Here's our summary of key economic events overnight that affect New Zealand with news of a settling of the global economy after some big announcements by China. So far, little seems to have changed, other than investors now think they can't lose with Chinese equity investments.
But first, the surge in American mortgage applications we noted last week has extended. Last week they soared +11% from the prior week, extending the earlier +14.2% gain to lift mortgage application volumes to their highest since June 2022, and now above year-ago levels. It's been a sudden shift. In fact this is the best two-week period in their housing market since late 2015. The upswing in home loan demand came as benchmark mortgage rates fell to a two-year low of 6.13%.
So far it has not shown up in the purchase of new homes. Sales of new single-family homes fell -4.7% in August to an annual rate of 716,000 units. While this drop partially offset the revised +10.3% surge from the previous month, it was still marginally more than market forecasts. This market has been on a slow recovery since August 2022. But the mortgage application surge may well change this momentum in September.
There was more evidence today that the US Government is having no problem attracting investors for its debt. The Treasury 5 year Note was well supported again with US$100 bln more in bids than available and the median interest rate came in at 3.46%, down from the 3.59% at the prior equivalent event a month ago.
Taiwanese retail sales were subdued in August, rising only +1.1% from the same month a year ago. But their industrial production was up more than +13% on the same basis.
After China's big signals of substantial monetary stimulus (and yesterday's follow-through of a -30 bps cut to the MLF rate to 2.0%, its biggest cut ever) you might have thought that commodity prices would have risen in anticipation of a meaningful market reaction. But they haven't - yet anyway. The copper price rose prior to the official announcements, but haven't kicked on today. Iron ore has stayed subdued. Other key metals have had conspicuously little reaction. This may all mean markets have been quite unimpressed with the scale of this stimulus effort. No-one is actually gearing up for 'the recovery'. Local investors still think they are however (see equity market update below). But Aussie investors are very sceptical.
Staying in China, an overnight announcement revealed a one-off cash handout to the poor will happen early next week. The amount of the gift wasn't revealed however.
Overnight the Swedish central bank cut its key policy rate by -25 bps to 3.25% following a similar move in August and in line with market expectations. They signaled further cuts in the two remaining monetary policy meetings of the year.
We don't often look at the French economy, Europe's second largest. But an overnight survey is worth noting. French consumer confidence rose more than expected in September and way above market expectations. This is the highest reading since February 2022. Consumers were less pessimistic about the outlook on both their financial situation and their standard of living. And their saving intentions rose. Tax rises for the rich seem to be on their agenda now.
In Russia, the rise of their industrial production is slowing and quite fast. War is giving no meaningful boost to their output. Even corporate profits are struggling, down -6.5% from a year ago.
In Australia, August inflation as monitored monthly was expected to fall to +3.1% from 3.5% in July. But in fact it fell far more sharply, down to 2.7% in August from a year ago. The RBA will be relieved as this is the first indication they wanted to see of it within their 1-3% target range. But, a lot of this was due to falls in the cost of petrol and electricity. And that came from a one-off impact of the start of their Commonwealth Energy Bill Relief Fund rebates, and the State Government rebates in Queensland, Western Australia and Tasmania, which drove the largest annual fall in electricity prices on record, down almost -18%. These rebates will last through 2025. Staying high however are rents, still rising about +7% pa.
The UST 10yr yield is now at just on 3.79% and up +6 bps from yesterday. The key 2-10 yield curve is up now +23 bps positive. Their 1-5 curve inversion is still inverted by -42 bps. And their 3 mth-10yr curve inversion is now at -90 bps. The Australian 10 year bond yield starts today at 3.98% and up +1 bp. The China 10 year bond rate is at 2.07% and also up +1 bp. The NZ Government 10 year bond rate is now just on 4.24% and unchanged again.
Wall Street is down -0.2% on the S&P500 and a pullback from its record high. Overnight European markets were all down similarly. Yesterday Tokyo was down -0.2%. Hong Kong rose +0.7% as the stimulus glow held on to its shine, and Shanghai did even better, up +1.2%. There is a PBoC 'put' in play for these investors now. But Singapore fell -1.1%. The ASX200 finished its Wednesday session down -0.2%, and the NZX50 ended down -0.6%..
The price of gold will start today at US$2661/oz and up +US$11 from yesterday to yet another new all-time high.
Oil prices have fallen -US$2 to US$69.50/bbl in the US while the international Brent price is now just over US$73/bbl. Libyan supply is on its way back.
The Kiwi dollar starts today at 62.7 USc and down more than the ½c it gained yesterday. The spike was brief. Against the Aussie we are down -20 bps at 91.8 AUc. Against the euro we are down -40 bps at 56.3 euro cents. That all means our TWI-5 starts today at 70.3, and down -30 bps from yesterday.
The bitcoin price starts today at US$63,112 and down a minor -0.2% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.4%.
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103 Comments
Because markets believe inflation won't stay down for long. With the rapidly aging workforces in key supply markets (China, Japan, Germany, SK, etc.), ongoing global conflicts, climate challenges and US-China trade friction, expect input costs to soar in the coming years.
Also, there are expensive fiscal support programmes being deployed by many countries to keep prices artificially low on both the demand and supply side of the equation.
Id suggest it is more a movement away from holding "cash" ( fiat money)... into gold ... ( Central Banks are leading the way...)
https://www.visualcapitalist.com/charted-30-years-of-central-bank-gold-…
Mainly central bank buying from non-western countries.
Central banks are diversifying away from the dollar and yuan while loading up their foreign exchange reserves with a "stateless currency," gold, in a nod to intensifying geopolitical tensions and global economic uncertainties.
The proportion of the U.S. currency in global foreign reserves has dropped significantly, from over 70% in the early 2000s. Currently, the dollar's share of foreign reserves held by central banks and governments worldwide sits at a historic low. China's currency is also trending lower.
Russia's invasion of Ukraine triggered strict U.S. sanctions locking Moscow out of the dollar-based global financial system and persuading emerging economies to accumulate gold, which is not tied to any specific country. The shift from currency holdings reflects global fragmentation.
Foreign exchange reserves are assets central banks hold to pay off foreign debts and cover import costs in times of emergency. They also fund currency interventions. Many of these reserves are typically held in dollar-denominated assets, often in easily convertible U.S. Treasurys.
https://www.xetra-gold.com/en/gold-news/news/gold-purchases-by-central-banks-up-206-per-cent/
NZ's ongoing brain drain gets a special mention on Bloomberg. Link
IMD's World Competitiveness Yearbook puts NZ #66 out of 67 in brain drain, behind countries like India and the Philippines. Those countries have a large population of under-15s that they train en mass and only lose a small percentage of these each year to greener pastures.
NZ on the other hand has not much to lose to begin with and the 81k net outflow of citizens will bite us dearly.
More opportunities from having 5x the population wouldn't hurt either
If only it were that simple. The last million we added in a big hurry has clearly made us poorer as a nation and desperately scrambling for infrastructure and critical services. And yes, it is hurting.
What ‘net zero’ migration means for New Zealanders and the economy
Westpac has forecast net migration will hit net zero next year, after reaching a record high just last year.
https://www.nzherald.co.nz/nz/what-net-zero-migration-means-for-new-zea…
Change track. Nationalise all urban land. Govt confiscate all houses but then rent them back to their occupiers at a peppercorn rent - who would voluntarily give up free housing for Sydney, London or New York. Increase the cost of flying out of the country. Then copy Denmark, Iceland, Netherlands by enforcing a national language that is unintelligible to other nationalities; there has been some recent progress in NZ - a future where our bright children will leave school with only Te Reo words for significant ideas.
Just looked online, the cheapest loaf of bread I could find at Woolworths AU was $2.40, 100% more than here.
https://www.woolworths.com.au/shop/productdetails/277728/woolworths-whi…
https://www.woolworths.co.nz/shop/productdetails?stockcode=683366&name=…
Give me a quality new build, double glazed, well insulated, facing north, heat pumps and a wood burner for occasions any day.
I've lived in well built weatherboard and brick older houses. They might be well built, but usually terribly thought out a mountain of $ to put right. And when done, you still have an old house.
You have centuries old heart Rimu, Totara etc that will stand the test of time if maintained, that move with the forces of nature as needed. Concrete slab foundation, meet the next earthquake, then we'll be seeing what era houses are worth their salt and you can bet there'll be squealing form those who thought they were 1./ properly insured or 2./ had a decent sturdy home.
2001 corolla with near 350k on the clock and humming along nicely thanks (who can be stuffed with a 6month WOF anymore). And of course there's modern concrete slabs, but there's been a fair few built over the years without this before any earthquake standards came in.
House mouse you were complaining about buying a beer in Auckland at 17 dollars a little while ago. That's cheap compared to Aus when I was in the mines in Aus they had posters up all over the walls about saving that good money you were earning. As most nights the guys were travelling a 100 ks to the pub and tittle bars giving the girls 50 dollar tips. And after a life of working living like that these guys hard nothing too show for it. Easy to make and spend.
In the instances they try to measure the brain drain, it's often found:
- Kiwis remaining in NZ have higher rates of tertiary quals than Australians, and Kiwis living in Aussie
- Migrants coming to NZ have higher rates of tertiary quals than either Kiwis or Aussies
You are always going to struggle retaining people when you have a much wealthier neighbour right next door and open borders.
"I think policies and initiatives could have been initiated that would have made a significant difference" - I'd be interested in which ones? For example I think the vast majority leave because they are bored and want to move to a proper city, yet any investment in Auckland to create a proper city is frowned upon.
Maybe we need to start with a survey on why people have left. I suspect there are many that leave completely due to finances, but I suspect for a lot of people (particularly young people) there are many other reasons.
But let's face it, it will be hard to compete with a very similar country not that far away that can pull money out of the ground, has better weather, a higher population, and bigger better cities with better opportunities. We used to have an advantage with young people with politics when we had Ardern and they had old crusty white guys, now that has almost reversed.
or, you make universal public services brilliant - heavily discounted dental, next to free public transport, top quality education from early to tertiary, supported apprenticeships for trades, infrastructure pipeline to guarantee investment for companies to expand etc etc. basically make it really easy to live and do business here. i would also tax land / capital gains to reduce unearned / inherited wealth and deflate the property ponzi - thus reducing housing costs too!
Housing
i have a good friend who is a teacher along with his wife. The only reason they stayed in NZ was that they were lucky enough to get a house in the NZ Housing Foundation’s development in Manukau. It’s shared equity, so they paid about 25% less than market value. A number of teachers, police etc live there
A big uplift in funding for the community housing sector could achieve many more of these positive outcomes.
It is best to not conflate tertiary qualification with job skills.
Indian think tanks have for long reported the lack of basic job-ready skills among its engineering and management graduates. Some put this figure at as high as 94% of all grads. Further, over 60% of international students from India study in NZ at polytechnics and PTEs, with business being the most popular major.
OECD reports that NZ has had one of the highest rates of qualification mismatch because the programmes we choose to study are often not in line with employer demands.
It is best to not conflate tertiary qualification with job skills.
Depends if we want to keep using terms like "brain drain" and "best and brightest".
OECD reports that NZ has had one of the highest rates of qualification mismatch because the programmes we choose to study are often not in line with the labour market demands.
Yep, we spend a lot on tertiary education, yet have a massive immigration skills shortage list.
This probably gets exacerbated by the parental notion these days to teach kids to follow their dreams and do what you love. Instead of find a job thats in demand, get good at it, and you'll end up being passionate about it.
I agree although the reverse is also true. We are sold a false narrative that high net inflow of non-Kiwis offsetting net outflow of Kiwis is a net brain gain, despite socioeconomic indicators suggesting otherwise.
I am aware of many other national govs who get their network of overseas consulates/commissions to collect data on citizens living abroad. As the old saying goes what gets measured gets managed.
The dream job hoax being peddled by society has to die or we will have bigger problems at hand with such huge skill mismatches. The mantra should be to get a boring job that others don't want to do, and it will pay you enough so you can afford a nice house and expensive hobbies.
"So what's changed in the 42 years since 1982? Why 1982? 1982 marked...the start of the 40+-year bull market in stocks, real estate, and until recently, bonds. (Answer? China...)
Demographics have changed. The massive global Baby Boom is exiting the workforce and starting to liquidate assets to fund retirement. This transition from buying assets to selling assets raises the question: who will buy all these assets at today's nosebleed overvaluations? Younger generations lacks the capital and income to buy assets at these levels of overvaluation, and there is nothing on the horizon that could change that asymmetry.
Selling pushes down asset prices, which then reduces the collateral supporting global debt, which then lights the fuse of a credit crisis that can't be resolved by lowering credit and lending standards."
You got it BW, Baby Boomers are massive net sellers now and sinking the asset boat since 2008 and more so, since 2021.
Stimulus has just delayed it and pumped the balloon falsely larger!
Harry Dent and Todd know this in spades!
- Best hour investment in your future is right here!
PS...Wingeeer will hate it:)
Historical Housing Crash Started "SELL NOW" says Economist Harry Dent, Jr. (youtube.com)
Demographic change is like a tide of selling, and trying to sell at stupidly inflated values. The real estate agents would rather you are dumb... Go see what your money buys, even northern Italy is cheaper then Auckland..., why is a UK Devon thatch cheaper then a Manurewa rental?
NZ is unaffordable relative to incomes, even TA says 7-9 is a bit high in his recent verbage.
15 years ago, the tide had not yet turned. 2011 was the year the first Baby Boomer, in general, started officially retiring. In those first years the impact we are about to see (and are seeing today?) was minimal. Today we are into the thick of it, and by 2035 (the retirement age will go up to 70?) it will subside. And what will the economic landscape look like then? Whatever it is, it won't be what we think is 'permanent' today. And as perhaps you anticipated back then, "Who are the current asset holders going to sell-up to, to fund their Golden Years?"
"what will the economic landscape look like then? Whatever it is, it won't be what we think is 'permanent' today. .. "Who are the current asset holders going to sell-up to, to fund their Golden Years?"
Quite. Impossible to keep a population Ponzi debt scheme going with less people.
Retirement is considered a permanent when it can not function in a shrinking economy.
Just what replaces capitalism is the great unknown but chances are you wont like it
JJ have you noticed all those ads for retirement living you wonder why they need to push it hard now. Because the boomers have wised up they ain't buying them majority want to stay in their own homes pay someone to come in a few hours a day. Thing I am watching is Heartland bank with their equity release I see that is going to grow here like I witnessed in the UK.
The drums are beating louder....
"Inland Revenue raises Capital Gains Tax questions...a capital gains tax (CGT) would be a simpler way to apply tax..."
https://www.nzherald.co.nz/business/inland-revenue-raises-capital-gains…
If National did this it would lock Labour out of power for 3 terms, but their are none so blind, the only hope Labour have got is selling tax reform.
exclude the family home.
The total number of active landlords with bonds lodged, as of February 9, 2021, was 120,330, the ministry said.
most will either still vote Nact or not vote, cannot see Labour running on a platform to remove Capital Gains tax.
Although every Kiwi is an aspiring owner of a large housing portfolio. I wouldn't be surprised if the sheeple oppose a CGT applied on stuff they may never own because the very lack of a proper CGT keeps housing out of their reach.
This is not uncommon. Many hardline Republican voters in the US are piss-poor (~40% of lowest income families in the US identify as Republicans) and yet vote for policies that benefit the ultra-rich at their own expense. Same in many other parts of the world
Its cheaper relative to income. CGT is just one factor in a big pool of factors. But logically any investment with tax advantages will attract more investors and that will affect the purchase price.
It really needs to be comprehensive to work well; in Aus many people invest in their own "family home" / mansion instead of rentals, in that case it can actually make things worse.
So rates what will happen like California you will get people building 40 million dollar own home and just live in it. That won't help the tenants to much will it. And if you go to California and stop at the traffic lights you will see not one or two people knocking on your car window but dozens
CG on the family home is not income.
It's the same house with the same value in the market vs the alternatives.Money is simply the medium of exchange & the price change reflects the devaluation/revaluation of money over time for reasons outside the homeowners control.
CGT & other taxes such as stamp duties, wealth taxes on the family home are simply envy ticket clipping & economic inefficiencies impacting eg. labour market flexibility.
Note that this isn't criticism of a CGT on investment properties (sellers are not investors) & I have long supported CGT on the goodwill component increases from the sale of businesses.
I think it is fair to tax the gain on a family home, after inflation. That is a genuine gain you have made from an investment decision. Why tax people that make money from income (productive) but not those that make money from home ownership (not productive)? The only envy is due to a lack of fairness.
I am just going to leave this here:
https://www.national.org.nz/national_will_deliver_for_dunedin_hospital
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