Here's our summary of key economic events over the weekend that affect New Zealand, with news the global financial landscape has been changed by a large bank failure in the US.
The sudden and unexpected demise of Silicon Valley Bank (SVB) over the weekend has has drawn quick comparisons to the 2008 failure of Washington Mutual (WaMu). When WaMu failed in 2008 it had US$309 bln in assets. SVB has US$209 bln today and will be the largest US bank failure since WaMu. But WaMu's assets were 3.1% of all commercial banks at the time. SVB is 'only' 0.9% today. Still, it wasn't WaMu alone that triggered the GFC; it was the first of a cascade that included much more connected institutions like Bear Stearns, and famously Lehman Bos. In 2023, the only other bank involved so far is the dodgy crypto outlier Silverlake. On their own, they won't cause a crisis. But they will stress the whole banking system that needs depositor confidence to avoid a run. Every investor and regulator remembers the GFC banking crisis.
The FDIC has taken over SVB and is looking for a buyer. Final bids are due today.
For some perspective, in 2008 the largest American bank was JPMorgan Chase with assets of US$2.175 tln. WaMu was 14% of that. As at the end of 2022, the largest American bank is still JPMorgan Chase with assets of US$3.773 tln. Before it failed, SVB listed assets that were 7.5% of that. ANZ NZ has assets of US$120 bln (NZ$195.6 bln). Neither SVB (nor ANZ !) are globally systemically significant on their own
Prior to the GFC, US banks had total assets 10.3 times larger than their shareholder funds. In 2010, that swelled to 12.7 times. By the end of 2022 this was back to 10.7 times, having improved sharply since 2019. (In New Zealand it is 11.9 times now.)
Will these levels 'guarantee' there will be no immediate US banking crisis. Of course not, but it does seem unlikely unless there is some other trigger. SVB and Silverlake's woes should easily be contained by both State (CA) and Federal (FDIC) regulators. They know how to do that. And it isn't just the US caught up by the SVB failure. The British are working on a scheme to aid their UK clients.
This crisis has sidelined the news of the strong February labour market gains.
The US non-farm payrolls were stronger than expected, with the headline number swelling by +311,000 when +205,000 was expected, on a seasonally-adjusted basis. Their strong labour market just keeps on growing and confounding all analysts. Digging deeper into the actual data, their workforce is now touching 154 mln which is 1.1 mln more than in January. This is data from employer payrolls. If we use the household survey which takes in unincorporated sole traders as well, the employed workforce is 159.7 mln and it also expanded by just over +1 mln in February from January. Either way, the demand impetus has risen by more than +1 mln people in February, showing why the Fed's efforts to tamp things down have been insufficient so far.
Bolstering this swelling is that their participation rate is rising, as the healthy jobs market draws more people into employment. That shift is even faster than the jobs growth, and their jobless rate ticked up to 3.6%, although that is still very low.
The unexpectedly strong jobs numbers on their own were read as likely to bring a strong Fed response at their next rate review (Thursday, March 23, NZT).
But SVB might change that. And the partisan negotiations for the debt limit expansion might too. They lurk like a cancer on their political system.
Also, the US CPI data due Wednesday (NZT) should also have a big influence on the Fed's decisions.
The American budget outcome for February brought the -US$262 bln deficit expected, and took the rolling 12 month total to -$1.4 tln. That adds to the US Federal debt owed to non-government parties, which is now at just under 68% of 2023 US GDP. This is very much less than the gross levels that are shouted about in Congress.
Across the northern border, Canadian payrolls were expected to be unchanged in February after some sharp January growth, and this is what happened, although the actual result was a bit more positive than analyst estimates.
In Japan, the outgoing Bank of Japan governor Kuroda defended his monetary easing policies after his final Bank of Japan monetary policy meeting, claiming success that their economy is nearing the bank's elusive goal of sustained +2% inflation.
Producer prices in Japan increased by +8.2% in February from a year ago, slowing from a +9.5% rise in January. This was less than the expected +8.4% rise and was the lowest producer inflation since October 2021. Of some concern is that the shift in February from January was deflation at almost a -5% rate. They haven't had that in almost 30 months.
China's banks extended ¥1.81 tln in new yuan loans in February, down from a record ¥4.9 tln in the previous month but above market expectations of ¥1.5 tln. It was also the largest amount of new bank loans for a February month since at least 2004. (For reference, China's total bank debt is now 337% of China's GDP ! That compares with the equivalent US level of 88%, and New Zealand at 209%.)
And the Party's National Congress delivered a surprise for their central bank watchers. The respected technocratic head was not replaced with a Xi loyalist as was widely signaled. Rather, he gets a slate of Xi loyalists as deputies. Extending the surprise, they also retained the current Finance minister. Elsewhere however, it is the hardline lineup expected.
Indian industrial production rose in January by +5.2% from a year ago, slightly beating the +5% rise expected. This is on top of a good +4.7% rise in December.
We should also note that the La Niña weather pattern is ending and we are moving to more normal climate patterns for the next few months. But later in the year El Niño may well return. At least, that is what the weather scientists are predicting.
And staying with natural phenomena, keep an eye on erupting Indonesian volcanoes. Like the Tonga eruption, this could have global weather implications.
Also watch out for 'eruptions' in Australia, as electricity bills are about to jump by about +20%.
The UST 10yr yield starts today at 3.70% and down -1 bps from Saturday which was a huge -22 bps dump from Friday. The UST 2-10 rate curve is less inverted again and now at -89 bps. Their 1-5 curve inversion is sharply less inverted at -90 bps. Their 30 day-10yr curve is slightly more inverted at -102 bps. The Australian ten year bond crashed -22 bps on Saturday and a further -2 bps since to 3.47%. It is down -40 bps in a week. The China Govt ten year bond is holding lower at 2.89%. And the New Zealand Govt ten year is starting today at 4.51%, up +1 bps from Saturday but down -8 bps from Friday. A week ago it was 4.76% so a net -25 bps dump from there.
On Wall Street, the S&P500 ended its Friday session down -1.5% and a -4.8% skid for the week. Fears of the Fed's response to the jobs data was compounded by the SVB risks. Markets could well be nervous when they open on Wall Street tomorrow, but we should note that the S&P500 futures are not indicating that, currently up +1.3% from the actual Friday close.
The price of gold will open today at US$1868/oz and up +US$4 from Saturday. The gain from a week ago has been +US$21/oz.
And oil prices start today -50 USc softer at just over US$76.50/bbl in the US. The international Brent price is still just under US$82.50/bbl. These levels are a -US$3 drop in a week.
The Kiwi dollar is softer, now at 61.3 USc. Against the Aussie we are up ¼c at 93.3 AUc and our highest of the year. Against the euro we are little-changed at 57.7 euro cents. That leaves the TWI-5 little-changed at 70.1. A week ago it was at 70.8.
The bitcoin price has recovered from this time Saturday, now at US$20,619 and up +3.5%, so about half of Saturday's fall. And volatility over the past 24 hours has been low at +/-0.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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131 Comments
The last thing loss-making overvalued tech startup need is to be locked out of the little cash they have in a failed bank.
The reason [SVB is] in trouble is because they have exposure to particular industries. - Perhaps an alarm bell for the oversized Aussie-owned mortgage financing entities masquerading as commercial banks in this part of the world.
NO THATS the point, they where not lending much, startups banked cash they had raised with them and as they where not lending much SVB parked cash in hold to maturity MBS and treasuries. BUT they didnt hedge their interest rate risk in the treasuries. I think they had average duration 3.6 years but yield 1.8%. When they needed to sell these quickly they took high face value hits as rates now much higher. No mark to market , well someone external knew and probably shorted and started the run....
US bond prices tumbled last year as the US central bank hiked interest rates to quash surging inflation. (Yields rise as bond prices fall.) But under US accounting rules, banks can avoid writing down the value of their bonds to reflect their lower market value if they intend to hold them to maturity.
In contrast, bonds classified as “available for sale” have to be marked to market. As bond prices tumbled last year, US banks rushed to reclassify their bonds as “held-to-maturity” to avoid recognising huge losses.
Not surprisingly, SVB’s collapse has focused investors’ attention on the huge losses that the steep decline in bond prices has inflicted on the banks. It’s likely that major investors will insist that banks disclose the market value of their bonds, rather than how much it cost to buy them.
And the anticipation that banks would be forced to reveal swingeing losses in their bond portfolios triggered the vicious sell-off in bank stocks last week.
They have to mark to market unless its held in a long book, but they have to disclose via liquidity reporty ammounts across books. Also they lend as you know predominately into res mort / agriculture and insto business. If an NZ bank has a lot of cash they tend to park it in ESAS. NZ major banks also have interest rate trading departments and treasury liquidity desks. Sure the NZ banks buy lots of Gouvernement bonds, but mainly to sell onwards to asian clients, not to hold.
Risks here are way different.... and kiwi saver also different as they know the age of contributors so can accurate forecast withdrawls.
Risk in NZ to banks is from customer defaults, and so far the majors not seeing and certainly not provissioning up yet for majors.
Yip! And money is the route of all evil.
Their is a social cost to how money is spent across the economy and as such... This site heeds more holistic post and less dribble from the same old people who repeat thier bias/ spin/bullshit.
It's the life in you money bro!
Not the " money in your life"
To many here are talkers not doers!
Because you are a greedy ignorant ass!
Your like Scrooge Mc Duck....
Live in a myopic money world.
For 6 months of every year ( for the last 20 years) I travel the world.
Last winter (May to Sept) I did Europe , USA, Malaysia, Aussie.
That's what money is for me!
You guys need to get out of your parents house, get away from screen, put some clothes on, and stop dreaming about the " theory of money". ...
💥🙄🥳😂😂
Hemi: "money is the route of all evil".
Firstly "route" is the french word for road, it's used in the english language to mean "a way, path or a direction". What you mean in your sentence is the "root of all evil" as in the root of a plant, depicting that evil will spread from its root.
Still, you're entitled to believe that "money is the root of all evil", but it makes us wonder how you managed to travel Europe, USA, Malaysia and OZ for 6 months, with no money. Did you cycle through all these countries and paddle across the oceans?
It's how you earn it and what you spend it on that matters.
I've been a corporate nut job, made a fortune out of property ( without ever using a RE company) and know how it works. But there is more to money than ' the system, process, and results"....
Tech companies for example profit from immoral control...
They dominate your life and you pay for the pleasures of AI and Algorithms.. but at your peril! (Cost, privacy, security, ...)
Why are your phones, accomodations, flights so expensive and the same price across providers?...
-Techo wankers and thier algorithms.!
-Manipulation of everything you do
- controlling what you see.
I am lucky to have lived in an era pre the control...
You guys haven't a clue what true freedom is
You can't even see where all your data is going every second of the day!
https://dictionary.cambridge.org/us/dictionary/english/meek
"Gentle, quiet, and not willing to argue or express your opinions in a forceful way"....
Janet Yellen indicated no to a bailout.
What is fascinating, [may show how shrewd David has been so far in his judgement of the SVB and its total relevance], for the hard rumour is Congress is now drafting a bill to protect US depositers.
I premise there will be very little sympathy for the tech voices on Twitter calling for a bailout after the self interest of the likes of Theil and others withdrawing their money. The run on the bank was started by them.
Agree that this is fascinating. Especially to observe what was learned from the actions post the GFC by the regulators. Then the banks were bailed out, but depositors were left to suffer, and many - fail. My view is that was a huge mistake. The depositors should be bailed and the bank left to dig itself out, or go under. This is about shonky banking practices, not poor judgement on the depositors side.
The quotes coming from Lawmakers in the US for once are sounding better - along the lines of 'there must be consequences' for banks and businesses....
To be honest if the deposits are guarenteed only to the tune of $250k then that is what businesses should get back and those that fail, fail. That would motivate businesses to be cautious with the bank or banks they select and in turn would force the banks to be more conservative with their investments - to win big deposits
Update: CNN are reporting that the Biden Government is doing just what I said they should, bail out the depositors fully, not to just the insured limit. investors, and shareholders are on their own. Brilliant!
https://edition.cnn.com/2023/03/12/investing/svb-customer-bailout/index.html
My ego would like to say they heard me, but unfortunately reality weighs in and suggests that others saw the same things I did and drew the same conclusions. Still it is the outcome that counts.
It is interesting how the futures at the present time do not indicate total mayhem on the US stock markets. It appears the insiders expect a buy of the Bank by Monday. The UK have already approached the Saudis to bail out the UK side of SVB.
On a local impact Beck's Rocket Lab may have some issues?
In reality the money supply is “created by banks as a byproduct of often irresponsible lending”, as journalist Martin Wolf called it (Wolf, 2013). Thus the ability of capital adequacy ratios to rein in expansive bank credit behaviour is limited: imposing higher capital requirements on banks will not necessarily stop a boom-bust cycle and prevent the subsequent banking crisis, since even with higher capital requirements, banks could still continue to expand the money supply, thereby fuelling asset prices: Some of this newly created money can be used to increase bank capital (Werner, 2010). This was demonstrated during the 2008 financial crisis.
5.2.1. How to create your own capital: the Credit Suisse case study
The link between bank credit creation and bank capital was most graphically illustrated by the actions of the Swiss bank Credit Suisse in 2008. This incident has produced a case study that demonstrates how banks as money creators can effectively conjure any level of capital, whether directly or indirectly, therefore rendering bank regulation based on capital adequacy irrelevant: Unwilling to accept public money to shore up its failing capital, as several other major UK and Swiss banks had done, Credit Suisse arranged in October 2008 for Gulf investors (mainly from Qatar) to purchase in total over £7 billion worth of its newly issued preference shares, thus raising the amount of its capital and thereby avoiding bankruptcy. A similar share issue transaction by Barclays Bank was “a remarkable story of one of the most important transactions of the financial crisis, which helped Barclays avoid the need for a bailout from the UK government”. The details remain “shrouded in mystery and intrigue” (Jeffrey, 2014) in the case of Barclays, but the following facts seem undisputed and disclosed in the case of Credit Suisse, as cited in the press (see e.g. Binham et al., 2013): Link - https://www.sciencedirect.com/science/article/pii/S1057521915001477#s0085
https://www.theguardian.com/business/2018/oct/26/barclays-avoids-trial-over-6bn-qatar-rescue-package
Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.
SVB bought too many unhedged securities, not unlike our local banks buying NZ Government stock last week.
Local? Rocket lab is 100% USA owned. BECK IS JUST A MANAGER!/NZ face to appease the locals.
Facts matte🙄r!
https://app.companiesoffice.govt.nz/companies/app/ui/pages/companies/18…
The sudden and unexpected demise of Silicon Valley Bank (SVB) over the weekend has has drawn quick comparisons to the 2008 failure of Washington Mutual (WaMu)
The NYT is looking at a greater and more compelling issue: Who Benefits From Confrontation With China?
About that experimental lockdown therapy.
"While Covid deaths were counted daily, the longer-term effects would take years to come through. The only real way of counting this would be to look at ‘excess deaths’, i.e. how many more people die every month (or year) compared to normal. That data is now coming through.
Using the most common methodology, Sweden is at the bottom – below Australia and New Zealand, which had plenty of lockdowns but very few Covid deaths. Here are the graphs that we have just published on The Spectator data hub.
...Like other studies (including one commissioned by Swedish newspaper Svenska Dagbladet from a statistician at the country’s equivalent of the ONS) this puts Sweden at the bottom, with just 3.3 per cent more deaths than were expected. Another way of doing this is to express excess deaths not as a percentage of the previous baseline but as a share of population. So the below chart using OECD data show it per 100,000 population: Sweden is again at the bottom.
...Both of the above compare deaths against an old five-year average. But other methodologies use models to calculate how many would have died anyway, and produce a figure ‘excess’ to this modelled prediction.
One is the ‘World Mortality Dataset’ produced using data from the Max Plank Institute in Germany and others. It put Sweden seventh from bottom with an excess of 18 per cent (though this compares three years to expected deaths in one year) and New Zealand in negative territory. The New Zealand data fluctuates, though: its press has been reporting the biggest increase in deaths since the 1918 flu virus. But a country with just five million souls, a small fluctuation can produce a big ratio."
https://www.spectator.co.uk/article/sweden-covid-and-excess-deaths-a-lo…
Second spoiler alert: Sweden had more stringent lock downs than New Zealand for the majority of the pandemic.
That is stretch! Sweden kept its schools open! A public health response that actually looked after public health and child welfare.
No learning loss in Sweden during the pandemic: Evidence from primary school reading assessments
https://www.sciencedirect.com/science/article/pii/S0883035522000891
Open Schools, Covid-19, and Child and Teacher Morbidity in Sweden
"Despite Sweden’s having kept schools and preschools open, we found a low incidence of severe Covid-19 among schoolchildren and children of preschool age during the SARS-CoV-2 pandemic. Among the 1.95 million children who were 1 to 16 years of age, 15 children had Covid-19, MIS-C, or both conditions and were admitted to an ICU, which is equal to 1 child in 130,000. ...No child with Covid-19 died."
https://www.nejm.org/doi/full/10.1056/NEJMc2026670
Sweden didn’t lock down and therefore killed off their vulnerable people early on. Of course their expected deaths are now lower. It would be interesting to test your theory by looking at excess deaths in Auckland vs Wellington as Auckland was locked down for longer.
Have to be careful - I thought shorting the recent BTC fall using USDC was "easy" money. It's not the monetary fallout of the SVB bank collapse that concerns me as much as the way it will make investors think twice about the securities backing their coins, or lack thereof..
Buying a decent amount of USDC (stable coin) this morning at 96c.
Hoping for a re-peg once USA banks open to $1. Lets see if its "easy" money
Sold my USDC y'day Wolfie. Changed it to XRP and sent it to my Japanese trading account. It's currently sitting in JPY.
My bet is that if that the contagion is on like Donkey Kong, USDJPY is going to tank hard.
I'm surprised about the silence about the war in Ukraine, especially from TV1 & TV3 news. The fighting in Bakhmut is the heaviest ever, and Russia could finally take the city, which could lead the way for Russian troops to move further into Ukraine. Europe has responded by coming to an agreement to allow them to "unilaterally supply more weapons to Ukraine" (rather than by a fragmented "country by country way". Putin is cozing up to China to also ramp up weapons, ammunition and men.
All this escalation is a really worrying sign towards a more significant world war !
There already are sanctions against the export of microchips to China. This is a significant escalation. There is a lot brewing below the surface the NZ media just doesn't report on it.
https://www.bbc.com/news/business-64897794
There’s lots of things that aren’t made in China these days, especially clothes and fabrics.
There’s lots of crap that people buy but don’t really need that is made in China. Cutting back on that hits China, helps people’s finances, and helps the environment.
We have had the same Sony TV for more than 12 years. It serves our needs perfectly fine. Is it ‘the latest thing’? No, but who cares. Keeping going with it and not buying ‘the latest thing’ achieves all three objectives I outline above.
A personal goal of mine this year is to buy less, and where possible buy second hand or from higher quality sources. For example I have just replaced a pair of cheap sneakers with some 'Made In USA' New Balance ones; the quality difference is night and day, and although they cost 4x the price I'm confident they will last for many years if cared for.
As lame and stereotypical as it sounds, the less I buy (and the more discerning I am with the purchase I do make) the happier I become. I have been guilty of being terribly consumerist in the past, and from environmental reasons to financial benefits that had to change.
Yep exactly
I buy quite high quality for clothes - mainly Rodd & Gunn and Barkers. A large proportion of their clothes are not made in China, and because they are fairly high quality they last quite a while. And classic style that doesn’t go out of fashion.
They also have some good sales which makes them relatively affordable if you get items in the sales.
Who will sanction Australia?: Capital city newspapers urge nuclear war by Australia against China: God help us
I don't think there's any upper limit to how many men Putin would chuck away just to secure a victory (whatever that might like look) at this point. Even if Russians were dying at a rate of 100:1, or the death toll crossed a million, it probably wouldn't matter.
The Russian people seem conditioned now to accept an 'imposed worthlessness' on their lives from a never-ending succession of nutcase leaders, which is a shame as it seems to be a nation of great promise and potential whose people have contributed much to arts, science and wider culture.
I have an old colleague who is now reporting from the frontlines in Ukraine for various media services, and he said the biggest difference he noticed is that while both sides are taking terrible casualties (and both are playing a manipulative PR game to tout successes and minimise failures) Ukraine at least makes attempts to save wounded soldiers where possible whereas the Russians just leave their men to crawl off and die in the cold as the attitude is there is always another body to crawl over the pile.
The West is not perfect by any stretch of the imagination, and we have done some terrible things and continue to do them, but I'd rather live in any Western nation than Russia for that reason alone.
Well put, especially "both are playing a manipulative PR game" and "(The West) have done some terrible things and continue to do them" as suggested by the bloodiest current conflict of them all - Yemen. But again, it continues because 'it's us' and we need the Saudi oil - "The eight-year-old conflict in Yemen is between the internationally recognized government, which is backed by a Saudi-led military coalition. The country’s humanitarian crisis is said to be among the worst in the world, due to widespread hunger, disease, and attacks on civilians. "
Rwanda, on the other had, had little to offer The West, so we stood back and let them hack each other to pieces.
"Every investor and regulator remembers the GFC banking crisis" Could have fooled me.
One of many no doubt articles on SVB. Seems fine to me for someone with minimal knowledge on the US banking system. https://www.livemint.com/news/world/explainer-silicon-valley-bank-crisi…
SVB broke, part contribution from CC?
"“… SVB recognizes the significant societal, ecological and economic threats of climate change. … We enable entrepreneurs with inventions and new businesses that reduce greenhouse gas (GHG) emissions and take seriously the responsibility to reduce our own. …”
Must have lent too much to entrepreneurs with an eye to joining the CC financial bandwagon and being unable to pay the loans back
section 8 https://www.svb.com/globalassets/library/uploadedfiles/svb_environmenta…
Regulators just closed Signature Bank (new york) a systemic risk exception.
https://home.treasury.gov/news/press-releases/jy1337
Yes, I just noticed this on it:
Signature Bank shut down as FDIC, Treasury, and the Fed cite ‘systemic risk’ - The Verge
It seems the FED is already building an expectation of the losses being socialised:
“All depositors of this institution will be made whole,” the Treasury, Federal Reserve and Federal Deposit Insurance Corporation said in a joint statement
Contagion.
You get a bailout, and you get a bailout, everyone gets a bailout! Crisis over
https://www.federalreserve.gov/newsevents/pressreleases/monetary2023031…
https://www.stuff.co.nz/business/world/300828416/second-us-bank-fails-after-silicon-valley-collapse
Dominoes starting to fall?
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