Here's our summary of key economic events overnight with news the international bond sell-off is intensifying, although equity holders seem to be ignoring the implications.
In the US, retail sales grew strongly last week even if it was off a low year-ago base, but they are above equivalent 2019 levels even accounting for inflation.
Also rising strongly was March factory activity in the Richmond Fed district and putting the weaker February result behind it. At these levels it is well above pre-pandemic levels. New orders, shipments and employment all rose notably. Price pressure, while still high, is easing.
Canadian producer prices jumped +3.1% in February from January, the sixth consecutive monthly increase, and the largest monthly gain in more than 40 years. The rise year-on-year was +16.4% so this recent monthly rise is an acceleration.
We had missed it earlier in the month, but the latest tax cut in China of ¥2.5 tln (NZ$570 bln) add to four earlier big efforts, and all-up they now total almost ¥10 tln in tax cuts (NZ$2.2 tln). Compared to what the US (Trump) Administration pushed through in 2017, this Chinese effort is more. Xi is out-Trumping Trump with a supply-side boost, one that will probably be equally ineffective and work against 'common prosperity' as the Trump ones did too.
And staying in China, the echoes of their property developer meltdowns build across the sector. Banks have unexpectedly taken control of almost NZ$3 bln held by one of Evergrande’s key subsidiaries, as the embattled property developer said neither it nor its main listed units could meet an imminent deadline to publish their annual results. It is a company that has more than NZ$30 bln in offshore debt.
There are echoes in Japan too, but theirs are after last week's earthquake. Authorities there are scrambling to prevent power outages in major cities like Tokyo.
We don't normally report these outcomes, but we should note that Hungary raised its key policy rate by a full +1% to 4.4% overnight. Although Hungary is an autocracy and ruled by a right-wing strongman who suppresses dissent, it has been shaken by the Russian move in Ukraine and is now back firmly in the Nato fold. Victor Orban's 'friendship' with Putin has suddenly vanished. The war is having a similar impact on Turkey's strongman Erdogan.
In Australia, consumer sentiment is falling hard. Their ANZ/RoyMorgan survey shows it at its lowest level since September 2020. Fast rising inflation, especially petrol, is denting confidence even though their labour market is strong. But more consumers there feel their incomes aren't keeping up. The weakness in consumer confidence presents a growing near-term risk to the outlook for household spending.
The UST 10yr yield opens today at 2.38% and up another sharp +8 bps from this time yesterday and near a three year high. The UST 2-10 rate curve starts today flatter at +20 bps. Their 1-5 curve is however steeper at +104 bps. Their 30 day-10yr curve is steeper too at +217 bps. While these key yield curves are steepening, some other minor ones are flatter or even inverted, fueling debate about what that might mean among conspiracy types. A 2-10 inversion would be important however. The Australian ten year bond is up sharply again, up +9 bps at 2.77%. The China Govt ten year bond is up +2 bps at 2.85%. And the New Zealand Govt ten year is also up sharply, up +14 bps at just on 3.32% but will undoubtedly shift up further when trading opens here soon.
On Wall Street, the S&P500 has opened higher, up +1.1% in Tuesday afternoon trade. Overnight, European markets rose about +0.9%, except London which was up only +0.3%. Yesterday, Tokyo ended up +1.5%. Hong Kong recovered a sharp +3.2%. Shanghai ended up a minor +0.2%. The ASX200 ended its Tuesday session up +0.9% while the NZX50 ended up a lesser +0.2%.
The price of gold starts today at US$1920/oz and down -US$12/oz from this time yesterday.
And oil prices are little-changed In the US and still just on US$108/bbl. But the international Brent price is up +50 USc to just on US$112/bbl. What has been quite remarkable about Russia's war on Ukraine is the consequences on the oil and natural gas prices, while high, have not been extreme. The world seems to be adapting, and using it to wean itself off fossil fuels faster than it otherwise would have.
The Kiwi dollar will open today much firmer, now at just on 69.4 USc and up more than +½c to a new four month high. In fact, our currency has appreciated +3.8% since the start on the month and that is a lot. Against the Australian dollar we are a up +½c too at 93.5 AUc. Against the euro we are up +½c at 63.1 euro cents. That all means our TWI-5 starts today at just at 74.7 and a new four month high.
The bitcoin price was up +3.9% from this time yesterday to US$42,515. Volatility over the past 24 hours has been high at +/- 3.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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33 Comments
Tax cuts, first Trump USA, now even to a greater extent in China. In 1922 the much maligned President Harding, under the design of Treasurer Andrew Mellon, introduced extremely large tax cuts at the wealthy end of the table, so to speak. This some claim, not only averted a depression but stimulated the economy dramatically, the roaring twenties in fact. Others claim, this not only delayed the inevitable until 1929, it simply made the crash much bigger. A lot of criticism from some quarters here in NZ, that National’s tax cuts as proposed over assist, the wealthy end of the table, so to speak?
So by that theory we should all be taxed more because that's going to pay everyone's debt off faster ? Nope everything has moved in the wrong direction because of successive governments trying to rake in more and more tax. People have simply moved to avoid paying it from "cashies" to avoid the GST to buying another house to reap the huge tax free capital gains. Took us decades to get here, there is no quick fix so it will take decades to unwind it without a huge amount of pain.
Quite agree. Great quote in ODT this morning. " The Ministry of Health -- They are like a sloth steering the Titanic." You will find most Ministries are like that. The MIQ disaster showed that. The vastly differing treatments for the Covid virus. 12 days isolation. 10 days isolation. 7 days isolation. 2-4 hours ventilation for a hotel room. All for the same virus. Who makes these things up? Someone should tell the Minister of health and his/her underlings that Yes Minister was not a documentary. Nor was it a series of advisory videos. It was satirical comedy. Very similar to most of our present Ministers and their departments.
totally agree, we are one of the only counties in the OECD that does not have a tax free threshold, it is crazy to pay people a benefit from one government department then tax them from another ( job creation scheme) not to mention the paperwork companies need to comply with just for seasonal workers ie fruit pickers or causal workers doing less than 15 hours a week
In the 1920s rich people would have invested their tax cuts into new businesses. In the 2020s they will "invest" them into existing houses.
(Editor: For some reason my comment is going here when I am clicking reply on the first comment above. Happened 3 times now).
When that happens the poor people can then afford to buy. Like NZ later this year. Someone will have worked out how many votes Jacinda and her mates will win/lose if sellers lose a whole lot of house value, and poor buyers can afford the new prices for houses in the time between now and next years election. The results of that calculation will show up in upcoming Government housing policies.
Although Hungary is an autocracy and ruled by a right-wing strongman who suppresses dissent, it has been shaken by the Russian move in Ukraine and is now back firmly in the Nato fold. Victor Orban's 'friendship' with Putin has suddenly vanished. The war is having a similar impact on Turkey's strongman Erdogan.
Both countries are still in receipt of Russian gas - the dogs bark, but the caravan goes on.
It's not about loyalties. It's about politics. The art of the possible. France felt unable to declare war on Germany for invading Poland in 1939. Britain felt otherwise. It was impossible for France to weasel their way out of their treaty with Poland. As a result, World War 2 broke out. The European countries have all sorts of treaties with each other. Some will be held. Some will be broken. It just depends on what is possible. History will reveal what was, and is, and will be possible. Russian gas is in the mix. So is Soviet and Russian history. So are other pipelines, desperately being built at present. So are other forms of energy sources. Solar and wind are a bit of a joke, so it will be fossil and Nuclear. Energy security will probably be more important than alleged climate change, emergency, or crisis. Is it still crisis? It was before Covid took the front pages. Or have they yet another word now?
The US also decided it needed escalation on another front – it sanctioned Chinese officials over human rights abuses related to Xinjiang and the treatment of Uighurs, an issue which seemed on the backburner.
Russia is the last obstacle that western hegemony need to overcome before challenging China. - Link
As Rabobank's Michael Every succinctly notes, "stocks are generally holding up on the view that this hawkishness is aberrative silliness that will soon give way to the usual QE and money on a plate for those who never have to worry about what’s on their plate, even as hundreds of millions literally risk having nothing on theirs." Link
Good read from Reuters on Container ships backing up due to Covid ramping in various Chinese port cities. Not just the port facilities, but the internal manufacturing and distribution arms as well.
https://www.reuters.com/business/covid-curbs-bite-chinese-ports-threate…
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