Here's our summary of key economic events overnight that affect New Zealand, with news equity markets dived as the US Fed boss delivered news that ameliorating symptoms are out and fixing the root causes are in.
In a short, blunt speech at Jackson Hole, Fed boss Powell reinforced the American central bank is very focused on getting inflation back to its policy range and will tolerate the 'pain' that may cause. He essentially said the choice they face is some short pain now, or much larger and long term pain if they leave the pressures unaddressed.
Now the battle against excessive inflation takes priority over the short term economic expansion. His speech is a good example of why monetary policy decisions have been handed to technocrat experts, rather than left to politicians.
And perhaps inflation is retreating somewhat. The US PCE measure fell in July from June, but from a year ago it is up +6.3% in July, but that is less than the +6.8% level recorded in June.
The same data shows the American consumption impulse easing fast. In fact incomes rose faster than expenditures in July, and only for the second month in the past 12 have we seen that.
American consumer sentiment improved in August, driven by the expectation that future prospects are brighter. But overall sentiment is still lower than year-ago levels.
The state of California has rolled out new rules that will make it impossible to sell anything but electric cars in that state within 12 years. California is the largest US state with a population of almost 40 mln. But much more than that, its air quality regulations are globally influential, and these new rules will be a tipping point for all vehicle manufacturers. ICE will fade quickly now, pretty much in the same way that cellphone quickly grew to dominance. This trend will not wait until 2035 however. It goes into effect for the 2026 model year, when carmakers are required to have a third of new sales be of zero-emission vehicles in California. This signal is clear. Manufacturing logistics may be a looming issue, but a spurt of innovation is probably about to happen.
Staying in the US, the first estimates of the annual crop inspection tours show that the soybean harvest should yield normal results, but the corn harvest is likely to come in -4% lower than earlier official USDA estimates. As corn is their largest crop, this will have global implications. The corn price rose on the news and it had only recently come off its all-time high.
In China, they have an even more serious crop problem. While there has been some new rain in parts of the south, it isn't enough and it isn't hitting most key agricultural areas. It is hard to overstate the impact this is likely to have on their rice and vegetable crops generally. China is facing a tough food supply problem. More rain now is probably too late to save most damaged crops. We will have a thoughtful article tomorrow on how China is confronting these challenges, including the roll of some large, opaque 'strategic reserves' of food they have.
Food production is one thing, electricity production is another and China's southwest is doing it hard at present.
In China's northeast, two more local banks are about to be declared bankrupt. They aren't the first.
In Australia, their avocado industry is also doing it hard, with a serious over-supply and very low prices. They want the Government to bail them out, at least try to force Japan to open up to Aussie avocados.
The UST 10yr yield starts today at 3.03% and little-changed from this time yesterday, and after Powell's speech. Bond markets are satisfied they had priced in what the Fed is trying to achieve. The UST 2-10 rate curve is also unchanged at -35 bps. Their 1-5 curve is also stable at -16 bps. But their 30 day-10yr curve is now at +68 bps and quite a lot flatter than this time yesterday. The Australian ten year bond is down just -1 bp at 3.61%. The China Govt ten year bond is up +1 bp at 2.68%. And the New Zealand Govt ten year will start today down a minor -2 bps at 3.87% and now off its two month high.
Wall Street however didn't find much to like in the Powell speech however and hadn't priced it in. It is down a massive -3.4% in Friday trade for a weekly fall of similar proportions. Overnight (and the Powell speech came in late trade) European markets closed lower with London down -0.7% and Frankfurt down -2.3% to book-end these results. Yesterday and ahead of the Powell speech Tokyo closed up +0.6%, Hong Kong closed up +1.0%, while Shanghai fell -0.3%. The ASX200 ended its Friday session up +0.8% to limit its weekly loss to -0.2%. The NZX50 ended its Friday down -0.2% and taking its weekly loss to -0.7%.
The price of gold will open today at US$1738/oz which is down -US$20/oz from this time yesterday.
And oil prices start today at just under US$93/bbl in the US which is a minor slip, while the international Brent price is still just over US$99/bbl.
The Kiwi dollar will open today at 61.4 USc and -1c lower than this time yesterday. That's its lowest since mid-July. Against the Australian dollar we are down to 89 AUc and a new low against the Aussie since October 2017, a 5 year low. Against the euro we have fallen more than -¾c to 61.6 euro cents. That all means our TWI-5 starts today at 70.5 and a -80 bps overnight fall although only a marginal slip since this time last week.
The bitcoin price is now at US$20,682 and down a chunky -4.1% from this time yesterday. Powell didn't help. Volatility over the past 24 hours has been high at just on +/- 3.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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60 Comments
In a short, blunt speech at Jackson Hole, Fed boss Powell reinforced the American central bank is very focused on getting inflation back to its policy range and will tolerate the 'pain' that may cause.
Powell may wish to contemplate and explain the loss and associated pain of real compounded GDP growth he and his kind failed to stimulate since 2008.
"Powell is short, sharp and clear"
Sure was!
I was settling in for a bit of "In the fullness of time, and given all the lag in the statistics, and geopolitical uncertainty...etc". But no.
The markets dropped like a stone; rose back to the starting point, just as fast ( Plunge Protection Team?) and then started grinding lower.
The caption photo reminds us that there is nothing more powerful than Mother Nature herself and the text reminds us regardless of anything else humans still need to eat nutritious safe food. As DC has often said here, this remains as China’s achilles heel and believe it or not, the CCP would know that too.
How “Food Shortages” & Economic Collapse Protects the Status Quo
Engineered Food & Poverty Crises Secure Continued US Dominance
Russia to export up to 56 mln tonnes of grain in 2022, expert says
It is noted that the Agriculture Ministry’s approved plan suggests 130 mln tonnes to be harvested, and 50 mln tonnes to be exported
This is the same CCP, which under chairman Mao starved 30million citizens, roughly, isn't it? I think you will find that keeping the CCP in power is top priority.Feeding citizens is way down there. If suppressing them is easier than feeding them, then that is what will happen. Comment, Xing.
Bitcoin is a hedge against money printing and if you think inflation will show up. Same as gold.
Once inflation turns up its time to go (or so it would seem)
Bitcoin's ATH price of $69k coincided with almost the exact hour of the USA inflation report in November last year when inflation turned up on the scene at 6.5%.
Controversial claims at the moment Wolfie.
https://www.msn.com/en-us/money/markets/is-gold-really-an-inflation-hed…
EV's are so good governments have to ban ICE to get punters to buy them.
""Lithium prices in China are currently 9x higher than 2021. The IEA estimates lithium demand from EVs & battery storage will need to grow 40x by 2040 to meet Paris Climate Accord goals. Nickel, cobalt & graphite demand will need to rise 25x."
https://www.wsj.com/articles/battery-metals-mining-has-a-resource-natio…
"To replace all UK-based vehicles today with electric vehicles (not including the LGV and HGV fleets), assuming they use the most resource-frugal next-generation NMC 811 batteries, would take 207,900 tonnes cobalt, 264,600 tonnes of lithium carbonate (LCE), at least 7,200 tonnes of neodymium and dysprosium, in addition to 2,362,500 tonnes copper. This represents, just under two times the total annual world cobalt production, nearly the entire world production of neodymium, three quarters the world’s lithium production and 12% of the world’s copper production during 2018. Even ensuring the annual supply of electric vehicles only, from 2035 as pledged, will require the UK to annually import the equivalent of the entire annual cobalt needs of European industry."
https://www.nhm.ac.uk/press-office/press-releases/leading-scientists-se…
Electric cars don't make environmental sense as the electricity & heavy batteries have to be produced the old way. But they make sense if the true goal is to make everything controllable & under centralised authority that will dictate usage. Cash & petrol/diesel cars are freedom. Professor Werner
Electric cars when power gets rationed or turned off. Same for gas powered cars when power is lost to pump gas. The Amish with their horse and buggies will be the new taxi service. Link
This is a good point. There may come a day where smart meters which can disconnect the charging of your car when it suits the authorities.
Personally I have enough petrol cars to see me out. Not that I don't like electric cars but I have 2 low km cars which I do not drive very much at all. Hence they will see me out.
There's nothing wrong with this, we do it with hot water heating in houses now. Because of the different loading of the grid over the course of a day, cars will need to be charged when the grid can handle it. But guess what? People generally sleep 12-6, which is when electricity demand is weakest, i.e. the ideal time to charge an electric car. When people get home from work, they turn everything on in their house (heating/cooking/hot water etc), so expecting their car to be charged up while there is the greatest load on the grid is, well, stupid. Its the same reason we have price signals on our power to encourage people to do some high energy stuff overnight.
I bet 95% of the population will be fine if the electricity companies say "Plug your car in at night and it will be charged in the morning", not caring exactly when it's charged during it's downtime. It will only be the raging, over privileged, ulterior motive driven "the government controls everything" people that will get upset about it and falsely paint it as a step towards some sort of dystopian fascist state in order to protest progress. It's unsurprising that conservatives always protest change. Instead of seeing that it's smart to have use our grid in a smart way to allow the load to be spread more evenly, meaning we don't have to overbuild the grid so everyone can do everything all at once.
People need to realise you don’t charge your car every night. You might but if you do it will only be a short charge of say 10%. If you need a full charge that will be on the frequency that you usually go to the gas station with a petrol car. So you might need to plug your car in for 8 hours say once a fortnight.
A three year old article claiming NMC 811 is 'next generation' isn't exactly the slam dunk you think it is. Next-gen batteries aim to use more silicon and some are aiming for no cobalt at all.
And the average age of the NZ vehicle fleet is 14 years. Unsure of what the UK rate is, but literally no one is suggesting banning ICE and replacing them all with EVs in one foul swoop.
Its behind a paywall, but the first question is: Does the analysis look at both sides and examine the roughly $6t USD given in fossil fuel subsidies every year?
If not, then it's not neutral.
Both articles are about resources required to make EV's on a vain glorious scale required for net zero fantasy - not subsidies. It is a bit impractical for me to go to Venezuela or Indonesia to get some subsidized fossil fuel. Unfortunately here fossil fuels are taxed to an eye watering level. I'm surprised you haven't noticed. If you know of any subsidised fuel here in NZ Interest readers want to know!
When you pay for petrol, you aren't paying the cost of using it. Given that $6t is given in subsidies every year the price would likely be double what it is now if those subsidies weren't given. Then there's the fact that fuel taxes don't cover the cost of the pollution, nor do they cover the cost of the roads they use. All of those are subsidies.
Probably a first world problem. Possible outcomes for that first world when new ICE’s are legislated out of existence. Plus the fuels needed to drive the current ICE fleets becoming more restricted and therefore expensive due to these same legislative measures. Affecting all oil importing countries. Leaving the populations of first world countries relying on a limited supply of EV’s due to the reasons you have outlined. The driving community will be relying on an ever diminishing fleet of ICE’s as they reach their end of life dates. Plus the ever increasing costs of fuelling them. Great for parts manufacturing companies. I suppose the plan is to replace ICE’s with a combination of EV’s and public transport. Great for first world cities but bad for people living rurally or in smaller cities or anywhere else.
Hopefully we can reduce the number of cars in cities, our current setup is insane.
Maybe we can end up with a model of active/public transport for every day needs, supplemented by Uber, taxi etc, with cars hired for trips away. Much more efficient use of resources. E-bikes could be a big part of the puzzle for larger, hillier cities or people living in the suburbs. Much more efficient use of resources and would work wonders for our balance of trade and future healthcare spending.
Christchurch is on the way.
https://www.stuff.co.nz/the-press/news/129678333/new-transport-vision-w…
EVs are objectively better than ICE vehicles by every measure except charging times versus filling up. But people forget they only fill up every two weeks and that you can charge over night. Once you realise this there are very few scenarios where charging will be an inconvenience.
And range. Sure you can get EVs with good range but they are expensive (and heavy).
I think the PHEV is a good option, use petrol when needed for range or because you forgot to charge, but electricity 90% of the time. You need a much smaller battery and hence a lot less lithium etc.
Full electric is fine for moving people over short to medium distances. Although the future appears to also be that you don't own a car anymore because an autonomous vehicle fleet would be cheaper and more practical.
For shifting loads or operations with high torque there will have to be an alternative.
California banning ICE cars sounds good to me, lets freight those cheap muscle cars to NZ. Happy to keep driving my ICE car for as long as there is petrol to put in it. I can make one last 30 years so you cannot tell me that an EV is better for the environment. If people actually looked after their cars and we moved to smaller more efficient ICE cars instead of great big SUV's there would be no need to move to 100% EV's for a very long time. As NZ is not exactly a first world country, I mean we don't even have emissions testing at the VTNZ there is little chance of major change by 2035 here.
If you think EV's are an issue, have a look at fossil fuels. A very inefficient industry that relies on all of us needing to burn a very valuable finite resource, to move around and heat/cool our homes. Renewables are the answer if your still invested in fossils good luck.
Welcome to economically suicidal net zero policy. Only a large hydro resource and jungle coal is sparing us from this insanity.
"British households were told on Friday that their power and gas bills will increase from Oct. 1 by 80%.
...In the forward market, UK power for December 2022 is fast approaching £1,000 per megawatt hour, up 50% from current prices. The implication? Power shortages.
...The manager of the Finnish grid, in a rare example of the kind of transparency that’s badly needed, told citizens earlier this week to prepare for shortages this winter. European governments have a duty to come clean with their voters about the magnitude of the coming crisis. Minimizing the scale of the problem or, worse, pretending there’s not an issue, won’t keep the power running this winter."
https://www.bloomberg.com/opinion/articles/2022-08-26/european-energy-c…
Or used their own massive gas reserves. Germany did invest in renewables and now they are funding Putins war in Ukraine.
"Had Germany spent $580 billion on nuclear instead of renewables, and the fossil plant upgrades and grid expansions they require, it would have had enough energy to both replace all fossil fuels and biomass in its electricity sector and replace all of the petroleum it uses for cars and light trucks."
https://www.forbes.com/sites/michaelshellenberger/2018/09/11/had-they-b…
Plenty of gas in the UK and 20 odd trillion tonnes of coal under the North Sea. No shortage of energy reserves and know how in the UK. You're welcome.
"Last year, the British Geological Survey (BGS) published a survey of shale gas in northern England. A formation called the Bowland-Hodder contains some 37.7 trillion cubic metres of gas, enough to supply the UK’s gas needs for at least 40 years.
Fraser has taken samples further east in a continuation of the same formation, and they corroborate the BGS study. He found layers of fuel-bearing rock between 200 and 300 metres thick, with an organic content of 3 to 7 per cent. They could yield up to 20 kilograms of gas or oil per tonne of rock. “This is comparable to yields from similar rock formations under the North Sea that have yielded oil and gas for decades,” Fraser says."
https://www.newscientist.com/article/dn25180-massive-stores-of-uk-shale…
" Our work further supports previous authors’ core-based studies in concluding that the Bowland Shale holds good reservoir characteristics, and we propose that there are multiple intervals within the shale that could be targeted with stacked horizontal wells, should those intervals’ mechanical properties also be suitable and there be adequate stress barriers between to restrict vertical hydraulic fracture growth. Finally, our rock physics templates may provide useful tools in interpreting pre-stack seismic data sets in prospective areas of the Bowland Shale and picking the best locations for drilling wells."
Clear signal rates are going to be higher for longer. Where the Fed leads we have no choice but to follow. Cheap debt speculation is officially yestedays gig. Yield may actually become important again vs speculative froth.
Keep saving. Keep exiting debt. Get the. Culture fund ready. Kaaaarrrkkkkkk.....
I'd add to that... keep squirreling your money away somewhere that the RBNZ can't touch.... overseas shares, gold, etc.
Because Orr and the RBNZ have proved themselves to be corrupt fools, and they may well tank the NZ dollar to try and save the housing ponzi. If your vulture fund is kept in $US, for example, then Orr can't devalue it.
Lol.
Tanking the NZ dollar would lead to massive inflation - meaning those who are already struggling financially will to turn to crime to feed themselves.
The young professsionals would leave faster, healthcare and education would be a mess as nurses and so on will leave in droves and the struggle to find new ones would get harder.
Labour would get smashed in the election as a result.
No.. instead our OCR will keep going up and up.. way past the current forecast target. Its always been the most likely outcome -traditionally inflation is really hard to get under control.
Squirrel money away, pay off debt, get secure job dont buy a house til we are at the bottom of thr drop (2 years)
California is always held up as an example of where we are headed because of its well known media, high tech industries and liberal early adopter politics. However, it also has some of the worst traffic jams, urban spread, mental illness, substance abuse, crime, and shallow intellects. It might be better used as an example of how not to do things.
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