Here's our summary of key economic events over the weekend that affect New Zealand, with news Credit Suisse has been sold off at a bargain-basement price.
There is a deal in Switzerland where their #1 bank UBS will buy their troubled #2 bank, Credit Suisse. It is probably a deal no-one wants however, except the regulator. Their central bank is funding a US$100 bln liquidity support arrangement for the merger in a bid to end the crisis at Credit Suisse. At least 9000 jobs will be cut at Credit Suisse, probably more after the takeover. UBS is said to get their rival for US$2 bln (Update: final deal seems to be US$3.3 bln) which given their shareholders funds pre-deal were on the books at US$45 bln, the shareholders are all but wiped out getting 5c (Update: 7c) on the $1. Senior management is all fired and the board dismissed.
Through this turmoil, investors will continue to monitor the situation in the banking sector this coming week and await monetary policy decisions from major central banks including Fed, BoE, SNB, and Norges Bank. Also, in the spotlight will be inflation figures for Japan, the UK, and Canada. Finally, PMI data for the US, Japan, and Europe should provide some details about the health of the manufacturing and services sector in March.
In Asia, the People's Bank of China is expected to leave its loan prime rates unchanged following fresh liquidity injections.
Late on Friday, they cut their reserve ratio again to induce even more lending. They cut it by -25 bps, the first reduction this year. For its biggest banks it is now 10.75% and its lowest in sixteen years. For smaller institutions it is down to about 7.6%. Rating agencies are probably still nervous about where Chinese banks are at present however.
China also said their fiscal revenues fell -1.2% in the first two months of 2023 from a year earlier. Of note is that local governments are finding fewer buyers for land, an important source of 'income' for them as the housing development markets stay in the doldrums.
China is brutal when it changes direction; just ask bond traders. Suddenly and unexpectedly, regulators cut off market data for their US$21 tln bond market on the basis that providers of quotation details weren't 'permitted' properly. Suddenly bond traders were operating blind. Things are returning to a sort-of-normal now.
Meanwhile, China has reduced its holdings of US Treasury paper by -17% over the past year. Other countries are too. But to be fair, foreign holders of American debt have always been a minority.
Singaporean exports fell -8% in February from January, much more than anticipated. Year to date they are down -16%.
US data released over the weekend was a touch softer than expected with industrial production slipping slightly in February and the University of Michigan sentiment survey for March coming in a little weaker than expected. But at least inflation expectations retreated in this survey.
In Canada producer prices fell in February, the seventh dip in the past ten months. They are now only +1.4% higher than year-ago levels and may be a key reason the Bank of Canada skipped a rate increase at its review last week.
The OECD has raised the expansion prospects for major economies from the trim they made a few months ago. This improvement is because they see inflation easing now. But the improvement will be muted because interest rates will keep risks high. However, higher interest rates to squash inflation is the right medicine, they say.
Meanwhile the prices of some core commodities are rising again, like iron ore, and steel. But coal is continuing its steep retracement. And copper is going nowhere.
The UST 10yr yield starts today at 3.44% and up +4 bps from this time Saturday. But the UST 2-10 rate curve is sharply less inverted at -41 bps. Their 1-5 curve inversion is less at -78 bps. And their 30 day-10yr curve is less inverted at -52 bps. The Australian ten year bond is unchanged at 3.38%. The China Govt ten year bond is still at 2.88%. And the New Zealand Govt ten year is starting today at 4.43%, also unchanged.
The price of gold will open today at US$1989/oz and up another +US$14 from this time Saturday. That is up +US$125 or +6.7% in a week.
And oil prices start today down -50 USc from Saturday at just on US$66.50/bbl in the US. The international Brent price is now just under US$72.50/bbl.
The Kiwi dollar is still up against the USD and now at 62.7 USc. Against the Aussie we are up at 93.6 AUc. Against the euro we are also up at 58.8 euro cents. That puts the TWI-5 at 70.9 with an +80 bps surge over the past week.
The bitcoin price is much firmer today again, now at US$27,964 and up another sharp +5.3% from this time Saturday. And volatility over the past 24 hours has been moderate at +/-2.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
105 Comments
There is a deal in Switzerland where their #1 bank UBS will buy their troubled #2 bank, Credit Suisse. It is probably a deal no-one wants however, except the regulator. Their central bank is funding a US$100 bln liquidity support arrangement for the merger in a bid to end the crisis at Credit Suisse.
Sounds like the sort of high productivity industry NZ needs to break into.
Collect shellfish! Yes I've seen that up north - tour buses arriving chartered form Auckland and the masses offloading and stripping the beds.
Our coastline is largely barren, except for isolated inaccessible spots that can support a few locals.
We do not have the ability to feed our nation in this manner.
UK Minister of environment after no tomatoes or lettuce on the supermarket shelves “It’s important to make sure that we cherish the specialisms that we have in this country,” Coffey told parliament. “A lot of people would be eating turnips right now rather than thinking necessarily about aspects of lettuce and tomatoes and similar.” Labour UK replied "Let them eat turnips"
I wonder if they are seasonal. We could import turnips here when off season here and vice versa
Yes indeed we are surrounded by a bountiful ocean, but it is largely foreigners, read Chinese, who are taking the fish under quotas, processing it in China and shipping it back to us. Go to your local supermarket and read the packaging info.
As regards the taking of shellfish such as on the beach I am looking out on as It type this, there are notices telling us that it is verboten - except, it would appear, for the GMP. Sometimes when I am up at 0600 clearing my mail etc., and looking across the Firth to Thames, I see quite a few Polynesian people taking shellfish on a low tide ( it is a typical Auckland East Coast beach with extensive flats at low tide ) and when I bring their attention to warning notices I am told to F off as "we, as the tangata whenua, have customary rights. Given that I am a cancerous 77 year old white male, i.e., one of the male, pale and stale, and these days have trouble fighting my way out of a wet paper bag, I recognise that discretion is the better part of valour and retreat to my abode on the other side of the road. When I mention such episedoes to the Fisheries officers who very occasionally come our way, they say it is a crock, but in recent years "is very hard to police under the present political climate".
Cod sells for over $50 per kilo, my cost is about $10 per kilo. Sadly the commercial guys under our privatized quota system are decimating the stocks. Chickens (layers) are selling for $38. Incubating chickens, my cost perhaps $5. So 2 chickens (layers) to one kilo of cod.
"The farmers’ party BBB could win 17 seats in the new Dutch senate, two more than predicted in initial exit polls. With 94% of the votes counted, the BBB has been confirmed as the largest party in nine of the 12 provinces"
https://www.dutchnews.nl/news/2023/03/farmers-party-bbb-steamrollers-pr…
Yeah. The whole system now works to make the rich wealthier and the rest of us poorer. Strange that we all seem to accept it.. so they just continue. maybe we are too busy scrolling on FB to get angry and protest against what is a clear taxpayer bailout being openly lied about and called something else (alledgedly). Biden has even stated that there will be no taxpayer bailout of SVB etc (then where is the money coming from.. it certainly wont be the bankers forfeiting bonuses..).
The French at least are protesting the proposed pension age change very hard.. which is interesting because the capitalist in me would have used to have said tough its just a lack of funding for pensions. However i have this nasty feeling now that it wouldnt have needed to happen had so much money been siphoned off for the bankers et al. And they are sitting on superyachts owning the governments and banking system and laughing as they force the peasants to work longer and harder than ever (in an age where we are told we should be working less).
According to the council’s estimate, “between 2023 and 2027, the pension system’s finances will deteriorate significantly”, reaching a deficit of between 0.3 and 0.4 percent of GDP (or just over €10 billion a year) until 2032. But the council said it estimates a gradual return to breaking even, even without reforms, beginning in the mid-2030s.
So Macron comes into government and cuts taxes to his rich business mates to the tune of €7b per year, and then says we need to cut the pensions because we can't afford a peak pension deficit of €10b per year that will right itself in less than 10 years? I'd be furious too. This isn't about the classic Frenchy slacking off, Macron's entire platform is we'll give the billionaires tax-cuts and we need the working man to just work a few more years to pay for it.
Surely as soon as FDIC came into being the banks incurred more costs (to pay the premiums) and thus jacked up all their margins to cover those additional costs - as i am pretty certain they didnt cut their salaries, bonuses or shareholder payouts - thus the peasants interest rates, fees etc simply went up to pay the FDIC component - and the peasants get poorer to indirectly pay a new insurance to make sure they dont lose their money when bankers take excessive risks to make more money for themselves. Extra payments the peasants pay tax on.
Obviously i may be wrong and Biden may truly believe that someone else paid for this. i guess its true that it wasnt from taxes- so the true answer will be that the public paid for this, albeit not through taxes. BUT it remains true that the bankers and regulators who caused it will pay nothing and the public (taxpayers) will actually have bailed themselves out. And in some cases even the shareholders wont take a haircut
The FDIC thus looks like a publically funded way for bankers to bail themselves out when they mess up. Genius idea by the elite.... they must be laughing at our expense. If true it didnt take long to work that out... how come the public are so subdued
US taxpayers maybe cover the military industrial complex, health insurance and social security, anything else is borrowed. Citizens couldn't care less, just print some cause we have the world's reserve currency (as of this writing). USA taxpayers will not pay anymore taxes, so who cares.
maybe we are too busy scrolling on FB to get angry and protest against what is a clear taxpayer bailout being openly lied about and called something else (alledgedly)
The general population doesn't seem to pick up on these more intellectual matters or perhaps they would be. Not all of us are afraid to protest, as demonstrated 2022. People are tangible and only care if it directly effects them, and not all will realise what will effect them until it does. We can all feel the mood around NZ currently though, and everyone has a breaking point.
More fear across the markets today. Euro$ futures are ripping 30 bps moves almost the whole way down the curve. Collateral shortage/run is, um, see for yourself: Link
Yes, auctions on both 4- and 8-week bills today produced low (meaning at least 5% of all accepted bids) yields of: ZERO. Why in the world would anyone lend the government billions for eight weeks and accept no investment return? Utility of the instrument as best collateral. Link
Victoria’s Martien Lubberink clearly isn’t a KPMG fan https://capitalissues.co/2023/03/17/rad
"the shareholders are all but wiped out getting 5c on the $1."
I doubt this is the last of this sort of thing. Many asset holders are going to find that their whatever-it-is is nigh on worthless. Holders of Tokyo real estate were treated to something similar 30 years ago.
"Central bank is funding a US$100 bln liquidity support arrangement"? Let's call it what it is - QE. And contrary to what one might expect, with the Inflation genie now granting his many wishes, CPI is going to soar. And so drag along with it - interest rates.
Gold seems to have twigged to what's coming "That is up +US$125 or +6.7% in a week."
Warning for 200 US banks at risk of Silicon Valley Bank-style collapse
https://www.nzherald.co.nz/business/bank-collapse-warning-for-200-us-ba…
In some respects I agree. But underlying all this is a significant message to the banks. they have become too arrogant, too secure in their hubris around their security and place in society. I believe Biden's message to the banks that he will underwrite depositors but not the banks, investors or shareholders is the most important one. the only issue i see is that this message doesn't seem to be being repeated anywhere else.
(an aside; Galleous last week provided a twitter link that suggest that the Fed had released a note to indicate that all debt would be guaranteed. I have not yet seen any verification that this is in fact true)
I’m not actually sure it’s the banks fault in this instance. who would have thought interest rates would have gone up so much so quickly, it’s never happened before. So far the money has been in the normal safe havens, not in dodgy securities.
The blame has to lie with the central banks who forgot inflation and bank resilience were their main mandates.
Has any government had the balls to blame the central bank and change their tool set? All this quantitative easing crap needs to go, maybe only under extreme situations with sign off from the finance minister or something.
Surely each bank must maintain an oversight over it's own risks? Would that include it's need for cash, and it's need to convert its securities? I'd expect the banks to maintain a rolling oversight of it's securities to ensure it can convert those without loss at anytime. It's been well understood for quite sometime that the low interest rates had to come to an end, and that the longer it went on the greater the risk. So either the bank had become very complacent about its own business or it was just asleep at the wheel, confident that it would get bailed out if it screwed up.
That's not to say the Fed didn't have a part to play in this, but I suggest the prime failure was in the SVB. Perhaps there is an opportunity here to structure their risk in such a way to expose the central bank if that becomes too arrogant or complacent?
I'd expect the banks to maintain a rolling oversight of it's securities to ensure it can convert those without loss at anytime.
Prey tell how one does such a thing when securities trade in a free market, ie, they are only worth what somebody is willing to pay for them on the day?
I'd say it is the banks fault that they failed, but not that that is necessary a bad thing. Margins will be slim in a competitive market and if investors and share holders complain maybe it is correct to point out that they should have done better due diligence and invested in a bank that does keep reserves despite a lower return.
It’s a crap situation. A full guarantee might be a lot cheaper than a limited one as the banks may survive. but then there is the moral dilemma of taxpayers bailing out corporates.
If you had big money in any US bank right now would you keep your fingers crossed or pull it out?
CH Smith sums it up well:
The irony is rather rich, isn't it? The policies rushed into service to "restore financial stability" insure the next round of financial instability will be even harder to stabilize, until the instability undergoes a change that puts it out of reach of all stabilization policies.
The problem though as I see it, is that the banks are really just people. People set up the systems and make the decisions. When they make poor decisions/choices if they're senior staff in a bank, then they seem to not be held to account for them. Indeed they may even personally profit from them even if they might lose that particular job. Bailing out the depositors sends an entirely different message.
1. Macro - The world is in a very different place then before the BFC. When the GFC hit the world acted in unison, with teh FED, ECB, even China providing a co-ordinated stimulus. This time China and USA are at economic war, USA and Russia real war. There will be FX swap lines between allies, but this is not going to be a 2008 crash, IMHO it will be worse.
2 Domestic - NZ has a lot of business who are on life support after covid, think hospo, some tourist, and now residential construction. I think the bigger res will be ok, the Classic builders level have seen this before and not too extended, tho whey will cut H2 starts big tome, they also normally purchase land much smarter and at scale. This little guys are in a lot of trouble. I think the value of the assets thy hold must be close to zero if marked to market. It will cause chaos in the trades as once things tumbles over impacting another's cashflow. If IRD want to push, most will go. Farming is being hit by cost side inputs massively. Re building conscents, yes many will go on hold.Recession, sites become holes in the ground, rusting metal etc etc... This will look more like 1989 IMHO , for rent signs in every 3rd shop rural main streets etc.
3 Res Property Investment - dead until yields go up, tax situation improves and prices fall. Real estate agents are starting to be honest (Oneroof article on south Akl Otara Millionares Club etc). I think that a Labour win and most late entry property investers are underwater for a lifetime, many are 50+, they are pouring money into a hole. What was an investment for retirement is now going to ruin their retirement. There are a LOT of these if they all wake up at once, game theory says the first to sell get a better price.
4 Inflation is not dead, like the Parrot, its merely resting. How can you give beneficiaries inflation but not teachers. labour does not understand the wage - price spiral at all, we will have teachers, police, drs, cival servants all wanting inflation adjustment, only one way to fix this is to crush inflation, only tool is OCR. Ashley Chirch is delusional, thinks this can be fixed by going back to a lower interest rate environment, that was fake, was based on 55bil printing in NZ and a 140bil borrowing debt bill, DELUSIONAL.
5 Infrastructure Health Police etc. We need to spend massive money to make them world class and we don't have it, National cannot save our way back to great services, Labour is wasting money. More fiscal discipline is needed.
6 Crime in NZ. This is a biggie, we need to feel safe or suddenly you will see a backlash of self action. Retail shops locking doors....
So what is positive, we are starting to see Tourists back, students (true students) returning, world still needs to eat and our produce is considered safe.
All trumped by dependency on foreign oil, being refined overseas, and shipped to us without being sunk by a pirate or in a war, and able to get insurance despite these risks.
Likewise, our exports (ag and tourism) are dependent on foreign oil.
If a serious balloon goes up in the Middle East, or Asia, we look pretty vulnerable to most of the ships stopping, and we are not important to anybody who matters.
Point 6 is certainly a concern yet something that can be managed relatively easily with the construction of more prisons and employing more police. The recent police shooting of a man outside the Henderson police station was likely the result of ineffective previous penalties. Home detention or even no punishment at all eventually leads to such things happening. In a way the man who was shot was a sad victim of an ineffective system as were many other guilty and innocent people.
Although we have our issues here in NZ, one could argue that with the level of shit hitting the fan elsewhere, perhaps NZ will become a more desirable place for skilled migrants to relocate their families to in order to shelter the quite possibly more severe recession coming overseas.
ChatGPT did my head in this weekend.
My niece showed me how to use the tool on her calculus homework last evening. The thing responded to each question with a detailed response.
I followed that with some complex electrical engineering questions: the thing built on each question and improved its response significantly.
Scary stuff!
"Upon its creation, Skynet began to learn at a geometric rate. The system originally went online on August 4, 1997. Human decisions were removed from strategic defense. The system then became self-aware at 2:14 am Eastern Time on August 29th, 1997." The Terminator.
I'm genuinely unsure what happens when we get to multiple, competing AI platforms that will offer more and more power, and what happens when people start getting them to talk to each other.
ChatGPT is just language for now, but no doubt there is something very much simmering away at a lab level that has this power.
Being self aware would be a bonus in some ways. The mistake would simply be letting a dumb AI decide to take actions based on user requests.
e.g. ask it to fix climate change and allow it to decide on actions... and it could simply turn off all devices that produce emmissions. Like the worlds power grid, intelligent cars, homes etc... or maybe just release a virus from a lab and wipe out the species causing the emmissions... leaving the rest of the animals to enjoy a much nicer planet ;)
There is pretty much zero government regulation and nobody has any real idea what the rich nerds will do to win the AI race. Be interesting
ChatGPT (and especially the new GPT-4) is great once you start learning how to work the input side.
It's mediocre at writing any form of factual content as it gets a lot of facts wrong but simply has so much "swagger" and confidence that the average person will never fact check.
However, where it is good is for solving math problems, getting it to create Excel/Google Sheets formulas (this is saving me so much time it's incredible), summarising long form content etc.
I've been using it to 'decode' some formulas in our long-since-best-practice daily workbooks into plain English. It really is a game-changer if you have some degree of interpretation or attention issue and need a plain language run-down of a formula that you can read in written form, rather than trying to decipher a hugely unwieldy mish-mash of SUMIFS or similar.
Indeed, its going to save me many hours of googling and learning as I setup my linux/Home Assistant server this weekend, and we are already using it for prototyping code at work, nothing has got through to production yet be it very promising so far according to the software guys. Might be a lot less work going out to freelancers shortly.
I have a coral AI being delivered today to have a play with, it destined to end up doing object recognition on the home security cameras once I get a cool day to crawlround in the roofspace to run the cables for them.
They are almost certainly already doing it with ChatGPT output that users are putting in. That's a known pattern in machine learning which has been in use for a decade or so. Helps the machines improve their responses, reinforcement learning.
No, the user behaviour tells them the reinforcement part. So if a user keeps asking multiple questions regarding the same thing again and again, they know the previous answers were wrong, so considers them failures. When a user stops asking ChatGPT questions, especially if they copy the data out of the response window, then they have a win. So the machine can improve its understanding of what is a good response from the its hits and misses.
That depends on the quality of the metrics used to determine success. Can be got around by using supervised learning, but for some tasks with well defined end goals (e.g. chess, go), it can be left to go ham.
We saw an example last year with the stats NZ immigration model of what looked to be an overfit model, which is the biggest danger in ML. Problem is, people who write them get paid to produce results, so overfit that works on all your test cases is often what you'll end up with. No one wants to admit that their ML may actually be a waste of time, but everyone wants to be paid!
So it's not really "her homework" is it? Test the students live & face to face and they will know nothing.
A frightening turn of events outsourcing human critical thinking to a bot, which is just a condensed library of selected existing human knowledge. No new creativity but a very impressive Van Gogh or Kathrine Mansfield ripoff.
Well if you can't beat them just stop competing.
https://www.1news.co.nz/2023/03/20/racist-streaming-in-schools-must-end…
Will the total removal of steaming by ability include school's rugby? Watching a randomly selected 15 from one school playing another randomly selected 15 will be exciting but dangerous for the small and unathletic.
The following statement was released by Secretary of the Treasury Janet L. Yellen and Federal Reserve Board Chair Jerome H. Powell:
"We welcome the announcements by the Swiss authorities today to support financial stability. The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient. We have been in close contact with our international counterparts to support their implementation."
Steady lads. We just have to repeat this statement every weekend because the US financial system is resilient.
From AFR
He believes the commercial property sector is sleepwalking towards a painful period that is likely to involve plunging asset values, distressed property sales and potentially even capital raisings.
A veteran banker to the sector is similarly bearish. “These guys have had a tailwind from falling interest rates and rising valuations for 20 years. This will be their biggest test since the GFC.”
Almost time DGMs where rebranded Realists, and the Spruikers... well they where always just Spruikers.
Steady lads! The central banks are deploying more liquidity. Swap lines are now OPEN for business.
https://twitter.com/CaitlinLong_/status/1637562913291489281?t=xzCfETloy…
And the way our account deficit is headed, we will be using it, perhaps Ardern already has! Is this America's way of controlling the world's banking system? First off, is to get all western world countries living above their means and into debt. My conspiracy theory side says Covid and now Climate Change are the weapons to be used. I think 'Team NZ', drunk the cool-aid.
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.