Here's our summary of key economic events overnight that affect New Zealand, with news that while we weren't watching a few people were making financial bets so large they could hurt us all.
In its latest global financial stability report, the IMF says near-term risks have receded as disinflation (that is, the lowering of the positive inflation rate) is entering its "last mile" zone. But they warn that medium-term vulnerabilities are mounting. One of those comes from the hedge fund sector. The IMF says that a small group of very large firms in this sector has built up an enormous short bet on global stability, one so large that if (as seems likely) those bets are wrong that could be a problem for all of us. “Some of these funds may have become systemically important to the [US] Treasury and repo markets, and stresses they face could affect the broader financial system,” they warn (on page 37).
Meanwhile in the US, the number of new claims for jobless benefits was marginally less than in the prior week at 208,500 and this was less than analysts expectations. And that means continuing claims were broadly unchanged at 1.865 mln, also less than market expectations. Those waiting for early signs of US labour market stress are still waiting. It has now been a full 2½ years of weekly reports saying broadly the same thing and there are few signs this will change any time soon.
One reason the wait may be longer is that the powerhouse Pennsylvanian/New Jersey rust belt manufacturing region seems to be on an upswing. The Philly Fed factory survey for April delivered positive new order and activity levels, in fact the best from that region in two years.
But there is no sign that the American housing market is improving. US existing homes sales in March were -3.7% lower than a year ago at an annualised rate of 4.19 mln units. They actually fell at a faster -4.3% rate from February.
Later today, all eyes will be on the Japanese CPI inflation rate. You may recall it came in at 2.8% in February and it is expected to be at a similar level (2.7%) when the March data is released this afternoon. If that is the case, the Bank of Japan will likely be emboldened to widen its moves to get off its very long-running QE programs.
Australia's jobless rate ticked higher to 3.8% in March from February’s five-month low of 3.7% but below analysts expectations of 3.9%. The number of unemployed individuals increased by +20,600 to 569,900 while total employment fell -6,600 to 14.3 mln. There are now 9.9 mln people in full-time work, up +27,900, and 4.4 mln people in part-time work, down -34,500. Part-time roles make up 31.1% of their employed workforce. Their participation rate slipped to 66.6%. (The updated New Zealand jobless rate for March will be released on May 1. As at December it was 4.0%.)
Global container freight rates fell another -3% last week, making them +53% higher than year-ago levels. Outbound rate from China fell again, but there was some movement up in rates to China even though they remain at very low levels. Bulk cargo rates rose +10% in the past week although they are still only essentially at long-run levels.
The UST 10yr yield is now at 4.65% and up +6 bps from yesterday. The key 2-10 yield curve inversion is still at -34 bps. But their 1-5 curve inversion is much less at -51 bps. Their 3 mth-10yr curve inversion back down to -75 bps. The Australian 10 year bond yield is now at 4.39% and up +2 bps. The China 10 year bond rate is -1 bp lower at 2.27% and still its lowest level since at least 2002. The NZ Government 10 year bond rate is now at 4.97% and down -6 bps from yesterday.
Wall Street is lower on the S&P500 in their Thursday trade by -0.3%. Overnight European markets were all firmer by about +0.5%. Yesterday Tokyo ended up +0.3%. Hong Kong was up +0.8% at the end. But Shanghai rose only a minor +0.1%. However Singapore ended +1.1% firmer. The ASX200 ended its Thursday session up +0.5% while the NZX50 fell -0.3%.
The price of gold will start today up by +US$11 from this time yesterday at US$2383/oz.
Despite continuing Middle East tensions and uncertainties, oil prices have stayed lower at just under US$82.50/bbl in the US while the international Brent price is down -50 USc at US$86.50/bbl.
The Kiwi dollar starts today at just on 59 USc and a minor -10 bps softer from yesterday. Against the Aussie we are unchanged at 91.9 AUc. Against the euro we are also marginally softer at 55.4 euro cents. That all means our TWI-5 starts today just on 69 and actually little-changed.
The bitcoin price starts today back up at US$63,221 and a +3.1% gain from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.9%.
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55 Comments
In its latest global financial stability report, the IMF says near-term risks have receded as disinflation (that is, the lowering of the positive inflation rate) is entering its "last mile" zone. But they warn that medium-term vulnerabilities are mounting. One of those comes from the hedge fund sector.
Who’s afraid of the Treasury basis trade?
Almost everyone except Goldman Sachs, it seems
My desk in London used to live calculate the CTD (cheapest-to-deliver) as far back as the 90's
Recommended reading:
The Treasury Bond Basis: An in-Depth Analysis for Hedgers, Speculators, and Arbitrageurs (McGraw-Hill Library of Investment and Finance) 3rd Edition by Galen Burghardt (Author), Terry Belton (Author)
Best place ever. House delivered before schedule to impeccable fit and finish. Country is amazing and even more amazing now I'm there. Locals don't complain about us recent arrivals and welcome us with open arms, you get special priveledges being a "skilled professional". No wokeness and white hetero males revered as gods. Malls and Churches heaps better.
Churches heaps better. Tu meke!! Had to laugh at this, seriously, in what ways are they better? Different scriptures or prophets, newer bibles, louder Hallelujahs? Or is it that there are more carparks, newer buildings, better p.a systems and other aesthetically pleasing symbolism?
Please forgive me my Calvinist ways.
Just lost all cred, for me.
I was there in the late 70s; Bjeke P, Russ Hinze (that well-known Christian) - a sad era. Still has the legacy. I met my life partner in Qland in 1980; we discussed where to live, where to bring up kids.
Chose NZ, never regretted it. Every time we go there to visit, we shudder; it's like going back to a more ignorant age. We have pockets of it here, of course.... scourer from Mataura comes to mind.
Luckily I'm of a slightly younger generation. Grew up in the 80's and toiled away with the Boys Brigade which made me the protestant I am today. Managed to be part of a good division which didnt suffer the ignominy of abusive leadership.
Pa1nter needed the sarc emoji there, it went right over my head.
Was asked to fact-check this post and others claiming a minimum "social credit score" is required to charge a car. Signs clearly say that people with 550+ in the Wechat payment app's loyalty rewards scheme are entitled to charge before paying. I prefer discount perks, myself. Link
So a minimum score on a payment app is required to charge before paying? But you can still pre-pay before charging?
I'd prefer this to the current system we have, where my ability to re-fuel before paying is based on the petrol station staff judging me on my looks & my vehicle.
"Generation Z is unprecedentedly rich
Millennials were poorer at this stage in their lives. So were baby-boomers
A new paper by Kevin Corinth of the American Enterprise Institute, a think-tank, and Jeff Larrimore of the Federal Reserve assesses Americans’ household income by generation, after accounting for taxes, government transfers and inflation (see chart 4). Millennials were somewhat better off than Gen X—those born between 1965 and 1980—when they were the same age. Zoomers, however, are much better off than millennials were at the same age. The typical 25-year-old Gen Z-er has an annual household income of over $40,000, more than 50% above baby-boomers at the same age.
...Some Gen Z-ers protest, claiming that higher incomes are a mirage because they do not account for the exploding cost of college and housing. After all, global house prices are near all-time highs, and graduates have more debt than before. In reality, though, Gen Z-ers are coping because they earn so much. In 2022 Americans under 25 spent 43% of their post-tax income on housing and education, including interest on debt from college—slightly below the average for under-25s from 1989 to 2019. Bolstered by high incomes, American Zoomers’ home-ownership rates are higher than millennials’ at the same age (even if they are lower than previous generations’)."
https://www.economist.com/finance-and-economics/2024/04/16/generation-z…
MMT was taken for a test drive. They called it the “CARES Act.” The failed theory crashed into a wall & burned to the ground as MMT-ers doubled down with more “free” money igniting the mother of demand-pull inflationary spirals. Other than that, the play ended swimmingly. Link
'Merica is not every other place in the world. Were the same study to be performed in China, for example, I suspect the result would be very different given their high rates of youth unemployment. In fact, pick any country with a different Gini Co-efficient and the results are likely to be different.
The article covers number of countries such as... "In Britain, where youth pay is measured differently, the average hourly pay of people aged 18-21 rose by an astonishing 15% last year, outstripping pay rises among other age groups by an unusually wide margin. In New Zealand the average hourly pay of people aged 20-24 increased by 10%, compared with an average of 6%. In 2007 the average net income of French people aged 16-24 was 87% of the overall average. Now it is equal to 92%. In a few places, including Croatia and Slovenia, Gen Z-ers are now bringing in as much as the average."
Interesting. Sorry, the article is paywalled and I don't subscribe. But allow me an observation on the words you've reproduced (yes I know this is exceedingly bad practice).
"In New Zealand the average hourly pay of people aged 20-24 increased by 10%, compared with an average of 6%."
Does the article point out that 20-24 year olds are likely to be on minimum wage, or just above it, and the previous government made considerable inroads on raising the minimum wage? Ergo, had the study been done before the minimum wage increases the results might have looked different.
Does the article refer to youth unemployment rates? This is quite pertinent as "hourly pay" only reflects those in work while excluding all those that can't find a job, or can't get more hours to work.
The American Enterprise Institute is well known for cherry picking stats to make their point. Far play too them. That's what they are paid to do. But take care in treating what they write as balanced.
The American Enterprise Institute didn't write the article - the Economist did. That should be obvious. The AEI was a coauthor with someone from the Federal Reserve on one of the papers in the article. The articles cites other sources in addition to the AEI/Federal Reserve research - including views that disagree with the articles premise. NZ only warrants a one sentence mention sorry. The article was free to view when clicked on it.
American Enterprise Institute advocates in favor of private enterprise, limited government, and democratic capitalism.[6] Some of their positions have attracted controversy, including their defense policy recommendations for the Iraq War, their analysis of the financial crisis of 2007–2008, and their energy and environmental policies based on their more than two-decade-long opposition to the prevailing scientific opinion on climate change.
Even wokester Washington Post hammers EV hobby cars.
"The Biden administration’s costly and coercive crusade to replace internal combustion vehicles (ICVs) with electric vehicles (EVs) is disproportionate to its minuscule climate impact. The American Enterprise Institute’s Benjamin Zycher says the EPA’s own assumptions project that the new regulations will mitigate global warming by 0.023 degrees Celsius by 2100. Because the standard deviation of the Earth’s surface temperature record is 0.11 degrees Celsius, “that effect would not be detectable.
Each half-ton battery for “clean” vehicles requires, reports Mark P. Mills in City Journal, digging and processing 50 to 250 tons of earth for copper, nickel, aluminum, graphite and lithium
...In the two years since Congress allocated $7.5 billion for government-built charging stations, seven have been built.
...Consumer Reports finds that EVs have 79 percent more problems than ICVs. This is one reason Hertz, having preened about its plans to purchase 100,000 Teslas, is selling 20,000 of those it has. Other reasons include: Hertz cycles its fleet into the used-car market, where an EV glut caused prices to plummet 33 percent between 2022 and 2023. Hertz’s Teslas are involved in four times more accidents than its ICVs. (Teslas’ braking and acceleration require getting used to.) Tesla’s complex electronics make them substantially more expensive than ICVs to repair.”
https://www.washingtonpost.com/opinions/2024/04/12/biden-electric-car-m…
Disagree here, my take is that it was always a small market and they have invested heavily since 2020 to push the climate message and the greenwashing that we need to buy new EV's to save the planet. I was on a flight last year with some blokes from the Carribean who had been flown to China to do 3months of training on EV's as technicians, flown home then back again 6months later for another course. All the while China was pushing 50% discounts on EV imports to their island. Bearing in mind it is an island that relies on fossil fuel or solar electricity generation, it seemed pointless to me. Ergo, they have created the demand to then fund the supply, and some manufacturers who jumped on the bandwagon are scaling back on this.
Seems obvious to many that switching from one form of motive power to another is really not going to make any difference to resource consumption but will just result in different resources being consumed while all the other advantages and disadvantages fundamentally remain in place
Fully agree - we should be treating fossil feedstock as worth several times what gold is. As a feedstock, it is irreplaceable.
The knock-on is that we shouldn't be doing nearly as much, and we should be not doing as much so that our grandchildren can do something at all.
That is essentially the point I've been trying to make that there are simply too many people. The current populations will not readily accept reduced lifestyles and therefore consumption, therefore the only other realistic outcome has to be reduced populations. Technology will not fill the gap even though it can create efficiencies. But at the end of the day too many people is too many people and they will all use too much no matter the level of technology available.
Agree, EVs address tailpipe emissions nothing more.
All the other carbon costs of driving remain, new supersized roading infrastructure and maintenance of exisiting assets, sprawl, construction and shipping of oversized vehicles.
Plus all the other externalities : massive congestion, one of the highest road trauma, death and serious injury rates in OECD, health issues though inactivity, air pollution, children's mental health issues due to lack of autonomy, high housing costs, erosion of social connection, etc, etc, etc...
This interested me ...
"Each half-ton battery for “clean” vehicles requires, reports Mark P. Mills in City Journal, digging and processing 50 to 250 tons of earth for copper, nickel, aluminum, graphite and lithium."
Has anyone seen a trustworthy study (i.e. one without 'reckons' and petrol-head biases) of whether recycled batteries have the same, better, or worse footprint? My gut feeling is they must be better. But are they?
(Just an aside - the article linked to is a nonsensical rant of little merit and packed full of 'reckons'.)
The recycling methods are terrible. "Pyrometallurgy burns spent batteries into a slag, and hydrometallurgy dissolves them in acids. Both aim to extract cathode materials. The ideal is direct recycling, which would recover the cathode intact. But for recycling to be viable it must be cost competitive with mined materials.
...Both processes produce extensive waste and emit greenhouse gases, studies have found. And the business model can be shaky: Most operations depend on selling recovered cobalt to stay in business, but batterymakers are trying to shift away from that relatively expensive metal. If that happens, recyclers could be left trying to sell piles of "dirt," says materials scientist Rebecca Ciez of Purdue University."
https://www.science.org/content/article/millions-electric-cars-are-comi…
We have an interesting phenomenon going on too though, in that where it's in favour of status quo models we tend to see the embrace of tech optimism as justification for not needing to change, while in any major areas where change is occurring we see tech pessimism.
Which leads you to wonder whether many outlets are simply very prone or financially or otherwise motivated to status quo bias.
Overall though, we probably see far too much unrealistic expectation that the status quo of personally owned car transport will never change.
Interesting article. Published May 2021. So likely out of date, Did you read to the end?
TO EASE THE PROCESS, Thompson and other researchers are urging EV- and battery makers to start designing their products with recycling in mind. The ideal battery, Abbott says, would be like a Christmas cracker, a U.K. holiday gift that pops open when the recipient pulls at each end, revealing candy or a message. As an example, he points to the Blade Battery, a lithium ferrophosphate battery released last year by BYD, a Chinese EV-maker. Its pack does away with the module component, instead storing flat cells directly inside. The cells can be removed easily by hand, without fighting with wires and glues.
The Blade Battery emerged after China in 2018 began to make EV manufacturers responsible for ensuring batteries are recycled.
Once again, we see China's longer term way of thinking trumping the West's profits first thinking.
So at 2021 we were at the meatball stage of the development cycle where old techniques were being used solve a new problem. I'm guessing that in the not too distance future the designers - as they already are in China - will be redesigning the batteries with recycling firmly in the frame. And new battery tech will enter the equation, but this time recycling will have been planned in rather than a afterthought.
I'll start to freak out when 2% of total vehicles are EVs and they still using older style batteries. Not going to lose any sleep over this issue yet.
Most of the studies are based on extraction costs now, not looking forward.
Electric vehicles are a big part of our transport future but it will not be electric cars, it will be public transport and micro-mobility (tiny cars, e-bikes, electric scooters). The physics for cars does not stack up.
Sourcing & creating steel (the metals that go into it) is entirely different to the minerals & metals for batteries & electronic motors. There is a reason they call many rare earth, why several have even worse mining methods involved and why slavery and child labour in mining (while not encouraged) is openly accepted by many western, eastern and all round the world'n countries for sourcing these elements. Including birth defects in children when parents are exposed to the mining. https://earth.org/cobalt-mining-in-congo/ (note the rare earth ones in electric motors are worse but even just the cobalt, which is not rare earth, mining is pretty much the worst practices you could imagine and many you cannot).
We do need better methods of managing & recycling electrical waste (even batteries are poorly managed by waste disposal in NZ leading to many fires and severe health risks). Recycling for the motors, while much more possible, happens even less.
But since more advanced tech countries do not have this now we would be far from leading the world in our approach to using our highly productive high tech economy to design better systems with our massive R&D and grant funding. [If you cannot see the sarcasm in describing NZs abilities then you have not met the NZ economy, seen NZ STEM education and our productivity crisis]
The rare earth materials are almost entirely in the motor magnets, if you're willing to take a bit of an efficiency and performance hit you can use an induction motor, would be perfectly fine for the average commuter box.
Cobalt is not used in the most common battery used in EVs sold in NZ, LFP
But there is no sign that the American housing market is improving. US existing homes sales in March were -3.7% lower than a year ago at an annualised rate of 4.19 mln units.
New Housing Data Down 15% In One MONTH!
Updates from the US housing and energy sectors heavily rebuff the idea reflation. There is supposed to be resurgent demand when new data shows the opposite, including a shocking crash in one critical segment. Not only do they contradict reflation, these also expose the CPI.
The whole idea of the FEDs' tightening cycle ...is to "dampen things" .... Not sure why Snider was expecting improvement .?
Existing inventory levels are kinda low, by historic levels ...
https://fred.stlouisfed.org/graph/?g=1kjN6
Add in .... the drop in new home construction ...
Then.... maybe the USA housing mkt is in a different dynamic to , say, NZ... where we have an overhang of New Builds together with growing levels of inventory.
The outcome is falling prices in NZ and rising prices in USA... https://fred.stlouisfed.org/graph/?g=1kpsr
Supply is tight and future demand in a bit of an unknown...
My guess is that the "reflation" will happen when the FED starts lowering interest rates... ..... which kinda makes sense..
The IMF says that a small group of very large firms in this sector has built up an enormous short bet on global stability, one so large that if (as seems likely) those bets are wrong that could be a problem for all of us.
If theyre wrong, It's not going to affect global stability is it? Because that's some kind of paradox
For the 9th month of the last 11, China's Treasury holdings declined in February (the latest TIC data),
Despite continuing Middle East tensions and uncertainties, oil prices have stayed lower at just under US$82.50/bbl in the US while the international Brent price is down -50 USc at US$86.50/bbl.
Yeah, that's because the US is back in control of the oil market.
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