Here's our summary of key economic events over the weekend that affect New Zealand with news the US and India are driving global demand currently.
First, in the week ahead, the major event for us will of course be the Wednesday RBNZ Monetary Policy Review, the last one for 2024. And markets have priced in a full -50 bps cut in the OCR, a setting that will have to last them though to mid-February.
South Korea will also review its policy interest rate benchmark this week.
In the US, they will release a packed set of data until Thursday (NZT) because for them the week ends with their major Thanksgiving holiday, and the related major retail activity that kicks off the period until the end of year. Coming this week from them are October PCE inflation data, and update of their Q3 GDP, durable goods order data, and some more sentiment surveys.
There is not much economic data due from China this week, but Japan will have a set including updates for retail sales and industrial production. Canada and India will deliver GDP updates, and Australia and the EU will come up with inflation data updates.
Over the weekend the US manufacturing PMI for November stayed in contraction territory, hardly moving from the prior two months. But their services PMI rose strongly to a much faster expansion, and a 32 month high. There were no inflationary signals in this survey. Business expectations were the highest level since May 2022, reflecting optimism about potential interest rate cuts, stronger economic growth, and pro-business policies.
On the consumer front however, the November University of Michigan sentiment for November was down-graded from its 'flash'-reported rise, so that in fact little improvement was evident in the month. These sentiment levels remain about -30% lower than pre-pandemic levels.
Canadian retail sales rose unexpectedly in October and now for a fourth straight month. Excluding car sales, which were strong in September, a small correction was expected. But in fact the non-car retail activity rose very strongly. Perhaps the recent Bank of Canada interest rate cuts are working? They have trimmed -125 bps since May this year and now have an official cash rate of 3.75%.
Japanese inflation fell again in October, now running at an annual rate of +2.3%. That is sharply lower than the 3% rate they had in August but it is still within their central bank's target range.
And staying in Japan, their November PMI stayed positive, also bolstered by the service sector, but manufacturing output contract less - in fact hardly at all - in November which was a good improvement for them.
In India, they again reported strong expansions in both their factory and service sectors. But worryingly, there are tangible signs of serious economic over-heating with cost inflation pressures near extreme levels. Something will break soon. And climate over-heating could also leave the economic situation in a messy place.
In China, a selloff in Chinese stocks deepened on Friday as disappointing tech earnings hurt sentiment already weakened by concerns over Trump’s imminent return.
In Europe, their PMIs were disappointing again, with the expansion in their services sector ending, and it joining the contraction they have had for a while in their factory sector. New orders slipped for a sixth month running. Although still modest, the rate of contraction in November was the most marked since January.
In Australia, their November PMIs were also again disappointing. Business activity slipped as services activity joined manufacturing output in contraction. The reduction in activity coincided with a slowdown in new order growth while external demand remained subdued. But despite this, business sentiment was resilient as confidence in future conditions reached a 15-month high. Go figure.
The UST 10yr yield is now at just on 4.41% and little-changed from Saturday at this time. A week ago it was +4 bps higher. But the key 2-10 yield curve is less positive, now by only +3 bps. Their 1-5 curve inversion is now inverted by -11 bps. And their 3 mth-10yr curve inversion is still inverted by -20 bps. The Australian 10 year bond yield starts today at 4.57% and down another -2 bps. The China 10 year bond rate is unchanged at 2.08%. The NZ Government 10 year bond rate is unchanged from this time Saturday at 4.67%, to be -11 bps lower than this time last week.
The price of gold will start today at US$2716/oz and up another +US$10 from this time Saturday. That makes the weekly gain +US$149 or up +5.8%.
Oil prices are holding at just over US$71/bbl in the US while the international Brent price is still just under US$75/bbl. A week ago these prices were -US$3.50 lower respectively.
The Kiwi dollar starts today at 58.3 USc and unchanged from this time Saturday but down -40 bps in a week. Against the Aussie we are still lower at 89.7 AUc. Against the euro we still at 56 euro cents. That all means our TWI-5 starts today at just on 68.3, little-changed from Saturday but down -40 bps in a week.
The bitcoin price starts today at US$96,743 and down -2.3% from this time Saturday. Volatility over the past 24 hours has been moderate at +/- 2.3%.
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21 Comments
I posted this late on Saturday so I'll post it again in case it is important.
The Newsweek article notes comments from Arnaud Bertrand. The first part of a tweet from Arnaud is below.
https://x.com/RnaudBertrand/status/1859446480198828360
https://www.newsweek.com/china-news-weaken-us-dollar-bonds-1989924
The story around China issuing USD-denominated sovereign bonds in Saudi Arabia is generating an enormous amount of buzz in China, and could potentially be immensely important. I strongly suspect it's a message to the upcoming Trump administration. Let me explain what seems to be going on.
On the face of it, it's not a major story: China issued $2 billion in USD-denominated sovereign bonds in Saudi Arabia, which means that investors lent USD to the Chinese government that they promised to pay back. That's what a bond is. So far, relatively boring.
The first somewhat interesting aspect of it is that the bonds were oversubscribed by almost 20x (meaning $40+ billion in demand for $2 billion worth of bonds), which is far more demand than usual for USD sovereign bonds. Typically US Treasury auctions see oversubscription rate between 2x to 3x so there obviously seems to be very strong market appeal for China's dollar-denominated debt.
The biggest news of the weekend is the COP cop-out.
It was all about 'money'; just like the Ke/English nonsense years ago 'let's create a new market here, and we can all get rich trading in it'.
Except that it's bollocks.
The monetising, and the 'carbon price', are not the issue, or the correct count. The correct count is the tonnage of carbon emitted daily, anf the amout sequestered daily WHICH WOULD OTHERWISE NOT HAVE BEEN SEQUESTERED.
That was a whole-of-planet cop-out, and we're already playing in injury time.
Caught up with a friend (Kiwi's) who had just sold their house in Sydney, they had to sell because they, even as Kiwi's, were deemed foreign persons if they didn't spend 200 consecutive days there and were told by their accountant they were liable for 6.5% annually on land value = many $100,000's per annum. What the hell? We need to reciprocate this for all the Australians who own property in Queenstown and put that towards the new hospital in Dunedin.
NZ resident Kiwi's owning property in NSW or Queensland are going to get a very nasty surprise.
Correct, but that's purchaser duty, the issue they had is land tax which is an annual assessment. An Australian citizen doesn't have to pay it on their primary residence but a New Zealand citizen who is not in Australia for 200 consecutive days does. Not only that, they are deemed foreign investors and hit with the 5% surcharge. So that's 6.5% per annum where as an Australian citizen doesn't have to pay it. Who is going to have 200 consecutive days there, everyone has to travel for work or family.
Its not a requirement to be in the country for consequtive days, only 200 days out of the 12 months in the tax year.
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A New Zealand citizen who, on the relevant date, holds a special category visa within the meaning of section 32 of the Migration Act 1958 of the Commonwealth, and has actually been in Australia during 200 or more days of the 12 month period preceding the relevant date, is not a foreign person.
https://www.revenue.nsw.gov.au/help-centre/resources-library/rulings/ge…
The continuous 200 day requirement applies to people who ARE foreign persons, but who were seeking an exemption from the land tax surchage. It does not apply to people deemed NOT foreign persons (obviously).
If you havent lived in the country for 200 days out of 365, then you arent really living there are you?
Never take legal or tax advice from an accountant. Get advice from a tax lawyer - and if in doubt, seek a personal ruling from the tax office.
That may be the case, as to whether it's 200 consecutive or 200 in total is somewhat unclear. It's definitely consecutive as per the NSW "Residence Requirement"
What isn't unclear is that Kiwi's are now subject to the 5% surcharge as at 1st January 2025 when they didn't use to be - so 6.5%. That's a deal-breaker for most and we should absolutely apply that to Australian owners in Queenstown.
They need to be 'ordinarily resident'- 200 days is not hard - unless perhaps they are recipients of NZ super and have to be back here every 180 days?
Sorry, just speculation on my part. But 200 days contiguous isn't hard, and they can apply for an exemption if there's an obvious reason otherwise (e.g. work-related).
From the sound of it there's more to this story...
The change is that Kiwi's were exempt from the foreign land tax surcharge up until April this year. If you are an Auckland based Kiwi with a property in Sydney you now have to pay the additional 5% per annum.
My point is, we should also be applying this to Australian based investors with property in Queenstown - why should they get a free ride? NSW have set aside the tax treaty between us.
Haha. It's a massive change, same in Queensland. We have been liable for Land Tax as non-residents as Australians are, this is between 1 and 1.5% per annum. Now we are treated as Chinese or any other investor and liable for an additional 5% - so 6.5%.
We need to reciprocate as I know of plenty of Aussies with property in Queenstown.
I think you make a good point. Back around 2003 - 4 a friend of mine who was a REA told me of an Aussie group who came across to NZ and bought up big on NZ houses as investments, as well as a German woman.
All foreign owners should be made to pay. Someone should point this out to the current government as a possibility for getting more tax? somehow I don't think he'd bite, but the potential benefits to Kiwis could be significant.
I you are an 'Auckland based Kiwi' then you are not an Australian resident.
Gees, some people want to have their cake and eat it too...
Not disagreeing that there is disparity between the way we treat each other though - but there aren't flocks of Aussies coming here are there?
So you believe a Kiwi investor now pays 6.5% land tax per annum for a property investment in NSW (I think Queensland may be slightly less) while an Australian with an investment property in Queenstown paying nothing is not worthy of a review of our own tax treatment of Australian based investors?
Meanwhile - in Russia ...
Nabiullina vs. Stagflation: Can Putin's Top Technocrat Save the Russian Economy Once Again? (tl;dr? Skillful as she is, not a chance)
Russian Ruble Falls to 100 Per Dollar in Official Exchange Rate
Russia’s Economy Is Spoiling as Putin Struggles to Balance Guns and Butter
And this one from a few weeks back in case you missed it ...
Russia Faces a Wave of Bankruptcies as Borrowing Costs Skyrocket
While death & destruction are quicker - economics works too.
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