Here's our summary of key economic events overnight that affect New Zealand with news the relief is palpable in financial markets today.
First up today we can report that the American CPI inflation rate came in at 2.9% in December, almost exactly as expected and shrugging off some market fears of an upside to those expectations. The monthly change came in at 0.2% and also as expected. Their annual core rate came in at 3.2% and a tick less than expected. Still these levels are nine-month highs - but markets have ignored that fact.
There were no real surprises in any of the detail and this triggered a relief rally across equity, bond and currency markets. They are hoping an interest rate cut by the Fed is back on the agenda
But there was a big surprise in home loan activity during the week, built on growing interest rate fears. Mortgage applications surged by a third last week from the previous week and erasing the declines in application volumes from four prior weeks. It was the largest increase in weekly applications since 2020. And the surge occurred despite benchmark mortgage rates pushing through the 7% threshold. Potential house-buyers attempted to lock in borrowing ahead of fears that interest rates will rise even further. Applications to refinance a mortgage, which are more sensitive to short term changes in interest rates, soared by +43% from the earlier week. But still, applications for a loan to purchase a house rose by +27%. These are enormous moves.
There was also a large surprise in the New York Empire State factory survey, and a negative one. It was the result of a set of small shifts in all the components, none of them by themselves worrisome, but together they shifted the overall index. However, firms there don't think this month's result will last.
But that isn't holding back their big banks. Overnight the first three of them, JPMorgan Chase, Wells Fargo and Goldman Sachs, announced Q4 earnings, and they were "bumper".
In Japan, some central bank remarks from its Governor are raising the possibility that their might raise their policy interest rate at their meeting next week on Friday, January 24. The current policy rate is 0.25%. His remarks indicated he liked the current round of sharp wage increases in Japan.
In Indonesia their central bank unexpectedly cut its benchmark interest rate by -25 bps to 5.75% during its overnight meeting. Markets had expected no-change. The regulator said it moved to ensure their exchange rate and related inflation rate stayed within targets.
In Europe, November industrial production data released overnight showed a small +0.1% rise from October, but that still left it -1.7% lower than year ago levels.
There was inflation data out for Russia overnight too and their war economy is becoming increasingly unbalanced. They now have a CPI of 9.5%, a falling ruble, and a central bank cutting rates on Moscow's orders when they know this is the wrong thing to do. The imbalances will only worsen.
The UST 10yr yield is now at just on 4.66%, and down -15 bps from this time yesterday. The key 2-10 yield curve is less positive, now by +39 bps. Their 1-5 curve is also less positive at +28 bps. And their 3 mth-10yr curve has flattened too, now to +37 bps. The Australian 10 year bond yield starts today at 4.68% and down -2 bps. The China 10 year bond rate is now at 1.64% and also down -2 bps. The NZ Government 10 year bond rate is now at 4.86% and up another +7 bps.
Wall Street is in its Wednesday session and up +1.6% on the S&P500 in its inflation relief rally. Overnight, European markets were all up more than +1%. Tokyo ended its Wednesday trade down -0.1%, Hong Kong was up +0.3% and Shanghai slipped back -0.4% after yesterday's big jump. Singapore also fell -0.4%. The ASX200 ended its Wednesday dipping -0.2% while the NZX50 ended up +0.5%.
The price of gold will start today at US$2687/oz and up +US$16 from yesterday.
Oil prices are up +US$1.50 from yesterday at just on US$79/bbl in the US while the international Brent price is now just over US$81.
The Kiwi dollar starts today just on 56.1 USc and up +10 bps from this time yesterday. Against the Aussie we are down -20 bps at 90.3 AUc. Against the euro we are up +20 bps at 54.6 euro cents. That all means our TWI-5 starts today still just on 67 and unchanged from yesterday.
The bitcoin price starts today at US$99,057 and up another +3.7% from this time yesterday. Volatility over the past 24 hours has been moderate at +/- 2.2%.
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32 Comments
Pay walled article on NZ Herald questioning how come our public service quality is so poor despite NZ boasting one of the highest per capita wealth in the world. Link
The article neither mentions however that the national wealth is majorly locked up in unproductive housing assets that in fact are a drag on the productive economy nor the fact that our financial system pumps significantly more debt into consumption than production leading to our out-of-balance economy.
NZME needs to keep the property advertiser happy by ignoring the elephant in the room and instead pin all the blame on successive governments underinvesting in infrastructure (low hanging fruit for economic commentators).
For everything produced, there is a consumer.
If you're not the latter... reminds me of Cohen: 'to determine who will serve and who shall eat'.
And infrastructure only services properties, when all is said and done. Hence the need - growth being exponential, nothing scales enough (people only having 24 hours in the day to consume, minus sleep minus screen-diversion minus eating...
"infrastructure only services properties" Too shallow PDK. But on one level with an economic focus on housing assets (which produces NO economic benefit to NZ) there is an element of truth. But infrastructure provides a means for communication and transport that enables business and economic activity to take place. The big ask is can the government make that happen to the benefit of the country?
(which produces NO economic benefit to NZ)
It houses the workers that operate industry.
But infrastructure provides a means for communication and transport that enables business and economic activity to take place. The big ask is can the government make that happen to the benefit of the country?
It already happens though. While it's true you need an education system to create doctors and microprocessors, and transport networks to conduct more advanced manufacturing and trade, most infrastructure has diminishing returns. China for instance, has more high speed rail than is financially sound or even useful, and more engineering grads than it knows what to do with.
We are already developed, so introducing slightly better infrastructure than we already have, presents a tenuous business case (in general, there are likely single projects with merit).
"It houses the workers that operate industry." and that generates income for the country how?
"We are already developed, so introducing slightly better infrastructure than we already have, presents a tenuous business case (in general, there are likely single projects with merit)." The first part that "developed" measure has been acknowledged as sliding backwards. But the infrastructure supports ALL activity and without that infrastructure that activity would essentially grind to a stop. So any business case should support the creation of the highest quality infrastructure, if only to minimise maintenance costs. It has already been identified that much of the roading infrastructure is too expensive to maintain. That will be in part at least that it was built on the cheap and never up graded as the needs required.
and that generates income for the country how?
Maybe a doctor or engineer living in a tent in the sticks would be as productive as one with a decent house in a metro area.
The first part that "developed" measure has been acknowledged as sliding backwards
Many people say that. The rift between developed and undeveloped is traditionally quite large. No telecommunications, dirt roads, lack of sewage systems, that sort of thing. We are a far way down the track from there.
So the next question would be, is there a level of development significantly advanced from where we are? There's slightly better internet, faster trains, alternative energy generation, etc. it's not really flying cars and teleporting. Just slightly better versions of what already exists. How much additional productivity is that likely to unlock?
Why's there only one elephant in the room.
The average country consumption rate around the globe is 63%, with only a handful of countries under 50%.
Most of us have outsourced supply of our needs and wants to a 3rd party. And then expect whatever narrow specialisation we have to afford all of them. Square peg, round hole.
The cuts to public services aren't as deep as previously reported since both sides of the spectrum have a vested interest in overstating the numbers.
There were only 2k cuts in FY24, a third of which were unfilled vacancies and a good portion of the remaining were fixed-term employees working on time-limited projects.
The number of redundancies being touted by PSC is 865.
Correct. Not forgetting Labours stacking the deck with several '000s in the 6m prior to the 2023 election. National are doing good work on reducing consultants however virtue signalling on the permanent public service
"...the EFT staff total in the public service at September 2024 is only 296 less than in June 2023."
https://www.kiwiblog.co.nz/2024/12/huge_savings_on_consultants.html
Elephant in the room not ignored, from the article:
Recent UBS data show New Zealand also ranks seventh globally for average private adult wealth (US$408,231). But this figure offers cold comfort. It reflects a housing market untethered from economic fundamentals. We have excelled at selling houses to ourselves at inflated prices while failing to generate the income needed for quality public services.
Assumedly Trump’s special envoy to the Middle East has clouted heads sufficiently hard to impress Trump’s pre-election utterances and bring the cease fire between Israel and Hamas into being of some substance. Next stop Ukraine then. Russia as indicated in this column is in something of a sinkhole all around and the impact of the immeasurable casualties from the battlefront cannot be concealed. Russia has weakened itself here militarily, economically and socially but whatever it may be Russia is Russia and only Russians can change Russia. Don’t know if Trump can fulfil his promised solution quite as rapidly on this one.
US economy going gang busters. Just about all of EU in the doldrums or going backwards. I wonder why. Lets see Green energy policies, aka unreliables and the Russo Ukraine war go hand in hand. I doubt whether Trump will end the Russo Ukraine war as quickly as he claims, now in 6 months if I recall. The oil/gas lobby in the US will persuade him to drag it out for as long as possible while selling as much LNG as possible to the EU at high prices. The recent reduced supply of gas from Azerbaijan not helping either.
The song "Cold cold Christmas" comes to mind, with gas used where relevant.
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