Here's our summary of key economic events overnight that affect New Zealand, with news the stresses in the financial system are building.
Inflation is keeping the pressure on global central banks to push through aggressive interest rate increases. And that is making the re-rating and repricing of the value of both stocks and bonds a very tough thing for investors to take.
The US Treasury 10 year yield rose to a 14 year high today, a move from 1.52% as year ago to 4.02% today. That is depressing the face value of bonds sharply. It also means the price/earnings ratios of equities need to come down to reflect the high current yields of fixed income investments, and in turn dropping equity prices. A year ago the S&P500 index was at 4438. It is now at 3592 as prices have retreated -19% in between. It maxed out at 4794 right at the end of 2021, so prices are now in bear territory, down more than -27% from that peak.
In both bond and equities, prices have fallen sharply, and there is probably more to go until inflation is beaten. And let's not mention the price of real estate. Or gold. Or even cryptos. Wherever you look, there are losses and no escape. Income is the only respite because even cash is being depreciated.
Your KiwiSaver, your retirement savings generally, are suddenly depreciating. There is little respite other than a current income stream. "Higher taxes" may save governments budgets or public service workers (especially through bracket creep on everyone else), but it is only a matter of time before it will catch up to them as well.
Commodity prices are sinking. Food is a rare certainty.
A whole new generation is getting a tough lesson of the perils of inflation (and artificial inflation suppression). The debate over its causes will run endlessly with many charlatan memes. But the fact is it can't be avoided in the end, and it will hurt, especially those who benefited from the low rates and easy money of the past 20 years.
And sadly, it is a time when the appeal of simplistic messages, be they political or religious (and often these are intertwined) resonate with the confused. But those can make things worse. It's a time to keep a logical head.
More immediately, American retail sales were unchanged in September from August, but were +8.6% higher than the same month a year ago, only just keeping pace with inflation. It was a result that missed analysts' expectations, but is was car sales that drove the miss. Other than that, it beat expectations.
Business inventories rose quickly again, even if not as fast as expected. This is a growing problem as overall there is now +US$376 bln more in inventories than a year ago, or +18% more. However, it is fair to note that the stocks-to-sales ratio is just back to where it was a year ago.
It is also fair to note that the latest American consumer sentiment survey, this one from the University of Michigan, shows consumers are happier about their present situation, even if they are more concerned about the future prospects. This was a better result than expected.
Chinese inflation data for September was released late yesterday. This is as expected at 2.8% and a small rise. The Chinese also reported that producer prices rose at only +0.9% in September from a year ago, a very low rate and mirroring the struggles the Chinese economy currently faces.
China will release its September export and trade balance data later today.
In the UK, their new prime minister has thrown her finance minister under the bus and scrapped her radical tax plan, all in an effort to save her position. It isn't clear yet whether the u-turn will be sufficient. It is up to her party members to decide that. Financial markets have decided it isn't enough and she should resign, although that seems unlikely at this time.
The UST 10yr yield starts today at 4.02% and up another +8 bps since this time yesterday and up +14 bps in a week. This is its highest closing level since October 2008. The UST 2-10 rate curve is unchanged and inverted at -49 bps. And their 1-5 curve is also unchanged at -21 bps. But their 30 day-10yr curve is flatter at +80 bps. The Australian ten year bond is up +2 bps at 4.08%. The China Govt ten year bond is down -2 bps at 2.73%. The New Zealand Govt ten year will start today at 4.52% and unchanged since this time yesterday. But it is up +22 bps in a week.
Wall Street was down -2.1% on the S&P500 in their Friday session and a weekly fall of -1.5%. Overnight, European markets rose by between +0.1% (London) and +0.9% (Paris). Yesterday Tokyo was closed up a very strong +3.3% on the day to end the week up +0.4%. Hong Kong closed up +1.2% on Friday to limit their weekly dive to -4.9%. And Shanghai ended its Friday session up +1.8% and their week up +1.5%. The ASX200 ended Friday up +1.8% to end the week unchanged. And the NZX50 rose +0.5% on Friday to limit the weekly fall to -2.2%.
Only eight companies in the NZX50 rose this week, the most notable being Tourism Holdings (THL, #39) which jumped +10.5% and +5 places. There were some chunky falls, including Fisher & Paykel Healthcare (FPH, #1) down -3.1% for the week, Restaurant Brands (RBD, #49) down -5.4%, Fletcher Building (FBU, #10) down -5.2% and A2 Milk (ATM, #9) down -5.1%. Some key sectors also took a beatings with the Property Sector down -4.6%, the Retirement Home sector down -2.1%, and the Energy Sector down -2.0%. Kiwi Property's -6.0% dive (KPG, #21) and Precinct's -5.9% fall (PCT, #19) stand out as does Summerset's -4.6% fall in capitalisation (SUM, #14).
The price of gold will open today at US$1643/oz. This is down another -US$22 from this time yesterday, and down -US$57 in a week.
And oil prices start today -US$3.50 weaker than this time yesterday at just on US$84.50/bbl in the US while the international Brent price is just over US$90.50/bbl. A week ago these prices were US$91.50/bbl and US$97/bbl respectively, so a -7.6% fall in a week.
The Kiwi dollar will open today at 55.6 USc and a -¾c lower than this time yesterday. Against the Australian dollar we are unchanged at 89.5 AUc. Against the euro we are a little softer at 57.2 euro cents. That all means our TWI-5 starts today at 66.5 and down -40 bps.
The bitcoin price is now at US$19,338 and almost +1% firmer than this time yesterday. Volatility over the past 24 hours has however been moderate at just +/- 2.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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87 Comments
The Brexit result was so close , and the campaigning around it so contentious , I'm amazed they didnt test it with a re-vote ...
... anyhoooo ... after the horrors of Liz Truss ( we all knew she was easily the worst of 3 final contenders ) , Boris Johnson doesn't seem so bad ...
Gummy. None of the tech is useful unless the benefit flows to folk.
My Dad built the hydro dams on the Waikato in the 1940s. Wonderbar. Marvellous. The new supply changed lives. But strangely now we have folk who can't afford to use it.
Even government ownership has not protected them. How do you propose we do it with the new stuff.
Someone has to pay regardless so it's actually cheaper per person if there's more people.
That's why our highways are pretty meh, not enough traffic to justify huge capital improvements.
I'm ok with our roads for my own use, but it's no good for freight. That's partly why it's cheaper to ship a pizza from Italy to Auckland than from Auckland to Gisborne.
.. we have way too many sealed roads , in proportion to our population : hence , we're not capable of maintaining it all : standard procedure ought to be 10 % re-asphalted annually , 2 % completely ripped up & renewed ...
We are nowhere near achieving that ... streets away ...
We swapped out our supply model which saw 23 new hydro dams and power stations built post-war, for a demand model in the 1990s. Would result in cheaper electricity we were told. Wonder where Max Bradford is these days?
We also shut down the Ministry of Works who designed and built 18 of those 23 structures. Still going strong and costing bugger all to run. (Benmore, etc) Nothing to do piss-poor planning because since the end of the MOW there has been none!
it could be decades away
By the time new nuclear plants are designed, built, tested, and approved for use, that will be decades. Thats the amount of time I feel things will be "turbulent" for.
Technology will improve things but it's going to have a sporadic deployment and unequally distributed benefits.
This may evaporate some of your excess moisture GBH?
https://www.youtube.com/watch?v=LJ4W1g-6JiY&t=2s&ab_channel=SabineHossenfelder
Great video , thanks ... which led to another , debunking the first one ... then to plasma drilling to unlock super critical hot water 20 km down ...
... wow ... super moist at the incredible potential ahead ...
But , in the meanwhile ... we'll keep importing & burning Indonesian coal ... unmoist ... super flaccid !
You are right.
US dollar and economy is over inflated. Value of US currency will fall gradually. Purchasing power of USD will go at bottom in one decade.
USD is the main tool of controlling world.Grip is already loosing. So power will shift from western countries to Asia.
It will take 10 to 15 years.
You have to be kidding? Boris is the most corrupt, manipulative disgraceful politician and leader that the Tories produced this generation. His conduct before he became PM was atrocious for decades. He has had friends and PR aid to help him spin his image to be popular but he has always, always been a selfish narcissist who has never delivered a single thing he promised to.
Ah the "Greased Piglet" !!! Well lets be honest you could have put someone else in there and the outcome could have been the same. Lizz is in strife and she has only been in the role a few weeks. Labour over there are unelectable (just like here now), Aljazeera currently screening Part 3 on them right now, they are screwed.
I also thought (and think) UK Labour were unelectable.. was shocked to see that in recent Poll Torys are down to 20% of the vote and on current form Labour would win by a landslide.
I really cant understand how the Torys managed to mess things up so badly to potentially lose against a party that reqlly have no clue.
Last week The Economist suggested this government would have the shelf life of a lettuce. This week a major newspaper decided to test the hypothesis:
5 years ago I decided that you can't fight the FED and took up surfing. Funny thing with surfing is inflation doesn't worry me much at all. One you have the few things you need, wetsuits and boards, you don't really need much else. The waves are still there, only affected by overpopulation but I'm not in control of that either.
I also realise it isn't the FED you are fighting, but the collective behaviour of everyone. Don't blame the FED, blame it on yourself. Or in the theme of Covid, find a minority group to blame it on
Agree with you both.. My main investments are prone, surf, sup, foil, wing and wind equipment. Probably i have near lost as much on kit as a 2021 FHB but have had a ton more fun.. and watching Orr and the fed stress and talk themselves out of a hole.. is def more entertaining after a decent storm blown swell.
I did. Mainly to rescue NZ from the f-yards previously running the country for developer mates and bankers. Turned out not much difference. The one dimensional drone Nats have pushed to the front is about as unlikely to improve anything, as the open slather immigration NZ will again be drowned in.
Swaps go up, it’s because the monetary system is going down. Even though $6.27 billion is a small amount, the truth is, like 2008, if anything was going according to the textbook including the usefulness of bank reserves sitting idle and fat on the balance sheets of dealers there’d be zero at swap auctions alongside little to no volatility and unmistakable signs of inelasticity.
That’s the thing about these days; dealers have tons and tons of bank reserves. But what they obviously lack, still, the capacities to do anything. Ask yourself why. Better yet, ask the man presiding over the above conversations, Mr. Ben Bernanke. They just gave him a (shared) Nobel Prize precisely because he still can’t answer this question. Link
We're currently experiencing one of the biggest wealth destruction events of the past few hundred years (if anyone was unaware of what is/has been unfolding around them).
2022 has witnessed the worst return on the 60/40 portfolio (equities/bonds) of the last 100 years.
60/40 Portfolios Face Worst Returns in a Century (investopedia.com)
Independent_Observer, did we not experience one of the biggest wealth creation in pandemic - Thanks to Central Bank follies.
“For every action, there is an equal and opposite reaction.” - Isaac Newton
My 60/40, actually 60 shares, 20 bonds 20 cash, hasn't been around 100 years. I can tell you that 2020 returns were +$60k, 2021 +$78k and as I previously said 2022 currently -$110k. I think the return on cash alone should help get me close to even, of course the NZD is helping somewhat too. How does that compare to an Auckland shack masquerading as a proprietary "investment"?
Hi David, perfect headline : Weekend briefing; Grin & bear it?
Come on Rex, I know you must be tempted:
UK Tories, worst PMs and governments in living memory?
"In the UK, their new prime minister has thrown her finance minister under the bus and scrapped her radical tax plan, all in an effort to save her position. It isn't clear yet whether the u-turn will be sufficient. It is up to her party members to decide that. Financial markets have decided it isn't enough and she should resign, although that seems unlikely at this time."
I was in the UK a week or so ago. Other than noting that JA and Co wouldn’t last a minute with their journalists, I was ambivalent as long as the GBP/NZD rate stayed above 0.50. Truss and Co helped that. Truss hasn’t had 5 years of broken promises and wanton wastes of taxpayer funds to account for. JA does. Worst PM and Government in living memory.
I knew you couldn't bring yourself to do it :)
Truss didn't need 5 years she did it in a couple of weeks. Anyway, I'm increasingly of the opinion that she is a lib dem sleeper agent, embedded to bring down the tories from the inside. Just like Rees-Mogg who cannot be an actual real person
https://www.reuters.com/business/finance/credit-suisse-talks-with-under…
Credit Suisse Group AG (CSGN.S) has held talks with a number of banks about underwriting a potential capital increase in case it needs to shore up its balance sheet, Bloomberg Law reported on Friday, citing people familiar with the matter.
2 weeks ago.....
https://www.reuters.com/business/finance/credit-suisse-has-strong-capit…
ZURICH, Sept 30 (Reuters) - Credit Suisse (CSGN.S) has solid capital and liquidity, Chief Executive Ulrich Koerner told staff in a memo seen by Reuters on Friday and confirmed by a spokesperson for the Swiss bank that is due to announce the outcome of a strategic review next month.
“And sadly, it is a time when the appeal of simplistic messages, be they political or religious (and often these are intertwined) resonate with the confused. But those can make things worse. It's a time to keep a logical head”
Very accurate David. I wonder whether it’s a mistake to force Donald Trump to testify at the capital riots trial. He needs to be de-platformed in every way. With recent world wide events we can no longer afford to have such a destructive figure at the helm.
The UK’s Crisis Is Threatening the Global Inflation Fight
Financial woes are reverberating far beyond the country’s borders. Now, the turmoil may change how central banks around the world choose to deal with inflation.
And oil prices start today -US$3.50 weaker than this time yesterday at just on US$84.50/bbl in the US while the international Brent price is just over US$90.50/bbl.
US economy is using less and less petroleum for all purposes. Again, OPEC's quote reduction is a response to real downturn in demand (not just US). Despite tight supplies - including US production - lower overall prices therefore CPI flat for last few months. Link
"A whole new generation is getting a tough lesson of the perils of inflation (and artificial inflation suppression). The debate over its causes will run endlessly with many charlatan memes. But the fact is it can't be avoided in the end, and it will hurt, especially those who benefited from the low rates and easy money of the past 20 years"
And in a strange twist of fate, the inflation could have been mitigated but was ignored by a generation of people at the head of the ship who should have known better.
The Powells, Lagardes, Yellens and Orrs of the world who witnessed the inflation of the 70's and 80's in their younger years, sat buy and created the current mess - why? Because creating inflation was a better outcome for them than seeing asset prices fall back in 2020.
This is all very doom and gloom. Yet I look at my US equities (accumulated over the last 6 months) and lo and behold in NZD they are only down 0.3%. Plus they earn dividends. Not that bad. Some sectors like oil and gas are up 10%.
Crypto has been a decent escape. The best asset class in Q3. I was scooping up Ethereum in June at $900 - now its at $1,300. Not bad. And there are great yields.
Back to inflation - I understand that over the last 3 months, annualized inflation is a mere 2.7%. A short time period to be sure, but surely that gives us some hope. Failing that the clock is ticking on Putin. - and an end on the war is probably a chance for markets to bottom.
Chin up its the weekend!
"Failing that the clock is ticking on Putin" - have you seen this chart?
https://pbs.twimg.com/media/FfB1uivXwAMyskv?format=png&name=small
I'm not a Putin fan - but I'd argue that the clock is ticking just as fast for the leadership of the west.
Long term prospects for Russia are pretty dire.
They don't have an advanced enough industry to go it alone amoung all the sanctions
They have a declining population and at the moment their most productive citizens are fleeing the country to avoid the draft - which funnily enough Putin has today suggested will be ending
Their leadership will undergo change in the short-medium term which could have substantial complications
Their ability to be taken seriously as a military nation, both in terms of their own forces, and the arms they produce, is over.
So while in the short term they look like they're weathering things well, it's really just down to the fact their exports have stayed strong while no one wants to sell them anything (so great balance of trade), the chicken bones are giving bad juju numbah ten.
... it is terribly sad to see such a resource rich country , the largest land mass on earth , a culture steeped in history & the arts , a space programme that put Yuri Gargarin into orbit before any American astronaut ... yet , so appallingly misled by them in Moscow ... they could be so very much better for themselves , and for the world ... sigh ... need a stiff vodka !
Indeed, one wonders if a global guard changing exercise is going to happen through citizen dissatisfaction over the next 5 years or so. Not that the newbies will likely have anything else to offer except increased rhetoric against different enemies followed by tighter control over their citizenry and incoherent economic policy driven by special interests (UK is a good example) or ignorant nonsense (Turkey anyone?). UK/Russia/China/US/Brazil to name a few are on the precipice of going down this path, spelling real trouble for the world. The drivers are clear, we still ignore them though in our fantastical thinking that endless growth on a finite planet is totally doable.
...the fact is it can't be avoided in the end, and it will hurt, especially those who benefited from the low rates and easy money of the past 20 years.
It was an amazing run for investors but I think the clear-eyed always knew that it was a bubble driven by low interest rates. Anyone could look like a genius in that macroeconomic environment.
Reserve Banks have a long, tough fight ahead.
It was an amazing run for investors but I think the clear-eyed always knew that it was a bubble driven by low interest rates. Anyone could look like a genius in that macroeconomic environment.
Disagree. People may have considered the monetary system (credit creation for non-GDP qualifying purposes) as a 'factor' in the bubble but I think they didn't see it as the be-all-and-end-all. Also, some of them still believe that up to the Covid period was "normal".
"...the latest American consumer sentiment survey, this one from the University of Michigan, shows consumers are happier about their present situation, even if they are more concerned about the future prospects. "
Yet another inverted curve.
An interesting read on Labours progressive back-down on the so called immigration reset, and its reversion to the same playbook used in the past twenty years of fast population growth, low investment, abysmal productivity and intense pressure on housing, and infrastructure in general.
https://thekaka.substack.com/p/how-many-people-do-we-want-living#details
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