Here's our summary of key economic events overnight with news that it appears Moscow is looking for a face-saving pivot to end its invasion, now claiming its real objective was to annex the Donbas region. The only problem is that while there were some gains there, the Ukrainians seem to be taking back territory there as well. Moscow's new much more limited strategy could be tough to pull off too now, after their big show of overall ineffectiveness.
Separately, it looks like the Chinese are pulling the plug on some large oil-sector investments with Russia.
If these turn out to be real turning points, then the economic focus will turn back to the inflation risks. In fact in the past few hours that may in fact be what is happening.
More broadly, the global bond market repricing got more momentum overnight in anticipation of a looming policy tightening cycle with major central banks seeking to tame inflation running at multi-year highs. The yield on US 10-year note hit 2.5%, the highest since May 2019, Germany's 10-year Bund yield, a benchmark for Europe, rose to as high as 0.56%, the highest since May 2018, while the French 10-year yield held above 1%. Here is a primer on what the bond market might be indicating.
Data from the US on Friday has been nothing to get excited about. Sentiment slipped, as measured by the respected University of Michigan survey, but is was a smaller slip than expected even though the overall level remains low.
The number of signed contracts to buy existing homes in the US declined by -4.1% in February, near a 2 year low, and surprising analysts who had expected it to rise by +1%.
Data from the Canadian economy continues to impress. They had an unexpectedly good manufacturing sales level in February, and it seemed broad-based.
Mexico raised its policy rate by +50 bps yesterday, now up at 6.50%. What makes this news is that the Mexican president talked about it hours before the official announcement, confirming there is little central bank independence there.
In Germany, business sentiment has taken a dive, but in the circumstances not a huge surprise. The fall is from a moderate level but as a one-month event it was bigger than at the start of the pandemic. Interestingly, 'current conditions' assessments didn't actually fall much, but companies in Germany are expecting tougher times ahead. However that is in the perspective of an earlier +3.7% growth expectation; now it could be as low as +2.2% - so still an expansion.
In China, bigger sales and higher prices are producing a bonanza for coal miners there. The coal price has more than doubled in 2022 so far, and they more than tripled in 2021. China is planning more coal output and more coal-fired power stations, at least through 2025. Beijing seems to be the green-washing capital of the world when it claims it is tackling climate change. The volumes involved are enormous and more than cancel out the rest of the world's climate reset attempts.
And staying with the commodity focus, the rise and rise of the lithium price is now so extreme that it is expected to weigh on demand for electric vehicles. Analysts now say that just to stay still cost-wise, EV car makers will have to raise prices by at least +15%, maybe as much as +25%.
For wheat supply, Russia is saying that contracted flows of supplies are running ok, but that new orders have virtually dried up on money transfer difficulties. The wheat price is staying very high, but not rising further.
In a useful review, ANZ has been reviewing how inflation is impacting Asian economies. Rising crude oil and food prices are taking a toll on these economies, most of whom have yet to fully recover from the pandemic. Price pressures are rising and current account positions will come under pressure. Asian economies will also need to navigate through potentially more aggressive tightening by the US Fed. Those that are commodity exporters are expected to handle the stresses better than commodity importers.
The UST 10yr yield opens today at 2.49% and a +14 bps burst in the past few hours. A week ago this rising rate was at 2.14% so it has been a major shift high since then. The UST 2-10 rate curve starts today a little flatter at +18 bps. Their 1-5 curve is however steeper at +90 bps. Their 30 day-10yr curve is very much steeper at +231 bps. The Australian ten year bond is up +11 bps at 2.88%. The China Govt ten year bond is -2 bps lower at 2.83%. And the New Zealand Govt ten year is also lower by -1 bp at just on 3.31% although the latest global moves haven't hit our market yet. And recall, a week ago the NZ Govt 10yr was at 3.19%, so there has been a big shift higher over this past week.
On Wall Street, the S&P500 is little-changed in Friday afternoon trade and is now +1.5% higher for the week so far. Overnight, European markets were mostly up +0.2% although Paris was flat. Yesterday, Tokyo ended up +0.1% on the day to cap an impressive weekly gain of +5.6%. However, Hong Kong fell -2.5% on Friday to end down -1.9% for the week. Shanghai ended down -1.2% on the day and -1.3% for the week. The ASX200 ended its Friday session up a minor +0.3% to be +1.5% ahead for the week. But the NZX50's +0.3% Friday gain didn't prevent a -1.0% loss for the week.
The price of gold starts today at US$1956/oz and down -US$7/oz from this time yesterday. A week ago gold was at US$1929/oz, so a +US$27 gain since then.
And oil prices are little-changed US$113/bbl in the US. And the international Brent price is still just on US$117/bbl. These prices are about +US$10/bbl higher than a week ago.
Meanwhile, the Americans have agreed to supply the EU with significant gas supplies in an attempt to reduce Europe's reliance on Russian energy. Russia currently supplies about 40% of the EU's gas needs and this deal will cut that to 30%. Internal reductions will get priority to minimise much of that. Germany says it is making real progress on that.
The Kiwi dollar will open today marginally firmer, now at just on 69.6 USc. A week ago it was at 69.1 USc. Against the Australian dollar we are softish at 92.6 AUc. Against the euro we are firm at 63.4 euro cents. Only against the tumbling Japanese yen are we gaining. That all means our TWI-5 starts today at just at 74.9 and now just on our four month high again.
The bitcoin price is up +0.8% from this time yesterday at US$44,290. A week ago it was at US$41,579 so is +6.5% higher than then. Volatility over the past 24 hours has been modest at +/- 2.7%.
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36 Comments
The Dneiper. That was a formidable barrier for the armies of both Napoleon & Hitler. Not so much in the advance eastwards, where pontoon bridging could be planned & prepared beforehand, but in the subsequent hasty headlong retreats, westwards. Thousands of casualties inflicted by the Russians on the banks of that river.
if I was Putin I would try and occupy everything to the east of the Dnieper and maybe 10km to the west, then stop. Leave west ukraine as a bargaining chip for later and appear "magnaminous" he didn't take the whole country. but then I'm no military strategist clearly...
Once Russia forces were repelled they retreated back to the areas around Irpin. Ukrainian forces surrounded them and that Russian units no longer exist.
If Russia is all about Donbas then things aren't going too well there as their ammunition dump exploded overnight. I'm sure Russian media won't report that and even if they did it will be a misplaced cigarette.
Maybe. I just can't wait till its over and we get passed this rubbish MSM reporting.
The Russians stated from the beginning that's the objective was the East. Authors like the above now saying that's a pull back? Like the Russians initially intended to occupy the entire country.
The only way to fully pacify the entire Ukraine land mass would be to flatten it total war style.
I don't think 99.9% of People here, including the author, have any real validation on what's going on there. I also suspect that all quotes on Russians & Ukraines killed etc are vastly over sold.
Also - China building a navy base in solomans is 100x more relevant to us in NZ vs what is essentially a civil war on The other side of the planet. And it barely gets reported.
Wrong. The objective was not the East. The objective was to roll the Ukrainian government and install a puppet state. They overestimated their own capabilities, underestimated the Ukrainian capability and will to resist, the amount of military hardware Ukrainian would receive from the rest of the world, the unprecedented unity the rest of the world would show in applying massive sanctions that targetted the ruling class. And they didn't bargain for the amazing social media and comms job Ukraine has pulled on Russia, led by the charismatic Ukrainian President. Putin's regime miscalculated almost everything and failed. Now they are backtracking and trying to save face as their internal politics rely on Putin being infallible.
Putin stated that all the Eastern Nato states had to demilitarise and he'd use military means (not excluding nukes)to get his way if they did not comply(so he could invade them more easily?)So Ukraine was supposed to be first.
He also said repeatedly that he would not invade or occupy Ukraine.
So he is an ambitious lying murderous egomaniac set on recreating the USSR or Greater Russia,headed by Vladimir The Great!
https://www.understandingwar.org/backgrounder/russian-offensive-campaig…
The Russian General Staff issued a fictitious report on the first month of the Russian invasion of Ukraine on March 25 claiming Russia’s primary objective is to capture the entirety of Donetsk and Luhansk oblasts.
Rudskoi’s assertion that securing the unoccupied portions of Donetsk and Luhansk Oblasts was always the main objective of Russia’s invasion is false. The Kremlin’s initial campaign aimed to conduct airborne and mechanized operations to seize Kyiv, Kharkiv, Odesa, and other major Ukrainian cities to force a change of government in Ukraine.[2] Rudskoi’s comments could indicate that Russia has scaled back its aims and would now be satisfied with controlling the entirety of Donetsk and Luhansk Oblasts, but that reading is likely inaccurate. Russian forces elsewhere in Ukraine have not stopped fighting and have not entirely stopped attempting to advance and seize more territory. They are also attacking and destroying Ukrainian towns and cities, conducting operations and committing war crimes that do not accord with the objectives Rudskoi claims Russia is pursuing
Its so hard to tell China's intentions. Whilst hearing the news about Russia Ukraine, a leaked document says there is a secret security pact between China and Solomon Islands.
Chinese Foreign Ministry spokesperson - quite often propaganda played over and over again. Even their version of Biden Xi talks is ..... a smokescreen.
WH Press Secretary- better source of news and information.
Maybe this is where the people, ie the govt. should be making regulations?
It's obvious the "market" can't solve these problems.
Should there be an environmental star rating like we have for energy and water usage on appliances, or like that on food products?
Should the market have a cradle to grave plan before they're allowed to sell their product?
Regulations don't seem to work unless there's enough weight to force compliance. Which leaves it up to the people to force the market with their $$. It's common knowledge that the palm oil industry is harmful, yet manufacturing continues and suppliers continue to stock the products. Yeah I don't have much hope either.
The UST 10yr yield opens today at 2.49% and a +14 bps burst in the past few hours.
Long-end Inversion *Does* Indicate Recession Risks Are Actually Elevated
What can we make of the fact the US Treasury yield curve inverted between the 7-year and 10-year maturities first? It only took a few more days for more of the curve to bend upside-down, yet that just means the whole middle part is where the bad vibes are congregated. Does this somehow disqualify what would otherwise be a clear message?
Policymakers like Federal Reserve Chairman Jay Powell would like you to believe it does.
Interest rate repression unwinding - unsecured creditors (depositors) will not doubt be seeking further moves in this direction.
Recent Bond sell-off has killed narrative of negative as the new normal: Only 8% of total govt bonds yielding negative, down from stunningly crazy peak of 40% in Sep2019. For global corps, this wk has seen % of neg debt dip below 0.1% for 1st time since Mar2020, DB has calculated Link
This is the phenomenon we study. Financial repression (FR) is defined in Box 1, while Table 1 describes a selection of policies that defined the FR era in the United States but are representative for other countries, advanced and emerging alike. There is considerable cross country variation in the extent of financial repression and the magnitude of the financial repression tax. When controlled nominal interest rates coupled with inflation produce negative real interest rates, it liquidates (reduces) the stock of outstanding debt; we refer to this as the liquidation effect. However, even in years when real interest rates are positive, to the extent that these are kept lower than they otherwise would be via interest rate ceilings, large scale official intervention, or other regulations and policies, there is a saving in interest expense to the government. These savings are sometimes referred to as the financial repression tax. Link
A sovereign can inflate away debt if the average interest rate on the debt falls below the growth in nominal GDP. (It doesn’t matter whether it’s volume growth or inflation driving GDP.) It's called covert default. Link
Moscow is looking for a face-saving pivot to end its invasion, now claiming its real objective was to annex the Donbas region. The only problem is that while there were some gains there, the Ukrainians seem to be taking back territory there as well. Moscow's new much more limited strategy could be tough to pull off too now, after their big show of overall ineffectiveness.
At this rate I anticipate Russia's victory over Ukraine will be so overwhelming that there will be no need to leave any Russian troops on Ukraine soil whatsoever and they can safely move their victorious army all the way back into Russia. That will show what a great leader President Putin is and how triumphant the war has been.
I read the other day that Ukraine now has more military vehicles than when they started the war, so frequently have they been captured or abandoned.
Great response from Russian newspapers: https://mobile.twitter.com/marcbennetts1/status/1507317719091318786?s=2…
I heard Turkey's Erdogan urge President Putin to "...become an architect of peace..." but there aren't any windows high enough to jump out of in an underground bunker.
“The magnitude of Russia’s actions will play out for decades to come and mark a turning point in the world order of geopolitics, macroeconomic trends, and capital markets.”
That was Larry Fink, CEO of BlackRock BLK, in his annual letter to shareholders that published Thursday. And in our call of the day, he closed the door on decades of global economies connecting.
“I remain a long-term believer in the benefits of globalization and the power of global capital markets,” said the head of the world’s biggest asset manager. “But the Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.”
Realistic, plausible comment by someone who should know. So a retraction from globalisation. How will each end of the stick fare then. Firstly the corporate billionaires and underlings, fortunes made from trading commodity one way and tonnes on tonnes of cheap finished product(s) back the other way. Secondly the consumer, the throwaway society, keen recipient of the benefit of that flow of cheap stuff from here to eternity.
This sort of aggregated corporate power was due to be dismantled by one means or another:
Combined, BlackRock, State Street and Vanguard are the largest owner in 88% of the S&P 500 companies, according to a paper published Tuesday by the American Economic Liberties Project, a group that launched in February taking aim at what it sees as excessive corporate power. For instance, the Big Three hold leading stakes in companies including Apple (AAPL), JPMorgan Chase (JPM) and Pfizer (PFE). Link
A source close to JPMorgan Chase and Co (JPM.N) CEO Chief Executive Officer Jamie Dimon said he was now predicting 12 to 15 rate hikes - or a cumulative 300 to 375 basis points - in this hiking cycle. That is an increase from the six or seven rate hikes Dimon predicted on the bank's January earnings call.
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