Here's our summary of key economic events over the weekend that affect New Zealand, with news of a week of big policy announcements with some potentially very big implications.
First all eyes will be on Japan's rate review (tomorrow, Tuesday). Strong wage gains in Japan, and by much more than expected, are fueling speculation that the Bank of Japan won't wait any longer and will shift out of its negative policy rate when they meet.
And the US Fed meets Thursday NZT with a review that includes economic forecasts and the so-called 'dot plot' interest rate projections. Also, in the US indicators such as Manufacturing and Services PMIs, along with building permits, housing starts, and sales of existing homes will be under review. Australia, Brazil, Turkey, Switzerland, the UK and Norway will all also be be reviewing their monetary policy positions and official interest rates. And this week we get inflation data from Canada, the UK, and Japan. Services PMIs from Australia, Japan, India, the EU are coming too this week. In China, they are scheduled to release data on industrial production, retail sales, their labour market, fixed asset investment. And their loan prime rate (LPR) reviews are on the docket as well.
Chinese banks extended ¥1.45 tln in new loans in February, down from the record ¥4.9 tln in January. (January is usually a seasonal high.) The February level was basically as expected. But authorities would be disappointed it is not higher because they had taken action to encourage lending. The central bank had announced its largest-ever reduction in a key mortgage reference rate. And they signaled recently there was still room for cutting banks' reserve ratios, following a 50-basis point cut in January. Banks are finding to tougher to identify lending opportunities.
China's house prices are falling, and a bit faster now according to official data. New house prices were down -1.4% from a year ago. In January the decline was -0.7%. Only seven of the 70 largest cities recorded any rise, all tiny, from a month ago. From a year ago only 13 showed rises. For resales, only two of those same 70 cities recorded a rise in February from January, none on a year-ago basis. But prices are -6.3% lower than year-ago levels and the largest fall since these records started in 2011.
China's one-year medium-term lending facility (MLF) rate was unchanged at 2.5% in Friday's update.
China’s national emissions trading scheme is set to expand to cover their aluminium sector as the compulsory carbon market pushes ahead to expand beyond the power sector and include more heavy emitters.
Global steel and iron ore prices are falling rather quickly now. Steel (rebar) is down -2.7% over the past week, and iron ore is down -10% over the same timeframe and may now be below US$100/tonne. Since the start of the year the reductions at -11% and -24% respectively. The steel price is back to 2009 levels as mill and port inventories rise and some steel mill profits have vanished. These pullbacks directly relate to soft Chinese demand. But copper is making a bit of a recovery, back to year ago levels after a longish soft patch. Supply limitations are driving this price higher.
Across the Pacific, American consumer sentiment is holding its recent highs in March, essentially the same as the past three months and back at levels prevailing in mid 2021. And at these current levels it is up a sharp +23% in a year.
American industrial production rose (slightly) in February from January following a previous month retreat. Most of the gains were in construction activity. But it is still marginally lower (in real terms) than year ago levels.
But March won't be helped by activity in the New York region. They reported a sharpish decline in their latest survey.
Home buyer and sellers have had a major win in the US with their real estate industry conceding their ability to price-fix commission levels. The groundbreaking NZ$700 mln legal deal ends years of dispute and could drive down commission rates and shrink the number of real-estate agents over time.
In Canada, housing starts jumped by +14% in February from January, to 253,500 units and well above market expectations of 230,000 units, according to official data. It was the highest reading in four months.
We perhaps should note that the current El Niño weather pattern is changing. The experts are saying La Niña is on its way with its cooler-than-average seawater in the central and eastern Pacific Ocean. In the past La Niña typically delivers northeasterly wind trends, bringing moist, rainy conditions to northeastern areas of the North Island and reduced rainfall to the lower and western South Island. Warmer than average air and sea temperatures can occur around New Zealand during La Niña. In Australia, rural areas typically benefit from more rainfall. But as global temperatures are elevated, maybe 'typical' reactions this time will be different. They were with the current El Niño.
The UST 10yr yield starts today at 4.31% and unchanged from Saturday but it is up a sharp +29 bps for the week. The key 2-10 yield curve inversion is unchanged at -42 bps. And their 1-5 curve inversion is a tad less less at -75 bps. And their 3 mth-10yr curve inversion is unchanged at -109 bps. The Australian 10 year bond yield is now at 4.16% and unchanged. The China 10 year bond rate is also unchanged at 2.34%. The NZ Government 10 year bond rate is up +2 bps at 4.77%.
The price of gold will start today -US$1 lower than Saturday at US$2156/oz and -US$30 lower than a week ago.
Oil prices are little-changed at just on US$80.50/bbl in the US while the international Brent price is now just under at US$85/bbl. That is nearly +4% higher in a week however.
The Kiwi dollar starts today at just on 60.8 USc and unchanged from Saturday. But that is a full -1c lower than a week ago. Against the Aussie we are still at 92.8 AUc. Against the euro we are still at 55.9 euro cents. That all means our TWI-5 starts today at just on 69.9 and unchanged as well but -40 bps lower in a week.
The bitcoin price starts today at US$67,946 and a mere -0.6% slip from this time Saturday. And this level is virtually unchanged from a week ago. Volatility over the past 24 hours has been moderate at just on +/- 2.9%.
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37 Comments
Out of interest how big is the carry trade that will need to be unwound between the US and Japan?
Borrowing in JPY for the carry trade is not solely between the US and Japan. Aussie banks used to borrow yen for wholesale funding. Basically, this was used to make higher profit margins on mortgage lending. Haven't followed it for years but I believe that it has stopped now.
Went to the shopping mall on the weekend (Westfield Riccarton). Two things that jumped out:
- Several more boarded up shops since I visited last - if a few more leave it could start looking very barren.
- I paid close attention to the digital advertising billboards that hang from the ceiling, sit on stands throughout the mall etc. There were about 6 revolving ads, 4 of them were just Westfield advertising itself, whereas in the past it's tended to be the other way around ... I'm seeing the same thing with a few billboard providers in Chch too where there are lots of 'empty' ad slots cropping up. Aligns with what I'm hearing (and what is obviously happening to news media) that advertising is getting harder to sell.
This is the aftermath of the good ol’ one, two. The decimation of covid for example on retail, hospitality, and all the others too. Secondly the arrival of the hungry wolf, inflation. Money’s too tight to mention. For instance, talking to our local senior rugby coach. They and all the other teams are really struggling this season to fund even sufficiently to the point of getting teams basically prepared on the field and backed up. Winter of discontent looming. Again.
Agreed, all by the book in regards to the impact of inflation (redundancies at scale to come), HFL seems baked in but that is High not Higher in my opinion. Even so holding at these levels will achieve the economic destruction required by the economists.
Still very interested to see how the US will cope with their success, they need this inflation to reduce their debt to GDP ratio but have the reached an inflection point of interest pay-back keeping them at best neutral?
New York taking a nose dive, is this a systemic thing? Certainly they have been getting a hard time by the right-leaning press, sanctuary city, taxes etc but what are the left leaning press saying?
CNN took another hit to it's already shaky reputation by giving platform to Pelosi to mis-quote Trump, I mean with multiple, easy to access recordings of his actual speeches it's obvious they are cooking a narrative. I wonder why their customers do not do the most elementary of searches to consider what they are being told?
Prof. Michael Hudson: "There's a blind spot in Western civilization, not only of how civilization really began in the ancient near East and then diffused, but also about the basic dynamic that has polarized western economies and is leading today to the western economies polarizing just in the way that Rome's empire ended in a dark age." "The regular need to cancel interest-bearing debt was woven into the beginning of civilization... this idea of restoring economic order was based on the understanding that there's no automatic self-correcting economy, which is the myth of modern time that is promulgated by oligarchs" "Once you realize that, you realize that today, why is it that China is pulling ahead? Because it centralized money creation, debt creation, banking and credit as a public utility, which is how it was all over ancient society." Original Link
China pulling ahead? Lordy Audaxes what am I missing here? Centralised money creation is a norm but debt creation is outsourced in the West to allow for the debt destruction through ancillary lender defaults. The fact that we are no longer subscribing to the original design of the model is one of the reasons stagflation is the new reality.
Yesterday I reviewed the hiring data for a larger private business I'm involved with. There has been a steady increase in applications over recent months with current vacancies (warehousing, sales counter, drivers, showroom staff) attracting large volumes of applicants. Several categories at 50+. Flicking though them, most are from what appear to be native NZrs.
Just six months ago Weather watchers were warning of el ninos devastating impact over summer. Along with carbon climate activists ponderings. I'm getting sick of these clueless predictions that get everyone wound up
We perhaps should note that the current El Niño weather pattern is changing. The experts are saying La Niña is on its way with its cooler-than-average seawater in the central and eastern Pacific Ocean. In the past La Niña typically delivers northeasterly wind trends, bringing moist, rainy conditions to northeastern areas of the North Island and reduced rainfall to the lower and western South Island. Warmer than average air and sea temperatures can occur around New Zealand during La Niña. In Australia, rural areas typically benefit from more rainfall. But as global temperatures are elevated, maybe 'typical' reactions this time will be different. They were with the current El Niño.
Flying High will die one day, and that day is sooner than it was yesterday.
Does the fact that he's still alive today, though, mean he will live forever?
Or that those who tell him to cease health-threatening activities, should cease warning him?
And does every year he lives without succumbing to said health-impacting activities, mean their warning is less-or-totally invalid?
Logic is a funny old thing; so much better than starting from a false posit, but...
Without wanting to speak on PDKs behalf, I think the point is that in terms of energy per capita we may be going back 160 years* (or pre-fossil fuel boom). I don't think it's a solution, it's just the way it is.
**** Not sure if 160 years is the right date or how long this takes to happen, but it is getting closer and closer.
Without wanting to speak on PDKs behalf, I think the point is that in terms of energy per capita we may be going back 160 years* (or pre-fossil fuel boom).
Which in many ways is impossible given the population growth that has occurred. PDK's narrative suggests a mass extermination of humans.
Of course, white people will be spared. Chinese, Indians, and Africans first.
This is why recessions usually follow rate inversions.
Eventually, as you note, everyone becomes pessimistic, so businesses stop investing in new plant and machinery (also maintenance) and people, and hunker down, with many living off their inventories (while they can). In this time, through natural wear and tear, capacity is reduced. The longer central banks hold rates high, the faster the rate of capacity reduction.
So when the central banks finally do remove the shackles, inflation - due to capacity constraints - remains a threat and can become 'sticky' as businesses try to rebuild capacity and inventories. If central bankers got out more, they'd know this and they'd start reducing much earlier than they have over the last 20 years.
Once again, they - particularly the RBNZ - are overshooting for the silliest of reasons: blind adherence to inaccurate models (were they ever even remotely accurate?) and out of date data.
Poor strategy driven (:)) by ideology over data. EV adoption has ceilings caused by existing stock ageing out at a minimum, let alone the obviously poor match between the customer needs and EV charging behaviours. Add in the destruction of service as a concept due to low unemployment levels and this was a total no brainer. I am sure he got a sizable golden parachute so no tears from me.
Heard MoF on RNZ again running the "the economy's so much smaller than we expected line". It seems a dubious claim at best, and as I illustrated here the RB's latest published forecasts (& recall a v senior Tsy official sits with the MPC) didn't show anything of the sort. Michael Reddell
A comment on Riccarton mall is probably symptomatic of other Malls. Many of the shops in malls are specialist shops and I include some cafes in this. They can only exist when the times are good, however the good times are arrived at. So those specialist shops failing although disconcerting for the owners and workers should be no surprise. I don't feel they were necessary in the first place.
Houthis now claim to have attacked ships in the Indian Ocean enroute to the Cape of Good Hope in an apparent effort to increase their area of operations.
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