Housing shortage distortion spreads

Kia ora,

Welcome to Wednesday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news the housing shortage distortion is spreading.

US existing home sales volumes slipped again in May on a lack of inventory for sale, and that demand pushed up median prices very sharply to US$350,300 (NZ$500,000) which is +24% higher than a year ago and driven by fast rising prices for single family homes. The April to May price rises are a faster pace of increase (+32% pa). This is a market that has gone Kiwi-style, one that they see more closely over their norther border in Canada. Expect a renewed surge in house-building.

The Richmond Fed factory survey also turned in a rising indicator, driven by shrinking inventories, growing order backlogs, and lengthening vendor lead times. Many firms there are reporting skill shortages. And they are also reporting high growth rates of both prices paid and prices received.

In testimony before Congress today, Fed boss Jay Powell said US job growth should pick up in coming months, and temporary inflation pressures should ease, as their economy continues to recover from the effects of the pandemic. This confirms the Fed's view that the inflation we see is temporary. While markets are nervous, they basically are buying this view.

There was another large US Treasury bond auction overnight, this one for their two year Note. They raised US$69 bln of which the Fed took US$9 bln. The remaining US$60 bln received a massive $152 bln in bids. But bidders expected and got higher yields. The median yield this time was 0.22% pa and up from 0.11% at the equivalent event a month ago, one that was similarly popular.

In China, their media is going all out to celebrate the 100 year anniversary of the Chinese Communist Party and virtually deify Chairman Xi. Even economic news is being distorted to tell the 'glorious story'. But in its shadow, the central bank "reformed" the way banks calculate deposit rates, setting new ceilings which will lower lenders’ funding costs. Many SOE banks lowered their deposit offers by up to -50 bps as a result.

Also not in the spirit of celebration, some international analysts are downgrading their China 2021 recovery estimates.

Taiwanese consumer confidence took a dip in May as the pandemic made an unexpected return. But while this measure isn't back to its pre-pandemic levels, apart from this stumble it has been on track to do that.

EU consumer confidence however does seem to be making its way back to 'normal' - which for them means there are still more pessimists than optimists. But the June result has that deficit at its lowest since 2018 and well above pre-pandemic levels in 2019.

Global foreign direct investment (FDI) flows are expected to bottom out in 2021 and recover some lost ground with an increase of +10% to +15%, according to UNCTAD’s World Investment Report 2021. 

We should also note that last night, New Zealand paused quarantine-free travel with NSW while they get the Sydney's Bondi cluster pandemic outbreak under control, dangerous because it involves the Delta variant.

The UST 10yr yield starts today down -1 bp at 1.47%. 

The price of gold starts at US$1779/oz which is down -US$5/oz from this time yesterday.

Oil prices have eased back slightly in the US at just on US$72.50/bb, while the international Brent price is little-changed at just on US$74/bbl.

The Kiwi dollar opens today back up at 70.2 USc and another +¼c overnight recovery. Against the Australian dollar we are up to 93 AUc. Against the euro we are also firmer at 58.8 euro cents. That means our TWI-5 starts today at 72.7 and on the way back to where it was a week ago.

The bitcoin price is now at US$33,020 and up +1.7% from this time yesterday. In between it got as low as US$28,815 but that was relatively brief. Volatility in the past 24 hours has been extreme again at +/- 7.7%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we’ll do this again tomorrow.