Here's our summary of key economic events overnight that affect New Zealand with news it's been a toughish night for commodity currencies as markets mark down these prospects. That has been true for both hard and soft commodities, although it is more of a sag than a significant fall.
In the US, the Chicago Fed's National Activity Index rose again, although this time it was minor. But the May index was revised higher. That makes it three rises in the past six months, and is a sharpish positive change from a year ago. This is actually an important indicator but one that is usually ignored by markets.
In Japan, the next meeting of their central bank is Wednesday, July 31. It has been widely expected they would raise their policy rate and make other moves toward normalisation, largely because their long-held goal of getting moderate inflation embedded seems to have been achieved. But now they are giving unofficial signals that there may be [yet another] delay because household consumption is not improving as they want.
Taiwanese export order growth eased in June, rising 3.1% year-on-year, but that missed expectations of a +12% rise. The miss is largely due to lower orders from Japan. You may recall that May orders rose 7% on this year-on-year basis.
Today is Budget day in India. This one may reflect the pressures on Modi from his coalition support parties, the ones he needed to stay in power. This price may not be 'cheap' and if it does seem excessive, there could well be financial market reactions.
The People's Bank of China unexpectedly cut key lending rates by -10 bps to fresh record lows. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans was cut to 3.35%. Meanwhile, the 5-year rate, a reference for property mortgages, was trimmed to 3.85%. Yesterday's decision came days after the Third Plenum meetings at the end of last week, and follows a slew of data that indicated the Chinese economy continues to lose steam. At the same time, the central bank reduced its collateral requirement for its MTF facility. What we are seeing is a skew to short-term priorities.
And staying in China, they are grappling not only with a fast-aging population, but an out-of-balance retirement age. Chinese men 'retire' at age 60, women at 50 to 55. By 2035 more than 30% of the population is expected to be at that age. Even though retirement support programs are skinny, these ages will have a dramatic impact sooner than many realise. But Beijing realises. And it moved at the Third Plenum meeting to raise that age. However the messaging is subtle because it is widely expected to generate substantial pushback among those affected. Demographics is destiny, and China won't have gotten rich like Japan before these trends become very difficult to manage, so their options are closing fast.
In the EU, the ECB's survey of professional analysts suggests markets expect them to make only begrudging progress against inflation, but progress none-the-less. It won't be until 2025 that inflation hits 2% these analysts suggest. They haven't changed their view on economic growth in the region with tepid +1.3% real growth in 2025. But they do see 'better' progress battling unemployment even though the levels will remain relatively high by international standards (6.4% in 2025).
The CrowdStrike IT disaster is still lingering, especially in the travel industry. It has raised many questions. One is, who will pay? That now largely seems to be insurers, and that has implications for premiums and coverage in the future.
The UST 10yr yield is now at 4.26% and up +2 bps from this time yesterday. The key 2-10 yield curve inversion is again little-changed at -27 bps. Their 1-5 curve is still at -73 bps. And their 3 mth-10yr curve inversion is holding at -111 bps. The Australian 10 year bond yield starts today at 4.34% and back uop +10 bps from yesterday. The China 10 year bond rate is down -2 bps at 2.25%. The NZ Government 10 year bond rate is now at 4.43%, and up +3 bps.
On Wall Street, the S&P500 is up +1.1% in a rise well-signaled yesterday by the futures markets. This was driven by both a recovering tech sector and some positive clarity in the US political scene. Overnight, European markets were up similarly or more, except London which gained only half that. Yesterday, Tokyo closed down -1.2%. Hong Kong rose +1.3%. Shanghai gave up -0.6% in its Monday trade. Singapore slipped -0.3%. The ASX200 fell -0.5% in Monday trade and the NZX50 was down a minor -0.1% at the end.
The price of gold will start today down -US$6 from yesterday at US$2393/oz.
Oil prices are -50 USc lower at just over US$78/bbl in the US while the international Brent price is just on US$81.50/bbl.
The Kiwi dollar starts today down more than -¼c at 59.8 USc as commodity currencies take a hit. Against the Aussie we are still at 90 AUc. Against the euro we are also down more than -¼c at 54.9 euro cents. That all means our TWI-5 starts today at 68.8 but down -20 bps from yesterday.
The bitcoin price starts today at US$67,370 and up +1.0% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.0%.
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31 Comments
The CrowdStrike commentary which suggests that the cost will fall to insurers is a possible indicator for the future. some years ago a commenter in a stream on this site mused that there was not enough money on the planet to cover all the things that were insured if it all crashed at once. To me this seems to be another one of those limits that we are finding so many of these days.
Insurance itself in my view is a ripoff, but backed by most governments. the ripoff is that they are too quick to take profits, depleting reserves in the event a lot of it, or even just a couple of big things with huge costs, goes bad. There is too much reliance of re-insurance which also is too quick to take profits. That part of the money go round needs to be better regulated and the fundamental principles re-examined to ensure it is fit for purpose in the current era, if it can be.
- if every Bitcoin were to be liquidated today, is there the money to pay for them?
- if every house went on the market, where would the buyers come from?
- who has $3 trillion in their change jar to buy nVidia?
The reality is we have all this paper value, that greatly exceeds the liquidity to pay it. Yet we have an entire global economy/market which uses all these non recoverable values to underpin it.
The insurance thing really does suck, it's now been inserted into so many day to day operations, just another private tax, mandated by government.
"- if every Bitcoin were to be liquidated today, is there the money to pay for them?"
Well 4 millions are lost, but assuming everybody was compelled to sell the other 16 million or so, the answer is that the market price would keep going down until all had been sold. So BTC price might be $4k or so, but there would be enough fiat and debt to buy them.
Put another way, let's say the BTC price went to 10c. I'd buy them all with cash
- if every Bitcoin were to be liquidated today, is there the money to pay for them?
- if every house went on the market, where would the buyers come from?
- who has $3 trillion in their change jar to buy nVidia?
The reality is we have all this paper value, that greatly exceeds the liquidity to pay it. Yet we have an entire global economy/market which uses all these non recoverable values to underpin it.
An interesting view. But a purely philosophical one with no relevance to the real world.
Why? Because it completely fails to understand what "money" actually is, e.g. a medium of exchange. Gained lots of thumbs ups from equally confused philosophers as 'thought experiments' so often do.
The insurance thing really does suck, it's now been inserted into so many day to day operations, just another private tax, mandated by government.
Would you have a return to the 'good old days' where the aggrieved party simply rounded up a possie and forcibly sought redress by seizing assets (or the life / lives) of persons responsible for the damage? I suspect not. Or maybe you do?
So what other alternative to insurance do you propose? Maybe another one from the 'good old days' that favors the very rich, i.e. unless you personally have the assets to cover any foreseeable / or un-foreseeable accident then you can't even start or perform the activity?
Or maybe you'd prefer a return to the 'not so long ago good old days' where the taxpayer carried the risk?
If you've got a better solution to insurance, mandated or not, I'd love to hear it.
Or perhaps your issue is that those providing insurance are making too much from it? In that you may have a case. But you'd need to prove it. You may also like to explain why mutuals (non-profits) have very similar premiums to for-profit insurers.
The model does not and can not work in a substantial and widespread claim scenario....they make their money (from the premiums) by investing in equities and bonds ....what happens to the value of those (supposedly) liquid assets when large volumes need to realised all at once?
As the people of Canterbury discovered, time is the ICs best friend....time to spread the costs and time and realise the assets.
Delay, deny, defend
Very hard to build up service based economy if 30% of your population are retired, there biggest asset (Property) is falling like a rock and super age benefits are skinny.
Add in limited free healthcare, youth unemployment, trade sanctions ….. wallets will be closed, it’s obvious why Chinese tourism to NZ is down
China’s Population Could Shrink to Half by 2100
https://www.scientificamerican.com/article/chinas-population-could-shri….
Not aimed at China but in truth that would be a good thing to have the planet's population decline by a billion (Yes I know that is more than half China's population i.4 billion) without having to have a war to achieve it. The political question is problematic though. Will China's leadership, or any other country's leadership accept a declining population to that degree?
...wallets will be closed, it’s obvious why Chinese tourism to NZ is down
According to Credit Suisse estimates, the number of dollar-millionaires residing in China totaled 6.2 million individuals..
I think it's a problem of perception projected by NZ. The following publicity hardly helps.
New Zealand as US ‘Force Multiplier’ in Asia Pacific
Statement on NZ Government jeopardising NZ's independent foreign policy and economic security
Two things. First to be a force multiplier, then ones must have the capability. Today military forces are multi-layered with capabilities at all levels. The P8 and C130J purchases are just the beginning of what is required. A strike wing is need too. then there is the defensive layers, as well as the advanced capabilities based on IT structures. a lot of work to be done. This could be a great time to be in the military here.
Secondly and this was discussed a couple of days ago; HC and DB are quoted as saying "They said Luxon was jeopardising New Zealand’s foreign policy and economic security." Do they need to be reminded that NZ's foreign policy is set by the government of the day? And that they have no right, nor position to try to influence it. Luxon has the mandate of the people. Neither Clark nor Brash do. they are also cited as saying "he has abandoned New Zealand’s independent foreign policy" which is not true. He has just independently decided to side with the western alliance rather than China. Something I might add, I'm entirely in favour of.
I have no doubt that HC has told people in the past, possible critics, that they need to keep their opinions to themselves. I would suggest that she needs to do just that. She has no mandate to influence any of the government's policies. So frankly butt out!
It’s bigger than NATO and it’s heading our way
New Zealand is about to sacrifice what it cannot afford to lose for something it doesn’t need: gambling we can keep the strength and security of our trading relationship with China whilst leaping into the US anti-China military alliance.
The Chinese have noticed. Writing in the South China Morning Post last week, Alex Lo gave an unvarnished Chinese perspective on this. In a piece titled “NATO barbarians are expanding and gathering at the gates of Asia,” he says: “Most regional countries want none of it, but four Trojan horses – South Korea, Japan, Australia and New Zealand – are ready to let them in”.
And that is China, a dictatorship, trying to bully other nations into doing as it says. Clark might tremble in fear when they fart, but I don't believe we should. Luxon has many tools to use when talking to the US to get what we need and be useful to them, including if they don't want to come to the party, that we could just invite China in. I don't think past negotiators on behalf of the government have considered playing hard ball with the US, but when we are caught between the US and China and have a clear preference because in the end it is one side or the other, perhaps it is time to flex some muscle.
Anyone managed to get a fixed rate lower than they could get before the supposed interest rate drops? ASB want me to pay 6.95% for 6 months, more than I could get a few weeks ago. It feels like they have used this opportunity to drop term deposit rates without actually dropping mortgage rates.
I'm in a similar boat (with ASB). Gave up trying to get anything and just did the 6.95% for 6 months. I've got the payments maxed out (in terms of the option it gives me online) so hopefully rates will have dropped a bit by January and then I can consider fixing for longer.
"The reality of how money is created today differs from the description found in some economics textbooks. Rather than banks receiving deposits when households save and then lending them out, bank lending creates the amount of money in the economy...."
When fruit is no longer being produced by the Magic Money Tree (e.g.: mortgages stop being created to manufacture 'money'), the problems start. Hence, the desire to 'get it going again' at any cost. But I'm sure you know all of that.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/20…
Indeed bw.
But from the point of view of the bank, it has acquired the security without giving up any cash; the counterpart, in its balance-sheet, is an increase in its liabilities. There is expansion, from its point of view, on each side of its balance-sheet. But from the point of view of the rest of the economy, the bank has ‘created’ money. This is not to be denied. Hicks (1989, 58)
We start with the idea of credit creation, specifically a swap of IOUs between a bank and myself involving a bank loan that is my IOU and a bank deposit that is the bank’s IOU. Nothing could be simpler, and yet the mind rebels, especially the well-trained economist’s mind, because this simple operation increases my purchasing power without decreasing anyone else’s. It seems like alchemy, or anyway a violation of some deep conservation law. Real productive resources are the same as they were before, and the swap doesn’t change that, does it?
Spending of the new purchasing power adds another layer of perplexity. If spending increases but real resources do not, then it seems logical that the increased spending must exhaust itself in higher prices—that is the intuitive appeal of the quantity theory of money. My purchasing power may increase, but everyone else’s decreases because their money balances buy less. From this point of view, the alchemy of banking seems like a kind of theft, something to be deplored in the name of economic science and if possible outlawed in the name of the general good. Link
On Wall Street, the S&P500 is up +1.1% in a rise well-signaled yesterday by the futures markets. This was driven by both a recovering tech sector and some positive clarity in the US political scene. Hardly.
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