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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