Here's our summary of key economic events over the weekend that affect New Zealand with news central bank rate cuts are expected this week - from some, but not all. And Shayne Elliott may be about to end his time at ANZ.
But first in the week ahead, most eyes will be on the American Consumer Price Index, Then tomorrow (Tuesday) the RBA will review its cash rate target, and is expected to make no change a 4.35% and staying above the RBNZ's 4.25%. Central banks in Canada and the EU as well as Switzerland will review as well. The Canadians are expected to cut by -25 bps, the ECB by -50 bps, and the Swiss by -25 bps. Inflation data from India is due too. In China, they deliver CPI, PPI, trade data, and New Yuan Loans data. Back in Australia, we will follow their November labour report and the NAB business confidence report. And perhaps we will get our own REINZ real estate market report for November at the end of this week (although no actual date is set yet).
Over the weekend, the headlines say the US economy added +227,000 jobs in November, compared to upwardly revised +36,000 in October which was heavily influenced by Boeing strikes and the disruptions caused by Hurricanes Helene and Milton. The November rise was above market expectations of +200,000. Employment trended up in health care, leisure and hospitality, government, and social assistance while the retail trade lost jobs. Meanwhile, the jobless rate inched up to 4.2%. (This move probably raised the chance of a -25 bps rate cut at the Fed's next meeting, next week, and taking the lower bound to 4.25%.)
Looking behind these headlines, total employer payrolls rose to 160.6 mln, a +525,000 rise from October and a +2.2 mln rise from a year ago. This is a significant swelling of employer payrolls. More broadly, their household survey has the employed workforce at 161.5 mln (which includes the unincorporated self employed). But that survey is not growing in 'actual' terms even if it is in seasonally-adjusted terms.
Average hourly pay is up +4.0% in November from a year ago. Average weekly earnings were up +3.7% as overtime worked slipped. These are better gains than expected.
This overall bullish labour market report was reinforced by the University of Michigan sentiment survey for December which rose for a fifth consecutive month to its highest level since April. Current conditions sentiment drove this. But rather than a sign of strength, this rise was primarily due to a perception that purchasing now would enable buyers to avoid future price increases. Consumers see inflation trouble ahead.
So perhaps they bought more using personal debt? Total American consumer debt jumped +$19.2 bln in October, when a +$10 bln rise was expected. It accelerating from a downwardly revised +$3.2 bln rise in a month earlier. This marked the fastest pace of growth since July, equating to an annual growth rate of +4.5%, up from just +0.8% in September. Revolving credit, including credit card debt, saw a notable +14% increase, the largest since February, following a smaller +1.4% gain in September. Meanwhile, nonrevolving credit, which includes car and student loans, grew by just +1.1%, up only slightly from +0.5% the prior month.
Canada also released employment data for November overnight. Their employment rose +54,000, almost all of it full-time jobs. But their jobless rate rose to 6.8% and a seven year high, as more people entered their labour market as their participation rate rose.
India reviewed its policy rate late Friday and made no change, although they did cut their reserve ratio for liquidity support reasons.
In China, home loan interest rates are being driven down into the 3% range (depending on borrower financials) and there is talk that they may fall below that in coming months. There is widespread 'news talk' about how their housing market (and land sales to developers) are recovering, but the real evidence is yet to emerge.
But their logistics index indicates improvements in their overall economic activity, reaching a seven year high.
In Australia, media reports suggest that Shayne Elliott will step down this week as CEO of ANZ, after nine years in the role.
The OECD has released its latest update of its Economic Outlook. While it doesn't specifically cover New Zealand, it does point out in a release note that tensions are creating headwinds for international trade in both advanced and emerging markets, and it will probably get worse. They have a rather stunning chart about trade policy uncertainty, here.
The UST 10yr yield is now at just on 4.15%, unchanged from Saturday. A week ago it was at 4.18%. The key 2-10 yield curve is still positive minorly more so, now by +5 bps. Their 1-5 curve inversion is little-changed, now by -16 bps. And their 3 mth-10yr curve inversion is less, now at -29 bps. The Australian 10 year bond yield starts today at 4.25% and down -4 bps. The China 10 year bond rate is at 1.96% and unchanged at its record low. The NZ Government 10 year bond rate is now at 4.46%, unchanged from Saturday - and for the week.
The price of gold will start today at US$2633/oz and little-changed from this time Saturday, and down -US$25 in a week.
Oil prices are another -50 USc lower at just over US$67/bbl in the US while the international Brent price is now just over US$71/bbl. A week ago these prices were US$68.50 and US$72.50 respectively, so down a -US$1.50 since then.
The Kiwi dollar starts today at 58.3 USc and unchanged from this time Saturday but down almost -1 from this time last week. Against the Aussie we down -10 bps at 91.3 AUc. Against the euro we have also held 55.2 euro cents. That all means our TWI-5 starts today at just on 68 to be unchanged from Saturday and down -60 bps in a week. We are approaching a six month low, primarily driven by the surging USD.
The bitcoin price starts today at US$99,796 and down -1.2% from this time Saturday. Volatility over the past 24 hours has been low at +/- 0.9%.
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40 Comments
Overall the US markets are very frothy and there is enough here to give rate cuts a pause. Biden's chip proposals will create job boosts in the Trump term. Unless he reverses those deals. That I don't expect as Politicians of all stripes very rarely reverse what the prior goverment set up. Just ask Luxon.
Trump is upset that the Europeans don't buy American goods. I guess he hasn't seen the trading partners the US most engage with..as he is threatening by just absorbing Canada and Mexico now.
Trade requires trust, genuine engagement and yes some loyalty to succeed. Threats, barriers and blockades long term don't work.
Trust is ultimately correlated with debt.
If you don't think the other party is good for it...
And debt is increasing faster than GDP - which is a fatally-omissive count already. So the retreat from globalism will continue, fanned by abandonment of discretionary spending by the already tapped-out masses.
That's right. Not just the CHIPS Act, IRA has helped mobilise over US$100b of private capital in clean energy and another US$89b in manufacturing as of Jun-24.
The bulk of economic benefits for the US economy from this capital deployment will only start to materialise by 2026/27 and mainly create jobs in semi-urban and rural areas.
Bolton believed borrowers would feel more comfortable fixing for longer durations once mortgage rates got to the 5% mark.
He believed mortgage rates would fall to just below 5% if the OCR bottomed out just about 3%, as the Reserve Bank believes it will, by late-2026/early-2027.
This is the sort of rate that’s expected to have neither a contractionary nor expansionary effect on the economy.
So are 24 months away from 4.99% mortgages?
That is a long wait
Many tried. The banks blocked most.
Or the banks convinced many that shorter terms would be better as the RBNZ had said that we were in for a long period low interest rates. Even bank staff seldom took more than 2 or 3 years and were actively discouraged from longer terms.
Biggest friggin' con ever! .... Those who understood what a neutral interest rate is - weren't fooled.
Was it the banks who blocked them, or mortgage brokers who convinced borrowers to go shorter? For us the latter was attempted, but we persisted and went 5 years in May 2021 anyway. Broker wasn't happy at all.
Anyone know how a broker makes their money? Is it tied to the number of deals they write, so 5 12 month fixes nets more than one 5 year fix? So one customer signing 5 times gets them more over the duration? So...I'm straying into conspiracy theory territory here since I don't know myself.
Given that you can get 2 year 5.5% fix now, there is not much relief in sight over the next 24 months.
This will put a base under housing, but is not going to create a boom.
A 600k mortgage over 25 years at 5.5% is a $3,685 monthly payment, = $44,220 pa
boom times
The current 2 year rate would be based on the current OCR and the expected drops though the 2 year period. So if it dropped linearly from 4.25% to 3% over 2 years, you would expect something like 3 + (4.25 - 3) / 2 = 3.63%. Add the 2% margin and it would be 5.63% now. But it won't drop linearly, most of the cuts will come soon, hence why you can get better than that.
If the National fanboys want to understand why their party is sinking in the polls and performing worse than any newly elected National Party would ever be expected to do just read this article on Simeon Brown's ideological crusade to wreck our transport system. Remember Simeon is Luxon's man/boy, hiring such an incompetent fool in the private sector would not be tolerated.
https://www.greaterauckland.org.nz/2024/12/09/simeon-browns-fanaticism-…
If Greater Auckland is too 'woke' for you here is the Granny Herald version. Note that Chris Penk a National MP was on the working group that proposed the original design, and it was a community led initiative worked through with NZTA and AT that was facilitated former roading engineer. But Simeon knows best.
https://www.nzherald.co.nz/nz/cancellation-of-notorious-warkworth-auckl…
Do incompetents not make up the bulk of government, central and local? Government staff are one of 2 things? Incompetent or lazy. Otherwise wouldn’t they all be in the private sector earning the big bucks? Or are they there for the right reasons? Caring and sharing.
You don't need to be competent to earn big bucks in the private sector. Private sector is a much more simple proposition, earn profit while staying within the law (or bribe politicians to change the law).
Public sector way more complex. I'm currently private sector but spent lot of time in the public sector, public sector way more challenging.
East Coast drought is going to be a bad one. Very little rain over the past 3 months, coupled with an unseasonal frost in early November, has badly damaged some legume crops, which hits supplementary stock feed due to a drop in pea hay production. Hill paddocks are brown and dusty around here and the really hot months haven't yet arrived.
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