Here's our summary of key economic events overnight that affect New Zealand with news China is dusting off some unused regulations to shore up its deteriorating financial situation.
But first, at the overnight dairy auction, prices were little-changed, down -0.2% in USD terms but up +2.8% in NZD terms. The dominant WMP price was essentially unchanged, but the foodservice commodities like SMP were down -1.8%, mozzarella down -8.2% and butter down -0.3%. Going the other way, cheddar cheese was up +4.2% and the only bright spot. No farm gate payout forecasts will be changed because of this event.
Last week's American retail impulse survey shows a strong rise of +5.6% from a year ago. And this is not only well ahead of inflation, it is built on a strong +4.6% gain in the same week a year ago.
Meanwhile, US consumer inflation expectations in September were little-changed at 3% for the year ahead. In fact consumer labour market and household finance expectations are largely stable too. Given it is an election period with its share of weirdness, perhaps this is not quite the result you might have expected.
But it is not all good. Business activity contracted modestly in New York State, according to firms responding to the October 2024 Empire State Manufacturing Survey. After climbing into positive territory last month, the headline general business conditions index retreated rather sharply. New order levels fell, and shipments edged lower.
Canada's CPI inflation rate fell to 1.6% in September, from 2.0% in August. It is now at its lowest level since February 2021. Lower fuel costs drove the retreat. It seems more likely now that Canada's central bank will cut its 4.25% policy rate when it next meets on Thursday, October 24 (NZT). Maybe outsized cuts are coming there.
Japan industrial production is becoming quite volatile with big jumps followed by bit dips. The August data revealed a big dip, year-on-year. It is hard to know what to make of this new volatility. But overall it represents a sag.
In a bit of a surprise, EU industrial production jumped in August and by enough to take the year-on-year level above August 2023, a rare event. It was the best month-on-month jump in more than a year. The European service sector is doing better and enabling local factories with more orders.
In China, Bloomberg is reporting that tax authorities there are cracking down on offshore income earned by their wealthy. It has begun enforcing a long-overlooked tax on overseas investment gains. Some wealthy individuals in major Chinese cities were told in recent months to conduct self-assessments or summoned by tax authorities for meetings to evaluate potential payments, including those in arrears from past years, they reported. The move underscores growing urgency in Beijing to expand its sources of revenue as land sales tumble and growth slows.
And we probably should note that those grain commodity price falls we noted yesterday have gathered steam today.
The UST 10yr yield is now at just on 4.04% and down -8 bps from yesterday. The key 2-10 yield curve is positive, but tightened up to +9 bps. Their 1-5 curve inversion is still inverted by -33 bps. And their 3 mth-10yr curve inversion now more at -77 bps. The Australian 10 year bond yield starts today at 4.26% and down -7 bps. The China 10 year bond rate is at 2.15% and little-changed. The NZ Government 10 year bond rate is just over 4.45%, down -3 bps from this time yesterday.
Wall Street has started today with the S&P500 down -0.6% in Tuesday trade - and now off its record high. Keeping prices near record highs are good early Q3 earnings reports. Overnight, European markets were also lower and mixed between Paris's -1.1% fall and Frankfurt's -0.1% dip. Tokyo was up +0.8% yesterday. Hong Kong fell a rather sharp -3.7%. And Shanghai retreated -2.5%. Singapore was unchanged. The ASX200 ended its Tuesday session up +0.8% and the NZX50 rose +0.6% on the day in an afternoon recovery.
The price of gold will start today at US$2661/oz and up +US$14 from this time yesterday.
Oil prices are down a sharpish -US$3.50 at just on US$70.50/bbl in the US while the international Brent price is now just under US$74.50/bbl.
The Kiwi dollar starts today at 60.8 USc and down -10 bps from this time yesterday. Against the Aussie we are little-changed at 90.7 AUc. Against the euro we are also little-changed at 55.8 euro cents. That all means our TWI-5 starts today now just over 69.2, and marginally lower from yesterday at this time.
The bitcoin price starts today at US$67,003 and up another +1.9% from this time yesterday. Volatility over the past 24 hours has been moderate at under +/- 2.4%.
Join us at 10:45am today when we will have full coverage of the Q3-2024 New Zealand CPI result, a crucial factor in setting monetary policy.
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39 Comments
I have a sneaky feeling that the residential property market may be opened up to foreign investment. There is an obvious tax deficit in this country, and they have shit canned a CG tax (for now). I think this will be the government's next move, provided they can get it through the coalition.
The tax deficit is because they are trying to tax ordinary Kiwis who have very little to give, but not taxing the big business's and banks who are making big profits. That's where all the money is going. Bleeding the bottom to the benefit of the top will ultimately undermine the economy, as that requires people to have surplus funds to spend.
Nothing he just said was in any way socialist.
You do realise, don't you, that the bottom half of the income distribution effectively pays no income tax, after in-work benefits are taken into account?
I encourage you to actually look into this rather than blindly parroting that statistic. Have you actually considered what "in-kind" benefits are, as that includes healthcare and education spending. And then our single welfare expense, superannuation is what properly blows that statistic up. Literally, if you look at the graphs, the tax decile that has superannuants is massively skewed compared to any of the other deciles. So basically we have two main groups who end up not being net-tax payers, retirees and families.
Uh... have you? I'm working my way through the tax working group report; the section of data it uses to back up this and I can't see it mentioned that this includes health and education. There is mention of something called 'Social Transfers' in the Australian Data set they used that does mention it, but it doesn't seem to get mentioned as being part of what is and isn't considered a 'transfer'. In fact, here's the text from the page where the household taxes. vs. transfers graph is sourced from:
“Government transfers” include working-age welfare benefits, New Zealand Superannuation (NZS), the Accommodation Supplement, Working for Families tax credits, special needs grants, and so on. The top chart of Figure B.5 shows the distribution of these transfers across household income deciles, with NZS separated out. For example, decile 2 households receive 22% of all transfers and two thirds of that is NZS.
Moreover, we also include estimates of the cash values of in-kind benefits received by households, in the form of education and healthcare spending.
https://www.treasury.govt.nz/sites/default/files/2024-02/an24-01.pdf
I came across that for when I was trying to work out what "in-kind benefits" actually are. I also think it's hard to understate how significant superannuation is on these statistics. We have 912,000 people on super and the vast majority of them are not "net tax payers". Most working age people even if they are in the lower tax deciles will be net-tax payers unless they have medical issues or children pretty much.
I also think it's hard to understate how significant superannuation is on these statistics. We have 912,000 people on super and the vast majority of them are not "net tax payers"
Superannuation is one of the largest expenses of government. Politicians seeking to win popularity contests know that reducing this could cost a lot of votes.
There have been some recent changes to eligibility but these affect fewer potential voters.
Indeed a tax deficit. Add to that our best and brightest exporting themselves and their future taxation to Straya.
There is only one scared cow of untapped tax left in NZ and we all know what it is. A land or CG tax on property would a) generate more tax and b) put further pressure downwards on paying stupid prices for loss making investments thus lowering housing price in NZ. That would make some of youth future tax payers stay as they would have a chance to own their own shelter.
The proverbial win win win. Yes debt gamblers would lose. I'm ok with that as they are a blight on this nation.
pay more tax and the labour will spend it.
look how well the bureaucratic city of wellington has done, don't know who would want to live there anymore.
use tax payer money to create useless jobs to people that come up with stupid ideas like changing names of educational institutes, that no body actually cared about until they mandated it to happen, WHAT A WASTE OF TAX PAYER MONEY! and then... pay them more than the rest of the population who have jobs that actually contribute to the financial and physical health of the country. e.i engineers, nurses, teachers. why is the average wage in public service higher than the average wage in general?
they decided to give us a tax cut!
Don't know about the "us", as a lion's share (upwards of $2 billion) went to landlords.
https://www.nzherald.co.nz/nz/politics/cost-of-landlord-tax-break-incre…
"I have a sneaky feeling that the residential property market may be opened up to foreign investment."
Allow foreigners into the new build market. Keep them out of the existing residential dwelling market, or raise the costs for foreign buyers in the existing residential dwelling market (like Singapore's rates of stamp duty) so as to reduce competition for local residents.
Who could foreigners in the existing residential dwelling market outbid?
1) NZ resident owner occupier buyers
2) NZ residents (& property investment syndicates of NZ residents) who are non owner occupier buyers (e.g landlords in the long term rental market, non owner occupiers in the short term rental market, NZ property developers)
When out of towners enter a market, they typically have more purchasing power than local resident buyers and can outbid. (Look at Auckland based property investors / non owner occupier buyers outbidding local resident owner occupier buyers in some smaller locations in New Zealand)
That may well be the case, now.
But what about 2012 when John Key introduced the special visa category for China Southern Airlines "frequent flyers", which basically absolved them of any kind of character or regulatory checks whatsoever, and enable them to fly in to Auckland with suitcases of cash which could then be laundered through Sky City or the Auckland property market.
How many NZD billions of Chinese owned property still lies vacant throughout Auckland.
We mandate price rises of ~2% per annum to justify creating more Debt. That can make some sense when the population is growing and more unproductive Debt is needed to supplement actual productive income. But that's come to an end. We don't need price rises baked in each year. In fact, with the ageing/non-replacing population dying off, we need the opposite. Interesting times ahead of us all as the current/next generation has to do something with our Debt with fewer people to do it.
September quarter has the council rates increases. But on the flip side fuel has gone down a lot and Auckland lost the 10c fuel tax in the September quarter.
In most Auckland households the fuel bill would have decreased more than the rates bill increased. Not sure if that is the same for the rest of the country.
I found this pearl, from two years ago:
by Yvil | 13th Oct 22, 12:38pm
DELAY, it's all-out delay and few seem to understand this point.
Delay between the RB raising the OCR and mortgages coming to their term, people re-fixing and then, after a few months realising how much less money is left on lattes. Yes people know the squeeze is coming, but many only adjust their spending when they are really forced to. The squeeze on spending from the increasing OCR is only going to start being felt in 2023
Delay between the rising OCR and the CPI stopping rising. Remember, the CPI is being measured year-on-year, meaning that any inflation from the last 9 months and there's plenty, is also included in the latest CPI figure. In conclusion it will take even longer for the CPI to stop rising and it will only do so meaningful when the 2023 first quarter CPI rise drops out, in other words when the 2024 first quarter CPI will be released, which will be in... May 2024 !!! So it's pointless expecting a meaningful drop in CPI before May 2024.
In conclusion, because of the delay explained above, the OCR is going to get raised far too high (most likely 5%), NZ will be in recession in Q1 2023 but this will only be reported in the GDP in June 2023 (we're so slow in NZ) by then CPI will be lower but not yet in the target range of 1-3%, the next set of data will be Q2 GDP deeply negative reported in September 2023, inflation confirming its continued drop towards 1-3% reported in August 2024 and then, the RB will panic and drop the OCR back down aggressively.
So expect a much lower OCR by end of 2024 after a likely peak of 5% earlier in the year.
"The dominant WMP price was essentially unchanged, but the foodservice commodities like SMP were down -1.8%, mozzarella down -8.2% and butter down -0.3%."
They are not "foodservice commodities", they are "commodities". Which is why they are part of the GDT auction.
Foodservice is Fonterra's attempt at value-add.
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