How international market forces affect NZ property

[donna]

Wow that’s alot to take in - in one sitting I’ll need to read this discussion again. Thanks Donna

[Jeffa]

What does the RBNZ see that gives them confidence they can continue on this path of aggressively raising rates while Chinas economy stalls, US is close to a recession, Europe is most likely in a recession and NZ business confidence is low.

Like over doing the money printing could the RBNZ make another policy mistake and tip NZ into a recession?

If Adrian Orr makes another policy mistake, he will definitely be remembered in history..for all the wrong reasons.

https://tradingeconomics.com/new-zea...ess-confidence

https://www.irishtimes.com/business/...sion-1.4886340

https://www.smh.com.au/business/the-...24-p5any7.html

https://www.ft.com/content/c3759294-...f-48b16b818c21

DISCLAIMER: I'm hoping for a recession, this will eventually be beneficial for house prices long term.

[McDuck]

https://videos.dailymail.co.uk/video...8650326599.mp4

What does the RBNZ see that gives them confidence they can continue on this path of aggressively raising rates ...

What other choice do they have?
One of their main metrics is to keep inflation within a certain range.

Besides, even if house prices drop by 15% they will still be overvalued by international standards.

I just wish they had started easing the money supply back in September last year.

That way all the recent home buyers would have had a lower purchase price to pay, and a lower overall debt.

I found this good analogy for earning money during inflationary times, is this person moving forward an up/ I guess they think they are.

[Jeffa]

The release of the May US Fed minutes revealed that most of their policymakers judged that +50 bps increases in the fed funds rate would be appropriate at the next couple of meetings. They also recorded that a twist to a restrictive stance of policy may well become appropriate, and the timing of that shift will depend on the evolving American economic outlook. There is an urgency here that they want to recover lost ground as inflation has burst on them faster than they expected. ,But markets seem unconvinced of there commitment especially as those minutes hinted a late 2022 pause may be needed.

There was another large US Treasury bond auction a few hours ago, this one for their 5yr bond, and this one very well supported too. Like yesterday's, median yields are slipping. Today's came in at 2.66% compared to the prior equivalent event a month ago at 2.72%.

Source: Interest.co.nz.

[Jeffa]

[Jeffa]

The next 6 months is crucial in our economy, like the Fed I believe Adrian Orr is talking tuff but I doubt he believes his own words.

Something will eventually break the higher interest rates go.

[Jeffa]

[McDuck]

That's a great clip of the Guv there Jeffa.

Straight away the questions asked by Bloomberg's annoy me.
Supply and demand, supply and demand, if I hear that childlike simplification come out of pop economists' mouths one more time!
Where's Will Smith when you need him.
But seriously.
You need to put the Governments, and the Token of exchange into that model.
So there are four, not just two factors,
i.e. not just Supply vs Demand,

It's three conditional factors with a modifier!
Supply vs Demand vs Govt will.
With each factor modified differently by the token of exchange (the dollar).

You'd be smart to throw in Black Swans too, if the past two years are anything to go by.

Meanwhile , on the ground here,
Think about those foreign owned banks in NZ.
Squeezing money out of the average person.
The higher the price of houses, the bigger their take.

If Mr Orr had taken his foot off the gas pedal last September, think how much more money would still be in the pockets of the public ( debt free).

[Jeffa]

I believe rate hikes will pause once growth stops.

"The Fed can do some of the heavy lifting " as quoted by Orr, that will assist this leading to zero growth.

Hence the title of this thread

"How international market forces affect NZ property"

Side note: I noticed none of the retail banks jumped at raising rates after the OCR was increased 2 days ago, although they will soon , but it's about competing for "future " market share.

And the fact they have been gorging on huge profits recently.

[Jeffa]

^^ANZ forcasting slowing economic growth second half 2022.

[Jeffa]

Looks like inflation may have peaked in the U.S

With house holds struggling and consumers cutting back, The Fed may pause raising rates after July.

Look for similar data to come from The RBNZ in the coming months,

The markets Nasdaq index heavily reliant on lower interest rates with Americas largest growth companies has begun to move higher.

The Fed's preferred gauge shows inflation rose 4.9% in April in a sign that price increases could be slowing

https://www.cnbc.com/2022/05/27/the-...ndroidappshare

[McDuck]

Looks like inflation may have peaked in the U.S
...

Bit early to call it. They're still spending up large, just being more careful what they're spending it on.

[Jeffa]

Bit early to call it. They're still spending up large, just being more careful what they're spending it on.

Yes I agree,but with 1 or 2 more 50bp OCR increases over the next couple of months this will end what's left over of the splurge.

I wasn't expecting the OCR to be lowered until mid decade and I was being conservative in that prediction, some outliers are predicting if the US goes into a recession by the end of the year, interest rates will be lowered next year 2023, I'm starting to favour that prediction (cautiously)

[McDuck]

Yes I agree ,but with 1 or 2 more 50bp OCR increases over the next couple of months this will end what's left over of the splurge.

I wasn't expecting the OCR to be lowered until mid decade and I was being conservative in that prediction, some outliers are predicting if the US goes into a recession by the end of the year, interest rates will be lowered next year 2023, I'm starting to favour that prediction (cautiously)

Yup.
Agree.
Have you noticed how fast the American financial system changes compared to other places.
They seem to have started way behind New Zealand in this cycle, and have matched us and overtaken us.

I'm interested in your opinion on how exactly an increase in the US interest rates translates to a similar move from the rest of the world.
I'm interested in the exact mechanism.
The chain of events.

So, to start, the FED prints trillions.
That's scary even to type that amount..
We know the US dollar is the unit of exchange for the rest of the world to trade amongst themselves.
Important because if you are an industrialized nation you need to buy oil.
So where does it go from there?

[Jeffa]

I'm interested in your opinion on how exactly an increase in the US interest rates translates to a similar move from the rest of the world.
I'm interested in the exact mechanism.
The chain of events.

All nations have to move relatively in sync with the US fed.

When the U.S starts Q.E this weakens the U.S dollar, because most countries are exporting nations, they can't have a strong local currency to be competitive.

Hence the majority of Central Banks have to print money/lower interest rates to weaken there local currency against the USD to be competitive in the world of exports.