Here's our summary of key economic events over the holiday weekend with news of a major airplane crash in South Korea, probably due to a birdstrike.
In the global economy, the situation is dominated by market fears of what the incoming Trump Administration will do. Bond yields are pricing in that risk by raising them to near their highest since 2007. Equity markets are down, with the S&P500 down -2% since its peak close on December 6. The Nasdaq is down -2.2% since its peak on December 16.
Rising bond yields depress bond prices. And some finance professionals think the shift higher has only just begun and the risks will accelerate as the capricious Trump agenda takes shape. Bond investors are in for steep losses in 2025, they say.
The type of flipflops from Trump, like going from campaigning to ban TikTok to now telling the Supreme Court to leave it alone, from campaigning to ban immigrant H-1B visas to now saying they are essential, mean markets don't trust his positions anymore. They are late to this realisation. And perhaps it mattered little when he was just a candidate, but now he will be in power again, they sense chaos.
We should also keep an eye on trade disputes between Canada and the US. A Trump penchant for tariffs on Canadian softwood exports to the US could see a rise in competition in other markets for New Zealand logs and milled pine as a fallout.
Meanwhile, US inventories, both retail and wholesale were little-changed in November. But they are likely to rise from here as traders rush to beat the impending tariffs.
US exports rose +6.0% in November compared with the same month a year ago. But US imports are zooming higher on the expectation of those rising tariffs, up +7.3%. That caused a Trump-induced trade deficit of -US$99 bln in the month, up from -US$90 bln in the same month a year ago.
Across the Pacific, Japanese retail sales rose +2.8% in November from year-ago levels, up from a downwardly revised +1.3% rise in October, and easily beating market expectations of a +1.7% gain. This marked the 32nd straight month of expansion in retail sales there and the fastest growth since August, with rising wages continuing to support consumption.
However, Japanese industrial production fell by -2.3% in November from October, compared with market expectations of a -3.4% fall. The latest result followed a +2.8% growth in October and is the first contraction in industrial output since August. Year-on-year the November decline was -2.8%. A dip in machinery orders took the blame.
Taiwanese consumer sentiment dipped in December from November, but remains sharply higher than year-ago levels, and still in the high recovered range after the low point in late 2022. However, it isn't yet back to pre-pandemic levels.
In China, local observers now expect "outsized stimulus" from Beijing policymakers in 2025.
Perhaps that is because Chinese industrial profits fell -7.0% in November, compared to the same month a year ago. Even the Chinese habit of only reporting year-to-date results shows a decline now of -4.4%, so the recent months are coming in weaker than earlier. After peaking in 2021, these profits have fallen each year since. Interestingly, state-owned enterprises, which tend to be very large businesses are doing the weakest, down -8.4%. Private foreign-owned businesses are doing the least-worst (-1.0%). And other private sector businesses are down -4.7%. It is hard to see private investors happy in this environment.
China’s commerce ministry said on Friday that it has launched an investigation into imported beef at the request of representatives from its struggling domestic industry. New Zealand is one source, including through the Silver Fern Farms link. But the main focus is on imports from Brazil and Australia.
In Tibet, and in an area China controls but is disputed with India, China just committed to build a vast hydro-electric river dam, so large it is expected to take a decade to finish, and then deliver three times the output of their famous Three Gorges Dam. But they are damming the Yarlung Tsangpo River, which is known as the Brahmaputra River in India and one of India's great rivers. Expect a rise in tension between India and China because of this, although the main impact will be on Bangladesh.
In Iran, their currency is under severe pressure and energy shortages are growing. The country is bracing for a spike in civil unrest.
We should also note that coffee prices are soaring again, now higher than all the prior peaks in 2011, 2007, and 1997. Droughts in Brazil and Vietnam are getting the blame. Cocoa prices are staying very high too, and for similar reasons although they have pulled back a bit since mid December.
The UST 10yr yield is now at just on 4.63%, and up +2 bps from Saturday, and up +12 bps from this time last week. It is up from 3.86% a year ago, but most of that is since the November US election. The key 2-10 yield curve is still positive by +30 bps. Their 1-5 curve inversion is more positive, now by +27 bps. And their 3 mth-10yr curve is also more positive at +32 bps. The Australian 10 year bond yield starts today at 4.38% and down a rather sharp -9 bps. The China 10 year bond rate is now at 1.70% and unchanged. The NZ Government 10 year bond rate is now at 4.52% and also unchanged from Saturday, down -13 bps from this time last week.
This will be tough for yield-linked investments like real estate. After hanging on through the pandemic, commercial property values are especially at risk. The sector cleanout could be a feature of 2025, internationally.
And perhaps it is also time to assess the 2024 equity market performance - even though there are still two trading days to go. The S&P500 is up +25.2% so far with a continuous rise all year and despite the recent pullback. Tokyo is up +21%, but all that came in the first half of 2024. Hong Kong is up +20%, although all that came in the final quarter. Ditto Shanghai, caused by the same policy reason of Beijing actively supporting its equity markets. The ASX200 is up +8.3% for the year with a steady move higher all year but a recent pullback. And the NZX50 is up +12.6%, with all of its gains in the second half of the year.
The price of gold will start today at US$2620/oz and up +US$6 from Saturday.
Oil prices are little-changed at just over US$70.50/bbl in the US while the international Brent price is now just over US$74. A week ago these prices were -US$1 lower.
The Kiwi dollar starts today just on 56.4 USc and up +10 bps from Saturday. Against the Aussie we are down -10 bps at 90.6 AUc. Against the euro we are also up +10 bps at 54.1 euro cents. That all means our TWI-5 starts today at just on 67 to be up +10 bps from Saturday and down -10 bps from this time last week.
The bitcoin price starts today at US$93,747 and down -0.3% from this time on Saturday. A week ago it was at US$97,137 so down -3.5% since then. Volatility over the past 24 hours has been modest at +/- 1.1%. Most of the annual rise in the bitcoin price has been after the November US election.
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61 Comments
> In the global economy, the situation is dominated by market fears of what the incoming Trump Administration will do.
People are overstimating the impact of Trump significantly. Record deficits and peacetime debt under Bush...then Obama...then Trump...then Biden...and now Trump will likely be more of the same.
A question for those here: what degree of loss of purchasing power would a currency need to have for you to consider it currency collapse? 20%, 50%, 80%?
Since 1971 based on the RBNZ's inflation calculator here (https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/inflatio…) the purchasing power of $1NZD has declined 94.5%. years used were Q1 1971 to Q3 2024.
So 50 years and a 95% decline in purchasing power. No Trump required.
Fiat is in trouble. Get out while the exchange rate is good. Bitcoin and gold have issues but nothing close to a 95% loss in purchasing power. In Bitcoin's case quite the opposite, if you save in Bitcoin (like many do now) prices get CHEAPER overtime as we are in a transition period on the global monetary system. It's a nice feeling, much nicer than holding fiat and watching it buy less and less.
You did choose to include the high inflation 70’s I see. If you select the last 30 years it’s about 50%.
I don’t see why there is any problem with that. Fiat is not meant to be a long term store of value. If you stash cash under your mattress and expect it to retain value then you are mistaken, the RBNZ is mandated to deflate its value by about 2% per year.
I chose the date from the Nixon shock aka when the global reserve currency became fiat. No cherry picking here.
In the same vein, if I started from Q3 2019 - Q3 2024 it was 18.8% inflation in 5 years.
Whcih also demonstrates the problem. If it was a steady 2% I could see a potential argument (although I wouldn't sign up for it). But sharp sudden unpredictable rates of inflation are extremely hard to plan around and not something is sign up for if alternatives are available.
EDIT: This is before even mentioning the exclusion of asset prices from the inflation calculations. For an enlightening example of inflation measurement being political, see median house prices in NZ priced in gold vs fiat overtime. Considering the obvious point that people rapidly hit the limits of food they can consume or petrol they'll use but will leverage themselves heavily for housing, inflation rate could be argued to be far higher in a meaningful sense. But, in my view at least, the performance of fiat has been terrible enough based on the govts own stats that it is unnecessary to include this to me understand the argument against fiat.
If you have money to invest, invest it in an asset like shares, property, or even a speculative asset like Bitcoin. Or at least put it in a term deposit. Don’t invest it in a fiat currency under your mattress.
Fiat is very good at holding value in the short term which is essential for a currency. My fiat salary buys the same number of loaves of bread this week as it did last week. If I got paid in bitcoin I would be able to buy a lot less bread this week than last, it’s all over the place.
That's one understanding. Mine is different.
The shift to fiat from harder money led to the financialisation of other assets. Hence all the property bubbles and absurd p/e ratios of different companies. Now that process is happening in reverse as fiat data (as money is data at its most abstract) is shifting towards harder money.
See price growth of SPY500 in gold terms to see what I mean (as gold is an asset with zero real rate of return). The S&ps historic run is in large part inflation.
The best performing assets of the next 50 years will be hard money alternatives (on average, specific companies etc will outperform). More than 50% of money going into equities is now passive investors (e.g. price insensitive). Think through the implications of that on valuations and realising investments. Passive investing is not what it one was as a strategy.
"The shift to fiat from harder money led to the financialisation of other assets."
No. Most people with knowledge in this subject would disagree with you.
This started when 'trickle down theory' politicians started to remove regulations on what banks could do. As banking regulations have got progressively weaker and weaker, the banks have been able to create more and more money by securitizing more and more. It wouldn't have mattered whether money was 'hard' or 'soft', the banks would have found a way to do this, e.g. even 'hard' money can be traded in ever decreasingly smaller units.
> It wouldn't have mattered whether money was 'hard' or 'soft', the banks would have found a way to do this, e.g. even 'hard' money can be traded in ever decreasingly smaller units
Cutting an apple into 100 slices doesn't make more apple than slicing it into 10 slices 🤣🤣
See price growth of SPY500 in gold terms to see what I mean (as gold is an asset with zero real rate of return). The S&ps historic run is in large part inflation.
Since 1999, SPX Total Return - the SPX Total Return Index (STRI) is a comprehensive measure of the performance of the S&P 500 - is approx 700% when measured in fiat. -17% when measured in gold.
SPX Index alone (not Total Return) is up 392% in USD terms since Jan 1999, but down 49% in gold terms. Good news is SPX has recovered from down 86% in 2011.
My fiat salary buys the same number of loaves of bread this week as it did last week. If I got paid in bitcoin I would be able to buy a lot less bread this week than last, it’s all over the place.
For this reason, if you randomly walked up to most Aotearoans on the street and offered them BTC1 or NZD80,000, you could expect most would take take the latter. This experiment has been done in the US and it's interesting to watch the responses and behaviors. People overwhelmingly go for the cash.
Gold Bugs have seen their ranks swelled by Crypto Creeps. Their arguments aren't any different.
The growth in retail and professional-sized stablecoin transfers, including gold-backed tokens like PAXG, has been notable in various regions:
- Latin America and Sub-Saharan Africa saw over 40% year-over-year growth in stablecoin transfers.
- Eastern Asia and Eastern Europe followed with 32% and 29% growth, respectively
https://www.chainalysis.com/blog/stablecoins-most-popular-asset/
Thank you, J.C. I know what a 'stablecoin' is - but others may not. (And if you're new to this term, please read the link. There are many as J.C. points out.)
Their value, IMNSHO, is in bypassing the banking system and the banking system's ticket clipping.
There's a 'money museum' in Beijing. Well worth a visit if you like thousands of years of economic history.
Our 'current money' is actually little more than a toddler, maybe a tween, and the museum shows the births, and deaths, of many types and flavors, of money. I have every expectation our 'current money' will be little different and will eventually go the same way. It'll be replaced by something new, that's basically the same, and the cycle will continue.
As always, hard assets will hold their value irrespective of how their value is measured using whatever money or currency is used at that time. But take note - one's ownership of hard assets can be stripped away with ease when revolutions occur.
But here's the real question ... Is a Big Mac now a bigger or smaller percentage of today's salary or wages when compared to 1971? (Remember to remove GST from today's price, or add it to 1971's price.)
Maccas didn't exist in Aoteraroa until 1976. It was a relatively expensive F&B choice back then because of weak economies of scale / efficiencies / sales volume / market penetration. Aotearoa is up there with Saudi Arabia on the Big Mac Index.
Iran may soon have more than its own civil unrest to deal with given the fast rising scale of sectarianism close by, its previous proxy in Syria, where it looks like another Libya, post the fall of Gaddafi, is coming to the boil. This would also explain why Israel is meddling beyond supposedly, just securing its border. The more trouble Iran has, the less trouble Israel has, maybe.
I agree the bond market appears to be sending less than enthusiastic vibes .. but attributing this chiefly to an assumed risk of capriciousness by the incoming Trump administration is rather a stretch.
Surely the most significant factor is ongoing US government deficits, which are too high and have been for too long .. regardless of the administration there seems no plan to reduce them. Borrowing to fund this will just bring forward spending, taking steam out of the productive economy tomorrow, and alternatively raising taxes to fund it now will just take steam out of the productive economy today. Hence the US 10-year isn't looking quite like the sure thing it once was.
The only bright spot would seem to be the imminent Musk plan to slim down the federal government (doge) but there is little certainty about the effectiveness of that at the moment.
"Surely the most significant factor is ongoing US government deficits..."
No. They're not.
They're talked about ad nauseam but what really matters is a) the strength of the US economy and b) its ability to service that debt and c) without the USD tanking.
As David points out above - "Rising bond yields depress bond prices" - i.e. the actual value of the bonds, and in this case we're talking triple-A government backed guilt edge premium stuff, is falling. Likewise stock prices. (btw, non-triple-A rated bond's values are going south faster.)
The combined top 5000 US stocks plus tradeable bonds is valued around $90 trillion. Each percentage point they fall in value is getting close to a trillion USD.
Nervous yet? Think about it for a bit ...
No wonder Trumpian Economics wants that US government debt ceiling scrapped, ay?
Unlikely, DGM. At least in the medium and longer terms.
Trillions of $$$ are being wiped out in US stock & bond markets. Can you remember any time recently when the Fed has responded to this by raising the fed funds rate? No? Me neither.
(Short term? I dun'nee'know. But I expect the Fed to hold too high for too long and cause, as they so often do, untold problems.)
A coherent albeit depressing summary of the current state of the geopolitical world on the eve of the new year.
"Geopolitical plates shifted this year. Now the world braces for the Trump effect"
https://www.abc.net.au/news/2024-12-30/geopolitical-plates-shifted-in-2…
Extend my "year" by 2 months and we have 500%, 40k NZD - 167k NZD.
This site only reports on crypto when it's a negative spin and when they do report it on the daily updates, it's often with low knowledge comments that are incorrect. It's unprofessional, it's fine despise or not like the industry but it's unprofessional to bring that personal bias into the work on this website.
JPM finishing the year on a high and slap on the wrist.
J.P. Morgan Securities has been fined $3 million by the Financial Industry Regulatory Authority (FINRA) due to significant inaccuracies in its reporting of short interest positions. This fine stems from violations that occurred over a lengthy period, specifically from June 2008 to August 2024, during which the firm misreported approximately 77 billion shares across around 820,000 short interest positions.
https://fxnewsgroup.com/forex-news/institutional/finra-imposes-3m-fine-…
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