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 ».
Daily exchange rates
Select chart tabs
81 Comments
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.
To put in context, they have had sanctions and actions against them overtly and covertly constantly for years..so underperforming given all that when constantly at war economically with the US. I can at least get a sense where Putin’s perspective does come from..nothing happens in isolation.
Now compare and contrast that with the West and China..or Saudi Ariabia.
You reap what you sow.
Yes a China vs Russia alliance could be the proverbial double edged sword. There are long memories, especially in the CCP. Russia in the formative years of the CCP & beyond treated them somewhat as the new kids on the block which culminated in the so called Sino-Soviet split in the 1960s. Over a much shorter period of time admittedly, Mussolini had that sort of upper hand over Adolf. Then came the role reversal didn’t it, and how! An older relative, something of a thinker, once advised me that two good men of opposite minds will be better friends and of greater purpose, than two bad men of the same mind. On his present form it seems as unlikely as unpalatable to Putin to accept that he and his nation are going to be the second fiddlers.
... all swords are double edged ... it's not proverbial ... single edged blighters are called " knives " ... and the Russian populence have been sharpening theirs , pissed off at years of Putin running the country for the personal benefit of himself & his vodka drinking buddies ...
Invade the Ukraine , comrade ... that'll give you a lift in the Poles ... or in the Belarussians ...
Yes, reading Kissinger's perspectives is always worthwhile. He has always been a grandmaster of .of international strategy, totally pragmatic, and based on careful analysis of what the other side wanted and why. Although my perspectives have not always aligned with those of Kissinger, I have gained huge insights over the years from his writings.
KeithW
... hey Keith : I work for a small company whose primary customer is Russia ... let us pray that the incumbent NZ government is pragmatic & not ideologically driven ... we need to trade ... the Russian people are totally brilliant ... it's not their fault that their current leader is a power control freak , unlike ours ... ummmm .... yessss ....
Audaxes,
"The European Union must recognize that its bureaucratic dilatoriness and subordination of the strategic element to domestic politics in negotiating Ukraine’s relationship to Europe contributed to turning a negotiation into a crisis. Foreign policy is the art of establishing priorities"
The expansion of the EU to 27 countries was never a sound foreign policy. Their hubris is coming back to bite them big time and they deserve it. The EU was built from the very beginning on a lie-that is was only to be an economic union when one of its founders, Jean Monnet, made their real intentions very clear.
Here is a couple of sentences from him; "Europe's nations should be guided towards the superstate without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose, but which will eventually and irreversibly lead to federation".
The excuse was that this would be needed to prevent another war but nothing good is built on lies.
Correct me if I am wrong the six founders of the EEC set that out to establish, amongst other things, a high degree of self sufficiency in terms of primary production, industry, manufacturing and financial security. Yet some fifty years later here is a body over four times bigger by members, and hugely reliant on Russia for fuel and China for manufacturing. Perhaps Prime Minister Heath should have heeded De Gaulle’s warnings, and kept the UK out? Reading various sites it appears the response, the actual sanctions, to the Ukraine invasion is being muted by various entities & individuals that have too much to lose by thinning out their links with the newly proclaimed Sino- Russian Pact, signed off during the Olympics.
Foxglove,
De Gaulle single handedly kept the UK out of Europe for some years. The less said about Heath the better. The EU started through The Iron and Steel Community.
I have a book written in 1995 by Bernard Connolly, then head of the European Monetary System(EMS) National and Community Monetary Policy Unit. It is called The Rotten Heart of Europe. It's a long, hard read, but he clearly exposes the arrogance, the total disdain for voters. It reminded me forcibly of Rousseau's General Will.
I hope to live long enough to see the EU as it currently is, destroyed by its own fault-lines. In saying this i might appear to be a Boris Johnson fan, but nothing could be further from the truth.
De Gaulle was correct : the Brits ought to be excluded from all trade blocs , excepting imports of fishnchips & pints of Newcastle brown ale ...
Britain has a 200 year supply of natural gas 1000 meters below ... but the resident Greenies have spooked Boris into banning the fracking & retrieval of it ... hence ... the need for Russian gas instead ... same thing here , with us banning offshore gas exploration , and now importing Indonesian coal to make up the shortfall ...
That rang a bell...
"NZdrs should be guided towards the He Puapua superstate without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having a Treaty principles & partnership purpose, but which will eventually and irreversibly lead to Maori separatism & co-governance"
Yes! I never thought I would agree with the war criminal Kissenger, but on this he is right. Ukraine should never join NATO and should always make itself the buffer state between the West and Russia and lean into that role. Like Finland/Laos/Vietnam etc. If it swings toward either side (joining NATO is swinging waaaay toward the West), they can expect either side to operate to undermine their government.
Next chapter then. Moldova. It is a mini Ukraine scenario. Putin has his troops ready in the breakaway Transnistria splinter. Will take less than a day to be “absorbed.” The reclamation, back in the USSR, you don’t know how lucky you are! So that then lines up the three Baltic States. These are NATO territory and the people there do not have Russian ethnicity wanting to break out to motherland, neither are they being persecuted, but there is like Danzig was pre WW2, Kalingrad a port looking for a corridor. An attack by Putin here though, will lead to a full scale European theatre war, unless of course NATO turns out to be not what NATO says it is.
To follow whats happening in Ukraine try: https://liveuamap.com/
Search around for the Ukraine section.
Odd as it is I like this site as it reposts info from many sources, often contradicting. Which means it avoids the bubble effect our usual news comes from. Information that varies in source and slant is usuable. From the roadside, not the bunker. Not that you should believe all you see on this site either.
They also map visually where the contributions come from. Odd but interesting.
I've been following on the many Reddit/Ukraine threads. It is amazing to see the support coming from the rest of Europe, as well as a large $ donations from the US.
I'm also amazed to see the number of people heading to the Ukraine to fight. I think Putin may have bitten off more than he can chew.
Russian websites are currently offline, including the official Kremlin one.
Apparently so. Why are others linking to it less than an hour ago?
Putin says "foreign consultants, primarily American advisors" are coordinating the operations of neo-Nazi groups in cities, including Kiev & Kharkov. http://en.kremlin.ru/events/preside
Unfortunately the sanctions from the west are severely inadequate and does not send a strong signal. They should be having sanctions that cripple their economy just like what Putin is doing to Ukraine but in a monetary sense. Stop all trade, stop all foreign exchange with Ruble, stop banks from trading with Russia, hit their economy.
Don't underestimate the stopping of LOC from china this will be a massive loss to Russia, I wonder if they realized this could occur . Their backdoor flow of US dollars has been switched off. I stated a while ago that Putin was being used as a useful fool it is becoming apparent that this may well be the case , historically there is no love between China and the Russians .
This public missive hardly reinforces such an outcome - US’ real strategic color of selfishness, hypocrisy revealed in Ukraine crisis: Global Times editorial
Use the internet archive to pull up pages that are now unavailable. They keep snapshots of a lot of websites, kremlin being one of them.
It can also take snapshots of pages at your request - very handy.
The Ukraine crisis is looking less of a crisis as days go by. It could turn out ugly for Russia if they get bogged down or experience high casualties like in the first Chechen War. If this action shows them to look a bit weak it will be good for NATO.
It's possible that Russia has fallen into NATO's trap, the UK was really pushing for Ukraine to be allowed into NATO. Quite naughty and dare I say typical of the English to cause trouble like this on the continent knowing full well that this would force Putin's hand and cause a war.
Yes these things can be costly. I should have written "becoming less of a crisis for the West".
Of course these things are engineered. Western Europe has deliberately allowed this to occur by refusing all compromise and ignoring all warnings. They wouldn't have done that unless they are pretty confident of a good outcome. A bit unfortunate for the Ukrainians though.
The fall of Putin perhaps. The high cost impacting the Russian economy. A blow to the prestige of the Russian armed forces. Poor performance of weapons leading to reduced sales. Observing and assessing Russian capability and tactics. Trying out new weapons. More sales for Western weapons.
Who knows what dark machinations, calculations and chess moves they have been formulating?
Reagan & Thatcher, the west, took quite some advantage of Gorbachev’s good intentions and the resultant dissolution of the Soviet Union left what remained of Russia, a significantly weakened power. That should have been enough. Should have left it at that. Balance of power is exactly that, a balancing act. And to Putin it seems clear, Ukraine was being used to tip the scales. As commented before, the west has put Ukraine out there like a tethered goat to a tiger. Like Czechs in 1938/9, Ukrainians must be in total despair.
European NatGas Prices Plunge As Russian Flows Via Ukraine Soar
Bloomberg’s Javier Blas, the West just sent Russia the funds to pay for all its initial salvo of bombs and missiles via the commodities they have bought from it. That’s a point I raised more broadly in a Clausewitzian sense when noting the US paid for China’s military spending via its imports and China paid for that of the US by lending the dollars back to the Treasury, which is not the mythical win-win free trade most free-traders think of. Link
Head over to the Rural News section for an important article on meat eating:
https://www.interest.co.nz/rural-news/114549/omnivores-might-think-depr…
That research conclusion has been around for years, and shows the more food groups you cut out of your diet the worse the mental health outcomes (i.e. veganism is worse than vegetarianism).
Of course the conclusions are contaminated with confounding variables, in that you could propose that someone who cares deeply enough about the climate/killing animals/their health to eschew animal products is also likely to be the type of person more prone to anxiety and depression.
It also operates in the other direction - studies that show less cancer and heart disease in vegetarians fail to account for the fact that vegetarians are more health conscious in other areas (like exercising, getting health check ups, moderating alcohol intake) that affects health outcomes.
In the past year the US has provided the Ukraine with $650M in military support and $52M in humanitarian aid. Might have been better to help with the necessary adjustment to the Ukraine economy than arming them to the teeth and pushing them into a confrontation with Russia.
Russias success, or failure, will likely hinge on if it can suppress the NATO backed insurgency. Remember that this isn't some military adventure to a geographically isolated Middle Eastern country where they can run away if this goes to custard. It's a days drive from Kyiv to Moscow so once they've crossed the Rubicon there is no going back:
https://www.foreignaffairs.com/articles/ukraine/2022-02-25/coming-ukrai…
I know I'm a coward. Russia invade NZ or previously the UK I'd be hiding in the basement (first building a basement). However, if I had grandparents who had been starved to death by Stalin 85 years ago then even a chicken like me would discover some fighting spirit.
In awe of the Ukrainian women calmly taking their families to Poland,leaving their menfolk to fight,supporting their (mandated) decision to stay and fight and very likely be maimed or die.
Above seen on TV news tonight.Also a Russian tank swerving at high speed to randomly crush a car;passers-by trying to save the occupant.
No words
I'm impressed with the heroism ordinary Ukrainians are showing. With two million Ukrainians living in Russia one might anticipate this is opening the door to internal strife within Russia as well.
Good to hear that there are more arms being shipped in to support this mobilisation.
Here is a snapshot of the kremlin article that the archive.org captured before it became unavailable for those who wish to read it: https://web.archive.org/web/20220224022305/http://20220224022305/en.kre…
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.