Here's our summary of key economic events overnight that affect New Zealand with news financial markets are showing increasing turbulence as war rages, the pandemic rolls on, and inflation rises. A risk-off mood is developing again.
But first, the American merchandise trade balance fell in February from January, down from -US$101 bln to -US$84 bln for each month, but given the seasonality of these months the improvement was minor. A year ago in February, the deficit was -US$69.8 bln, but this increase is really just a reflection of strong domestic demand from a booming economy.
The rise in both retail and wholesale inventories can also be attributed to the same demand strength, but also the growing pressures on supply chains is adding new bulk to these reserves. We are talking +10% to +20% bulking up here and more than just inflationary effects. The latest Shanghai lockdowns will accentuate that.
The Dallas Fed's factory survey shows their expansion is extending even if it is at a slightly lower pace. New orders growth softened, but costs and wages rose at their fastest pace ever for this survey.
Supply chain stress is a common conversation point, and the new Shanghai lockdown is getting most of the attention. But we should also note that a potential US West Coast dockworkers strike is a new immediate upcoming threat, possibly stranding ships until it is resolved and throwing shipping schedules into chaos.
There were two US Treasury bond auctions earlier today. The two year one was well supported but the median yield rose from 1.51% at their prior event a month ago, to 2.30% at this one. The five year one, also well supported, rose from 1.83% at the month-ago event, to 2.46% this time. The pull-away in Fed support is clear in both auctions.
The US Administration has proposed a US$5.8 tln annual budget, equivalent to less than 23% of US economic activity (GDP). (For comparison the 2022 New Zealand was at 44% of our GDP.) The US deficit is expected to be -US$1.15 tln in the budget year, down from -US$2.8 tln in the final Trump year. Spending is expected to be -15% lower on the same basis, but taxes collected are expected to be +15% higher, mainly on higher employment levels and better company profitability. But the ultra-wealthy will be expected to pay more (something).
In China, the Pudong area of Shanghai has gone into lockdown and mass-testing mode. And that includes their financial center.
Taiwanese consumer confidence slipped slightly in March, but this is now a longish trend and it has fallen to a nine-month low.
Hong Kong export growth vanished in February, barely matching year-ago levels.
In Australia, all eyes there are on the election budget to be released later today. It will undoubtedly be expansionary and inflationary - and that in turn may require the RBA to bring forward its rate hike plans. Already bond yields have jumped there on that expectation, self-fulfilling in many ways because higher interest rates will swell their budget deficits. Eyes will also be on the assumptions their Government will be using for this budget. "Too rosy" will undermine its credibility and cause rates to rise faster.
The UST 10yr yield opens today at 2.46% and down -3 bps from this time yesterday. The UST 2-10 rate curve starts today flatter at just +14 bps. Their 1-5 curve is also flatter at +85 bps. Their 30 day-10yr curve is flatter too at +228 bps. The Australian ten year bond is down -4 bps at 2.83%. The China Govt ten year bond is down -1 bp at 2.82%. But the New Zealand Govt ten year is also up by +4 bps at just on 3.37%.
On Wall Street, the S&P500has opened down -0.2% in Monday afternoon trade. In Europe, their equity markets were mostly higher, led by Frankfurt's +0.8% and trailed by London's -0.1% fall. Yesterday Tokyo ended down -0.7% but Hong Kong was up +1.3% and Shanghai was also positive but only just at +0.1%. The ASX200 ended its Monday session up a minor +0.1% but teh NZX50 fell away, down -1.2%.
The price of gold starts today at US$1939/oz and down -US$19/oz from this time yesterday.
And oil prices are down a sharpish -US$5.50 to US$106.50/bbl in the US. And the international Brent price is now about US$111/bbl.
The Kiwi dollar will open down more than -½c from this time yesterday at 69 USc. Against the Australian dollar we are down similarly at 92.1 AUc. Against the euro we are even more at 62.7 euro cents. That all means our TWI-5 starts today at just at 74.4 having given up all the gains of the past week.
The bitcoin price is up a sharp +5.7% from this time yesterday at US$47,482. Volatility over the past 24 hours has been high at +/- 3.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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66 Comments
In China, the Pudong area or Shanghai has gone into lockdown and mass-testing more. And that includes their financial center.
They are still obsessive about Zero Covid. This could become a really big supply chain problem for us if 'the workshop of the world' keeps closing. Although it has pushed oil down a bit so not all bad.
Yes it is interesting to see how they work it out from here. I think the issue relates to the way they live as they do have good vaccination rates (China (Mainland) 87.9%). The towers of apartments have narrow entryways and common lift areas that must be transmission hubs. I think maybe once they see that the impact of zero covid is making them uncompetitive they will relax.
Just one datapoint but
"Three Sinovac Doses Fail to Protect Against Omicron in Study"
https://www.bloomberg.com/news/articles/2021-12-23/three-sinovac-doses-…
https://www.ft.com/content/56830aa5-be37-4ebc-808a-64c6ad4ce670
Was expecting 7% interest rate by end of the year but will not be surprised if it hit 7% by mid year. Already witnessing 6% so 7% is not far away and they say that it is just the beginning.
Reserve bank fooled for over a year or two with their manipulated theory of TRANSITORY INFLATION, now what as have distorted the fundamentals and to reset, bloodbath for once cannot be avoided.b
Crude oil is down by more than 5%.
"US treasury yield curve divergence is sending mixed signals" don't know.
Russia has resorted to long range shelling and missile attacks, in Ukraine.
Is Macron afraid to offend Putin or wants to be a mediator or something else.
China security pact with Solomon Islands making the news.
Is the Solomon Islands in a similar position as the Phillipines, when Duterte used a dirty word, slandering the US. Now the US press reports nothing of Duterte's "China will invade us".
Just seems crazy to me that weakness in the economy is desirable by asset owners so that central banks drop interest rates and asset prices go higher.
Its a completely flawed paradigm (yet apparently true).
Asset prices should be representative of the strength of the economy - if we have an average $1,000,000 home here it means that our economy must be extraordinarily strong, one of the best in the world, and therefore should be no need for emergency interest rate settings at or near 0% OCR. If the economy weakens, asset prices should fall, not rise. Yet given central bank manipulation, the reverse now appears to be true.
We are living in a period of insanity (in my view).
I think your view is fair but is missing the specialisation that housing as an asset class has had over the long-run. The specific lack of taxation on the capital appreciation of this asset class has meant that any normal investment behaviours were muted. In addition the supply of these assets has been further constrained (in a structural way) by extensive monopoly operators in the areas of supporting material supply and infrastructure deployment.
This is an anomaly caused by poor governance and has clear causes and remedies. It is only political will that is missing.
Well I think the 3D printing industry might disagree but I think I get your sentiment.
Germany is not just a significant gas user but it is a gateway for others (more silent) in the EU, half the gas it imports it re-exports. The fall-guy also has no LPG ports at all so the US offer is also infeasible.
This co-dependency is going to make the summer a little less warm for Ukraine me thinks.
Indeed "oh the humanity", https://www.youtube.com/watch?v=ue7wM0QC5LE
Last time this inverted was just prior to GFC (2006). Seem to be more and more people thinking a recession almost certainly going to happen now...just at the same time as the Fed look to ramp rates up significantly.
Keep up with the news, the Ukraine is about to throw in the towel and tell Russia its going to be "Neutral" so effectively its a surrender, the twit could have done this without the whole place being destroyed and tens of thousands being killed. I'm not single, my partner has her own house just 10 minutes away and at age 55, that works best for me.
Any agreement with Russia will go to a referendum of the Ukraine people (now scattered around the globe) .
Russian state television has broadcast an extraordinary rant about the state of the war in Ukraine, warning Vladimir Putin's regime faces "final and complete defeat".
Yakov Kedmi, an Israeli-Russian pundit and former diplomat, is usually a reliably pro-Kremlin voice. But in an appearance on the prime time show Tonight with Vladimir Soloviyev, he was remarkably negative about the situation in Ukraine.
Kedmi said Russia could not afford to compromise on the initial goal of its invasion, which was to take major Ukrainian cities, including the capital Kyiv, and overthrow the government.
https://www.nzherald.co.nz/world/russia-ukraine-war-final-and-complete-…
Yes, Bitcoin will become the global reserve currency, if not officially at least by the citizens who realise it is the best store of value over time.
All game theory, all we have to do is wait and watch. And as such, the people who put in the research and work earlier on will be rewarded for their effort and the risk.
You are never too old to save, even just put a little bit in, and as it is the fastest growing asset class it will become a larger portion of your portfolio :)
The first thing I would say is you need to differentiate Bitcoin and the rest of the crypto market, and is that the total time you have been in the market? Be patient, I rode the drop from the 2017 highs all the way down, this is a long term play overprinted with short term hype cycles.
In terms of global usage, Bitcoin is where the internet was in 1997, it is just starting to climb the S curve of adoption.
Bond markets 119 trillion
stock markets 93 trillion
Crypto market 2 trillion
if governments decide to take crypto market down they will.once digital money is produced in major currencies Bitcoin will just be worth zero as has nothing backing it up. Only way to make money on it is hoping someone will buy it for more.
Will cryptos become reserve currency? I hope so. Central banks have proven themselves completely incapable of regulating a sustainable reserve currency. Gold was also proven unsustainable as a reserve currency (although it will always maintain value as a commodity this does not translate as it being a viable global reserve).
BTC is an extremely elegant and viable solution to our currency problems, whether it becomes a reserve or not depends on many factors. But it’s certainly possible.
Again, you need to research the difference between Bitcoin and the rest of the shitcoins. Until you actually put in some effort you will not see the significant differences.
Also just because it has "currency" in the title of the asset class doesn't mean its a currency lol
Comparing something to itself is absolutely meaningless, I'm not sure what it is you're even trying to do.
Other assets priced in "collapsing fiat currency" have nothing like the volatility Bitcoin does. What do you normally price BTC in (besides BTC) to determine its price and volatility?
That is because humanity has never seen the monetization of a good in real time. It will be volatile and will take time to reach a price point where it will be considered stable.
Once it is in the millions per coin then you can start using it more as a day to day currency.
I think it would open up a whole new raft of complications with world changing unintended consequences.
If we think central banks are corrupt in their manipulation of fiat currency....imagine what the current holders of Bitcoin would be like if they get their way with the world controlled by bitcoin.
Animal Farm by George Orwell comes to mind.
Nah. Either government’s will implement their own blockchain or they will forcibly seize or start buying up existing cryptos (as they once did with gold/silver) so that they can exert the control required to stabilise. All this has happened before and all this will happen again.
When the interest I earned on TDs was almost nothing, I bought crypto ... best move I ever made. Who says you can't teach an old dog new tricks?
Don't get me started on my GME - it's started to fly as shares are being registered in their millions (ie can't be lent out)
I also made some gains on GME but I'm 100% aware that it's just a gamble. Stock price controlled by memes and random hype posts on one particular social media platform.
Also, BTC is down ~15% or so YoY, so perhaps TD's would have been a better choice. You said crypto in general, but the spruiking tends to focus on BTC - which has failed to go to the moon in the past year. Remember all those talks about 'the doubling'? Fibonacci this and that...
Fair enough, your response to my arbitrary time period is your own.
The reality is, many expected BTC to be way above 100k USD at this time already, citing the same reasons you do. Ultimately it comes down to whether you believe the fundamentals and exposure are there or not. BTC has amazing 'organic marketing' but no fundamentals beyond "there's a fixed maximum number of BTC's that will ever be created". The latter is true to many, many, many things.
Let's agree that you believe in BTC and I don't. Either of us could turn out to be right in this crazy world.
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