Here's our summary of key economic events overnight with news that so far the international economic implications of the eastern European war remain relatively limited given what is going on.
In Ukraine, the northern and eastern cities are still holding in truly heroic circumstances despite very heavy bombardment, Russian speaking Kharkiv in particular, but also in the Donbas region. However Russian forces are making 'progress' with their invasion in the south.
In the US, jobless claims fell to 194,700, a larger decrease than was expected. There are now 1.86 mln people on these benefits, the lowest number in more than 50 years. (The seasonally-adjusted statistical series has this level at under 1.5 mln people.)
Job cut data is now at its lowest level since that data was collected in 1993.
However, the ISM services PMI for the US fell for a third month to 56.5 in February from 59.9 in January, below market forecasts of 61. The reading pointed to the slowest growth in the services sector in a year, although still a good expansion and above their long-run average. The internationally-benchmarked Markit services PMI for the US recorded a bounce-back, but to the same level as the ISM one.
In their manufacturing sector, the factory durable goods order data for January was unexpectedly positive, and backing up the strong manufacturing PMIs we noted yesterday. Factory durable goods orders were up more than +16% from a year ago, and rose at an even faster rate in January from December (+1.6% m/m).
In China, they are set to kick off its annual “two sessions” of the National People’s Congress, the top legislative body, and the Chinese People’s Political Consultative Conference. Eyes are on the GDP target they set, expected to be 5.5% (and the lowest they have ever set).
The private Caixin services PMI in China came in lower than the official version, essentially recording a stall in their services sector in a retreat that wasn't expected.
Coal prices set another new record high yesterday, largely on Chinese demand
Hong Kong emigration is picking up. We had noted this trend staring a few months ago, but the pace is rising. In fact, Hong Kong Government data shows that more than 40,000 people upped sticks from the territory in the past two weeks, and analysts are now expecting Hong Kong's population to fall by 2-3% every month. If that goes on for a year, that will be shattering for this major financial center. Landlords of rental complexes face huge losses.
Taiwan has been hit with a massive power outage, affecting its two largest cities and much key manufacturing. The cause is not yet clear, but it should be noted that they have had things like this in the past and they were not related to hacking or national security failures.
In Turkey, consumer inflation is now running at more than +50% pa, and that's according to official data. That is a 20 year high. And apart from a brief dip in later 2021 when their crisis first hit, the Turkish lira is now at an all-time low.
Australia's merchandise trade surplus rose to almost AU$13 bln in January and near a record high again (the record was +AU$13.3 bln in July 2021). Their exports began 2022 on a strong note, as commodity prices found a second wind. The Russian invasion and resulting boycotts won't hurt Australia's trade performance.
But building consents retreated sharply in January in Australia. The total number of dwellings approved fell -28% in seasonally adjusted terms in January, following an almost +10% rise in December. Omicron is getting the blame for the sharpness of the retreat. Approvals for houses are the weakest, less so for multi unit dwellings.
The UST 10yr yield opens today at 1.85% and little-changed from this time yesterday. The UST 2-10 rate curve starts today flatter at +32 bps. Their 1-5 curve is unchanged at +68 bps and their 30 day-10yr curve is also flatter at +167 bps. The Australian ten year bond is up a marginal +2 bps at 2.16%. The China Govt ten year bond is up +1 bp at 2.86%. And the New Zealand Govt ten year is up +5 bps at 2.79%.
Wall Street opened its Thursday trading down -0.4% in ongoing afternoon trade. Overnight European markets were all -1.7% lower, except London which fell a rather hard -2.3%. Yesterday, Tokyo ended its Tuesday session up +0.7%, Hong Kong was up +0.6%, but Shanghai was down a minor -0.1%. The ASX200 ended up +0.5% but the NZX50 rose +1.0%. The Moscow exchange is still closed, for a fifth day.
The price of gold starts today at US$1929/oz and up +US$9/oz from this time yesterday.
And oil prices are higher again today and by +US$1.50/bbl level. In the US they are now just over US$108/bbl. The international price is just over US$111.50/bbl. But it has retreated as talk of a deal with Iran runs around markets.
The Kiwi dollar will open today at 67.9 USc and a small rise. Against the Australian dollar we are at 92.8 AUc and a -¼c slip. Against the euro we at 61.4 euro cents and almost a +½c rise. That means our TWI-5 starts today at just on 72.8 and a new 2022 high.
The bitcoin price is lower today, down -4.2% from this time yesterday to US$42,450. Volatility over the past 24 hours has been moderate at +/- 2.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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75 Comments
The CCP would have well realised even before 1999 that Hong Kong would not be able to continue, business as usual once they took control. A good percentage of citizens knew that too & left as soon as they could. Hong Kong is now being steadily emasculated and it will reach a point where it exists as a very well located & equipped port and and airport But the wonderful gaiety, vibrancy of cultures and sheer buzz and entertainment, sad to say, looks like being dragged into the swamp and submerged there for good. Used to go there once or twice a year in the 70/80s, always hoped to revisit, but almost unthinkable now.
Holy moly. What on earth do you think is going to happen to HK?
Do you all think Chinese culture in Guanzhou/Shanghai/Suzhou/Beijing has disappeared under the yoke of some oppressive government?
Ever gone to mainland China and see that it also has vibrant culture everywhere?
You do know Hong Kong was basically ruled by plutocrats, who create land use restrictions to enrich themselves, jacking up the price of apartments and forcing people to live in coffin homes? This despite there being huge tracts of undeveloped land (check out how undeveloped Lantau Island is if you want a good example). These same plutocrats are often very connected to much of the criminal underground. Scratch the surface and you will realise it is not exactly a brilliantly run place. The only thing that made it rich for years was it being a free trading port to China, enabling it to grow enormously, being the main port where goods flowed in/out of China. Now with other Chinese ports opened up its importance is much lower as is its economic growth.
For reference, I lived in Hong Kong for 6 months, travelled there frequently while living in mainland China. My close friends were reporters there for a number of years, they got to see the real Hong Kong, but had to move away about 10 years ago after uncovering corruption and running some anti-plutocrat stories and having their lives threatened. Sure it's a great place to visit, but so are many places right throughout Asia, including mainland China.
I can confirm that everything you said is factually true. I spent (for work reasons) several months in mainland China and in HK (for a total of almost 2 years). HK was far from being a democratic paradise as some commentators would like us to believe. Actually, in some areas it looked and it looks like an ultra-capitalist hell, with many just above the threshold of poverty and living in housing conditions that we westerners can't even believe could exist.
By the way, the growth in infrastructure development in some major cities in China is astonishing, and outpacing western countries by a huge factor. The vibrancy of cities like Qingdao, Shanghai or Hangzhou is something that is unmatched in the west. And actually I felt much, much safer there than in many US cities, for example.
It is fair to criticize the undemocratic character of Chinese institutions, but this should not blind us to reality.
Yeah, China has it's own problems, including corruption and the abolition of term limits recently by Xi. But the "anti commie" rhetoric that everyone spouts is mostly nonsense.
I know what you mean by the infrastructure. And that infrastructure sets the stage for much higher productivity in China's future. The lack of infrastructure building in the West and all the crappy reasons for it, is why we have much of our problems here and why our productivity has been going backwards. Just look at the HS2 project in the UK that will probably be delivered 20-30 years after its inception. There's something to be said for the future of a nation when a government has enough power and authority that it can actually build infrastructure required for the nations future, instead of being bogged down in decades of litigation and self harm idiocy that we see here and other Western countries. It's like I have said before: The 1000km high speed train line from Kunming to Vientiane the Chinese built has over 500km of tunnels and hundreds of bridges, it started in 2016 and is open. Transmission Gulley started in 2014 and has about 3 real bridges, no tunnels and is yet to open.
Do you know how "forced displacement" works in China? I have seen it first hand, as has my family.
Almost always, the government will offer you land elsewhere for free PLUS give you a new house, with equivalent sq meterage as your old house. It's not really a bad deal the majority of the time, you go from old broken down housing and infrastructure to new shiny houses with good infrastructure. Hilariously, when it comes up that your area will be redeveloped, the people with houses in those areas quickly add on extra story's onto their houses to increase the sq meterage! So you see these normal houses with these messed up "additions" on top that don't look safe at all, nor livable.
Once you are in a nice new city/village and equivalent sized new house, the government then uses your old land for the good of the country, putting down infrastructure, benefitting you economically.
You may also want to note that the public works act in NZ "gives the Crown power to acquire land from private landowners for public works". And many times in even recent history in NZ people have been forcibly (note the spelling) displaced. So we have similar laws here for forced displacement, only much more litigation that ends up wasting everyones time/energy etc.
Tough to know, wouldn't surprise me if it did though. As most of our new infrastructure happens on rural land, surely the government could just buy farms on the open market of a similar hectare size/farm type/production output? I guess they pay market rate for your land when they acquire your land (plus a bit more?) under the public works act, so you can go out and buy one yourself afterwards.
Wasn't exactly plain sailing for TG either: https://www.stuff.co.nz/national/crime/125227873/compensation-for-land-…
was basically ruled by plutocrats, who create land use restrictions to enrich themselves, jacking up the price of apartments and forcing people to live in coffin homes? This despite there being huge tracts of undeveloped land
Wait, are you talking about New Zealand or Hong Kong?
All of what you suggest is not inaccurate. But the Hong Kong then was hardly unique was it. All great cities, particularly hot tourist & trade spots, have that unseemly corrupt underworld long embedded. I made great friends amongst the Chinese traders, felt like family. Just about all left before 1999. Where Hong Kong was unique though was being a centre point a great junction, for the east meets the west, the history of that is well documented and it gave rise to its considerable aura. Whether right or wrong, better or worse, all I am saying, based only on what I hear from old contacts, Hong Kong is not what it used to be and from my personal point of view that is a pity. Obviously you consider Hong Kong has now been improved to a model all the better for your liking and that is just what it always is, everyone can have an opinion.
Agreed. Certainly as a financial market or hub, Tokyo, Taiwan, Seoul, Singapore all well placed and positioned to fill the void. I knew both cities well in the 70/80s and my work took me well into the less desirable parts of town. Both were more of less a city that was a country. In those days Singapore was already starting to introduce modernisation and shifting the population about. I have been back through there a few times since 2000 and it is markedly different, sanitised if you like, from thirty years earlier which in turn had changed from before WW2, the great port & supposed fortress. But Hong Kong I don’t think ever changed that much, apart from whatever modernisation was available globally, until 1999. I still have unwelcome visions of the worker who fell from the bamboo scaffold high above, to his death landing about 20ft in front of me just around the corner from Nathan Road.
Is any place the same as it used to be? The new Chinese model will have benefits and drawbacks, much like the old system. I imagine it won't be better or worse, just different.
It was obvious that HK was going to go through great change, being the door step to China and representing something like 20-25% of all Chinese GDP when it rejoined China. But a few years ago, thanks to Chinese growth, it was only 2-4% of Chinese GDP. And that's got very little to do with Hong Kong governance, but a lot to do with Chinese growth as China opened up to the world.
Essentially pining for old HK is pining for a world where China is a lot poorer and has a much more closed economy with only a couple of open ports, HK being the major one. As you likely new a few older expats, they all pine for the day when they had these high prestige/high paying jobs being the representative of their organisations Chinese operations or similar. They were essentially an "East meets West" middleman. Now, with Chinese education and opening up, they have just got rid of these middlemen.
Once the hard core Nazis in Ukraine, who control the govt, are defeated which is happening, Wiser heads can negotiate. Look back, Zelenskiy was elected on a Pro Peace platform.
Ref The Azov Brigades. Azov Battalion - Wikipedia Funded by the US Congress .
Really Audaxes? I linked to an ABC report yesterday where it is identified that the Azov brigade is less than 1000 soldiers in an army of around 250,000. Try to maintain some context.
As to the other comments by the others; who are the Nazis in Ukraine's Government? How many are there?
Perhaps you should check out the article Audaxes links to below? That journo embedded with the Azov brigade for a week and those Nazis don't think the Government is controlled by Nazis. Indeed they aspire to taking it over once the fighting against Russia is over. You're just spouting Putin's BS.
"Coal prices set another new record high yesterday, largely on Chinese demand"
What a trainsmash NZ ETS and net zero is. Screwing ourselves economically into the ground.
If that's not bad enough we have inflation to contend with which will be exacerbated by the Russian invasion of Ukraine.
Never mind we have Sleepy Joe at the wheel. (Trump would not have done any better). The EU trundling along over the last 10 years thinking the bear has no claws. Zelensky thinking he could take on Putin politically, not militarily and essentially mis-leading Ukranians. In general most govts in Western democracies are elected on home issues and they have pretty much a free hand in foreign affairs. This is my perception as to why Zelensky decided to take on Putin. Zelensky is still trying show he's an equal party.
Both Russia and Ukraine will suffer for a decade or more and Europe will be dragged down economically as well. I understand even the Der Groenen in Germany are shuffling their feet on coal and nuclear.
Oil and gas, boys, oil and gas...
https://razumkov.org.ua/uploads/article/374_black-sea-gas-resources.pdf
"Excluding Russia’s gas reserves in Asia, Ukraine today holds the second biggest known gas reserves in Europe. As of late 2019, known Ukrainian reserves amounted to 1.09 trillion cubic meters of natural gas, second only to Norway’s known resources of 1.53 trillion cubic meters.
Yet, these enormous reserves of energy remain largely untapped. Today, Ukraine has a low annual reserve usage rate of about 2 percent. Moreover, more active exploration may yield previously undiscovered gas fields, which would further increase the overall volume of Ukraine’s deposits."
No but read his latest piece on LinkedIn yesterday. It doesn’t fill me with confidence about the future 🙈
Its pretty much in alignment with his long debt cycle and the Strauss-Howe 4th Turning theories.
Basically the next 40years in his view are going to look very different to the last 40 years.
Yeah, the 4th turning and the long term debt cycle theories track for sure.
I come at this as a history geek and behavioural/evolutionary psychology geek. Both history and our more modern understanding of the human animal make a lot of non-sensical things make sense when considered with those contexts. Including economic behaviour. We are nowhere near as autonomous or objective in our thinking and behaviour as we like to believe (and I include myself in that!). The 4th turning and long term debt cycle are predictable when deeper behavioural psychological understand and scrutiny is applied.
Not that everything is predictable or knowable obvs. There are far too many variables for that. But overall trends (like turnings or big cycles) can be observed. The timing, the length, the degree, the intensity, those things are dependent on the contemporary circumstances, but the trend is still somewhat predictable, i believe.
I would say that modern tech and social media has sped up the turning and might amplify the intensity. Not sure where we are right now….maybe somewhere between the “unravelling” and the “crisis”? Potentially already in the crisis turning or headed rapidly into it?
This fellow must the the most pragmatic property investor / landlord I've ever read about. It is almost as if the professional ones understand how it works, and that is why they are the pros.
Mega landlord drops property price $100k and may sell at a loss as prices fall | Stuff.co.nz
BE QUICK ahahaha.
105b Kamahi Street, Stokes Valley was bought in April last year for $780k. The dude easily spent $50k on renovations such as new flooring, painting, balustrades for the deck etc. Listed it in October for offers over $900k but he only received one offer at low 8's. Came on to a Property Investment Facebook page crying out for help.
Ended up renting it out last month I think?
I remember this house being mentioned. Now they can enjoy some rental income with no interest deductibility and a yield fit for only the most astute investors. At least they don't have to worry about paying bright-line test tax to the pesky government, haha take that Taxinda!
Meanwhile the insanity to save the banks dressed up as helping fhb's continue -
"That’s a payment of up to $237,500 for the metro regions, and $150,000 in regional areas."
It is almost as if the professional ones understand how it works, and that is why they are the pros.
Market capitalization isn’t “wealth.” It’s the latest price, times shares outstanding. Blotches of ink on paper. Flashing pixels on a screen. If a dentist in Poughkeepsie buys a single share of Apple at a price that’s 10 cents higher than the previous trade, $1.6 billion in market capitalization emerges from thin air. If a single share trades 10 cents lower, $1.6 billion evaporates just as quickly. Whatever happens, every security in existence has to be held by someone until it is retired. Ultimately, the wealth inherent in a security is the future stream of cash flows it will deliver to its holder(s) over time. Price fluctuations don’t change those underlying cash flows. They just provide opportunities for the transfer of savings between investors. High valuations favor the sellers. Low valuations favor the buyers. Investors have never paid higher prices for those future cash flows, or accepted prospective returns so low.
Put simply, the bubble hasn’t changed the wealth, and a collapse won’t change the wealth. What will change is the market cap. I suspect that the erasure of market cap in the coming years, and possibly the coming quarters, may be brutal. Still, no forecasts are required, and our own attention will remain on observable valuations, market internals, and other factors. Meanwhile, even if an investor sells at these extremes, the only thing that will change is who holds the bag. Link
"How it works" is an interesting assertion. He's accepting he may have to 'make a loss' on a property that, if held as investment property, he was supposedly only hanging out for incidental gain on anyway. The real action was supposedly the cashflow generated as a rental for investors, after all... or are we now at the point where you can just say the quiet part loudly and not have to worry about the IRD having a poke around?
My respect to him. This is what real investors should do, acknowledge that you win some and you lose some from time to time, making decisions based on the situation. Not like other speculators, spread biased or false information around and denying the reality just to gain some quick and easy money for themselves.
Holy moly, good link. If he is saying it's looking like a sinking ship, it's not good! Could create a self fulfilling doom loop.
Prices probably need to drop around 40-60% to get back to reality. But even just losing the last COVID pump of 30% would be good, particularly if we can match that with some wage inflation.
“Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note, this may reshape geopolitics, economic management and even the international role of the U.S. dollar.”
https://www.wsj.com/articles/if-currency-reserves-arent-really-money-th…
This cluster-fk just keeps getting worse. This should be sending shudders through everyone’s nervous systems.
The U.S. has just sent a clear message to #China, sell all U.S. dollars and Treasuries ASAP. This will be a huge problem for the U.S., especially with the #Fed shrinking its balance sheet too. The U.S. bond market will crash taking the U.S. economy and stock market down with it!
The only way to avoid a bond market crash, and prop up the economy and the stock market, would be for the #Fed to abandon its plan to shrink its balance sheet and launch a new round of QE. That policy reversal will sink the dollar instead, sending #inflation soaring. Checkmate!
-Peter Schiff
https://twitter.com/peterschiff/status/1499451983974977546?s=21
Thanks Pacman and Rastus. Waymad posted a comment yesterday on Top Five that got me thinking. A few countries are trying to move away from having to use US$ for international trade, and with a reasonably large, non-western country excluded I wonder if the effect of the sanctions could cause problems for the US such as the value of the US$ dropping as it loses a lot of the demand?
I can’t believe this is not the topic of conversation today. This video gives a great summary of the implications Murray86
“The world collectively has about $15 trillion in official sovereign international reserves. Less than $2.5 trillion of that is gold, the rest is fiat, and the fiat portion can be frozen for that country by other countries. Even a sizable percentage of the gold portion is international-custodial, meaning that many countries let other countries hold it for them. The vast majority of sovereign reserves are permissioned assets, and thus aren't really sovereign.” - Lyn Alden
A gold-backed digital currency would still suffer the same counter-party and centralisation risks of fiat. Hopefully one day you’ll understand the use case of Bitcoin as a permission-less bearer asset and global network. It’s becoming clearer to see by the day.
Some pointed out that China could be Russia's backup on the economic front. Russia has learned from its experiences with sanctions and from other countries such as Iran. Try sanctioning China, the world's factory and the US' moneylender! China holds US$1 trillion in treasury bonds.
It (Russia) has increased its self-sufficiency over the years, so domestic food production and pharma industry development has gone up. It has plenty of space, raw materials and resources. If Russia is restricted by travel, there's always the arctic route which is opening up. China's new version of the Silk Road will also allow Russia to access other markets such as the central Asian and SE Asian markets.
Only issue is declining population... India and China, and surprisingly Israel have voted not to condemn Russia. Likely because Israel has lingering memories of Ukrainian atrocities during WW II which killed 1 million Jews (by German AND Ukrainian hands). India is a big customer of Russia (and vice versa) and so does not want to alienate Russia.
Oh yes, also among those who did not condemn Russia was the UAE and Saudi Arabia (!) who also declined to pump more oil to relieve oil price rises... It's a snub to the US who in turn snubbed the Saudis (by the Obama and Biden administrations), with the exception of Trump and Bush. What a crazy world!
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