High rates hurting commercial property funds

Economy Watch

Kia ora,

Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

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

And today we lead with news of mostly second-tier indicators today.

And that is because it is a public holiday in the US, Memorial Day, and financial markets are closed there.

Tt is probably good that business is closed there for one major commercial real estate investor. Starwood Real Estate Income Trust has had to limit the amount of money that investors can redeem in the fund (see page 6), in an attempt to fend off a cash crunch as high interest rates hurt the market for commercial properties such as office buildings. They aren't the only REIT facing a liquidity crisis. With interest rates rising again, the tide is going out on these types of investments.

In Japan, yields for their 10-year government bond yield rose above 1%, its highest level in 12 years. This came as the Bank of Japan governor said they need to re-anchor inflation expectations and warned that estimating the neutral interest rate accurately is challenging. Meanwhile, a deputy said the end of the battle against deflation was in sight, adding that wages are likely to continue increasing.

Despite the punishment grip imposed by China (for voting for a candidate Beijing doesn't approve), consumer sentiment in Taiwan actually rose in May and by more than is usual. However to be fair the rise is just back to 'normal' levels after their recent election.

China released industrial profit data today for April, and although this came in almost +14% higher than in April 2023, it is a very low base that enhances the apparent performance. Compared with April 2022, there profits are actually down -17%.

In Germany, their closely-watched Ifo Business Climate indicator was steady at 89.3 in May, the same as a downwardly revised 89.3 in April, but both were well below forecasts of 90.4.

And we should probably note - again - that the local carbon price hit another new recent low yesterday, now under NZ$45/NZU. You may recall that the last Government auction price was fixed at in March at NZ$64/tonne (and that was after a series of failed official events when nothing sold).

The UST 10yr yield is now at 4.46% and down -1 bp from yesterday.

The price of gold will start today up +US$21 from yesterday at US$2354/oz.

Oil prices are up +US$1 at just over US$78.50/bbl in the US while the international Brent price is now over US$82.50/bbl.

The Kiwi dollar starts today up +¼c from yesterday at just on 61.5 USc. Against the Aussie we are unchanged at 92.4 AUc. Against the euro we are marginally firmer at 56.6 euro cents. That all means our TWI-5 starts today over 70.7, which is up +15 bps from yesterday.

The bitcoin price starts today at US$70,052 and up +3.4% from this time yesterday. Volatility over the past 24 hours has been modest though at just on +/- 1.7%.

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

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

Kia ora. I'm David Chaston. And we will do this again tomorrow.