Here's our summary of key economic events overnight with news markets are pigeon-holing war in Ukraine into its anticipated economic impact.
New orders for US manufactured durable goods rose +1.6% month-over-month in January from December, following a revised +1.2% gain in December from November. The January result beat market expectations. January orders were +16.5% higher than for the same month a year ago. Capital goods orders also rose strongly, and are now up +32% from January 2021 and was led by non-defense capex investment (+42%). It is an impressive performance by the American factory sector. Despite Russia, markets noticed.
Perhaps driving this upbeat mood is American personal spending. Yesterday's upward revision of real GDP for Q4-2021 seems to be flowing in to 2022, and there was a surprisingly strong +2.1% rise in January personal spending. It was expected to be good, with a +1.5% monthly gain, but the actual result is far above that. Markets noticed this too.
Still American inflation remains high through all this increased economic activity. And war will make it worse, even if the war is far away.
This sort of data helps put the Russia-Ukraine situation into a different economic perspective, as sad as the Putin adventure is for the Ukrainian victims.
Russia has long been dominated by authoritarianism. It has served them poorly for such a resource rich territory. The dodgy leadership was well evident with the czars. Lenin and Stalin seemed to have no issue with letting the Russian people pay for crazy public policy. Andropov was clearly mad near the end of the Soviet experiment that of course collapsed. And Putin has some nutty drive to return Russia to some perceived 18th Century 'glory'. (A link would have been supplied to the recent Putin justification for his Ukrainian action, which is an altogether weird read, but many Russian websites are currently offline, including the official Kremlin one. When it comes back, this is it. The Ukraine president has called for its IT community to help defend the country.)
In 2021, Russia reported total economic activity of RUB130.79 tln. At the average exchange rate for 2021, that is NZ$2.568 tln. The 2022 events have reduced that equivalent by a sudden -7.5% shock drop to NZ$2.377 tln. And that makes their overall economy now barely larger than Australia. Despite Russia's 'riches', its been a massive underperformer, so they are left pining for past glories, chest-beating, and threats of hypersonic weaponry. They may soon themselves become a client state of China's - economically at least.
And China may prove to be a dubious friend, despite their outward diplomatic words. State banks in China look like they will 'respect' US sanctions. They have stopped issuing USD letters of credit for the purchase of Russian commodities. These dominate the trade. Yuan letters of credit for the same transactions are now also restricted requiring official consent.
The whole situation puts China in a tough spot. Russian actions violate China's position that sovereignty is sacrosanct. China's stated principles are being tested by their new best friend. It is doubtful those principles will hold - they may have others soon.
And in China, it is very noticeable there has been a clampdown on economic data releases recently, even from official sources.
Meanwhile, Singaporean industrial production took a rather outsized fall in January. It's the type of drop they haven't had except in the grips of the pandemic.
In Australia, the head of Harvey Norman has warned: "“You name it, no matter what product you come in to buy today, it’s dearer than yesterday, and it will be dearer again tomorrow. Prices are going up by +5, +10, +30%.” The head of a major supermarket chain has made a similar warning recently.
This sort of cost pressure is expected to see the RBA change its policy outlook on inflation with a sharp pivot even for 2022.
In NSW, there has been 7,583 new community cases reported yesterday, now with 99,234 active locally-acquired cases, and another 6 daily deaths. There are now 1,144 in hospital there and holding stubbornly. In Victoria they reported 6,580 more new infections yesterday. There are now 41,125 active cases in that state - and there were 11 daily deaths there. Queensland is reporting 5,440 new cases and 7 more deaths. In South Australia, new cases have risen to 1735 yesterday and 2 more deaths. The ACT has 946 new cases and no deaths, and Tasmania 851 new cases and one death. Overall in Australia, 24,724 new cases were reported yesterday. This is our final morning update of the Australian pandemic data (unless it changes suddenly).
The UST 10yr yield opens today at 1.99% and up +7 bps from this time yesterday. And it is up +6 bps from this time last week. The UST 2-10 rate curve starts today a flatter at +39 bps. Their 1-5 curve is unchanged at +76 bps but their 30 day-10yr curve is steeper at +194 bps. The Australian ten year bond is up +4 bps at 2.26%. The China Govt ten year bond is down -2 bps at 2.80%. But the New Zealand Govt ten year is up +4 bps bps at 2.81%, exactly where it was a week ago.
Equity markets have been volatile again. On Wall Street the S&P500 is currently up +2.0% in Friday afternoon trade. It is heading for an unchanged week if this rally holds. European markets recovered overnight too, all up about +3.5% on average. For the week Frankfurt was down -4.0% however, Paris was down -3.3% and London was down as well. Yesterday, Tokyo ended with a daily gain of +2.0% to limit the weekly loss to -1.6%. However, Hong Kong fell -0.6% yesterday to extend the weekly loss to -5.6%. There are local factors at play there, Beijing induced. The Shanghai market was up +0.6% yesterday so it ended the week just -1.1% lower. The ASX200 ended its Friday session flat, but down -3.1% for the week. The NZX50 ended up +1.6% yesterday to limit its weekly loss to -1.8%.
The price of gold starts today at US$1884/oz and down -US$40/oz from this time yesterday. This time last week it was US$1897/oz.
And oil prices are lower today, now just over US$90/bbl and down -US$5 from this time yesterday. The international price is just under US$93.50/bbl. This time last week the US price was US$90/bbl and the international price was US$91.50/bbl.
The Kiwi dollar will open today up +¾c from this time yesterday, now at 67.4 USc. For the week the rise is less than +½c. Against the Australian dollar we are up slightly at 93.4 AUc. Against the euro we are also firmer at 59.9 euro cents. That means our TWI-5 starts today at just on 72.1 and a weekly rise of +60 bps. Trading in the ruble has been resumed and it is down -10% in a week, down -12% since the start of 2022.
The bitcoin price has risen +9.3% since this time yesterday and now at US$39,206. But that is also a net -4.0% fall in a week. Volatility over the past 24 hours has been extreme at +/- 5.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.