Here's our summary of key economic events overnight that affect New Zealand with news the tariff war mess is getting messier.
First up, the overnight dairy auction came in a bit better than the futures market suggested it might. This event offered lower volumes at the back end of the current dairy season, and prices eased just -0.5% in USD terms from the last full event, but were up +1.0% in NZD terms. WMP eased -2.2% and that was as expected but butter and the cheeses made better gains than expected. Buying out of China was modest, but there was raised interest from both Europe and the Middle East. In the circumstances this was a solid overall result.
Most other commodity prices are taking sizeable hits from the now-daily tariff-war battles. Behind all this is the expectation of falling demand as the US economy makes a sudden detour into recession. China's retaliation on US agricultural exports have seen sharpish falls in wheat and soybean prices.
The impacts of the trade war haven't hit US retail sales yet - unless you think American consumers are stocking up ahead of the inflationary effects. There were up +6.6% from the same week a year ago.
But they are showing up in sentiment surveys. Today's release was for the RCM/TIPP economic optimism index, and that retreated notably. This index rose in November, but has essentially retreated since and is now net-negative and a five month low.
The American need for more warehousing and higher inventories is driving their logistics industry to a three year high. The components that weigh on productivity are getting the gains.
The US is using a "fentanyl crisis" (one actually in retreat and one driven by American demand) as an excuse to impose increased tariffs. That alone will be inflationary. The counter-measure responses by Canada, Mexico, and now China will distort large parts of the American economy, and have global resonances.
The US tariffs are expected to raise the costs of American carmakers by more than US$60 bln, and will drive most into losses, and may even kill some (like Stellantis). Car demand is expected to fall -12% in the US as a result of the needed higher prices.
Financial markets continue to react in a negative way. They have given up any post-election gains, and more. Things could get much worse quite soon. Congress is nowhere near to agreeing a budget funding deal.
Meanwhile across the Pacific, Japanese consumer sentiment is falling back too now, and is back to where it was two years ago.
On the Australian east coast Cyclone Alfred is barrelling towards Brisbane and northern NSW. It is expected to make landfall as a category 2 storm late on Thursday or early Friday and would be the first tropical cyclone to impact NSW since Nancy in 1990.
Today the UST 10yr yield is at 4.19%, down -4 bps from yesterday. The key 2-10 yield curve is much steeper at +27 bps. Their 1-5 curve is now inverted by -7 bps. And their 3 mth-10yr curve is inverted more by -16 bps. The Australian 10 year bond yield starts today at 4.32% and down -4 bps from yesterday. The China 10 year bond rate is now at 1.76% and down -2 bps. The NZ Government 10 year bond rate is now at 4.50%, down -4 bps.
Wall Street has opened its Tuesday trading with the S&P500 down another -0.9%. Overnight European markets were down sharply, bookended by London's -1.3% and Frankfurt's -3.5%. Yesterday Tokyo closed down -1.2%. Hong Kong was down a minor -0.3%, but Shanghai rose +0.2%. Singapore fell -0.5. The ASX200 ended its Tuesday session down -0.6%. And the NZX50 also fell -0.6%.
The price of gold will start today at just under US$2912/oz and up +US$20 from yesterday.
Oil prices are down -US$2/bbl to US$69.50/bbl in the US and the international Brent price is just on US$70.50/bbl. Lower expected demand is why this price is soft.
The Kiwi dollar is now at 56.2 USc and down -10 bps from yesterday. Against the Aussie however we are up +30 bps at 90.5 AUc. Against the euro we are down another -30 bps at 53.3 euro cents. That all means our TWI-5 starts today just over 66.1, and down -10 bps from yesterday.
The bitcoin price started today at US$82,930 and down a net -7.9% from this time yesterday. Volatility over the past 24 hours has been extreme at +/- 5.2%.
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33 Comments
Got to keep those arms sales moving somehow.
"Someone’s been messing with President Donald Trump.The Donald is stating that Ukraine will use their very valuable rare earth deposits as security for the military aid that the United States will provide. The problem is that Ukraine doesn’t have any valuable rare earth deposits.
...No one’s statistics are ever perfect but the United States Geological Survey is the best we’ve got on minerals. And it’s possible to check the veracity of these varied statements about Ukraine and minerals — say, that there’s lots of lithium there. In terms of production, reserves or resources Ukraine doesn’t even make the list. Nor does it for rare earths."
It is curious. Canada has large amounts of rare earth elements. Australia has trouble finding a market for its deposits. .There's a lot of this stuff but it is rarely economical to extract. The reason why China has a large supply is that it is extracted from the tailings of their huge iron ore mining operations
You consistently miss the point.
Economical isn't the issue. Ask what economical means?
And it means: Takes too much energy; too much effort. Same with an increasing list of reducing-quality global resources. Your tailings example is one of cross-fudger energy input; the 'cost' has been spread onto other minerals.
ECOE initially dropped in a flattening curve but is now rising. No point in claiming something isn't rare, when it's so dispersed as to be...... rarely viably extracted. As stated, EVERY resource stock follows this trend; we use the best. first, so every sequential 'next' is worse; further apart molecularly, harder to get at, further away. All take more energy, and energy itself is following the same trends (so it's a compound trend). We have passed the point where society can no longer 'afford' itself - which is why Trump (via the voting mass feeling the pinch).
Yet there are still those who point to historical reductions (in energy efficiencies of extraction, when you identify the 'what'), expecting them to be forever extrapolatable.
Which they ain't.
Economics are helped also if you don't have any environmental standards - like US prawns flown to Asia for fattening, then flown back to the US for consumption or NZ buying jungle coal from Indonesia.
"Donald is stating that Ukraine will use their very valuable rare earth deposits as security for the military aid that the United States will provide"
I believe this is incorrect, Trump has made it clear that the US will NOT provide future military aid. Trump wants the rare earth deposits for the military aid of the past, which was given to Ukraine under the Biden administration.
That's the problem with the internet today, one can find just about anything to justify or confirm what one wants to believe.
And the agreement Zelensky took to the White House was for the elements in exchange for future military support, and security agreements. Zelensky probably already knew what this article tells us and was basically signing away nothing. Trump and cohort likely didn't. The issue is thought that that meeting very much looked like Trump and Vance essentially wanted to force Zelensky to surrender to Russia.
Putin, as ex-KGB must think all his Christmas's have come at once. Russia's latest penetration by a spy into the US establishment is to the White House itself, and is the Commander in Chief!
The Joint Chief's will have significant problems. Any information they share with their administration is likely to end up in Russia. How can you work when you essentially have to keep the boss out of the loop?
Got to keep those arms sales moving somehow
Sales to who is the question?
Is there a big arms deal in the making with Russia?
Recently announced Israel.
Makes more sense - Iran sits on top of oil that the Shah puppet-for-the-west presided over, until overthrown.
The US has it's own military issues, though. They are planning for the last war (big fleets) and the maintenance must be a staggering effort-demand. As Rome found, reducing EROEI, exacerbated by entropy, beats every dominant hegemony in the end.
The arms sent to Ukraine were not the latest or top of the line, but were being due for replacement. Most have shelf lives that can be problematic. Ukraine was a blessing in disguise as it provided a disposal means that cost less that usual. Israel is getting better quality stuff and newer too. So the arms sales for the MIC were to the US military to replace old ordnance and materials with new stuff.
The war also highlighted a production issue that is the ability to ramp up rates to keep up with high consumption rates in on-going combat.
Messing with PDk too. That's one of the things he uses to justify the war. Apparently Russia wants them.
So if Ukraine signs over it’s minerals to the US with no guarantees Russia gets to keep all it’s taken so far and does it also get a deal with Trump to access the Ukrainian ( now US) minerals too?
Fentanyl crisis is an excuse. It is obviously not even trying to be that. It is simply a false flag for the Isolationist States of America.
Indeed, especially from the Canadian border. Next possible Trump move: "Canada, we'll remove the tariffs, if you give us 50% of your rare earth minerals".
Hadn't thought about that - yes that's a possibility.
The alternate is of course just plain old taking them by force.
Trump has just tweeted about "Governor Trudeau", a not so subtle hint that he still wants to take over Canada. It's just unbelievable !
As tariffs are a cost loaded on the consumer, I remain at a loss as to why these countries think imposing a reciprocal cost on their own people is a good response? Let Trump impose and the rest of us get on with BAU.
Yes, I've thought about that. But perhaps the Canadians have calculated that US imports to Canada are less essential than Canadian imports to the US. Plus Canada has implemented a 25% export tariff on all energy supplies to the US. Hence, for the critical needs of the US from Canada - Canadian suppliers immediately increase their prices and profit margins for oil, gas and electricity crossing the border.
'Energy accounted for $73 billion, or about 24%, of the value of all U.S. imports from Canada in 2017, up from 19% in 2016. Canada is the main source of U.S. energy imports and the second-largest destination for U.S. energy exports behind only Mexico.'
And there you have the lever. NOTHING happens without energy. Economists - and those swallowing their drivel - don't see this (the ultimate is the comment that food-production is only 3-4% of GDP, so we can survive without it - go figure!). But it means Canada has the whip-hand...
gottya...i didn't realise Canada had imposed an export tariff.
Yes an export tariff is rather an unusual creature as it really is simply a price increase which in normal circumstances is determined by what the intended market can yield. Any vendor would usually calculate that amongst volume and reliability considerations. At the end of the day, where the cost of any tariff is actually met, will likely come down to the greater need, that is whether the exporter needs the market more than the importer needs the product. In this case here though appears it is the latter and therefore a pretty shrewd move especially if the resources are likely mostly owned by the Canadian government.
The US needs Canadian heavy crude. Not having access to it would be disastrous for their refineries, and replacing it would require something like dramatic reconciliation with/regime change in Venezuela plus a few years of rebuilding their oil production infrastructure.
Regime change in Venezuela and a clean out of the cartels has been suggested as a next move.
But can they get it from Russia?
Good question, but most of Russia's oil is bespoke, and pipelines take years to construct.
Which means the US, if it remains intact, will have to annex/invade/subjugate Russia...
"ACC's ProviderHub project missed five completion dates and underwent five resets,...
...no business case was done, even though one was required, and belated checks concluded there was a financial disbenefit in building it of $1m a year.
By May last year, it had spent $41 million, with 80 percent of that going on outside contractors."
ACC's botched IT project needed overseas expertise to help | RNZ News
Other peoples money.
Aye, other people’s money too right. Recall some twenty years ago or so, it was revealed that ACC had been a cornerstone of the Feltex float. Some $29mill floated straight down the gurgler. That was kept very very quiet by the government of the day.
Perhaps Juha can tell us why both the public and private sector seem to regularly suck a sav on IT projects as they spiral out of control?
IT systems are complex beasts. And a lot of the time people without the experience of the current systems or reasons why, will declare their chosen tech will solve everything and forget or ignore all the problems they can/will encounter, simply not accounting for them through ignorance or intentional glossing over. They will create quotes based on fingers in the air and not really talking to the people building the technology. They are encouraged to do this due to tight RFP time frames and to secure a winning bid for the lowest price.
Then when they get in there to do the job, all the problems become apparent, either halfway through or at the start. And then they go cap in hand for change requests to the client. Often change requests will form a majority of a projects final budget.
Often too, the customer will take the lowest quote that has had the least work behind it, then get upset when it goes "over budget". This will often be in spite of them wanting to "pivot" changing the scope of the project half way through. Or the project being completely different to what they asked for originally.
Basically a lack of up-front honesty and planning from all parties involved in the process.
In saying that, a tonne of projects go right, you just never hear about them.
what he said..... seen about 50mil blown
If you don't know what you want, you are not going to get what you need.
ACC management are a total basket case. I knew of a contractor that worked there for 4 years on 3 different projects as a business analyst. Every single project she got to work on was cancelled in some form before it was delivered. One was literally stopped the week of delivery because the winds of change blew another direction. She was pretty annoyed and ended up leaving overseas because of low job satisfaction.
It reeks of an endless money pit of inefficient operations. Projects that get started and funded in the millions, without a business case, just cos some manager thought it might be a good idea without doing any practical, up front analysis on whether things actually are the right thing to do or not. The org has serious leadership and accountability issues.
The real issue at ACC is........
They are managing a pool of around 48.5 billion ... how well is it being managed, would it be better to break it into a few pools and tender the management of that money in say 5 year blocks....
Maybe people like Milford, fisher etc could manage it better....
Willis is all over this issue.
at 48.5bil at 1% better return is 485mil to ACC.
edited to change numbers from 55bil to 48.5bil I see no performance analysis on page below
https://www.acc.co.nz/about-us/our-investments#:~:text=The%20ACC%20inve….
Weak wall street close back to 200 day Moving average
Trump loves influencing the stock market, but much prefers when it goes up after he's announced something, he'll hate the market tanking. I see there's word he may backtrack a little on Mexico and Canada tariffs now, typical!!!
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