Here's our summary of key economic events overnight with news inflation's rise is now suddenly on everyone's mind, but how it is hitting varies widely around the world.
But first, the latest closely-watched measure of American consumer sentiment shows rising angst. The University of Michigan survey fell sharply for a second straight month to 61.7 in February, the lowest in more than ten years and well below market forecasts of 67.5. The recent slide been driven by perceptions of weaker personal financial prospects, largely due to rising inflation, less confidence in the current economic policies, and the least favourable view of the long term economic outlook in a decade.
We noted yesterday that a small +US$25 bln surplus was expected in the US Federal Budget in January. In the event it was a +US$119 bln surplus, a massive +US$282 bln turnaround from January 2021 and the best result since April 2019.
In Canada, their senior loan officer survey remained negative, only slightly less so.
Taiwanese inflation rose to 2.8% in January, and although it is rising, it remains well controlled there. Their PPI remains high, although it was flat in January from December, suggesting it is past its peak.
Meanwhile, Taiwanese exports remain very high, although they did slip in January from December. Recall, there is no base effect in these levels with the island nation a regional export powerhouse.
The German inflation rate eased slightly to 4.9% in January, the expected level, after hitting a 30 year high in December of 5.3%. Base effects are easing now. But energy prices remain the core reason German inflation is high.
The Russian central bank raised its policy rate sharply overnight, by +100 bps to 9.5% and its highest in five years in a bid to tame persistently high inflation and as their currency was hit by the Ukraine crisis. They said more hikes will likely be necessary. Inflation there is running at almost +9%. A year ago it was under fi%. They say the will be on this tightening track until inflation is back under 4%.
The Ukraine crisis might seem a very European cold war era tussle, but it is likely to have global implications if it turns hot. Ukraine is a top global gain exporter, especially of wheat. Russia is a top oil exporter. A hot war, even a minor one that invokes sanctions retaliation by NATO will cause commodity prices to spike, especially food and oil, and both are currently at high levels to start with. It will certainly put the focus squarely back on food security, and global supply chain integration. Shipping will suddenly go from very bad now to much worse.
The latest container shipping rate levels have eased overall only marginally last week. But the the overall picture masks the fact the rates out of China remain sky high, those to China very low. Rates to destinations other than China are also quite low. Bulk cargo rates have been on a downward track since October, but rose marginally last week.
In Australia, their competition regulator has had to make a very embarrassing backdown on a case it said was of cartel behaviour, a case that was brought at the height of the Hayne bank bashing saga, and what it turns out was just a regulator pile-on. The prosecuting agency withdrew the case when it became clear that there was no chance of any conviction based on the 'evidence' the regulator wanted to present. Despite the failure, the ACCC boss will keep his job. It is a situation that besmirches all regulators with the idea that they might just play with the current political whims. And this was a case that promised to have a media feeding frenzy attached, so there are today outsized media grumblings about its removal from the field.
In NSW, there has been a fall to 8,950 new community cases reported yesterday, now with 64,813 active locally-acquired cases, and another 19 daily deaths. There are now 1,716 in hospital there, off their high but staying stubbornly at this level. In Victoria they reported 8,521 more new infections yesterday. There are now 55,617 active cases in that state - and there were 13 more deaths there. Queensland is reporting 5,977 new cases and 14 more deaths. In South Australia, new cases have slipped to 1445 yesterday and 2 more deaths. The ACT has 500 new cases and no deaths, and Tasmania 552 new cases and no deaths. Overall in Australia, about 26,000 new cases were reported yesterday.
The UST 10yr yield opens today at 2.04% and +1 bp higher than this time yesterday. It is however +11 bps higher in a week and taking it to a level we last had in July 2019, 30 months ago. The UST 2-10 rate curve starts today much flatter again at +46 bps. Their 1-5 curve is also flatter at +84 bps, while their 3m-10 year curve is holding steeper at +199 bps. The Australian Govt ten year benchmark rate is unchanged at 2.19%. The China Govt ten year bond is +5 bps at 2.81%. The New Zealand Govt ten year is up +8 bps and also at 2.81%.
On Wall Street, the S&P500 is down -1.3% in late afternoon Friday trade and heading for a weekly dip of the same amount. Overnight, European markets closed all down between Paris's -1.3% drop and London's -0.2% dip. Yesterday, Tokyo was closed for a national holiday, Hong Kong ended -0.1% down, and Shanghai was down -0.7%. The ASX200 ended down -1.0% while the NZX50 ended down -1.9% with late selloffs. But the ASX ended its week with a +1.4% gain, whereas the NZX50 posted a -1.3% loss.
The price of gold starts today at US$1854/oz and up +US$12 from this time yesterday. But it is up +US$50 in a week.
However oil prices are unchanged at just over US$90.50/bbl in the US, while the international Brent price is still just over US$93/bbl. These are up about +US$1 in a week. There has been a sharp rise in the number of US oil rigs brought back into production over the past week.
The Kiwi dollar will open today softer at 66.6 USc and unable to hold yesterday's rise. But it is +½c higher than this time last week. Against the Australian dollar however we have risen slightly to 93.1 AUc. Against the euro we are holding at 58.6 euro cents. That means our TWI-5 starts today just over 71.1 and up almost +30 bps in a week.
The bitcoin price is -6.0% lower since this time yesterday and now at US$42,673 However, it is +2.0% higher than this time last week. Volatility over the past 24 hours has been high at +/- 3.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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119 Comments
if Russia does invade Ukraine, surely we can also expect some terrorist activity in Russia which will affect markets further?
there's a good guide to the crisis here with where things stand militarily and Putins options
Edit: the final graphic probably tells a story....3 major pipelines run through Ukraine...
Anything?! Why?
maybe the Daily Wail is more to your tastes?
https://www.dailymail.co.uk/news/article-10503627/Foreign-Office-tells-… (same intel)
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Yeah right!!!
The names of regions often take the definite article, especially if they are named after a natural feature such as a river or mountain, as in "the Congo" or "the Lebanon."
Wairarapa means sparking water in Māori. So "the Wairarapa" means something like the place of the sparkling water. Although most English speakers don't know the Māori etymology they preserve the use of the definite article. Similarly the Ukraine derives from being borderlands.
The bay, the geographical feature, is named after Admiral Hawke. The region is named after that bay.
In this case when people say "The Hawke's Bay" the fact it is a region is only implied. Similarly you would say "The Phillipines" implying you meant the islands archipelago, "The Himalayas" implying the mountain range etc.
It was called “The Ukraine” before it gained full autonomy and then it dropped the article. “The” is sometimes used for non-sovereign territories as it was for Ukraine prior to 1991. It’s simply a habit to continue to use The when that is not Ukraine’s official name.
This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:
[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link
A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading:
Mr Powell has tied himself in knots and noose will tighten either way he moves.
Now, he has to move rates aggresively which will tank the market and if he does not move aggresively will still tank the market with fear of inflation and the fear that he will raise anytime will remain and this uncertainity will kill.
Problem arises because of inability of central bankers to take hard decession as are scared to death of any short term market reaction. Still not able to accept that their over generous action in last eighteen months was a blunder and the situation that they are in at present is created by them only.
The central bankers have a major problem now, they have lost every shred of credibility they had for controlling inflation.
Because they sat on their hands blowing asset bubbles for tHe WeaLth eFFect.
Now everybody expects high inflation and it becomes self fulfilling. Rates will now need to go higher if and when they bother to do their job.
Got the popcorn out for 2022 Brock?
What I find really interesting is the lack of economic commentators commentating on the clusterf$%^ that is about to hit.
Presumably it's vested interest and not rocking the boat, they can't be *that* stupid in not seeing what's coming???
Heard on the radio news that back in Nov the RBNZ, I think, was warning that FHBs are going to be in dire consequences when mortgage rates go over 5%?. Hope the majority had got advice to take longest fixed term on offer at the time of borrowing.
ps. edit. the Herald has it, when they hit 6% & it was in Sept, not Nov.
Literally, everything is on tick.
- Student loan for Education
- Mortgage for the House
- Finance for the Vehicle
- "interest free" deals for furniture and appliances.
- Personal Loan for the Holiday.
- Afterpay for the other consumer goods (Clothes, shoes, etc...)
- "Payment plans" for utilities.
- Anything else (Groceries, petrol, etc...) goes onto the credit card.
- When the credit card gets maxed out or the car breaks down, you get a payday loan.
Finally when all that gets too much, you consolidate the debt into a bigger singular one, and begin the process all over again.
Good points. The masses have been warned numerous times about rising interest rates for some time now. No doubt some listened and took action but there will be many that wrote it off as DGM waffle but very shortly will be complaining loudly that no one warned them and its not fair!
Ditto on the 'toys on tick'. I know a few people who scraped together a deposit to buy a house and then overnight start living like kings with new vehicles, holidays, boats.......all on the mortgage!
Many of whom are probably nearing the end of their 5 year max interest only tenure, while interest deductibility is slowly being phased out.
The $30k servicing cost on every $1m of lending @ 3% interest only is going to be hard to pass on to the tenants when it morphs into $65k per year P & I if somehow you can manage to secure 3% fixed.
Remember 70 year old John Norris in Australia? Wonder what he's up to these days? -> https://youtu.be/BbFvwYVfwq0?t=146
Sure some will struggle you just have to get creative and increase your income stream. Things like renting out that unused bedroom for example. Plenty of ways besides not buying that coffee everyday to make big monthly savings if you have to. Those that are flexible will adapt, those that refuse to adapt and compromise will fold.
Reserve Bank governor Adrian Orr voiced concern in August about the situation recent home buyers might soon be in, and since then prices have risen rather than fallen.
He's been saying it for a while - watch the second clip of Orr in the below article.
The article was in August 21' where Orr also said house prices were going to drop 5%...
https://i.stuff.co.nz/business/126120543/reserve-bank-governor-adrian-o…
As previously mentioned, Never attribute to malice that which is adequately explained by stupidity.
But in saying that, what started as foolosh lack of foresight, soon turned into something that was actively managed. Which in my book shows intent, and therefore removes the option of stupidity.
So to answer the question...a bit of both.
Wow the first article I've seen in mainstream media that doesn't bash CCCFA - interesting how this only comes out after the banks meeting with Clark.
Everyone needs to settle down a little bit
The flexing of muscles by lenders, including banks, had taken the focus off the reasons new regulations were brought in
https://i.stuff.co.nz/business/127745800/dont-rush-to-change-new-respon…
“There are some people in some really dire situations, and that’s from high-cost lending,” she said” -I doubt they will water down the loan shark stuff, it’s the bank loans that people are moaning about. These are normally given to people that are sound enough to make their own decisions.
Its quite remarkable we have had probably 50+ articles that have all unquestioningly parroted the industry's point of view, and now we get a single article, a month later, that actually questions the industry claims. It rightly points out that the problem may in fact have bene that banks were actually failing to assess borrowers income prior to the CCCFA.
But unfortunately the media unquestioningly reporting the industry knee-jerk reaction for over a month has allowed them to win the "PR war" and the average unformed person just assumes the CCCFA is unquestionably bad, before we have any real detailed data or evidence.
Until I stopped reading it the vast majority of the complaining about CCCFA was coming from the mortgage brokers.
They were clearly not concerned about the intetests of borrowers. But highly alarmed at the turndown in their business with fewer deals going through.
The Roman conquering (antagonizing) spirit lives on (USA, England). NATO could simply say, (to the words of this effect)...."Yes, we understand that Ukraine is a sensitive area for Russia, we will not admit them to NATO if they request". This would create a much needed buffer zone. Will that happen...not a chance. Pretty sad really.
To answer below...Ukraine's current (USA puppet) pro west government administration, paid for by (printed) US$ was brought in to get NATO in the back door.
The bottom line is - prepare for WW3.
I for one, will never fight if there is some kind of UK/USA lead brain washing propaganda drafting campaign...because we know who started this, and it wasn't Russia.
Just as well for them perhaps, Estonia, Latvia,Lithuania got entrance. If Putin is so concerned about his border security, why do the Baltic states then not pose the same threat? As well Finland is looking a likely NATO member. Yes Ukraine was once part of the USSR but the history of that, and the old agreement about that, raises questions in spirit, and does not address the reality of the rightful sovereignty of a nation.
Imagine a situation where Mexico (sovereign country) decided to join in a military alliance with China or Russia and allowed them to deploy troops and missiles on Mexican soil as they were worried that the US may interfere with their country. How quickly would the mexican government be overthrown or the country invaded by the US?
In terms of Geopolitics the US is pushing an situation they would never tolerate in their own back yard. I have no doubt if the US said - lets both guarantee Ukraine's sovereignty and we will guarantee to not allow them to join Nato, it would defuse the entire situation. But at this point there is every chance Ukraine situation is being primed to use as a distraction from the potential economic carnage we are likely to see due to inflation and resulting tightening of monetary policy.
I deplore Putin and his authoritarian regime so Id hate my comments to be misinterpreted as somehow supporting or justifying his actions. But this isn't imperialist russia vs the good guys, its two imperialist super powers playing bullshit geopolitical games for their own gain.
Agreed, its like top leaders are looking for a distraction. Biden just needs to say that Ukraine will never join NATO and its all over. If Russia goes into Ukraine its all over anyway and it will make Biden look like an idiot because nobody wants to fight a war in a country that is basically part of Russia. The rest of the world should have just ignored it, there are bigger problems in their own back yard.
Bit over the top there, the USA is not going to start WW3 over Ukraine they will have to walk away. Its all a big bluff from Biden. There is not a chance you could win a war in the Ukraine and keep it against Russia, hell half of those in Ukraine want to rejoin Russia its another Afghanistan all over again. Leave them to it, its another shit hole that nobody in the west cares about. Germany is petrified that Russia will cut their gas supply off and leave them all in the dark.
What evidence do you have that "half of those in Ukraine want to rejoin Russia". One survey I found said only 3% want to join the Russian Federation.
https://www.quora.com/What-percentage-of-Ukrainians-want-to-join-Russia
Here's our summary of key economic events overnight with news inflation's rise is now suddenly on everyone's mind, but how it is hitting varies widely around the world.
Narrow supply chains = #emptyshelves even when inventories are at record highs
The point of the inflation-market power link is that the supply curves are far more vertical because of lax antitrust policy. Shocks produce much more volatility in pricing in a concentrated economy. Link
Will it matter: US Deploys Nuclear-Ready B-52 Bombers To UK With Eye On Russia
Agree! And there’s a possibility that the next war is an internal civil war and not a war between borders.
Not sure if you follow Dalio but he believes there’s a reasonable chance that we see civil war in the US at the next election when each decides not to accept the outcome of the election.
Have you read The 4th Turning? It agrees with your comment above 👍
Strange comment. I didn't say inflation was something easily solved.
My point was it's really really not a good thing to have, and it's especially painful for poorer people.
It's a problem that shouldn't be taken lightly at all.
And funny assumption about my voting habits - I didn't vote for them last time, and I'm certainly not planning to vote for them next year!
I seemed to have riled you up, haha
https://economictimes.indiatimes.com/news/economy/foreign-trade/india-r…
https://thewire.in/trade/dollar-currency-trade
"Such developments are often brushed away as irrelevant since international payments are still overwhelmingly dominated by the dollar. To put things in perspective however, it may be useful to recall that it took less than 40 years for the British pounds to be supplanted by the USD as shown by Aliber (1966) and Lindert (1969). In 1899 the share of the pound in foreign official holdings was paramount, with $105.1 million in pounds, $27.2 million in francs, $24.2 million in marks and $9.4 in other currencies. In 1913, the ranking was the same: $425.4 million in pounds, $275.1 million in francs, $136.9 million in marks, and $55.3 in other currencies. By 1945, however, the position of the dollar and pound, as measured by this statistic, had precisely reversed (Chinn & Frankel, 2008). The debasement of the pound occurred long after the US had conquered the largest share of world commercial transactions. China is not yet there, but approaching fast."
https://www.sciencedirect.com/science/article/pii/S1879366517300052
Only you and everyone between you, me and the most fervent lefties....
https://thedailyblog.co.nz/2022/02/10/trevor-mallards-dangerous-gamble-…
He's quite clearly got a minor psych issue and maybe even not a minor issue.
Mallard needs to go, he's clearly got issues.
I still don't get how he got away with this: https://www.rnz.co.nz/news/political/441825/trevor-mallard-accuses-man-…
At least he’s done something. The police have taken an extremely passive stance and just observed all the law breaking in the streets of Wellington. If they aren’t going to take action in the parliamentary grounds, the least they could do is patrol the surrounding streets.
And don’t even get me started on Andy Foster and the Wellington City Council.
Rastus, are you related to frazz by any chance? You never miss an opportunity to put the boot into farmers! Have you ever been anywhere near the Whanganui river? The colour indicates clay based silt. Most probably the majority of which is coming from URBAN based earthworks.A large proportion of the land that the Whanganui runs through is pumice based. When it erodes it doesn't have that brown colour. Your comments are indicative of a Green party/Greenpeace troll.
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