Here's our summary of key economic events overnight that affect New Zealand with news the instability feared over the new US tariff approach is hitting their economy.
First up today, we need to note that US headline CPI inflation rose in January to 3.0% when no change from the December 2.9% was anticipated. Core inflation was expected to fall to 3.1% from December's 3.2%. But in fact it rose to 3.3%. Rents were a key factor. This has set financial markets on edge.
Although not as aggressive, this official data confirms the University of Michigan consumer sentiment survey that reported a sharp jump in consumer inflation expectations.
US mortgage applications rose slightly, almost all on refinancing demand. So it was driven by churn, rather than new demand. But overall levels remain very low; in the past two-plus years these levels have remained static, and down to levels last seen 25 years ago.
All this unwelcome data had a big effect on benchmark interest rates with the UST 30 year yield jumping +9 bps. Clearly the Fed is right to wait before cutting its policy rate. Markets aren't pricing any rate cut until December now. Wall Street equities turned negative after this news too. The USD firmed on risk aversion. None of this was liked by the US President who vented on social media. But behind it all are building fears about the effect of his very misguided tariff policies which everyone but him sees as sharply inflationary.
While all this was going on, there was a UST 10yr bond auction and that delivered a yield today of 4.56%, lower than the 4.63% at the prior equivalent event a month ago. Investor support isn't wavering but bids here were made before the CPI data release. There will be some large paper losses by these bidders now.
(And we should probably also note that with the new Administration kneecapping the Justice Departments monitoring and enforcement of the area, foreign lobbyists are pouring into Washington DC to plead their cases for special treatment. It's open slather.)
Across the Pacific, Japanese machine tool orders came in at an average level in January, up +4.7% from the same month a year ago, but nothing like the spurt in December.
In China, it won't be news to regular readers, but their property development sector woes are now in crisis territory. The fundamental problem has never been sorted and many companies can no longer hang on. They are going from the zombie phase to actual liquidation now.
India's industrial production is leaking growth and at a faster rate than expected. It was up +4.3% in December, down from +5.0% in November and well below what was anticipated. You can see why their recent Union Budget moved into stimulus mode, and the central bank cut its policy rate. India needs a boost to keep the expansion going.
Meanwhile, India's CPI inflation rate is easing, down to 4.3% in January from 5.2% in December. Food inflation fell sharply, but it is still at 6.0%.
The just released 2024 Corruption Perceptions Index by Transparency International has New Zealand's global ranking slipping further, now to fourth, with Singapore moving into third place. This also bumps New Zealand off the top rank in the Asia Pacific region. The Index is published annually and is the leading global indicator of public sector corruption. While still in the top ten worldwide, New Zealand has surrendered its position as a world leader in integrity and transparency. For many years New Zealand scored ‘least corrupt’ alongside Denmark, now it is now 7 points behind its previous peer. This report covers 24 full democracies, 50 flawed democracies, and 95 non-democratic regimes.
In Australia, December home loan data revealed modest changes. The total number of new loan commitments for dwellings fell -0.4% in the December quarter while the value rose +1.4%. Owner occupier activity was positive, but investors pulled back. The number of new investor loan commitments for dwellings fell -4.5% in the quarter while the value fell -2.9%.
And staying in Australia, we should probably note the recently-retired NAB CEO, kiwi-Ross McEwan, has been appointed chairman of the board of Aussie heavyweight miner BHP. That is a long way up for an ex-ASB banker.
The UST 10yr yield is at 4.63%, up +9 bps from yesterday at this time. The key 2-10 yield curve is much steeper at +27 bps. Their 1-5 curve is steeper at +19 bps. And their 3 mth-10yr curve is steeper at +31 bps. The Australian 10 year bond yield starts today over 4.59% and also up +11 bps from yesterday. The China 10 year bond rate is now at 1.63% and unchanged The NZ Government 10 year bond rate is now at 4.65%, up +4 bps from yesterday.
Wall Street has opened its Wednesday trade down -0.2% on the S&P500. Overnight, European markets all closed about +0.3% higher. Yesterday Tokyo closed up +0.4%. Hong Kong ended its Wednesday trade up +2.6%. Shanghai was up +0.9%. Singapore was up +0.4%. The ASX200 ended up +0.6%. But the NZX50 ended almost unchanged.
The price of gold will start today at just under US$2894/oz and down -US$10 from yesterday.
Oil prices are down nearly -US$1 at just on US$73/bbl in the US and the international Brent price is now just under US$76/bbl.
The Kiwi dollar is now at 56.3 USc and down -30 bps from this time yesterday. Against the Aussie we are down -10 bps at 89.8 AUc. Against the euro we are also down -40 bps at just on 54.3 euro cents. That all means our TWI-5 starts today just on 66.7, down -10 bps from yesterday at this time, limited because we rose sharply against the yen.
The bitcoin price starts today at US$95,555 and again down -0.9% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.3%.
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53 Comments
Latest USA CPI indicates inflation has ceased falling and is appearing to be poised to rise. The Biden administration was largely blamed and presumably booted primarily because of its affect, cost of groceries as a basic example Therefore it will be interesting to observe if that attitude and reaction at large, is rekindled under the new presidency and even more interesting though , if it isn’t.
I liked how Elon said (about the government) that if an organisation doesn't take in more money than it spends it's not viable.
And half his profits are government subsidies.
And his high share value comes from making fraudulent claims about his companies abilities.
The right guy in charge for sure.
He also tweeted $50 million for condoms sent by USaid to Gaza, and to Hamas. Turns out its was Gaza, Mozambique and its was part of HIV prevention program...(but he knew that). His response when caught lying - oh well they should not be sending them at all? (No mea culpa lets just double down). Trump, who was next to Musk at the time of questioning, did not retract his claim.
Stupid is as stupid does
Elon finding things like 150 year old people claiming welfare and no personal information attached to welfare claims has to raise some questions.
Yeah, like exactly how many people Elon?
Did you find one, and ran with it as your proof of evidence? Or Thousands, out of millions of recipients?
You're going to find undesirable outcomes wherever you look. The scale is what's relevant.
Expect the fed to pause for a bit. However reigning in on all government spending and sacking everybody is going to be quite deflationary…will be interesting to see where things are by the 3rd quarter of the year. My pick is still back to QE by then, when the trump bump settles.
I get it, cutting government spending reduces liquidity, which is deflationary. If the US goes into a recession, interest rates usually drop.
However, trade wars and bond vigilantes worried about the size of the US debt could keep rates high even in a US recession. We’re seeing bonds sell off around the world, could be the size of the debt and no growth miracle from demographics.
I don’t think we go back to QE under the Trump/Powell narrative. Powell’s hero is Paul Volcker.
Yes, and while the Corruption index is for 2024, The US is at 65. 2025 will likely see it fall further down that list.
One has to wonder how long it will take the US people to realise just what they have unleashed, and try to force the establishment to clean up its act?
Massive inequality fueled by rich pricks = corruption.
Let's not let it happen here. Keep the foreign rich pricks out.
And don't get sucked in by bullshit trickle down economics which says all you need to do is remove democratic railguards that restrain rich pricks so that rich pricks can get richer.
Yes. Luxon doesn't seem to understand what "getting the economy working" really means. For any economy to work requires people to have funds to spend, especially surplus funds. He's not doing a single thing that is effective at lowering living costs. He's not doing a single thing that's increasing employment or wages. Sure some of the things he's doing might have long term benefits, but as some critics point out, that's not likely.
Importing rich pricks is not supporting the country or our democracy. But then he is a banker and they're the people he thinks he relates to.
He has to go 50, the wheels are falling off the NZ Bus, after that he is at the mercy of the FED, though he may decide to chuck NZD under the bus. We are in a very perilous position right now, and rate impacts are very delayed, that 2035 bond was massively oversubscribed, so funding is not currently a problem.
I'm still going a hold. Still got a couple of weeks to go of further chaos and the signs are that the US is going to hold. I guess it could drop 50bps now and a few could claim a victory but it will be on the rise again next review anyway so a very narrow range to capitalise on it if your mortgage just happens to roll over.
Easy win IMHO I add a raspberry jam donut to the pot... he does not have to lift OCR UNTIL inflation appears in the CPI and with NZ Economy in a hole, unlikely 2025, he will look past imported inflation, what would rising OCR do anyways for this? We need not want most of those impacts, insurance, fuel etc etc. NZ electricity prices going to be tough this year.
If it is a real argument that NZ’s inflation is largely imported, as was repeatedly parroted by ex Finance Minister Robertson and associates, when it was roaring up in his tenure, then surely the RBNZ a with an eye on proceedings in the USA, will begin its defences in advance and should that not mean then, no decrease in the OCR here until more of the overseas scenario crystallises.
Yes I thought it was contradictory then too and do believe many interested parties put exactly that question to Messrs Robertson and Orr during that time, which is why I questioned its relevance at the start of my post, and are therefore interested to see if that reasoning will still apply.
NZs slipping in the corruption index should be a concern for all. This comment is in the piece; "it [corruption] is a key cause of declining democracy, instability and human rights violations". So if we are being seen as more corrupt, then we also face declining democracy and loss of individual rights.
These are topic which regularly get discussed here.
From a treaty principals oral submission. Corruption thrives in our legislative environment.
“Having worked all over the world, I can honestly say that New Zealand is the most corrupt and least attractive regulatory environment I have worked in.
…There are demands for race based payments at every step of the regulatory process and great uncertainty for investors due to the lack of regulatory certainty and the lack of legislative certainty”.
https://m.youtube.com/watch?v=FlFWzn70nuA
It is corrupt due to race payments. Look at what happened with the Dome Valley landfill decision. Local Iwi held out until they were paid off about $10m. Its that simple and in plain sight.
The much maligned today Mr Giuliana was instrumental as Attorney General and then Mayor in bringing NY City up and out of that bad situation. Much greater police presence on the streets, zero tolerance and the so called “broken windows” policy. That is now being revisited because it has been slipping back to those unwanted times apparently.
Landlords pull out of Melbourne, Sydney apartment markets
Poor capital gains, along with high holding costs have spurred a jump in investors who are quitting the Melbourne and Sydney apartment markets, potentially reducing the supply of rental homes in those cities, data from CoreLogic shows.
Another factor in the burst of investor selling in the country’s biggest housing markets is the slowdown in their rental markets, as demand eases from lower overseas migration and rising household size.
Apartments in Sydney delivered just 1.8 per cent capital growth last year. Oscar Colman
As the door closes on some investors, the opportunity could beckon aspiring home buyers as affordability improves in Sydney and Melbourne, where dwelling prices are falling.
Around 8300 investor-owned properties were listed for sale across Melbourne in December, up 6.6 per cent from the previous year and climbed 14 per cent above the last five-year average.
Sydney investors are also leaving the market in droves. More than 6000 ex-rental properties were listed during the same period, which is 1.7 per cent higher than the previous year and 2.8 per cent above the last five-year average.
Apartments in Sydney delivered just 1.8 per cent capital growth last year, while Melbourne fell by 3 per cent. By contrast, Brisbane racked up 16.6 per cent, Adelaide gained 16.9 per cent and Perth 22.7 per cent.
Slowing demand has pushed Melbourne rents lower by 0.5 per cent compared to a year ago, while Sydney rents fell 0.2 per cent.
Victoria’s higher taxes on property investors and rental laws requiring minimum rental standards have added extra costs and depleted landlords’ cash flows.
“Melbourne is relatively unfavourable for investors, not just because of the new tax policies, but also very sluggish returns,” said Eliza Owen, CoreLogic’s head of research.
“Property holding costs have increased for investors because of the reduction in the threshold to pay land tax at the start of 2024. Some people may be cutting their losses and are trying to exit that market now.”
CoreLogic estimated that investors face a $ 292-a-week cash flow shortfall based on the median weekly mortgage repayments of $896 on a 6.45 per cent interest rate for investors and rental income of $604 a week.
In Sydney, landlords will need to plug a $611-a-week gap between rental income of $773 a week compared to $1384 weekly mortgage repayments.
The portion of investor-owned properties listed for sale ballooned to 31.2 per cent across Melbourne, up from the five-year average of 29.1 per cent.
Nearly 1000 ex-rental apartments were listed for sale in central Melbourne alone, up 44 per cent from the previous year. They are now sitting 30.7 per cent higher than the five-year average.
Investor-owned listings account for 54.8 per cent of all stock on the market in the CBD area, a sharp increase from the 49.7 per cent share over the past five years.
The investor exodus is also underway across Melbourne suburbs. In the Darebin-North district, the proportion of investor-owned listings blew out to 45.5 per cent, up from 38.5 per cent a year ago, after nearly 200 properties were added to the market.
Investors are also pulling out of Moreland-North, Glen Eira, Stonnington-West, Maroondah, Banyule, Whitehorse-West, Stonnington East and Darebin-South, adding a total of 1460 surplus stock to the market in those areas as of December.
Arjun Paliwal, head of research at buyer’s agency InvestorKit said some investors were selling, even for a loss, to get out of the poor-performing apartment markets in the city.
“Some investors who bought units or apartments in Melbourne have not received capital gains now for almost a decade, if not sometimes for the past 15 years, so they want to sell so they can deploy their capital elsewhere, or at least get rid of a property that’s been weighing their borrowing capacity down,” he said.
“Some investors have lost confidence that the potential rate cut will turn Melbourne’s apartment sector around because prices have not recovered even when interest rates fell to record lows a few years ago. Supply is clearly an issue there, so we’re seeing a lot of our clients decide to list the Melbourne units.”
Higher mortgage repayments and sluggish capital growth are also driving Sydney investors to sell.
In Parramatta, nearly 400 investor-owned apartments hit the market in December, accounting for 54 per cent of all listings.
Investors in central Sydney put 536 apartments on the market, lifting the share of ex-rental listings to 51.6 per cent, up sharply from the 47.8 per cent average in the past five years.
Further afield in Sydney, ex-rental listings also flooded the Chatswood-Lane Cove, Botany, Ryde, Marrickville-Sydenham, Manly and Blacktown-North, where they climbed by as much as 51.6 per cent.
Thomas McGlynn, chief executive at real estate agency BresicWhitney said more investors were leaving the Sydney market, compared to those coming in.
“Unfortunately, investors are still looking to sell than buy,” he said. “I think, we’re going to see a continuation of more, smaller investment units coming on the market.”
Ms Owen said those smaller rental apartments were unlikely to attract first-home buyers, despite more affordable price points.
“A first-time buyer isn’t necessarily interested in buying these micro-apartments built in the 2010s that were catered for investors, so even though more first-home buyers are coming into the market, they are unlikely to buy those apartments,” she said.
“I think Melbourne is going through a painful transition process now, with more properties coming into the market, but they don’t suit the home buyers of today, so we’re seeing this ongoing weakness in the market.”
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