose a similar amount the day before. If you had 150K in KiwiSaver and it went up 0.6% that would be $900 in one day.
The wife's family group chat is inundated with ebullient celebration this morning, as the Press publishes a headline that 'home values are up 40%'.
Do I have the heart to tell them that you only need to read to the 2nd sentence to see that refers to pre Covid values?
My brother in law reckons maybe it's time to sell his place. Once again I don't have the heart to say that if your house has gone up 40%, the next place you're looking to buy is probably up 40% as well.
It's like a microcosm example of just how easily otherwise intelligent, sensible people can buy into the media spin on a particular topic.
Well said dts. Extraordinary really how basic thinking and intelligence can escape so many to be replaced by sound bite type messaging of journalists and such needing to create a headline. Reminds me of recent interview of the great Eric Idle when he said with all the hype concerning artificial intelligence he is going to seize the moment for artificial stupidity.
I see fools and their money part at most auctions.
It never ceases to astound me how many dimwits bid against the auctioneer (vender bid) for a house that they are the only interested party. And all because the agent/ auctioneer says " we have buyers out side of the auction".
Buyers that are keen would be at the auction, for a start, even if they are keen and with conditions . You as the bidder have first rights to buy outside the auction if the sale doesn't eventuate at auction. So why engage in a battle against nobody!
Last week I watched a couple bid 890k against a vendor bid of 950k.
Reserve was not reached so the Agent took this buyer out the back for 10 minutes grilling and when he came back the buyer has been talked up to reserve of 1.1 million.
The property sold. This buyer has no support and was bullied into buying by his agent negotiating against the Auctioneer/ owner( in another room).
If he had just stayed at $890 k and refused to be bullied he could have then negotiated out side the auction, with conditions and tested the honesty of the agent . And the market. But you never here the agent tell them that reality
This practice of vender bidding is disgusting. And young naive buyers need independent advice and support at auctions.
This couple and I were the only ones at the auction. I was watching the online at the same time and there was only 3 people online. One was me.
The house was 90s hardisheet , no cavity, exposed parapits (flashed), no eves, and no building report/ council record for remediation. It's a leaker that had just been dollied up
It was a leaky home. And these sellers never mentioned it in the advertisement.. buyer beware I guess
I wondered if these guys had a mortgage? A bank would never lend against this house surely?
I was almost tempted to say something to the buyer during the auction. But thought nah! Not my monkey!
I see this happen quite a lot.
Then I see experienced bidders go low and make the seller squirm.
They refuse to. Engage with the agents, ask if the reserve has been reached many times during the process, and are never taken out back and talked up
They also put conditions on, with the REAgent prior to the auction.
One guy, I spoke to last year reckons 95% auctions the fail to sell at auction do not have buyers outside the auction waiting to buy. They just have lurkers on TM or use open home viewers as a stat.
The manipulation of the process in the RE industry make Mr D Trump look darn Right honest
I've been to an auction, and it closed with a vendor bid from the auctioneer against no one. Still a little interested in the property i went to the openhome the next weekend and heard the agent telling a prospective buyer that it had been passed in a $x, where that was the auctioneers fake vendor bid. Disgusting that vendor bids aren't outlawed.
How Apple paid less than 1% tax in Ireland & has ended up owing billions
https://www.abc.net.au/news/2024-09-11/apple-to-backpay-13b-euros-to-ir…
Wow, the Irish scored big time there. Managed to get Apple to set up its European headquarters in Ireland, and then they get to renege on their tax promises and get $21b more out of them.
But couldn't Apple then counter sue the government for reneging? I guess it depends on whether it was a proper written agreement or a handshake.
Unless all countries act in unison they go nowhere, and sometimes backwards. The EU is big enough - and has enough s/w developers - that the big techs can't risk a start-up eating their lunch. FB ignored China (well not so much ignored but couldn't get established) and now FB will never get in there as the Chinese built their own 'FB on steroids'.
2 major announcements in the last 24 hours:
- Methanex permanently closing its Taranaki operations
- Winstone Pulp International folds for good
Hundreds of well-paying industrial jobs gone leaving regional economies in ruins (especially in Ruapehu).
Don't worry though, lower interest rates will push up house prices soon and make our economy whole! <sarc>
Hard to read what's going on with Philip Morris first. Winston seems happy to concentrate on foreign affairs( he is very good at it), jones seems to be all talk and concentrating on winding up the Greens.
They should be all over the ferry debacle, and a few other regional issues , but MIA.
They run three trains. Two at the main plant and one at Waitara Valley. WV has been closed for a while. They restarted it a few years ago, but never could get the gas to keep it running so it closed again pretty quickly.
The news today is that will drop to a single train at the main plant.
Last I remember they had contracted gas until 2030, so this fits in with the expected wind down. They will run one train until then, then decommission by about 2035.
Methanex permanently closing its Taranaki operations
This is incorrect. Of the two plants that were operating in Taranaki, (the 3rd plant has been down for some time), the communication from Methanex is that they are looking into "downsizing" to a one plant operation due to lack of gas which would result in some redundancies yes, however this is very different from permanently closing.
Don't get me wrong, this is still very bad for the people involved and wider Taranaki area as you rightly state and is a signal that we are still in a very bad way.
Real shame about Winstone Pulp. Would like to see more transparency on their power costs. It's all getting blown up in the media about the one week of extreme prices we had, but you don't shut a business for good because of one bad week, especially when it's followed by two weeks of near zero cost electricity. Anyway that's all the spot market, but what they are saying is the pricing on long term hedges/future contracts were at a level that they could not compete internationally. What are those prices? Winstone say they are too high, Meridian say they are 'close to tiwai prices'.
“Even though current spot pricing has fallen significantly from the August highs, current electricity futures pricing indicates that nothing is going to materially change in the medium term regarding wholesale market electricity pricing,” Ryan said.
Since announcing the operational pause last month, Ryan said the company had worked hard to consider all available options. That included seeking long-term price certainty for electricity at levels that would enable the company to be internationally competitive.
“The nature of our operations means we need competitive pricing to be sustained over a long period. We cannot work around short-term price dips in the market. The current New Zealand cost base means that we are no longer internationally competitive,” Ryan said.
“This is a problem that WPI shares with many other companies that form New Zealand’s industrial base.”
Ryan said last month WPI is a direct participant in the wholesale electricity spot market, which is settled via the clearing house. It does not buy directly from Mercury today, nor any other generator. The company hedges its exposure generally via contracts for difference (CFDs) with generators or other energy users.
“WPI has historically maintained high levels of hedging as part of our normal risk management processes. As those long-term hedges have come up for renewal, the cost of renewing them has become internationally uncompetitive,” he said then.
yes exactly, winstone says the hedges are too expensive, mercury or meridian (always get those two confused) says long term contracts are cheap.
So how much exactly were they offered? Spill the beans please, no commercial sensitivity argument to loose now that they are shutting for good.
yes constant messaging is that production at the existing wells has dropped off this year faster than expected. Well i did read somewhere else someone contracted that saying actually production this year is still within the forecast range, but its at the bottom of that range.
https://sponsoredinteractive.stuff.co.nz/a-bold-new-vision/index.html
In the heart of Franklin, just 40 minutes south of Auckland, lies a visionary new town that represents a fresh approach to community living.
Reminds me of the adds for Hobsonville Point which was "only 20 minutes from the CBD". Its true if you are driving around at midnight.
A few weeks ago I would have said this development will struggle to be successful. I am on the fence now, knowing that the council will be consulting soon on higher development contributions for brownfield intensification.
This could have a significant effect on disincentivising intensification, although that will depend on the $ value that the contributions rise by. If it’s $5k more per dwelling maybe not a material impact. If it’s $10-15k more, it will be
this is excellent
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