Here's our summary of key economic events overnight that affect New Zealand with news of more signaled tariffs on imports into the US, specifically on metals. A new inflation surge seems inevitable, as does less trade and low growth - in other words we need to prepare for a new bout of stagflation.
But first, American consumer inflation expectations for the year ahead remained at 3% for a third consecutive month in January, according to the NY Fed national survey. This is far more sanguine than the University of Michigan survey we noted yesterday which reported a 4.3% year ahead level. The NY Fed survey noted that households now expect to pull back their spending in the year ahead, however.
The Musk takeover of US spending priorities is leaving many losers, including US farmers.
In Canada, a survey by their central bank of about 30 significant financial "market participants" at the end of 2024 showed that those polled expect the Canadian 3% current policy interest rate still has another -50 bps of cuts to come, but that it will level out at 2.5% from mid-year for the next long period. This survey also showed an expectation of a +1.8% or +1.9% economic growth rate over the next two years, although the largest risk to that is from policy uncertainty in the US.
And staying in Canada, falling residential values are leaving some very tough positions for buyers who bought off the plan, and now find the contract price now far exceeds what a bank would value their purchase for a mortgage.
In India, the one-two public policy push to "go for growth" with tax cuts and a lower policy interest rate, isn't getting plaudits from financial markets. They have driven the Indian currency to a record low against the USD, although it has come off that in the past few hours. (But of course some of that is due to the overall strength of the USD.)
In the face of new US tariff threats, some targeted metals prices have risen. Essentially they are pricing in the higher prices American buyers will have to pay. Aluminium is at a two year high and running at long term high levels, steel comes in many varieties, but rebar steel hasn't moved much because that has China-focused demand. Other commodity-metals are flat, but specialty metal prices are rising. And copper is back near its all-time highs suddenly at just over US$10,000/tonne (NZ$17,750). These shifts higher will underpin global inflationary impulses that no-one can avoid.
And we should probably note that the new aggressive US Gaza policies likely mean there will be no end to the risks of using the Suez Canal, extending its inflationary impact.
The UST 10yr yield is at 4.49%, down -1 bp from yesterday at this time. The key 2-10 yield curve is flatter at +15 bps. Their 1-5 curve is flatter at +8 bps. And their 3 mth-10yr curve is steeper at +23 bps. The Australian 10 year bond yield starts today over 4.43% and up +8 bps from yesterday. The China 10 year bond rate is now at 1.62% and up +2 bps. The NZ Government 10 year bond rate is now at 4.60%, down -2 bps from yesterday.
Wall Street has opened its Monday trade up +0.7% on the S&P500. Overnight, European markets all closed slightly higher. Yesterday Tokyo closed essentially unchanged. Hong Kong ended its Monday trade up +1.8%. Shanghai was up +0.6%. Singapore was up +0.4%. But the ASX200 ended down -0.3% and that was almost matched by the NZX50's -0.2% dip.
The price of gold will start today at just under US$2900/oz and up +US$40 from yesterday. This will be a new record closing if it holds this level.
Oil prices are up +US$1.50 at just under US$72.50/bbl in the US and the international Brent price is now at US$76/bbl and back to week-ago levels.
The Kiwi dollar is now at 56.5 USc and down -10 bps from this time yesterday. Against the Aussie we are down -20 bps at 90 AUc. Against the euro we are unchanged at just under 54.8 euro cents. That all means our TWI-5 starts today just on 66.8, down -10 bps from yesterday at this time.
The bitcoin price starts today at US$97,281 and up +0.7% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.8%.
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98 Comments
Inflationary episode, price gouging under cover of tariffs, and 'inflation is back' stories, all the companies and shareholders gleeful as... apart from the ones selling discretionary goods that people have to stop buying.
Central banks in hero mode, gravely announcing that they need to keep the cost of doing business and the cost of living high; I mean how else do you tackle the cost of living? Gotta double the dose to kill the medicine or some such logic.
An old cliche, between a rock and a hard place, is though accurate to NZ’s plight. The government wants lower interest rates to stimulate “growth.” Overseas the USA under Trump introduces policy that is predicted to stimulate inflation globally. Regrettable illustration of how little NZ is on the world stage but what is the RBNZ to do though. Would wager that the reductions in the OCR will continue until inflation arrives and then up it will race again. That simple theory is based on previous instances of not addressing anything in advance and instead, reacting after the event.
The impact of Trump's policies in the US will reverberate around the world. Chaos will be the end result for a while. Developed political denial will only delay needed reforms.
Even though we are very small in terms of the planet, our government needs to have a focus on national resilience. Trade only works for us if we have a manufacturing industry. Immigration is not growth if lower and middle class Kiwis can't afford to live. The flaws in Luxon's vision are showing, providing the opposition plenty of ammunition, but as some others have expressed, their policies are a problem too. They lost the last election for a reason and it doesn't look like they understand that yet.
The polarisation of politics is evident here in NZ too.
Even though we are very small in terms of the planet, our government needs to have a focus on national resilience.
That's kinda what Trump is attempting, although it appears it'll come at a cost. We can also follow, but will need to choose what we will forgo in order to have more indigenous supply.
But yeah, Trumps stance of "everyone sucks, here's a banstick" should be more destructive than constructive for many around the world.
The tariffs were Biden's or the US's stance as well. Biden did not remove Trump's tariffs and in fact imposed more. Biden did remove the steel tariffs allowed when the US won that 15 years splat and gave them a five year reprieve as I understand. As I see it our problem is our dollar and the difference between our rate and the US.
Resilence comes in different forms. Where Biden wasn't getting much pushback I sense Trump is going to face much more resistence. Macron was saying Europe has to pay for services and yet theyre not taxed. Interesting times.
Many economists are predicting flat pricing for the housing market. And that's based on current projections.
With Ai, trade wars, climate, actual wars, etc etc the odds of a significant black swan event are huge.
Nz economy is stuttering with no vision or plan.
Thus the liklihood of a significant drop in house pricing for nz is very high.
Invest elsewhere.
Didnt Warren say the first rule of investment is not to lose money.
So - if you subscribe to the populist view that nz property might decline in value more than you are willing to lose.. then first get out of Property.
Then work out the 'elsewhere'.. which takes a bit more nous than buying houses.... especially as the world is shifting quickly.
Personally i think the damage the elite will do to society through Ai is still massively underestimated.... and will have huge impact on peoples ability to spend and may even start to stuff up the wealth creation of its very creators
Ultimately its most likely that Ai will start to destroy too many jobs (the entire concept is totally flawed) and be banned as society votes Ai supportive governments out, or overthrows dictorial leaders. What that leaves - likely a china dominated world with heavy tech regulation - is what to invest in today
He's just trying to sound like a money bags high roller. There's no way buying a rental property on current prices with a 60% LVR would stack up at 10% interest rates.
Rookie is rolling in money though, so he can budget to lose $10k+ p.a. per property if interest rates hit 10% because he "budgeted for it".
"9-10% interest rates"
I'm fantasying about it, a 10% mortgage rate would mean $50K a year in interest on a $500K loan. Renting would suddenly look way more appealing as house prices tumble, especially with rental yields struggling to keep up with money markets. You’d earn more from a regular savings account than from a rental property.
Rookieinvestor - Very wise comment indeed !
I remember a Prophet who prophesied 10% interest rates on Mortgages.
I guess he was correct to a certain degree .
https://www.stuff.co.nz/business/money/300941816/the-home-loan-borrower…
Although The Prophet was talking about 10% from Mainstream Banks. Which got to 8.6% floating.
Sometimes Prophets can be a little off on their dates, but the Facts Still Remain, !0% is still coming.
Im sure he would apologize if he could for wrong timing. Bit hard when you are 6 feet under I guess.
Worse Late Than Never.
I was just proposing removal of interest deductibility for rental investors, not the wholesale destruction of rental properties.
Other investors will step in, at the right price, unless they are outbid by FHBs which is also fine in terms of getting people into accommodation.
Or if NACT are really smart maybe they could have some kind of exemption for new build properties so that rental investors are preferentially pushed into increasing housing supply?
by mfd | 11th Feb 25, 8:35am
How about that interest deductibility on rental properties?
now that KO have decided to sell off and not build as much, there may be more reliance on the private investors for housing support, maybe that was a factor in this, knowing KO was not sustainable.
On the other hand, combining the lowering of corporate tax rates with the gradual raising of tax on unimproved land value would truly incentivise those who create value rather than take value.
And circa 70% of corporate tax is borne by employees in the form of lower salaries, so it'd benefit more NZers.
They reduce the price to the US to make up for the tariff, at the expense of everyone else. So we end up subsidising their tariff.
But I’m not convinced a few metals are going to move our CPI in any meaningful way. If anything I reckon tariffs will make our prices cheaper, especially as NZ won’t retaliate.
It’s a bit of a mixed bag. Who pays the tariff can depend on whether the market needs the product more than the product needs the market. Fox example when President Clinton imposed both a tariff and quota on Australian & NZ lamb, the exporters ended up absorbing it. Those producers may in turn seek to recover that loss in revenue from other markets. That though, is putting it very simply. There are a lot of dynamics at play, product by product, market by market.
The tariff is applied at the border so in a practical sense the importer pays the tariff. Whether the price of the imported metal is discounted by the exporter depends on price negotiations between the exporter and importer. However, the ultimate effect is the price of the metal in the USA has increased. This also means any domestic producer on non Chinese supplier now has a potential price advantage over the Chinese imported metal. This advantage also allows those other suppliers to increase prices while still now being cheaper than the Chinese imported metal = price inflation for both imports and all other metals in the economy.
E.g. China sells steel to USA company for $1,000. USA imposes 10% tariff so when imported USA company pays $1,000 to China and $100 to customs. USA producer (Aussie supplier) sells steel at $1,050, it was been undercut by Chinese suppliers but now is not only $50 cheaper but can now increase its price to $1,090 (plus $40 price increase) and still undercut Chinese supplier.
USA has implemented 3 country specific targeted tariffs on Canada, Mexico and China. While other countries may also pay tariffs they do not pay those imposed directly on those 3 countries. See:
https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-don…
He backtracked on those tariffs for Canada and Mexico, and put tariffs on all steel and aluminium imports from any country
https://www.cnn.com/cnn/2025/02/10/politics/tariffs-steel-aluminum-trump
CNN —
President Donald Trump on Monday imposed a 25% tariff on all steel and aluminum imports into the United States with no exceptions or exemptions.
"...My opinion is that lobbying has featured in this announcement. It smacks of a dirty deal whereby local Fund Managers have got around the PM to make this change - so they can slice commissions off their managed funds by telling offshore clients that now an NZ passport will be thrown into the party bag. The PM has trashed the integrity of our passport. These portfolio funds do not constitute direct investments - they bring no technology or skills, contrary to Immigration Minister Stanford's fake assertions - and NZ already has no problem attracting them."
Yes, stupid move, pretending to do something. If they really want to do something, throw out the FIF tax, which collects little in revenue, but stops big investors moving here very quickly.
Again, tax system reform is needed. Instead we get pollies doing the wrong thing and pretending its right. Doesn't matter what colour they wear.
Likely too early but she would get my vote. Protege of McCully though, an expert on machinations, so for better and worse she should at least know how to navigate the political seas. Otherwise, should Winston call it a day, she would be an excellent foreign minister.
What I don’t get, is how the National Party ever selected him to be their leader in the first place. As soon as they were even looking to go with Luxy I told anyone who’d listen that it would come back to bite them. It just shows how incompetent the Labour Party was in that he pushed through to become Prime Minister. So the moral of the story is, they’re all wankers and central government needs to be abolished.
I don't disagree on the shallow talent pool but none of the parties like to have a drag em down beat em up a fight for power. All we get is limp sound bites that tell us nothing. Though tbf that is what they will do when I power. There is such a fear of being seen to be in any way not in tune with current centerist thinking. I hate Trump, but that unwillingness to fight has left a big hole for him to fill.
I do not think they would roll unless he loses an election to Labour and left.
Then I think he would resign anyway, on the night.
Both sides lack a credible plan, one will develop but that will not happen while NZ
clings to the belief that property will bounce back to life and boom again.
Bridges went too early. Usually the leader in opposition in the first term doesn’t last too long and National soon revealed some pretty unsavoury elements in their make up and that blew onto him. Ironically he now sounds and appears much more assured and credible.
The shallow talent pool comment is spot on. They thought Luxon was the second coming of John Key, but in reality if there was someone a bit stronger they could have probably given him a push. He obviously runs a tight ship (his sometimes churlish/short media persona is probably amplified behind closed doors) otherwise the old National would have had more leaks by now.
I know there are a lot of Act supporters on here, but Seymour's another one losing focus (other than focusing on distractions). His dpm stint will be interesting.
I have entertained the notion of a world where that happens. The US is looking to poop on its own allies, so why should they show loyalty? 95% of the world don't live in the US, I can't think of anything tangible the US has a monopoly on if one ignores the global reserve currency, and I'm sure BRICS would have some very favourable trade and finance agreements ready to go to get the ball rolling.
Toys would be thrown/fired/launched/dropped, of course.
To be discussing that interest rates for mortgages could touch 10% is just delusional and shows how many really do not know what they are talking about.
There would be so much blood on the floor and so many living in the streets, , as landlords with mortgages are not going to be housing anyone.
If inflation resurged, 7% interest rate mortgages would mean nothing in comparison to the large increases everyone would have to pay for the bare essentials - food, clothes, transport etc. As harsh as the reality is, people can afford to lose a house, but they cannot afford not to eat.
Not according to an associate of mine, who berated the rest of us for being unwilling to pay higher prices for food so that interest rates could drop and they could afford their mortgage payments.
Of course, the mortgage unaffordability was all about the interest and had nothing to do with extending the mortgage an extra 20-30% buying toys on the house during low rates...
"To be discussing that interest rates for mortgages could touch 10% is just delusional...
There would be so much blood on the floor and so many living in the streets..."
"You'll own nothing and you'll be happy" is a phrase from 2018 predictions for 2030 published by the World Economic Forum, cited as being based on input from members of the World Economic Forum Global.
2030 is just around the corner, with plenty of time for more tariffs.
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