Here's our summary of key economic events overnight that affect New Zealand, with news a miss on US core inflation has markets moving a lot today.
The highly anticipated American inflation rate for January fell back to 3.1% at the headline level following a brief increase to 3.4% in December, but the more important core rate came higher than forecasts of 2.9%. The monthly rate edged up to 0.4%. Markets were expecting better 'progress' than this and have reacted sharply to the news, realising the US Fed may not trim official rates as soon as they expected - and that they should have listened to the Fed's signals that it is a time to be cautious on progress in the fight against inflation. The next FOMC policy meeting is not until March 21 (NZT) however.
The USD rose, benchmark bond yields jumped, and Wall Street reacted badly with a sharp selloff. (See below.)
Meanwhile, there was a jolt lower in retail sales growth last week, as measured in same-store bricks & mortar outlets. It was up, but only by +2.5% from the same week a year ago, the first time it hasn't risen in real terms in five months.
Across the Pacific there was another unexpected jolt lower. Japanese machine tool orders slumped in January, coming in at their lowest level since early 2021.
The ZEW Indicator of Economic Sentiment for Germany rose for a seventh consecutive month in February, reaching its highest level in a year and bettering market expectations, largely based on hopes that major central banks will start cutting interest rates this year.
In Australia, the Westpac-Melbourne Institute Consumer Sentiment Index rose +6.2% to 86 in February, from 81 in January. This is the biggest monthly gain since April last year, when the RBA paused its rapid series of interest rate rises, and takes the Index to its highest level since June 2022.
Australian business confidence, as monitored by the NAB survey, rose just 1pt to +1 index point, and still well below its long-run average. The improvement was largely driven by manufacturing and construction, partly offset by falls in wholesale and retail confidence. Confidence remained negative across all the states however.
The UST 10yr yield starts today at 4.29% and an +12 bps shift up on the changed views following the US CPI data. The key 2-10 yield curve inversion is deeper at -33 bps. Their 1-5 curve inversion is slightly less at -72 bps. And their 3 mth-10yr curve inversion is a lot less at -110 bps. The Australian 10 year bond yield is now at 4.27% and up +8 bps from yesterday. The China 10 year bond rate is unchanged at 2.45% while they are on holiday. The NZ Government 10 year bond rate is actually down -2 bps at 4.92%.
In Wall Street's Tuesday trading session, the S&P500 is down a sharp -1.2% on the same driver. Overnight European markets all closed down about -1%. Yesterday Tokyo ended its Tuesday session up a stellar +2.9%, Hong Kong and Shanghai remained closed, and Singapore was up a minor +0.1%. The ASX200 closed its Tuesday trade down -0.2% and the NZX50 matched that.
The price of gold will start today down -US$21/oz from yesterday at US$1993/oz and a sharp reaction lower after the US CPI data was released.
Oil prices are up +US$1 at US$77.50/bbl in the US while the international Brent price is now just over US$82.50/bbl.
The Kiwi dollar starts today at just under 60.6 USc and down more than -¾c from this time yesterday. But that is mainly a USD shift up. Against the Aussie we are little-changed at 93.9 AUc. Against the euro we open at just over 57.5 euro cents and a -½c fall. That all means our TWI-5 starts today at just over 70.3 and down -40 bps.
The bitcoin price starts today at US$48,482 down -2.0% from this time yesterday but still over NZ$80,000 after the NZD retreat. Volatility over the past 24 hours has been moderate at just under +/- 2.0%.
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50 Comments
Interest.co.nz did well to pick up on Adrian Orr's comments on Bitcoin at the Finance Select Committee on Monday but missed the bit where he said "It's a great business to be in, Central Banking, where you print money and people believe it" the clip is now going viral on Twitter.
The accuracy of your analysis checks out - Reserve Banks meeting post match - https://www.youtube.com/watch?v=bnziFQeSMXI
Why is money creation such a huge mystery? If plebs found out there's no such thing as a shortage of money, would they revolt? Of course it's creation is limited to control inflation (sometimes), but knowing you will possibly die on a waiting list somewhere when a few more dollars coud have been created out of nowhere, could be a bitter pill?
Hmmm....
A recent Bloomberg article described central bank easing with the phrase “pumpingd money into the economy.” That’s a misconception. Monetary easing is actually an asset swap. The public was holding savings in one form, and now it holds it in another. The Fed buys Treasury securities from the public, and replaces them with currency and bank reserveds (base money) that someone has to hold, at every point in time, until the Fed sells its bonds and retires the cash. All monetary policy does is change the mix of government obligations held by the public. Only fiscal policy – specifically deficit spending – changes the total amount of those obligations. - courtesy of Hussman
There was prior evidence elsewhere that LSAP (QE) failed to generate sustained economic growth - it should have been noted and acted upon.
"Investors" have persistently over capitalised the rising discounted present value of cash flows associated with assets, financed by bank credit as interest rates fell.
Policy makers sometimes flatter themselves with the idea that holding interest rates at untenably low levels makes it cheaper for borrowers to obtain funds. Unfortunately, it does so only by transferring income from people who are trying to save for the future. Replacing Treasury securities with base money may make savings more “liquid,” but it doesn’t suddenly make people abandon their retirement plans in favor of consuming today. Low rates also don’t magically create productive investment opportunities.
What economic activities suddenly become viable at zero interest rates that were somehow not viable before? Only projects so unproductive that any positive hurdle rate would sink them. The main activities that are encouraged by zero interest rates are activities where interest is the primary cost of doing business: leveraged real estate transactions; “carry trades” that employ enormous amounts of leverage to profit from small yield differences; and speculation on margin. Presently, margin debt as a percentage of GDP is at a historic extreme. https://www.hussmanfunds.com/comment/mc210614/
The idea that “low interest rates justify high stock valuations” is really a statement that “low interest rates justify low expected stock returns as well.” Those high stock valuations are still associated with low prospective future stock market returns.
Worse, the notion that “low interest rates justify high stock valuations” assumes that the growth rate of future cash flows is held constant, at historically normal levels. If, as we presently observe, interest rates are low because growth rates are low, no valuation premium is “justified” by low interest rates at all.
Presently, the combination of record low interest rates and record high stock market valuations does nothing but add insult to injury.
...the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment.. Hussman
The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. Courtesy of Hussman Funds
Policy makers sometimes flatter themselves with the idea that holding interest rates at untenably low levels makes it cheaper for borrowers to obtain funds.
Unfortunately, it does so only by transferring income from people who are trying to save for the future.
If only the masses understood this, perhaps people wouldn’t pile into high levels of debt when interest rates were low and prices were high.
Not only believe it but pay huge interest on the "money" printed out of nothing... fkin madness... but it is one of the quickest and most efficient ways to steal productivity out of the productive without the host realising and to steal from the future generations/unborn NZers...
I haven't seen the clip or the total speech, and my question is was he really referring to Central banking or likening Bitcoin to it? The reason I ask is because it also looks like he is admitting that the public comms are essentially lies ("...and people believe it").
Out of context the snap shot looks bloody awful that will only harm public trust in officials. But some of the other comments point to what I feel is one of the significant issues in the economy and why parts are so far out of control; that the Government is not trying, or has not control on the amount of money in circulation or being created. Prior to de-regulation this was actively controlled and managed through the RBNZ by the Government, but now the private banks essentially seem to have no constraints.
The whole thing is here.
Hopefully African kids can be taken out of the recycling supply chain.
"How to Extract Gold from E-Waste Using Old Milk
...He and his colleagues started with whey protein, a byproduct of the cheesemaking industry, and made a low-density aerogel. Making the spongelike material is cheap, he says. “The value of the gold we recover is 50 times the value we invest to transform the protein into this sponge.
Gold ions from the mixture settled on the surface of the aerogel and were reduced, forming metallic gold. Each gram of aerogel snatched 190 mg of gold. Burning the aerogel freed the gold, turning it into a tiny hunk of metal.”
https://greekreporter.com/2024/02/09/how-extract-gold-from-e-waste-old-…
Oh crap, prices are going to go back up!
https://www.oneroof.co.nz/news/one-house-and-11-offers-first-home-buyer…
“A real Kiwi favourite is your weatherboard bungalow with some nice updates and a good-sized section – that’s a first-home buyer classic.”
70 years plus with continuos maintainence and still well north of $1/2m.
I truly do not understand the celebration of this bollocks.
“Christchurch is quite cliquey, like you can buy a street over and it’s worth dramatically more because of the suburb, which is Christchurch for you. So Mairehau is a step down in terms of affordability – you can afford it so much more – but it’s across the road from a house that’s exactly the same.”
That's because once you cross the street into Mairehau you are out of zone for the decent schools. Not to mention all the social housing that is in Mairehau. You might get affordable housing but your kids will probably end up as ram raiders lol
The longer inflation takes to come into target range, the more systematic risk the financial system is in. I’ve spoken to a few directors and companies can survive a few years of high interest rates but if a few years turn into 3-4 years then it’s a whole different ball game.
Yes they are, but the amount of debt we (US mostly) are carrying puts us in a new ball game. The US cannot afford these interest rates for too long as they will reduce their already small escape window.
Wharton - "WBM estimates that---even under myopic expectations---financial markets cannot sustain more than the next 20 years of accumulated deficits projected under current U.S. fiscal policy. Forward-looking financial markets are, therefore, effectively betting that future fiscal policy will provide substantial corrective measures ahead of time. If financial markets started to believe otherwise, debt dynamics would “unravel” and become unsustainable much sooner."
We don't have high interest rates just normal.
Maybe these businesses have only been going a few years but cast your mind back to 2012 when we had 8% bonds like AIA080, ANBHA, BISHA and many more when inflation was under 2%. Auckland airport is still going along with all the other businesses that were paying normal interset rates.
Mortgage ‘immediately unaffordable’: Couple lose home:
https://www.stuff.co.nz/money/350177538/mortgage-immediately-unaffordab…
Got a brief part of some news on ZB that households that own their homes debt free have dropped from 32% to 18%? Actually thought it was much higher than 32% in the first place? Would be interested to learn how this figures are sourced/collated, ie who exactly would know that a home occupier has no mortgage?
JPY is not strong, its currently at its weakest levels since 1990 against USD. They will need to sell US treasuries to defend it which causes yields to spike, then contagion spreads fast into all asset classes (no where to hide). The revaluing of the JPY is the biggest risk to the global financial markets since 1929.
Which extends into a right old chums club with the suppliers, builders & subbies. A convenient rig up against the end consumer who ends up carrying the can when trying to address a fault/failure, as the builder blames the product and the supplier blames the builder.
Inflation data’s like a smokescreen to the real agenda of central banks which is preparing for the next deflationary crisis. Hope we never hear of negative rates again…but unless they gain some height with a few more raises we could be back in economic wonderland.
Deflation is inevitable medium term. There just aren't enough consumers coming through to, err, consume. Places like NZ that have extreme growthist culists in charge, may maintain inflation for longer ,as we head for 100 million population, but most of the rest of the world is stuffed!
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