Here's our summary of key economic events overnight with news that inflation is here. How long for is the question.
US consumer prices rose by the most in more than eight and a half years in March with both the headline and core inflation measures coming in higher than forecast.
The annual figure came in at 2.6%, which was ahead of the forecast of 2.5% and up from just 1.7% in February.
Higher petrol prices contributed largely to the increase, but it's significant to note that the core inflation measure, excluding food and energy costs, came in at 1.6% - which was also higher than the market forecast at 1.5%.
In terms of the monthly figures the headline rise was 0.6%, up from 0.4% in February and the core inflation figure was 0.3% (ahead of forecasts of 0.2%), which was up from 0.1% in February.
The US Federal Reserve is taking the view that inflation will blip up but it will be short-lived. This is the attitude most central banks around the world are taking. Time will tell.
China’s exports rose sharply in March while imports growth surged to the highest in four years in yet another boost to the nation’s economic recovery. However, the exports were below market expectations, while the imports were much higher than expected. China's trade surplus shrank to US$13.8 billion in March, while forecasts had been for a US52.05 billion figure.
Chinese exports last month jumped 30.6% to US$241.13 from a year ago in US. dollar terms, lagging the 35.5% increase that analysts polled by Reuters had expected. The country’s imports in US dollar terms rose 38.1% in March to US227.34 billion from a year ago, exceeding the 23.3% increase those analysts had forecast.. Market commentators suggested the latest data showed that China’s economic recovery is entering “a different phase.” indicating that the domestic economy and levels of consumption were now increasing.
Other experts said the recovery of foreign factories, along with high global commodity prices, will put pressure on China's exports, which may be volatile in the second half of this year.
Investor sentiment in Germany fell unexpectedly in April, the ZEW economic research institute said, citing rising fears that private consumption could be depressed as Europe’s largest economy gets closer to extending lockdown measures. The ZEW said its survey of investor economic sentiment fell to 70.7 points, its first drop since November 2020, from 76.6 the previous month. A Reuters poll had forecast a rise to 79.0.
In the UK gross domestic product (GDP) is estimated to have grown by 0.4% in February 2021, as government restrictions affecting economic activity remained broadly unchanged. The service sector grew by 0.2% in February 2021, as wholesale and retail trade sales picked up a little but, overall, consumer-facing services industries remain well below pre-pandemic (February 2020) levels.
In Australia the March NAB Business Survey showed business conditions rose to a record high in March, driven by strong increases in all sub-components – which are now also all at record highs. The strength in conditions is evident across all states and industries. Forward orders – which also rose to record levels – points to ongoing strength in activity with the pipeline of work rising further.
And still in Australia consumer confidence as measured by the ANZ Roy Morgan survey has soared. Headline consumer confidence shot past its long-run average value to 114.1 with a gain of 5.9%,reaching its highest value since September 2019. Current financial conditions’ took a huge leap of 8.3%, while future financial conditions rose 4.8%. Current economic conditions gained 7.1% and future economic conditions jumped 4.5%. Time to buy a major household item improved 5.7%.Weekly inflation expectations rose 0.2% to 3.9%, its highest level since the early stages of the pandemic, but the four-week moving average remained steady at 3.8%.
In New Zealand our central bank the RBNZ will be having its latest Monetary Policy Review at 2pm today. Catch all the news on that here.
On Wall Street, the S&P500 is up +0.3% in early afternoon trade. Major European markets were up an average of +0.2% overnight. Yesterday, the Shanghai market ended down -0.5%, Hong Kong was up +0.2%, while the very large Tokyo market closed up +0.7%. The ASX200 rose +0.1% yesterday, and the NZX50 Capital Index rose a strong +1.1%.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 136,893,000 have been infected at some point, up +684,000 in one day. Global deaths reported now exceed 2,950,000 and up +10,000 in one day. Vaccinations in the world are also rising fast, now up to 806 mln (+17 mln) and in the US more than half of their population (188.1 mln) have had at least one dose as they achieve a very fast rollout. The number of active cases there fell to 6,870,000 and down just -2,000 overnight.
The UST 10yr yield is down -4 bps at 1.63% and falling quickly. A few hours ago it had risen to 1.70%. The US 2-10 rate curve is flatter at 146 bps. Their 1-5 curve is flatter at +78 bps, as is their 3m-10 year curve at +161 bps. The Australian Govt 10 year yield is down -2 bps at 1.71%. The China Govt 10 year yield is softer by -3 bps at 3.19% in an unusual and extended fall. But the New Zealand Govt 10 year yield is up +2 bps at 1.76% in an unusual counter move.
The price of gold starts today at US$1747/oz and up +US$14 in a day.
Oil prices are marginally firmer from this time yesterday, now just over US$60/bbl in the US, while the international price is now just over US$63.50/bbl.
The Kiwi dollar opens a little firmer today at 70.5 USc. Against the Australian dollar we are also slightly firmer at 92.3 AUc. Against the euro we are unchanged at 59 euro cents. That means our TWI-5 is just above 72.7.
The bitcoin price will start today at US$63,225 and up a strong +5.7% from this time yesterday. That is close to the record high US$63,707 it reached at 3am this morning. Volatility in the past 24 hours has been high at +/- 3.4%. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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85 Comments
The ol' rat poison doing its thing again. Rumors floating about Walmart having it on its balance sheet. You couldn't get much closer to mainstream if that were the case. Saw a quote from one of the people at Centrality who was claiming that 10% of NZers now own crypto. No source for the claim.
The US Federal Reserve is taking the view that inflation will blip up but it will be short-lived.
This is the only view they can take. If rampant inflation kicks in the same way it has done every other time throughout history when a CB has printed money, they have unilaterally failed and will no longer be fit for purpose.
Inflation has been in a decline for many years. Some people argue it's population demographics (aging workforce, declining productivity etc.), others that labor has lost its bargaining power with unions being stifled which has decoupled wages from GDP, other that wealth disparity causes deflation, others that technology is inherently disinflationary, others that globalisation and outsourcing have acted to suppress wages etc. All of these arguments and many others have some merit. Take your pick, the trend has been that to meet inflation targets requires increasingly extreme measures and massive accumulation of debt.
That would be true if there was no such thing as credit. In reality depending where they are in the financial hierarchy, the Jones' are drawing down on their asset equity fueled by free credit, or hitting up the loan sharks (lending out that same free credit at a 49% markup) to fill the gaps. There's no hard constraints on budgets in the current environment, so like a junky everyone from the CB to Mum and Dad keeps injecting capital. The way I see it, just like a drug addicted user, there's two options from here for the current financial system - go cold turkey on credit or die a miserable death.
Without any judgement on the reality, there is an expectation that there will be a burst of pent up demand, like post lockdown sugar rush in NZ. This isn't expected to last and will therefore drop out of the economic data and a normality will settle (like the current return to recession for NZ).
If central banks react to the inflation before it is embedded, they could stop long term growth, but also create an asset bubble collapse, coincidentally the same reason they'll keep interest rates low for housing, as the housing bubble popping could threaten financial stability. (personally I suspect that shares, driven by low interest rates, are very much the same bubble ready to pop - possibly Bitcoin too but it seems to be getting a bit of credibility)
Quite simple really. When inflation rises central banks review the basket of goods and do one of the following;
Remove the items rising in price and class them as outliers
Apply a functional uplift calculation that says any new model funtionality means you are getting more for your money.
Brand changes that focus on brands that have stable pricing.
In short it is a fudge that generates a low interest rate outcome.CPI Inflation will never go up if the reserve bank doesnt want it too. Real inflation will be completely uncontrolled. Hence bitcoin, and physical gold and silver prices..
If rampant inflation kicks in it will be more rampant than it ever has been then you could suggest? Simply because never before globally, have governments printed money so rampantly. So as one past example, prior to the 2008 GFC the good Dr Bollard, admittedly a bit late in the day, was fighting inflation with consistent raising of the OCR. If that is the only tool on the hook, then its use will cause carnage to all and sundry that the government has been encouraging to take on debt. Blimey! An own goal, the big game is lost.
...CB has printed money, they have unilaterally failed and will no longer be fit for purpose.
Central banks purchase already monetised government debt from banks when executing QE operations. And yes central bank balance sheets have expanded on both the liability and asset side. But banks are still where they were before the operation - that is an owner of a government liability, but in another form - a floating rate income asset, rather than a fixed rate income asset. No balance sheet expansion in the public arena.
The money supply grows when banks purchase new loan contracts from the public and in the process credit the borrower's account with bank IOUs masquerading as new deposits.
The reality that the amount of new public loan contract purchases undertaken by banks are not wide spread in the US is reflected by negative real interest rate yields for 5 year and 10 year tenor Treasury Inflation Protected (TIPS) securities. Nothing good arises from negative real interest rates in terms of economic well being.
The majority are being denied access to bank credit creation facilities due to inadequate credit ratings and collateral ownership - graphic evidence.
Risk of default may have something to do with that....
"I asked him [Keynes] if he would borrow if he were in New Zealand in order to get through the crisis. Keynes replied, ‘Yes, certainly if I were you I would borrow if I could, but if you asked me as a lender I doubt whether I would lend to you.’
Downie Stewart 1932
And there lies the rub - what Audaxes is talking about is fine in theory if CBs were truly independent. The problem with debt is it follows the greater fool theory, and in this instance the biggest fool is unfortunately also the wealthiest guy in the room - the FED. So MMT is the tail wagging the proverbial Central Bank dog as they follow Uncle Sam down the path. As for the RBNZ they're more concerned with politics and public opinion than sound fiscal policy, so are rendered useless. Whatever the case, the music is slowly fading and folks are about to get off the money-go-round.
As I have noted before:
Banks have migrated away from lending to productive business enterprises because the risk weights can be as high as 150%.
Thus around 60% of NZ bank lending is dedicated to residential property mortgages held by one third of already wealthy households because the RBNZ offers them an RWA capital reduction incentive, to do so..
Bank lending to housing rose from $50,788 million (48.36% of total lending) as of Jun 1998 to $301,450 million (60.46%) of total lending) as of February 2021 - source.
The 18.2.21 comment I made re turn in housing market and economy (latter leading former) was based on applying square of Uranus and Saturn.
This happened last in late 2008.
I received much predictable scorn for this.
So, I am not expanding on my calculations in that respect.
However, the October markets drop is based around same thinking except that it encompasses credit cycle crunch and over-reach of markets, which has been of course fed by speculative finance, as was 1928-9 debacle.
Reverse leveraging nastier on way down, as forced selling causes vicious down spiral re valuations and what people get based on fewer and fewer buyers as change of mood sets in.
This is a months long process and I expect it to extend well into 2022
Trigger is inflation and the bond market which of course has been a 1982 to date bubble.
markets convince themselves no inflation possible and Fed pretends, like other CB, by false definitions, that inflation is nice 1.5 - 2.5 regardless.
But inflation erodes returns on bonds and also living standards.
Hence growth cannot sustain its impetus and return on debt falls, in terms of productivity or real income growth.
All of this undermines confidence and that crimps future investment decisions, as Minsky anticipated.
This end of cycle is well overdue of course.
Financialisation and inequality undermine real demand that does not rest on debt.
Hence any interruption of increasing rate of debt will serve to upset the apple cart.
Which is why inability to further increase mortgage debt now is so important.
CB are not going to cut further because fiscal measures are now so big.
Minsky thought that government debt would counter private sector debt risk but only if inequality was countered (which of course it has not been)
Demand deficit rises due to non spending of rich of their extra slab of pie. Unless this deficiency is made up for by increase in debt for rest of pop, the cycle stalls.
Which is where we are now
"But inflation erodes returns on bonds and also living standards"
So flatscreen tvs and smartphones don't offset deterioration in key infrastructure (roading, water), health services and the fact that within a generation more people have smaller backyards than they used to?
Central Banks have a lever they can pull to raise and lower interest rates. They can also start reigning in QE. But the lever has broken off in their hands, and the printing press is stuck on automatic. Since they can no longer do anything, having painted themselves into a corner, their only option is to jawbone and hope that the inflation tide will somehow reverse. And how did that work out for King Canute btw?
Depends. A good swath of the NZ public are pretty happy with 'house price inflation'. If the house is earning more than the inhabitants, they seem to think everything is being taken of. But I think I get your point. When they're having to shovel out $8 or something mad on a latte or paying $30 to have a shirt dry cleaned, the squealing will become evident (govt MPs probably have an allowance for dry cleaning and coffee).
But then what happens...people stop spending on those things, right? Which is deflationary and conflicts with inflation. How much are we really likely to see inflation of goods for which there is no shortage?
E.g. coffees...as they soared in price to $5-6 new competitors came in the bottom (e.g. Coffix) that used the lowered cost of small premises to offer $3 flat whites again. Perhaps we'll see a deflationary impact on commercial rents too.
Yeah, but that's a matter of the varied quality of individual baristas and training of them. Easily fixed. The raw ingredients are pretty near to identical. I've had just as bad coffees from hip cafes in wealthy areas. Especially the ones that have declined to making their flat whites single shot by default but still costing $5.
Two different takes.https://youtu.be/7vLLA0cmzAI
The prices of gold and silver are heavily manipulated by the likes of JPM. The gold price also has a relationship with 10-yr Treasury bonds. Upticks in yield is negative for gold. Regardless, comparing gold with BTC is probably becoming y'day's story. They share a common property, store of value, but that's where it really ends.
I was reading this yesterday
It has been, but I haven't seen any actual numbers around how radioactive the water is. The sea is already radioactive, as is everything in the world around us and the food we eat - long haul flying in particular exposes you to relatively high doses of radiation. Without any actual data, it's impossible to know whether there's any risk or if it's just a scare story.
Sounds like the majority of the activity in the release will be from Tritium, which is an extremely low energy beta emitter with a short biological half life so pretty low risk.
Googled it: The Pacific has ~6.6 x 100,000,000,000,000,000 cubic metres of water. That's a lot to dilute it with. Compare with "The world's oceans contain more than 4 billion metric tons of dissolved uranium". I'd be worried if I was a local Japanese fisherman otherwise not.
Jerome Powell looks to be crumbling before my eyes, the voice is still strong and steady but the eyes are furtive and the mouth always pursed. He knows what is coming and it keeps him awake all night I am sure.
The MMT idiots should hang their heads in shame. How were they going to deal with inflation? Increase taxes wasn't it? Good luck with that. For one the eletorate won't stand for it, for two trying to implement taxes while the economic edifice is coming apart will do nothing other than accelerate the collapse.
Have you looked at the rate of council rates rises coming out this year? Otago 48%, Cant 24%, Tauranga 13% and many others around 10%
This is absolute bullshit but there has been bugger all push back.
Esp rough for farmers if it is based on land values. Several already pay 50-100k a year JUST FOR RATES.
A lot of data coming in about increasing inflation suggesting higher interest rates on the way, but on the other hand central banks saying they'll 'look through' it expecting it to be temporary.
I have a fixed rate coming up in a few months time and my mortgage broker recently contacted me saying that I could refix without a break fee. I'm naturally suspicious as to their motives!
I'd be interested to know if anyone else has had the same experience and/or have thoughts about the reasoning behind it. I would've thought banks would do this if they thought rates were going down further over the next few months and want to lock people to a higher rate now. However, what I'm reading doesn't suggest that's happening - rates seem to have bottomed out and inflation's on the rise. Could there be another reason? Is it just the bank making sure they keep us (and their market share) while there's this uncertainty about higher rates?
It sounds like your mortgage broker is doing a good job at retaining your custom and keep track of their customers term and end dates. It is in their best interest to do this. In my experience now would be a good time to look at the market rates and see what best suits you. your break fees should be pretty low if the term ends in the next 2-3 months. If you have a low mortgage and a good income stream whilst disciplined, I would look at an offset.
With current rates for a 5 year mortgage sitting at 3%, even if rates continue to drop by a few small .1-.2% the extra savings will be trivial. Where as if they go up it will start costing you a fair bit more.
Looking at past interest rate trends, it usually drops steeply, then bounces up for 2 years or so before resuming its trend downwards. I would say we might get an increase for the next 2-3 years before something else turns to shit and we have to drop rates again.
I see the logical thing to do is split a majority into 5 year, another at 3 and then a bit short term at 1. This could be an amount that you plan to pay off at the end of its term.
My 2 cents. pissed off with ANZ having their 5 year rate at 4% still and currently being locked in until december.
I'm a novice at the economics at play so some education would be welcome. The interest rates, while a useful long term measure to manipulate behaviour and influence inflation, can only be moved whilst being sympathetic to the International landscape and the effect on currency values especially. Is this correct or over simplifying things?
I am no expert but I understand there are a few parts to this. The rate the RB sets is its' own determination, that is the rate that is most often used as a "control" for inflation which determines the rate at which commercial banks will pay the RB to hold reserves.
However commercial banks are also using funding from other sources (where it is cheaper such as in Europe or Japan) and so the rate they set on our mortgages is only partly affected by the RB rate.
Currency management does have to be considered and differentials in international interest rates will cause currency valuation increases but this can be weighed against by issuing more debt to a degree.
It's an area that many economists have done PhDs in so there is a lot in it :).
Crucial questions re inflation is who is getting it in the neck and for what purchases?
Food inflation for Asian countries has just hit highest point since 2011.
if inflation for food and other basics exceeds wage growth then people get worse off in real terms.
Which entails, per se, that GDP will tank, because consumer spending will tank unless debt increases.
Can debt increase any more?
Central banks want inflation to erode debt and prevent the greater evil they see as deflation.
But inflation is a dangerous game as cannot increase rates to choke it off.
People need to remember, but seldom do, that GDP growth should be quoted as REAL or nominal.
REAL means you need to deduct inflation.
Hence, real GDP growth over rest of 2021 in NZ may well struggle to be positive.
My predictions for NZ over next 2 years
There will be a significant increase in;
• Inflation
• Interest rates
• Rents
• Emergency accommodation payments
• Property taxes
• National Debt
Politically, Labour will continue to lose credibility as it continues to fight fires on
• Increasing divide between the asset rich & asset poor
• Increasing poverty
• Increase in people on benefits
• Increasing mental health problems
• Lack of rental properties to house our poorest families
• Lack of new investment in rental properties as investors look elsewhere
• Prioritisation of policies towards owner occupiers rather than renters, the homeless & poorest families
• Limited supply of labour & materials
• Increasing migration to Australia of skilled workers
• A lower NZD
• Stagflation
The NZ economy will continue to struggle with the effects of Covid-19, the increasing debt burden, a lower NZD & stagflation.
Stagflation can be devastating for an economy. It occurs when governments & central banks interfere with the market & expand the money supply at the same time as they constrain supply for labour & materials.
Everything will happen Tonybarnett but housing ponzi will still continue and will touch even great heights under Jacinda Arden.
She has promised that come what may will not let the ponzi stop and once she committs than she does not even listen to herself as commitment is a commitment.
So chill and go out and speculate as have Jacinda assurance that will never ever allow you to fall and do jot worry as interest only loan will not be touched as have enough excuse and reason to delay or avoid...chill and speculate.
Inflation in assets is a situation we have had for the last 3 years or so.
Inflation in the cost of consumption is only just appearing (due to supply chain issues and helicopter money), if it grows it will be due to the psychology of recovery at work.
Anyone cashing out their assets (other than as part of risk management) to consume (and drive inflation) will be potentially making a mistake as that cash will instantly start losing value (20% depreciation a year if it was previously in housing) so I think the amount of inflation will be weighed down by that.
Stagflation is already here.
I think if the mortgage interest rates do go up, and I mean by 1%, we will see an Armageddon in the property market, not before time, and with as many winners as losers.
If I had my wits about me in 2003, I could have had a 1985 Renault 5 Turbo 2 to drive around for less the the cost of the Corolla I learned to drive in.
That car is now some 50x the value of my Corolla.
Asset price inflation has been happening for some time around the world, we've just been stupid enough to funnel it mostly into housing and land, helped along the way by significant population pressure which we have foisted upon ourselves, without much democratic mandate or inquisition.
To be fair given it's a Renault you also would have spent about 50x on the cost of repairs, so you'd probably be just about breaking even. People who own Renaults are case in point that markets are highly irrational, and no organisation, no matter how big can control them.
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