Here's our summary of key economic events overnight that affect New Zealand, with news the chances of a global recession are receding in 2023.
First up today, the US Federal Reserve announced the expected +25 bps rate hike, taking its upper bound rate to 5.25% and a 16 year high. Their short Statement reinforced their focus on getting inflation back down to its target 2% range. Their decision was unanimous. But compared to previous pledges, this Statement no longer refers to the potential need to raise rates from here. The Fed doesn't see a recession coming for the US.
The data today confirms their assessment that the American "economic activity expanded at a modest pace in the first quarter" and is continuing like that. The widely-watched ISM services PMI for April rose to a slightly faster and modest expansion with new orders strong. The internationally-benchmarked Markit one reported a similar expansion in their services sector.
The US ADP employment report signaled a much faster expansion in their April labour market than expected, also confirming the Fed's view of a strong labour market there. The ADP report was expected to show of +148,000 in April, but it came in twice as strong at +296,000. On Saturday NZT we will get their official non-farm payrolls report and analysts still expect their employed labour force to grow by +180,000 in April. There has to be upside to that now.
We should probably also note that American car sales are rising again, now running at a 15.9 mln annual rate in April, a sharp improvement from the 14.8 mln rate in March.
The American housing markets are still not sharing in this expansion however. Mortgage applications fell -1.2% last week, following a +3.7% rise in the previous week. They are -32% lower than year-ago levels. The benchmark 30 year mortgage interest rate held at 6.50% plus points.
India's services sector is firing on all cylinders, with a sharp improvement in April to a fast expansion built on strong new order flows. Among developing countries, the contrast with China will be annoying Beijing.
The European labour markets are tighter for them too. The bloc's jobless rate fell slightly to 6.5% in March, and this is now the lowest rate on record and coming in just below market expectations of 6.6%. A year ago, this rate was 6.8% so the improvement since has been slow.
International trade by air cargo is still easing back but the decline moderated in March. The levels were -8% lower than a year ago (and about -8% lower than pre-pandemic levels too). However Asia Pacific volumes were down a bit more. The only region posting increases over pre-pandemic activity is North America.
The UST 10yr yield starts today at 3.40%, and back down another -3 bps from this time yesterday. The updated Fed position has had little immediate impact on this rate. Their 2-10 yield curve remains -56 bps inverted. Their 1-5 curve is inverted more, now by -136 bps. And their 3 mth-10yr curve is now inverted by -110 bps. The Australian 10 year bond yield is now at 3.37% and down -2 bps from this time yesterday. The China 10 year bond rate is unchanged at 2.79%. And the NZ Government 10 year bond rate is now at 4.18%, and that is up +2 bp from this time yesterday.
Wall Street is up +0.1% on the S&P500 in its Wednesday trade after the Fed decision. (Update: After the Powell press conference, the S&P500 is down -0.5% with investors realising rates are probably staying higher.) Overnight, European markets were all up about +0.3%. Yesterday Tokyo was closed for a holiday. Hong Kong fell -1.2% and Shanghai was still on its holiday break. It will be back today. Yesterday, the ASX200 ended down -1.0% while the NZX50 ended down -1.1%.
The price of gold will start today at US$2023/oz and up another +US$11 from this time yesterday.
And oil prices have fallen sharply again, down another -US$3 from yesterday to be just under US$68.50/bbl in the US. The international Brent price is just on US$72/bbl.
The Kiwi dollar is marginally firmer against the USD and now at 62.4 USc. Against the Aussie we are also marginally firmer at 93.4 AUc. Against the euro we are up marginally at 56.5 euro cents. That means the TWI-5 is now at 70.3 and up +20 bps since this time yesterday.
The bitcoin price is virtually unchanged today, now at US$28,456 and a mere -0.4% lower than this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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48 Comments
An interesting discussion yesterday, Victoria University: Green Growth vs Degrowth.
Alan Bollard was scripted to appear for the Green Growth team – but swapped out (I smell political pressure; his ‘Crisis’ book tells us he’s ignoring of physics, probably including the limits to Growth; he’d have likely been factually outflanked, and we can’t have that now, can we?). So we got Peter Nunns – who was about as bad; blatant disregard for offshoring in one of his primary assertions; one can feel sorry for these folk but hey; they put themselves there and we pay them. So help us.
The takeaway was the solid attendance, and the chat-run, which tells us that more thinkers than ever realise we’re facing a multi-faceted predicament.
There will be no media reports; no investigation; no follow-up (prove me wrong, folks). And the difference between that silence, and bull---tting outright is?
And I wonder how many economics students ask their lecturers the hard questions? And then ask for their money (😊) back…
That would have been interesting.
Any recordings of it?
It has been interesting to see some articles in recent weeks in media here in NZ about end to end consideration of activities around the ETS. Although just stretching out the start and end points of the analysis is still pretty arbitrary.
My favourite piece of feedback from a lecturer ever was: "I thoroughly disagree with you. But I have to give you an A+" - this was as an adult student in a post-graduate paper where both I and the lecturer had industry experience.
Then there was the B- I received for an assignment based on a community survey - because the survey returned results at odds with what the lecturer said they would be (I was told I'd must've surveyed the wrong community people).
The first lecturer moved on to better pay in the private sector. The second was let go at the end of the term (several terms consistent bad feedback from students for this issue, plus their lectures were copy-paste from textbooks read verbatim to the class at high speed).
This suggests a lack of exposure to the environment.
Going back to do some postgrad a while back, I had a classmate, a relatively typical Talkback Man type, who asserted the same, and that Lecturer A was a lefty so he'd just put in what A wanted to hear.
He got a poor grade for poor arguments. Others of us argued through issues carefully and objectively and were recognised for that.
Talkback Man assertions of groupthink might reflect more groupthink in the makers than the targets of such assertions.
At least the debate is occurring PDK and the (hopefully) right people are gaining an understanding of what we are facing currently. Our whole country need to get our head around the concept of managed degrowth versus managing the same outcomes using green energy. The transition phase whilst still using fossil fuels to manage that transition I hope gains more support in the community as it forms a very necessary and crucial agent in that change. Rather than just another thing to rage against. But once again are we tying ourselves in an economically uncompetitive knot whilst growing food when we have some leeway from the Paris Climate Accord 2015 to continue our emissions for doing so?
Without trying to upset any practicing Economists I wonder if an economist might be more amenable to political manipulation of incoming data for collation con if from the pure scientists and engineers? Scientists and engineers in my experience tend to hold on tenaciously to their findings and conclusions.
But it’s not what’s written here that counts though. It is more the buzz emanating from the hive in Wellington. Article here the other day, highlighted political pressure at play on the west side of the Tasman, to keep debt stricken households from hitting the wall too hard & long. No different on the east side of it either despite platitudes to the contrary.
WTI #Oil plunged <$70/bbl as the prospect of a US recession threatened to curb fuel demand. Just days after OPEC+ began cutting production in an effort to stabilize markets, there was little indication that the group was having any success. https://bloomberg.com/news/articles/ Link
Yes.
These morning briefings are all over the place, and aren’t representative of all the narratives, many of which are DGM, but very credible DGM.
Obviously it’s part of the journalistic dark arts to pull people in with sloganistic headlines, but the narrative here lurches from one angle to the other. Acknowledging of course that things are a bit volatile.
But just in that link is a pointer to the level of BS and buy in that is occurring in the media; it says OPEC CUT production "in an effort to stabilise markets"? Stabilising markets would require consistent pricing. Cutting production is an attempt to drive prices up, shafting the world which is dependent on oil. Instability in the US though is undercutting the move, and ultimately a cut in production to increase prices may exacerbate the instability issue and further promote the risk of a recession. I would have expected the media commentators to pick up on that?
You assume full production capability?
I don't. They are all well aware that we're past conventional-oil peak by 17 years; that we're past unconventional-oil peak by five years, and that gas is no substitute. They also must realise that without oil, there is no 'economy'
So they are inclined to prolong - and who can blame them?
No. I'm commenting on media gullibility and not challenging the commentaries from OPEC. They may or may not be running out of oil, and we may need to stop using it at the current levels, but that doesn't change the issue of media not challenging the BS pumped out by these groups.
In part the media's failure to challenge "conventional wisdom" is a contributor to the problems the world is facing today. The public's gullibility and willingness to swallow the tripe is another contributor that has helped the major culprits avoid accountability.
and that drilling tech is being applied to scalable geothermal projects with interesting results.
"The project will result in 8,2 MWe and ~44.000 tCO2e GHG emissions avoided per year including anticipated heat offtake and power sales. Eavor estimates that ~20.000 homes will be powered with clean energy harnessed from the Earth."
https://eavor-geretsried.de/en/eavor-loop-awarded-e916-million-grant-fr…
India's services sector is firing on all cylinders, with a sharp improvement in April to a fast expansion built on strong new order flows. Among developing countries, the contrast with China will be annoying Beijing.
India is sliding into Putin’s hands
“Inflation worries rather than geopolitical concerns have taken centre stage, leading New Delhi to brush away Western reprobation about increasing economic ties with Moscow,” comments Susannah Streeter, head of money and markets at Hargreaves Lansdown. “The approach appears to be working, with India’s headline inflation rate going in the right direction, helped also by lower food prices. But the price spiral is still not unwinding fast enough to meet the central bank’s target.”
Gold is within a spitting distance of an all-time high against the US$. It cracked a new high against the Kiwi this morning.
Look at the US data. What does it tell us? That anyone with any sense is going to spend whatever cash they have before it gets 'inflated away' ("I'd better buy that new EV, now" etc. Who looked at the price of whatever it is they want, this morning, and thought "I'd better get that now!" - I did). Ergo, The Fed, and so the RBNZ etc, have an almighty task in dampening that down or Inflation is going to roar.
Do we want a rerun of the 70s debacle and what Volker had to do? No. But it looks like that's coming.
This is what I don't get about it.
I'm thinking the same. If I have any spare cash, and something I've been thinking of buying, then it's only going to get expensive more quickly than my parked up cash can keep up with.
So they have to wait until enough of the spare cash in the system is spent until holders of cash now have to rely on debt before they beat inflation?
And that's the huge difference between today and the 70s. Inflation beckoned to us then. Deflation does today.
Back then Household Debt was a miniscule. And so its untapped resource could be applied to 'get the economy going' even after huge % rate rises. "More Debt" actually was the answer back then. Wages and Asset prices had room to move and adjust.
Today - it's the opposite. Household are already soaked in Debt. There is no room to move as % rate rise. In fact, it will be the reverse. Asset Prices that rely on ever more Debt, will fall.
And if we convince the likes of you and me to quit our credit holdings (cash) then all that will be left is a lot of everything "For Sale" and no capacity for anyone to buy it - at any price.
Yes and another big change as is alluded to here today is we have a want generation/society much more than a need society. 50 years ago people who had survived the great depression were still influential now we have a "wanty" consumerism society where commentators use spending as a measure of societies health
When sales of bottled water drop to zero in NZ maybe we will be able to say we have a change in attitude
I get the argument, but this must be somewhat psychological? It's a self-fulfilling prophecy, because as people pull their purchases forward, increased demand thus causes increased prices.
We're not everyone, obviously, but our purchases tend to be planned to a schedule - but then again, we pay cash for everything, so if debt was needed for a forward purchase, we wouldn't consider it. The only time we might bring a purchase forward was if it went from a want to a need (e.g., car maintenance > ameliorated cost of new car).
This is what concerns me. I'm saving as much as I can to pay off a chunk of my mortgage come next re-fix (early 24), but in parallel that means holding off on a new car...guess I'll just have to stomach that when the time comes. Oh well. Right, better get to work.
Three failed US banks had one thing in common: KPMG
Questions over the quality of its work and independence have mounted in recent days, following the release of a Federal Reserve report into the collapse of Silicon Valley Bank and the forced sale of First Republic. The Big Four accounting firm was auditor to both banks, as well as to Signature, which was seized by regulators in March. In all three cases, KPMG gave the banks’ financial statements a clean bill of health as recently as the end of February.
KPMG alumni have also gone on to play significant roles in the banking sector, including at former clients. The chief executives of Signature and First Republic were both former KPMG partners.
https://www.ft.com/content/feb33914-493e-467c-b67e-28fcd1b3814d
Corruption or incorrect audit standards?
A big part of my role is auditing, and a potential issue is asking the right questions. Also possibly contributing is the ability to make out of scope observations. Many audits often uncover concerning information which is out of scope to the audit, and therefore go unreported. some of that information may be significant. If the audit is not penetrating enough or asking the right questions, and out of scope observations are suppressed then the audit may completely miss critical issues.
Possibly. Who sets the standards that KPMG audits to? And does KPMG have the opportunity to really penetrate a business to the core to understand what is going on and the consequences? These are big questions. But I tend to agree JC that KPMG is a part of the system built to support the status quo and narrative. If these were not sufficiently robust, then KPMG should have stood up to identify the flaws and get them corrected.
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