The Kākā by Bernard Hickey

TLDR & TLDL: Huge demand from locally-infected covid cases to use limited MIQ spots has extended a pause on the issuance of new MIQ vouchers from a ‘few days’ to weeks. Chris Hipkins even warned expats not to book slots in a new ‘randomised’ queueing system, once it opens up, in order to allow space for humanitarian cases.

“We do need to be able to isolate current Covid-19 cases in the community and their close contacts safely in order to bring the entire of New Zealand back to a sense of normality as quickly as possible.

"That is why we are asking Kiwis abroad to play their part in this response by being patient. I acknowledge that is a very challenging thing to ask of them. Clearly there is a lot of demand, so those who were hoping to have a summer holiday in New Zealand my request of them is to leave the vouchers ... now is not a good time to come home for a holiday with the intention of returning back to where you are.” Covid-19 Minister Chris Hipkins in the 1pm presser.

My view: This reinforces just how hard the next six months will be while we vaccinate as many people as possible before looking at opening up. Our borders are hardening and we risk repeated level four lockdowns until vaccination is well over 90%.

Our emergency departments are already stressed and there’s little political appetite to abandon elimination any time soon (see a new poll below). Given staffing and physical restraints stop expanding MIQ places, along with the late start to vaccination, this means businesses wanting staff to travel overseas, workers to migrate here, businesses wanting students and tourists to spend money here, are all stranded for the foreseeable future.

The costs of the late vaccination start and elimination are mounting up, particular as the rest of the world opens up. Victoria confirmed yesterday it has abandoned elimination.

These comments reported in Ireland from the Malaghan Institute of Medical Health’s Director Professor Graham Le Gros emphasise the challenge.

"The border controls & restrictions we have in place just cannot contain it. It would be foolish to think NZ could pursue a long-term strategy of border control, contact tracing & elimination to keep it out.” Malaghan Institute of Medical Health’s Director Professor Graham Le Gros on RTE.

Elsewhere in local news breaking this morning:

Grant Robertson is looking at giving more cash support for non-wage costs to small businesses (Stuff)

Chris Hipkins also said Auckland DHB emergency care departments are stretched and need 20 nurses to come and help from outside Auckland (RNZ)

A locomotive and a wagon fell off an Interislander ferry into Picton harbour late yesterday (TVNZ)

A NZ Herald/Kantar poll found 46% believed Aotearoa-NZ should pursue elimination, 39% supported elimination until over 70% vaccination and 13% said ‘live with covid’

Air NZ is pushing to make vaccination mandatory for another 4,100 workers (NZ Herald-$$$)

Building material suppliers are worried a Government ban on moving materials outside Auckland will halt building elsewhere (Stuff)

In other covid news this morning

Kids get long Covid - A British study released overnight found one in seven children aged 11 to 17 suffered three or more symptoms 15 weeks after infection. The CLoCk study looked at 3,000 kids infected between January and March this year. This might add even more pressure for Aotearoa-NZ to stick with elimination well into next year. (Bloomberg)

Long Covid damages kidneys - A US study released overnight found increased kidney damage among people with long Covid. (Science Daily)

‘We’re not opening up’ - The state Premiers of Queensland and Western Australia were defiant yesterday in not joining Australia’s national strategy of starting to open up after reaching 70% vaccination rates. Victoria formally gave up on elimination yesterday as it reported 120 new cases. Queensland and Western Australia have pledged to maintain hard borders with New South Wales and Victoria until they have vaccinated their kids, which would create a major rift in Australia’s economy. (ABC Australia)

Mu is next - The World Health Organization identified a new Covid variant it called Mu. It was responsible for 39% covid infections in Colombia and 13% in Ecuador. The WHO said its mutations indicated “potential properties of immune escape” and early data showed vaccines were less effective for Mu, similar in a way to that seen for Beta. (Guardian)

In the global economy

‘We’re overloaded’ - Australia Post announced an unprecedented three-day pause in pickups from premises in New South Wales, ACT and Victoria because of Covid disruptions.

Churning it out - US manufacturers grew output faster than expected in August, the Institute for Supply Management’s survey found. The PMI rose to 59.9 last month from 59.5 in July. Economists had expected around 58.6. Anything over 50 represents rising output.

But jobs disappoint - US private sector payrolls data from ADP found jobs rose 374k in August, which was less than economist forecasts of around 613k, although higher than the 326k seen in July. Delta was seen softening new employment. This is a closely watched figure ahead of the really big one: US non-farm payrolls due early on Saturday morning NZ Time. Economists expect about jobs growth of about 750k.

China’s factories pause - The Caixin PMI measure of Chinese factory output fell to 49.2 in August, indicating the first contraction since April 2020. An official PMI index figure out on Tuesday showed expansion with a level of 50.1. The Caixin measure is seen as a better indicator of smaller and medium sized companies in China.

Hawk replaces dove - The Bank of England appointed former Goldman Sachs economist Huw Pill as its new Chief Economist to replace Andrew Haldane, who is retiring. Pill is seen as more orthodox and hawkish than Haldane. Pill has proposed limits on the use of Quantitative Easing while working at the European Central Bank with Otmar Issing, who was also a hawk.

Dribbling it out - OPEC + decided overnight to increase supply only slightly, ignoring requests from US President Joe Biden to release extra volumes to push down prices from their current US$70/bbb.

Double deep recession? - Australian GDP rose 0.7% in the June quarter from the March quarter, which was more than the 0.4% median forecast from economists, albeit a slowdown from the upwardly revised 1.9% growth in Q1. But it’s all moot, given the September quarter is seen badly affected by the lockdowns in Sydney and Melbourne in July and August. Economists see Q3 GDP falling around 3.0%, with the prospect for another fall in Q4 enough to qualify as a double dip recession.

In markets news, Asian, European and US stocks less than 0.5% overnight rose on hopes of Chinese government stimulus after the weaker than expected Chinese factory output figures. European bond prices fell a bit (which meant their yields rose) on talk the European Central Bank would start talking about tapering its money printing at its meeting next week. Although up a bit means still means the German 10 year bund yield rose a couple of basis points to minus 0.37%.

‘You’re under pressure’ - Apple work­ing to add a tool for its smart watches to tell users when their blood pres­sure is in­creas­ing and a ther­mome­ter to help with fer­til­ity plan­ning. It plans to launch a seventh generation of its watches in coming weeks, but the new features are not due until 2022, the WSJ-$$$ reported.

Signs o’ the times news

Useful longer reads

Some fun things

Ka kite ano

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

TLDR & TLDL: The Government has handed $1.25b in cash to property-owning business owners in two weeks and is reassuring them it has another $8b ready in the kitty for more economic support if needed. House prices are set to jump again as some of that cash is used to bid for a much lower number of new home listings during lockdown.

There’s good news on the Covid front here, but mixed news overseas. There were 49 cases in Aotearoa-NZ yesterday, the second day of lower case numbers. The R number here remains below 1.0. But Australia’s outbreak is getting worse. Victoria gave up on its elimination strategy overnight (AFR-$$$).

Coming up: Watch out in the next couple of days for news of a rejigged vaccine supply and demand strategy here. As a example of what could be done, Australia secured 500,000 extra Pfizer doses from Singapore overnight (AP). Singapore had some spare, and Australia has promised to repay them.

Plenty of Crown cash for asset owners

Finance Minister Grant Robertson has reported there is no shortage of Government funds to support the economy and property owners in particular in this latest lockdown.

He told Parliament yesterday (Question 4 in Hansard) $1.25b of Government cash had been given to businesses through wage subsidies inside the first two weeks of the lockdown, which was less than the expected run-rate of $2b per fortnight. He said there was a total of $8b in various unused funds for more support and the Government also had plenty of room to borrow more within its existing self-imposed debt limits.

Agencies are also looking to use their existing baselines, and, in addition to that, if there is a need to top up the CRRF, we can do that without going above forecast net debt figures due to the exceptional performance of the New Zealand economy, providing significant fiscal headroom to do so. Finance Minister Grant Robertson in Question Time (Q4)

Businesses reassured by support

The support has been welcomed by business. ANZ reported its August survey of business confidence found a fall in confidence after the lockdown, but not as much as would be feared.

For now, the results are reassuring. Activity indicators have of course taken a hit, but employment intentions have barely budged. On the other hand, the data does confirm that key activity indicators were already peaking (at very strong levels) before this COVID outbreak occurred. ANZ Chief Economist Sharon Zollner in the ANZ Business Outlook survey.

But not to worry, house prices are still rising

The key thing to watch in our economy (a housing market with bits tacked on) is what happens to house price inflation. Values kept rising in August and agents reported strong buying interest during lockdown and a lack of new listings.

CoreLogic reported this morning that house values rose 1.6% in August, which is a deceleration from 1.8% in July and down from the peak monthly growth rate of 3.1% in April. But it still represents a double-digit annualised growth rate.

Core Logic’s Head of Research Nick Goodall noted a fresh shortage of listings and agent requests for appraisals during the two weeks of lockdown, which may boost inflation in the short term. (Bolding is mine)

“Through lockdowns it is harder for agents to source leads and for vendors to prepare their property for sale. Tracking of early market indicators, like appraisals generated by agents using Property Guru and RPNZ, shows real estate agent activity has dropped by -52% compared to the week before lockdown. This further tightening of supply could lead to some temporary renewed upwards price pressure as pent up demand competes for limited listings.” CoreLogic Head of Research Nick Goodall in his August report.

This chart shows the sharp drop in appraisals in the lockdowns, which reflects sellers not suggesting to agents they want to sell.

However, he sees higher mortgage rates and recently-reimposed Reserve Bank lending restrictions putting a lid back on inflation later this year. He says the relaxation of Reserve Bank controls and its interest rate cuts last year were big factors in the surprise 30% rise in house prices after the first lockdowns.

“In absence of these additional stimulatory measures we do not expect any Covid-induced surge in prices to linger. In fact the current LVR settings are tighter than prior to the initial lockdown (40% deposit requirement for investors) and the Reserve Bank has been very clear that the next move for the OCR is up.” Nick Goodall.

Estate agents are licking their lips

The shortage of listings and the increased interest from buyers with more time and cash on their hands is making real estate agents happy. Independent economist Tony Alexander reported via REINZ late yesterday that his survey of 325 agents on August 24 (during lockdown) found the lockdown hadn’t hit sentiment, with perceptions of FOMO rising in August from July. Agents also reported more first home buyers in the market last week.

“For the first time in five months agents have reported that they are seeing more first home buyers in the market, while the stepping back of investment buyers continues. But fewer investors are selling, a shortage of listings continues to rank as the biggest concern of buyers, and concerns about rising interest rates are increasing.” Independent economist Tony Alexander.

My view: There’s a significant chance of another surge in house prices in the coming months, depending on whether the Reserve Bank hikes interest rates in November and/or December. I think there’s a growing likelihood the length and breadth of these lockdowns will slow activity enough here, along with slowing conditions overseas, to stop the Reserve Bank from pulling the trigger much, or at all.

Also, there’s plenty of cash around for people who already own properties. The issue for buyers is not affordability of interest costs, it is getting hold of a deposit. They are able to easily do that by withdrawing equity from other homes that are 30% more valuable than a year ago. Also, the FOMO factor for first home buyers and others, after what happened last year, will fuel plenty of demand.

There’s also very little supply on the market as sellers also have a big case of FOMO. There is no pressure to sell with unemployment at 4.0% and who would want to miss out on another 30% rise, especially when the actual gains are much larger at the margin when leveraged.

It’s worth knowing that business owners are sitting on $1.25b in cash they didn’t have two weeks ago. Non-financial businesses were sitting on $110.1b in cash at the end of July, up from $87.1b two years ago, Reserve Bank figures show. Households who own their own homes are also cashed up with $206b in term deposit accounts, up from $181.7b two years ago, those same figures show.

It’s worth remembering that before Covid home owners spent $11b a year travelling overseas. That leaves plenty of spare cash, along with the benefits of lower interest rates, to fuel more house buying.

Don’t be surprised again if house prices jump another 10-20% over the next year if the Reserve Bank is unable to put up interest rates and doesn’t further tighten LVR and Debt To Income (DTI) multiple controls. And remember, the Government could also easily pump another $8b in cash into property owners’ bank accounts before Christmas.

Scoops and news breaking this morning

In Covid news:

* Israel (pop’n 9.1m) reported this morning its highest ever number of new daily cases (11,000). It was the first country to heavily vaccinate with Pfizer (80% of adults are fully vaccinated) and is now seeing waning effectiveness and surging hospitalisations among older vaccinated people and non-vaccinated people. It has reimposed restrictions and is giving third doses. (Guardian)

* A Belgian study found the Moderna vaccine produced twice the antibodies produced by Pfizer’s vaccine (Fortune) Also, the EU banned entrants from the delta-hit United States. (CNN)

In the global economy:

* US consumer confidence fell to a six-month low because of delta outbreaks (Reuters),

* EU annual consumer price inflation rose more than expected to a 10-year high of 3.0% in August from 2.2% in July, but the German 10 year bund yield only rose six basis points to minus 0.38% (Reuters),

* US annual house price inflation rose to a 30-year high of 18.6% in June vs 16.8% in May (Reuters)

* China’s services and manufacturing output was weaker than expected in August, although annual GDP growth is still seen over 6.0% in the second half of 2021,

* Aluminium prices hit a 10-year high overnight, partly because China’s Guangxi province in the southwest is cutting back on carbon emissions and there is a drought in the neighbouring Yunnan province which is restricting hydro power for China’s smelters. This is great news for the Tiwai Point smelter, but bad news for power consumers and our hopes of using that Manapouri power to achieve our own emissions reductions.

In business news:

* Allbirds, the sustainable shoe maker founded by former All White Tim Brown and valued last year at US$1.7b, announced plans overnight to list on the US stock market with the BIRD ticker symbol (CNBC),

* Australia’s Ampol, which is already bidding for Z Energy, may also bid for Meridian’s Australian electricity assets, which have been valued at A$1b (The Australian-$$$)

* Chinese property developer Evergande, which is the world’s most-indebed developer, admitted it might default on its debt (NikkeiAsia)

Signs o’ the times news

Chart of the day

Some fun things

Ka kite ano

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe