Here's our summary of key economic events overnight that affect New Zealand with news with some stress being relieved, but it building in other areas. Overall there is a recovery in risk appetites.
There were early August PMIs out everywhere overnight. These confirm that growth in developed economies is slowing from a strong pace. The renewed rise in virus numbers and staff and materials shortages also seem to be playing a role in the slowing expansions. The surveys suggest that price pressures are still strong, but they no longer seem to be intensifying.
The US factory PMIs are holding high, but their service PMIs are falling back to a much more modest expansion in August.
But for July, the widely-watched Chicago Fed's National Activity Index recorded a broad-based rise in economic activity in July.
In their housing market, they also reported an up-tick in sales activity in July. The median price rose +18% in the year to US$359,900 (NZ$521,600). They also reported that more houses are coming on to their market for sale.
In their financial markets, liquidity issues seem to be building and they weren't that good to start with. It isn't an unusual summer stress, but the ability of large institutions to trade without their activity moving markets is poorer now than a month ago, and something the Fed will be watching closely because it has the potential to cause market mayhem if it goes wrong.
In China, ships have started berthing again at the Ningbo container port south of Shanghai which may start the process of easing the global congestion it caused. (And China is no longer recording COVID cases and seems to have the outbreak there under control.)
But trading in iron ore yesterday to start the week wasn't a positive event with further falls, even if smaller than recently. But prices for other commodities are rising as shortages stalk their markets. There has been a huge jump in the cost of steel-making coal, for example, up +18% in one week.
China’s export growth, which hit a record high in the first six months, is cooling off sharply in the second half. And the situation could get worse next year, the country’s minister of commerce said yesterday. Chinese exporters are feeling the pinch from a wide range of cost and logistics factors, but a loss of confidence in the exposure of global supply chains to China is increasing taking a toll on them.
In Taiwan, their industrial production data remained very strong in July, mirroring yesterday's export data. But their retail trade is back in the doldrums, hurt by lock downs and pandemic closures.
There were also reports out yesterday for August factory PMIs in Australia and Japan - and both are contracting at faster rates, both with their recent expansion now in their rear-view mirrors. In both cases, the delta variant of the pandemic is doing the damage.
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In Europe, the overnight PMIs show them holding their recent "impressive momentum" (for them at least). Germany leads the way there.
The early version of their consumer sentiment survey for August also sees it holding at a healthy level.
In Australia, there were another 818 new community cases in NSW yesterday with another 698 not assigned to known clusters, so they are out of control. Their lockdown has been extended and they are now under curfew too. Victoria is reporting another 71 new cases yesterday, so it is surging there too and their lockdown is extended, also with a curfew. Queensland is reporting just 2 new cases in a bright spot. ACT has 16 new cases. Overall in Australia, more than 30% of eligible Aussies are fully vaccinated, plus 21% have now had one shot so far. But vaccine hesitancy is a growing issue there.
Wall Street has opened their week with a +1.0% rise for the S&P500 and following Tokyo's positive vibe yesterday. Earlier European markets rose about +0.5% with Paris leading (+1.0%) and London lagging (+0.3%). Yesterday, Tokyo ended with a very positive +1.8% rise, Hong Kong followed with its own +1.1% and Shanghai chimed in with +1.5% on the day. The ASX200 only managed a modest +0.4% rise yesterday, but the NZX50 got almost a full +1.0% gain.
The UST 10yr yield is down -1 bp today at 1.25% although earlier in the New York session it had risen to 1.28%. The US 2-10 rate curve is little-changed at +103 bps. Their 1-5 curve is a little flatter at under +71 bps, and their 3m-10 year curve is marginally steeper at +122 bps. The Australian Govt ten year benchmark rate starts today at 1.10% and +3 bp firmer. The China Govt ten year bond is at 2.89% and up +2 bps. And the New Zealand Govt ten year is now at 1.59% and little-changed.
The price of gold is much firmer today, up +US$24/oz in a day, and now at US$1805/oz.
Oil prices have leaped by +US$4, so in the US they are now just over US$65.50/bbl, while the international Brent price is just under US$68.50/bbl.
The Kiwi dollar opens today +½c firmer, recovering to 69.0 USc and to week-ago levels. Against the Australian dollar we are slightly softer at 95.6 AUc. Against the euro we are slightly firmer at 58.7 euro cents. That means our TWI-5 starts today at just over 72.3 and back in the 72-74 range of the past ten months.
The bitcoin price blipped up over US$50,000 again yesterday but is back below. Still from this time yesterday it has posted a gain and is now at US$49,434 which is up a minor +1.6%. Volatility in the past 24 hours has been moderate at just over +/- 2.3%. (A Chinese court has declared bitcoin "not money".)
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80 Comments
Having risen for a remarkable 41 consecutive quarters , the RBNZ forecasts that the QV index will continue rising for a further 6 quarters. In just two disruptive years March 2020- March 2022 housing "wealth" , (M10 ) will have increased by more than one half of a trillion dollars, ( $ 525,000,000,000), a number that was the entire value of the New Zealand housing market , just a short time ago in 2006. Putting favorable Covid surveys ratings aside, this current government along with past, has enabled a monster 1.8 trillion financial distortion , that if unwound will see the "team" of 5 million unravel. Good luck to the RBNZ raising the OCR and keep the trough feeders happy and government ratings surveys high. Then again the RBNZ does not have great track record of accurate forecasting.
I would suggest that you can't tax owner occupiers with only one home because they simply don't have the money. The market is a distortion caused by the Government and banks and a minority of investors. The banks are making the most money from this shambles, with landlord close behind.
Still disagree Nymad. What about retired home owners with no investment properties? No income, and therefore no tax to offset. Or even someone who has lost their job, by stint of hard work own their own home mortgage free, and no investment properties? No income, no tax to offset. Utterly impractical and only intended to make ordinary people dependent.
So you argue that if someone has no debt then that is unfair?
If this concept became policy it would just put more people into a homeless, or dependency situation which is in itself unfair. Wh
Why do people blame those who have worked hard all their lives and saved and now own their own home as somehow having stolen from them?
Why can't they look to the politicians who have screwed up the economy and markets, failed to regulate the banks, and demand that they fix this now?
Why do the wealthy think that having homeless people on our streets is some how an acceptable outcome of the markets?
I don't know how you infer all of that from my three words above.
Add some land tax. Reduce income tax. That will help the most productive members of society.
Buy some IP insurance if you're worried about becoming unemployed.
The only losers then are fully retired homeowners that don't have extra income. Reverse mortgages will allow them to tap their equity so no more cash flow issues.
Yes it is taxed, but the income is minimal as is the tax. But again why are you so hell bent on forcing people out of their properties?
This is an extreme capitalist perspective, which taken to it's logical conclusion would result in all assets owned by a few, likely elitist class. My preference is for everyone to have the opportunity to own their own home without having to go into hock for the rest of their lives for it. that they do so today is a failure of the market, and therefore the Government for failing to regulate it. A CGT is an policy based on envy but the end result would not enable more to own their own homes, but ultimately make it harder.
How is it forcing people out of their property? At worst it makes people downsize and contribute fairly for their consumption land.
That's the biggest strawman you've ever come up with.
The inverse claim to this is that no tax on land stops people from owning a house.
I know what I'd prefer - I'd prefer more people were not locked out of ownership than protecting the privileged few who will never go homeless, despite your strawman arguments.
So, I stick with my crazy claim.
Plus...
How is a land tax a 'capitalist perspective'? It is a completely redistributive tax ensuing that the economic rent doesn't accrue to a single group of people (land owners).
If it forces people to down size then it is effectively forcing them off their land. What if they bought an average property in the 70s and the cost to down size today meant they had to take out a mortgage?
I disagree with your inverse argument. You're avoiding admitting that the Government has failed to regulate a market, so are therefore supporting arguments that will impact adversely on ordinary people rather than demanding action by the Government to regulate the market. You're also avoiding the elephant of growth. We assiduously avoid this part of the debate, but like climate change it will inevitably come back to bite us.
And a Land Tax is a capitalist policy as only the wealthy can afford it, and it will become a factor to be considered when buying a property. A tax will not guarantee the prices of properties to fall. Meaning the most wealthy will be the only ones looking to buy. But a property tax on second or more properties would be supportable?
Guess you're all right Jack, so everyone else must be too? https://www.stuff.co.nz/national/politics/local-government/125177214/ch…
Rubbish Nymad, but it does and has happened. In protest a few stop paying their rates. the proffered solution is to go into debt to pay them, but in at least a couple where there were reported forced sales, the so called council solutions were unaffordable as well.
Try reading a few of the cases.
You know nothing about taxation, do you Murray.
'A tax is capitalist because only the wealthy can afford it.'
wtf does that even mean? Are you trying to say it is 'regressive', perhaps?
Surely me arguing for a land tax, offset by income tax (which is not 'capitalist' - again wtf???), is arguing for the government to regulate the market appropriately?
What if they bought an average property in the 70s and the cost to down size today meant they had to take out a mortgage?
Give us an example of this supposed hard done by landowner.
You do know that downsizing means less land and less land means less $$, right? Or are we still arguing from fairy land?
Nymad some years ago I was made aware of an elderly couple who owned about a half acre of land just outside town. They had lived in the property just out side town. They had lived there for more than forty years. Both were retired, and had multiple pets. The house was seriously run down, to the point that professional opinion was that it was likely cheaper to demolish it than to refurbish it, but it was their home. They were under some pressure to move from the place because of their health, and the state of the property. The problem was they had no savings (and I assume a poor savings record) and what they could get for the property was well short of what a better quality home on a smaller section in town that suited them would cost. I understand that many people were trying to help, but in the end they both died in that place.
Just another point on Land Taxes - have you heard of rates? Do you know what they are? Oh that's right they're a land tax!
While I do feel for that poor old couple, you are making this out to be a widespread issue when it just isn't the case.
And, no, rates in NZ are not really a land tax at all. The reasoning should be evident if you knew how rates were calculated and what a land tax represents.
So, back to the earlier statement - you know nothing about taxation.
It is a property tax Nymad. I'm just not captured by the 'conventional wisdom' about these things. I realise you come from a banking background and that is a part of the problem. Banks are a big part of the problem having distorted so much of economics to their own ends. I challenge those concepts as not only wrong, but seriously damaging.
. home exempt? Then how about exempting non home owners from the equivalent tax on a term deposit..alternatively, make their rent tax deductible (just as your investment in a home is). That evens things up.
You might have to think that through a bit - as most respond in a manner that indicates they are ignorant of tax effects.
Rastus, you're perpetrating a myth that somehow home owners are better off than renters. Home owners pay rent too. They're just in the form of rates, insurance, maintenance.
If you take your argument to conclusion you could argue that someone paying less rent than another should be made to pay a tax for the benefit he is receiving.
Your tax knowledge needs an upgrade.
Home owner invest $1 mill in a home. No tax on the return (being accommodation).
Renter invest $1 mill in the bank. The interest return is taxed.
The renter then pays his/her rent from that taxed income.
So guess whose is paying tax on their accommodation and who isn't???
The problem being if you can afford a home your investment is not taxed, if you can't, your investment is.
Making rent tax deductible would be one way of levelling the playing field.
Think about it.
The price changes called out by the market are not changes in aggregate wealth – they mainly provide varying opportunities for wealth transfer between one investor and another. There’s an increase in aggregate wealth only if there’s an increase in expected value-added output and deliverable cash flows. Otherwise, a change in the valuation of a given stream of cash flows merely reflects a change in the expected rate of return.
Breakfast briefing: More stress, but also more risk tolerance
The idea that “low interest rates justify high stock valuations” is really a statement that “low interest rates justify low expected stock returns as well.” Those high stock valuations are still associated with low prospective future stock market returns.
Worse, the notion that “low interest rates justify high stock valuations” assumes that the growth rate of future cash flows is held constant, at historically normal levels. If, as we presently observe, interest rates are low because growth rates are low, no valuation premium is “justified” by low interest rates at all.
Presently, the combination of record low interest rates and record high stock market valuations does nothing but add insult to injury.
...the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..
The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. https://www.hussmanfunds.com/
Big debate Frazz "Store of value" v "Money"? History should teach us that trade can be for anything that is deemed by those in the transaction to have 'value'. The green economy might suggest cabbages are money, or carrots (a little hard to bank though), or nails or whatever....
Real terms, it appears United Wholesale Mortgage disagrees with you.
https://www.cnbc.com/2021/08/19/united-wholesale-mortgage-will-accept-b…
If there has been anything more unusual about the past few quarters, the love of safe and liquid assets hasn’t been that thing. Instead, it has been the turning away from loans and lending.
Banks are saying “yes” to safety in a big way and “no” to risk-taking in a bigger way (which is what loans are, especially in the sense of liquidity risks). Link
Same in NZ - banks have loaded up on NZ government liabilities (check out Crown Settlement and Bank Settlement Accounts here and let business and agriculture lending slip.
It's hard to blame them, they have a far, far larger pool of available funds than people interested in using it for business. They have to choose somewhere to secure that funding? At this level of interest rate the funding will just be leveraged into mortgages which are way more secure that business or agricultural lending. (secured to the person as well as the asset)
The desire for liquid assets/collateral exceeds that of return on your money even factoring in an increasing amount of term premium and counterparty risk.
What's causing it and what it means are up for discussion but the general idea is an ever increasing extreme (useable) collateral shortage. This probably indicates perceived risk everywhere and no expectation of recovery or inflation.
George Orwell ... smart guy
these are the jobs of the future
https://www.msn.com/en-nz/news/national/ardern-s-office-seeks-senior-an…
""We are seeking to appoint at pace a fixed-term senior analyst whose role will be to actively monitor open source social media channels, to triage across these channels and to case-manage issues," the ad reads."
This is an extraordinary development indeed. Ministry of Propaganda anyone? Think a few contributors here may already have begun jostling for positions judging by the attacks, on here & sites elsewhere, on anything counter to the governments party line, including columns that ask hard questions and present valid argument , Andrea Vance for instance. And the tax payer is expected to foot the bill for the Labour Party’s spinners and massagers?
As an analyst by profession, I tend to view this as a way to find out what people are talking about, consensus of opinion etc. There are significant issues with it as QAnon teaches us. There are a multitude of rabbit holes for people to fall into which can be highly distracting and misleading. Just on this forum alone there are many who cannot see past their own egos, who will not study an argument for it's merits to have reasoned debate. And many of those are clearly intelligent and educated, as well as experienced in their professional fields. while they bring important perspectives and experience to our discussions, blinkers soon appear.
Perhaps but if there is in fact such a need the role must be politically neutral surely. Closeted up in and under the control of the Prime Minister’s office is anything but that. This role will have powers of search and find, who decides then on direction and intent and who selects which information thus gathered is for publication or not. C’mon, you’ve been in Singapore. This is exactly the type of surveillance techniques they use on their media and people.
I understand your perspective, but am neutral. There are concerns as to how the role is used, but there is merit in a non-partisan position that provided its findings to all parties without favour.
And yes politicians using such a position to identify and counter the nay sayers against them? This is an increasing and worrisome trend across the world at the moment. A leaf out of Xi's book, or Maduro's (Venezuela) or Ortega in Nicaragua?
But in a democracy, strong debate strengthens it. But Governments must be accountable to the people and even here there is a growing movement to undermine our democracy.
FG. Indeed. Senior bureaucrats talk in awed tones of the iron grip being tightened by the prime ministers department on the content of all public interface communications. Even ministers are subjected to micro management of their messaging. This function will be even more tightly regulated as criticism of the shambolic vaccine rollout mounts. Anyone thinking it will be just an objective (and necessary) take down of dangerous anti vax misinformation is deluded. It'll be partly that but folded within a wider objective of defending Ardern's doomed hermit kingdom elimination policy.
My father was attached to US General Thompson’s intelligence unit Fiji WW2. He never lost the art of going to the right place for the right information and would say too that if you keep at it long enough , the information you are looking for and want, can always be found. Don’t want to sound as an alarmist but the word sinister is not amiss amidst this function as it is being proposed to be set up.
Yes, agree. Deeply sinister given the political filter that will be inevitably applied to this initiative. But as with many propaganda campaigns a rationale exists to 'justify' it. Swivel eyed anti vax extremists are pushing dangerous misinformation. People are being sucked in. It's not the Tauranga port workers whom Ardern falsely pilloried as gullible dupes who are of most concern; the data revealing high levels of vaccine hesitancy among the PI community and that 50% of the covid infected are PI, is deeply disturbing. If not addressed we face the spectre of an especially vulnerable minority community with low rates of vaccination when the general population finally achieves 70%+ and the country refuses to accept further shut downs. Catastrophe would descend. Something needs to be done to counter the lunatic fringe. A start could be a non political panel to create agreed definitions of 'misinformation'. Fantasy of course. Ardern's advisers will be waking up to the reality that Deltas' infection multiplier characteristics have probably rendered the isolation/elimination strategy unfeasible and that through incompetence we've squandered our opportunity, so will want to write their own Pravda scripts. Look for faint echoes in their propaganda of Gobbels desperate 'total war' speech of 1943, as realisation dawns that the enemy has mutated into a nightmare.
No sane person would not be alarmed that vulnerable or naive citizens could be misinformed by an agenda that would see them being victims of CV19 and that includes, from a viewpoint, our politicians (most of them hopefully at least.) Therefore if that is the true extent of the thrust of the proposal then it cannot be difficult to reach a cross party accord to formulate, establish and manage the function appropriately. There should be no other alternative in fact.
Can't lie ... I'm a bit mad that I have to still pay provisional tax this week (while my business is seeing restricted trade due to lockdown) so that the government can hire people to spy on what the filthy plebs are thinking and ensure they don't form any harmful opinions of their own.
https://www.stuff.co.nz/life-style/homed/real-estate/126141423/lock"down-prompts-huge-increase-in-property-inquiries
"All that means low interest rates for longer, which is encouraging equity-rich home buyers to look at buying more and harder, estate agents now"
Hi David a Question :
If knows that house prices are at unsustainable level and data suggests that with current lockdown may jump to again, just like earlier when they thought that housing market will fall went with least regret approach, should they now follow the same least regret approach when is just not a thought but reality - not raise OCR but to contain the side effect, Can go with higher LVR and importantly interest only loan and also to protect FHB from FOMO by DTI
The Aussies have a different attitude and remember they have been in lockdown a lot longer than us. Lets see where we are in a few more weeks time. Our government knows full well if they told us it was a 2 month level 4 lockdown right from the start there would be riots. They are going to try and squeeze us a week at a time while we live in hope that its just "a few more days".
3 waters
Those of you who have not read this need to.
https://www.neighbourly.co.nz/public/rotorua/horohoro/message/66865754
NZ is in serious trouble. This government is abusing the mandate entrusted to them last election. This government is presenting all the features that NZ adopted MMP to prevent. This government is resorting to taxation by subversion. This government must be voted out next time if we as New Zealanders wish to live in a free society without this government imposing itself on our households and lifestyle.
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