Here's our summary of key economic events over the long weekend that affect New Zealand with news China is having trouble getting its economic mojo back. In fact most signals are suggesting they are slipping further behind.
But first, this coming week is a very busy one in the US. Not only will they release key labour market data (JOLTS, non-farm payrolls) and PMI data (ISM), they will also release their Q3-2024 GDP result (expect +3%), all this while some megacap companies release Q3 earnings results, any one of which could be market-moving.
Japan will release its policy interest rate decision this week. China will publish is official PMIs. And the EU will chime in with PMIs and its GDP result too.
Australia will release its Q3-2024 CPI result in Wednesday, expected to come in at 2.9% which would be lower than the 3.8% in Q2. The RBA next reviews its policy rate a week from today and all indications are that it will hold it at 4.35%.
Over the weekend there were two democratic election results of interest to us, and in both cases, long-governing parties were defeated. This wasn't unexpected however, although the results were a lot closer in both cases than pundits expected. In Japan, the current Prime Minister may be able to hang on by adding a third party to his current two-party coalition. In Queensland, the switch was clearer although not as brutal as was widely expected.
In China official weekend data showed that industrial profits were -3.5% lower in the nine months to September than in the same period a year earlier. This comes amid persistent weak demand, deflation risks, and their property downturn. But just looking at September alone, profits dropped -22% from the same month a year ago. So the bite is on. It seems unlikely that Thursday's October PMIs will be very encouraging.
Foreign direct investment into China for the year to September slumped too, down -30% from the previous year although on the year-to-date basis they favour that was a slight easing from the -31.5% fall in August. For the month of September, the inflow was +NZ$14.2 bln and a huge step down than the +NZ$540 bln that flowed in in September 2023. But at least it is positive.
Leading Chinese economist Zhang Yu has raised the alarm over falling consumption in the Chinese domestic economy. Consumption is under pressure even though Beijing seems to be making big efforts to boost it. In Q3-2024, retail growth came in at just +2.5%, while in the mega-cities of Beijing and Shanghai it turned negative in the months of July and August. He points out that domestic consumption's economic contribution ratio dropped to 49.9% in the first three quarters of 2024, as compared to 60.5% for the first half. That is a very rapid shift. Exports have held their growth level up so far, but that isn't continuing. The shriveling consumption puts China's economy in some sort of peril and Beijing seems to have no answers so far. They have used half of their support measures already. Hopefully the next half will work better.
Across the Pacific, American durable goods orders slipped slightly in September from August, but by less than analysts had expected. But that takes them -2.9% lower than a year ago. Capital goods orders retreated -6.5% year-on-year, but non-defense capital goods orders other than aircraft were higher (although only by +0.6%).
The University of Michigan consumer sentiment index was revised up in October from their earlier 'flash' result, marking a third consecutive month of rises and reaching the highest level in six months. And this same survey found little concern about future inflation, with expectations at 2.7% and that is its lowest level in almost four years.
The Dallas Fed's factory survey was much improved in October, its mildest contraction since the sag that started in May 2022. It was driven by a sharp improvement in production activity. However the recovery in new orders was much weaker.
A very well supported UST 5yr bond auction earlier today brought a median yield of 4.07%. But that was an unusually large rise from the 3.46% at the prior equivalent event a month ago. There was a two-year UST bond auction as well, also well supported but also at a median yield that jumped just as much.
In Canada, retail sales rose again in August mainly on the back of more optimistic car buying. While the overall gain is still low, it is a third month in a row they have reported a year-on-year rise.
The UST 10yr yield is now at just on 4.29% and up +4 bps today. The key 2-10 yield curve is still positive at +14 bps. Their 1-5 curve inversion is less inverted, now by -19 bps. And their 3 mth-10yr curve inversion is also less inverted at -45 bps. The Australian 10 year bond yield starts today at 4.51% and up +8 bps. The China 10 year bond rate is at 2.16% and up +1 bp. The NZ Government 10 year bond rate is just under 4.45% and unchanged.
Wall Street has started its week with the S&P500 up +0.4%. Overnight, European markets were similar, although Paris rose +0.8%. Tokyo ended yesterday up +1.8%. Hong Kong was little-changed. Shanghai rose +0.7% yesterday. Singapore fell -0.3%. The ASX200 ended its Monday session up a minor +0.1%. And of course the NZX50 was closed for the holiday.
Wall Street earnings results for Q3 so far have stayed strong.
The price of gold will start today at US$2743/oz and down -US$5 from yesterday.
Oil prices are down a very sharp -US$4 at just on US$67.50/bbl in the US while the international Brent price is now just under US$72/bbl.
The Kiwi dollar starts today at 59.8 USc and unchanged from this time yesterday or Saturday. Against the Aussie we are up +30 bps at 90.8 AUc. Against the euro we are down -10 bps at 55.3 euro cents. That all means our TWI-5 starts today at just on 68.8, and up +10 bps from yesterday at this time, and from Saturday.
The bitcoin price starts today at US$68,821 and up +1.6% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.3%.
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68 Comments
What to possibly expect after 10 years of DTI implementation
Europe’s broiling housing crisis is making almost a quarter of its citizens consider emigrating in search of a more affordable life, and it doesn’t get much worse than in Ireland, a massive survey of renters and homeowners has found.
A survey of 20,000 Europeans by Opinium for real estate group RE/MAX found that 33% of Irish people are considering moving to another country amid falling levels of affordability in the country. Across Europe, that is only bettered by Malta.
Mission accomplished!
Well said TJ.
Yes, 'tax cuts' will reel 'em in, then we can spend three years sucking them drier.
A good example of journalism:
https://www.planetcritical.com/p/trickle-down-brics
There's someone who has gone from a standing start, to well beyond anyone in NZ.
But their prices crashed in the GFC due to having too many houses!
I’m coming to the conclusion that houses aren’t overpriced, it just costs that much to build them and get services to them. In NZ prices have gone down and now it makes no sense to build so it won’t last.
It maybe adds 10% to the material cost, which is probably say 25% of the house cost (labour and land are the big factors). I think it’s like the supermarkets, it’s easy to accuse the monopolies but if you look around other countries our prices are actually reasonable.
Interesting view on why housing has gotten so expensive to produce. It's about America instead of NZ, but there's similarities.
While many other fields have increased in productivity, housing has actually gone the other way, productivity has actually declined in house building 40% over the decades.
https://www.youtube.com/watch?v=8KTRuxuHnFo&t=247s&ab_channel=Freakonom…
My observations from watching housing shows is that the US have fallen out of love with cookie cutter homes and now desire something a bit more custom and high end like we tend to build in NZ. Some of the costs on their renovation shows make NZ look cheap, often 200k USD or more for an interior reno.
But most of our population growth is within cities.
I do agree that regulation adds a lot of cost and is often unnecessary, but in most of NZ connection to sewer / stormwater / freshwater / road is a necessity. We can't build any significant number of houses with septic tanks, stormwater flowing to the neighbours, and goat track roads.
About 25k if you hired professionals to do the whole job, or are you doing some/most of it and not including your costs? Considering it cost us about 6k just for a plumber to redo a small bathroom that seems very cheap.
You will also need to occasionally spend money on your setup too, it won't last forever.
I paid someone $20k to do the sceptic 3 years ago, and a pump for the water is about $2500. Added a bit extra to round up. There is quite a bit more labour involved in a bathroom.
Sceptic tank might get emptied every 5 years for a few hundred bucks. The incoming water doesn't need much maintenance at all.
$2500 for the pump, plumber and electrician? Again that seems very cheap to me. Don't you also need a tank, spouting, overflow, etc?
And it won't last 100 years like a decent investment in a town system should.
And you haven't mentioned the third water - not everyone has acres of farmland to dispose their stormwater in
I doubt it. The history of de-regulation demonstrates that when Governments stop regulating markets, other players manipulate them.
I would suggest the regulation that is being applied is not effective at ensuring prices remain affordable. I had put "Not effective at what it is trying to achieve" but then realised the regulation may actually be intended to favour a different outcome.
Houses get cheaper, but you just move people from the "can't afford a house" bucket to the "not allowed to take out a loan for a house even though I can afford the repayments" bucket. And because houses get cheaper, no one will build any, meaning even more people end up in those buckets.
And because houses get cheaper, no one will build any
It's probably the opposite. The cost to build new houses somewhere like Ireland has increased, just as it has pretty much everywhere. So no one can afford new houses, and people have to compete for the limited existing stock.
If you can't work that out?
This is exactly where economics - and those choosing to believe and report it - fails. As you come up against LIMITS - physical and thermodynamic ones - the competition comes on. We have added population exponentially, and de-materialised the planet exponentially. Of course 'incomes' were going to reduce vis-a-vis competition for a nest (in ecological terms, that is what it is). The built infrastructure of humanity - houses included - now outweighs all nature-grown biomass on the planet - no longer can we hide behind ' Adam Smith told us the world is infinite, and verily we believe'. It bloo-y isn't.
I reckon you could still build a similar house to a 1950's NZ house for the same (or less) material cost (inflation adjusted). But no one wants (or is allowed to build) a small 3 bed, 1 tiny bathroom with no shower, 1 tiny kitchen with no pantry or gadgets, 8 power points in the whole house, no insulation, no decks, no walk in wardrobes, no heat pump, no garage or carport, single glazed, square box. So I don't think material supply is the issue.
We do obviously have more demand for a finite amount of land; countries like Japan have had that issue for much longer than us and survived.
JJ - your comment lacks logic - heck, lacks coherence.
Why did you relate old-style housing, abhorrence thereof, with material supply? Can you still get heart kauri? Heart Rimu? They were finite (actually renewable, but slow-rate-replenishable) stocks; they're gone. We do that with every resource-stock, and we do it best-first.
The joke is that you can still build cheaply and compliantly, but it is in almost nobody's interest (in the supply chain) to help/advise you to do so.
Japan imports resources (essentially, importing other's acres). It tried to do that in extremis, which was WW2. No yardstick - except that that is what we do too; palm-kernel is imported acres that were once rainforest, for instance. The word which describes Japan, current form, is; Unsustainable.
At some stage the planet will become unlivable, or we may blow each other up, but I doubt we will fail due to a lack of resources.
At some stage the planet will become unlivable, or we may blow each other up, and it will be because of a lack of resources to maintain our current lifestyle.
Fixed that for you
Jimbo is interesting - one who fiercely refuses to learn.
Yet seems to think he has the right to postulate.
He fell into the pine trap - it's not sustainable, takes space, and NOW space at that. Kauri and rimu were historical space; acres of sunlight BEFORE we got here; pine is real-time space, no way can that be 'replacement'. It's intellectually flawed to posit such. Sunlit acres per time, is the yardstick - goes for the fossil energy resource we're squandering flat-out too.
(he should watch the link I provided - he won't because he can't because the consequences...)
I do understand that we can't use finite resources forever. But unlike you I believe we will find alternatives given the need, like the pine example; we didn't stop being able to build houses when we ran out of Kauri. There is plenty of energy in the sun, fossil fuel is not the only possible way to utilise it, and there is probably still plenty of fossil fuel left while we build alternatives and discover new alternatives.
Also I don't think it would hurt to reduce our lifestyles a bit. Do we really need to be flying all over the world? If we run out of fossil fuel we may need to change our lifestyle to align more closely to the capability of renewable electricity, maybe even back to trains etc. It might be your country lifestyle that becomes less feasible.
The problem is too much money (debt)....all debt is secured by assets and if you increase the debt (growth) asset prices in toto must increase....housing is considered the most secure of assets, and why wouldnt it be, everyone needs somewhere to live.
The only solution is to allow debt destruction (defaults) ....and who is going to vote for that?
It's really hard to overlook the issues by elevated new supply.
If we take something like cars for instance, 5 years ago you could by a used road legal car for $1500-$2000. In 2024, you're looking at around double that.
Is that due to excess credit, or is it due to a) new cars being more expensive, and b) restriction of used car imports due to increased safety/emissions regulation?
Good question - and it's both.
Inflation counts for some, but everyone clipping the ticket (and all needing 'more' to live) is part, and that is atop resource depletion (every 'next' ton of everything taking more energy to deliver, and being more dispersed to begin with.
And there has been a push from the worried-about-extinction dinosaur industries, to ensure monopolisation into the future (Bishop/Brown being the classic result of such funding/lobbying; trying to tie down the next 30 years... as if that were possible...). That push needs refunded, and it's got to be coming from the buyers of their products - where else? We are being used to fund the propaganda we endure - Bernays worked it out...
Again, it is the ability to pay (Dana Meadows and fish stocks)....but youre correct in many respects, the system cannot survive resource depletion, nor depopulation, nor in my opinion expanding inequality.....it will break, probably sooner rather than later. (probably ahead of LtoG projections)
And that wont be much fun
You missed "in toto"....price is always repeat always the ability to pay, and that ability is governed by the supply of money ....and all money is debt. The variables within that are distribution, demand and location.....money is mobile...more so in recent times due to trade/banking liberalisation.
We could, as JFoe suggests, swap the ownership of that debt (and therefore assets) to the state (public debt) but then the wealthy (who by and large own the assets/debt) will revolt and seek more accomodating locations for their wealth. We could ignore their wealth if we were self sufficient, but we are not, and increasingly less so.
"If you bought with a 20% deposit, well, your equity on average isn’t there any more. Some homeowners could have even dipped into negative equity. The property market hasn’t gone anywhere for the last three years. If anything, it’s gone down.”
But not to worry, Kevin! "I would be anticipating prices ticking up 5% to 6% each year for the next few years" Which is exactly what you were saying 3 years ago. And what's happened in that time? "If anything, it’s gone down."
So what happens if that fall in prices keeps going to "those who had owned a property for 15 to 20 years would still have equity." That's right. Their equity will evaporate or diminish as well. So those who own secondary property(s) outright, or still have equity in excess of any Debt will find that when they sell now (would be the best bet) or in the future will find it's going to be at a price far below what they see today.
https://www.oneroof.co.nz/news/homeowners-loan-requests-rejected-they-h…
So too are the economic-growth cheerleaders, including the media.
And a not-inconsiderable portion of academia.
That Brics link I put up upthread, is an important look-ahead; what wil housing in the West be 'worth', when we can't get anyhing and find out that 'virtual' is ...... just that.
"A very well supported UST 5yr bond auction earlier today brought a median yield of 4.07%. But that was an unusually large rise from the 3.46% at the prior equivalent event a month ago. There was a two-year UST bond auction as well, also well supported but also at a median yield that jumped just as much."
The bond market has decided that future financial and geopolitical risks are also an important part of current price determinantions.
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