Here's our summary of key economic events overnight that affect New Zealand, with news inflation is easing at different paces in the world's largest economies.
American producer prices rose a bit more than expected, dashing hopes we would see clearer signs inflation's pressure was easing. But they rose at an annualised rate of +3.6% in November to be +7.4% higher than a year ago. The core components rose at a +5% rate. The data cast a pall on Wall Street. At least both were lower than the +8.1% year-on-year rise in October. Markets had expected the November annualised rise to be as low as +2.5%. Producer inflation is ebbing, just not as fast as expected.
American wholesale inventories also rose, but slower than expected at an annualised rate of +6% and probably still tracking inflation. However they are +24% higher than year-ago levels, so the overhang remains substantial.
Improving is the mood of American consumers, at least according to the widely-watched University of Michigan survey. It also reported lower inflation expectations. These improvements weren't expected.
The recently released December USDA WASDE report sees very little change in global supply or demand for key agricultural products. Despite the war on Ukraine, food stress levels are reducing.
In China, CPI inflation fell to +1.6% in November from 2.1% in the prior month. This shift lower was as expected. This was the lowest level since March, mainly due to a sharp slowdown in cost of food, rising +3.7% which was down from the +7.0% in October. A lot was due to pork prices which eased further after authorities released national reserves into the market. Beef and lamb prices changed little in November, milk prices eased up slightly.
On the factory front, producer prices are deflating now. They fell at a -15% annualised rate in November to be level-pegging with year-ago levels. That is two consecutive months of a sharp deflation in their PPI, and it is hard to see it ending any time soon. The only 'positive' in these November numbers are that analysts had expected an even sharper fall.
There are some positive signs emerging for China's economy. For example, deliveries of the construction equipment, rose +2.7% in November, breaking a 10-month losing streak. But it also should be noted that this gain is off a depressed base. Separately we need to be careful of Chinese reports of economic gains; many local jurisdictions are turning to subsidies and incentives to try and restart their retail impulse.
In Europe, they are increasingly confident that their electricity supplies will be stable at reasonable prices over the coming winter. The disengagement from Russia has taught them valuable energy supply lessons.
And back in the US and for the record, we should note that the US Fed's balance sheet continues to shrink. After peaking at just under US$9 tln in April (36.2% of US GDP) is has fallen more than -US$380 bln to 33.4% of US GDP.
The UST 10yr yield starts today at 3.56% and up +7 bps from this time yesterday. A week ago it was 3.53%. The UST 2-10 rate curve is 7 bps less inverted at -75 bps. Their 1-5 curve is less inverted at -96 bps, while their 30 day-10yr curve is now inverted by -14 bps. The Australian ten year bond is up +1 bp at 3.36%. The China Govt ten year bond is up +2 bps at 2.94%. And the New Zealand Govt ten year will start today up +3 bps at 4.10%.
On Wall Street, the S&P500 is ending its Friday session little-changed but will end with a -2.3% drop for the week. Overnight, European markets all ended up +0.5% except London was unchanged. Tokyo ended yesterday up +1.2% which meant it could book a small +0.5% weekly gain. Hong Kong had another strong day, rising +2.3% yesterday to end +3.5% ahead for the week. Shanghai was much more modest in its changes, up +0.3% on Friday for a +0.8% weekly gain. The ASX200 ended its Friday session up +0.5% which limited its losses for the week to -1.2%. The NZX50 was down -0.2% yesterday and down -0.4% for the week.
The price of gold will open today at US$1800/oz and up another +US$10 from yesterday. A week ago it was at US$1796, so little net movement from then.
And oil prices start today down another -US$1.50 from this time yesterday at just on US$71/bbl in the US while the international Brent price is down to just over US$76/bbl. These are down -US$10 from a week ago and are back to year-ago levels. In fact we first were at these levels in 2006. The US$60 price cap on Russian oil actually isn't far away now.
The Kiwi dollar will open today at 64.2 USc, up nearly +½c from this time yesterday. That takes it to its highest in four months and a remarkable +15% appreciation since mid October. However, it is still a +5.5% devaluation since this time last year. Against the Australian dollar we are firm at 94.4 AUc. Against the euro we are at 60.9 euro cents and also a daily +½c rise. That all means our TWI-5 starts today at 72.6 and up +50 bps from yesterday and also a four month high.
The bitcoin price is now at US$17,161 and up +1.9% from this time yesterday. It is up +1.2% from this time last week. Volatility over the past 24 hours has also been modest at just +/- 1.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
29 Comments
New Urgency In the Marketplace Lacks Meaning to Monetary Officials
Right on “schedule”, the 4-week T-bill rate, perhaps the most reliable and easiest to understand of any indicators, has plummeted consistent with a growing even major collateral strain developing. Not only is this once again well below RRP, it is less than the current RRP even as the next FOMC hike to it is but days away.
This collateral shortfall isn’t exclusive to repo. As I often remind people, the few who get serious enough to question all that wordy dogma, collateral is as much about derivatives, maybe even more these days than straight repo. In the balance sheet constrained environment post-August 2007, there are several fundamental reasons why, say, offering currency swaps would be a far more attractive option.
Those swaps can be structured as synthetic repo, basically leaving yet another huge part of the monetary system out of any official count(s). How huge? We don’t really know, but this week the BIS put out a report which tried to assume a hard number. The best its researchers could do was – and you probably saw this on the internet somewhere, it was all over social media if, as usual, for the wrong reasons – figure $80 trillion.
Not only that, this $80 trillion is mainly…offshore. The amount of unrecognized eurodollars is, well, enough to cause more problems that mere central bank words would never be sufficient to answer for. After all, the BIS tacitly admitted:
“FX swap markets are vulnerable to funding squeezes. This was evident during the Great Financial Crisis (GFC) and again in March 2020 when the Covid-19 pandemic wrought havoc. For all the differences between 2008 and 2020, swaps emerged in both episodes as flash points, with dollar borrowers forced to pay high rates if they could borrow at all.”
What the BIS didn’t say, and never really does, is that as swaps “emerged” as “flash points” that also meant huge collateral demands, too. If a borrower who had borrowed eurodollars in a synthetic repo suddenly finds the costs of rolling it over unaffordable or unavailable, this suddenly panicked borrower might have to scramble to fill the funding gap in straight repo – assuming they could find the right collateral at the same time so many others are likely to be attempting the same.
In Europe, they are increasingly confident that their electricity supplies will be stable at reasonable prices over the coming winter.
Nonsense, Putin was right about all this energy scarcity, you can't fight physics.....
....so long as those physics are Russian munitions destroying Ukrainian power generation and supply.
TLDR; "Its Totally F76king F32ked mate!" Blackrock say it as they see it, full presso in the link at the end https://www.zerohedge.com/political/blackrock-prepare-recession-unlike-…
The soil moisture was starting to lower a little bit, checked the ten day forecast and it's rain and gloom for the next ten days. Talking to a rep yesterday and the last of their maize only went in the ground on Friday, incredibly late, but most of the plantings locally are pitifully slow growing or completely washed out.
Could be wrong but the season is 4% or so down so far Aotearoa wide. In perspective that's getting to $1b or so drop in export earnings.
Really is a difficult season to navigate.
Yes, & justifiably so because they have wasted many decades now paying lip service to the need to diversify NZs economy beyond primary produce to support their socialist dreams while gutting out major sectors such as manufacturing that facilitate significant durable & transferable skillsets instead of transitory "industries" farming foreign students looking for backdoor residency & tourists requiring the locals to only be educated sufficiently to make their beds do their laundry & serve their coffees.
Yes but let’s see how those wage pressures look in a number of vulnerable sectors next year, including construction, trades, hospo, retail. I think wage pressures in those areas will fall away.
Of course that will be counterbalanced in some other sectors where wage demands are strong.
Hospo and retail are as tight as a mouses sphincter (no offense intended). It'll take some downturn to create actual vacancies as they can't fill positions at the moment. Agree with construction and trades, and have agreed with your sentiment since you first mentioned it on here. I don't think our problems with a tight employment market will disappear overall before May though, and things need to go backwards to fix the problem and before May to get a drop in the OCR by May 2023.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.