Here's our summary of key economic events overnight that affect New Zealand with news global economic attention should have shifted to tomorrow's labour market report for September, but the US waterfront strike, and the Middle East tensions has sidelined it.
However first in the US, there was a minor dip in the actual number of initial jobless claims last week, but a lesser dip than expected. There are now 1.62 mln people on these benefits, the lowest level since November 2023.
And as you would expect, the level of job cuts in the US has remained very low.
Tomorrow's non-farm payrolls labour market reports is expected to show a rise in payroll jobs of +130,000.
Perhaps in something of surprise after the wavering factory PMI, the ISM services PMI came in much better than expected. It revealed the strongest growth in this sector since February 2023, amid faster increases in business activity and new orders. And that was mirrored by the internationally benchmarked version.
US factory orders in August weren't as strong, little changed from the prior month to be -0.6% lower than the same month a year ago.
The US East Coast & Gulf port strike is entering its third day, unresolved. But there are signs of progress in negotiations. The Canadian port strike has ended now.
With China closed for holidays, all the equity market signals are being squeezed into Hong Kong which remains open. And that is not good for their property stocks which have had a heady run-up based on the stimulus signals. Now those property stocks are falling just as sharply as investors realise the fundamentals are just not there. And the expected ¥10 tln fiscal 'bazooka' has still to be launched. It is still being talked about and is still expected, but it won't happen till after the holiday week at the earliest.
In the EU, there are signs that producer prices are rising again, up +0.4% in the bloc in August from July, but down -2.3% for the year to August which was a lesser rate of decline from the prior month.
And later today, the EU is expected to approve an increase in tariffs to as much as 45% on electric cars imported from China, a move that officials said would help protect European carmakers from a glut of cheaper vehicles directly subsidised by Beijing.
Those same subsidies have caused Toyota to pull back on developing EVs, because they are no longer commercial to produce.
In China, price cuts along with those government subsidies helped the likes of BYD to boost monthly deliveries to all-time highs in September.
Australian exports retreated slightly in August, but their imports retreated more, so their monthly merchandise trade surplus stayed at about AU$5.6 bln. But that was only because gold exports stayed strong boosted by sharply rising gold prices. Without those, their surplus would have halved.
The latest IMF review of Australia isn't entirely convinced they have a sustainable disinflation trend underway and they warn them to prepare to do more to get price stability. They also say Australia needs to build many more houses in its efforts to tackle unaffordable housing and its pressures.
Container freight rates fell another -5% last week as weak demand overcame the costs of the security issues in the Middle East. But that only dipped prices to 146% of pre-pandemic levels. Last week's weakness was mainly outbound China to Europe. The transpacific rate levels were unchanged. (Backhaul prices are now very low.) Bulk cargo freight rates slipped -2% last week after a long runup. They are now about +13% higher than year-ago levels, the same from the pre-pandemic period.
The UST 10yr yield is now at just on 3.84% and up another +6 bps from yesterday. The key 2-10 yield curve is still positive at +15 bps. Their 1-5 curve inversion is now less inverted, now by -38 bps. And their 3 mth-10yr curve inversion is now less at -99 bps. The Australian 10 year bond yield starts today at 4.05% and up +2 bps. The China 10 year bond rate is at 2.16% and unchanged. The NZ Government 10 year bond rate is now just on 4.30% and up +4 bps from yesterday.
Wall Street is in its Thursday session on the S&P500 and down -0.3%. There was a range of negative closes for European equity markets overnight bookended by London's -0.1% dip to Paris's -1.3% retreat. Tokyo finished yesterday back up +2.0%. Hong Kong fell -1.5%. Shanghai was closed for the public holidays. Singapore was down -0.2%. The ASX200 ended its Thursday up a minor +0.1%. And the NZX50 rose a full +1.0%.
The price of gold will start today at US$2655/oz and up +US$5 from yesterday.
Oil prices are up +US$3.50 at just on US$73.50/bbl in the US while the international Brent price is still just under US$77.50/bbl. Middle-East tensions are now starting to affect these prices as the never-ending 'retaliation' cycle shows no sign of ending.
The Kiwi dollar starts today at 62.2 USc and down -½c from this time yesterday. Against the Aussie we are -20 bps lower at 90.8 AUc. Against the euro we are down -40 bps to 56.4 euro cents. That all means our TWI-5 starts today at just under 70, and down -30 bps from yesterday.
The bitcoin price starts today at US$61,134 and down another -2.9% from this time yesterday. Volatility over the past 24 hours has stayed modest at just on +/- 1.8%.
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68 Comments
Energy commodity prices are up 9% and rising since the start of this week. This is just on the possibility of Israel attacking Iran's oil infrastructure.
Rate cuts over the next few months will probably be less than what the markets were pricing in even a week ago.
Advisor is most likely correct. It will give the RBNZ more to ponder.
But once again, let's be clear. With a neutral OCR rate of 2.75% and the current OCR rate being a still contractionary 5.25% - and inflation within range - and with the NZ economy heading down the toilet - the RBNZ has absolutely no valid reason for not cutting by at least 1% before Christmas.
And one should note, that an OCR 1% less at 4.25% is still contractionary!
edit: The RBNZ is supposed to work upon 'knowns' and 'likely'. Holding back on OCR cuts due to their 'reckons' on future energy price disruptions would be wrong.
The RBNZ is supposed to work upon 'knowns' and 'likely'. Holding back on OCR cuts due to their 'reckons' on future energy price disruptions would be wrong
Interesting, as they held too low for too long when they full well knew that such stimulus would definitively result in inflation, then upped the OCR in the greatest set of hikes ever recorded in the name of inflation, needed due to their incompetence of too low too long. I have to question what their 'known' and 'likely' look like as their track record is in the doldrums. Government is supposed to balance the equation by increasing spending in downturns, so they are working against each other in every way. I'm still of the opinion that drastic drops are not the answer. We need a little more pain from a slow decrease to temper peoples excitement with rate drops and prevent the reverting to previous spending and borrowing behaviours, but I have some hope that if there is a 1% drop by xmas, a decent proportion of people will keep their books in check and not borrow to the hilt once again in the name of profit.
Government to step in and underwrite new private house building (for developers)
https://www.thepost.co.nz/politics/350439319/government-step-and-underw…
Ok….
edited - I guess this isn’t a bad thing. It might mitigate the carnage in the sector.
Taking away the need for pre-sales could help a lot. And by the time developments are finished in say 18-24 months they should be able to sell more readily once interest rates are much lower.
Good for the economy, sure. But let's be clear - it's corporate welfare.
edit: Will we get crickets from the debt freaks? I expect so.
edit: the net effect would be the same if government supported - I don't know - maybe some ferries? Or maybe building a hospital of the appropriate size? Or maybe looking at fixing our electricity supply with a large battery?
Developers (National Party voters and doners) are holding the babies (blocks of land they way overpaid for). Now the government is stepping in to underwrite the lending (lower interest rates) so those blocks can be developed and preserve the value of the land (which is otherwise uneconomic to develop so effectively worth a lot less than what was paid for it). Also it preserves the value of all of the National Party voter/doner land banks on the fringes of the major cites.
There’s one big one sitting on significant land holdings…Fletchers.
and if they have to mark down their land holdings expect write downs in the hundreds of millions. They already have a $150m hit coming in next years accounts due to the share issue…as well as god knows what else will be required to get it in shape.
interesting times.
it will all hinge on pre sales and in a roundabout way interest rates.
and can someone explain to me how this helps get pre sales. Does your fhb or mum and pop care or know how the developer is financed and how much equity they have..??..unlikely!
just more can kicking is my sense
I wonder if this will be for 175m2+ mansions or 100-125m2 more affordable homes. Underwriting loans is fine on paper but will it lead to more affordable housing? What's affordable. I think I'm probaly out of date with a max of about $600k for at least 125m2 house including land.
They could have mitigated unemployment in the sector by not cancelling KOs ability to build right at the point KO had built up capability, prepared the land and readied masterplans.
This is purely about paying back their donors, land-holders on the city fringe and developer mates who overpaid and now need a public bail-out because of their reckless speculative borrowing. What does the taxpayer get in return?
I would not rate Housing NZ to be at all effective and efficient in delivering dwellings at all at a reasonable cost. Its a consultants and builders gravy train.
Just had a chat to builder, working for a large ultimate owner overseas private equity company, doing some work on a HNZ old state house, +50years?, to bring it up to insulation standard. Resident/s in temporary accommodation. Large garden at the back capable of having dwellings.
It would have made more sense to demolish the existing and build additional dwelling of whatever form on the section.
They may not be affordable to the bottom 25% by income. But one hopes the remaining 75% will find them affordable, or even just the upper 50%.
Those that do buy will leave whatever place they're in so maybe the bottom 25% can be housed there.
You see where I'm going? [evil grin]
Don't take the kids to space this weekend.
"The incoming CME is expected to hit Earth between Oct. 3 and Oct. 5, possibly triggering widespread auroras."
https://www.space.com/most-powerful-solar-flare-this-solar-cycle-x-9-ea…
Yes but unless China liberalises they won’t be able to pivot like Japan towards ‘soft power economics’, large scale foreign tourism etc. Heck Japan has even somewhat liberalised on immigration
It seems to me that Xi has very little appetite in turning his ultra-authoritarian ship onto a different course. Anyone who might suggest that in his regime ‘disappears’
I was always told if the bank won't lend never lend to family... now family won't lend and the Gov is underwriting things
sounds very Tip top. It will save jobs and keep the better builders going, and that's welcome.
But if the finance is too risky for banks to do in NZ, something is very broken.
As always the market will fix this for them.
Let me get this straight: English and Bishop argue that debt on the balance sheet of a public housing agency is a bad thing even if it increases housing supply that the Crown ends up owning.
A better alternative in their brilliant minds is for the Crown to underwrite private debt on assets that it doesn't own. Also, how is this scheme materially different from Kiwibuild?
I wonder what the Association of Consumers and Taxpayers Party thinks about this taxpayer handout to private asset owners?
FYI:
Kiwibuild's underwrite gives developers the backing and certainty required to deliver developments that may otherwise have not proceeded or at a greater pace than originally planned
Some here claim building costs dictate house prices. By continuing to buy building supplies on tick at current prices it may stop those building suppliers having to reevaluate their price lists to make sales!
I'd support buying failing developments for cents in the dollar and finishing them, but this seems open to abuse.
If you're not able to start the development, then it might be time to face the fact you've overpaid for the land. As wiser heads that are in the game have said in the past, if the land isn't right, nothings right when it comes to development.
Look like a lot of continued additional supply coming to the market when ordinarily it would dry up. Just what those holding or trying to sell the second hand stuff want to see.
Part of Bishop's "I want to see house prices fall" policy?
In the face of everything going on elsewhere in the World, let's hope that we have the sense to "Never let a good crisis go to waste" and recalibrate our economy. If ever Luxon and his crew had a chance to say "Sorry about that. But it wasn't our fault" then this is it.
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