Here's our summary of key economic events overnight with news that all bets are off following Russian military attacks on a large Ukrainian nuclear power station which they captured. No excessive damage resulted, but no economic news is remotely as important as the building disaster there.
But there is economic news, and it is our job to report it, so here goes. (And it is not as though it is minor.)
Global food prices rose sharply in February, up almost +4% in one month, up +24% in a year. This represents a new all-time high, exceeding the previous top of February 2011 by 3.1 points. The February rise was led by large increases in vegetable oils (+37%) and dairy prices (+25%). Cereals (+15%) and meat prices (+15%) were also up. And of course, the global stresses in March means this is just the start of extreme food price stress. Rising post-pandemic demand in the recovering first world, stable supply everywhere, plus new growing security and supply-chain uncertainties are all conspiring to drive food stress. These tensions will bring new 'security' stresses between nations.
The American economy added +678,000 jobs in February (seasonally adjusted), the most in seven months and way above market forecasts of +400,000. Job growth was widespread. (The actual rise was almost +1.5 mln from the prior month, but January is always seasonally low.) Their jobless rate fell to 3.8%, lower than expected. Their participation rate rose again, marginally. Average weekly earnings rose at +5.4%, and the fastest pace since March 2021. But markets glossed over this news in the face of the security issues in Europe. Still, this labour data will likely keep the Fed on track for a rate hike in two weeks.
US vehicle sales came in at just over 14 mln in February (annualised rate) and down sharply from the 15 mln rate in January. But supply issues are holding this back.
Brazil's economic growth was +1.6% in Q4-2021 and while expectations were low for this data, it is far lower than the +4.0% rise in Q3-2021.
Venezuela has all but given up fighting hyperinflation. But yesterday it increased the minimum wage by almost 300%, moving it from from NZ$0.93 to about NZ$3.50. That is not per hour, as you have probably assumed. That is per month! And in local currency the new monthly minimum wage is now 7 mln bolivars. Yes, 7 million of their currency is now worth NZ$3.50. That's hyperinflation.
In Japan, a major truck manufacturer says it has been faking emissions data for its products for years.
There are major policy meetings in China, but they are all overshadowed by the Russian invasion. At home they are about to set a growth target low, in fact the lowest one they have ever set, probably below 5%. This is recognition that their economy is floundering. They need it to improve because they have tens of millions of young people joining their jobs market all with high income hopes that will be difficult to accommodate. New aggressive stimulus is probably not far away. Certainly interest rate cuts are close now. The iron ore price is on the move higher again.
Hong Kong retail sales are languishing. December trade was revised lower, and the January year-on-year fain was weak, and on a weak base. January 2022 sales were a massive -30% lower than in January 2019.
Russia's currency is at a new record low, weakening again very sharply overnight. Until now, key Western policy makers have exempted oil from their sanctions. But this morning, we learn that Washington is moving to include Russian oil in the blockade. That won't help the ruble.
S&P cut Russia's rating to "CCC-" from "BB+", as default risk rose sharply again. Both Moody's and Fitch cut their ratings further. Explanation of ratings grade is here.
The Russian Parliament rushed through a new law punishing the spreading of “false information” about Russia’s armed forces with as much as 15 years in prison. Calling the Ukraine action a 'war' or an 'invasion' are now crimes.
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In most of the world, Russia is losing the information war over Ukraine. In China, though, it’s winning big. Beijing has thrown its hat in the ring on the Russian side.
For the World Bank, the Ukraine invasion is a global economic catastrophe. It is now no longer possible to get insurance for cargoes to or from Russia.
Meanwhile EU retail sales didn't bounce back as strongly in January as was expected, a worrying under-performance given what has come after this.
We have been highlighting sharp rises in many commodity prices recently, and coal hit another record high yesterday, as did aluminium. This seems to be a daily achievement recently and we are inured to these rises, even if we know that they are building to cause serious long-term global inflation. But missing from the list has been Dr Copper. Copper demand has for the past few years depended on Chinese infrastructure demand, and China's economy is off the boil so copper hasn't participated in the current commodity price frenzy - which has been good, because it is already expensive and used widely. But today that all changed. Copper prices zoomed higher overnight to hit a new record high of US$10,820/tonne. Supply concerns rather than demand pressures are behind this jump.
Readers of our rural pages will have noted that local carbon prices have been retreating recently. They ended the week down at NZ$78.50, a -10% drop in a week. In China, their carbon market barely functions. The EU carbon price has fallen even more sharply, down -30% in a week to €66/tonne (NZ$105/tonne). The whole thing seems weird, given the record demand and prices for fossil fuels, and it calls into question whether these carbon market prices are giving useful climate signals. Given the dive in the EU price, holders of the NZUs may be facing steep losses next week. Carbon market prices are responding to 'normal' financial market signals, and not IPCC data.
The UST 10yr yield opens today at 1.72% and down -13 bps from this time yesterday. A week ago it was at 1.99% but risk aversion has taken hold since. (But recall, at the start of 2022 it was at just 1.52%.) The UST 2-10 rate curve starts today even flatter at +26 bps. Their 1-5 curve is flatter at +62 bps and their 30 day-10yr curve is also much flatter at +156 bps. The Australian ten year bond is down -2 bps at 2.14%. The China Govt ten year bond is down -1 bp at 2.85%. And the New Zealand Govt ten year is unchanged at 2.79%. We should also note that while New Zealand benchmark Government bond yields are flat or soft, wholesale swap rates are still rising, and key ones are back up to 2016 levels now.
Wall Street's Friday trade is now down -0.6% on the S&P500 index, in ongoing afternoon trade, and heading for a relatively minor -0.4% dip for the week. Overnight European markets all crashed between -3.5% and -5%. For the week, London is down -6.7%, Paris is down -8.4% and Frankfurt is down -8.2%. Yesterday, Tokyo ended its Friday session down -2.2% and taking its weekly retreat to -1.8%. Hong Kong was down -2.5% yesterday and ended its week down -4.0%. Shanghai was down a full -1.0% yesterday but ended its week with only a minor -0.1% loss. The ASX200 ended up -0.6% lower yesterday but that capped a +1.6% weekly gain. The NZX50 also fell -0.6% on the day but ended its week with a stellar +1.8% rise. (The Moscow exchange is still closed, for a sixth day.)
The price of gold starts today at US$1962 and up +US$33/oz from this time yesterday. That is a weekly rise of +US$78/oz or +4.2%. At the start of 2022 this price was US$1814/oz, so it is up +8.2%. (It is beating bitcoin handily at present for its 2022 price performance.)
And oil prices are higher again today and by +US$2/bbl level. In the US they are now just over US$110/bbl. The international price is just over US$113.50/bbl. A week ago the international price was US$93.50/bbl and that seemed high. At the start of the year is was just under US$80/bbl. The climb since has been +40%.
The Kiwi dollar will open today sharply higher at 68.6 USc and a +¾c rise. Against the Australian dollar we are at 93 AUc and firming. Against the euro we at 62.8 euro cents and almost a +1½c rise. That means our TWI-5 starts today at just on 73.6 and its highest since late November. If sustained, this will mitigate some of the imported tradables inflationary pressure. Not a lot, but some.
The bitcoin price is lower today, down another -3.7% from this time yesterday to US$40,871. For the week it is up +4.2%; Year to date it is down -13%. Volatility over the past 24 hours has been moderate at +/- 2.8%. China’s central bank said the country’s share of global bitcoin trading has been slashed to 10% from the peak of more than 90% before Beijing's crackdown.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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120 Comments
The world took itself to the edge, Putin is merely a symptom.
And energy underwrites money (how often do we have to say this) so 'oil prices' is an oxymoron. Energy-demand is the all of it - and we have been fighting over energy as far back as WW2 - arguably earlier. Without energy, nothing happens. Without energy, you are dead.
Too many people, not enough physical resources, not enough remaining energy.
In the short term, more people are going to become frighteningly aware of the Haber–Bosch process and how modern industrial farming is the process of using land to turn fossil fuel into food.
NZ along with the EU are restricting the use of nitrogen fertiliser. Currently 50% of global food production would not exist without synthetic nitrogen fertiliser. It's a crazy situation with the price already at all time highs and Russia which produces 30% of the worlds amonium nitrate set to ban exports in response to sanctions.
I did see this the other day, a fossil fuel free way of making nitrate
Bollocks - and try removing the emotion (pessimism, optimism - physics is emotion-ambivalent).
Modern agriculture is the process of turning many fossil energy calories, into few food energy calories. That is all it does. And the fossil energy is finite. You going to run combines and tractors on renewables? No, you are not.
The current way of life - resource-depletion, energy-squandering - is indeed doomed. And it may well be that we are so overshot, ecologically, that our population does indeed crash (the only alternatives being pandemic(s), and war(s).
We are capable of something different, something more sustainable. I call that better, but I suspect you are convoluting ' better' with ' continued progress'. The l;atter is unattainable.
Today, less than 8% of gold demand is for industrial uses. The remainder is for jewellery, investment and central banks.
Modern computer chips manufactured after 1998 have very little gold content in them. They mostly use nickel-plated copper.
Today, a typical CPU package is no longer made with connector pins, but instead they use thinly gold-plated contact pads which are used to socket the CPU to a motherboard. The gold plating is less than one nanometre (one-billionth of a meter) thick.
More common these days is CPU packages that use lead-free solder bump connections on the underside that permanently interconnect the chip to the motherboard by thermally joining them together at the manufacture (as is the case in many of today's mobile devices such as laptop computers, tablets, and smartphones, which require the CPU to have the lowest profile height possible.)
Don't think it will stop there if this continues. $4 seems harsh, how about $7 a litre or $10?
We should have been de-carbonising for the past couple of decades through a massive drive by governments, to find the resources we need (lithium etc), investing in huge recycling old vehicles for new for our transportation needs and taxing the hell out of fossil fuels to fund it. So many of us (not to mention the IPCC from the other side) have been screaming for it, yet governments have just taken the lazy way out, deciding to double down on fossil fuels because it's short term easy. Once again, humanities lack of planning and short term economic thinking has set us on a path to disaster.
Elected governments reflect the views of populace.
If any government had tried to reduce our dependency on fossil fuels you could guarantee there would have been political parties attacking the government and promising the voters that they'd continue the status quo.
What you state is true, but it is indicative of a leadership vacuum as well. Real leaders outline a vision, sell the population on a better future and execute said vision. Sadly we have turned into a bunch of vacuous, short term, entitled know-it-alls who care little for the future, pretending we do, but not really. Anything that is worth doing usually takes time and is hard, instead we just want everything to be easy so continually take that route. This is almost exclusively how all plant and animal life acts on this planet, it's an energy/effort equation, maximum rewards in the shortest possible time. Which shows humans haven't really evolved past the animal instinct phase, despite pretending to have done so.
The personal maxims I tend to gravitate towards is "doing things right for the future, no matter how hard it is to do now" and "if it's easy to do, it's usually wrong", clearly not shared by most members of society and definitely not by leaders of this country for the past few decades.
Just like the govt allowing the oil refinery to shut, it did the same with Pacific Steel where car bodies and other steel things were melted down into reinforcing rod and fencing wire. Recycling. Nowdays that scrap is sent overseas. This govt knows nothing about industry. And short term thinking (who should we give a handout to next?....) prevails.
Russia commences what amounts to a civil war with one of its former territories and the world goes into convulsions and the aftermath does not look like being any smoother. However Putin may win, not only will he not have made Russia stronger, he will have made it considerably weaker, and the nation was hardly in great shape beforehand anyway. The balance of power will thus be materially altered and things that are out of balance, inevitably fall over. If 2022 is looking turbulent for the world, then Russia will be way out in the front of that and the resultant instability and unpredictability will be quite threatening methinks.
Hmmmm....
Judo is about deception and using the opponent’s strength against him. Putin, the judoka, has judoed the West into suicide. Put your money in our banks, we can confiscate it; put your assets in our territory, we can steal them; use our money and we can cancel it; put your yacht in our harbour, we can pirate it; put your gold in our vault, we can grab it. That is a lesson that will resound around the world. A naked illustration that the “rules-based international order” is simply that we make the rules and order you to obey them. In 2 or 3 weeks everybody in the world who is on the potential Western hit list will have moved his assets out of the reach of the West. Xi will permit himself a small smile. Link
It’s a long time since I completed my amateur study of Russia 20th century history. Cannot revisit my books because a broken water pipe in the EQs here put paid to them and many others. What sticks with me though is the fear inherent to the Tsars and their successors, of the people, the mass uprising that for instance started percolating in 1905. Stalin dealt with it using terror as a weapon and death as a solution and then WW2 the great patriotic rallying cry. Russia is now coming out of the terrible winter they have. This will help but if the people become hungry & sick that will in my opinion pose a threat to Putin greater internally, than any external threat. Leaders are always potentially blameworthy, anywhere any time. If life in Russia becomes dire for let’s say the hoi polloi, and if that forms into a concerted view that the venture into Ukraine is the cause? Well that will be interesting.
Leaders are always potentially blameworthy, anywhere any time. If life in Russia becomes dire for let’s say the hoi polloi, and if that forms into a concerted view that the venture into Ukraine is the cause? Well that will be interesting.
Taiwan is another example :
Taiwan's per capita GDP has exceeded $30,000, but the actual feelings of the residents on the island are quite different from what the figure is supposed to embody. Taiwan has suffered serious water, electricity, land, labor and talent shortages, and the people on the island have been plagued by high-speed rail failures and serious fire incidents caused by aging infrastructure, huge deficit in social welfare, and rapidly rising prices. Now even the basic livelihood materials are often in short supply, and eggs and toilet papers could become the targets of panic buying. In sharp contrast, Shanghai has a population roughly the same size as that of Taiwan with a per capita GDP of $25,000. Although Shanghai's figure is slightly lower than Taiwan's, it's unimaginable that Shanghai will be hit by shortages of supplies, power outages and water cuts that are similar to what Taiwan has repeatedly suffered. Link
Undoubtedly wheels within wheels wherever you care to glance. Hard to imagine the majority of the population of Taiwan casting covetous eyes at Shanghai as a counterpart. Certainly not on historical, social or philosophical grounds. Would be interesting though to consider the spending on a per head ratio that Taiwan has embarked on in recent years for the defence of their Island. Whatever is published I would suggest be an understatement. Goes to show just how pervasive and negative the ready threat of war can be to any society.
You make a good point. Is comparing Taiwan to Shanghai similar to comparing Northland with Auckland? In North Shore I've experienced shortages of supplies, power outages and water cuts but never to any significant impact on my lifestyle - it is different outside a major city.
Define "win" please.
It seems to me he will almost certainly not be able to install any stable puppet government in the Ukraine and I'm increasingly doubtful that the Russian army will be able to control all of the Ukraine geographically. The Russian advance is stalling in the North and, in the South, they'll be stretching resources ever thinner and becoming more vulnerable if they continue to advance. This can't drag on for years either, they'll probably run out of money within six months.
Win will mean completing the objectives, de-nazification, de-militarise, secure the Donbass regions independence. I think it's well underway but I have no idea how they will denazify as the Ukraine has consistently opposed UN resolutions prohibiting the glorification of Nazis.
Truth is the first casualty of war, and it's prudent to be very sceptical.
Ironic? Ukraine starved into submission by soviet Russia under Stalin. The arrival of the Nazis must have been seen as a liberation. The enemy of my enemy, and all that. This slaughter and planned occupation is sure to win the love for Russia back. p.s. Russia under Putin is developing its own Nazi like tendencies, like it's open sanctioning of violence against the rainbow community.
It's a a clusterfook.
Listened to a really good Kim Hill interview with a Canadian historian who specializes in Ukrsine. It was really objective and fair, he unpicked what has been happening there over the last 15 years.
The conclusion he reaches is that while Ukraine hasn't been perfect, fundamentally this is an imperial wet dream for Putin. Which we all know. But his analysis was superb.
Yes so he will take Kiev, and put inna puppet regieme. And then yes it's going to be impossible to control the country with insurgency.
Btw, the historian doesn't think Putin has plans beyond Ukraine.
I'm not so sure they'll capture Kyiv.
From what I can see the Russian army where poorly prepared for war. For example:
They are abandoning armoured fighting and multi-million dollar air defence vehicles because they don't have fuel and the tyres/seals have dry rotted from sitting too long.
Many Russian soldiers appear to be defecting, often without a fight, and many having not eaten in a week. It appears the conscripted grunts where issued ration packs that where several years passed their used-by date. Most thought they where on military exercise for a few weeks and had no idea there would be an invasion.
They have now lost three senior military commanders in the first week. It appears they are desperate to try to get some inertia going as the invasion stalls and are prepared to put senior brass in the line of fire.
Armoured vehicles are sitting ducks in cities and the Ukrainians are using their TB2 UAVs very effectively to mop up armour in the open as the Russian air force cannot provide total air superiority.
Mostly thought the Russians don't have the numerical advantage or time to effectively employ the tactics they did in Chechnya or Syria of bombing cities into submission.
I'm expecting a years long battle of attrition that gradually de-escalates, finally settling down with a much smaller impoverished Ukraine remaining, possibly with no sea ports.
I saw an estimate that you need 10+ soldiers per 1000 people to hold a hostile territory. That would be half a million of Russian military tied up.
I can't see Putin backing down, but also think it will be too costly for him to take all of Ukraine.
I thought that initially, the army and militia would become an insurgency, but my view has changed. The losses being sustained by Russia are likely too high. In nine years in Afghanistan the USSR lost 14,500 men before they gave up. The Russians are saying they are losing 100 men per day and the Ukrainians say Russians are losing ten times that, the truth might be in between but even so the loss rate is far too high for the Russians to persist for years. Nor do they have the financial means to continue for more than six months based on estimates I've read.
Time is not on their side in this war. Every day is costing them and the fact the largest advances have stalled indicates that retreat or outright defeat are increasingly probable outcomes.
Interesting scenario. Will the Russians commit to hold territory in a truce when clearly they'll face a motivated, well armed insurgency to hold strips of what is mostly farmland? I'm thinking there wouldn't be any strategic advantage for Russia but there would be a high cost.
Russia invaded Ukraine with 200k troops, half a tank of gas, four (4) sandwiches and promises of being home in time for dinner. Ukraine bravely defended with it's own army of 200k troops. As expected the Russian advance ground to halt due to lack of fuel and many of them surrendered. After this initial loss, outnumbered with no fuel Russians began dying at exactly 2,500 deaths per day, normal combat casualties are 5-7 wounded for every death and after nine (9) days heroic defense by Ukraine 22,500 Russians have died, wounded troops number between 110,000 and 160,000 though given the high numbers it may be some time before we can count them all.
The few remaining Russians who have not yet succumbed to starvation or Ukrainian drones have formed a 80km long freedom convoy in effort to block Ukraine roads. Some tanks have managed to steal enough fuel from hardworking honest Ukrainians and have been seen heading towards bridges where a special surprise is waiting for them as the clever Ukrainians blow up the bridge and send tank after tank into the icy depths.
Having defeated most of the Russian army (apart from those in wheelchairs and crutches) Ukraine is now faced with a monumental clean up, but the innovative and resourceful Ukrainians have a solution. They have mobalised a special battalion of garbage trucks to take out the Russian trash and deployed them at key intersections in Kiev.
In a bold display of power Ukraine has sunk it's own battleship in order to provide a much needed diving resort in Odessa where every brave hero of Ukraine will enjoy a well earned holiday.
Meanwhile Joe Biden has sniffed Zelensky and found him good, promising US$10B in prize money which Zelensky has promised a portion will be used to buy the entire Russian economy and convert it into an outdoor recreation zone for people and bears to enjoy.
The Ukrainians are boosting their anti-aircraft inventory. For some reason Germany kept 2700 East German Strella shoulder launch anti-aircraft missiles in a warehouse that they are sending and will also send 500 more modern Stingers. Flying low anywhere over the Ukraine will be very dangerous and inhospitable soon. This is on top of the aircraft delivered (all types the UAF already operate) to replace those lost early in the war. That said the operational capability of the Russian air force is already questionable.
I was actually surprised, with the modernisation programs adopted by the Russian armed forces I thought they'd have performed better but I can't argue with what we are actually seeing.
Personally have concluded that whatever “news” is broadcast from the West is likely to be as inaccurate, in terms of the actual reality, as the counterpart from the East. This is not novel, propaganda has always reigned over the truth, ever since warfare first started to be recorded. But today there is though all the electronic communications available and at play. That now at this stage of proceedings, seems to me to pose it being a question of whether Russia had planned and expected only a short duration before Ukraine resistance collapsed or if they always knew they would need to amount their attacking in increasing phases. Suggest the next few days will determine that.
I agree that news from the west is probably no more reliable than Russian state media. There is a difference in motivation - the Russians and Chinese news will be dictated by those in authority whereas the western news media will be full of stories built from tenuous and dubious facts because journalists in a free world are unemployed if they say the truth which is that they haven't a clue what is happening.
The German government officially annouced it the other day:
https://www.nytimes.com/2022/03/02/world/europe/nato-weapons-ukraine-ru…
Thanks for the link, I have read it in full, it's interesting but it doesn't back your claims such as:
- Kiev might not be taken
- The Russian military is abandoning some it's armoured vehicles and anti aircraft missiles
- Russian soldiers are defecting
- Russia has lost 3 high ranked officers
- Russian soldiers have not eaten for a week
Did you just make that up?
Well first he got the signal that their would be no boots on the ground from the USA so that was the green light to invade. he held off on full scale air attacks and now he has been given the green light for full on air assault because NATO are not going for a no fly zone over Ukraine. Its now just a matter of time before they take the whole country. For some reason people think wars now are supposed to take a week, this is going to take months, maybe even a year. Russia now just needs to cut off ammunition resupply to Ukraine.
I'm not following this war but I wonder if stalling the advance is deliberate. In the history of mankind this is just about the first war where almost the entire population can be driven into exile and the winners take over. Nearest example may be the Palestinians. When most people work on the land they tend to stay put but when almost every family has a car and lives in a city it is possible.
""Russia commences what amounts to a civil war with one of its former territories "" - that sets a precedent for England to invade Ireland or even New Zealand but I doubt England's army matches the Red Army. On the other hand the EU would have the right to reconquer the UK.
hardly a precedent. civil in the context as intended, was expressing Russian fighting Russian, in that any Ukrainian over the age of thirty was once a Russian & vice versa, within the nation as it existed then. Perhaps should have described it then, from Putin’s perspective at least, as putting down a longstanding rebellion?
The Irish before independence were just citizens of the UK i.e. British. Many Irish fought in WW1 and they spoke the same language and to the best of my knowledge they had little in the way of home rule as per modern Scotland. Did/do Ukrainians speak Russian? I think unlike the Irish they have religion in common.
Guess it depends how far back you want to go. If you look at the map of Europe 1914 everything was whole lot different in terms of borders. Ukraine consisted of several sub cultures or territories such as Ruthenia. During WW1 when the Germans had the Bolsheviks over a barrel, Ukraine was briefly ceded to Germany and may have stayed that way if in the end Germany had been able to negotiate a truce, rather than suffer the great defeat. Ukraine is territory like Poland historically full of upheaval. Even Genghis Khan’s lot had a grip on it for a while. Have been to Ireland a few times and agree English is the dominant language and likewise note that there are something like 4 mill Ukranians working & living in Russia, so imagine all of those are not getting by speaking Ukranian. Interesting comment about the Irish in WW1 fighting for Britain. zThey were vilified and penalised on return. But even so, during WW2 there was a staggering amount of Irish volunteer soldiers & sailors (70,000 or so) serving. Military pay and food was better even despite being shot at.
ps. post WW2 quite a number of Nazis found willing refuge in Ireland. The notorious Otto Skorzeny for example. Perhaps Britain should have “rooted them out” as Putin is seeing as being necessary now? Sort of ironic that.
If this is true, then China are not even remotely neutral and are busy conditioning their people to support war against the West.
https://www.nytimes.com/2022/03/04/business/china-russia-ukraine-disinf…
Currency valuations are not that different to asset valuations. Furthermore, Russia has virtually nil foreign currency denominated debt, given the worth of the country in terms of potentially productive resources - some have valued them at ~$222 trillion..
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
The UST 10yr yield opens today at 1.72% and down -13 bps from this time yesterday. A week ago it was at 1.99% but risk aversion has taken hold since. (But recall, at the start of 2022 it was at just 1.52%.) The UST 2-10 rate curve starts today even flatter at +26 bps.
Curves pricing recession:
The Rate Hikers Are Not Serious People
Before she ascended to the Chairmanship, Vice Chairman Yellen in April 2013 spilled the beans:
The crucial insight of that research was that what happens to the federal funds rate today or over the six weeks until the next FOMC meeting is relatively unimportant. What is important is the public’s expectation of how the FOMC will use the federal funds rate to influence economic conditions over the next few years.
In case she wasn’t being absolutely clear, she follows the above with this beauty:
Let’s pause here and note what this moment represented. For the first time, the Committee was using communication–mere words–as its primary monetary policy tool. Until then, it was probably common to think of communication about future policy as something that supplemented the setting of the federal funds rate. In this case, communication was an independent and effective tool for influencing the economy. The FOMC had journeyed from ‘never explain’ to a point where sometimes the explanation is the policy. [emphasis in original transcript]
And still to this day the public thinks QE is money printing.
[On rising commodities]
This seems to be a daily achievement recently and we are inured to these rises, even if we know that they are building to cause serious long-term global inflation.
If you look back over the last 10 to 20 years non-tradable inflation increased at least twice the rate of tradable inflation. In fact over the last few years this has become more acute. It was clear that at some point we'd have to take measures to quell non-tradable if tradable inflation returned.
We enjoyed a good run but that point in time has arrived when we must fight non-tradable inflation again by deflating costs in areas like rental housing, utilities, prepared food etc. while reducing imports. Much of that will be achieved through tighter credit conditions.
Edit to add:
Until then, inflation to the moon!
Exactly:
First a reminder of the definition of ‘tradables’ versus ‘non-tradables’.
Tradables are items that can be traded internationally, for which the prices in New Zealand are determined by international prices. Many physical products fit in this category unless they have a very short life. Accordingly, steel, aluminium, meat, butter, cheese, computers and pharmaceuticals are in this category.
In contrast, non-tradables are items that are not easily traded across international borders. Many services are in this category. Restaurant services are one example. Keith Woodford
Done, I muddled my own thoughts.
Tradables: Goods and services that are imported or are in competition with foreign goods in domestic or foreign markets.
Non-tradables: Goods and services that face no foreign competition.
Source:
https://www.nzae.org.nz/wp-content/uploads/2014/05/Tradable_non_tradabl…
While FRA-OIS exploded to 80bps in March 2020, at the peak of the covid crash, and is currently at just half that level, never before has funding stress been so high with a Fed balance sheet near $9 trillion and with some $1.6 trillion in the Fed's overnight reverse repo facility (i.e., excess liquidity).
In other words, when adjusted for the statutory level of record liquidity in the market, which we don't need to tell readers is at an all time high, the FRA-OIS would almost certainly be at all time highs.
Whatever the reasons, a blow out in FRA/OIS means that dollar funding is becoming increasingly problematic, and absent a sharp tightening in the Libor-OIS and FRA-OIS spread, while bank credit concerns may not have been the catalyst for the sharp spike, it will be banks that are eventually impacted by what is increasingly emerging as an acute tightening in short-term funding markets and/or a global dollar shortage. And in another indication that the FRA-OIS is indeed spiking in response to an ominous global dollar shortage - just the outcome Pozsar warned about and one which shouldn't be happening when factoring in the record endogenous market liquidity - we find that the average cross-currency basis swap is tumbling. This global liquidity proxy tends to shrink any time there is prevailing dollar tightness in the market. Link
This is a little more nuanced:
https://www.aljazeera.com/opinions/2022/3/4/china-can-help-end-the-war-…
“China & Russia are strategic partners but not allies” that is the bottom line. An already stretched Russia is not going to emerge from this venture with any increased strength. Quite the opposite. Their military will be wounded severely in terms of both personnel & equipment; reputation diminished substantially. They will then have a large ruined and rebellious territory to the west and the greater part of the world considering the nation and people as pariahs. So in the context of the above bottom line I can only see President Xi as grinning like the proverbial Cheshire Cat.
'A willing supplier of energy' Yes
'A depowered West' - wrong, in fact a more motivated West
'Greater influence on World Finances' - wrong, the west was already decoupling from China, this war will accelerate that. China's financial.power will diminish. China will be strongly tainted by association.
China think they are smarter than they actually are.
China tainted bu association?....quite possibly but will we still sell them our milk products? and will europe and the US still use them to manufacture their goods?
And should China be so shunned by the west how long do you think it may take to reconfigure those western economies and how do you think thier (voting/rioting?) constituents will view the associated costs and impositions?
This has been in the making for years ..and the west have blindly stumbled into it.
Remains to be seen if correct, and even if so how long before it takes effect, but Russia has gifted China a solution to their expansionary ambitions, westwards that is. Just for instance, Mongolia has been experiencing ever increasing direction from Beijing towards developing more appreciation of Chinese “influences.” Now or soon, with Russia well occupied elsewhere, would be an appropriate time for China to reconnect Mongolia to China. After all they were one as far back as the 12/13th century Yuan Dynasty and up until 1911 when Mongolia, similarly to Ukraine from Russia, declared themselves to be independent. In fact Russia right now has created something of a precedent for them in that regard. As such could hardly argue then, even if they could in any way that was meaningful.
This article also heavily suggests that China is on Russia’s side and has been working at this with Russia for some time https://www.nytimes.com/2022/03/04/business/china-russia-ukraine-disinf…
To me too it reeks of a grand plan hatched between these two. Yet it is Putin & Russia sticking their neck out. You have to think that China has nothing to lose. If Russia prevails plan A is good. If not then a considerably weaker Russia, more dependent on China, leaves China even stronger. Said it before, the old Punch cartoon, the organ grinder playing the tune, and the monkey on the chain doing the dancing.
How much damage will sanctions do to Russia? by Sergei Aleksashenko, former deputy minister of finance of Russia
The Russian people are split. (According to Aljazeera reporting). Russia can sell to China. Then who do China sell to?
Where are Russia and China going to find trading partners to replace the ones lost? Who is going to replace the West?
China is specialised in manufacturing to sell things to the West, they were planning to continue doing that, until they were rich enough to pay other poorer countries to manufacture, and raise up their own population to become a service based economy, with high tech and intellectual property (but they are most certainly not there yet).
The west (if forced to withdraw from China as its main manufacturer), will have some very expensive years, while it moves to new manufacturing locations. Some amount of de-globalisation was already occurring and some supply chains were already localising because of the weaknesses that Covid exposed. But undoubtedly, there is going to be some economic hardship globally.
I'm in broad agreement with you.
One of the main developments here is that the Germans have woken up. They are realising that they are one country (Poland) away from doom and that they are financing the agent of their potential destruction. So the trajectory from here is a switch from Russian oil and gas to any other fuel. Where Germany goes the rest of Europe will have to follow.
The West (Europe and North America) are where surplus aggregate demand remains. Russia and China are too poor or too tight to be able to achieve a higher standard of living without exports. Russia's exports are energy, grain and metals. If the West cuts them off then China is the one who will have to buy their oil and metals, and China just won't pay what the West have paid in the past.
I think Putin has either taken bad advice or had some not so good ideas himself. The land bridge idea between Donetsk and Crimea was logical and probably would have worked with some cosmetic sanctions from the West. Bombing every town and city in Ukraine along with nearly setting a nuclear reactor ablaze is not logical, rather the actions of an idiot. The Germans are looking at the situation and thinking we can't actually work with this.
Even if the oligarchs can persuade Putin to pull the convoys back from the north and stick with the land bridge idea, the long term damage to Russian interests has probably been done. The next steps will be for the West to insist that any Chinese exports to Europe or North America not contain any Russian metals or energy so the prices China pays Russia for it's products will be internal Chinese consumption prices.
If there was an intelligent person anywhere in the Putin circle they would be talking damage limitation but I think that unlike 2014 this time the sea change has occurred.
I wonder how long it will be before our own bunch of geniuses wakes up. The reversal of the Marsden Point Refinery dismantling should be an obvious first step. I fear that the force of the neoliberal mindset is strong and New Zealand will have to really be in the cac before the govt moves a muscle in the right direction.
Germany 1945? But today phones are cameras, instant videos worldwide instantaneously. If this is true, then it will be exposed & broadcast swiftly. And if so the world, the United Nations, cannot remain passive. But more than anything else, let’s just hope this is retaliatory propaganda, nothing more.
You’re assuming they are being raped in pubic in front of camera’s? And as far as I am aware, despite women world wide having camera’s they are not usually able to film being raped and there is not widespread footage of rape.
However, there are multiple reports from several news outlets. I believe it was reported by the Ukrainian foreign minister.
there are always witnesses. there is disinformation flying everywhere as to be expected. supposedly Putin is about to put all of Russia under martial law for instance. things are escalating, things are flying off the wheel, war and surrounds are incubators of confusion.
Kyiv and Kharkiv will likely be bombed out of existence. Very little to return to. Refugees in Poland and other nearby countries will create huge problems, socially and economically. Russia will hang onto parts of Ukraine and to all intense purposes the remaining will cease to operate in any meaningful sense without massive aid from the EU/USA. Ukraine up to a few years ago was much on a par in the corruption stakes as Russia. A fair amount of aid is likely to be diverted elsewhere.
Zelensky and his cabinet have a lot to answer for. I suspect he was also conned by EU/Nato/USA about aid.
A good brief historical article by an NZ Uni professor with ties to both Ukraine and Russia.
https://www.newsroom.co.nz/ideasroom/history-shows-us-there-will-be-no-winners-in-ukraine
For an idea on how the Russian Army operates this book will open your eyes. One Soldier's War In Chechnya by Arkady Babchenko. No propaganda here. Quite the reverse.
I too, think Zelensky has been conned by the US.
Reading though twitter I found a video of Lindsey Graham and John McCain promising to support a Ukraine victory of Russia. Is this a known deep fake or something? (who cares if the date is wrong)
I can't see how the US (or more specifically the "Deep State") is not driving force behind the war. Maybe Putin and Zelensky had chances to avoid war and chose conflict instead but this connects enough dots to lay the blame on the US as the aggressor in this proxy war.
It was the US idea and they put the wheels in motion. What do you think you are seeing in that video?
Do you think Russia and Cuba were morally right in the missile crisis? Any nukes Ukraine obtained could only be pointed in one direction.
Look at Zelensky dragging this out so he can repeated try to drag the US or Europe into WW3. No one is innocent here. We don't have enough good information to assign blame.
There is absolutely no doubt Putin alone is to blame.
He invaded a country that was in no way threatening him. There is no excuse for that kind of behavior.
There was no chance of Ukraine joining NATO in the next decade, let alone getting NATO missiles, let alone NATO nukes.
Parts of the US govt wanted them in and Ukraine would have said yes(and they were doing excises together). Europe holding firm saying no is outside of Russia's control. Maybe it was feasible to monitor NATO intelligence to make sure Europe would always block entry, we don't know. Rules can be manipulated with enough support.
If there was no chance why not guarantee it for 10 years? (Germany kind of got there but was non committal.) It's not just NATO membership, do you think this war would have happened now if the US had stayed out of Ukrainian politics ( wtf is Hillary and the others from both sides of Russiagate doing back in 2012 ). Maybe they just wanted to use Ukraine to contain Russia but this is hardly not hostile.
What do you believe is happening in that video? Two senior US senators (one who has recently suggested assassinating Putin) went over to Ukraine to talk to army saying "your fight is our fight". They knew they were being recorded and Russia would have known these kinds of meeting were happening.
The US are terrible at this kind of proxy war regime change stuff at the moment, I would think the plan blew up in their faces (like Libya or Afghanistan). Europe refusing to be dragged into this was probably part of it.
Audaxes has presented many motives for this war but I think this is mostly a continuation of "Deep State" regime change and proxy wars with a Cold War twist (the instigators never suffer any consequences). US politicians have had an unreasonable amount of involvement in the governance of Ukraine for least a decade. Of course this war does not benefit the US population.
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